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Operator: Greetings, and welcome to the Main Street Capital First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Zach Vaughan. You may begin. Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's First Quarter 2026 Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investment Group. . Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results. This document is available on the Investor Relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 15. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's home page. Please note that information reported on this call speaks only as of today, May 8, 2026, and therefore, you are advised that any time sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may or similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income, or DNII, and DNII before taxes. The NII is net investment income, or NII, as determined in accordance with U.S. generally accepted accounting principles or GAAP, excluding the impact of noncash compensation expenses. The NII before taxes is NII as determined in accordance with GAAP, excluding the impact of noncash compensation expenses and any tax expenses included in NII. Management believes that presenting DNII and DNII before taxes and the related per share amounts is useful and appropriate supplemental disclosure for analyzing Main Street Capital Corporation's financial performance since noncash compensation expenses do not result in a net cash impact to Main Street upon settlement. And tax expenses included in NII may include excise tax expense which is not solely attributable to NII and deferred taxes, which are not payable in the current period. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value or NAV and return on equity, or ROE. NAV has defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by the average quarterly NAV. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to Main Street's CEO, Dwayne Hyzak. Dwayne Hyzak: Thanks, Zack. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone is doing well. On today's call, we will provide our key quarterly updates, after which we'll be happy to take your questions. We are pleased with our performance in the first quarter particularly given the backdrop of significant economic and geopolitical uncertainties, which resulted in DNII before taxes per share, in line with our expectations and our guidance and strong investment activity in our [indiscernible] market investment strategy, following our very strong investment activity in the fourth quarter of 2025, resulting in significant growth of our lower middle market investment portfolio over the last 2 quarters. We believe these results continue to demonstrate the sustainable strength of our overall platform. The benefits of our differentiated and diversified investment strategies may continue strength and quality of our portfolio companies, particularly our lower middle market portfolio companies. We're also pleased that we further strengthened our capital structure since the beginning of the year. despite the challenging environment, which Ryan will discuss in more detail. Given our strong liquidity position and conservative leverage profile, we're very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we're excited about the current opportunities we are seeing. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure, will allow us to continue to deliver superior results for our shareholders in the future. Our favorable DNII before taxes for the first quarter and net realized gains over the last 2 quarters, combined with our outlook for the second quarter resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the accretive impact of our equity issuances and the impact of a net fair value increase in our lower middle market investment portfolio, partially offset by net fair value decreases in our private loan investment portfolio and our asset management business, which Ryan will discuss in more detail. Continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of favorable dividend income contributions and net fair value appreciation in our lower middle market equity investments. Based upon our current views of these investments, and feedback from our portfolio company management teams, we expect these favorable contributions to continue. We're also pleased to have exited our investments in a high-performing lower middle market portfolio company, KBK Industries in the first quarter resulting in a material realized gain in addition to the significant dividends received over the life of our equity investment. We continue to see significant interest from potential buyers in several of our lower middle market portfolio companies which we expect to lead to favorable realizations over the next few quarters and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. We're also excited about the new and follow-on investments we made in our lower middle market strategy during the quarter, which included investments in 3 new portfolio companies and follow-on investments in 5 high-performing portfolio companies to support strategic acquisitions, resulting in a net increase in lower middle market investments of $157 million. Our private loan investment activity in the quarter was slower than our expected normal quarterly activity primarily due to lower overall levels of private equity industry investment activity, resulting in a net increase in private loan investments of $37 million. David will discuss our investment activity in more detail. We also continue to produce positive results in our asset management business. The funds we advised through our external investment manager continued to experience favorable performance in the first quarter, resulting in a meaningful incentive fee income for our asset management business, and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage, and we're optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund and about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager, which is solely focused on the private loan investment strategy with respect to new portfolio company investments. The result of the increase to its regulatory debt capacity, which became effective at the end of January 2026. The fund maintained significant capacity to add additional debt to fund future growth of its investment portfolio. [indiscernible] the Income Fund's First Quarter 2026 Financial Results Conference Call will be held later this morning for those who would like additional details. Based upon our results for the first quarter, combined with our favorable outlook for the second quarter, earlier this week, our Board declared a supplemental dividend of $0.30 per share payable in June, representing our 19th consecutive quarterly supplemental dividend and an increase to our regular monthly dividends for the third quarter of 2026 to $0.265 per share. These third quarter regular monthly dividends represent a 3.9% increase from the regular monthly dividends paid in the third quarter of 2025. Supplemental dividend for June as a result of our favorable level of DNII before taxes in the first quarter and our net realized gains over the last 2 quarters will result in total supplemental dividend paid during the trailing 12-month period of $1.20 per share representing an additional 39% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our Board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains, and we maintain a stable to positive NAV in future quarters. Based upon our expectations for continued favorable performance in the second quarter, We currently anticipate proposing an additional significant supplemental dividend payable in September 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide highly flexible and customized financing solutions to lower middle market companies and their owners and management teams together with our differentiated long-term to permanent holding periods, represents an even more attractive solution to the needs of many lower middle market companies, and we're excited about our expectations for continued growth of our lower middle market investment portfolio. Similarly, in our private loan investment strategy, we are seeing an improved lending environment and significant opportunities, which we believe position us well to capitalize on new private loan investment opportunities and to generate growth for our private loan investment portfolio and our asset management business. And as of today, I'd characterize our private loan investment pipeline as average. With that, I will turn the call over to David. David Magdol: Thanks, Dane, and good morning, everyone. As Dwayne highlighted in his remarks, we believe that our first quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach and our unique operating model. We are pleased to report that the overall operating performance for our portfolio companies continues to be positive, which contributed to our favorable first quarter financial results. . Despite the continued heightened level of uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current environment. Each quarter, we try to highlight a key aspect of our differentiated investment strategy. This quarter, we'd like to revisit reasons why we believe that our structure as a publicly traded company with the significant benefits of permanent capital is a great match within our -- within our lower middle market strategy. First, we believe that our permanent capital structure allows us to be the ideal long-term deperminent partner for the owner operators and management teams of privately held businesses. One of the challenges for a typical institutional investor in private equity is that they cannot provide a long-term partnership solution for business owners or their management teams due to the finite life of their investment funds. Our permanent capital structure and long-term to permanent lower middle market investment strategy provides us with the flexibility to provide significantly more beneficial long-term structural considerations as opposed to relying slowly on price as the competitive advantage. As a result, we believe our flexibility results in highly attractive customized investment structures that other investors simply cannot provide. In addition, our ability to be a long-term deperminent partner in the companies we invest in allows the owners of these businesses and their management teams the ability to maintain the identity and independence of their companies while also pursuing the best long-term strategy to achieve attractive outcomes for all of their company stakeholders. Second, our long-term holding period also result in a diversified portfolio of investments in more mature companies that typically have lower relative leverage profile since they use free cash flow from operations to deleverage over time. As our company's deleverage, we work proactively with our portfolio company executives and individual equity owners to decide how they can continue to generate the best returns for the equity owners of these businesses. This tends to create 3 attractive opportunities through which our high-performing lower middle market portfolio companies can create value. The opportunity to thoughtfully execute on internal and external growth initiatives to achieve long-term equity capital appreciation, continued deleveraging from internally generated cash flow to achieve equity appreciation and the opportunity to pay significant dividends to shareholders of the business. We often see our portfolio of companies take advantage of several of these value-creating opportunities. Given our unique strategy, we are well aligned with our portfolio company operating partners to evaluate and pursue the best alternatives to create shareholder value since we share the benefits of equity ownership with them. Alternatively, should one of our portfolio companies face difficult industry headwinds or economic conditions or other challenges since they have lower relative leverage profiles and the benefits of a long-term institutional partner, they tend to be well positioned to either work through any negative economic cycles as they arise and pursue acquisitions when valuations are most attractive. Either way, our lower middle market portfolio companies have the added benefit of a highly aligned partner in Main Street to help them work through potentially challenging times. Our lower middle market portfolio currently includes 48 companies that have been in our portfolio for greater than 5 years, including 21 that have been in our portfolio for more than a decade. We are excited about our partnerships with these lower middle market companies and the future opportunities they represent. The first quarter of 2026 represented another attractive period for add-on investments for our lower middle market companies whereby we supported 5 of our portfolio companies with additional capital for growth initiatives. [indiscernible] Main Street's strong capital availability, long-term investment horizon and ability to provide both debt and equity capital to our portfolio of companies. we are well situated to move quickly to support our portfolio of companies, not only on the initial transaction but also when they identify growth initiatives. Today, the environment for add-on acquisitions by our portfolio companies remain strong, and we welcome the opportunity to make incremental investments in our high-performing lower middle market portfolio companies. Both these situations, Main Street is pleased to provide most, if not all, of the cash needs for our portfolio companies to complete their highly strategic acquisitions. These acquisitions provide our portfolio companies, their owner operators, and their management teams, the opportunities to benefit from the significant equity value creation opportunities produced through combined economies of scale, cross-selling opportunities and other synergies that are expected to result from add-on acquisitions. We welcome the opportunity to support our lower middle market portfolio companies as they seek to invest incremental capital in support of both internal and external growth initiatives, and we believe our seasoned lower middle market portfolio will continue to provide attractive follow-on investments investment opportunities in the future. Now turning to the composition of our investment portfolio. As of March 31, we continue to maintain a highly diversified portfolio with investments in 189 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 4.5% of our total investment income for the trailing 12-month period and 3.4% of our total investment portfolio at fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our lower middle market investment activity in the first quarter included total investments of approximately $206 million including total investments of $105 million in 3 new lower middle market portfolio companies, which, after aggregate investment activity resulted in a net increase in our lower middle market portfolio of $157 million. In our private loan strategy, we completed $149 million in total private loan investments, which after aggregate investment activity resulted in a net increase in our private loan portfolio of $37 million. At the end of the first quarter, our lower middle market portfolio included investments in 93 companies representing $3.2 billion of fair value, which was 25% above our related cost basis. and our private loan portfolio included investments in 85 companies, representing $2 billion of fair value. Total investment portfolio at fair value at quarter end was 115% of the related cost basis. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I will turn the call over to Ryan to cover our financial results, capital structure and liquidity position. Ryan Nelson: Thank you, David. To echo Dwayne and David's comments, we are pleased with our operating results for the first quarter, given the current environment. Our total investment income for the first quarter was $140.1 million increasing by $3.1 million or 2.2% over the first quarter of 2025 and decreasing by $5.4 million or 3.7% from the fourth quarter of 2025. Interest income increased by $7.3 million from a year ago and by $2.5 million from the fourth quarter of 2025. The increases from prior year and fourth quarter were principally attributable to the impact of higher levels of income-producing debt investments partially offset by a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and a negative impact from investments on nonaccrual status. . Dividend income decreased by $7.8 million when compared to a year ago after a $700,000 increase in unusual or nonrecurring dividends and decreased by $7.7 million from the fourth quarter, including a $3.5 million decrease in unusual or nonrecurring dividends. The decreases in dividend income for both comparable periods are primarily a result of the performance of our lower middle market companies and their capital allocation decisions relative to prior periods and the decrease in nonrecurring dividends. Fee income increased by $3.6 million from a year ago and decreased by $300,000 from the fourth quarter. The increase in fee income from prior year is primarily due to higher closing fees on new and follow-on investments and an increase in fee income from the refinancing and prepayment of debt investments and other investment activity. Fee income considered nonrecurring increased by $1 million from a year ago and by $500,000 from the fourth quarter of 2025. The first quarter included income considered less consistent or nonrecurring in nature primarily related to accelerated fee income and dividends from our equity investments, which totaled $4.1 million. These income items were $1.7 million or $0.02 per share higher than the first quarter of 2025, $3.5 million or $0.04 per share lower than the fourth quarter and $1.5 million or $0.02 per share lower than the prior 4 quarter average. These decreases were primarily due to lower nonrecurring dividends from our lower middle market portfolio companies. Our operating expenses increased by $5 million over the first quarter of 2025 and by $800,000 from the fourth quarter. The increase in operating expenses from the prior year was largely driven by increases in interest expense, cash compensation-related expenses and deferred compensation expense. The increase in interest expense from a year ago was primarily driven by an increase in average borrowings to fund the growth of our investment portfolio, partially offset by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in benchmark index interest rates and decreases in the applicable margin rates resulting from the amendments of the -- of our credit facilities in April 2025 and a decrease in the weighted average interest rate on our unsecured debt obligations resulting from early repayment of the 2025 notes and the issuance of the August 2028 notes. The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets was 1.3% for the quarter on an annualized basis and the trailing -- in the trailing 12-month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.3 million to our net investment income during the first quarter representing an increase of $500,000 from the same quarter a year ago and a decrease of $900,000 from the fourth quarter. Our external investment manager earned gross incentive fees of $4 million during the first quarter and waived $1 million in incentive fees from MSC Income fund, resulting in net incentive fees of $3 million. This net result represents an increase of $300,000 in net incentive fees from prior year and a decrease of $1.2 million compared to the fourth quarter of 2025. Our external investment manager ended the quarter with total assets under management of $1.8 billion. During the quarter, we recorded net fair value depreciation, including net unrealized depreciation and net realized gains on the investment portfolio of $32.6 million. This decrease was primarily driven by net fair value depreciation in our private loan investment portfolio, our external investment manager and our middle market investment portfolio, partially offset by net fair value appreciation in our lower middle market investment portfolio. The net fair value depreciation in our private loan portfolio was primarily driven by the depreciation on a specific portfolio company and increases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers partially offset by an increase in valuation multiples for private transaction, both of which we use as benchmarks for valuation purposes and increased fee income. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance of certain of our portfolio companies. We recognized net realized gains of $18 million in the quarter. Additional details on our net realized fair value activity are included in the press release that we issued yesterday. We ended the first quarter with investments on nonaccrual status, comprising approximately 1.2% of the total investment portfolio at fair value and approximately 4% at cost. Net asset value, or NAV, increased by $0.13 per share over the fourth quarter and by $1.43 per share or 4.5% when compared to a year ago, to a record NAV per share of $33.46 at quarter end. Our regulatory debt-to-equity leverage calculated as total debt, excluding our SBIC debentures, divided by NAV and was 0.71x and our regulatory asset coverage ratio was 2.41x, and these ratios continue to be more conservative than our long-term target range of 0.8 to 0.9x and 2.25 to 2.1x, respectively. We continue to be active this quarter on capital activities, aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity. These activities included an expansion of the total commitments under our corporate facility by $30 million to $1.175 billion in February, the issuance of an additional $200 million of our unsecured investment-grade notes maturing in March 2029, resulting in an effective yield of 6.2% on such issuance and the issuance in April of $150 million of private placement unsecured notes maturing in April 2031 with an interest rate of 6.93%. We were also active in our at-the-market or ATM program, raising net proceeds of $134.1 million from equity issuances, given the significant increase in our net lower middle market investment activity over the last several quarters. After giving effect to the capital activities in the first quarter of 2026 and the recent issuance of private placement unsecured notes, we entered the second quarter with strong liquidity, including cash and unused capacity under our credit credit facilities totaling approximately $1.4 billion with a near-term debt maturity of $500 million in July 2026. We continue to believe that our conservative leverage, strong liquidity and continued access to capital are significant strengths that have proven to benefit us historically and have us well positioned for the future, allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Coming back to our operating results. DNII before taxes per share for the quarter of $1.04, was $0.03 per share lower than the first quarter of last year and $0.07 per share lower than the fourth quarter. Looking forward, we expect second quarter of 2026 DNII before taxes of at least $1 per share with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions. Operator: [Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James. Robert Dodd: On the the dividend income from the -- there was a bit of decline in relatively big decline in nonrecurring dividends, which obviously, they're not recurring. But is there anything thematic behind that? I mean, obviously, there's a lot of volatility and uncertainty out in the economy, et cetera, and we've seen in some instances in the past when that picks up your portfolio of companies retain a bit more cash. So I mean, is that kind of a driver and you expect that kind of extra dividend income to be moderate in the near term? Or was that just like a one-off thing in the quarter? Dwayne Hyzak: And Robin, I would say on the the nonrecurring side, those would be items that are either tied to an exit of an investment. Obviously, if we sell a business and historically, had dividend income and there's dividend income in the quarter that we exit, that's going to be called out as nonrecurring. The other would be if there were some transaction, some type of a large distribution that happened in 1 quarter, and that company had not historically paid dividends. We would call that out as well. I'd say the the activity between Q4 and Q1 was more related to exits. I think we've talked about the fact we've had a couple of really attractive exits were those exits have been companies that have been in the portfolio for a long time, had delevered. We're paying significant dividends or distributions and those dividends or distributions obviously go away with that exit. So we like the exit because it is attractive from a value standpoint. We think it proves out the long-term value of our lower middle market strategy, but it does come with the the negative kind of consequence of losing the dividend income of those companies that they have paid historically. More broadly, I do think, to your point, there is and has been more uncertainty in the market broadly. So I think our companies in times like this, they do tend to become more conservative from a capital allocation standpoint. So I think if you look at the total dividend income number, both Q1 versus Q4 and then Q1 versus prior year Q1, there would be some impact from those capital allocation decisions as well would be a combination of both of those Robert Dodd: Got it. Got it. And then is it also -- the comment, I think there was a few waiver of the incentive fees from [indiscernible], obviously, from the acts a difficult for that. But is that I mean should we expect that to continue in the near term in terms of our main being extra supportive of the performance of AMS in terms of fee waivers. Dwayne Hyzak: Sure, Robin. I'd say on the fee waiver for the incentive fee, I think it's going to be based upon what happens in that quarter. So there's no pre-agreed upon expectation or agreement there. We're going to look at what happens in each quarter and then make a decision on whether or not, we think it makes sense to provide that fee waiver. Obviously, in the first quarter, we provided that. And to your point, it was about $1 million of the fee waiver that came through to the benefit of MSC Income Fund and obviously, to the detriment of the Asset Management business on the Main Street side. Robert Dodd: Got it. Got it. And then just more generally, obviously, I mean I think the private loan you characterized this average. It has been slower in terms of activity through much of last year because you thought the pricing was unreasonably low. All the indications we're hearing in the market that pricing maybe is moving higher. So is there a prospect where the private loan activity could ramp up the average for Q2, but is there a prospect we could ramp up more if M&A picks up and the pricing may be turning more attractive? Dwayne Hyzak: Robert. I'll give a couple of comments, and I'll let Nick add on or clarify. What I would say is that could happen, but it all comes down to the overall private equity industry activities. And I'd say in the current period where there is some uncertainty. The big question mark is what does private equity do? How aggressive will they be from a deployment of capital standpoint. But if they are active, if they are aggressive, I do think the current environment from a pricing and just general structure terms and conditions, it is favorable. I think we've talked about our pricing range broadly being in the 500 to 600 range from a spread standpoint. I'd say we probably think it's still in that range. within that range, we have probably trended to the bottom end of that range over the last year. So that may have improved a little bit, but I think it remains to be seen how much activity there is over the next kind of 1 or 2 or 3 quarters and then what that does to pricing. But Nick, feel free to add on there. Nicholas Meserve: I think Dwayne nailed it. I think the one thing I would add would I'd say over the last 12 months, we probably lost a few more deals just on straight pricing, where we went lower than we were comfortable with. And I think that dynamic hopefully has changed in the current period and hopefully 6 of us the rest of the year. Operator: Your next question comes from the line of Brian McKenna from Citizens. Brian Mckenna: Great. So just Quick question on unrealized markdowns in the quarter. It seems like the majority of that was from marking your asset manager given the decline in valuations for the public alts. But was there anything else meaningful within that just in terms of the other drivers? And then if you're -- it might be tough to answer this, but if you were to mark-to-market portfolio in these assets to reflect some of the quarter-to-date recovery, how much of the first quarter markdowns would be reversed? Dwayne Hyzak: Sure, Brian. Thanks for the question. I would say a couple of things. From a fair value standpoint, I'd say it was a mixed bag this quarter. The lower middle market continue to have significant appreciation. You probably saw that in the earnings release, but it will also be more detailed in the 10-Q, but we had just under $30 million of depreciation in the quarter. . On the flip side of that, you hit on the asset management business. It was a fairly significant amount of depreciation, and that was purely based upon the peer evaluations we use as part of the valuation inputs for that valuation process. And then you also had private loan was down by a significant amount, about $36 million of depreciation. And I would say, -- that was a mix of one specific name that had significant depreciation and then kind of a mixed bag across the rest of the portfolio, both kind of underlying performance and just movement in the marketplace from a spread standpoint. Brian Mckenna: Okay. That's helpful. And then kind of going back to capital and liquidity. I mean, you've raised a decent amount of capital year-to-date. I think that's a great example of just the underlying strength of the balance sheet, the business and really your access to both the debt and equity capital markets and [indiscernible]. So you raised feel like you're million of new debt capital. You also raised some equity capital to the ATM. And I heard the commentary on the pipeline today is average, but it seems like you're in a pretty strong position to lean in from a deployment perspective, but how should we think about the pace of originations and really net portfolio growth over the next few quarters? Dwayne Hyzak: Sure, Brian. So to your comments there, we had been very active on the lower middle market side, both Q4 and Q1. I think we're still seeing good opportunities, and we expect to continue to see good opportunities as we move forward, particularly given the current state of the economy, we think our market strategy and offerings are always very attractive. We think they should become even more attractive in this type of environment, and that's what we've seen over the last 20 years. So we would expect that to be the case. When you look at our capital activities related to lower middle market, I think you've heard us say this in the past, but when we're issuing equity, it's really tied to us growing our lower middle market portfolio. So we've grown the portfolio significantly in Q4 and Q1. So we were planning to catch up a little bit on the equity issuance to to support that lower middle market growth. On the debt capital side, I would say our activities were more in anticipation of the July maturity we have. So we've got a $500 million maturity in July. So we were building liquidity and capital structure flexibility to make sure that we cannot only address that maturity, but also have significant dry powder to continue to grow because we do think, as you heard us say in our comments and as I said earlier, we do expect to have good opportunities on the [indiscernible] market side. And we -- as we said here today, we expect to have good opportunities on the private credit side, but that will largely be dictated by the overall marketplace. But we do expect to have good opportunities, and we're trying to make sure we're positioned from a capital standpoint to act on that. Operator: Okay. Got it. And then one more, if I may. When you look across your portfolio, what percent of your lower middle market investments will directly or indirectly benefit from everything going on in and around AI and digital infrastructure. And I ask that because it does feel like the old economy is coming back in a big way here, and I suspect many of the businesses you're invested in are set to benefit pretty meaningfully from all of this. So I'm just trying to gauge how big of an impact we could see from all this over the next several years? And what that ultimately means for shareholder value creation. Dwayne Hyzak: Sure, Brian. I think to your point, if you look at our lower middle market portfolio, and I'd say also our private credit portfolio, we're value-based investors. We're old economy-based investors. We do have some limited technology software, but it's admittedly a small part of our portfolio. So most of our businesses are pretty kind of basic kind of traditional industries and companies. So when we look at AI, I would say all of our companies are looking at it. It's something that we emphasize as part of our President's meeting each year. We did it in our most recent meeting back in October, and we'll continue to emphasize it going forward in that venue, but also as our portfolio management teams, our portfolio managers on our side are speaking with portfolio companies on an ongoing basis, whether it's in board meetings or just other periodic catch-ups, AI and what they're doing there is a consistent [indiscernible] conversation. . That being said, I think we don't expect it to be a huge game changer. We think it will be beneficial, but I think it remains to be seen how beneficial it will be long term. happy to let David add on any additional comments he has. David Magdol: I think Dwayne covered it. The only thing I'd add is that we do have some companies that are kind of more infrastructure oriented on what would be building infrastructure related to AI that should benefit as well. So we'll see some benefit across the portfolio that we think is incremental. We'll continue to appreciate over time. Operator: Your next question comes from the line of Arren Cyganovich with Truth Securities. . Arren Cyganovich: I'd like to talk a little bit about credit quality. We've seen across the BDCs that we cover a bit kind of weakening, I'd say, over the past couple of quarters. What are you seeing from your portfolio companies? And are there any particular vintages of originations that might be underperforming? Dwayne Hyzak: Sure, Aaron. Thanks for the question. I'd say when we've seen weakness, I would say, been more specific company weakness as opposed to anything that's more broad across the portfolio. or the economy. The 1 thing that I might add, which is something we may have said in prior quarters, and we've seen it continue to evolve in the more recent periods is you are seeing more bifurcation between the companies that are doing really well versus companies that are not doing as well. I think we've continued to see that bifurcation. So despite some of the uncertainty in the economy, there are certain companies that are just absolutely crushing it. So you're seeing more of that. But you're also seeing on the flip side, if something is underperforming, you're probably seeing more pressure on that underperformance. Those would be the comments I would make. But David or Nick, if you guys have something else to add, but we add on. David Magdol: Just specific to your comment on the vintages on the lower middle market side, our partners that we're transacting with are transacting for personal reasons that exist in all sorts of periods of time, whether it's a prolific or more challenging economic environment. they're looking at succession planning or what have you? So we don't really see a major impact relative to vintage in that side of our portfolio, which is obviously the majority of our business. Jason Beauvais: On the [indiscernible] the only thing I would add would be deals that were done in '21, '22 with -- in a lower rate environment, they survived to the higher rates, but you are starting to see if they are struggling, the longer term with those higher rates and the siting of off of cash flow is more to interest versus CapEx is harming those businesses, and I think we're seeing that kind of buildup over time the past 2, 3 years of higher interest rates. Operator: Your next question comes from the line of Sean Paul Adams with B. Riley Securities. Sean-Paul Adams: You've got a long track record of NAV appreciation from those realized gains on those equity exits. What's your gauge on kind of the tempo of upcoming equity exits given just the general frothiness in the market. Dwayne Hyzak: Thanks for your question. Thanks for joining us this morning. We -- with a large portfolio, today, we've got, I think it's 93 portfolio companies, a significant portion of which have been in our portfolio for a long period of time and have performed. I would say those companies consistently would get interest from third parties. A lot of it kind of unsolicited inbound interest that either sparks a transaction through that process or at least sparks our management team partners and our equity partners in those businesses to consider an exit. So we have been and continue to have a number of our companies that are in different stages of looking at an exit. And we think that over the balance of the next couple of quarters, we should see 1 or more exits. And when those exits happen, we think that they tend to be good outcomes, both for us and for our management team, partners, the other equity owners and management team members of those companies. So I'd say nothing has changed today. We haven't seen anything that has been elevated, but we also continue to see some activities across the portfolio that we think will lead to good outcomes if there is an exit. But David, if you want to add anything, [indiscernible] add on there. Operator: Your last question comes from the line of Kenneth Lee with RBC Capital Markets. Kenneth Lee: Just one on leverage. Just want to get a latest updated view on where you think leverage could trend? I think previously you said you could take a little bit more of a conservative view, but just given the pipeline that you're seeing as well as the macro backdrop. Just wanted to get your latest piece there. . Unknown Executive: Thanks for the question, Ken. Just to remind you, the -- our leverage target from a regulatory basis is 0.8 to 0.9x. -- currently, as we sit today, we're at 0.71x, which is consistent with where we were at the end of the quarter. You could see us move closer to our target range, depending on where we are or where we end up from a net origination standpoint. But as we've messaged in the past, we're comfortable being kind of at the conservative end of that target range. Dwayne Hyzak: I mean, one thing I would add. I think you've heard us say this in the past, but just make sure it's kind of on top of people's minds. I think we value capital flexibility and liquidity more than pushing up leverage and trying to eke out some economic returns through that process. I know that not everybody has that view, but that's always been a view that has served us well over the last 20 years, and we would expect to continue to maintain that. So that's the only other thing I would add. I think as the operator said, that was our last question of the day, so we greatly appreciate everybody for joining us this morning, and we look forward to catching up again in August after our second quarter earnings release. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning. My name is Rocco and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Dauch Corporation First Quarter 2026 Earnings 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 period. As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim. David Lim: Hey. Thanks, Rocco. Thank you, and good morning, everyone. I'd like to welcome everyone who is joining us on Dauch Corporation's first quarter earnings call. Earlier this morning, we released our 2026 earnings announcement. You can access this announcement on the Investor Relations page of our website, www.dalc.com, through the PR Newswire services. You can also find supplemental slides for this conference call on the investor page of our website as well. A replay of this call will be available through May 15, 2026. Before we begin, I'd like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements that are subject to risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. Additional information, we strong marks the first time our results include the Daule acquisition. And I am very pleased with the performance as we begin to capture integration synergies and leverage our combined operational strengths. The acquisition has met our expectations with the product portfolio with customers, and very importantly, the strong personnel that came with the acquisition. The transaction brings together two great companies with size, scale, and compelling industrial logic position us for long-term success. In addition, we have had constructive discussions with our major about the acquisition, and feedback continues to be very positive as they appreciate our focus on quality, technology leadership, operational excellence, launch readiness, as well as continuity of supply. We are excited about the strong value and long-term strategic benefits of this transformational transaction. As for today's agenda, I will review the highlights of our first quarter financial performance. Next, I will touch on some business updates, commentary on the industry and our synergy progress, as well as an update on our guidance. I will then turn the call over to Chris to cover the details of our financial results, after which we will open up the call for any questions that you all may have. So let's begin with some of the details. The company's first quarter 2026 sales were $2.4 billion and adjusted earnings per share was $0.34 and adjusted free cash flow was a use of $41 million. First quarter North American production was down approximately 2%, Europe was down approximately 1%, and global production was down approximately 3%. However, our legacy sales were flat on the quarter but on a pro forma combined sales basis, we are up slightly. Specifically, we experienced a mix effect on GM's heavy-duty large truck production which was down early in the quarter as they prepare for the next model year launch, whereas GM's light-duty trucks were strong. In general, days supply of inventory with GM large trucks appeared to be at their expected levels, and SUVs appear to be on the lighter side. The Ram heavy-duty continues to enjoy a year-over-year favorable comparison, which is positive. In addition, we saw nice strength in both BMW and Volkswagen CUV platforms here in North America. From a profitability perspective, our adjusted EBITDA in the first quarter was $309 million or 13% of sales. Our results were supported by a favorable mix on a number of key platforms and a solid dollar contribution. As always, our continued focus on operational efficiency contributed to our margin performance during the quarter. So 2026 is off to a good start. Chris will provide more details about our overall financial performance during his prepared remarks. Let me now talk about some business updates, which you can see on Slide 4 of our presentation deck. The quarter, the company received approximately $21 million in net proceeds from the completion of a sale of a Dalles cylinder liner business. We will continue to assess and optimize our current product portfolio to align with our core business, enhance our growth prospects, and our long-term profitability. We also want to highlight our recent award from Cherry JTOR to supply PTUs and RDMs on a derivative model that we already support. The start of production is scheduled for later this year and will run beyond the 2030 timeframe. We continue to see positive momentum on this platform as the SUV product is resonating very well with Chinese consumers. In addition, we have been awarded a business extension for a major truck platform in Brazil with a lifetime revenue of over $750 million which is scheduled to launch later this decade. Additionally, we received contract extension awards with multiple customers. And as OEMs evaluate their respective long-range product plans, business extensions have become a theme in the industry. We also earned numerous sideshow business wins including replacement and new business with six different global OEMs. Furthermore, our metal forming business unit continues to realize wins across multiple product families from our forging to our powder metallurgy, in part due to benefits from both onshoring and reshoring efforts to the U.S. Our strategy to become a leading global driveline and metal forming supplier is unfolding as expected. Next on Slide 5, I would like to provide an update on our acquisition synergies and value capture. After approximately three months into operating as a combined company, we have already realized $35 million of run-rate savings to date, representing excellent progress. We are benefiting from the pre-work that was completed before the deal closed. Out of the gate, we mainly attacked overlapping corporate SG&A, and some procurement cost. While there is much work ahead of us, we have a strong team in place and are encouraged by our momentum and the progress to date to achieve our year-end target run-rate savings of greater than $100 million. And as we have previously communicated, we expect to deliver $180 million in run-rate savings by the end of year two, and a full $300 million in run-rate savings by the end of year three. Currently, geopolitical risks remain an overhang on our industry, especially the Iranian conflict, which is driving elevated oil, energy, and gas prices. However, in the first quarter, we did not see a significant impact on our operations or customer schedules. That stated, over the long term, fuel prices could impact us through higher energy, logistic, and transportation expenses as well as certain petroleum-based input costs such as lubricants. Clearly, we are closely monitoring these developments and we will look to mitigate any impact over time. In the near term, our customer schedules remain stable and consumers appear to be resilient. As always, we will remain focused on the matters that we can control and we will proactively make necessary adjustments to market fluctuations. Now let us talk about our full-year guidance. We have revised our outlook by raising our sales and adjusted EBITDA, reflecting a combination of factors, including our strong first quarter performance, while balancing the macro risks that I just mentioned. The company is now targeting sales of $10.3 billion to $10.8 billion, adjusted EBITDA range of approximately $1.3 billion to $1.425 billion, and adjusted free cash flow of approximately $235 million to $325 million. Our guidance ranges are underpinned by the following production assumptions: North America production at 15 million units, Europe at approximately 16.7 million units, China at 32.3 million units, and overall global production at 91.4 million units. As you know, we use multiple data sources to derive our outlook, including forecasts for certain programs that are significant to our performance. We also note GM is transitioning to its next-generation full-size truck program, and appears to be bullish on overall volumes as demonstrated by the planned opening of their Lake Orion assembly plant. In summary, we had a good first quarter. The integration of Dali is off to a strong start. Our synergy achievement is on track. We raised our guidance, although we are monitoring geopolitical and macro trends. And we are excited about our future and we are built to perform. Now let me turn the call over to our Executive Vice President and Chief Financial Officer, Chris May, for the first quarter financial details. Chris? Thank you, and good morning, everyone. Chris May: I will cover the financial details of our first quarter 2026 results and our updated guidance with you today. I will also refer to the earnings slide deck as part of my prepared comments. But before I begin the financial discussion, I wanted to provide a few housekeeping items for you all. We have included several reference items in the appendix of our earnings deck. First, we included the full-year 2025 and LTM first quarter 2026 pro forma financial metrics for our newly combined company. We have also provided some supplemental walks and data points related to that information. Also, we have updated our definition of adjusted EBITDA and adjusted earnings per share to better reflect our new company's operating performance and geographically diverse business. These changes were also based on feedback from various stakeholders. The definitions include updates to adjust for the amortization of related intangible assets, certain financial instruments assumed from DALL E as part of the acquisition, and one-time purchase accounting items, all of which are non-cash and non-operational in nature. In the appendix, we provided a comparison to our prior disclosures for comparability purposes. As it relates to adjusted EBITDA, there is almost no change to prior amounts. None of these updates have an impact on our guidance or previous planning for our Daulay acquisition. So with that said, let us begin. In 2026, our sales were $2.38 billion compared to $1.41 billion in 2025. Slide 7 shows a walk of first quarter 2025 sales to first quarter 2026 sales. For legacy DAO, volume mix and other was lower by $9 million or relatively flat. While our primary North American market had overall lower volumes of 2%, full-size truck products were higher and offset most declines in other vehicle types. The divestiture of our India commercial vehicle axle business had a $35 million impact in the quarter and metal market pass-throughs and FX increased sales by approximately $44 million. About two-thirds of this related to FX and was primarily driven by the strengthening euro. Dowling contributed $983 million in gross sales for the first quarter; that figure reflects only February and March activity, as we closed the transaction on February 3. On a year-over-year basis, the Dolly portion of our business experienced the same trends as it related to sales. The details are noted on our slide. Now let us move on to adjusted EBITDA. For 2026, adjusted EBITDA was $308.5 million and adjusted EBITDA margin was 13% versus $177.7 million and 12.6% last year. You can see the year-over-year walk down adjusted EBITDA on Slide 8. In the quarter, adjusted EBITDA for legacy Dow was higher due to favorable mix on volume, continued performance, and net favorable metal markets and FX. We continue to be excited by our positive performance trends we have experienced in our business over the last several quarters. DALL E contributed approximately $122 million in adjusted EBITDA for the quarter. Similar to sales on a year-over-year basis, the Dowling portion of our business experienced the same trends as it relates to adjusted EBITDA and those details are also noted on our slide. In the first quarter, we realized $5 million in synergy benefits. As David highlighted, we achieved a $35 million run-rate as of today and we expect this to continue to grow. We have a nice market basket of potential savings that we continue to drive to completion and have a visible path to the targeted $100 million-plus of run-rate synergy savings by year-end. Most importantly, our synergy realization journey has only just begun. Let us move on to interest and taxes. Net interest expense was $77.5 million in 2026, compared to $37.3 million in 2025. The increase in interest expense year-over-year primarily reflects the issuance of new and assumed debt in connection with the combination. The weighted average interest rate of our outstanding long-term debt was approximately 7% at the end of the quarter. We have now replaced all of Dolly's acquired debt with the exception of $349 million of U.S. Private Placement Notes. These remaining notes have a good maturity profile with the furthest maturity in 2036 and fit into our overall capital structure quite nicely. With these notes remaining in place, we have begun to redeem and distinguish a portion of our 2028 senior notes in the second quarter. This action will provide additional runway with minimal debt maturities now through 2029. As for taxes, in 2026, we recorded an income tax benefit of $20 million compared to an expense of $14 million in 2025. This includes a benefit for a valuation allowance release of approximately $20 million in a non-U.S. jurisdiction. Due to all the acquisition-related activity this year, our taxes and impacts are quite involved in 2026. However, once you remove all that activity, we expect our adjusted effective tax rate to be approximately 35%. This is a somewhat elevated rate in 2026, due to valuation allowances and partial interest deduction limitations in the U.S. As for cash taxes, we expect approximately $160 million to $170 million this year. Taking all these sales and cost drivers into account, our GAAP net loss was $100 million or a loss of $0.52 per share in 2026 compared to net income of $7.1 million or $0.06 per share in 2025. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was $0.34 per share in 2026 compared to adjusted earnings per share of $0.22 in 2025. Let us now move on to cash flow and the balance sheet. Net cash used in operating activities for 2026 was $64.4 million compared to net cash provided by operating activities of $55.9 million in 2025, driven by working capital timing, and cash payments for restructuring and acquisitions. Capital expenditures, net of the proceeds from the sale of property, plant, and equipment for 2026 were $102.7 million. Reflecting the impact of these activities, our adjusted free cash flow was a seasonal use of $40.8 million in the first quarter 2026 as compared to a use of $3.9 million in 2025. From a debt leverage perspective, we ended the quarter with net debt of approximately $4.1 billion and a net leverage ratio of 2.7 times at 03/31/2026. In the near term, we continue to focus on reducing our outstanding debt and strengthening our balance sheet. But as you will recall, at a sustained 2.5 times or below net leverage mark, we will consider additional capital allocation avenues including returning capital to shareholders. We ended the quarter with total available liquidity of approximately $2.6 billion consisting of available cash and borrowing capacity on our global credit facilities. Now let us talk about our updated financial guidance on Slide 6. Our updated targets are as follows. For sales, our new range is $10.3 billion to $10.5 billion versus $10.3 billion to $10.7 billion previously. This new sales target is based upon current global production assumptions, and also certain assumptions for our key programs. For example, we continue to anticipate GM's full-size truck and pickup and SUV production in the range of 1.3 million to 1.4 million units this year. From an EBITDA perspective, we anticipate a range of $1.3 billion to $1.425 billion versus $1.3 billion to $1.4 billion previously. However, if we included the DALI results for a full year, in other words pro forma as if we owned them since January 1 of this year, our range would be approaching the $1.4 billion to $1.5 billion range. Included in our adjusted EBITDA is the proportionate share of income from our joint venture in China with Hesco called SDS. We expect our JV share, which is already included in adjusted EBITDA, to be in the range of $65 million to $75 million this year and this is unchanged from our previous guidance. Overall, we increased the top end of our range, but maintained our low end. Our new range was driven by our solid first quarter performance and potential for continued good truck production. However, our overall guidance is mitigated some by potential increase in costs, in particular related to fuel and energy prices that we are starting to experience driven by macro world events and whose path through the rest of the year is still uncertain. We continue to anticipate adjusted free cash flow in the range of $235 million to $325 million. And while we do not provide quarterly guidance, here are some thoughts around the second quarter. Our schedules appear okay, with no major changes at this point. However, we are experiencing some additional costs related to energy and we would expect some tariff recovery timing spread throughout the year, similar to our experiences last year. Our CapEx assumption is unchanged at 4.5% to 5% of sales as we ready the organization for important upcoming launches, especially for one of our major truck programs. And lastly, for our quarters going forward, we would expect a fully diluted share count of approximately 245 million shares. We remain focused on a strong integration between legacy Dell and Dali, realizing synergies, strengthening the balance sheet, and navigating geopolitical and industry uncertainty. As we progress further into 2026, 2027 comes into view and the very exciting potential ahead of us. We are building around the benefits of our synergy activity, focusing on delivering cash performance opportunities, not only converting on our profitability, but also reducing acquisition costs, reducing restructuring costs, driving interest lower, and optimizing working capital. Thank you for your time and participation on the call today. I am going to stop here and turn the call back over to David so we can start the Q&A. David Lim: David? Operator, can you go ahead and start the Q&A please? Operator: Absolutely. At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We will now open the call for questions. Our first question today comes from Joseph Spak at UBS. Please go ahead. Joseph Spak: Thanks. Good morning, everyone. Maybe just a quick clarification, Chris, on some of the, I guess, definitional changes. One, to clarify, the definition of EBITDA to include minority interest when you gave EBITDA guidance last time, that was already in that assumption even if it was not maybe explicitly called out. And then two, with the definitional change, and I understand those are non-cash items that you are backing out, and I do not think they were in anyone's model. So I think it does not really matter for comparability this quarter. But just to be clear, is that change the reason why the high end of the range went up? And is it really all that, like you are not forecasting further, you know, changes on those non-cash adjustments going forward? Chris May: No. We are not forecasting any changes on those non-cash items going forward. If you look at some of these, Joe, you will find some of them relate to initial purchase price accounting such as our inventory item or our intangible asset amortizations, our joint venture or overall intangible asset amortization, and then a couple relate, I would say, more on technical accounting matters for FX and mark-to-market on some acquired debt and derivatives. None have anything to do with the operations of the company and none had any influence on the change of our guidance. Joseph Spak: Okay. And then equity income when you initially gave that $1.3 billion to $1.4 billion, that was already inclusive of that China JV equity income. Chris May: Correct. That is correct. Joseph Spak: Okay. Then, David, maybe just great to hear you are off to a good start on the synergies. Now that you have actually owned this business here for at least a couple months, so I was wondering if you could give us just a little bit more color on what is going well, what is maybe going a little bit faster, where you see some additional challenges. And then as you sort of dive deeper in, the level of comfort you have with those targets and maybe even if you are starting to search for additional levers to pull here on the cost side. David Lim: Yeah, Joe. First of all, I will say this is, we acquired some outstanding talent from Dallet GKN at various levels, from senior management leadership all the way down to the plant floor. I have been very pleased in regards to how our teams have assimilated together and are working together as we try to bring, as I said, two strong companies together with independent cultures, but we are trying to blend into one culture going forward, and that is going exceedingly well. I have been very pleased as I have gotten out with our senior leadership team to visit a number of the factories here. There is a good engineering aptitude, strong manufacturing or operational aptitude there as well, and a focus on safety and quality, which is, as you know, critical and paramount historically to the Dauch Corporation. So that has been positive. There have been some areas where maybe some capital investment or some other things made have been neglected a little bit at some of the facilities when it comes to just general stores and just facility maintenance and all, but nothing that is material or extraordinary that we cannot deal with and address over a period of time. So I am pleased with that. I think we made great progress in regards to addressing the corporate costs right upfront. So Chris led that workstream for us along with Roberto Fioroni on the GKN side. So that has gone well. SG&A, as I said, is going well, and we have made really good progress in regards to our run-rate for this year, and we will continue to grow that as we go forward. I would say with the economic conditions in the market right now, especially with the Iran war conflict, we are keeping a watchful eye on some of the purchasing activity. But at the same time, we have multiple years to address that. But I think there are some initial challenges here in the first year just because of what is taking place. But do not read too deep into that because I still think that we can confidently deliver that number. And then from an operational performance standpoint, again, we are still getting around to the 100-plus facilities that we took over. But we are very encouraged with the opportunities that exist there and are hopeful that there are incremental opportunities going forward. But hopefully, that addresses your question. Overall, I am very pleased with the acquisition, the integration planning that went into that integration, and also our first quarter start here. Joseph Spak: Great. Thanks. I will pass it on. David Lim: Yeah. Thank you. Operator: Thank you. And, ladies and gentlemen, we do ask that you please limit yourself to two questions at a time. Our next question today comes from Analyst at BofA. Please go ahead. Analyst: Hi. Thanks for taking my questions here, and congrats on a strong quarter. I just wanted to walk through the guide a little bit more, particularly on top line. You took the sales guide up a bit. You actually took the global production forecast down. Can you walk through what allowed you to do that? Are you actually seeing better-than-expected production on some of your key platforms even though the global production environment maybe is a bit softer? Thanks. Chris May: Yes. Good morning, Alex. This is Chris. I will take that. Yes, we took the top end a little bit. We saw inside the first quarter, obviously, some strength on the light-duty truck, full-size truck here in North America and some other platforms that we supply a lot of sideshafts into. So a nice positive start to the year from a volume perspective. Our overall macro assumption versus our last guidance on North America is relatively flat, Europe down just a tick, but I would say holistically some beneficial mix was played into our thought process at the higher end of that range, as well as a little bit of benefit from FX translation as well. The euro has strengthened a little bit, as well as some other currencies. But primarily, just a nice benefit of some mix that we have seen at the higher end of the range. Analyst: Perfect. Really helpful. And then I just wanted to walk through, you called out additional energy costs. Could you maybe walk us through exactly what you are seeing there? And then just on the overall commodity exposure, is there anything that we should be paying attention to? It does not seem, as of right now, like a significant impact for the year, but just remind us on some of the commodity exposure. Thanks. Chris May: Yes. I will start with the commodity question, then we can talk a little bit about what we are seeing in the macro from near-term inflation pressure related to macro events. From a commodity perspective, you may recall many of our commodity-based costs we have direct pass-throughs to our customers, for which we retain pass-through on about 80% to 90% of those costs. Key commodities that we would track in that bucket would be for things such as aluminum, scrap steel, nickel, moly, and a whole host of other products. I would say they surprisingly have been relatively stable. We have seen some small upticks in those over the last month. But again, they are pass-through and generally protected. When they go up, you carry a little bit of a residual negative; when they go down, you get a little bit of a residual benefit. Those are the primary from a commodity standpoint. And then in terms of some of the macro inflation, primarily due to the Iran conflict, we have seen some elevated energy prices. We have seen some elevated fuel prices. Those translate into things such as fuel surcharges for logistics, etc. I would say inside of the second quarter, we would be pacing towards, call it, $5 million to $10 million impact associated with that. We will see how this plays out for the balance of the year. Still quite uncertain at this point in time, as you know. Analyst: Perfect. That is incredibly helpful. Best of luck going forward. Operator: Thank you. And our next question today comes from Tom Narayan with RBC. Please go ahead. Tom Narayan: Chris, this one is for you. First of all, on Slide 15, thank you for whoever put this together. I know a lot of work went into this. On that Slide 15, if I just take the LTM EBITDA $1.573 billion, and I do all the adjustments, the one-time commercial settlement, businesses that were sold, take out the Q1 synergies, January dollar contribution, and then I compare it to your guide for 2026, take out the synergy, it looks like there is a slight downshift implied by the guidance at the midpoint at least. So I am just wondering if there is a downshift in 2026 versus 2025 contemplated or perhaps the guidance may be a tad conservative, or maybe I am just splitting hairs? Chris May: No, I think in terms of the analysis that you have done pretty quickly here this morning, taking a look at this data is pretty close to accurate. You have to remove the dollar January. We do have to remove the commercial items. Those also impact revenues and profit when you take out the commercial settlement items as well as the businesses that were sold. But if you sort of kind of adjust for those items, you would then find you would need to grow, set up obviously for our synergy capture opportunity here inside our guide, we said $50 million to $75 million, so midpoint $62 million. But holistically, if you think in this LTM period to our 2026 year, at the macro, our volumes are down almost 2%. North America is down almost 2%. Europe is down 2%. Now this gets into mix and different things we will experience each quarter, but that is a main driver of that. That would translate at 25% to 30% contribution margin in terms of that variance. That is your main driver. And then if you peel that out, you will find we actually have positive performance embedded inside of that. Tom Narayan: Got it. And that is taking it to the midpoint, of course. Yeah. I mean, it is barely, it is just a slight downshift. It is not much. But then, second one, you know, this has been a hot topic with this past earnings season, is Chinese domestic OEM customer capture and order books. Just wondering if there is, I know you have what you have disclosed so far from last quarter, etc. But would love to hear, especially in the Dalles side, how you are doing in terms of acquisition on Chinese domestic? Thanks. David Lim: Tom, this is David. As you know, Dollar GKN enjoyed a very strong relationship with Hess and they have a JV called SDS, which is now ours. That business does a tremendous job with both the domestic as well as Western OEMs. But it has really shifted a lot of its business to the domestic Chinese OEMs. So they have been able to not only protect their business, but grow their business. And that volume increases both in China, within that company as well as their export initiatives into Europe and Southeast Asia and Latin South America. They are positioned and poised to benefit from that. We are already starting to see some of that. At the same time, historical Dauch had our own WFOE in China that had done a similar thing as we picked up a lot of domestic Chinese business. So we referenced again today the expanded relationship with Cherry J Tour in regards to an incremental derivative program off of something we are already supporting. So again, we continue to see plenty of opportunities with the Chinese OEMs. And we are winning our fair share of business with them as they expand their capability on a global scale. Tom Narayan: Got it. Thanks a lot. I will turn it over. David Lim: Yes. Thank you. Operator: And our next question today comes from Analyst at Deutsche Bank. Please go ahead. Analyst: Yes, sorry about that, talking to myself on mute. Good morning. So thanks for taking my questions. If we look at the walks for the quarter, it seems like Gallo was a pretty material contributor to strong profitability, even more so than I would say legacy DAO, if my reading is right. So is there something in there in its mix of programs that helped drive that result? Performance and other was pretty strong as well. Any color that you can provide there would be great. Thank you. Chris May: Yes. If you look at the year-over-year walks, you can see the sales and walks in Slides 7 and 8. The legacy Dow performance was 12.9% margins and the legacy Dowling extrapolate was 12.4% margin. So I would say both sides of the equation contributed quite equally with a little bit larger on the downside. And then your margin took up with some of the synergy flow-through. So our view is both businesses performed at positive performance in the quarter on a year-over-year basis, both had a nice mix in terms of from a revenue perspective, and obviously the contribution from the synergy helped the overall company. Analyst: Great. Helpful. Thank you. And then looking out at the rest of the year, it looks like GM has added another shift for its T1 heavy-duty, I think later this year starting at the Flint assembly. Even though it is setting up for the new model. Does the new guide anticipate some benefits from that? Or would that be incremental on top of what you might already have in there? Chris May: Yes. So our guidance as it relates to the full-size truck program for GM is 1.3 million to 1.4 million units. Any planned announcements or schedule adjustments that they have articulated and that have been provided to us have been included inside of that guidance range already. Analyst: Okay. Thank you very much, guys. Operator: Thank you. And our next question today comes from Itay Michaeli with TD Cowen. Please go ahead. Itay Michaeli: Great. Thanks. Good morning, everybody, and congrats on the quarter. I was hoping, just to follow up on prior questions, if we could just do a little bit of a bridge from the kind of Q1 margin of like 13.3% pro forma to what is implied the rest of the year? It sounds like there is some incremental commodity freight baked in there, but also some acceleration in synergies. I am hoping you could go through some of the puts and takes for the full year, kind of what is implied from the Q2 to Q4 margin based on latest guidance? Chris May: Yes. Some of the puts and takes as we think about it from here: obviously, we will transition in the rest of the year to a full month of DALE results, right, that would come in at their blended rate of, at a full cost basis, at the 12% to 12.5% range. So that will start to weather itself in. I would expect to have synergy step-up through the course of the year as we transition and continue to put it in the bag, continued success on our synergy transition to get to that $50 million to $75 million run-rate by the end of the year. As I mentioned on one of the previous questions, we do see a little bit of drag as it relates to inflation, in particular in the second quarter, on fuel and some of those related costs. We will see how those play out for the rest of the year. I would say that is plus or minus for Q3 and Q4 depending on how macro events unfold. And then we had some core performance inside of our company as well. As we transition through the year, we have seen nice traction on our metal form side of the business from a margin perspective. Some of the challenges that we have articulated in the legacy plants over the last couple of years, we are seeing some positive trends from that perspective as well. So those are some of the pieces as I think on a go-forward basis. And then you have tariff plus or minus as we go through the year, timing of when we bill or collect, etc., and that can change from quarter to quarter. Itay Michaeli: Great. That is helpful. Thanks, Chris. Then just as a follow-up, I know it is still early since the closing of the deal, but any observations from sourcing opportunities and how those have gone in the last few months? David Lim: Itay, this is David. Great question. We have had nothing but cooperation and success in positive communication from the customer. They obviously historically know our performance from a historical DAUQ standpoint. At the same time, DALL E GKN had good performance as well. We are maintaining that good performance. That was a priority to us: to protect continuity of supply and the quality and product integrity going into our customers. They are actually pleased in the fact that we will have more size and scale to help weather the challenges that exist in the marketplace today. Clearly, there are a lot of distressed suppliers in the marketplace and have been since COVID. And I think that is only going to amp up as we go forward. So the communication and the feedback from the customers has been very positive. And obviously, we are going to look to continue to maintain those strong relationships that we have and look to try to expand from a cross-selling capability to those loyal and valued customers. Itay Michaeli: Terrific. That is all very helpful. Thank you. David Lim: Yes. Thanks, Itay. Operator: Thank you. And our next question today comes from Analyst at BNP. Please go ahead. Analyst: Hey, guys. So pro forma net leverage finished at about 2.65x. And just based on my math and the guide, it sounds like it will finish the year around 2.28 or so. So how should we think about the timeline to get to the targeted 2.5? Thank you. Chris May: Yes. I understand your math. Yes. We will probably be somewhat level or so through the course of this year based on our guide. But if you think about some of the points we have articulated previously as it relates to our leverage, really one of the main drivers of delevering the company, of course, will be our operational performance through the achievement of our synergies. And as we transition into next year and we take in the next leg from the $100 million run-rate up to the $180 million run-rate, obviously we will drive both profitability and cash flow. So sort of taking down the net debt, if you will, and also driving EBITDA up through that transition period, we will then start to see some traction taking down our leverage even further from where we end the year. That is kind of a timeline of how I would think about it. Analyst: And then as we think about the next generation of GM's full-size truck platform, can you share if you guys expect to have the same participation rate as you do on the T1? And have there been any shifts in GM's insourcing mix, especially between light-duty and heavy-duty? Thank you. David Lim: Yes. This is David. With respect to the model changes that are taking place in the next-generation product with General Motors, we have secured that business. We are in the process of getting ready to launch that business on a staggered cadence based on GM's program timing. Obviously, there are interesting engineering changes as they address some horsepower, torque, and other requirements for the business. We factored that into our business. So that will impact favorably some of the content per vehicle and the overall margin performance. We have secured everything that we have had, and as they look to the next generation beyond that, which will be out in that mid-2030 period of time, our expectation would be to secure our replacement business and continue to try to demonstrate to GM that we are a valued and strategic partner to them. Analyst: So for the next-generation program, you will be on at least as much of the vehicles as you are on the current generation. David Lim: Absolutely. Operator: Thank you. And our next question today comes from Analyst at Financial. Please go ahead. Analyst: Good morning. This is Anastra Etemola on for Nathan Jones. Thanks for taking my questions. Maybe discuss the rationale—in the beginning of the presentation, you gave the rationale for a DAPLay subsidiary you mentioned that you sold. How does this optimize the portfolio? Maybe just trying to get a better picture of your priorities in terms of the overall portfolio. David Lim: Yes. This was something that we evaluated as part of overall product assessments and we continue to assess our product portfolio and we do that consistently throughout the year. But this was something that stood out to us that was not really a core program to us. Chris May: And we had an interested buyer and we came to the appropriate commercial agreement on that to be able to sell that asset. David Lim: As Chris covered earlier, we also divested our commercial vehicle business, which was a legacy Dauch business. So again, things have changed now that we have been able to acquire Dallet. Our [inaudible] is different. We are assessing what is core and what is non-core to our business today. Those assets or businesses that we deem to be non-core, obviously we will try to sell for the appropriate value. But at the same time, we are not going to give anything away. What we want to do is make sure we can pare our portfolio down to the critical products that show growth and also show profitability, and just strengthen the overall company and provide for that robust business model that we have communicated to you all. So it was just a small step in regards to assessing the portfolio. I am sure there will be others that we will evaluate and anything that we do there obviously will continue to help us in regards to accelerating paying down our debt and strengthening our leverage situation. Analyst: Thank you for that. Appreciate the context. Also, just something you mentioned earlier. I know you mentioned the direct pass-through 80%, 90% of the cost. Can you maybe talk about the lag to recover make recoveries? Chris May: Yes, it can be anywhere from a month to a quarter, depending on the customer. So 30 to 90 days. Analyst: Perfect. Thank you. Appreciate that. Operator: Thank you. Our next question today comes from Dan Levy at Barclays. Please go ahead. Dan Levy: Hi, good morning. Thanks for taking the questions. I wanted to go back on the commodity question. You talked about you have a basket of commodities that you are getting direct pass-throughs on. Can you give us a sense of today, pro forma organization now, how inflation dynamics may differ versus the prior AAM? And to what extent do you have increased costs that maybe now have to be recovered outside of formal pass-through mechanisms? To what extent should we be thinking differently about things like energy cost, etc.? Chris May: Yes, Dan, this is Chris. I will take that. For our more pure commodity-type costs, you have heard us articulate for many years. Bringing in the dollar side into the business in total, you will find our view, I would say, very similar. Many of the same type of commodity inputs that we have. So not really a lot of change from that perspective: either types of commodities or pass-through mechanisms. But things such as when you sort of get outside of those core types of commodities like steel and scrap and nickel and aluminum, and things that we talked about like energy and stuff like that, I would say both sides also, those are typically not automatic pass-throughs. You have to have some discussion with the customers and both sides of the legacy businesses had the same type of dynamics from that perspective. Dan Levy: Okay, great. And then, second question is on—you have laid out the cost synergies here. You talked about potential as well for revenue synergies on the customer front, and I know you addressed a while ago the initial discussions with customers. But some of the customers where you have been underrepresented up until now, the Toyota, VSCW-type customers, just what the dialogue has been with some of these customers? And how much more there is opportunity to expand that relationship now that you have inroads into some of these different customers. David Lim: Great question. What I would say is this. Our first conversations with the customers is just to inform them of the combination, to inform them of the capability, and also to make sure that we are protecting continuity of supply and not disrupting them. And as I said in my previous comments, that has gone very favorably. Many of the European and the Asian OEMs, although historical Dauch had a relationship with them, we will benefit greatly from the strength that Dowel and GKN has shared for decades with many of those customers. So it is still early in regards to the discussion phase, but our customers clearly want to better understand our full complement and capabilities. There will be technology days that we will share with each of these customers on a go-forward basis. But they clearly can see the benefits of an expanded portfolio and they clearly see the performance capability that we collectively bring to the table. And just the general dialogue, without getting specific, has been positive in regards to potential consideration for cross-selling type opportunities and new business growth opportunities. I will leave it at that. Dan Levy: Great. Thank you. Chris May: Thank you. Operator: Thank you. And our next question today comes from Analyst at Jefferies. Please go ahead. Analyst: Hi, hello. Thank you for taking my question and congrats on the results. Just to build on what is going well and what has not. You have owned the Dialysate Cardimatology business a couple months now. It would be really interesting to hear your thoughts on the different strategic and diversification initiatives that it has been pursuing over the last few years. If that is the direction you will continue with on the auto and non-auto side. And then secondly, just wanted to ask about the EV commercial cancellation settlement payments. Are there any more of those to go over the next couple of months just given the hit that Dalla's e-powertrain business took over the last couple of years? Thank you. David Lim: Yeah, this is David. I will take these questions and Chris, you can chime in as you feel fit. Clearly, historical Dauch was in the powdered metal business. And clearly so was Dowling GKN. By putting the two together, we have a very strong industry-leading powdered metal capability that is also vertically integrated now with the supplier of raw powder. As you know, under Melrose, this business was really—even Dounlay was up under strategic review. We clearly see this as our wheelhouse in regards to our metal forming business. We think there is opportunity to enhance its performance on a go-forward basis. And we are working on those initiatives right now. Like any piece of business, we will always keep optionality in our business. But we consider that a critical part of our thesis, strategic thesis, as we want to be this global leading driveline and metal forming supplier. There is a great strategic fit of our powder metal business with their powder metal business. Although there is some rationalization that needs to be done, especially on footprint in North America. And we will do that appropriately and time it appropriately, make sure that we are not incurring too much cost that way. But we also see tremendous growth opportunities with it. It just had not received a lot of investment over the years from its previous owner. So we are encouraged and excited. We have a really good leadership team that is running the powdered metal group. And we are introducing some of the AM operating systems into that business, which we also think will bode favorably from a margin and cash generation performance over time. On the EV front, as we talked before, EV—there are different strategies, different approaches globally around the world. We continue to see significant opportunities in Asia, especially China. We are mainly doing a lot of that through the JV that we have there. We will continue to monitor Europe and see what happens there with regulatory and policy change, as we are seeing some of that take place right now, but we do expect extra growth there. In North America, you see here what has happened with the regulatory and policy change where EV penetration was under 5% last month from a high of, you know, 10% or 11% earlier now that all the incentives are gone. So we will continue to be appropriate and balanced and selective in EV. But at the same time, there are some cancellation costs, many of which have been dealt with and addressed, but there are still some open issues that are out there with customers that we need to bring resolution to wrap up the commitments that they made to us and we made. But unfortunately, the market did not materialize. So those are ongoing commercial dialogues with us and our customers, but we hope to bring those to resolution this year and get that behind us completely. So Chris, I do not know if there is anything you want to add. Chris May: Yes. On resolution for any of those EV matters, as you know, if you look at the results historically, Vale had a very strong year last year in closing out a lot of their issues. We had a few small issues that we closed out last year. Dolly closed, I think, one of their last remnant ones from their side of the house in January, which are not in our reported results. But going forward, as David mentioned, there are a few yet to wrap up, but I would say nothing of significance at this point in time. Analyst: Thank you. And, by the way, I appreciate that you broke out the payment in the presentation, just given some of your peers have not. So thanks. Chris May: Thank you. Operator: Thank you. And our next question today comes from Analyst at Wolfe Research. Please go ahead. Analyst: Good morning, guys. Good morning. Just a quick question on the guidance. You raised the guidance at the high end. And I think you mentioned that part of the reason was because mix is better. But I was wondering why you did not increase the guidance, the high end for the free cash flow? I would have assumed that incremental business would have helped cash flow as well. Chris May: Yes, great question, Federico. If you think, we also raised the top end of our sales as well. So obviously, if you do that, you will have some working capital to finance a little bit of the higher end of the sales. That would be your primary driver for holding the cash flow as is. Analyst: Got it. Thank you. And in terms of cadence for your operating results, how should we think about it going through the year? And is there any change from the historical seasonality of American Axle? Chris May: Yes. From a seasonality perspective, I would say our entire business combined, both legacy American Axle and legacy Dolly, we operate the same identical seasonal pattern with our customers, whether they are in Europe in late August, in North America in July, and around the holiday time in December, which is also common in Europe. Very good seasonality, almost identical production days per quarter, almost identical on a seasonality perspective is how I would think about it. And as you think about the year, clearly, some of the key points we talked about in my prepared remarks: a little inflation pressure in Q2 from macro events, but our synergy will build through the year, right? So that will come on in Q3 and Q4 to get that exit run-rate. Those would be some of the operational elements. From a revenue perspective, we got a lot of questions today about the GM full-size truck. We had some downtime in January for heavy-duty. As you know, one of their larger endpoints, a large facility, Silao, they will go through their next-generation change that will impact, call it, mid-second half of the year as they finalize when they are going to take that facility down for a little bit. That is a primary endpoint for us as one of our customers as well. Operator: Thank you, guys. And gentlemen, our final question today comes from Analyst at BofA. Please go ahead. Analyst: Hey, guys. Thanks for slipping me in. I want to ask a little bit about the EPA changes. We met with a big OEM this week, and they were pretty happy with some of the EPA changes that perhaps are relaxing some limitations to agate cylinder new gasoline engines, and they thought maybe it could perhaps help their mix for heavier pickup trucks and SUVs. Is that something that you are seeing in your production forecasts—that mix is happening elsewhere in North America? Trying to get a little smarter on that because it could be a big benefit to the OEMs' price points. David Lim: Yes. Anything that the government is doing to relax regulatory and policy is clearly a benefit to the OEMs, especially the domestic OEMs, and then certainly a benefit to us as well. As we said before, as ICE has extended out and even hybridization, that is clearly a strong benefit to us as a company. And we have got an installed capacity and product portfolio that is already solidly in place. As we alluded, our financial performance was impacted favorably in regards to the truck platform. On the light-duty GM, very strong. Ram heavy-duty, very strong. GM was down in the first quarter as they are transitioning, but we expect to be very strong throughout the year. So we are clearly seeing the benefits of that. We are starting to see also some of the long-range product plan adjustments with the customers as some of those EPA adjustments and regulatory adjustments have been reduced. There is no doubt about it. Analyst: That is good. It is good for the sector. Alright. Thanks so much. That is it for me. David Lim: Yes. Thanks, Doug. We want to thank all of you who have participated on this call and appreciate your interest in Dauch. We certainly look forward to talking with you in the future. Thank you. Operator: Thank you, sir. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Good morning. Thank you for standing by. Welcome to Sylvamo Corporation’s first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. As a reminder, this conference is being recorded. I will now turn the call over to Hans Bjorkman, vice president, investor relations. Sir, the floor is yours. Thanks, Samantha. Hans Bjorkman: Good morning, and thank you for joining our first quarter 2026 earnings call. Our speakers this morning are John Sims, Chief Executive Officer, and Donald Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. During this call, we will make forward-looking statements that are subject to risks and uncertainties. John Sims: Across our regions, we are looking to reduce costs and taking commercial actions to help offset these impacts. Let us move to slide 5. Our first quarter highlights include implementing the previously communicated uncoated freesheet price increases to our customers across all our regions. We had a difficult first quarter operationally. Reliability issues, particularly in Europe and Brazil, negatively impacted us by almost $9 million relative to the fourth quarter, and we expect some additional costs in the second quarter. The root cause of these issues have been identified and fixed or will be corrected, and the annual outages will be taken this quarter. The one exception is at our Numola mill where an issue with a debarking drum will not be corrected until the fourth quarter. We took an important step in achieving our vision by launching our lean transformation journey in our Latin American business along with our Moji Wasu mill. I was in Brazil last week and was very encouraged by the energy and commitment the teams have in learning and executing the lean transformation. Lastly, yesterday, we completed the refinancing of our 2027 debt to extend our maturity profile, which sustains flexibility and maintains our strong financial position. Let us move to the next slide. Slide 6 shows our first quarter key financial metrics. As a reminder from our last call, 2026 is a transition year as we work through some short-term capacity constraints due to the termination of the Riverdale supply agreement at the April and the extended outage at Eastover later this year as we complete our strategic investments there. Our first quarter results came in as expected, except for the operational issues I mentioned. We built inventory, which resulted in lower sales volume, and we also incurred the incremental cost due to sourcing and converting. We earned adjusted EBITDA of $29 million with a margin of 4%. Adjusted operating earnings were negative $0.53 per share. As anticipated, free cash flow was impacted by lower earnings, the unfavorable impacts of our inventory build, and the timing of payments. Keep in mind that our free cash flow is heavily weighted to the second half of the year. In the last few years, we generated the vast majority of our free cash flow in the second half, and we expect to do so again this year. Now I will turn it over to Don to review our performance in more detail. Donald Devlin: Thank you, John, and good morning, everyone. Slide 7 contains our first quarter earnings bridge versus the fourth quarter. As John mentioned, the quarter played out largely as we expected, with the exception of operations and other costs. In the first quarter, we earned $29 million of adjusted EBITDA compared to $125 million in the prior quarter. Price and mix were unfavorable by $13 million overall. Mix was $17 million unfavorable, which more than offset the price improvements we saw in the quarter, and the other half was driven by unfavorable North American customer and sourcing mix. About half of the mix was due to seasonably weaker mix in Latin America, which is normal for Q1. On the favorable side, paper prices improved in North America and Latin America as Q1 increases were implemented. Paper prices in Europe bottomed out in the quarter, and previously communicated price increases are expected to realize in Q2. Volume decreased by $36 million due to normal Latin America seasonality and the anticipated inventory build in North America as we prepare for the end of the Riverdale mill supply agreement and the extended Eastover mill outage in the fourth quarter. Operations and other costs were unfavorable by $29 million, with about half due to non-repeat of favorable fourth quarter items from year-end LIFO accounting in North America and green energy in Europe. The other half was related to $9 million in manufacturing cost across our regions that John described earlier, as well as $3 million in FX. Planned maintenance outage costs were flat. Input and transportation costs were unfavorable by $18 million primarily due to energy in North America, highly impacted by a one-time charge of $10 million from International Paper’s Riverdale mill due to the exceptionally high natural gas cost from the winter storm. Let us move to slide 8. European industry supply and demand remains challenging, but pulp prices improved throughout the first quarter, and we are realizing the previously communicated paper price increases in April. We have communicated a second paper price increase effective in May and expect the realization to occur through the second and third quarters. In Latin America, we moved from the seasonally strongest demand in the fourth quarter to the seasonally weakest first quarter, but now expect demand to increase each quarter throughout the year. This should positively impact our volume and geographic mix as the year progresses. We are realizing the previously communicated paper price increases to our customers in Brazil, and to our export customers across other Latin American countries, as well as the Middle East and Africa region, and should continue to see additional realization throughout the second quarter. In North America, industry supply and demand dynamics have improved as 7% of annual uncoated freesheet industry supply was removed with the Riverdale mill conversion. After peaking in June, imports into North America have declined significantly throughout the second half of last year and into the first quarter. We also began realizing the previously communicated paper price increase to our customers and expect to see additional realization through the second quarter. We expect the Middle East conflict to continue pressuring costs across our regions as we go through the year. We are already seeing increases in energy, chemicals, diesel, and ocean freight in the second quarter. Let us move to slide 9. As John mentioned earlier, the changes in U.S. tariffs had led us to bring in product from our Brazil operations while ramping down imports from our Europe operations. Last quarter, we provided you with an estimate of the adjusted EBITDA impacts of the North American footprint transition, which we indicated was about $85 million negative for the full year. Assuming that tariffs remain at the current levels, we now estimate total full-year impact to be around $65 million negative, which is a $20 million improvement from our prior estimate and will be realized mostly in the second half. This improvement is the result of the mix improvement by redirecting our Brazil imports from the Middle East and Africa to the U.S. We will stay close to the situation and be prepared to go back to our prior plans should the tariffs increase in the second half. Let us move to slide 10. This slide is to remind everyone of our planned maintenance outage schedule for the full year by region and by quarter. We will have an increase of $20 million in the second quarter versus the first quarter as we have more outages in Latin America. 2026 is also different than past few years where we have more than 80% of the total cost in the first half. This year, we have more than 50% of the total cost in the fourth quarter as we complete the investments in Eastover. Now let us move to slide 11. Our capital allocation philosophy remains unchanged. We will deploy every dollar with the goal of improving our competitive position and delivering the best possible shareholder returns over time. We plan to maintain a strong financial position, reinvest in our business, and return cash to shareholders. The refinancing of our long-term debt allows us to navigate this uncertain environment without changing our thoughtful long-term approach to capital allocation. With a strong financial position, we can navigate the geopolitical and economic challenges and focus on improving customer experience, continue reinvesting in low-risk high-return projects, as well as execute through the end of the Riverdale supply and the Eastover mill outage later this year. These investments and improvements will help to grow earnings and cash flow in the future. Let us move to slide 12. Yesterday, we refinanced 2027 debt to extend our maturity profile. We refinanced our term loan F that matured in 2027 with a new term loan F3 that matures in 2032. We also extended our accounts receivable securitization facility out to 2029, and here on slide 12, you can see the before and the after picture of our maturity profile. This move provides flexibility and allows us to maintain our focus on taking care of our customers and improving our business while we navigate these external challenges. Further details are in the appendix and will be included in our 10-Q that will be filed later today. I will now turn the call back to John. John Sims: Thank you, Don. I will pick back up on slide 13. Last quarter, I shared our vision that Sylvamo Corporation will be legendary—legendary for the way we relentlessly pursue and achieve world-class excellence in all that we do. Consistently performing at world-class levels will create substantial lasting value for our employees, customers, and shareowners, and will enable us to be the employer, supplier, and investment of choice. Let us move to slide 14. As we strive to achieve world-class standards in the areas that define our success, we are establishing an employee-driven continuous improvement culture by transforming the company to a lean-driven mindset. By incorporating a lean mindset and best practices into our everyday efforts across all functions, we expect significant improvement in the following areas: Customer centricity—lean transformation will help to enable a new standard of customer experience and loyalty where we strive to be truly outstanding, and this is critical to our strategy. Operational excellence—lean transformation will also help to enable best-in-class levels of efficiency, reliability, and performance in our mills and supply chains, ensuring that our operations consistently deliver to the highest standards. Cost leadership—the impact that lean transformation will have on our customer centricity and operational excellence combine to enable us to attain industry-leading cost effectiveness through an employee-driven continuous improvement culture, strengthening our competitive position and ensuring sustainable results. Now let us go to slide 15. Lean is a long-term company-wide strategic transformation, not a short-term change program. Over the next three years, our objective is to embed continuous improvement into how we run the business so performance improvement becomes systematic and self-sustaining. Our lean transformation is focused on maximizing customer value by eliminating waste, improving performance, and engaging every employee, starting with a structured hands-on rollout supported by expert partners. We kicked off our efforts in our Latin American business and have value stream mapping underway at our Moju Watsu mill to identify waste and unlock cost savings across end-to-end processes. We will also be conducting kaizen improvement events, driving employee engagement, and building a culture of continuous improvement from the ground up. Later this month, we will kick off our lean efforts in our North America business and across our corporate functions at our world headquarters. We will then roll out lean at our Ticonderoga mill later in the second quarter. We will continue expanding across all regions, businesses, and locations, targeting efficiency improvements and margin gains. Let us go to slide 16, where I will provide an update on investment at our East Dover mill. Our high-return strategic investments at our East River mill are on track and making solid progress. Paper machine optimization project will add 60 thousand tons of uncoated freesheet, reduce costs, and improve our mix and efficiency. This project is on schedule with the bulk of the work to be completed in the fourth quarter during a 45-day planned maintenance outage. The brand-new state-of-the-art sheeter is also on schedule and will start to be installed in the third quarter and will be ramping up in the fourth quarter. Woodyard modernization project is on track. The hardwood line is operating as of May 1, and we are already seeing significantly improved chip quality and expect to see better yield going forward. We plan to start up the softwood operation in 2027. These are high-return projects that will generate incremental earnings and cash flow for the long term. Now I will conclude my remarks on slide 17. As I stated in my CEO letter to shareowners earlier this year, 2025 and 2026 will be low points in our free cash flow generation as we weather the cyclical industry downturns, particularly in Europe, and complete the investments at our East River mill. We are focused on long-term value creation by making disciplined data-driven decisions that position the company for sustainable success and strengthen Sylvamo Corporation for decades to come. We will generate strong and sustainable results by diligently executing our flagship growth strategy, adhering to our disciplined capital allocation principles, becoming more customer centric, institutionalizing lean continuous improvement principles, and digitally transforming our business operations. As industry conditions turn, our capital spending normalizes, and the benefits from our investments begin to materialize, we have the potential to generate annually greater than $300 million of free cash flow and greater than 15% returns on invested capital. So with that, I will turn it back over to Hans. Hans Bjorkman: Thanks, John, and thank you, Don. Okay, Samantha, we are ready for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of George Staphos with Bank of America Securities. George, your line is open. Please go ahead. George Staphos: Hi. Thanks very much, everybody. I appreciate the detail. I will ask a couple of questions and come back into queue, but I do have a bunch to go through. First, John, the company talks about operational excellence—being legendary in terms of service and the like—and I recognize you are still early in that journey. That said, what was going on with operations reliability in that $9 million number that you called out, particularly in LATAM? As I recall—and correct me if I am wrong—I thought LATAM was expected to be better operationally, or at least not as much of an issue as Europe in this quarter. Second, you pointed to some mix factors in North America in the first quarter. What was behind that? And, related to price, not asking you to talk about future price increases, but for the pricing that is in the markets right now in the publications, if we hold that, what price benefit do you get in 2Q versus 1Q sequentially or for the year? John Sims: Yes, George, thank you for joining the call and for your questions. I anticipated the questions on the reliability issues, and yes, key to our performance—if we are going to delight the customer and increase customer loyalty—reliability and operational efficiency are critical. That is why we are implementing the lean process, but we are also strengthening and have been focusing on reliability processes and systems. The biggest focus is ensuring that we are investing to maintain the equipment, putting in the right processes, and also training and development of our workforce. Those are all critical aspects to being world class in that performance, and we are clearly not there, which these issues indicate. As it pertains to the particular items we had: both Moji and Luis Antonio had issues in the power plant and also in the digesters that needed to be fixed in the annual outage. MOSI is right now down going through its annual outage, so the issues that we had in the first quarter continued into the first month of this quarter, and we are planning on fixing that. Luis Antonio’s outage is not until June, so we are continuing to struggle with that mill and its performance, and that is driving increased operating costs, use of chemicals, and whatnot. In Europe, the biggest issue we had was at Ziot: there was a turbine generator operated by a third party that tripped during a cold winter period, probably the worst time it could have. This issue knocked the SIOP mill offline for a couple of days until we could get back up and running, and we also had boiler issues at the beginning of the year. As I mentioned, we have two debarking drums in Pneumla, but one of the debarking drums, due to mechanical failure, is offline and we will not be able to fix that until the fourth quarter this year. George Staphos: You described what happened, but why did the issues come up at Moji and Luis Antonio? Why was the team not able to determine and prevent it from occurring? And the same thing in Pneumila, especially with the boiler and the debarking. John Sims: The “why” is different for each of these—whether it is mechanical failure or an operating error. We do a detailed root cause failure analysis on any of these significant events, and those have been done here. Then we put a lot of effort into ensuring that we correct and also communicate what we have learned across those failures. Except for the one in SIOP, which was out of our control as it was a third-party operator, the root causes point to areas where we must either improve our reliability processes and systems, identify failure-prone areas and take corrective actions before failure occurs, or enhance training and improve the capability of our workforce so that the right operating decisions are made. That is all work we are doing. Donald Devlin: George, this is Don. I will take your mix and pricing questions. For Q1 mix, two big things. In Latin America, it is seasonally weaker for us. Typically, there is less domestic Brazil volume—which is our most profitable—and more export as a percentage of the mix, so that is an expected headwind that improves as the year goes on through the fourth quarter. In North America, as we prepare for the Riverdale agreement ending and the Eastover outage later in the year, we are using third-party sheeting and buying some volume from third parties. We are doing this so that we have the inventory to serve our customers and preserve relationships as we ramp up Eastover later in the year. It shows up in mix because margins on externally sourced or converted paper are lower. We cited this as a one-time for 2026 in our February call that we would not expect next year as we ramp up Eastover and the sheeting operations in Sumter. John Sims: On pricing realization, we announced increases across all regions, so I will go around the regions. In North America, we communicated a price increase of 5% to 8% to our customers. We are realizing within that range. We began to see that in March, and the bulk will flow through in the second quarter. In Brazil, we announced a 5% increase on cut size for January and realized about two-thirds of that in the first quarter. In the other LatAm markets, we communicated about a 7% increase for Q1 and realized about one-third of that in the first quarter, and that is about all we will get from that one. We announced a second increase of 7% for the second quarter and will start to realize that in May. In Middle East and Africa, exported mostly from Brazil but also some from Europe, we implemented a 4% increase in the first quarter and realized it, and we are implementing a second increase for the second quarter that should start realizing in May. In Europe, we communicated a 4% increase to our customers in the first quarter. Prices went down in January, then we started to realize the 4% increase and will get about half of it through April. We also communicated a second increase of 8% effective in May and expect to start realizing that in the second quarter. George Staphos: Understood, and you would rather not quantify the dollar benefit 2Q versus 1Q at this juncture? John Sims: That is right. Operator: Your next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew, your line is open. Please go ahead. Matthew McKellar: Good morning. Thanks for taking my questions. A couple on costs. Could you speak to the input and transportation cost pressures you are seeing compared to where you were at the start of the year? What does that incremental headwind look like on an unmitigated basis, and what amounts do you expect to be able to mitigate? And then circling back on Neemula’s debarker, what is the ongoing cost impact there until you can address that in Q4? Is that just a cost issue, or are there constraints on production as well? Donald Devlin: Thank you, Matt. Relative to input and transportation, Q1 was relatively small, but looking forward for Q2 in particular, we think it will be about $15 million across chemicals, energy, and distribution, split fairly evenly across our regions—roughly $5 million per region. For Newmala, the debarking drum issue occurred in March. We are incurring about $1 million to $2 million a quarter of additional cost. The plan is to do the repair in September, so in the fourth quarter we should see improved cost. We have no impact to production, as we are sourcing external chips, and that is the incremental cost. Matthew McKellar: Thanks. As a follow-up, is the $15 million essentially the sequential impact we should expect quarter-on-quarter? Any difference in the run-rate cost impact based on current costs? Donald Devlin: It would be roughly that amount sequentially in Q2, yes. John Sims: And, Matt, these are costs due to the Iran war and situation in the Hormuz region. How that plays out going forward is anyone’s guess, but that is what we see for the second quarter. Donald Devlin: We had less than $2 million—call it $1 million to $2 million—of what we would call war-related inflation in Q1. So it is $15 million versus about $1 million—roughly $14 million incremental. Matthew McKellar: Understood. One more from me. You have talked about having the potential to generate $300 million of annual free cash flow. With Eastover expansion, LatAm fiber supply, lean transformation, and prices inflecting in all regions—particularly North America where conditions seem tight—what else still needs to change in the markets or at Sylvamo Corporation to drive you to that $300 million level in 2027 on a run-rate basis, especially if we strip out remaining Eastover spend trickling into next year? John Sims: Matt, I think you captured most of the big items. Certainly the Eastover investments and what we are doing there, better mix in Latin America shifting exports from MEA to the U.S., improving mid-cycle margins—particularly in Europe but also in Brazil and the other LatAm markets—lower cost and improved productivity driven by lean, increasing reliability, and workforce planning and training. Lower wood costs particularly in Europe—at Pneumov we are seeing those decreases coming through. We will provide more detail around our digital transformation in mill systems and in the commercial area in future earnings calls. And then capital spending will normalize after East River, returning to normal levels. Matthew McKellar: So fair to say continued execution on programs within your control and markets getting a bit better in LatAm and Europe? John Sims: That is correct. Operator: Your next question comes from the line of Daniel Harriman with Sidoti. Daniel, your line is open. Please go ahead. Daniel Harriman: Hey, good morning. Thanks for taking my questions. Following up on Matt’s last question, I think the $300 million cash flow target came out prior to these price increases across all three regions. Where do you see the stock’s valuation right now and other uses of that cash? There have not been any share repurchases in the past two quarters. Does that have to do with a leverage ratio you want to get to prior to getting back into the market? And around tariff sensitivity, based on the 10% tariff in place through July 24, how are you thinking about the second half if that structure changes? Would you go back to importing from Europe, or are you exploring other opportunities as well? John Sims: Daniel, on the $300 million, as I stated in my CEO letter, our expectation included that margins, particularly in Europe, normalize. It was not sustainable where margins were in Europe and in the other LatAm markets. That is part of the path to achieving $300 million of free cash flow. Donald Devlin: I would add that a large portion of the path to $300 million is Eastover. We pointed out in our February call the one-times we are experiencing, but you will also see benefits of additional volume from Eastover, which is our lowest-cost mill. A significant portion of the $300 million will be Eastover operating after the speed-up and new sheeter. We never said 2027 specifically; $300 million is a goal for us in the future, within three to five years. John Sims: Within three to five years. Donald Devlin: Relative to the stock and capital allocation, for 2026 we have big commitments at Eastover. Last year, we returned 350% of our free cash flow to shareowners. We are managing cash levels as we execute the Eastover footprint transition and make strategic investments. We want a strong balance sheet through 2026. Our philosophy on buybacks is the same: if the shares trade below our intrinsic value, we will buy back. For 2026, we are being prudent to manage through an uncertain year with tariff changes, economic changes, and Middle East conflict impacts. John Sims: To be clear, we believe our share price does not reflect the intrinsic value of the company. We believe it is undervalued. But we are taking a very conservative approach to cash because we are in this transition period with a big use of cash in the first half and geopolitical uncertainty, so we are deferring more to balance sheet strength than buybacks right now. Donald Devlin: On tariffs, today paper products from Brazil are subject to a 10% tariff under Section 122, consistent with other countries. As of today, that expires July 24. We expect the administration will apply new tariffs on Brazil before that expiration. It is difficult to predict the level. There was a Trump and Lula meeting yesterday and preliminary feedback is positive, but no indication on levels. We have flexibility. At 10%, it makes a lot of sense for us and we will continue to do that. If it goes to a different rate, we will reconsider plans for the balance of the year after July. Daniel Harriman: Thanks. I will get back in the queue. Operator: Your next question comes from the line of Analyst with Truist Securities. Your line is open. Please go ahead. Analyst: Hi, this is Nico Buccini on for Mike Roxland. Thanks for taking the questions. First, on Europe, you have mentioned in the past that business has been more of a bet on the future. How do you see the path to improving earnings there, especially as peers are either contracting or reorganizing given weaker supply-demand dynamics? And when is Europe slated to be in the lean transformation process? John Sims: Thank you for the question. On Europe, yes, it is a bet on the future because we believe that over time the industry will continue to consolidate and become more hospitable to earning above cost-of-capital returns as the market declines. Right now it is fractured and margins are low. We are focusing on what we can control at each of our two facilities. At Siyat, we have been reducing fixed cost and improving our product mix, shifting out of commodity cut size into higher-margin value-added roll business and other grades, and that mix improvement is going better than planned. At our New Miller mill, it is about reducing wood cost. When we purchased that mill, wood was to be supplied from a joint venture Sodra. We moved away from that, taking control of our own wood sourcing. We have seen wood costs come down and expect that to continue. We are also increasing yield and consuming less wood, and importing cheaper wood from local sources. We believe these moves—along with increasing pricing and margins—will improve the business. On lean, we expect a three-year process with immediate results where implemented. We started at Emojiwasu mill recently and already have target improvements in certain areas approaching 50%. As shared, we are rolling out in North America and corporate this quarter, then back to Brazil, and early next year we will be in Europe as well as at the Eastover mill. Analyst: Two follow-ons. One, on the mix issue in North America in the first quarter related to the Eastover 4Q downtime and the Riverdale conversion—should that change Q1 to Q2? And second, can you comment on your relationship with your large shareholder? Donald Devlin: On mix, we do expect that to continue into Q2. We are building inventory to get through the Riverdale supply agreement expiration and the Eastover 45-day outage in Q4. We will build more inventory in Q2. It will look similar. John Sims: On our largest shareholder, I met with them in the first quarter. They continue to support our strategy and have confidence in the management team. They were very supportive of my CEO letter and the long-term value creation targets of greater than $300 million of free cash flow and a 15% return on invested capital. I would characterize the relationship with Atlas as very positive. We continue to meet almost quarterly, expect to meet this quarter, and appreciate their feedback. Operator: As a reminder, if you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. Our next question comes from George Staphos with Bank of America Securities. George, your line is open. Please go ahead. George Staphos: Thanks very much. A few follow-ons. First, Eastover—are you still on track for $50 million? Should we expect that in 2027? How is it going in terms of value generation? Second, on lean programs: usually you put in lean when things are relatively smooth. Right now you have a lot of fires—digester and power issues in South America, debarking issues, bringing up Eastover. Why put in a lean program now? Would it not be better to implement when everything is established? And lastly, what incremental benefit should we get out of lean next year, and on an ongoing basis? And does Europe ever become too much of a drag relative to performance elsewhere, requiring a more significant portfolio decision? John Sims: On Eastover, everything is on track as we have reset. We are on schedule and within our capital budget. Installation is in the fourth quarter. The sheeter will land shortly, we will begin installation and crew training, and have it ready as Eastover ramps. We still stand 100% behind the $50 million. You will not see the full $50 million in the first year due to ramp, but you will see a significant portion in 2027. Donald Devlin: And the reminder: the one-times go away. You have the ramp-up of benefits and the one-time costs roll off, so Eastover improvement next year is significant relative to the $85 million we previously cited, now $65 million. John Sims: On lean timing, we believe we can fully implement the lean management system now. We have a highly engaged team and there is a lot of opportunity to tap into their talent. Lean is the best mechanism to do that through an employee-driven continuous improvement culture. We are not in crisis mode. We had an issue that hit us in the first quarter, but it is not systemic, and we would miss an opportunity if we waited. On benefits, we think we can achieve roughly double the improvement rate we have been achieving once fully implemented over three to five years. Given elevated inflation and cost pressure across industry, our prior improvement rates are not sufficient to sustain margins; lean helps us accelerate. On quantifying dollars, we have not publicly disclosed our year-over-year improvement levels or targets, so we are hesitant to provide a number. Regarding Europe, we continuously evaluate our portfolio as part of capital allocation. We look at all options—operating differently, accelerating improvements. Ultimately, we want to drive value for shareholders. As of today, we believe we have the right strategy in Europe, the right leadership team, and strong customer relationships. Our strategy is to continue improving performance there. Operator: Next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew, your line is open. Please go ahead. Matthew McKellar: Hi. One follow-up. With how tariffs have evolved and assuming no change in magnitude from here—so whatever happens after Section 122 looks something like the 10% level—would you expect to continue to supply some amount of Latin American paper into North America even after Eastover ramps? Relatedly, what is your sense of how imports into the U.S. might be evolving more broadly at an industry level with tariffs resetting lower? Donald Devlin: Relative to Brazil imports, if tariffs are in the right range for us—and 10% works—we will continue to import from Brazil into North America as part of the supply plan even after the Eastover speed-up. It makes more sense versus Brazil exporting to Middle East and Africa at low margins. We have a pretty wide range on what makes sense from a tariff standpoint, so we will continue to import. John Sims: On industry imports into North America, we did see imports increase at the beginning of the year to around 16% of demand, but we have seen a steady decrease, roughly down to the lower end of the typical range around 10% of total demand. Some of that is driven by tariffs, some by the Iran war increasing freight costs, and there was a mill exporting to the U.S. from that area that is not operating as a result of the war. Also, a mill in Finland exporting roughly 30 thousand tons annually to the U.S. has been indefinitely idled as of November. Over the past month, imports have continued to decrease, and we expect that to continue. Operator: We have reached the end of our Q&A session. Thank you. I will now turn the call back over to Hans Bjorkman for closing comments. Hans Bjorkman: Alright. I will let John do a quick wrap-up, and then we will let you get on to the rest of your day. John Sims: Thanks, Hans, and thank you for joining the call. As I said, 2025 and 2026 will be low points in our free cash flow generation as 2026 is a transition year for us, and it will be a year of two halves. In the first half, we will be impacted by transition costs plus input cost inflation, while the second half should see improved pricing and margins and mix improvements across all our regions. This will be a year where we are executing our most significant investments in our East River mill that will drive a lot of value in the years to come. We have launched our lean transformation and are focusing on exceeding our customers’ expectations and driving improvement across our operations. We are focused on long-term value creation that will generate strong and sustainable results by executing our flagship growth strategy and disciplined capital allocation. As industry conditions turn, our capital spending normalizes, and the benefits from our investments begin to materialize, we believe we have the potential to generate greater than $300 million of free cash flow and greater than a 15% return on invested capital. Thank you for joining, and I hope everybody has a good day. Bye. Hans Bjorkman: Thank you. Operator: Thank you for participating in Sylvamo Corporation’s first quarter 2026 earnings call. You may now disconnect.
Operator: Greetings, and welcome to the Starwood Property Trust, 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. If anyone should require operator assistance, please press 0 on your telephone keypad. It is now my pleasure to introduce your host, Zachary H. Tanenbaum, Head of Investor Relations. Thank you. You may begin. Zachary H. Tanenbaum: Thank you, operator. Good morning, and welcome to the Starwood Property Trust, Inc. earnings call. This morning, we filed our 10-Q and issued a press release with a presentation of our results, which are both available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements which do not guarantee future results or performance. Please refer to our 10-Q and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call. For reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning. Joining me on the call today are Barry Stuart Sternlicht, the company's Chairman and Chief Executive Officer; Jeffrey F. DiModica, the company's President; and Rina Paniry, the company's Chief Financial Officer. With that, I am now going to turn the call over to Rina. Rina Paniry: Thank you, Zach, and good morning, everyone. Today, we reported distributable earnings of $147 million, or $0.39 per share, for the first quarter. Our results were impacted by continued higher-than-normal cash balances, the resolution of nonperforming assets, and the ongoing optimization of our new net lease cylinder, adjusted for which DE would have been $0.47. I will provide more detail for these items within my business segment discussion. As we continue on our stated task to grow our investment base, resolve our nonperforming assets, and optimize our new net lease platform, our underlying earnings power continues to build. In the quarter, we deployed $2.5 billion of capital across our businesses, including $1.5 billion in commercial lending, $597 million in infrastructure lending, and $128 million in net lease, bringing total undepreciated assets to a record $31.7 billion at quarter end. We deployed another $1.5 billion after the quarter, 70% of which was in commercial lending. Our company is diverse, with commercial lending comprising just 52% of our investment base and owned property increasing to 25% this quarter. We are really not a typical mortgage REIT. I will now take you through our individual segment results, beginning with commercial and residential lending, which contributed DE of $172 million to the quarter, or $0.45 per share. In commercial lending, we funded $894 million of our $1.5 billion in loan originations along with another $278 million of preexisting loan commitments. After factoring in repayments of $835 million, our funded loan portfolio grew to $16.7 billion. This does not include $1 billion of new originations after quarter end, which brings our loan portfolio to its highest level since inception, or $2.3 billion of unfunded commitments on previously closed loans that will generate future earnings when funded. I mentioned earlier that our run-rate earnings were impacted by our resolution of nonperforming assets. During the quarter, we sold a multifamily asset in Conyers, Georgia that was foreclosed in February. We repositioned the asset during our one-year hold period, cutting delinquency in half from 16% to 8% and increasing occupancy from 86% to 91%. After a broad marketing campaign and over 20 qualified bids, we sold the asset for a $5 million DE loss and a small GAAP gain, reflecting the adequacy of the GAAP reserves we previously recorded on this asset. We foreclosed on three five-rated nonaccrual loans in the quarter, the first of which was a $248 million mixed-use property in Dallas, consisting equally of multifamily and hospitality. The second was a $71 million multifamily in Phoenix and the third was a $28 million multifamily in Dallas. We obtained independent third-party appraisals for all three assets, with the mixed-use property that represented two-thirds of this quarter's foreclosures appraising 10% above our basis. The other two assets carried a combined $25 million of specific CECL reserves. The weighted average risk rating on our loan portfolio improved to 2.9 this quarter versus last quarter’s 3.0. This improvement is net of two small multifamily loans that were downgraded from a 3 to a 4 in the quarter, which Jeff will discuss. We ended the quarter with $676 million of reserves, $455 million in CECL, and $221 million in REO. Together, these translate to $1.82 per share of book value, which is reflected in today’s undepreciated book value of $18.97. Turning to residential lending, our on-balance sheet loan portfolio ended the quarter at $2.2 billion, down from $2.3 billion last quarter due to repayments of $38 million and a $21 million negative mark-to-market adjustment on the portfolio that was offset by the $31 million positive mark-to-market we recorded last quarter. Our retained RMBS portfolio remained relatively steady at $400 million. Next is infrastructure lending, which contributed DE of $22 million, or $0.06 per share, to the quarter. Our strong investing pace continued with $597 million of new loan commitments, of which $567 million was funded. After factoring in repayments of $320 million, our portfolio increased to a record $3.2 billion. Nearly 70% of this quarter’s commitments were self-originated, bringing our total self-origination volume to $950 million. Also in the quarter, we completed our seventh actively managed infrastructure CLO, a $600 million transaction at a record-low spread of SOFR plus 1.68%. We used a portion of the proceeds to repay CLO 3 for $330 million. CLOs now represent 75% of our infrastructure debt, providing a durable, nonrecourse, non-mark-to-market financing. Turning to our property segment, we recognized $29 million of DE, or $0.08 per share, across all three major portfolios. I will start with a brief comment on our Florida affordable multifamily portfolio, Woodstar. Last week, HUD released new maximum allowable LIHTC rent levels which were set 8.9% higher than last year. Certain properties were in geographies where the rent increases were once again capped by HUD, with the incremental rent growth being deferred to next year. To date, we have recouped 100% of our original equity investment in this portfolio plus an incremental $540 million that we have been able to reinvest across our business line. We have $416 million of Woodstar debt maturing in Q4 and anticipate another cash-out refinancing, again affirming our valuation on these assets. In net lease, as I mentioned earlier, we are still in the ramp-up phase of this business, which has been quite dilutive following our acquisition eight months ago, a dynamic we anticipated and disclosed at the time. If optimized and at scale, this business would have contributed $0.03 of incremental DE to the quarter. The quarter's acquisition volume was in line with our original underwriting, with $128 million of purchases containing a weighted average lease term of 19.5 years and weighted average rent escalations of 2.5%, bringing our total portfolio at quarter end to $2.5 billion with a weighted average remaining lease term of 17.4 years and zero defaults. As you are aware, we adjust DE for the straight-line rental income reflected in our GAAP numbers. If we were to include straight-line rent in DE, it would add another $0.01 to the quarter. We continue to optimize this platform’s capital structure, completing two notable refinancings since our last earnings call. The first is a new ABS transaction, which was used to replace a more costly issuance that we assumed in connection with the acquisition. The ABS financing totaled $466 million at a weighted average fixed rate of 5.06%, a record-tight spread for this platform. This allowed us to replace $324 million of existing ABS financing, which carried a weighted average fixed rate of 0.65%. The impact on our master trust was a reduction of 44 basis points from 5.73% to 5.29%, a benefit that we will realize in DE over time. However, during the quarter, we recognized a $0.01 nonrecurring DE loss as a result of unwinding the interest rate hedges we had put in place in anticipation of this securitization. The second refinancing was completed after quarter end with the closing of a new five-year $1 billion warehouse facility. It has a 40% lower spread and is nearly twice the size of the in-place financing we assumed at acquisition. These accretive financings combined with the ramp in transaction volume build the foundation for the earnings power embedded in this platform and pave the way to overcoming the $0.03 of dilution that we recognized this quarter. Concluding my business segment discussion is our investing and servicing segment. Collectively, the cylinders in this segment contributed a robust DE of $57 million, or $0.05 per share, to the quarter. Our special servicer, LNR, continues to perform as the positive-carry credit hedge we have long described, with servicing fees increasing to $52 million this quarter. Our active servicing portfolio totaled $9.9 billion while our named servicing portfolio was $95 billion. LNR continues to be the highest-rated special servicer in the country, with a rating of CSS1, the highest rating possible. Our conduit, Starwood Mortgage Capital, securitized or priced $153 million of conduit loans in three transactions at profit margins that were at or above historic levels. We typically see lower securitization volume in Q1 and expect to see volumes increase in the near term. Turning to liquidity and capitalization, our current liquidity stands at $1 billion, which does not include liquidity that could be generated from cash-out refinancings, sales of assets in our property segment, direct leveraging or issuing corporate unsecured debt backed by our unencumbered assets, or issuing Term Loan B where we have nearly $1 billion of capacity today. In addition, we have $9.4 billion of availability across our bank financing lines. We continue to operate at conservative leverage levels, ending the quarter with a debt to undepreciated equity ratio of 2.59x. Also notable this quarter, our board authorized a $400 million share repurchase program on February 26. In March, we deployed the first $20 million of that program, purchasing 1.1 million shares at a weighted average price of $17.67, a discount to both our current stock price and undepreciated book value per share. And one final note, during the quarter, we are proud to have been awarded the 2025 Mortgage REIT of the Year by PERE Credit. The award reflects the breadth and resilience of our diversified platform across market cycles. With that, I will now turn the call over to Jeff. Jeffrey F. DiModica: Thanks, Rina, and good morning, everyone. Let me start with a broader backdrop because it is important context for the quarter. Capital markets have been volatile to start the year, driven largely by geopolitical developments in the Middle East. Treasury yields and credit spreads have moved with each headline, and while volatility has increased, the overall environment remains relatively stable. Refinancing volumes are significantly elevated, with loans originated before the 2022 rate rise facing their final extensions and newer-vintage loans coming out of call protection and taking advantage of spreads that are today at the tight end of their long-term ranges. This backdrop is constructive for our legacy investments and leaves us well positioned to capitalize on new origination opportunities at scale. Starwood Property Trust, Inc. is a differentiated multi-cylinder platform built to outperform in volatile market environments, spanning commercial, residential, and infrastructure lending, owned real estate, and special servicing. This diversification gives us the earnings profile of a credit business with the upside from our large owned property portfolio, our countercyclical special servicer, early prepayment income, and further resolutions in our lending book. We have invested in every quarter of our 17-year history, and when we see outsized opportunities like we have over the past year, we have the firepower to lean in. We have done just that, with nearly $4 billion of investments closed year to date. We are expecting a very robust finish to the first half of the year with an equally strong pipeline extending into the second half. From a portfolio standpoint, we continue to see the benefit of repositioning we began several years ago. Multifamily and industrial continue to dominate our pipeline, and we continue to grow our non-U.S. loan portfolio, where our manager, Starwood Capital, has large originations teams spanning the globe with decades of lending experience. Starwood Capital is also one of the largest private data center owners in the world, with over 150 dedicated people in the sector, giving us the expertise to also make loans on data centers with confidence. Their footprint also allowed us to be a first mover lending in this space, taking advantage of wider spreads on loans that generally have 15 to 20 year leases to investment-grade tenants and fully amortize over the initial lease term. U.S. office represents 7.6% of our assets today, which is well below our peers and represents the bulk of our reserves. Additionally, we only have one life science loan for $56 million, and together, these sectors are less than 8% of our assets, which is extremely low in our industry and allows us to have more certainty regarding potential portfolio outcomes. As Rina mentioned, our overall risk rating fell from 3.0 to 2.9 in the quarter. I will note that nearly half of the over 50 loans in our history that have been risk-rated 4 or 5 have now been resolved or returned to a 3 or lower rating. Also, over half of our CRE lending commitments have been originated since 2024 at a lower basis and with better loan coverage metrics. We still have work to do, but we have meaningfully repositioned the portfolio in this cycle, leaving us in a good position relative to where the market is today. Our approach to credit remains consistent. We lean into situations where we have conviction and control, and we are willing to use our balance sheet and large internal asset management resources to actively manage outcomes rather than fire sale assets at a worse outcome to shareholders. We have a proven track record of successfully stepping in when sponsors stop supporting and investing in assets. Along with our manager, we have the willingness and proven operational capability in house to improve performance and protect and potentially grow value. We continue to make steady progress resolving legacy assets. Nonaccrual and REO balances declined again this quarter, and we have now resolved over $300 million of assets that were previously a drag on earnings. We have additional REO sales in process and expect further reductions in the remainder of the year and in 2027. We did see some ratings migration in this quarter, which is consistent with where we are in the cycle. Two loans moved into the 4-rated category, both in multifamily. The first is an $81 million multifamily asset in Georgia where the current debt yield is tracking below the extension threshold required at the upcoming maturity. Second is a $40 million multifamily asset in Texas where the sponsor had signaled an unwillingness to continue supporting the asset. Both situations are ones we have navigated many times. We have defined action plans, both are being actively monitored, and we are prepared to step in and execute these plans should we need to. Our 5-rated loan category declined by over $200 million, including the $347 million Rina mentioned, offset by our purchase of the $114 million senior position on a large industrial asset proximate to Manhattan. We are working to resolve this asset, and the sponsor has leases under negotiation for almost all of the available space. Successful resolution of this loan, our largest in the 5-risk category, would decrease our 5-rated bucket by over 50%. That progress, along with continued growth in our investment balance, represents the core pillars of management’s plan to grow earnings and dividend coverage as we have outlined in prior quarters. In Infrastructure, a business we are in our ninth year investing in, we committed $597 million at above-trend returns in the quarter. A majority of that activity was self-originated, which allows us to dictate credit and structure while continuing to grow our portfolio and earn excess return. Given our ability to finance this business accretively, these loans are also supported by durable long-term demand drivers from the energy transition and AI-driven power infrastructure build-out, leaving us with a pristine low-LTV portfolio. Our financing is diverse, low spread, and benefits from nonrecourse, non-mark-to-market provisions in our CLOs, which, as Rina said, account for 75% of this segment’s debt. Our net lease platform, Fundamental Income, continues to ramp as per our acquisition plan. We expect volumes to increase throughout the year as the team completes their first year under Starwood Property Trust, Inc. As Rina mentioned, we again made meaningful progress on the financing side in the quarter. The combination of a lower cost of funds and a higher advance rate, which we underwrote and have now executed on, is directly accretive to the ROE of this cylinder and demonstrates what Starwood’s capital markets relationships help bring to this platform. These improvements should help turn this business accretive in 2027, in line with our underwriting, supporting our thesis of creating long-term shareholder value at the expense of short-term earnings dilution we have experienced to date. Our I&S segment again performed very well. The servicing platform continues to act as a positive-carry credit hedge, generating higher earnings during periods of stress. Since the rate rise, we feel the equity market has undervalued the countercyclical nature of this business on our stock, but it proved again this quarter it is a real differentiated earnings contributor with our highest ROE. I would now like to spend a few minutes discussing our low-leverage balance sheet. We have been and plan to continue to tactically increase our unsecured debt as a percentage of our company’s capital structure. Unencumbered assets to move to more stable non-mark-to-market financing is supportive of our corporate credit ratings, which we hope to improve as we execute on this plan. Our unsecured debt continues to trade very well, which we view as a reflection of the debt market’s confidence in our balance sheet and the value of the diversity of our platform. Our next corporate unsecured maturity is $400 million in July, and we have multiple options to address it. We have ample liquidity to repay it with cash or refinance it to take advantage of the strong current credit market backdrop I started today’s call describing. Our access to the debt capital markets is genuinely differentiated. There is no other company in our space with the same footprint across secured, unsecured, and securitized funding channels. Wrapping up, we are the oldest and largest mortgage REIT with an equity base that is larger than our next four peers combined, and as much trading volume as those peers combined, giving shareholders unparalleled liquidity. In our 17 years, we have built a unique diversified business, invested almost $120 billion of capital while successfully navigating multiple cycles, leaving us as the only mortgage REIT to have never cut our dividend. We have a clear path forward: continue to resolve legacy assets while scaling our investment platforms. Progress across each of these areas is tangible, which we expect to improve earnings and dividend coverage. With that, I will turn the call to Barry. Barry Stuart Sternlicht: Thanks, Jeff. Thanks, Rina. Thanks, Zach. And morning, everyone. I apologize up front. I am not feeling well, so I am doing this with a half stomach. Wow. It is an interesting world. I think we would like to say that there has never been so excited and so terrified at the same time. And it is not just the war, obviously. It is what is the impact of AI long-term on the markets, the office markets, the employment base, what will politicians do in the face of potentially job losses, what will happen with Taiwan, which the markets obviously think is a zero risk given the S&P’s daily highs. And I tend to think the real estate sector in general, coming out of the frozen tundra the last three years, we are still recovering the 500 basis point increase in rates most anyone no one saw coming and then the slow descent even though ex-rents inflation had clearly descended. If you think about the world, it is sort of an odd concept. I was in a room with a lot of people out West recently, and I asked people to raise their hand, if you would have expected what is going on in the world—war, oil prices, deglobalization, trade wars—how many people would expect the stock market to be at all-time highs? And it is sort of a strange thing. But in the middle of this, the real estate markets are curing themselves, although it is slow. It is not quarter to quarter. Supply is dropping dramatically in multifamily. Supply is dropping in industrial. Supply is stagnant, almost nonexistent in the office market. Same in retail. Senior housing. All these sectors are benefiting from capital being sucked into other things, including data centers, which is an asset class we play on both the equity and the debt side, which is the moon and beyond, of course with the risk of Taiwan shutting it all down and the party. I am sure the Chinese know. So when it comes to us, we are sitting here as a unique company with these diversified asset business lines. We keep adding new business lines. We have quite a few assets that are not earning a fair return, whether REO or they are nonaccrual loans. When you look at our stock, you are earning from about 75%—something like that—of our asset base. It is not our full asset base. It is almost like valuing a company that has a major tower under construction, and on the balance sheet, it shows up in the work in progress, not as an asset, but when it is completed, it will produce earnings. I think it is the same story today here. We earned $0.39 for the quarter, not a number we are happy with. But if you backed up the dilution, which will go away over time in fundamentals and the triple net lease business, it would be $0.41–$0.42. About a point and a half drag of what we took in the quarter just hits to our earnings from the REOs. And some of those REOs, when fixed up, we expect to actually make money on, but it takes time. We have a property that the developer will lose several hundred million dollars. We will take it back, and we expect to be able to lease the whole thing and hopefully sell it at a gain. And those are the kinds of opportunities, but they are not quarter to quarter. But with that confidence, we stepped up and bought stock in the quarter. We actually cannot buy stock when we go into blackout period, so that stops several weeks before earnings. We will continue to repurchase stock because it is a pretty good investment for us. Some of our businesses are really spectacular at the moment, and they are masking some of the noise—the less than spectacular parts. The special servicer is cranking. Amazing this far along in the cycle. We still have $100 billion in named servicing and almost $8.5 billion active in the servicing book, and it is not going to be going down. There is still a lot of distress. Rates are still higher. I should have mentioned when I talked to you about what would you think of the world, the 10-year—well, hovering around 4.40%, 4.36%, 4.32%, 4.42%. I mean, that is materially higher than I think most people would think. We are pressing on. We are creating unprecedented deficits, but equity markets do not seem to care very much. Again, I am finishing the thought. This is all good for real estate. The tide had gone out and the tide is turning. We are going from headwinds to tailwinds. And there are really three things behind the tailwinds: one, the reshoring in the United States. We have been bringing back all of these plants, equipment, creating demand for industrial. That is a real trend. It is starting. It is not a massive tidal wave, but you are beginning to see the impact a little bit. Two, supply, which we talked about, and three, interest rates, because the forward curve is still lower. And the markets are very confused, as most executives are, about a world of, I think, post–World War II record low consumer confidence, but retail spending continues up. And I tend to think the posted GDP numbers are sort of illusory. You can talk about them as being great, and they are what they are. But they are really driven by two things: AI spending, which is not felt by the average American, and by productivity gains. And that kind of GDP is not the kind of GDP that normally would send U.S. consumers to the store. And as you know, consumption is 70% of GDP. So it is a miraculous economy, but it is not your grandma’s economy, and it is creating all kinds of odd things. I know. And investors chasing multiples of revenues in the equity markets. So I think we will catch a bid—meaning the entire real estate sector. And I can say that we have recently completed or are about to complete our thirteenth fundraiser of a fund on the equity side, and robust investor demand where a year ago, they would not talk to us. That is really a reflection of the turn in the market, and several of my peers in the asset management business have harped on their recent earnings calls, and we tend to agree things will be getting better. Our pace of our originations is solid. We are all looking for the earnings to come out of the book. We are confident in our ability to pay the dividend. We sit on $1.5 billion of gains in our multifamily book. We actually made $0.05 selling one asset—just one asset—last quarter. So quarter to quarter, we are sequentially up $0.37 to $0.39, but chose not to take any of those gains. We are playing long ball, not short ball. And we are confident in our ability to create a dynamic company that is capable of producing superior earnings and therefore dividends. And I want to thank the team that continues to work really hard to continue to lead the market in our field. Thank you. I will take questions. Operator: We will now open the call for questions. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Jade Joseph Rahmani with KBW. Please proceed with your question. Analyst: Hi. This is [inaudible] on for Jade. Thanks for taking the question. It would be helpful to hear your thoughts on the outlook for resolving nonaccruals and foreclosed assets. Maybe comment on the time horizon and, if possible, give a percentage range for resolutions in 2026 and 2027. Thank you. Jeffrey F. DiModica: Yeah. Thanks so much. Appreciate the question. I think we have told you we have resolved over $300 million. We have a resolution that you will see as an upgrade on a lease that was signed for about $100 million in the quarter in Brooklyn that will take an asset that now through three large leases has completely moved from a troubled risk rating of 4 or 5 back into something lower. We are expecting potentially a lease, as I spoke about, on another asset just outside Manhattan, where should we sign that lease, that will go from a 5 or 4. I think I mentioned in my script that 25 of the 53 loans we have ever had at the 4 or 5 have now been either worked out or moved back down. Our strategy is just different than other people’s a bit on these. A lot of people are willing to fire sale to a higher-cost-of-capital buyer potentially with financing when they have a difficult asset. We look at every loan on a present value of the likely outcome to us, and given our access to liquidity, we have chosen to lean in. Rina gave you some examples in the quarter. Even the multifamily that we lost $5 million or so on, we increased occupancy significantly, decreased the delinquencies significantly in the six months or so that we managed that property. Being managed by Starwood Capital, we have people with expertise in these. So we are not afraid to take something back. We are not afraid to stay in. We do not stay in for the sake of staying in, but if the present value of getting the money back today versus investing in the asset—if the present value is higher on the latter, we will do the latter. So we have a few that you will see play out. It will put us over $500 million or so, I think, in the very near future. We are expecting $900 million by the end of the year in our plan, and then another $500 or so million next year in our base plan. That will work most of the way through it. But it is very difficult to judge when you will sign a lease and when something will play out and when the present value calculus for us will turn positive versus negative on making that decision. Analyst: Great. Thank you. That is very helpful. And then separately, it would be helpful to touch on the outlook for net lease and when you would expect it to become accretive. I know you cited $0.03 of dilution, but you also issued ABS and entered into a new credit facility. So any commentary there would be helpful. Jeffrey F. DiModica: Yeah. Thanks so much. You know, this is an interesting one. You all know we were not earning the core dividend at the time we closed this deal in July. We made a decision knowing this business is running exactly at what we expected it to run in the short run. We knew we had to optimize the financing. We knew we would get originations up. We made a decision to take on negative DE for up to six quarters. I think when we did it, we told people it would become accretive in ’27. And so it is not often that a company like us takes six quarters of negative DE at a time where we are not earning the dividend. But we did that because we wanted to own this platform. We were buying a platform that we knew would be short-term dilutive, and as you look at the rent bumps over a number of years, it becomes very accretive down the line. So as large shareholders with management and our board, we looked at the long term here. We are obviously paying a penalty for it in the market today because missing a number, as you see in today’s stock price, is not something that bots like very much, but we set this up for the long term. We think the business will perform. As you said, we have now optimized the financing, which should start kicking in and help it turn to be accretive in 2027. It becomes very accretive beyond that. But I will turn it to Barry for any other comments that he might have. Barry Stuart Sternlicht: Well, a couple things. One, the fundamental business, if it traded separately, would probably trade at a 5% or 6% dividend yield, and it is tucked into us, and, obviously, it is hurting us when in fact it has probably got significant value as a stand-alone business, which is not lost on us. So one way or another, we are going to get this thing to scale or spin it out or do something that will create the value that is in the business. We are not using straight-line accounting on their leases. Some of our peers do that. With that, I mean, our yields would be significantly higher even this year. So zero defaults, percent-occupied portfolio, growing at about the pace—I would say it is growing at the pace we underwrote, but not nearly as fast as I would have hoped. So and that is one of the reasons you see the dilution. I think you have to look at us—just answering the former question—we are going to work as fast as we can to repair these nonaccrual assets and the REO assets. But, as Jeff mentioned, we do not have the need to give them away. At the end of the day, we are real estate guys. And so what you see in most of these assets, especially the ones that get in trouble, is the borrower just stopped taking care of them. Right? So you have a portfolio of multifamily that has rooms out of service because he just did not care because he is going to lose the asset, or you have tenants that will not take on an office asset because the borrower has no desire or any need to put in tenant improvement dollars. He is just flushing his cash. You get these, in some cases, really good assets that have been abandoned by the borrowers. It takes time to actually get them back to stabilization, and then you sell them. It is not—sadly, it is—you know, it would be easier if this was a closed-end fund kind of thing. And it is not done to optimize earnings quarter to quarter. It is done really to maximize return on the capital that we invested behind these properties. So and we are blessed with the fortress balance sheet, so we can put the money into convert—as we are—1201 K Street in D.C., which is being converted from an office building to a rental. And in the time that we have taken, the underwriting rents have gone up, so our yields on cost would be even better than we thought and expect they will be. Did not seem to fire half of D.C. So when we complete that—but that is not going to get done for another year, or year and a half. And so that is the kind of situation. We are confident. We are major shareholders of our stock. As you saw, we repurchased stock. So we are confident in our ability to weather the storm and continue to pay the dividend. And wait for cleaner numbers, frankly. The data is not bad. It is just not very clean. So we know all that. Operator: Thank you. And as a reminder, if anyone has any questions, you may press 1 on your telephone keypad to join the question and answer queue. Our next question comes from the line of Gabe Poggi with Raymond James. Please proceed with your question. Analyst: Hey. Good morning. Thanks for taking the questions. Kind of a piggyback on the last question, $0.48 of the dividend coverage is the goal. Help us—or me—shape kind of where we are in that timeline based on these first quarter results. I know, Barry, you said there is a lot of noise in it and the dilution from net lease, etcetera. But how should we think about kind of the timetable to get to $0.48 as you are working through nonaccruals, as you are taking time with REO and being patient, etcetera, etcetera? That is question one. Rina Paniry: Thanks for the question. So as I mentioned in my remarks, I think we are there on a recurring basis today. Right? We are not there on a reported basis. So we need to work through—we talked about Fundamental, and we think that that becomes breakeven, call it, early next year and then accretive thereafter. We think on a recurring basis we would be in excess of the dividend at some point, probably late next year. We had higher-than-normal cash balances that we talked about last quarter. We raised excess financing on our Woodstar refi. We had two debt raises. So we are still fighting the cash drag from having over a billion dollars of cash for the quarter. So we need to get the money deployed, and I think that will help. But I would say you are not going to see kind of above on a recurring basis until next year, some point. And we still have to work through the REO assets. Jeffrey F. DiModica: That is right. We have been saying that consistently, though, for a while—that the back half of ’26 gets to get into ’27. That is when we hope. And, you know, there are little nuances along the way. Let us talk about cash drag. We do not tend to whine about the timing of cash flow. But in this quarter, of the $1 billion of sub-CRE loans, 57% of them were funded, which means 43% were not. On average, they were only funded for 27 days on that 57%. So we are getting very little credit there versus, in the quarter, our repayments are outstanding for 64 days. That probably cost us a penny or two as well. There are just small nuances, but I think if you normalize Fundamental, you go into the upside that Rina talked about and the other businesses, we start to get down—as per the plan I just told you—on nonaccruals, etcetera, and we continue to originate at this very elevated pace with great quality originations. We are really proud of the book that we are building over the last couple of years, half of which is 2024 and beyond originations. It will all come together as we turn the year to getting to that $0.48 that actually is reported in the box more than today’s. Barry Stuart Sternlicht: I am going to be more optimistic than Rina and Jeff because I know about some situations that we will trigger. And if we have to sell some assets to be able to redeploy the capital at the 12%–13% ROEs, then we will do it. I think there are some loans that are toggling to becoming accrual again. They are material. And I would expect at least one of them to have resolution certainly by the end of this year. And with that, there might be a material—it is a material earnings mover for us. So I do think it is unacceptable to have $0.11 or so or $0.12 of dilution from Fundamental. So that is not a stable situation. If it does not get better, we are going to put it in the rightful home, which may not be here. So it is not acceptable. Even though the businesses are performing well, the noise is too much for shareholders to comb through. We could invite you into the house and show you our assets, and you would see the values are all there. And our ability to earn the dividend and exceed it is certainly in the house. It is just—we told you about this last quarter—it is going to be a rocky road to get there. It is a puzzle. And we have to manage it in the best way to maximize returns to the shareholders. We are, as I said, large shareholders, so we are very motivated to do the right thing. Getting back to the $0.48, obviously, would be the holy grail. It is the only thing that we did with CRE lending—that is 52% of our business. We have $1.4 billion of gains, Gabe, away from this. We have always had recurring, nonrecurring gains that come from things. The servicer had a good quarter this quarter. SMC often has a good quarter. It was light this quarter. We used to get a lot of prepaid penalties. Those are coming back in this tighter spread environment. We are going to start getting prepaid again. All these recurring, nonrecurring things will get us over that number, never mind the fact we have $1.4 billion of gains sitting outside of it. I think the construct to hold somebody to earning it all in the core—where you take the stock down significantly—does not really apply as much to a well-diversified company that has always had recurring, nonrecurring gains. And we will have recurring, nonrecurring gains through the rest of this year. Analyst: Thank you for that. That is all very helpful color, especially on the timing stuff, Jeff, and I fully appreciate that it takes time to work through this. Follow-up: Jeff, you had mentioned that there were some REO kind of potentially in the sales process or beginning to kind of kick that ball down the road. Is there any more color you can give on that as it pertains to—you took some keys this past quarter—kind of what we are looking like potentially, and Barry just alluded that where some of those sales, if those sales could be pulled forward to reallocate capital? Jeffrey F. DiModica: Yeah. We prefer to let you know when they happen because the markets move pretty quickly. There are two or three that we think happen fairly soon. There are a couple of leases that could move some nonaccruals away from nonaccrual. I think you will see that and then with some potential upgrades. But I do not want to signal any of the sales quite yet, but you know, I gave you the sense that we hope to get through $900 million this year and $500 million next year off that list. And that will be a combination of a number of things. But nothing imminent that we are going to report here. Analyst: Got it. Thank you for the comments. Zachary H. Tanenbaum: Thank you everyone for joining us, and we will see you again next quarter. Operator: Thank you. And ladies and gentlemen, this concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Greetings, and welcome to the Construction Partners Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Rick Black, Investor Relations. Please go ahead. Rick Black: Thank you, operator, and good morning, everyone. We appreciate you joining us for the Construction Partners conference call to review second quarter fiscal 2026 results. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of constructionpartners.net. Information recorded on this call speaks only as of today, May 8, 2026. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call that, by their nature, are uncertain and outside of the company's control. Actual results may differ materially. Please refer to our earnings press release for our disclosure on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted net income and adjusted EBITDA and adjusted EBITDA margin. Reconciliations to the nearest GAAP measures can be found at the end of our earnings press release. Construction Partners assumes no obligation to publicly update or revise any forward-looking statements. And now I would like to turn the call over to Construction Partners' CEO, Jule Smith. Jule? F. Smith: Thank you, Rick, and good morning, everyone. We appreciate you joining us for today's call. With me this morning are Greg Hoffman, our Chief Financial Officer; and Ned Fleming, our Executive Chairman. I'd like to begin by thanking our approximately 7,000 employees for their hard work and excellence in achieving a great second quarter, exceeding profitability expectations and growing backlog, which allows us to meaningfully raise our outlook for FY '26. While the financial results of focusing on our family of company's culture are hard to measure, we know that building a great culture does have a real impact on bottom line results. At CPI, we hold ourselves accountable by constantly measuring several key areas of cultural health. First, we focus on keeping a low turnover of employees, which increases the experience and stability of our workforce. Second, we strive to lower benefit costs, so we maximize the take-home pay to our employees' families. This helps us attract the most talented folks to our teams across all 110 local markets. And finally, every year, we survey all 7,000 employees for honest and candid feedback, which gives us vision on how to improve and innovate as a company. Maintaining this focus on our culture will continue to drive performance and produce great results. In Q2, we grew revenue, adjusted EBITDA and backlog. Favorable weather in the quarter provided the ability to advance work efficiently and exceed expectations. We play an outdoor game. And when we have dry weather, we can work more days and consequently increase our volumes. Looking at the cost environment during Q2, energy volatility had a limited impact on results due to the protection of the liquid asphalt index on more than 80% of our total revenue, the physical hedging of diesel fuel and the oil price hedging mechanism inherent to our vertical integration at the liquid asphalt terminals. Today, we source more than 50% of our liquid AC needs internally. As we look to the future relative to building our backlog, our pass-through cost model reacts quickly to rising commodity prices. Turning now to the demand environment. Construction project demand throughout our footprint remains strong for both public infrastructure work as well as commercial development for new construction. Our teams are actively bidding and building a wide range of commercial projects. A few examples to highlight. In Texas, Four Star Paving is working on a portfolio of eight data center projects totaling approximately $100 million of contract value. In Tennessee, our new acquisition, Four Star Paving currently is working on 12 warehouse projects in the dynamic Metro Nashville market, totaling a contract value of approximately $28 million. And in Alabama, Wiregrass Construction is working on a Mag 7 data center in the Northeast region of the state valued at approximately $4 million. Taken together, these projects reflect an expanded backlog and pipeline of opportunities entering the second half of our fiscal year. These are just a few examples of the approximately 1,000 commercial sector projects we will participate in building this year across our eight and over 110 local markets. On the public side, both the federal and state governments are continuing their investment in infrastructure to keep up with the growing economies in the Sunbelt. This is particularly true with the small- and medium-sized recurring maintenance projects fora state DOTs, cities and counties that represent a majority of our work. Some examples new public projects include -- in the Houston area, Burwood Green has won several multimillion-dollar projects, which are part of the city's infrastructure preparations for the upcoming FIFA World Cup this summer. North Carolina, Fred Smith Company won a contract for multiple road widenings and improvements valued at approximately $150 million to prepare for the U.S. opens returned to Pinehurst in 2029. And in the Florida Panhandle, CWR is working on a taxiway reconstruction project at Eglin Air Force Base added approximately $27 million. These projects represent just a few of the different type of public projects we are working on today. With respect to federal funding for the Surface Transportation program, we continue to engage in productive discussions with key members of Congress regarding reauthorization. Encouragingly, both parties and both chambers are actively working to release a markup of the bill this month to advance a new 5-year authorization somewhere in the $500 billion to $600 billion range. This would represent a substantial increase in investment in our nation's transportation infrastructure. Turning to our growth strategy. Last month, we completed our latest strategic acquisition with the purchase of Four Star Paving, the premier commercial paving contractor in the Nashville Metro area. I want to welcome all the great folks at Four Star Paving to the CPI family of companies. Their assets and customer relationships across Central Tennessee will serve as a valuable extension of our platform company in the state, PRI. Four Star represents our fourth acquisition in fiscal 2026 and our 17th since the beginning of fiscal 2024, underscoring the continued momentum of our disciplined M&A strategy. These acquisitions are all fully integrated and meaningfully contribute to the growth of our financial results. Today, the generational transition of family companies continues in our industry, and we have a robust pipeline of attractive acquisition opportunities across our existing footprint and adjacent states. We remain in active dialogue with a number of prospective sellers. We also remain focused on organic growth as a strong driver of shareholder value. Our new Gastonia, North Carolina greenfield will begin operations this quarter and soon will be servicing a large $60 million contract expanding and widening 85 through Gaston County near Charlotte. As a key part of our organic growth, there are several more greenfield facilities that we plan to bring online later this year and early next year. Before turning the call over to Greg, I want to reiterate that our family of companies is now in our busy work season, executing on a record backlog and continuing to deliver excellence to our customers in both the public and private markets. As reflected in our revised guidance, we expect fiscal year 2026 to be another strong year, reinforcing our confidence in achieving our ROAD 2030 growth plan to double the size of the company generate $1 billion of annual EBITDA and expand EBITDA margins to approximately 17%. And with that, I'd like to now turn the call over to Greg. Greg? Gregory Hoffman: Thanks, Jule, and good morning, everyone. As Jule mentioned, we reported a strong second quarter, maintaining the outperformance we experienced in Q1 to start the year. I will review the quarter in more detail before discussing our raised outlook ranges. I'll start with a review of our key performance metrics for the second quarter of fiscal 2026. Revenue was $769.2 million, an increase of 35% compared to last year. The breakdown of this revenue growth was 11% organic and 24% acquisitive. For the fiscal 2026 year, we continue to anticipate organic growth of approximately 7% to 8%. Gross profit in the second quarter was $98.9 million, an increase of approximately 39% compared to last year. As a percentage of total revenues, gross profit was 12.9% compared to 12.5% last year. General and administrative expenses as a percentage of total revenue in the second quarter were 8.3% in FY '26 and 8.2% in FY '25. Net income was $9.2 million and adjusted net income was $10.4 million. Earnings per diluted share for adjusted net income was $0.18. Adjusted EBITDA was $93.3 million, an increase of 35% compared to last year. Adjusted EBITDA margin for the quarter was 12.1%. You can find GAAP to non-GAAP reconciliations of net income and adjusted EBITDA financial measures at the end of today's earnings release. Turning now to the balance sheet. We had $77 million of cash and cash equivalents and $150 million available under our credit facility at March 31, net of a reduction for outstanding letters of credit. As of the end of the quarter, our debt to trailing 12-month EBITDA ratio was 3.23x. We remain on pace with our strategy of reducing the leverage ratio to approximately 2.5x to support sustained profitable growth. To that end, we anticipate cash flow generated during the third quarter to fund the Four Star Paving acquisition without the need for additional long-term debt. demonstrating the strength of cash flow from our operating model. In the second quarter of fiscal 2026, cash flow from operations was $65.2 million. up from $55.6 million in Q2 of fiscal 2025. We expect to convert 75% to 85% of EBITDA to cash flow from operations in FY '26. These are our new ranges. Revenue in the range of $3.59 billion to $3.65 billion, net income in the range of $159 million to $162 million, adjusted net income in the range of $170.4 million to $174.2 million, adjusted EBITDA in the range of $552 million to $564 million and adjusted EBITDA margin in the range of 15.38% to 15.45%. Lastly, as Jule mentioned, we had a project backlog of $3.14 billion at March 31, 2026. We have approximately 80% to 85% of the next 12 months contract revenue covered in backlog. And with that, we will open the call to questions. Operator? Operator: [Operator Instructions] Our first question will hear from Kathryn Thompson with Thompson Research Group. We are having some technical difficulties. Please, standby. Rick Black: Sorry, everyone. We appear to have technical difficulties right now. Operator, can you provide an update on being able to put in our questioners? Operator: Just one moment, please, while we try to reconnect. [Operator Instructions] Operator: I can take the next available question we have from Kathryn Thompson of Thompson Research Group. Kathryn Thompson: All right. Well, it's the case of the Fridays. I wanted to follow up on -- this has been a fairly active year with M&A. And as we think about modeling for the back half of the year, in light of companies you've acquired, how should we think about contribution from acquisitions, margin profile and any other factor we should think about when taking into account these acquisitions. F. Smith: Yes. Kathryn, I'll speak to just the M&A environment since you asked. And call on Ned, who works closely with us on just growth strategy. And then Greg can give you sort of the modeling question. But we've had a busy year with M&A. We continue to talk to a lot of folks in a number of states. I mean, we said that the three acquisition -- platform acquisitions we did last year, would create opportunities in those states. And you saw that happen in Tennessee this past 30 days with Four Star Paving. So we're busy. We're talking to a lot of folks trying to make good decisions. I'm going to turn the call over to Ned and then Greg. Ned Fleming: Thank you, Jule. I think, Kathryn, it's really interesting, having been part of this now for 26 years. We continue to see an industry that's in growth mode. I don't think anybody goes anywhere where they say, "Wow, the roads are perfect." And so the demand curve for that with the voters has increased over time. So you've got a large growing industry. The demographics are still moving toward the Sunbelt, which is really our focus and will continue to be our focus. We see more and more people moving there, more and more businesses moving there. if you were just to go chart even data centers, more and more data centers moving there, which creates opportunities for us. And you still have an industry that's very fragmented where generational transition is happening and people every year, people are getting older. And so we see more and more opportunities. It's almost amazing. We see a lot of bolt-on opportunities because of the new states that we've entered. We're seeing real benefits in Texas from doing the acquisitions in Houston, and that's just a booming market, both from the standpoint of public services as well as private enterprise and commercial. And the last piece is we still -- there's no technological obsolescence. I mean there are ways for us to utilize, and we're looking at that, utilizing technology and AI, and there's some really terrific benefits for the company, and I think we're way ahead of the curve on all of that. But AI is not going to lay asphalt or pave the road or greater road. So for us, I think we see an environment that's almost better today than it was 25 years ago for growth. And we see a lot of opportunities that we pass on. So I think as you look to the back half of this year, you'll see us do some acquisitions that we think are strategic where it fits the culture where there are great long-term benefits as we move into those territories, both bolt-ons. We also see new platforms in new states. I don't know that we'll do any of those at this stage of the game, but we certainly see them. So growth is -- good at this stage of gaming continues to be a bright future. Gregory Hoffman: Yes, Kathryn. As far as your modeling questions, so the remaining 6 months, we'll have about $225 million, $235 million of acquisitive revenue. If you do the math there on the center of our guide, that puts us about right in the heart of that 7% to 8% organic growth with our 11% in Q2. Organic growth, that kind of is a 7% to 8% organic guide all year. Kathryn Thompson: Okay. That's very helpful. And then you touched on in your prepared commentary, some various jobs in major markets, Texas, to Tennessee and along the East Coast. Are you seeing any change in the momentum either positive or negative with that reindustrialization trend? And maybe putting a finer point to it. If you look at the types of jobs that you have in your backlog today, how does it look today versus 2 years ago? F. Smith: Yes, Kathryn. When we look at our backlog, as we've talked about from several years ago, we still have a good breakdown of public and commercial projects, but the commercial projects are much more weighted and favoring manufacturing and corporate centers and warehouses. And so the reindustrialization trend that started with COVID supply chains and that has sped up this past year to 18 months is affecting our opportunities. There's no question. I think Q1, our country had record investment in capital infrastructure, and the Sunbelt states are getting a lot of that investment. The article just came out this week at NVIDIA and Corning are investing $2.7 billion in three facilities in North Carolina and Texas. And those are two of our key states, and we're going to look to participate in that investment. So I would say, if you think the reindustrialization is going to be a tailwind for the next several years. Operator: The next question is from Rohit Seth of B. Riley Securities. Rohit Seth: This is just on the liquid AC and the diesel and the energy shock. Is there any sort of timing delay between when you incur those costs and when you get the rebates from the DOTs on the escalators as we think about going into the third quarter? Gregory Hoffman: Yes, Rohit. No, actually not. They're settled monthly in the progress payment that we get from the states. So literally, they're taking from the time we bid the job, the date we bid the job, the index then and comparing that to the date we made it. And then in that month, that settlement is done in that month payment. Rohit Seth: Okay. All right. And then just regards to the IIJA reauthorization and your ROAD 2030 target, when you contemplated that ROAD 2030, were you of the view that funding level is going to come out to the $500 billion to $600 billion that you mentioned on the prepared remarks? F. Smith: Yes, Rohit, that's a good question. And I would say the answer to that is no. We anticipate that each year, the investment in infrastructure at the federal level will go up because it always has. And so -- but we don't assume some 20% to 30% to 40% increase that could be part of this reauthorization that we're hearing in the $500 billion to $600 billion range. That's not something that we model in. It would be nice. I think it would be good for our country. But no, we just assume a normal mid-single-digit bump each year, which is what's happened for the last 3 decades. Rohit Seth: Okay, fantastic. And then on the data centers, you mentioned several data centers. Is that becoming a more sizable portion of your book? Like is there a way to frame the size of the impacts relative to the size of the business at the moment? F. Smith: Yes. I would say, Rohit, that it is becoming more of a part of what we do because there's more being built in our markets. And as we get involved with the people building data centers, we build relationships and so that's allowing us to have more opportunity to participate up front and helping them plan their projects and participate in them as they're built. So we see data centers as a really good opportunity across a number of our states for -- I mean, you know the investment they're talking about for the next 5 years. So these are really nice opportunities for us. Operator: The next question is from Michael Feniger of Bank of America. I do apologize. It looks like Michael -- we just lost his connection. So we'll just go to the next questioner for now, Andrew Wittmann of Baird. Andrew J. Wittmann: I guess I just wanted to dig in a little bit more on crude here. Maybe, Greg, first, can you -- can you talk about what the kind of crude energy at liquid asphalt assumptions are in this revised guidance? Obviously, the margin percentage range didn't really change very much, but I still wanted to understand how you're thinking about that? And maybe just to kind of put a stake in the ground, can you talk about quantify maybe the impact year-over-year that those prices did have in the 1 month of the quarter that was affected? Gregory Hoffman: Yes. Sure. So we're using diesel and natural gas to run our equipment in our plants. Liquid AC just for the audience goes into making hot mix asphalt. Our guide really certainly is cautious, and we're concerned about the future, like everybody is. But we don't think that it really is going to make a huge difference for us because I think liquid AC and what we have at our terminals is driving a little bit of the offset and maybe what we're seeing in diesel. And then natural gas has been steady. So no increases there that we're having to deal with. It really didn't have much impact, as Jule said in his remarks in the first quarter. Andrew J. Wittmann: But my understanding I mean, presumably use first in, first down accounting on your liquid AC in your terminals. Can you maybe just remind us how many months of production you have there, recognizing that I think you said that you supply about 50% of your own liquid AC. So some of that -- are you bought under contract for the other 50%? Or -- and I know you got pass-through for 80% with the customers. But just trying to understand how the FIFO accounting is a factor, if at all. Gregory Hoffman: Yes. It is, certainly. I mean, if you were following liquids in the quarter, it actually was going down for the first couple of months. In fact, our average pricing in the terminals was less than it was at $9.30 per ton and less than it was this time last year per ton. So kind of what I meant about what I said earlier is that as liquid -- as prices go up, but we have in that terminal, each of those terminals, the value increases. So that's powerful for us. But in terms of -- we have 2, 2.5 months this time of year of availability for liquidity. Andrew J. Wittmann: Okay. And then just maybe a final one. I just wanted to, Jule, get a little bit more sense here as we're getting into the real busy season here. And just maybe you could talk about your April awards. The backlog, I think, sequentially, you had a lot of burn, but kind of sequentially kind of flattish organically. So just as we evolve into the real busy season, just thought I'd have your comments a little bit about what you've seen in April so far, getting a sense there. And I know you always say that your outlook for backlog is lumpy. Obviously, your quarterly performance since the IPO has been almost entirely up and to the right every quarter. But I just want to kind of get your sense on how the quarter and the year are evolving if your expectation would continue to be for a book-to-bill from here on out for the year over 1. F. Smith: Yes, Andy, I mean, as I've said many times, and it continues to be true, we're pleased with the amount of opportunities we have to bid. On the private side in our markets, we're still seeing a good amount of opportunities. And on the public side, our state and local DOT contract awards are going to be up this year. Somewhere between 10% and 15% overall. So we're bidding a lot of opportunities. But with the size backlog we have, we can bid patiently, and which we're doing. So I feel like backlog is going to continue to build. Having said that, as we've said now for 20 quarters, historically, backlog has gone down sequentially in our busy work season. But for the last 20 quarters, it's gone up. But it would not surprise us or bother us if in our busy work season, it went down sequentially. That would be just fine. So we hope we have the weather and the opportunity to burn off a lot of backlog in these next 2 quarters, and we're going to continue to build it. Operator: The next question is from Michael Feniger of Bank of America. Michael Feniger: I guess the first question, just with these data centers, obviously, with these mega projects, big projects. Is this changing your overall average project? Does your risk profile, Jules, change at all as maybe you do more private work for these big projects? I'm just kind of putting that in context as we've kind of always known you guys as kind of doing a lot of these smaller scale projects. I'm just kind of curious if the risk profile is evolving with these larger projects. F. Smith: Yes, Michael, that's a fair question because, obviously, when I give projects to highlight, I don't necessarily highlight the $2 million or $3 million county resurfacing, but that's still the vast majority of what we do. I don't think our risk profile has gone up. We always have and have had larger projects that we work on, on the commercial side and the public side. But no, our overall average project size really hasn't changed at all other than inflation. So our strategy is still the same. We're going to work on a lot of projects in the $2 million to $3 million range and that have less risk, higher margins. But we are going to continue to do these projects where we have an opportunity to work on data centers in our markets. Michael Feniger: Perfect. And Greg, maybe on just the liquid asphalt question with the run-up in diesel. Can you just help us -- some questions we're getting from the audience is from the investor community is there's been periods when you've seen a spike, and we would see it show up in the gross margin at some point in prior periods, we've seen a spike in oil and diesel. So I guess, Greg, how have things kind of changed in terms of how you guys have managed liquid asphalt? I think you guys now have terminals, you guys have more storage capabilities. Just help us understand how things have maybe changed versus the last time we've seen spikes in inflation, particularly when it comes to diesel and how we should think about it going forward for you guys now? Gregory Hoffman: Yes. Good question. So yes, let me start by just saying we've said for a while, and I'm sure we'll continue to say that when prices go up, there will be a slight headwind. When they go down, there will be a slight tailwind. So certainly not immune, but have evolved to your point, since the last spike, liquid AC certainly terminals and having that essentially inherent hedge in our vertical integration operation, but also a more mature hedging program of for liquid -- I mean, I'm sorry, for diesel and natural gas. So all of those things help. We're not managing to 100% trying to manage 100% of our risk away. We can't do it. But we certainly try to manage some of that risk. Michael Feniger: Helpful. And just -- I guess I'll sneak one more in, Jules. Just if we do wake up in a couple of months and it's a CR, how do you -- continuing resolution, how do you see DOTs in your state responding? Do they pivot in terms of some of their projects? Do you pivot and say, all right, let's go after more private work? Or do you think it kind of continues to be status quo for a few more months until we hopefully get a actual bill? Just kind of curious how you're thinking about it, how people on the ground are thinking about this as we head into that October time period. F. Smith: Yes, Michael, working under a continuing resolution or CR is something that we've done several times in our industry. And it largely feels like business as usual. The states continue to work because they are still funding, and you just fund at the same levels. So if there was to be a continuing resolution this fall going into 2027, it would be at record levels because 2026 is a record investment in infrastructure. And probably the states would continue to do the maintenance jobs, the small- and medium-sized jobs. They may on mega jobs, say, let's wait and see what happens. But for what we do, it's very much business as usual. I'm going to call them -- give it to Ned to. Ned Fleming: It's an interesting question. But if we look at it from a historical perspective, I believe 6 of the 8 years of the Obama administration was continuing resolutions, and we continue to grow this business at over 20% a year. So it's going to be, as Jule said, business as usual. historically, we understand it. The states understand it. We don't -- hopefully, this time, we don't anticipate it certainly being the length of time that the last -- the Obama administration had. Operator: The next question is from Adam Thalhimer of Thompson, Davis & Company. Adam Thalhimer: Can you provide some additional details on Four Star. I'm curious how it fits in with the existing Tennessee assets and how many employees they have? F. Smith: Yes. Adam, if I remember correctly, there are about 150 employees in Tennessee. And they -- it's a great fit. I'm glad you asked that question. So PRI, our platform company in Tennessee does a lot of public work. There's a lot of payment preservation. And Four Star does a different type of work. We've known Four Star and those guys for years. They're a great FOB customer for us in Nashville, but they are the premier commercial paving contractor in the Nashville Metro area. They work about a 70 to 80-mile radius around Nashville. And they just have deep relationships with the developers and general contractors and I mean you know how fast Nashville is growing. So these guys have just built a great reputation and business in that area. So we enjoyed getting to know these guys over the last few years and talking about what it might look like for them to join our family of companies, and we're really excited about what they bring to the table. Adam Thalhimer: Nice. Thanks for that. And then liquid asphalt, you said over 50% supplied internally. Do you have a goal to raise that up? Or is that the right percentage for the business long term? F. Smith: Well, good question. I will, first of all, say, just as I said in my prepared remarks, liquid asphalt, over 80% of our use is indexed. I think people might not realize that, but over half of our private contracts, we have an index. And so we want to make sure and call that out. Liquid asphalt, over half of what we use now is internally sourced and we have -- it's our goal to grow it as part of our vertical integration strategy to enhance and grow our margin profile being able to source more of our liquid internally at the wholesale and pass it through at retail. That's a big part of our strategy. So our goal is to increase that percentage over time. Operator: There are no further questions at this time. I would like to turn the floor back over to management for closing comments. F. Smith: We want to thank everybody for joining us today, and we look forward to talking in the future. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines, and have a wonderful day.
Operator: Hello, everyone. Thank you for joining us, welcome to the CareTrust REIT, Inc. First Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. Please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Lauren Beale, CareTrust REIT, Inc.'s chief accounting officer. Lauren, please go ahead. Lauren Beale: Thank you, and welcome to CareTrust REIT, Inc.'s first quarter 2026 earnings call. We will make forward-looking statements today based on management's current expectations, including statements regarding future financial performance, dividends, acquisitions, investments, financing plans, business strategies, and growth prospects. These forward-looking statements are subject to risks and uncertainties that could cause actual results to materially differ from our expectations. These risks are discussed in CareTrust REIT, Inc.'s most recent Form 10-Q filing with the SEC. We do not undertake a duty to update or revise these statements except as required by law. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO, and FAD. A reconciliation of these measures to the most comparable GAAP financial measures is available in our earnings press release and Q1 2026 financial supplement that are available on the Investor Relations section of the CareTrust REIT, Inc. website at caretrustreit.com. A replay of this call will also be available on the website for a limited period. On the call this morning are David M. Sedgwick, President and Chief Executive Officer; James B. Callister, Chief Investment Officer; and Derek J. Bunker, Chief Financial Officer. I will now turn the call over to David. David M. Sedgwick: Thank you, Lauren, and good morning, everybody. Thanks for joining us. The first quarter was a strong start to the year and a continuation of the momentum we have been generating over the past several years. We closed approximately $245 million of investments in the first quarter, and the pace only accelerated from there. Since April, we have closed a dozen separate transactions for approximately $865 million. Just last Friday, on May 1, we closed three of those 12 deals that we have not yet had a chance to announce, including our second SHOP investment. James will provide color on some of the deals we have closed year-to-date and on the reloaded pipeline of $360 million. Our investments team continues to perform at a phenomenal level. What else can you say? I will just reinforce that SHOP is an important part of our growth story, and you should expect to see us continue to build that part of the portfolio with the same discipline and operator-centered approach we are known for. Deal flow continues to be active and interesting across SHOP, skilled nursing, and UK care homes. A quick acknowledgment to some of our unsung heroes here. Our accounting team proves every day to be the best pound-for-pound accounting team around. They have shouldered an enormous load onboarding a massive number of new assets and operators across the US and The UK while continuing to support the next wave of growth. Our asset management group continues to do great work curating a strong portfolio and de-risking it as we go. And every other function across the company—legal, tax, finance, operations, data analytics—shows up in a way that allows us to keep executing at a very high level and transforms a growing portfolio into a compounding portfolio. The results of the hard work and sacrifice of an extraordinary team produced year-over-year FFO per share growth of 14%, a 16.4% increase to the dividend, an upgrade to investment grade by Moody's, and a raise to our FFO per share guidance for the year that, at the midpoint, would be 14.8% higher than 2025. I think you can tell how I feel about my team. Let me talk for a second about our operators. Many of you know I am a recovery nursing home administrator. Several of us here have many years of experience inside the buildings. We have always hoped that our operating history and DNA would differentiate us in how, where, and with whom we build this portfolio. Our tenants continue to deliver for their employees, residents, patients, and communities. We have recently begun a meaningful study of publicly reported CMS outcomes in our skilled nursing portfolio compared to the rest of the sector. The preliminary findings show that skilled nursing operators who lease from CareTrust REIT, Inc. deliver care that is measurably better than the sector averages. With respect to the CareTrust REIT, Inc. facilities included in our analysis, we limited it to those facilities that have been under lease for at least four years to give adequate time for star ratings to adjust to the new licensed operators. We are specifically pleased to observe in our initial findings that, compared to all for-profit operators, our tenants achieve higher overall CMS star ratings and higher health inspection star ratings; and compared to all operators, for-profit and nonprofit, our tenants achieve higher quality measure star ratings, lower rehospitalization rates, and higher successful discharge rates. Now let us take a look at how that commitment to quality care translates to the financial health of our operators. Our overall EBITDAR rent coverage in our stabilized triple-net portfolio remains very strong at 2.25x, and EBITDARM coverage at 2.79x. Broad-based improvements throughout the portfolio continue. We collected 100% of contractual rent and interest in the first quarter, which speaks to the caliber of our tenants and borrowers. Putting it all together, we are in another extraordinary and busy period full of external growth and internal development, as we continue to refine our processes that enable a bigger and better CareTrust REIT, Inc. portfolio. As we continue to position ourselves with urgency to keep the flywheel going, we see steady deal flow across our three growth engines, and the team is firing on all cylinders. We could not be more excited about where we sit today or about what is still in front of us. With that, I will hand it off to James for a report on investment activity and the acquisition landscape. James? James B. Callister: Thanks, David. Good morning, everyone. During the first quarter, we completed approximately $245 million of investments at a blended stabilized yield of 8.8%. Q1 activity was anchored by a sale-leaseback of a six-property skilled nursing portfolio in the Mid-Atlantic leased to one of our quality operators at a yield of approximately 9%. Q1 also included a meaningful tranche of UK care home investments, and a small relationship-driven loan secured by a skilled nursing facility operated by one of our existing operators. Since April, we have closed an additional 12 transactions for approximately $865 million at a blended stabilized yield of approximately 8.9%. Activity was weighted toward U.S. skilled nursing, with a meaningful portion of that volume from an opportunistic transaction with a new operating relationship. The deal came together on a very compressed timeline, and the fact we got it closed is a real testament to the team's solutions-oriented approach and the deep relationships we have cultivated over many years. Beyond that anchor transaction, the period included: one, additional skilled nursing and senior housing triple-net investments with quality tenants across multiple geographies; two, a number of new and incremental loans either to existing operators or borrowers we have admired and desired to work with; three, our second SHOP investment to bring our total portfolio to four communities; and four, additional UK care home activity. We are particularly encouraged by the pace and size of our UK care home pipeline. Since the beginning of the year, we have continued to build momentum and have closed on investments in 10 care homes across the pond to add to our consistently growing portfolio. Putting Q1 and post-quarter activity together, year to date, we have closed approximately $1.1 billion of investments at a blended stabilized yield of approximately 8.9%. Of that total, approximately $705 million has been U.S. skilled nursing or senior housing triple-net; roughly $225 million has been U.S. loans, primarily secured by skilled nursing facilities and either closed concurrently with asset acquisitions or in anticipation of such; approximately $160 million has been UK care homes; and the remainder is SHOP. Our investment pipeline today sits at approximately $360 million. The composition is heavily UK care homes, which represents over half of the quoted pipeline, with another approximately 20% comprised of SHOP opportunities, and the remainder consisting of triple-net—both skilled nursing and seniors housing—and a small amount of loan activity. As always, please remember that when we quote our pipeline, we only include deals that we have a reasonable level of confidence we can lock up and close within the next twelve months, and it does not always include larger portfolios that we are reviewing. A quick note on the current transaction environment. The skilled nursing market remains active, supported by both brokered and proprietary opportunities. Current skilled nursing deal flow is more heavily weighted to off-market opportunities; thanks to our deep operator relationships and the strength of our existing portfolio, we are well positioned to continue pursuing skilled nursing transactions aggressively but with discipline. In The UK, our pipeline is ahead of schedule and growing. We are very pleased with how our London-based team continues to establish the CareTrust REIT, Inc. culture of “by operators, for operators.” That has expanded our ability to do more deals, meet new operators, and source opportunities through broker-marketed processes and direct relationships. We see meaningful upside there over time. In SHOP, while the market remains highly competitive and cap rates keep compressing, we are an active player and continue to see significant opportunity to grow that portfolio over the next several years with the right operators and the right assets. Our disciplined underwriting framework, combined with a strong focus on long-term operator relationships and a commitment to creative, collaborative transaction structuring, will continue to drive sustainable growth across the skilled nursing, senior housing, and UK care home sectors. With that, I will turn it over to Derek to review our quarterly financial results. Derek J. Bunker: Thanks, James. For the quarter, normalized FFO increased 38% over the prior-year quarter to $107.4 million, and normalized FAD increased 33% to $107.6 million. On a per-share basis, normalized FFO was $0.48, an increase of 14% over the prior-year quarter, and normalized FAD was also $0.48, an increase of 12% over the same period. Turning to the balance sheet and capital markets activity, during the first quarter, we settled $129.5 million of gross proceeds under our ATM forward program. Subsequent to quarter end, we settled the remaining outstanding forwards totaling [inaudible] million of forward equity contracts outstanding at March 31, bringing our year-to-date total settled forwards to roughly [inaudible] million of gross proceeds in support of our recent investment activity. As of May 7, we had $350 million drawn on our $1.2 billion unsecured revolving credit facility and approximately $70 million in cash on hand. We continue to have no scheduled debt maturities prior to 2028. As David mentioned, subsequent to quarter end, we also received an investment grade rating upgrade from Moody's. This recognition of our balance sheet strength and disciplined approach to capital structure further expands our access to debt capital and supports our ability to fund continued growth on attractive terms. In yesterday's press release, we raised our 2026 full-year guidance, projecting full-year normalized FFO per share of $[inaudible] to $[inaudible] and normalized FAD per share of $1.98 to $2.02. The midpoints of our updated normalized FFO and normalized FAD guidance represent increases of 14.8% and 13.6%, respectively, over 2025 results, and increases of 4.9% and 3.9%, respectively, compared to the initial 2026 guidance ranges we issued in February. The updated guidance is based on a weighted average diluted share count of 234 million shares and includes the following key assumptions: first, no new investments, loans, or dispositions beyond those made year to date; second, no new debt or equity issuances beyond those made year to date; third, 2.5% inflation-based rent escalators under our long-term triple-net leases; fourth, $145 million of loans to be fully repaid throughout the remainder of the year; and fifth, no material change in the sterling-to-dollar spot exchange rate. Additional guidance measures are detailed in the press release yesterday. Lastly, our liquidity continues to remain strong. As I mentioned, we have approximately $70 million of cash on hand, $850 million of availability under our revolving credit facility, and roughly $879 million of capacity on our ATM program. Net debt to annualized normalized run-rate EBITDA was 0.6x at quarter end, well below our long-term target leverage range of 4x to 5x, and net debt to enterprise value was approximately 3.6%. Aided by an investment grade credit profile, we have ample dry powder and multiple levers across our capital toolkit to continue funding our recent pace of investment activity. And with that, I will turn it back to David. David M. Sedgwick: Thanks, Derek. We hope that the report has been helpful. We appreciate all the interest and support. We would be happy to take your questions at this time. Operator: We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from Farrell Granath with Bank of America. Please go ahead. Farrell Granath: I want to dig in a little bit deeper on your comments about larger portfolio considerations that are not currently contemplated in guidance. Can you give a little detail on maybe some larger portfolios you were evaluating year to date that potentially you passed on and maybe why that would have happened? David M. Sedgwick: Well, when we quote our pipeline, as you know, we have the custom of not including larger portfolios that we are pursuing, because even though we may have a strong interest in them, sometimes they are fishing expeditions by the sellers and they may not be real. It is a lower probability of landing those, and a prime example is what just happened with this large deal in California. That was something that actually materialized very quickly that could not have been included in our previously quoted pipeline. So that is just our practice to not get too ahead of things. Sometimes the deals, either we decide to pass on them or they decide to go a different direction. Farrell Granath: Okay. Thank you. And also, in some of the previous earnings calls of peers, we have heard added commentary of increasing competition also in the SNF market—that it has been difficult to transact, less product is coming to the market, and also this larger increase in private capital. I am curious if you can add a little bit more color on the skilled nursing side—how you are able to source so many deals and maybe where you are sourcing them. James B. Callister: Sure, Farrell. This is James. I would say that the SNF market is, at this point, a predominantly off-market environment, if you will, and I think that it has, for a little while, been predominantly relationship-driven. It is a little bit more unpredictable because you are not getting a constant flow of broker deals like you are maybe in SHOP. But I think it has been like that for a while, and I think that the track record we have shows that relationships are just super important. You are typically not going to find a bread-and-butter sale-leaseback at a 9.5% yield with no creativity needed like you may have five years ago, but that has been the case for a while now. So I think it just takes increased creativity. It takes relationship-based deals, and you really have to rely on the off-market relationships in the SNF market today. And I think our track record shows that we have been doing that successfully. Farrell Granath: Great. Thank you so much. David M. Sedgwick: Thanks, Farrell. Operator: Your next question comes from Austin Todd Wurschmidt with KeyBanc Capital Markets. Please go ahead. Austin Todd Wurschmidt: Hi. Good morning, everybody. David or Derek, with the dual investment grade rating and continued improvement in your long-term cost of capital, how do you think of the benefit of achieving this goal, and then utilizing that for maybe some strategic opportunities or even the flexibility it gives for your ability to source even some of the larger portfolios from time to time? Derek J. Bunker: Hey, Austin. I think you hit it in your question there. We have been fortunate to have strong access and support from capital markets to really underwrite and pursue a lot of our activity. With the added benefit of the upgrade from Moody's recently, it only gives us more optionality and expands our access, I think deeper, if we do decide to do an inaugural issuance in the high-grade market. That is certainly on our radar, especially as we grow and start to pad out the balance sheet a little bit. We are excited about it. We really like what we see in the pipeline and beyond just for the next several years, so having that option—we are really excited about it. Austin Todd Wurschmidt: And maybe David or James, within SHOP, you have talked a lot about the competition of the investment landscape. What has been your hit rate on deals that you have bid on? And are off-market opportunities, as you continue to develop even more relationships similar to what you referenced in skilled, the best way to grow that portfolio? What is the current process and strategy to continue to build that out within that segment? James B. Callister: Yeah, Austin, you make a really good point. In SHOP right now, given the amount of competition, if we do get an off-market deal or some other in or unique relationship on a deal that comes through, we are going to prioritize that, see if it works, and make a more heavy run at it. As far as hit rate, it is a small percentage of deals that we see come across the desk that we decide to bid on, and a smaller percentage that we decide to really push and start to stretch a little bit. For the deals that we really push and stretch, I do not know the exact hit rate—it is a competitive market right now. Given the cost of capital we have and the access to capital, if we really decide we want the deal and it fits for us and we are going to stretch, there is a pretty good chance we are going to be in the last one or two and hopefully get it. But overall, it is a pretty low hit rate just given the number of deals that are coming across right now, and much of that low hit rate is based on the fact that we do not elect to pursue most of what comes across the desk. Austin Todd Wurschmidt: And then just lastly, how much would you say cap rates have compressed since you really started to evaluate transactions? James B. Callister: In SHOP, if we are talking about rate compression, it is hard to put an exact number on it. There is a range in SHOP between class A in a primary market versus the best few buildings in a secondary or tertiary market. Right now, it feels like class A in a primary market is going to have a five handle on it, and you go up the range from there. I would say in the last six months, cap rates have probably compressed 50 bps or more. David M. Sedgwick: Thanks, Austin. Operator: Your next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead. Juan Sanabria: Hi. Good morning. I was hoping you could talk a little bit about the loan book. It has grown as a preponderance of the transactions that you did in the first quarter when including the financing receivables. How big are you comfortable with that getting, and can you give color on some of the loans you did? Any options for the operators to buy back the real estate we should be thinking about, or just generally more color on those investments? David M. Sedgwick: Juan, this is David. Our strategy with respect to lending was really established a few years ago and has been a key determinant for the explosive growth that we have had. The key feature of that strategy is that we will only do loans if they include real estate acquisitions or we are confident that they will lead to real estate acquisitions, and the activity that you have seen recently fits and checks those boxes. The real estate that we have acquired came with some loans that were necessary to get the deals done. Even on the financing receivable side, it is a little bit misleading because it is more of an accounting rule that causes what we consider a sale-leaseback to be accounted for as a financing receivable because of the purchase options. But because those purchase options are so far out—nine or ten years—we view that much more as a sale-leaseback. Technically, it will look like the loan book has grown more than it really will feel like it for the next ten years. Juan Sanabria: Great. And then just curious on seniors housing on the SHOP side—how you are thinking about what markets you are looking to target and the type of assets, whether they are core, core-plus, value-add. Where do you think there is the best opportunity for the company? James B. Callister: We are still pretty agnostic on market. We want primary, secondary, and some tertiary, but we are going to look at it on a deal-by-deal basis and pursue it opportunistically. We want to underwrite to a low double-digit IRR, and we see a lot of paths to get there. Not every deal has the same path, so we do not have one box it has to fit. We look at each deal and ask: what is this deal’s path to a low double-digit IRR, and do we have confidence in that path? If we do, we will make a run at it; if we do not, we will pass. That path is different if you are in a primary market than if you are in secondary or tertiary. Typically, we want to be in one of the one, two, maybe three best facilities in a market. We want an operator that is a regional sharpshooter with experience in that area, that has reporting capabilities to help us on the SHOP side, and that has a proven track record in that market of success. Those are the parameters around where we are pursuing deals in SHOP right now. Operator: Your next question comes from Michael Carroll with RBC Capital Markets. Please go ahead. Michael Albert Carroll: Thanks. James, I wanted to talk a little bit more about valuation across property types. SHOP cap rates have come in. What about skilled nursing facilities and the UK care homes? Have those markets been any more competitive over the past few quarters, and how are you thinking about the competitive landscape there? James B. Callister: In skilled nursing, I do not feel like it has changed that much in the past year. You have a lot of family office and fierce competition. It is fewer buyers in the U.S. SNF side, but it is the same groups. We see the same players on really every deal. So there is still a lot of competition, but it is the same players. I have not seen cap rates change much—maybe a little bit. We have had to, for bigger deals, go below a 9% yield on the lease to get the deal if it is big enough and the right operator. In The UK, there is a little bit of increased competition, but for product we are looking at, yields are still going to be in the mid-8s for us. That is pretty typical. It is more like a seniors housing asset over there, so that is pretty typical for seniors housing triple-net deals here. We like that kind of yield and basis. So, yes, there is maybe a little uptick in competition in The UK, but nothing comparable to the uptick in SHOP competition you see here. Michael Albert Carroll: And then can you provide us some details on the recent SHOP deal? Is that with a relationship operator that you could grow with, and was it in a primary or secondary market? How should we think about that specific transaction? James B. Callister: Prescott, Arizona was done with a relationship operator we have known for a long time. This is the first deal with them, but we have known them for a very long time. We have sought to do deals with them for a long time. They are the current operator in the building. We had a great relationship with the seller—we have been buying buildings from them for the last few years and hope to continue to buy buildings from them in the future. It is about 110 units of assisted living. The going-in estimated year-one yield is going to be in the 8s. We like the market, we like this operator, and we would like to grow with them and think that we will. We like the path to get us to that low double-digit IRR. It is a pretty stable asset, so it is not in lease-up or another turnaround situation. It is really just making some tweaks to optimize the performance a bit to get us to that low double-digit IRR. Michael Albert Carroll: Lastly, Derek, can you talk about CareTrust REIT, Inc.'s desire to enter the debt markets? Should we think about another bond being pound-denominated to naturally hedge some of your UK exposure, or more U.S. dollar–denominated debt? Derek J. Bunker: Thanks, Mike. If we do something this year—and we are exploring that option pretty deeply—you will see it denominated in USD. We are conscious and aware of our exposure to the pound sterling, and we really like our current program. It is going very well, and paired with the pipeline, which has been growing consistently and exceeding our expectations a bit due to the team there, we feel like we are sort of naturally hedged a little bit in terms of buying pounds and being short dollars. Given the pricing differential, we will continue to put things on our balance sheet here and keep it denominated in USD as we explore it. Operator: Your next question comes from Michael Goldsmith with UBS. Please go ahead. Analyst: Yeah, thanks. This is Justin Hospik on for Michael Goldsmith. I noticed that occupancy in your skilled nursing portfolio was up in Q4 2025. Is that primarily due to recently acquired properties, and how do you feel occupancy will trend this year? If pre-COVID SNF occupancy was roughly 80%, does the demographic tailwind push that number up significantly over the coming years? David M. Sedgwick: Skilled nursing has been on a steady, modest incline since it bottomed out in 2021. It is difficult to say one quarter versus the other exactly what happened across the portfolio of our size, but the direction of travel, we believe, will continue to be what it has been. The difference in the coming years is that it is going to start ramping up significantly. The demographics are inevitable, and that is part of the basis for the SHOP and skilled nursing excitement and investment by institutional investors. While we are in the 80% range in our portfolio today, five to seven years from now, I think it is going to be dramatically different. Analyst: Great. And then last one for me. Can you walk through the increase in the guidance for G&A, and the changes in interest income and interest expense as well? Derek J. Bunker: The increase in G&A is almost entirely due to hitting key KPIs for STI given our performance and guide for FFO and investment spend to date. We started with a modest accrual and are catching up. We are also continuing to build out the team a little bit to support overall growth across the organization, rounding out the team coming off a couple years of growth. Interest income and expense is moving around in part because of us drawing down the revolver this quarter to date to fund the acquisitions, and our guidance does not incorporate the pipeline or future acquisitions—it is a snapshot running out the interest income and interest expense. David M. Sedgwick: Thanks, Justin. Operator: Your next question comes from Richard Anderson with Cantor Fitzgerald. Please go ahead. Richard Anderson: Hey, thanks. Good morning. Are you finding that building out your SHOP platform is proving to be more challenging than perhaps you thought going in? Back at NAREIT when you made your first SHOP deal, it seemed like momentum would build quickly. It has been a little slow, perhaps to your credit that you are not growing for the sake of growth. Are you surprised by how tough it is to move the needle in building the SHOP platform while some peers are pacing themselves faster? David M. Sedgwick: On some level, it has been a little bit surprising—not so much that it has been competitive, because we knew as we were entering it that it is a very competitive scene. One of the surprises has been to see how aggressive some of our competitors’ underwriting has been. Even for deals that, like James talked about, we really like and stretch for, we sometimes get beat by folks that do not have the cost of capital that we do. I think it may speak a little bit, Richard, to us being agnostic across three growth engines. We have not painted ourselves into a corner with respect to having to do SHOP or feeling compelled to put money to work there. That really is our advantage because we have the freedom to maintain the discipline that we have built the CareTrust REIT, Inc. portfolio on. We are pleased with what we have done so far. I think we will continue to grow it, and over time it will become meaningful, and our confidence in the deals that we do get is very high. Richard Anderson: When you talk about larger portfolio deals not included in the $360 million pipeline, are there any larger SHOP deals in that universe? David M. Sedgwick: No, I do not think so. The chunkier deals we are evaluating right now are in The UK and U.S. SNF. Richard Anderson: OHI has talked about applying RIDEA to their UK business. Is that on the table for you, or are you too new there at this juncture? David M. Sedgwick: I think there will be a time when that opportunity presents itself for us, and we should be ready to do that. Richard Anderson: Thanks very much. Operator: Your next question comes from Michael Stroyeck with Green Street. Please go ahead. Michael Stroyeck: Thanks, and good morning. Now that there has been some time since the original Care REIT acquisition, how is that portfolio performing relative to expectations, and where does EBITDAR coverage on that initial deal sit today? David M. Sedgwick: It is an appropriate question for today because today marks the one-year anniversary of us closing that deal. In most cases, it is ahead of schedule. Importantly, the team that we inherited there—we are very pleased with the quality of that team and their openness, acceptance, and adoption of us, becoming truly a CareTrust REIT, Inc. arm in The UK. That is important because all the success that we have throughout the organization is really based on the culture and the people that we have in the company, and that is what has produced the results. I thought if we could do in 2026 a couple hundred million dollars of new investments in The UK, that would be great. Remember when we acquired Care, their pipeline was basically starting from a standing start because they had a real restriction to access to capital before we acquired them. To see the amount of acquisitions that we have done and the pipeline continue to build as it has is really good. With respect to lease coverage, it continues to be phenomenally high, particularly when you think about what these assets are. These are really senior housing assets. In the United States, back when triple-net seniors housing deals were still getting done, lease coverages would be about 1.1x or somewhere around there. We are much higher than that—closer to 1.75x to 1.8x, north of 2.0x on an EBITDA basis. To have that type of security on senior housing properties is a really strong foundation from which to grow. Michael Stroyeck: Understood. And then going back to the debt discussion, with that investment grade rating from Moody's, what sort of rate do you think you could issue at today? Derek J. Bunker: I would love to signal exactly what it would be, but broadly, if we are doing a ten-year, you are probably looking at a 130 to 140 basis points spread. Michael Stroyeck: Great. Thanks. Operator: Your next question comes from Wesley Golladay with Baird. Please go ahead. Wesley Golladay: Good morning, everyone. I want to go back to the comment about better CMS outcomes. I imagine your background helps you work with the operators, and there is also probably a component of identifying a good operator out of the gate. How transferable is that skill set to The UK and to U.S. SHOP? David M. Sedgwick: The skill of identifying, vetting, and selecting quality operators is definitely transferable, although I am not sure that skill set needs to be transferred to the team there because they evidently already had it, as evidenced by the very strong lease coverage and the quality operators that we were able to inherit. We are really pleased, by and large, with the operators that they selected there before we got there, and we feel like we are definitely in sync as we evaluate new operators for The UK. Wesley Golladay: Alright. Thank you. David M. Sedgwick: Thanks, Wes. Operator: Your next question comes from Vikram Malhotra with Mizuho. Please go ahead. Analyst: Hi, thank you. This is Jody on behalf of Vikram. For the new operator you have in the sale-leaseback transaction, is there an opportunity to grow that relationship by the Genesis assets? And second, what is your view on sustained double-digit FAD growth from here? James B. Callister: I will take the first part. The Genesis bankruptcy does not have much, if any, real estate in it, really. So it is probably yet to be determined if we grow with that operator based on those assets. There is certainly nothing in discussion at the current time. We will definitely look to grow with them in other asset bases and other deals that we bring them or they bring us. We really like them, so we look forward to growing with them moving forward. Analyst: And on sustained double-digit FAD growth? Derek J. Bunker: I will take that one. We are really pleased and excited about both the progress we have made on our investments and our integration as well as the outlook. As David mentioned in his prepared remarks, we do not plan on slowing down. We are still extremely bullish about all three of our growth segments, and it is really up to us to execute on that. Operator: There are no further questions at this time. I will now turn the call back to David M. Sedgwick for closing remarks. David M. Sedgwick: I really appreciate everybody's time, questions, and interest. I appreciate our board, our shareholders, especially our team here and operators who make it all happen. If you have further questions, you know where to find us. Have a great weekend. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Brookfield Asset Management Ltd. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Jason Fooks, Managing Director, Investor Relations. Please go ahead. Jason Fooks: Thank you for joining us today for Brookfield Asset Management Ltd.’s first quarter 2026 earnings call. On the call today, we have Connor Teskey, our Chief Executive Officer; Armen Panossian, Co-CEO of Credit; and Hadley Peer Marshall, our Chief Financial Officer. Before we begin, I would like to remind you that in today’s comments, including in responding to questions and in discussing new initiatives, we may make forward-looking statements. Future events and results may differ materially from such statements. For further information on these risks and their potential impacts on our company, please see our filings with the securities regulators in the U.S. and Canada, and the information available on our website. On the call today, Connor will begin with an overview of the quarter and highlight the strategic momentum across our business. We are also pleased to have Armen join us to provide an update on the Oaktree integration and share his perspective on how our combined platform is positioned to be opportunistic in today’s market. And finally, Hadley will discuss our financial and operating results and balance sheet. After our formal remarks, we will open the line for questions. To ensure we can hear from as many participants as possible, we are asking everyone to please limit themselves to one question. If you have additional questions, please rejoin the queue, and we will be happy to take more questions if time permits. With that, I will turn the call over to Connor. Connor Teskey: Thank you, Jason. Good morning to everyone on the call. 2026 will not only be a record year for Brookfield Asset Management Ltd., but one where we expect to exceed our long-term growth targets, and we are already off to a great start with a strong first quarter. Fee-related earnings for the quarter were up 11% to $772 million and distributable earnings were $702 million. We raised $21 billion of capital this quarter and fee-bearing capital increased 12% over the last twelve months to $614 billion, including the fundraising we have announced associated with the Just Group mandate and our flagship private equity fund. Year-to-date fundraising stands at $67 billion, more than half of the $112 billion we raised in all of 2025. More important than the numbers is what they reflect: the continued strength of our franchise, the quality of our client relationships, and the increasing importance of the areas where we invest. We are operating from a position of strength with scale, liquidity, and a portfolio centered on essential assets and businesses that form the backbone of the global economy. This year is being supported by a number of important strategic developments across the broader platform. In early April, Brookfield Wealth Solutions completed its purchase of Just Group, a leading pension risk transfer platform in the U.K., and through that, Brookfield Asset Management Ltd. was awarded an additional $40 billion asset management mandate, further extending our presence in retirement and insurance-related capital. We are also very close to completing our acquisition of Oaktree, which we expect to close in the second quarter, and which will further strengthen and integrate our global credit franchise. In a few minutes, Hadley will speak more specifically to the financial impact of both those transactions. At the same time, this year, we have one of the broadest product sets in the market. This includes our flagship private equity strategy, which has already closed $6 billion and will be holding its first close in the coming months. It also includes our flagship infrastructure fund—in fact, all of our infrastructure funds—alongside a growing number of complementary strategies. We are also seeing excellent momentum across our partner managers, where each of Primary Wave, 17Capital, and Pine Grove recently held fund closes that not only exceeded their targets, but in all three cases represented the largest fund of their kind. That breadth is driving strong fundraising momentum and setting us up well for the balance of the year. Against this backdrop, we continue to expect 2026 to be Brookfield Asset Management Ltd.’s largest fundraising year ever. One of the clearest ways our platform is evolving is in how we engage with our largest clients. For some time, we have said that investors are consolidating more of their business with fewer managers, particularly with firms that can invest at scale across asset classes, geographies, and products, up and down the capital structure. Our partners are not only asking us for a view on one sector or one fund, but rather they are asking what we are seeing across the $1.2 trillion of assets in our ecosystem, how capital is moving across markets, and how those linkages are shaping investment opportunities. More and more, those conversations are leading to broader strategic relationships where we start with the client’s objectives—across income, appreciation, duration, diversification, and liquidity—and then build customized solutions across our strategies to help meet those goals. We are seeing tangible momentum for multibillion-dollar partnerships across multiple strategies, and we are investing behind it through our Investment Solutions Group, a dedicated team focused on delivering those insights and tailored solutions at greater scale. While this capability has long been a differentiator for our business, its importance has become more acute in recent years, and we expect it to be a key competitive advantage as alternatives continue to expand into retirement, insurance, and individual markets. In the near term, geopolitical uncertainty remains elevated. Trade and energy markets continue to adjust, and investors are assessing what that means for growth, inflation, and rates, while also considering how quickly AI may disrupt certain business models. Those issues matter, and they can move sentiment and market prices in the short run. But our view is that those movements are temporary and manageable, while the long-term trends we invest behind remain firmly in favor and continue to accelerate. Our job is to own good businesses, operate them well, protect downside, and compound cash flows over time. That discipline has served us well through many cycles, and today we are seeing it in the continued performance of our assets, and we believe that this period will be no different. It is also worth reiterating something we have said before. We are fortunate to have outsized exposure to the largest and most attractive segments of the alternatives market, and limited exposure to the areas where investor concern is currently the most concentrated. We have very limited exposure to software across our strategies. Sponsor-oriented direct lending is an immaterial part of our business. And our listed private wealth credit vehicles are disproportionately small, with our private BDC representing less than 1% of fee-bearing capital. But we would caution against viewing our position as simply defensive. Limited downside does not fully capture where we sit today. In our view, we are not only protected from many of the areas under pressure, we are positively exposed to the areas that should outperform in this environment. The first reason is that in this environment, real assets win. When there is uncertainty around growth, rates, or the durability of earnings, investors move toward high-quality, cash-generative assets and essential service businesses. That is exactly where we are concentrated. In real estate, we are clearly seeing the recovery accelerate. Sentiment is improving, financing markets are materially stronger, new supply remains muted in many sectors, and in a number of cases, assets can still be acquired well below replacement cost. In private equity, our strategy has always been focused on essential industrial and service businesses, where value creation comes from operations, not financial engineering. That approach is particularly well suited to the current market. And lastly, infrastructure, where digitalization, rising energy demand, and deglobalization are all creating sustained demand for capital—we continue to see exceptional client interest and a very large opportunity set. The second reason is that concerns regarding AI disruption are equally balanced by accelerating AI adoption. That is not a headwind for Brookfield Asset Management Ltd.; it is a very significant tailwind. AI requires enormous physical infrastructure: data centers, power generation, transmission, fiber, computing, cooling systems, and industrial capacity across the supply chain. We are already deeply invested across those areas. We have leadership positions in data centers and renewable power. We can combine real estate, infrastructure, and energy into integrated solutions at scale. And increasingly that is exactly what the largest hyperscalers, governments, and enterprise customers are looking for. This is also why all of our infrastructure, energy, and AI infrastructure strategies are seeing such significant interest. As AI adoption accelerates, Brookfield Asset Management Ltd.’s market-leading position in a very large portion of our assets becomes increasingly valuable. The third reason is credit. If current concerns in select pockets of credit persist, or the natural credit cycle continues to turn, that is precisely the type of environment where our platform should be at its best. We have been disciplined in how we built our credit business. We have always preferred areas where underwriting matters, where structure matters, and where there is real downside protection—notably real asset credit, asset-backed finance, and opportunistic credit. And lastly, we could not be more thrilled with the timing of our integration with Oaktree. Through the combined Brookfield Asset Management Ltd. and Oaktree platform, we have what we believe is the preeminent opportunistic credit franchise in the world. When liquidity becomes scarce and capital is repriced, that is when disciplined investors with flexible capital and deep experience have historically generated some of their best returns. I will turn the call over to Armen in a moment, who will speak more specifically about the current credit environment and how Oaktree is seeing the opportunity set today. In conclusion, our message is simple. We are entering this period with strong results, significant strategic momentum, limited exposure to the areas causing the most concern, and meaningful exposure to where capital should continue to flow. We are positioned not just to navigate this backdrop, but to outperform through it. Armen? Armen Panossian: Thank you, Connor. It is a pleasure to join you at such an exciting and dynamic time at the firm, taking on the role of Co-CEO of Brookfield’s Credit Business. The integration of Oaktree and Brookfield will meaningfully strengthen our already differentiated platform, allowing us to bring more of the combined firm’s capabilities to clients across asset classes and up and down the capital structure. Over the past six years, this partnership has already proven itself, and our cultures and investing principles are already well aligned. We share a long-term vision, a deep respect for disciplined capital allocation, and a focus on building client relationships over years and cycles, not quarters. But there have also been natural limitations to how much we could do as two separate companies. Bringing the platforms together eliminates those barriers and creates immediate benefits: simplification, better alignment, and broader access to the combined capabilities of our firms. While this combination creates clear operating and financial benefits, its greatest significance and most meaningful impact will be on the strategic side. As an example, clients increasingly want broader solutions—whether that means flagship strategies, complementary strategies, customized multi-asset portfolios, or co-investment opportunities delivered at scale. Our combined platform positions us to meet that demand more effectively, to serve clients more comprehensively, and to compete for larger and more complex opportunities than either firm could do on its own. And that matters especially in the market we are in today. Over the past five years, credit markets have undergone an extraordinary transformation. As economies reopened in 2021 and governments injected significant stimulus, inflation surged, prompting one of the most aggressive rate-hiking cycles in modern history. Short-term rates moved from near zero to over 5%, fundamentally reshaping capital markets. That shift created a meaningful dislocation and subsequently immense investment opportunity. Traditional bank lending and broadly syndicated markets pulled back, particularly for middle-market borrowers, and private credit stepped in to fill the gap, offering capital at initially wider spreads, which helped drive very attractive returns—often in the 10% to 12% range. Those returns attracted capital, fundraising accelerated, competition increased, and spreads compressed back towards pre-pandemic levels. In response, parts of the market leaned into higher leverage, looser covenants, non-cash-pay interest loans or PIK structures, and greater exposure to certain sectors like software to gain higher returns. Today, we are entering a new phase. Recent headlines have raised legitimate concerns around certain parts of private credit: rising impairments, questions over valuations, the use of leverage, liquidity mismatches, refinancing risk, and software exposure in an increasingly AI-driven world. It is important to separate the fundamentals of private credit from the excesses in select parts of direct lending. Private credit itself—tailored, nonbank financing—is a proven model in which Oaktree has been actively involved for over three decades. It works, providing capital to help businesses grow and delivering fair and attractive returns across the cycle. The issue is that in a period of abundant capital and low rates, underwriting standards in the market become looser. Risk tends to build in strong markets and only becomes visible as conditions turn and become more stressed. What we are seeing now is less a systemic issue and more a period of recalibration. Taken together, today’s environment is characterized by tighter spread, higher leverage in certain segments, and increasing dispersion in credit quality. That creates both risk and opportunity, and it is exactly the kind of environment in which we thrive. Both Oaktree and Brookfield have a long history of investing through cycles. Our approach has always been grounded in discipline, patience, and a willingness to prioritize risk management and long-term value over short-term growth. We did not maximize deployment during the recent years of heightened competition. Instead, we maintained conservative leverage in our funds and remained selective in underwriting, even when that meant sacrificing near-term growth. As a result, we entered this period with a resilient platform, ample dry powder, and the flexibility to act as opportunities emerge. And that flexibility matters today. Because as rates come off their peak and spread becomes a larger driver of returns, credit selection matters more than ever. We are already seeing greater differentiation across vintages, sectors, and structures, and the winners will continue to differentiate themselves as time progresses. We do not view private credit in isolation. We constantly compare relative value across performing credit, liquid markets, asset-backed finance, and opportunistic strategies. When we see early signs of stress in one area, it informs how we position elsewhere, both defensively and offensively. That perspective is even more valuable in collaboration with the Brookfield ecosystem. Together, we will have a fully integrated information network across credit and equity teams, industries and geographies, and public and private markets. We are already tracking dozens of emerging opportunities in real time, sharing notes across teams, and identifying dislocations earlier through direct exposure to underlying businesses, assets, and capital structures. Brookfield’s strength as an owner-operator combined with Oaktree’s leadership in credit creates a differentiated platform for sourcing and executing complex capital solutions. While today’s market presents real risks, it is also creating exactly the kind of environment where our experience, discipline, and scale can drive meaningful outperformance. Thank you for having me on today’s call. With that, I will pass it over to Hadley. Hadley Peer Marshall: Thank you, Armen. I will cover our quarterly results, capital positioning, and why we are on track to deliver a record 2026. Fee-related earnings, or FRE, in the first quarter were up 11% from the prior-year period to $772 million, or $0.48 per share. Over the last twelve months, FRE has grown to $3.1 billion, up 18% from the prior-year period. Distributable earnings, or DE, were $702 million, or $0.43 per share in the quarter, up 7% from the prior-year period, bringing DE over the last twelve months to $2.7 billion. Growth in DE continues to closely track growth in FRE, reflecting the high-quality, recurring, and stable nature of our revenue base. Turning to margins, we have maintained strong levels alongside this growth, with margins at 57% for the quarter and 58% over the last twelve months. As previously discussed, once the Oaktree acquisition closes—likely in the second quarter—we will report a consolidated margin that includes 100% of Oaktree. We will also provide more transparency in our partner managers, which will impact the presentation of our margin but will not reflect any change in the underlying economics of the business. Importantly, while our partner managers operate at lower margins, they are highly accretive and strategically beneficial to our platform. As Connor mentioned, they are also expected to be meaningful growth contributors to Brookfield Asset Management Ltd. As they continue to scale, we will benefit from their inherent operating leverage, further expanding their margins as well as our consolidated margin. Before turning to fundraising, I want to touch on share repurchases. Historically, share repurchases have not been a primary use of capital as we have had compelling opportunities to invest in the growth of the business, including acquiring partner managers’ interests and seeding complementary strategies. However, given recent public market volatility, we believe our shares are meaningfully undervalued, so we have been more active in repurchases. In the first quarter, we opportunistically repurchased $375 million of stock and have so far repurchased an additional $200 million in the second quarter. This brings our total buyback activity over the past seven months to nearly $800 million. We also remain committed to our objective of broader index inclusion. The continued growth and scale of our U.S. business, including the acquisition of Angel Oak and our increased ownership of Oaktree, further support our path toward broader U.S. equity index eligibility over time. Now let me turn to the details of the $21 billion we raised in the quarter, which was driven by our complementary strategies and insurance inflows. Within our infrastructure business, we raised $3.4 billion, including $800 million for our super-core infrastructure strategy, which now has over $20 billion of capital, and $800 million for our infrastructure private wealth strategy, which now has over $8 billion of capital. Within our private equity business, we raised $1.4 billion, including $1 billion for our private equity special situations strategy, which held its first close of $2.4 billion. Within our credit business, we continue to see broad-based demand. We raised $13 billion of capital, including $4.7 billion of long-term private funds and $3.8 billion from Brookfield Wealth Solutions. 17Capital completed the final close of Credit Fund II, adding $2.5 billion in the quarter and bringing the strategy to $7.5 billion, the largest NAV lending strategy raised to date. Our fundraising benefits from strong performance and our disciplined approach focused on fundamentals and risk-adjusted returns. That approach has led both Brookfield and Oaktree, independently, to limit exposure to areas such as direct lending and software where we saw less compelling risk-adjusted opportunities. This discipline has reinforced our clients’ confidence in our capabilities and continues to support fundraising. Fundraising is also well diversified geographically. We continue to see strong traction around our high-conviction strategies, and the trend we have previously discussed—large clients concentrating commitments with fewer strategic managers that can offer a broad range of strategies at scale—appears to have become even more pronounced. These drivers, together with our flagship fundraising and the recently awarded Just Group investment mandate, position us well for a record year of fundraising. Turning to deployment and monetization, we invested or committed $34 billion and generated approximately $8 billion of equity proceeds from monetizations. Based on our deep pipeline, we expect activity to further build as the year progresses. Overall, M&A has picked up, particularly in larger strategic transactions where buyers are moving with greater conviction. Despite pockets of uncertainty, both corporates and sponsors are increasingly willing to transact. In many cases, that uncertainty is driving activity rather than constraining it, as companies are using stronger access to capital to reposition portfolios in response to structural shifts including AI, geopolitics, and evolving supply chains. At the same time, sponsors are seeking to return capital, which is contributing to increased deal supply. While a normalized rate environment requires discipline on valuations and greater operating expertise to drive returns, we are seeing markets adjust to this environment. This creates opportunities for us. Our focus on high-quality real assets and essential services businesses aligns where demand is strongest, particularly where durability and cash flow visibility are at a premium. In addition, our scale, global platform, operating capabilities, and access to capital position us to be both an active acquirer and a disciplined seller in today’s environment. As M&A activity broadens, we expect to benefit from both increased deployment opportunities and an improving backdrop for monetizations. Turning to our balance sheet, we continue to operate with a strong, asset-light financial profile that provides flexibility to support growth while maintaining healthy liquidity. Subsequent to quarter-end, we took advantage of an opening in the market and issued $1 billion of senior unsecured notes, comprised of $550 million of five-year notes at a coupon of 4.832% and $450 million of ten-year notes at a coupon of 5.298%. We ended the quarter with $2.5 billion of corporate liquidity, providing ample flexibility to support ongoing operations, strategic initiatives, and growth across the business. We are off to a great start in 2026 and remain well positioned for a record year. While markets remain uncertain, our scale and expertise position us to navigate the environment and execute effectively. With that, let us open up the line for questions. Operator: We will now open the call for questions. To ask a question, please press star 11. To withdraw your question, please press star 11 again. Our first question comes from Kenneth Worthington with JPMorgan. Kenneth Worthington: Hi, good morning, and thanks for taking the question. Armen, thanks so much for your comments. I wanted to dig further into Oaktree and the distressed market. I think, as you stated, we have been in a very strong credit environment for an extended period. How much money does Oaktree have to invest, and how much could Oaktree reasonably deploy if a distressed window opens briefly, or for a more extended period? And what does that mean for Brookfield Asset Management Ltd.’s credit business? And then, Connor, you mentioned that partner manager companies have raised their largest vintages ever. Can you quantify how Brookfield Asset Management Ltd.’s acquisitions of these businesses are impacting that fundraising and to what extent strong fundraising has been influenced by Brookfield Asset Management Ltd.’s bigger sales force and broader client relationships? Armen Panossian: Thanks, Kenneth. I appreciate the question. Oaktree does have funds under management and relationships with LPs that are considerable. I want to hesitate to answer questions specifically about fundraising, but we have a lot of dry powder to invest into the market currently and have a long-term track record of really leaning into the markets when distressed opportunities present themselves. Today, we do not see a broad-based macro condition that would result in meaningfully higher deployment patterns than what we have seen over the last five years, but we always see sector-specific distress. Today, we see distress in software, building products, chemicals, autos, and packaging. That sector-specific distress, I would say, gives a more normal pattern of vintage years. It numbers in the billions, but it does not number in the tens of billions with our kind of risk-control way of investing. Now, if we do see a dislocation, our deployment capabilities measured in a 12- to 24-month period would be in the tens of billions. We have done that in the past. We are prepared to do that in the future. We are right now watching what is unfolding in a variety of respects globally. We are looking at inflation caused by energy prices. We are looking at the software industry. We have a target list of credits that we are watching closely and willing to buy at the right prices. We are constantly boiling the ocean and looking for the opportunities. We do not think at this moment it is the time to really lean hard, but we are seeing the beginnings of a real opportunity set developing. A part of that has to do with the maturities that we see in a lot of LBOs—some software, some outside of software—really coming to play in 2027 and 2028. So we are getting ready for a big opportunity. It is probably not measured in the immediate quarters to come, but in the next couple of years, we would expect to deploy a considerable amount of capital. Connor Teskey: Thanks, Ken. There is no doubt, whenever we acquire a partner manager, we specifically pick market leaders in a given sector where we think we can accelerate the growth profile of that business as part of the Brookfield Asset Management Ltd. platform. We are really beginning to see that play out. We had three partner managers raise new funds this year that were not only the biggest of their kind, but the biggest in their industry. Partner managers are increasingly driving earnings growth across the consolidated business. Operator: Our next question comes from Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: Thanks very much, and good morning. I was hoping that you could touch on a few aspects of AI: how fundraising is going for your fund; in what respects you think you are differentiated versus peers; and, more strategically, how you manage the balancing act of leaning in enough to AI without getting over-allocated to it? Connor Teskey: Thanks, Cherilyn. AI—which for Brookfield Asset Management Ltd. really means a focus on AI infrastructure—is undoubtedly the largest and fastest-growing theme across our broader business. This is derived from the fact that we have always been a leader in the historical inputs into AI—real estate, energy, and digital infrastructure—but we have also recently expanded into leadership positions in the new forms of AI infrastructure, sovereign AI, and actually selling the compute itself. To your questions around growth and what we are seeing, maybe to point to something tangible—and it is very representative of what we are seeing in the market—is the first deal we did in our AI Infrastructure Fund was our partnership with Bloom Energy. That was announced, I want to say, six or nine months ago, a $5 billion partnership. We are already in conversations to expand that partnership not by percentages, but by multiples. That is very reflective of the opportunity set and the scale at which we expect to play. On remaining balanced, it is important to recognize that while there is a significant amount of capital flowing into the sector, the investment opportunity set is incredibly vast. As a result, we can be incredibly selective. We can focus on the best assets and the best markets with the best revenue constructs and the best corporate credit counterparties. Even being that selective, we can still deploy very significant sums of capital. We do see all the activity, but in terms of some of the risk-adjusted returns that we are actually executing on, they are certainly some of the most attractive opportunities we are seeing in the market. Operator: Our next question comes from Alexander Blostein with Goldman Sachs. Alexander Blostein: Hi, good morning everybody. Was hoping we can start with a question on the broader outlook for the rest of the year. Clearly, the business is facing a number of structural tailwinds—you mentioned energy, AI, many other things—so it is encouraging to hear you reaffirm expectations to exceed your Investor Day goals for 2026. A couple of questions here. First, just a point of clarification: are we talking fee-related earnings per share for 2026 up off the 2025 base? And then more importantly, how has the fundraising backdrop evolved in the last three to four months given the changes in the landscape to build on that momentum? What is feeling better, what is feeling worse, and what is feeling the same? Connor Teskey: Thank you for the question, Alex. You are absolutely right. We have an incredibly positive outlook for 2026. We expect it to be a record year for fundraising—not by a little bit. We expect it to be a significant record year for fundraising. In response to your question, outperformance will be largely on the FRE side, and that outperformance for the remainder of the year feels largely secured, other than the limited market exposure we have through our listed affiliates. That is driven by run-rating of strong performance through the end of last year, very strong growth in our partner managers, and then some big step-change revenue adders that start this year and will, candidly, carry into next year as well: our flagship PE fund, our flagship infrastructure fund, the Just Group mandate, and the Oaktree acquisition. In terms of the big things that will drive that FRE growth, it is exactly those. We expect to see incredibly strong demand for our two flagships. PE is off to a great start; we expect that to be the largest vintage of its kind. We are in a very fortunate position that we have all of our funds in the market right now at a time when we are in the greatest infrastructure capital deployment environment in history. Those are the biggest drivers. We are seeing growth across everything on the infrastructure and energy side, and then outperformance relative to past precedent on the private equity side. Operator: Our next question comes from Bart Dziarski with RBC Capital Markets. Bart Dziarski: Great, thanks for taking the question and good morning everyone. Wanted to ask around capital allocation. Nice to see you stepping in on the buyback to take advantage of dislocation. How are you thinking about buybacks going forward? And related to that, you issued debt in the quarter—the commercial paper program and the senior notes. Maybe just an update in terms of your funded position and, more broadly, philosophically how you think about the buyback and issuing more debt? Hadley Peer Marshall: Thanks for the question. When we think about our options, obviously, when it comes to liquidity, we have a lot of attractive opportunities within Brookfield Asset Management Ltd.—around our partner managers and seeding our complementary strategies—and so we are always assessing those attractive opportunities to grow our business. When we see irrationally undervalued stock prices associated with Brookfield Asset Management Ltd., that is an opportunistic time for us to take our under-levered position as an asset manager and use that capital to generate attractive returns for us. That is something that we do opportunistically. We have been active starting in the fourth quarter up until now, and that is about $800 million of buybacks that we have executed. In terms of our liquidity, we accessed the bond market earlier this year—back in April—when we saw an opening in the market that was quite constructive to add liquidity. We issued $1 billion with strong execution. That puts us in a position where we have $2 billion-plus of excess debt capacity. Remember that as our DE grows, our debt capacity grows as well. That positions us to continue to be opportunistic with the opportunities that we see within Brookfield Asset Management Ltd. holistically, as well as continuing to support buying our partner managers’ remaining stakes and our complementary strategies. Operator: Our next question comes from Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Thank you. Connor, you highlighted a bunch of issues that have been hurting the sector, one of which was retail redemptions. In the past, you have highlighted the importance of retail both from a fundraising perspective and individual participation and probably a big, important source of growth for you on the funding side. As you have been watching what has been happening—you are always methodical and disciplined—are you rethinking your retail ambitions based on what we have seen more recently? To the extent you are not rethinking those ambitions, is this one of those cases where the second mouse gets the cheese—an opportunity where you get to run in as folks are running out? And maybe, like the Oaktree acquisition that you had done has aged well, an opportunity may present itself. How willing would you be to expedite those retail plans? Hadley Peer Marshall: Thank you for the question. Connor Teskey: In terms of what we are seeing and what that leads to in terms of our approach going forward, we are very proud of how we have built the private wealth, retail, and individual market, and we think our approach is paying dividends now and the market is coming to us. Private wealth is a smaller portion of our business relative to some of our peers as we have been very methodical and thoughtful in how we built that business for the long term. Our private wealth business grew versus this point last year. Despite concerns in private wealth credit, we continue to see tremendous inflows to our private wealth products on the real asset side. This continues to be a more modest part of our business today, but one that is growing very quickly—it has been growing at about 40% for the last couple of years—and we expect that growth to continue, particularly as investors in that market continue to pivot increasingly toward real assets. I would also mention the individual retirement market. We think our growth and penetration of the individual market is perhaps accelerating faster than people appreciate. On the 401(k) and retiree market side, we are in advanced discussions with some of the largest target-date fund providers who are interested in putting Brookfield Asset Management Ltd.’s real asset products into some of their default portfolios. They are recognizing the role that long-duration, inflation-linked, cash-generative, downside-protected investments can play. We are also the market leader in introducing real asset exposure into insurance policy and annuity portfolios through our partnership with Brookfield Wealth Solutions. Our approach is working. It plays very well in this market. We are going to continue to lean in, but it is more of the same as opposed to a major shift in strategy. Operator: Our next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Great, thanks. Good morning. Thanks for taking my question. Maybe just shift to the topic of energy transition. You are a leader in that space, and the energy platform broadly has been rebranded from the renewables side. Does that change any of your marketing within those products? How do you link energy and infrastructure—many of those themes are similar, and I would imagine the LP investor base has similar ambitions. How do you sell those products as a solution to LP investors? And then your view on the demand for energy transition given the power needs for AI and the disruption of supply chains amid the geopolitical backdrop. Connor Teskey: I will address that in reverse order. The demand for energy is at an unprecedented high and will continue to be at an unprecedented high throughout the end of this decade and well into the next one, and perhaps beyond. This is going to require—pick your slogan—an “all of the above” type of energy solution, and we are fortunate to be a leading player across all of them. The big ones are obviously going to be low-cost renewables, flexible gas, and dependable nuclear. Where we [inaudible]. It changed nothing in terms of our allocation strategies and [inaudible]. On linking energy and infrastructure for clients, increasingly we are packaging solutions—power plus data center plus grid upgrades, for example—and delivering them through our flagship strategies and tailored mandates, so clients can access integrated outcomes rather than isolated products. Operator: Our next question comes from Daniel Fannon with Jefferies. Daniel Fannon: Thanks, good morning. Following up on the strength in fundraising, could you give a little help around the management fee cadence given timing, and also catch-up fees as we think about first and final closes as the year progresses? Any timing or guidance around that would be helpful. Hadley Peer Marshall: Sure. We have already closed for our flagship private equity strategy—we had an initial first close of $6 billion—and we will have the final first close later this year. We anticipate with our infrastructure flagship fundraising to have a meaningful first close also in 2026. Fees should be turning on for both of those strategies very shortly. As an example, this quarter we did not have any catch-up fees, but you will see that build throughout the year. Operator: Our next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: Hey, good morning, everyone. Brookfield Asset Management Ltd.’s stock-based comp payout is the lowest in the U.S. peer group, but it does jump around a little bit. I know part of this is seasonal, but could you refresh us on the seasonal drivers and how stock-based comp fits into your overall employee compensation program? This is an important input for a lot of us with valuation. Connor Teskey: Sure. Perhaps I can take it from a corporate side. We use stock-based compensation as our primary form of compensation for the entirety of the senior leadership team at Brookfield Asset Management Ltd. Beyond that, we include stock-based comp as a component for every single investment professional across the firm. We think that is unique in that it aligns the broader firm such that investment professionals are not only focused on driving value in their individual strategy, but driving value across the entire firm. Whenever we see an opportunity—regardless of vertical, group, or geography—if someone can add value to a transaction or initiative, they get brought in. We use stock-based comp extremely widely across the firm—in our view, far wider than almost anyone in the peer group. Operator: Our next question comes from Mario Saric with Scotiabank. Mario Saric: Maybe for Armen, coming back to the Oaktree integration. As you mentioned, the relationship between Brookfield and Oaktree has been in effect for some time now. Can you provide some examples of low-hanging fruit that may not be as apparent from the outside that comes from owning 100% and the integration that may have a direct incremental impact on FRE for Brookfield Asset Management Ltd., more so than existing as separate entities? Armen Panossian: Thanks for the question. A couple of things. Brookfield Asset Management Ltd. and Oaktree established their partnership in 2019, and that partnership and the relationships between the two institutions have grown and become a lot closer. We have gotten to know each other very well. We are very aligned. The foundation is very strong, and we share a lot of the same cultures and investment principles, including taking a long-term view through the cycle. It is not early days; it is several years in the making now. We have had a chance to think about the synergies. The synergies are largely revenue synergies, in that the combination gives us the ability to offer more tailored solutions to some of the biggest clients in the market—a broader solution base that taps into the strength of Brookfield Asset Management Ltd. as an owner-operator and the strength of Oaktree as a credit manager, having invested through many cycles with distressed as our single largest strategy over 30-plus years. That tailored solution opportunity is executed through a new group at Brookfield Asset Management Ltd. called the Investment Solutions Group that has portfolio analytical capabilities to advise clients on how to adjust their portfolios over time, and how possibly Brookfield Asset Management Ltd., Oaktree, and partner manager solutions could be brought to bear. The breadth and depth we have as a combined institution is really unmatched, and being able to offer those products in a seamless, one-firm way is new and exciting. Another benefit is balance sheet optimization. Oaktree had a balance sheet on its own; Brookfield Asset Management Ltd. had a balance sheet on its own. Optimizing two balance sheets separately was not as efficient as it could have been. Bringing them together helps us maximize value for shareholders under a single platform, rather than having disparate ownership between one balance sheet and the other. Finally, Oaktree has a very large and built-out credit platform with a substantial middle and back office able to support our strategy and more. As we grow our credit capabilities in partnership with Brookfield Asset Management Ltd. in a more integrated way, we can layer on additional revenue and AUM with only a modest increase in cost. We do not need to step up costs in a meaningful way because we are already a scale player. So there is a cost benefit, but it is not about taking a big knife to cost structures; it is about using the platform in a scaled manner to drive profitability as we grow. Operator: Our next question comes from Kristen Love with Piper Sandler. Kristen Love: Thank you. Good morning. I appreciate you taking my question. First, on real estate—Connor, you hit on the recovery accelerating in your prepared remarks. Can you dig into that a bit further? Which areas of real estate are you seeing the most opportunities today to put capital to work, and then relatedly, your outlook on office? Connor Teskey: In addressing that, two things. The real estate recovery—and its very rapid acceleration—is a part of our business where what we are seeing on the ground is far ahead of what you are reading in the headlines. We are seeing very significant increases in transaction activity, deal volumes, and valuations. Across our real estate platform on the asset side, we are looking to do about $20 billion of real estate transactions in a two-month period here, just to give a sense of the pace and breadth of deal volume. In terms of where we are seeing that activity, it is primarily in what I will call the “growth” forms of real estate: hospitality, logistics, and housing. We have seen lower deal activity to date in office and retail, but we think that is coming because the fundamentals for office are absolutely flying—and it comes down to one thing. On a relative basis, nobody started new construction. There was no new supply generated starting in 2020 because of the pandemic, then following 2020 because of the rise in rates, and then because of work-from-home concerns. We have now seen a recovery in demand that is being matched by zero new supply in the market. In tier-one markets, we are seeing the top come off rents—rents legitimately 50%, 70%, 80% higher than they were five years ago—and that is beginning to flow through the numbers. If that continues, it is only logical that we are going to see deal activity return to that sector as well. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael, please check your mute button. Our next question comes from Michael Brown with UBS. Michael Brown: Great, thanks for taking my question. A lot has already been covered, but I wanted to ask two that are impactful for the model. Margins have expanded to the high-50s, but you will be consolidating Oaktree, and that is at kind of a cyclical low in terms of margins, so it would be dilutive. Can you talk about the medium-term margin trajectory as you think about 2Q and then, as Oaktree normalizes and you have more operating leverage to the platform, how does that margin continue to rebuild? And then on fee rates, because there is an implication for margin there too, talk about some of the puts and takes—in 1Q some fee rates came in lower than expected, and for 2Q there is going to be a bit of noise around some of the partner buy-ins as well. Any implications for 2Q as well? Hadley Peer Marshall: Sure. On the margin front, in the second quarter, assuming we close Oaktree—which is the anticipated timing—we will adjust our margins to show our partner managers in a more transparent way. We will also have 100% of Oaktree flowing through, which, given they operate at a slightly lower margin, will be an offset. What is important to note is that across all of our businesses, when we look at our projections for the year and going forward, there is operating leverage for each of the businesses. That will continue to be evident on an apples-to-apples basis, which is important to emphasize around our margins. In terms of fee rates, overall we are seeing no spread compression around fee rates. We continue to see strong fundraising. Transaction fees play a part of that. When you look at our 2026 numbers, as Connor explained, this is going to be a record year in all categories. Operator: That concludes today’s question and answer session. I would like to turn the call back to Jason Fooks for closing remarks. Jason Fooks: If you have any additional questions on today’s release, please feel free to contact me directly. Thank you, everyone, for joining us. Operator: Today’s conference call has concluded. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to VAALCO Energy, Inc.'s first quarter 2026 earnings conference call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance, please signal a conference. After today's presentation, there will be an opportunity to ask questions. Please be aware that today's call is being recorded. I would now like to turn the call over to Investor Relations Coordinator, Chris Delange. Please go ahead. Chris Delange: Thank you, operator. Welcome to VAALCO Energy, Inc.'s first quarter 2026 conference call. After I cover the forward-looking statements, George Maxwell, our CEO, will review key highlights of the first quarter. Ronald Y. Bain, our CFO, will then provide a more in-depth financial review. George will then return for some closing comments before we take your questions. During our question and answer session, we ask you to limit your questions to one and a follow-up. You can always reenter the queue with additional questions. I would like to point out that we posted a supplemental investor deck on our website that has additional financial analysis, comparisons, and guidance that should be helpful. With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will be making forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO Energy, Inc. disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in our earnings release, the presentation posted on our website, and in the reports we file with the SEC, including our Form 10-Ks. Please note that this conference call is being recorded. Let me turn the call over to George. George Maxwell: Thank you, Chris. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. Over the past two years, we have streamlined and expanded our portfolio while delivering consistently solid operational results. In February 2026, we divested all of our Canadian assets and simultaneously added to our Côte d’Ivoire position by being named operator with a 60% working interest in the Kossipo field on CI-40 block. We are actively evaluating and processing seismic with our partners in Nyonie Marine and Gnondo Marine blocks offshore Gabon and on our exploration block CI-705 in Côte d’Ivoire. At Etame, we have had several successful wells drilled and the rig has now moved to Avouma to drill the next well in our drilling campaign. The Baobab FPSO has successfully completed its refurbishment and is now moored back into position with wells being reconnected and production expected to resume in early June. As we discuss our operational and financial results today, it is important to remember that 2025 was a transitional year for VAALCO Energy, Inc. as production came offline in Q1 at Côte d’Ivoire due to the FPSO project, and we did not start the drilling campaign in Gabon until late Q4. First quarter 2026 was a pivotal quarter operationally and we are beginning to see the significant production uplift we are projecting from these major projects in Q2 2026 and expect it to continue into 2027. We are confident in our ability to execute and have increased our full-year 2026 production and sales guidance, and added to our work program without increasing our capital expenditure guidance. I would now like to provide a quick update on our diverse portfolio of high-quality assets beginning with Côte d’Ivoire. I would like to remind you that we had no assets in Côte d’Ivoire prior to April 2024. Since that time we have developed a significant and prospective portfolio. In line with the project timeline, the FPSO at Baobab ceased hydrocarbon operations in January 2025. Following a year of refurbishment in Dubai, the FPSO returned to Côte d’Ivoire in April and is now moored into position and we have four out of the seven risers and umbilicals connected. We expect the field to restart production in June with sales commencing from the FPSO in Q3. We are very pleased how well the FPSO refurbishment went and that it was completed within the initial timeline expected. The refurbishment was undertaken to extend the life of the vessel and to increase its capacity as we begin a significant development program at Baobab later this year. The program includes four producers, two or three water injectors, and two workovers, providing potential meaningful additions to production from the main Baobab field, where we have a ten-year extension of the license to 2038. The current drilling plan on Baobab is to begin drilling on a batch basis the top-hole sections of all wells. These completions will then be commenced and we expect at least one well to be on full production by year end. In February 2026, in accordance with the CI-40 PSC, VAALCO Energy, Inc. and PETROCI elected to participate in the development of the Kossipo field. VAALCO Energy, Inc. was confirmed as operator with a 60% working interest in the Kossipo field on the CI-40 block, just eight kilometers from the Baobab field. We are now working on a field development plan using new ocean bottom node seismic data that is expected to help de-risk and enhance our evaluation and development plan. The Kossipo field was discovered in 2002 with the Kossipo-1X well and later appraised in 2019 with the Kossipo-2A well, which tested at over 7 thousand barrels of oil per day. Our current assessment has the field with an estimated gross 2C resources of approximately 102 million barrels of oil equivalent and 293 million barrels of oil equivalent in place. Also in Côte d’Ivoire, we continue to evaluate the subsurface potential of our new exploration block CI-705, which we operate with a 70% working interest. We continue to see encouraging prospectivity on the block and proven play types through the Ivorian Basin, including both structural and stratigraphic traps in the Upper Cretaceous and Albian sections. We have met all current work commitments on the block and have been granted a six-month extension to the first exploration phase, which now extends this phase into Q4 2026. Our subsurface work will continue to mature the encouraging prospectivity we see on the block in preparation for a decision later this year to proceed to the second exploration phase, which carries a well commitment. So in less than two years, we have established a sizable position in Côte d’Ivoire with considerable upside potential. We are genuinely excited about the prospectivity in Côte d’Ivoire and its ability to help us achieve our production growth targets. Moving to Gabon. In 2025, we began our Phase 3 drilling program with the drilling of two pilot wells in the Etame field. Based on the pilot well results, we proceeded with drilling the Etame 15H-8 development well on the 1V block of Etame in December 2025. This well came online in late February at about 2 thousand gross barrels of oil per day, so our Q1 production results only had one month of production from this well. The rig remained on the Etame platform to drill an exploration prospect in West Etame. While this well encountered 10 meters of high-quality Gamba sands, the target zone was water-bearing and not commercial. The lower portion of the well was plugged and abandoned, but the wellbore was utilized and we sidetracked the upper portion of the well to drill the Etame 14H-8 development well in the main fault block of Etame that was de-risked from the results of the earlier pilot wells. In late April, the Etame 14H-8 was brought online with an impressive initial rate of around 4.85 thousand gross barrels of oil per day. This well encountered 325 meters of lateral net pay in high-quality Gamba sands in an attic position within the main fault block at Etame. Our second quarter production at Gabon should be enhanced by two months of production from this very successful well. After completing the program at the Etame platform, we moved the rig to the Avouma platform where we are drilling a development well and a workover well to enhance production, lower cost, and potentially add reserves. We also plan another two wells at South Tchibala platform following the completion of the program at Avouma. We expect that development well at Avouma to be completed later this quarter and we plan to announce the results to the market when that happens. Regarding our exploration blocks in Gabon, the Nyonie Marine and Gnondo Marine, we are working with our partners on plans for the two blocks moving forward. We commenced a seismic survey in November 2025, which was completed in 2026. This survey completed part of the exploration work program commitment for these blocks. Processing of the seismic data has begun with early products expected to begin arriving later this year. Given the proximity of these blocks to prolific producing fields of Etame and Dussafu, we are excited about the future possibilities for these blocks. Turning to Egypt, for the past year, we had contracted a rig and drilled about 20 wells across a drilling campaign that helped to increase production year-over-year in 2025. We are very pleased with the operational performance and efficiency of the drilling program, which contributes to minimizing costs. In conjunction with our drilling program, we also continued performing production optimizations, workovers, and recompletions that have significantly improved our production performance. While we wrapped up the drilling program in 2025, given the strong results, we have added a six-well drilling program in Egypt that is commencing in Q2, which should help increase production in Q3. We have not increased our 2026 CapEx guidance for the cost of these wells as the range we provided in March can comfortably include these new wells. We also plan optimizations, workovers, and recompletions in 2026 that are focused on production enhancement. Egypt production remains strong and we continue to invest to drill development wells and continue to delineate opportunities in Ghazalat that could open additional prospects in the future. Turning to Equatorial Guinea. In March 2024, we announced the finalization of documents in Equatorial Guinea related to the Venus Block P plan of development. Last summer, we began our front-end engineering design, or FEED, study. The FEED is complete and confirms the technical viability of our plan of development, but also highlights some of the risk and challenges from the shelf location. We have expanded this review to explore more efficient development opportunities through a subsea development versus the original shelf development, which would also significantly simplify drilling operations and well design, and this evaluation is currently underway. We are expecting to proceed with our plans to develop, operate, and begin producing from the discovery in Block P offshore. We are targeting Venus FID in 2026. In closing, we have an outstanding diversified portfolio that we believe has significant upside opportunities. We remain focused on growing production, reserves, and value for our shareholders. I would like to thank our hardworking team who continue to operate and execute our plans. Over the past several years, we have significantly diversified our portfolio, enhanced our capacity to generate operational cash flow, while returning capital to shareholders and increasing our credit facility capacity. We are well positioned to execute the projects in our enhanced portfolio, and our proven track record of success these past few years should instill confidence for our future. With that, I would like to turn the call over to Ron to share our financial results. Ronald Y. Bain: Thank you, George, and good morning, everyone. I will provide some insight into the drivers for our financial results with a focus on the key points and give additional insight into our 2026 guidance. As George discussed, operationally, we are performing very well. But the first quarter was an inflection point for us financially. I want to begin by highlighting the multiple factors that impacted our Q1 financial results, including the timing and number of liftings in Gabon, exploration expense, and both realized and unrealized derivative losses. I want to point out that in the previous conference call, and in our Q1 guidance, we discussed the reduced sales volumes expected in Gabon due to the sole lift being a government lift. As I have previously stated, in Gabon, Egypt, and Côte d’Ivoire, our foreign income taxes are settled by the government through oil liftings in Gabon and Côte d’Ivoire and the government taking their share in Egypt. We also sold the Canadian assets in February, and as a result, only had a portion of production and sales from those assets in Q1. Additionally, as George discussed, Côte d’Ivoire remained offline for the FPSO refurbishment; production should resume by the end of the second quarter. Despite all these factors, our Q1 sales and production were both slightly above the midpoint of our guidance. We forecasted that Q1 sales would be quite a bit below production; by the midpoint of the full-year, production and sales guidance are much more in line, which means sales will likely exceed production in future quarters. This can be seen in our Q2 guidance. While Q1 sales had no partner liftings in Gabon, we expect two partner liftings in Q2, which is expected to significantly increase our sales revenue and ultimately our adjusted EBITDAX. Another major factor impacting earnings and the expenses in the first quarter was the $22.4 million in exploration expense. This was driven by the cost of an exploration well at West Etame offshore Gabon that was determined to be unsuccessful and additional seismic costs at the Nyonie and Gnondo blocks in Gabon. In the previous call, we also discussed the forecasted exploration expense and Q1 actually came in below the guidance range of $27 million to $32 million. Nearly all of our expected annual exploration expense came in in Q1. Turning to hedging. In 2025, we entered into a new reserve-based lending facility to help provide VAALCO Energy, Inc. with short-term funding to supplement our internal cash flow generation, as we have multiple large capital projects underway across our portfolio. Over the past year, we have been talking about the more programmatic hedging program that will be more consistent over a rolling time horizon. We are looking to mitigate risk and protect the cash flow needed for our capital investments and shareholder distributions through the ongoing hedging program. Prior to the Iran conflict, the hedging program consisting primarily of collars allowed us to protect our downside risk and lock in a range of prices that allowed us to generate strong cash flow. As you know, the market has been very volatile since March, and our hedges had about $15 million in realized losses in the first quarter, with an additional $56 million in unrealized derivative losses as we mark to market the positions. We had 56% of our guided Q1 barrels hedged with costless collars, the unhedged positions being largely represented by the Egyptian sales where the PSC terms provide the state with 85% of the pricing upside, over cost oil and the contractor, 15%. We are continuing to monitor the situation and hedge on any geopolitical shock or spike we can. With Côte d’Ivoire coming back online, we will have more oil barrel sales unhedged in Q3 and beyond. Our full quarterly hedge positions are disclosed in the earnings release. Turning now to the first quarter results, we reported a net loss of $93.7 million in Q1 2026, which was driven by $71 million in derivative losses, of which $56 million represents unrealized book losses, and a $22.4 million exploration expense. While most of our expected exploration expense for 2026 occurred in Q1, with the uncertainty in macro events and oil pricing our realized and unrealized derivative losses could continue to impact earnings in the coming quarters. We also generated adjusted EBITDAX of $11.6 million, which included no partner liftings in Gabon and no sales in Côte d’Ivoire. Q2 2026 is expected to be materially improved due to the two planned partner liftings in Gabon, and Q3 2026 sales are expected to include Côte d’Ivoire. With the FPSO expected to be fully operational in June, we are forecasting some production in Côte d’Ivoire in Q2, but there will not be any liftings until Q3. Production in Q1 was 15.11 thousand NRI BOE per day or 19.88 thousand working interest BOE per day, both above the midpoint of VAALCO Energy, Inc.’s guidance. As I discussed earlier, sales of 12.16 thousand NRI BOE per day for Q1 were slightly above the midpoint of guidance but quite a bit lower than production. Turning to costs, with no partner liftings in Gabon, our production costs for Q1 on an absolute basis were quite a bit lower than in Q4 2025 and were well below the midpoint of guidance both on an absolute basis and on a per-barrel basis. Our focus remains on keeping our costs low to enable us to maximize margins and increase cash flow. But with higher fuel and service costs driven by the Iran conflict, we may see some expenses increase in the near term. Looking at G&A, our cash G&A totaled $6.9 million, which was below the low end of guidance. Moving to taxes, in the first quarter, we reported an income tax expense of $4.3 million, which was comprised of a $14.9 million current tax expense offset by a deferred tax benefit of $10.6 million. Income tax expense included a $2.9 million unfavorable oil price adjustment as a result of the change in value of the government's allocation of profit oil between the time it was produced and its present mark-to-market liability. Turning now to the balance sheet and cash flow statement, in Q1, we invested $78.1 million on a cash basis and $73.3 million on an accrual basis in net capital expenditures. This was primarily related to new wells drilled as part of the drilling campaign offshore Gabon, as well as expenditures associated with the refurbishment and reconnection activities of the FPSO in Côte d’Ivoire. Keep in mind, we wrote off the cost of the unsuccessful West Etame well, so that cost is not in CapEx. Unrestricted cash at the end of the first quarter was $48 million. In the first quarter, to help fund our capital programs, we did draw $92 million against the company's reserve-based lending facility. In April, the aggregate borrowing base under the 2025 RBL facility increased to $300 million. We now have $152 million drawn on the credit facility and net debt of $104 million. We anticipate a substantial part of the interest we incur this year from the facility borrowings will be capitalized and is in our capital guidance. Last call, I discussed how pleased we were in 2025 with the progress made with our Egyptian receivables, and I said that we expected to see collections exceed revenue in Q1 2026. For the first quarter, we saw an additional reduction to our trade receivables of about $7.4 million, with our trade receivables falling from just under $32 million at year-end 2025 to just over $24 million at the end of the first quarter 2026. We will continue to work with the Egyptian General Petroleum Corporation to maintain a strong relationship and keep our receivables current. In Q1 2026, VAALCO Energy, Inc. paid another quarterly cash dividend of $0.0625 per common share, or $6.7 million. We also announced the second quarter dividend payment, which will be paid in June. Let me now turn to guidance, where I will give you some key highlights and updates. As I mentioned earlier, guidance for the remainder of 2026 has no contribution from the Canadian assets that were sold in February, and we are forecasting the Baobab field in Côte d’Ivoire coming back online in June with sales resuming in Q3. With the strong performance of our drilling campaign, coupled with the restart of production at Baobab and some additional drilling in Egypt, we expect to see strong increases in production from Q1 levels moving forward. Additionally, with two partner liftings in Gabon expected in Q2, our sales guidance is 44% higher in Q2 at the midpoint compared to Q1 sales. We are confident in our operational abilities and are increasing our full-year 2026 production and sales NRI volumes by 8%–12%, respectively. Our full guidance breakout is in the earnings release and our supplemental slide deck on our website, with production breakout of both working interest and net revenue interest by asset area. For the total company, we are forecasting Q2 2026 production to be between 21.6 thousand and 23.8 thousand working interest BOE per day and between 16.8 thousand and 18.7 thousand NRI BOE per day. This is a significant increase over Q1 production. We expect our second quarter 2026 NRI sales volumes to range between 16.8 thousand and 18.3 thousand BOE per day. We expect our absolute production cost to be higher in the second quarter, in line with the additional sales volume, and on a per-BOE basis to be in the range of $26 to $31 per NRI BOE. This is slightly higher than Q1, as we are expecting some cost increases primarily related to fuel costs and reflects a higher mix of West African barrels versus North African barrels that dominated the mix in Q1. For our exploration expense, we are forecasting a range of between $2 million and $3 million for Q2, a 90% reduction compared to the first quarter. We expect cash G&A to be in the range of $7 million to $9 million and our annual G&A guidance remains the same. Finally, looking at CapEx, our Q1 spend was below the guidance range, but we believe this is primarily due to timing. Our Q2 2026 capital spend is projected to be between $110 million and $130 million as we continue the drilling campaign in Gabon, we complete the FPSO refurbishment, and begin drilling additional wells in Egypt. George outlined the multiple programs across our assets, as we believe that our efforts in 2025 and 2026 are building the foundation for another step change in production in the future. Our second quarter guidance includes about $6 million in capitalized interest, all of which relates to our large capital investment program this year. Even though we are adding a drilling rig in Egypt and increasing our 2026 production and sales volumes, our full-year capital guidance for 2026 remains unchanged. In closing, while Q1 results were impacted by several factors, we are optimistic about improvement in Q2 and for the remainder of 2026 as we expect to continue to grow production and sales volumes. We believe we remain well positioned to continue executing on our strategy of growing production and reserves while adding meaningful value. We have a long track record of successfully delivering operational results that meet or exceed expectations. We have achieved many things these past few years and 2026 has started with strong operational successes. We have delivered in the past and we are very well positioned to continue to execute at a high level across our diversified assets over the next several years. With that, I will now turn the call back over to George. George Maxwell: Thanks, Ron. Our second quarter is off to a strong start with the drilling success in Gabon and the FPSO at Côte d’Ivoire back on location with production expected to restart at Baobab in June. In the first quarter, we rationalized our portfolio by selling the Canadian operations and added high-upside opportunities at Kossipo in Côte d’Ivoire. Looking across our asset base, we are executing on several projects across our expanded portfolio. In Gabon, we have an extensive drilling campaign underway and the rig is now in Avouma drilling wells and looking to do workovers that should add reserves and production. At Baobab, a couple of months after the field comes back online, we are expecting to begin a multi-well development drilling program. At Kossipo, we are very excited to be named operator with a 60% working interest and are working on a field development plan that is being driven by new seismic; we are looking to utilize existing infrastructure already in place. Also in Côte d’Ivoire, we are acquiring additional regional well data and concluding further geological evaluations of our new exploration block CI-705, where we are the operator with a 70% working interest. In Egypt, our ongoing production optimization, workover, and recompletion programs have performed well, and we are drilling additional wells in 2026 as I discussed earlier. In Equatorial Guinea, we have completed our initial front-end engineering and design study and confirmed the viability of the development concept and are currently evaluating alternative technical solutions which may deliver enhanced economic value. Our ability to remain focused on successfully executing our strategy is key to growing the company profitably over the remainder of the decade. We have successfully delivered strong operational and financial results for the past several years, where we have met or exceeded guidance on a quarterly basis, and we believe that we can continue to meet or exceed our guidance numbers in Q2 and beyond. There are numerous macro events that we cannot control. The things that we can control, like operating efficiently, investing prudently, and maximizing our production, will help us deliver the forecasted growth and profitability for our shareholders and partners. The timing of the new wells in our Gabon program recently coming online and the expected restart of Côte d’Ivoire later this quarter are certainly very well timed with the increase we are seeing in oil prices. Our entire organization is actively working to deliver strong results that will continue to help fund our capital programs while also returning value to our shareholders through a top quartile dividend. We have maintained credibility over the past several years, having delivered on our commitments to the market and to our shareholders, and we will continue to deliver with this exciting slate of projects we have over the next few years. We are in an enviable position with a much stronger and diverse portfolio of producing assets with expected significant future upside potential. Thank you. And with that, operator, we are ready to take questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first question will come from Stephane Foucaud with Auctus Advisors. Please go ahead. Stephane Foucaud: Yes. Morning or afternoon, gents. Thanks for taking my question. My question is really around what we are hearing on those oil premiums in the market versus Brent. I heard recently that some lifting in Nigeria was sold at a $15 premium to dated Brent, which is already at a premium on the M+1 prices. So I was wondering, is that what you see across your portfolio in Gabon and Egypt? And then related to that, some of the production you have is hedged. But I assume that this hedging is around Brent, so that still allows you to capture, even on that hedged production, any potential premium. If you could confirm if my understanding is right. Thank you. Ronald Y. Bain: Hi, Stephane, it is Ron. Yes, you are correct. We saw at times a difference between the screen price and what we saw in dated Brent. We had two liftings that are coming up; I can talk to them—April and May—and on both occasions we are seeing about a $4 premium to dated Brent for our crude. So yes, we are seeing a premium for West African barrels at this point in time. Egypt is a more difficult one because it is domestically sold, but obviously the listed price in relation to that, that we are marked over from EGPC, is getting closer to dated Brent. So not necessarily seeing the premium develop there per se, but we certainly see it on the West African barrels. And it is obviously far too soon on Côte d’Ivoire; we will not have a lift in Côte d’Ivoire until August. Stephane Foucaud: Thank you. And with regards to the hedging, my question was that I assume the financial hedging is based on Brent. Do you because it is on dated Brent? Ronald Y. Bain: You are quite right. Any premium to that will be above what we have our hedges in place at. Stephane Foucaud: Okay. That is great. Thank you very much. Operator: Our next question will come from Jeffrey Woolf Robertson with Water Tower Research. Please go ahead. Jeffrey Woolf Robertson: Thank you. Good morning. Ron, could you share any additional color on the lifting schedules in Gabon and Côte d’Ivoire beyond the second quarter? Ronald Y. Bain: We can certainly share in the second quarter. We have got two confirmed liftings in Gabon. We are working with the operator in CNR for Baobab, and we likely see a lifting there in the August time period. We have basically stated we will have one every other month in Gabon between now and the end of the year. And as we stated previously, we do not foresee another GOC lift this year; it is all contractor party lifts. So hopefully that helps you with your modeling there. Jeffrey Woolf Robertson: And, George, at Kossipo, if you get the field development plan submitted before year end, what will that do to VAALCO Energy, Inc.’s ability to shift reserves from one category to another? Ronald Y. Bain: Yes. If we get the FDP in place before year end, which is our commitment to the DGH in Côte d’Ivoire, the categorization of the 102 million barrels equivalent that is currently sitting in 2C would move to a 2P categorization within our NSAI report for year end. So that is definitely our focus. That would add to our 2P reserve books somewhere in the region of just north of 60 million barrels. Operator: Thank you. Our next question will come from Charlie Sharp with Canaccord. Please go ahead. Charlie Sharp: Yes. Thanks for taking my question. Just another bit of a follow-up, if I may, on liftings—and that has been very helpful in terms of the timing of those liftings. I guess, can you remind me what the typical lifting size is in Gabon? Or what the anticipated typical lifting size would be on Baobab? And also, just on your production guidance for Côte d’Ivoire, does your guidance capture any potential flush production, or would that be potentially on top of guidance? Thank you. Ronald Y. Bain: I will start with the liftings then, Charlie. Typically, in the past in Gabon, we have lifted parcel sizes of 650 thousand gross, but as of late we have tried to maximize that out to 900 thousand. Obviously, from an economics point of view on the freight, it is more beneficial for us. So we are planning 900 thousand gross lifts. In Côte d’Ivoire, we generally plan 650 thousand lifts; we are working with the operator there to try and encourage higher lifts than that. The vessel has come back in very good shape, and there is no reason in my mind why we cannot be looking at 900 thousand to 950 thousand lifts. George Maxwell: I will add to what Ron said there, Charlie. One of the reasons we were with the operator down at 650 thousand is that their initial plan when the vessel came back onstream was not to use the wing tanks. That plan has subsequently been changed and we are just finalizing some remedial work on-site on the wing tanks right now to make sure we have that additional storage. That means that, where before we had perhaps used those partly for ballast, they now can be used for storage capacity that starts to increase the argument around the higher liftings from Baobab. Ronald Y. Bain: With regard to the guidance, of course, we work closely with the operator when it comes down to the production forecast. We have our own simulation models that we work on for the Baobab field and where we see the performance. George Maxwell: You are absolutely correct that with a field shut in for some 14 months, we would expect to see flush production. We have kept all the anticipated flush production upside in reserve relative to our guidance. There are really two reasons for that. One, we are confident in the history match in our model that what we are seeing indicatively of a kick-start in production will be achieved, but we will hold that in reserve right now. The second reason is, unlike Etame, there is not a natural pressure support inside the Baobab field; it requires water injection in order to sweep that oil up to the drainage points. So the water injection has also been shut down during this period. On the startup sequence, we would expect the water injection to begin and we do expect to see first production, but we have kept that in reserve at the moment. Charlie Sharp: That is very helpful. Thank you. Operator: Our next question will come from Christopher Courtenay Wheaton with Stifel. Please go ahead. Christopher Courtenay Wheaton: Thanks very much. Two questions, if I may. Firstly, Ron, a question for you on working capital, if I may. I was surprised at the magnitude of the working capital outflow in the first quarter, particularly when my reading of the accounts is that, when you look at the difference between sales and production volumes, the Gabon cargo to pay the government taxes is already taken out of the revenue line. So I wonder if you could help unpick that for me, because it feels like I have double counted somewhere, or there has been double counting somewhere of both the Gabon tax revenue and also working capital outflow. And my second question was for George on Kossipo. It is fantastic to see that head towards FID. Is the development plan, presumably monetization via some of the Baobab infrastructure? In that case, has a sort of commercial framework been agreed with CNRL as operator so that that can form part of the financial framework that goes into assessing the project viability? Those are my two questions. Thank you. Ronald Y. Bain: Chris, it is Ron. I will go first on working capital. On working capital in relation to the tax position, when we accrue the barrels that are on the balance sheet, it is a liability for foreign taxes payable. When we settle those, effectively you are moving the working capital because there is an outflow of cash as you take those barrels off and settle them against that liability. That did happen in Q1. Also, our accounts payable came down a bit as we settled, along with CNR, a number of the bills on MV10 when it sailed out to Dubai and came back into African waters. So there was a movement in payables there as those bills were settled. We completed a well in Gabon as well, and you have got the payments going out for that for drilling, too. Those were the key catalysts. The other part is there is an inventory build as you go to the latter half of the quarter. The GOC lifted in early February, and the partner lift was in April. So again, inventory built up a little bit. With the strong prices, AR built up, although we collected most of the AR. Overall, that is where the outflow came. Against that, the unrealized hedges have now moved up the accrued liability number. George Maxwell: On Kossipo, Chris, maybe it is not well known, but even though we are the operator now of Kossipo in that economic extraction area, we are still under the single PSC. Within that PSC, any of the developments that are attached to CI-40 has a contractual right to evacuate back through the existing infrastructure, so that is very much clearly there. With regard to the economics for processing and storing through Baobab, that still has to be worked out, but it is worth pointing out as well that we are also 30% participants in that position and have a voice at that table on both sides effectively. That all being said, when we are looking at the FDP, we have to look at what is the most efficient extraction. We are eight kilometers away from Baobab, so either an interconnect or tieback solution—how does that look both from a capital spend and an engineering concept—or there is also the opportunity to look at a standalone position if that is more economically efficient and, more importantly, can be done in a more timely manner. But I think all the listeners should take comfort that we have absolute contractual rights to evacuate through Baobab and maximize efficiency of that facility if the timing allows. Christopher Courtenay Wheaton: That is a really helpful explanation there, George. Thanks very much indeed. George Maxwell: Thanks, Chris. Operator: Our next question will come from William Dezellem with Tieton Capital. Please go ahead. William Dezellem: Thank you. Two questions related to production. First of all, in the first quarter it was quite good relative to your guidance that you gave. Ultimately, what went right for that to come in so strong relative to guidance? Ronald Y. Bain: There are two things there. One, as we mentioned back in March, we intimated that the upward trend on production coming out of the Egyptian campaign in December meant we had a very strong profile coming into January and February. That was a big delta in our upside. Also, because of the performance, particularly around the final wells in the Egyptian campaign, it really led towards the acceleration of the campaign for 2026, pulling it forward from a late Q3/Q4 prospectivity that we had in a contingent plan to a firm program coming into May. That really changed our position on pulling forward the activity in Egypt because of the strong performance that came through in December and into the first and second quarters. In addition to that, we did see a little bit of a kick coming from the performance in Gabon. It continued to be just above guidance from the wells, and we had the two new wells coming on in the drilling campaign. But primarily, the kick against our forecast was coming in Egypt. William Dezellem: Thank you. And then relative to the 14H well, the upper part of that well came in at a really quite high production rate. Does the knowledge of that level of production lead to some learnings or a change in how you are thinking about future drilling in that area? George Maxwell: Yes and no is the answer to that. It is worth reminding everyone we have been drilling and producing out of Etame for some 24 years now, so it is a very mature field. When we talk about the targeted drilling that we are going for, we talked about the concept of going after attic oil. What that actually means is we are looking at the positions where the existing drainage points are down-dip of the upper parts of the structure and we are trying to place these wells at the very top part of the structure to capture that additional oil that has not been swept by previous wells. Your assessment that a well design is always looking to come across with an extended lateral at the very top of the structure to gather that attic oil that is never going to be swept from the existing drainage points is correct. It is exactly the same type of well that we are trying to drill right now in Avouma with exactly the same type of concept. All future wells, I believe, in Etame will be this type of well design—top of the structure, very long lateral, very long exposure to the reservoir—in order to capture those stranded oil opportunities. Ronald Y. Bain: Bill, I will just add a little bit more color to what George said there. As you saw, we increased the production and sales guidance from our Q4 call, and that is primarily with a view on that main fault block well, which came in very well, as well as the continued Egyptian success that we have got. So that is where the rise in the production and the sales is on the full-year guidance. William Dezellem: Great. Thank you both, and good luck with finishing the FPSO hookup. George Maxwell: Thanks, Bill. Operator: Our next question is a follow-up from Stephane Foucaud with Auctus Advisors. Please go ahead. Stephane Foucaud: Yes, thank you. Actually, Bill asked the question I wanted to ask and I could not confirm. That was around what had driven the production guidance increase in 2026 in Gabon, but I think Ron just responded to that, saying that this was basically the very strong well in Q1. Thank you. Operator: Our next question is a follow-up from Jeffrey Woolf Robertson with Water Tower Research. Please go ahead. Jeffrey Woolf Robertson: Thanks. George, at Nyonie and also at your two blocks in Gabon, what is the earliest you might expect to see wells drilled there if you continue down that path? George Maxwell: On these blocks, if you recall, when we acquired these along with BW Energy and Panoro, the commitment position on these blocks was basically seismic acquisition, processing, interpretation, and a single well commitment. Had we been a little bit ahead of the game, we could have thought of tagging on that single well commitment at the end of this campaign in Gabon. We are definitely not going to be there because the acquisition just completed in mid-January and it is out for processing and interpretation. We are not expecting hot-shot data probably into Q3, maybe as late as Q4, for the evaluation. As has been announced by BW Energy, they have picked up a rig to commence a program later this year in Gabon, and that program for them, I believe, runs through mid-to-end 2027. There is an opportunity that the commitment well, subject to interpretation and identification of a targeted location, could come in late 2027, early 2028, at the back end of that program. Failing that, it is then going to be down to looking at the next opportunity for a rig to be in the area to meet that commitment on the drilling program. Jeffrey Woolf Robertson: And at Nyonie, if you move to the second exploration phase, which I think will begin at the end of this year, I think you have that might include a well by 2028. Would that likely be a 2028 well, or could that slip into 2027? George Maxwell: It is unlikely to slip into 2027. It depends on two key things. One, the location of the well. You have to look backwards into VAALCO Energy, Inc.’s history, and you look backwards and these blocks that have been reassigned to us and our partners are areas that VAALCO Energy, Inc. previously held back in the early teens. So we do have an understanding of the prospectivity of that block, and that is why we were quite comfortable to come back in in a partnership because we do see a degree of prospectivity there. As to when and where that well will ultimately be drilled is down to, one, the location of the well and its proximity to infrastructure, and the closer to our infrastructure or their infrastructure obviously makes it more exciting for us to pull that forward because it is a much closer monetization point. So that is really what is going to be the driver—how exciting the prospects are that we find and the location of these prospects to existing infrastructure. The closer they are, the more keen we would be to drill them. It is unlikely in my mind, but you never say never, that it would fall into 2027; there is that slight possibility. Operator: Thank you. Our next question will come from James Wilen with Wilen Management. Please go ahead. James Wilen: Hey, fellas. You guys have a lot of moving parts, which I would like to tie together. As you exit 2026, will your barrels per day production approach 30,000 barrels? Ronald Y. Bain: Jamie, it is Ron. Guidance at the moment has an exit rate of between 25,000 and 27,000 barrels. We will continue to look at that with the Gabon drilling successes as we go forward. In Côte d’Ivoire, we have previously stated we go into batch drilling there and we only see one of those wells completing, and it will be very late in the year, so it will come in for one month. If there is movement there, there is a possibility for that exit rate to be higher than that. But at this point in time, we are guiding an exit rate of between 25,000 and 27,000. George Maxwell: The only thing I would add to that, Jamie, is, as I said earlier in the call, there are all kinds of possibilities of flush production coming on in Côte d’Ivoire when we start up. That is currently not within our guidance. James Wilen: Okay. And secondly, as far as taxes go, in 2026 and 2027, we have a lot of cost oil that will go to limit our tax liability. How much free cash flow will we have that will not be taxable as we look forward? Ronald Y. Bain: I cannot give you specifics on free cash flow that is not taxable. What I can say, Jamie, is that you have been in the stock for some considerable time, so you know the history here. In relation to the cost pools building up, we basically see for Gabon, as I said, that we see no other GOC state lift this year. I cannot see a state lift now—and my team cannot see a state lift now—until Q1 2027 based on the volumetrics. So again, there is not a cash tax liability in relation to that. We also foresee, with the spend that we have got both for the Baobab and the drilling campaign in Côte d’Ivoire, that we will maximize that cost pool for about a two-year period, but it really depends on oil price. If oil prices stay at this current level of around $100, we will burn through those cost pools quicker. That is the same case with Gabon. It is great that we will have incremental free cash flow from the pricing; it also means that we will burn through it, but we will not have that tax expense. You will crystallize that benefit to the company quicker than our models predict at the moment, which have the forward curve in there. James Wilen: Not a bad thing at all. Thanks, fellas. Ronald Y. Bain: Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to George Maxwell for any closing remarks. George Maxwell: Thank you, operator. I would like to thank everyone participating in today's call. We have had a considerable amount of activity and, as Jamie mentioned in his question, we have a lot of moving parts. We have a lot of cash catalysts that are happening throughout 2026. By the time we get to midyear, we will have three drilling campaigns fully active in our assets, drilling wells and enhancing production—catalysts to generating cash flow. We have a very, very busy year ahead, and that busy year is building both the profiles and the opportunity for significant steps up in production in early 2027. I do not want to look that far ahead because we only need to look as far ahead as Q2, when we start to see the increase in crude oil sales coming from liftings, and those liftings are increasing even more with the additional production that we are taking in Gabon from the drilling campaign and the restart of the Baobab field. We have seen Egypt operating very successfully from the last campaign in Q4 2025. We made the decision to accelerate the program in 2026 to further enhance those opportunities. We did not talk much about Equatorial Guinea, but I will highlight again we are targeting FID in Equatorial Guinea this year. We are building to continue that step change in production going into 2027 and 2028. Thank you. I look forward to talking to you in the Q2 call in August. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Hello, everyone, and welcome to Astrana Health's First Quarter 2026 Earnings Call. [Operator Instructions] Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer. This press release announcing Astrana Health's results for the first quarter ended March 31, 2026, is available in the Investor Relations section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on the results, the company has made a supplemental deck available on its website. A replay of this broadcast will be available at Astrana Health's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meanings of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook, and will, and conclude, among other things. Statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, liquidity, operational focus, strategic growth plans, and acquisition integration efforts. Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. There could be no assurance that those expectations will prove to be correct. Information about the risk associations with the investing in Astrana Health is included in the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, change in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, if you would like to refer to Slide 2 of the conference call presentation for further information. With that, I will turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon. Brandon Sim: Good afternoon, and thank you for joining us on Astrana Health's first quarter 2026 earnings call. Today, I'll begin with our first quarter results. Then discuss how we have built and positioned Astrana anchored in our AI-enabled platform and longitudinal payer-agnostic care model and why that model is increasingly advantaged. I'll then provide updates on our 4 strategic pillars and our progress against each. And finally, I'll provide some color on the Prospect integration, expansion market performance, and recent regulatory updates before turning the call over to Chan. Astrana delivered a strong start to 2026. We saw continued disciplined growth, well-controlled medical cost trend, meaningful operating leverage, and early performance from new full-risk contracts that continue to track in line with our underwriting expectations. More importantly, this quarter reinforces our broader thesis. As the health care environment becomes more complex, advantage will accrue to organizations that can integrate care delivery, data, and financial accountability into a single operating system. Astrana has built that operating system. And we believe that advantage is widening. In the first quarter, Astrana delivered revenue of $965.1 million, up 56% year-over-year and adjusted EBITDA of $66.3 million, up 82% year-over-year. Non-GAAP adjusted EPS was $0.74, up 76% year-over-year and free cash flow was just over $64 million in the quarter. Deleveraging also continued to progress ahead of schedule with net leverage declining to approximately 2.3x on a pro forma trailing 12-month basis and to 2.2x based on the midpoint of our full year guidance. As a reminder, when we announced the Prospect transaction, we communicated a path to deleveraging below 2.5 turns of net leverage within 24 months. We have now achieved that milestone in just 3 quarters. And we anticipate ending the year at or below 2 turns of net leverage. We are pleased with the consistency of our performance and execution against our priorities in the first quarter. And our results increasingly reflect the advantages of the platform we have built and the way we are embedding AI across our platform. Our view is straightforward. AI can improve individual tasks. But the greatest value accrues to the orchestration layer where data, workflows, clinical decisions, and financial accountability are integrated across the system. In health care, that means connecting how care is financed, coordinated, and delivered and, ultimately, improving outcomes for patients. We believe that requires deep architectural alignment. Unlike fragmented health care technology stacks assembled across multiple third-party vendors, our platform was designed internally as an integrated operating system because an embedded orchestration across workflows, care delivery, and financial operations requires that. As a delegated payer-agnostic platform, we sit at the center of the health care ecosystem with a continuous longitudinal view of each patient across plans, settings, and time. We are not tied to a single payer or a single line of business. We follow the patient throughout their health care journey. That creates 2 structural advantages. First, it creates long-term value. The continuity we build with our patients allows us to engage and manage care over extended periods of time, driving better clinical outcomes, more efficient resource allocation, and more predictable financial performance. Second, it creates a compounding data advantage. Our longitudinal view allows us to build a more complete and persistent understanding of each of our patients, which improves our ability to predict risk, intervene earlier, and coordinate care across settings. And on top of that foundation, we have built a proprietary data ontology and AI models that translate intelligence into action, embedding real-time insights, next best actions, and workflow orchestration directly into provider workflows and care management operations. Across our platform, our AI agents are increasingly embedded into operational and clinical workflows, helping manage authorizations, claims processing, care management, quality outreach, and next best actions in real time. Because these agents operate within our broader platform and data infrastructure, they act with longitudinal context across the patient journey rather than within isolated workflows. And these capabilities are embedded directly into the day-to-day workflows of our providers and care teams, driving measurable improvements at the point of care. Providers actively using our platform achieve a 24% higher gap closure rate and a 30% higher annual wellness visit completion rate. And those outcomes are increasingly powered by AI-enabled patient engagement at scale, including around 500,000 automated member interactions across voice and text each month, the equivalent of several hundred personnel worth of outreach capacity. We are seeing similar leverage operationally. For example, our AI claims agents have reduced provider payment cycle times to less than half that of manually processed claims. Taken together, these capabilities translate directly into improved clinical outcomes, more efficient operations, and ultimately, more predictable financial performance. Importantly, because we operate the system our AI is improving and because we maintain longitudinal relationships with patients across payers, the benefits compound over time within our platform. As more patients flow through our system, our models improve, our predictions sharpen, and our ability to allocate resources becomes more precise across the patient journey. That combination of longitudinal relationships, data continuity, and integrated workflows is what really enables us to translate AI into durable clinical and economic value. We continue to see those platform advantages translates into consistent clinical performance across the enterprise. In the quarter, medical cost trends slightly outperformed our full year trend assumption of approximately 5.2%, with strong performance across both our core and legacy Prospect populations as we continue integrating Prospect onto the Astrana operating system. Our original Medicare populations in both ACO REACH and MSSP also performed well, reinforcing the scalability of our platform and the ability of our technology and clinical infrastructure to drive consistent outcomes across lines of business. We are also seeing that leverage reflected in our operating structure. In the first quarter, G&A as a percentage of revenue was 6.4%, a 70 basis point improvement year-over-year. As we continue embedding agentic workflows and intelligence across the platform, we expect additional operating leverage over time and believe that we will exit the year at levels below where we are today. Turning to membership. We ended the quarter serving approximately 1.55 million members in value-based care arrangements. On Medicaid and Exchange, trends in the quarter remained generally in line with expectations with puts and takes across the portfolio, largely offsetting one another. Medicaid membership attrition tracks modestly below expectation, while acuity has remained favorable, reflecting less adverse selection than modeled due in part to our longitudinal patient relationships. On the exchange, attrition tracked somewhat ahead of expectations during the quarter. And overall, we continue to manage these dynamics with a disciplined and appropriately conservative approach. And our broader assumptions and outlook for 2026 remain unchanged. On prudent risk progression, we delivered on the commitment we made in late 2025 to convert key contracts to full risk arrangements. At quarter end, approximately 80% of care partners' revenue and around 40% of owned membership were in full risk arrangements. Importantly, new contracts that commenced this quarter are performing in line with our underwriting, reinforcing the discipline of our approach. Collectively, our results reflect continued execution across the 4 strategic pillars we have discussed consistently over the past several years: Disciplined growth, prudent risk progression, strong clinical and medical cost performance, and expanding operating leverage through our platform. Now, turning to Prospect. Integration remains on track and continues to validate the strategic rationale for the transaction. We have completed financial standardization, established full visibility into medical economics and aligned clinical workflows under the Astrana Care model. Gross provider retention remains above 99% for the quarter. And we continue to track towards the high end of our $12 million to $15 million annual synergy target. In our expansion markets, Southern Nevada, which reached run rate profitability in 2025 with a 20% year-over-year improvement in MLR, continues to perform well. In Texas, the launch of our full risk delegated model with a large payer partner on January 1 is progressing in line with expectations. And we expect our platform and operating model to drive a similar maturation curve over time in Texas as we've observed in our other markets. Finally, some quick comments on the regulatory environment. On the 2027 Medicare Advantage final rate notice, we believe there continue to be structural tailwinds for Astrana. Our model is not dependent on diagnosis sources that are being disallowed. And our historically conservative and counter-based approach to risk adjustment positions us well under the revised framework. More broadly, as regulatory changes continue to minimize risk adjustment as a source of alpha, we expect relative performance across the industry to be increasingly driven by underlying clinical execution and cost management. That is core to how we operate. To close, our first quarter results reinforce the structural advantages of the Astrana platform. We are growing with discipline, progressing risk responsibly, managing medical costs with consistency, and continuing to widen a durable technology and AI advantage that compounds with every patient we serve. With that, I'll turn the call over to Chan. Chan Basho: Thank you, Brandon, and good afternoon, everyone. Our first quarter financials reflect solid execution and a strong start to 2026, driven by the commencement of new full risk contracts, continued contribution from Prospect and disciplined platform-wide performance. Total revenue for the first quarter was $965.1 million, up 56% versus the prior year period, driven by the full quarter contribution from Prospect, commencement of full risk contracts and continued organic growth across our Care Partners segment. Adjusted EBITDA for the quarter was $66.3 million, up 82% versus the prior year period. Both revenue and adjusted EBITDA came in at the higher end of our guidance range, reflecting the durability of our model. Net income attributable to Astrana was $14.4 million and adjusted EPS was $0.74 per share. Medical cost performance in the quarter was in line with expectations. Our 2026 plan assumes a blended cost trend of approximately 5.2%. And Q1 actuals across both legacy Astrana and legacy Prospect were consistent or better than planned across all lines of business. G&A as a percentage of revenue was 6.4% compared to 7.1% in the prior year first quarter. This 70 basis point improvement reflects continued operating leverage as we scale revenue and continue to embed AI capabilities across the enterprise. Free cash flow for the quarter was $64.1 million due to strong operating performance and conversions to full risk. We continue to expect strong full year free cash flow generation as new full risk contracts ramp, working capital normalizes, and integration-related investments decline. We ended the quarter with $478.4 million of cash and $586.8 million of net debt. Net leverage on a pro forma basis was approximately 2.3x, down from 2.6x at year-end, reflecting strong free cash flow generation and continued EBITDA growth. We remain committed to meaningful deleveraging over the next 12 months through profitable growth, free cash flow generation, and disciplined debt reduction. We are reaffirming our full year 2026 outlook. We continue to expect total revenue in the range of $3.8 billion to $4.1 billion, adjusted EBITDA between $250 million and $280 million, and free cash flow between $105 million and $132.5 million. We're pleased with our first quarter performance and continued execution and remain disciplined in our approach to full year guidance. Our outlook continues to assume conservative Medicaid membership trends and 0 contribution from HQAF. We expect greater clarity on both items as the year progresses. And until then, we will continue to apply an appropriately conservative approach to full year guidance. As a reminder, the midpoint of our 2026 guidance reflects our operating plan. The low end assumes a stacked downside case rather than a shift in underlying execution. On the headwind side, we have embedded expected declines in Medicaid and exchange enrollment, adverse selection, losses associated with new cohorts and expansion markets, conservative medical cost assumptions, and 0 contribution from HQAF. On the tailwind side, we have modeled improved 2026 Medicare Advantage rates, continued realization of Prospect synergies, ongoing maturization of full risk cohorts, and operating efficiencies driven by automation and AI deployment. For the second quarter of 2026, we expect revenue between $965 million and $1 billion and adjusted EBITDA between $65 million and $70 million. Taken together, our first quarter results give us continued confidence in our ability to deliver against our 2026 framework. With that, operator, we're happy to take questions from the audience. Operator: [Operator Instructions] Our first question is from Jack Slevin with Jefferies. Jack Slevin: Candidly, crazy afternoon, so a little trouble processing information. Maybe just to hit on what I think are like the 3 biggest things for everyone here. I heard the commentary on the trend better or in line with what you're expecting across all books. If I just think about enrollment and trend in Medicare Advantage on the HIC side and in Medicaid, can you just give me the rundown on sort of where that stuff landing versus expectation and how to think about the progression there versus what you sort of already expressed at the last quarter call? [Technical Difficulty] Operator: Will the speakers please check and see if their line is muted. Brandon Sim: Sorry, can you guys hear me? Operator: Yes. Brandon Sim: I apologize. Sorry, I know that, that was -- that was a busy quarter, Jack. Thank you for joining anyway. Happy to give an update per line of business on enrollment and trend. For -- starting off with Medicare, enrollment came in, as we had described before, mid-single-digit growth in eligibility. I'll start first with enrollment and then go to trend. On Medicaid, as I mentioned in my prepared remarks, enrollment or disenrollment tracked slightly ahead of the midpoint of our range. And so we're looking at probably on the high end of our range for disenrollment for the year. And then finally, for exchange, things came in better than expected in terms of disenrollments as has been noted industry-wide. In terms of trend, we were able to come in at or above our full year range for trend, which is a blended 5.2% cost trend year-over-year. And so trend has performed very well across all lines of business. Notably, trend came in better in Medicaid as well relative to our expectations. So there was lower adverse selection so far throughout the year than we expected even with the slightly higher disenrollment than expected. So as I mentioned in the prepared remarks, Medicaid and exchange kind of puts and takes there ended up balancing out. And trend ended up performing better than expected really across all lines of business and for both core and legacy Prospect populations. Jack Slevin: Just one follow-up for me. The balance sheet, obviously now getting to a better position. I know you called it out and then sort of a lot of where you had been messaging and things progressing nicely and good free cash flow generation in the quarter. I guess maybe just thinking about, you had done some M&A, nothing obviously on the scale of Prospect beforehand. But as you sort of get that leverage ticking down and think about what you can do with excess free cash, would love to get your thoughts just on what you think the best use of cash is here. If there's ample tuck-in opportunities? If the buyback is something you should look at? Just curious to sort of hear what you're thinking about there. Brandon Sim: Yes, of course. Overall, our approach to capital allocation, I think, is going to remain disciplined and consistent with the priorities we've previously communicated. First and foremost, of course, our near-term focus is on deleveraging following the Prospect transaction. As I mentioned in the remarks, we're very pleased with the pace of progress so far. As I mentioned, net leverage already declining to approximately 2.3 turns on a pro forma TTM basis. And that's far ahead of the timeline we originally communicated when we announced the transaction. And so when we think about capital deployment, I think our highest priority continues to be investing organically into the platform, including our technology infrastructure, AI capabilities, clinical operations, and expansion markets. And we see strong returns and a meaningful runway ahead in those efforts. On M&A, though, it's really a question about capital allocation efficiency. I think we already -- we believe we already have the core capabilities required to operate a fully integrated AI-enabled health care operating system internally. So the question is less about acquiring technology capabilities and more about determining the most capital-efficient way to expand membership provider relationships and market density over time. So it's going to be a bit of a buy versus build question in terms of M&A. That being said, we continue to believe the platform is extremely well positioned to integrate and scale M&A acquisitions over time. Because we've built that proprietary operating platform, I think we've proven that we're able to operationalize acquired assets very efficiently and very consistently across the platform. And we've demonstrated that capability, as you noted, with Prospect, but also with things like collaborative health systems, CFC, and more in the past. So it's going to be an important opportunity to continue growing the platform. But we're going to remain disciplined and highly selective in the approach. And finally, on share repo, we did continue to do share repurchases in Q1 as we have in Q4 of last year. And we'll continue to evaluate that capital allocation strategy dynamically based on where we believe the risk-adjusted return for repo will be and where we think we can create kind of long-term shareholder value. So given the strong cash generation so far and that integration is on track and ahead of schedule, we're pleased with where we are. And we think we have a lot of flexibility over time as we continue growing the platform. Operator: Our next question is from Ryan Daniels with William Blair. Ryan Daniels: Congrats on the strong start to the year. Brandon, I thought you gave a great overview of the Astrana operating platform and the advantages it gives you both on care and operating efficiencies. So I'm curious how much more leverage do you have there to drive maybe G&A efficiencies? And what type of new programs are you launching? And then as a follow-up, I'd love to learn more about how you plan to commercialize that in the market as other vendors kind of struggle sometimes to manage care as effectively via your care enablement partner offering. Brandon Sim: Hello, Ryan, thanks for the question. I think there's a lot of -- I described some of the examples of how we're using technology so far. It's really deeply integrated into the system. And it helps that we have a fully delegated capitated model where we do act as a single payer. And we have the visibility across authorizations, claims, care management, and the entire ecosystem. So far, as I mentioned, we've really been using a lot of AI in terms of our risk stratification models, our next best action models, creating a suite of agents on both the payer-facing and provider-facing side. On the payer side, for example, on claims adjudication and prior authorization, on the provider and patient side in terms of engagement through voice and text as well as clinical documentation and gap closure. I think some opportunities remain in further expanding our agentic care management workflows, something we've developed over the last half year or so that we're -- that is already in use, but certainly can lead to further efficiencies on both the OpEx and, hopefully, over time on the cost of care line as well. We're also looking at, of course, continuing to finish off the integration of Prospect onto the Astrana operating system, which can drive further operating leverage as well as over the medium term, medical cost leverage, and continuing to expand our clinical decision support capabilities embedded directly into the provider workflow as part of the Astrana operating platform. So I think there are going to be continued opportunities. And like I mentioned in the prepared remarks, already reduced G&A as a percentage of revenue, 70 basis points year-over-year and expect to exit the year even lower than where we came in around -- sorry, lower than where we came in, 6.4% in Q1. On the second question in terms of commercializing this in the market, I think perhaps an underappreciated part of our story is that there is a segment that we report in which we do commercialize some of these tools to the market in our Care Enablement segment. That segment continues to grow rapidly, has a strong gross margin and EBITDA margin profile. And just in this quarter, we added a new client, which we had disclosed kind of on earnings -- on a previous earnings report to that client base in the Care Enablement business. So we continue to grow that business rapidly. And we think there is potential to not only improve groups and clients in that business, but also one day potentially, as we did with the Community Family Care acquisition, to look for deeper ways to partner and get them perhaps into our Care Partners business. Ryan Daniels: And then one quick follow-up. This is more housekeeping. But with the quality assurance fund, I know that's not included in your guidance. Has there been any update there or any thoughts on when we might get timing on that to see if there could be potential contribution to this fiscal year for you guys? Brandon Sim: Thanks, Ryan. Yes, I think that's unfortunately going to have to wait until later in the year. We don't have an exact date in mind, but probably in the third or fourth quarters. So again, out of conservatism, we've left that contribution out of the guidance for 2026. But we look forward to hearing more and updating the street when that happens. Operator: Our next question is from Jailendra Singh with Truist Securities. Jailendra Singh: Congrats on a strong quarter. Brandon, I know you have been cautiously optimistic around your 2027 EBITDA target of $350 million and you've said that there is still a path to get there. But in recent few months, there have been some positive developments around 2027 CMS MA rule. You just said that Medicaid and HICs have been trending better to at least in line to better than expectations and then you're also driving AI-driven efficiencies. Are you feeling better about that target now versus 3 months back? Or at least you're willing to say that current consensus, which is around $340 million, seems to be at least in a reasonable range. Just trying to understand like how your views about 2027 might have shifted in the last couple of months or 3 months. Brandon Sim: Hello, Jailendra, thank you for the question. When we originally provided that 2027 adjusted EBITDA framework, this was back in 2024. Of course, we're in a meaningfully different regulatory and industry environment than the one we're operating in today. But with that being said, I think the more important point, the more salient point is the continued strength and adaptability of the Astrana platform over all environments. Our model was designed to operate across cycles, as I've mentioned many times before. And we believe the consistency of our performance over really decades of performance. But certainly even in the last 5 or 6 years, certainly reflects that. As an example, from 2019 through guidance for 2026, we've grown revenue at approximately a 32% CAGR and adjusted EBITDA at a 25% CAGR while continuing to generate operating leverage and free cash flow along the way as we grow very, very rapidly. And against that context, looking forward into '27 and beyond, we think that the business has continued to be positioned to grow organically at a mid to high teens rate while continuing to deliver on free cash flow as well. We see meaningful opportunities, of course, to accelerate that growth past the mid to high teens growth rate through disciplined and selective M&A potentially over the long-term, particularly given the scalability of what we've built. But even without M&A, we still think that it's a mid to high teens organic grower. And so that being said, I think the key takeaway here is really the operating model and its durability across all regulatory and economic cycles. Our ability to continue compounding growth as we have, 25%, both organically and inorganically over the last 6, 7-year period and our continued expectation that off of the 2026 number, that mid to high teens CAGR on the EBITDA line is firmly within reach over the short to medium-term future. Jailendra Singh: And then my follow-up on the AI investments. You talked -- I think in the presentation, you said that your G&A has been benefiting from AI-enabled tools. And is the message that all of the 70 basis point year-over-year improvement was driven by these AI tools, which would imply like $7 million benefit in the quarter alone. I just want to confirm that. And then as we think about broadly your AI investment strategy. How are these investments split between focus on administrative aspect of the business where savings might directly fall to bottom line right now versus investing in clinical workflow, so that these will drive more savings down the road? Just help us understand how do you allocate your AI investment strategy and the dollars there? Brandon Sim: Yes, of course. I think it's a little hard to say exactly how much of the 70 bps is driven directly by AI. Certainly, AI is being infused across the board. So I would say a meaningful part of that without quantifying is driven by AI and its ability to help us scale the business without increasing G&A costs associated with that rapid revenue growth. In terms of the split between more administrative functions and maybe clinical or coordination and navigation-related functions that could potentially have an impact on medical costs in the short and medium-term future. I think it certainly started off on the payer side and on the G&A side. We built agents around claims, around authorizations, around eligibility. And I think over the last probably year or 2, we've been building a proprietary suite of more clinical-facing tools such as risk stratification, care management, workflow orchestration, and identification that I think will lead to MLR improvements over time. And you can see that a little bit as we -- maybe getting a little off topic here. But you can see that a little bit with how Prospect has performed as we continue to onboard them onto the Astrana operating system. Prospect, prior to the acquisition had medical cost trend running 6%, 6.5% or so. We modeled around 50 basis points of improvement in 2026 versus that number. And we're outperforming that by a bit here even in Q1, even though we've already improved by that 50 basis point margin. So I think you'll really start to see even more MLR improvement in the medium term. But I would say the improvement is largely skewed towards G&A at this point in time. Operator: Our next question is from Craig Jones with Bank of America. Craig Jones: So Brandon, I want to follow-up on your comments around your encounter-based risk adjustment model MA. So it sounds like CMS keeps mentioning like leveling the playing field in MA and really wants to rewrite the current MA risk adjustment model. So if you were in the room with them redoing the risk adjustment model, what would you recommend changing? And then how do you think the potential changes end up making potentially going to this encounter-based model would help Astrana? And then do you think you could see something along these lines as soon as the 2028 technical notices fall? Brandon Sim: Thanks for the question. Yes. I think the future of risk adjustment is really interesting. As you can see in the ACO lead preliminary model details. There is the phasing in of an AI inferred risk score, which would depend not necessarily on an organization's ability to document and submit codes, but rather trying to use AI to infer the true acuity of the member and reimbursing appropriately based on that kind of "gold standard" kind of determination of a member's risk. Again, I think, ultimately, because we've been conservative on risk adjustment, because we see members over a longitudinal period of time and we try to be very appropriate in terms of capturing the clinical complexity of the population. We think that either way, we're well structured, we're well positioned for that future. We think that because we haven't relied on documentation or coding optimization to generate savings and value for the health care system in the past, it may even be beneficial for us, for example, to have a true determination of what a patient's risk is via AI that the government or CMS is going to determine rather than everyone playing a game to try to improve their risk scores over time on a relative basis. So I think really, regardless of how all that shakes out, we think we're structurally well positioned for the long-term. That being said, if I had my way, I do think that the -- that risk adjustment as a source of alpha is not really, I think, in the benefit of the health care ecosystem in the long-term and for the Medicare Trust fund in the long-term. So I would recommend without knowing more that some of these approaches that are being suggested like AI inferred risk models seem very appropriate and seem like a much more efficient way to standardize what risk determination looks like across the American population. Operator: Our next question is from Michael Ha with Baird. Michael Ha: So when it comes to AI, clearly, everyone is talking about it this earnings season, all the large national payers, providers. But the thing is most of them have pretty legacy old infrastructure, fragmented data, as you said yourself. So when I think about Astrana versus, I guess, almost all of your peers. It's the fact that you built an AI-native tech platform many years ago. And the fact that you yourself are spearheading foreseeing AI adoption across basically every facet of your company. I think that's still widely underappreciated. So I was wondering if you could talk more about this specifically, the structural differences between you Astrana versus your peers when it comes to unlocking the power of AI? In other words, like what still has to happen -- what still has to be done by your peers to get there versus what can already start to happen at Astrana? Brandon Sim: Yes. Thanks so much for the comments, Michael. I think broadly, that's right. I think our thesis has always been building internally. And I think that thesis is being rewarded in an era where it is easier than ever and faster than ever to build internally because of the advent of generative AI and its use in coding. And I think as long as you have the integrated data infrastructure to support that, the ontology is on top of that, the definitions, the concepts and the relational -- and the relationships between those concepts so that the AI understands how to operate on each of these concepts and how they relate to each other and how they ultimately translate into actionable insights. I think that's hard to replicate, right? I think if you're operating a system where you've acquired a bunch of stuff. And you haven't integrated them into a unified data layer with a unified set of concepts and vocabulary on top of that, on top of which the AI and the agents can operate. You're going to find it very difficult to kind of build the fifth floor of the building without having the structural supports in the ground floor and the lobby built out. And I think that's a lot of what our peers are doing perhaps without getting too much into what our peers are doing. I think there's a rush to chase the kind of the sexiest parts of AI to build the top floor, the penthouse unit without having the foundational approach, without having the pick axis, the knowledge about how to dig the hole and the foundation into the ground to build that in an effective manner. And I think we've spent a lot of time, myself personally, given my engineering background to build out that foundation. And now we think that's going to unlock our business in terms of rapidly adopting AI across the enterprise and embedding it deeply into each and every workflow, both operationally, clinically and on the quality of care side. So we're really excited about where we can take this platform. We're already seeing the G&A improvements. We're starting to see some of the trend improvements as we continue to integrate new businesses onto the platform. And we're seeing great success as well in terms of our Care Enablement business, selling the tools, and the integrated workflow that we've built to other provider groups and helping them succeed also in an accountable care relationship. Michael Ha: So next question on the final MA rate notice. So I'm getting roughly like 4% net rate increase for Astrana if I exclude -- on the chart reviews. And when I think about Astrana's margin expansion, just how sensitive it is to the rate environment? I know your cost trends are running, I think, 4% to 5% roughly for MA. So at face value, right, that would imply rates are basically they match up. But if I start at 4%, add maybe 1% to 2% coding, maybe another 1% to 2% help from plans, benefit design pricing. Then we're getting into a different sort of ballpark of 6% to 9% rate versus trend of 4% to 5%, up to 400 basis points of margin expansion. So it feels quite considerable. And that's not even including right, your regular cohort maturation dynamics, any other trend vendors or G&A. So at a high level, am I missing any major components? Is this even the right way to start thinking about 2027? Brandon Sim: Yes. Mike, as always, your math is great. So I would broadly agree with your comments. I think the final rate notice was constructive overall. And the overall top line kind of effective growth rate of 5.33% does more appropriately reflect underlying medical cost trend. As you mentioned, the disallowed diagnosis -- or the diagnoses, sorry, are expected to be immaterial for Astrana, given our historically conservative and encounter-based approach to risk adjustment. So as you had noted correctly, the average change for us might be the 2.48% plus the 1.53% or approximately 4% in aggregate. And as we think about '27 more broadly in our models, at our current RAF levels, we probably expect to maintain MA margins consistent with 2026 with that 4% kind of average rate book increase. Beyond that, we continue to see tailwinds and opportunity for more accurately capturing the complexity of our populations and risk adjustments. And there's potential tailwinds above and beyond the 4% from those sources. Operator: Our next question is from David Larsen with BTIG. David Larsen: Congratulations on the great quarter. Can you talk a bit about your margins for like, I guess, full cap books of business that would include inpatient? And can you remind me what regions or how many members are full cap, including pharmacy, doc, inpatient? Brandon Sim: Thanks for the question, Dave. Thanks for tuning in. Our fully capitated arrangements start off in lower kind of EBITDA margin arrangements as we transition them from full risk because as we talked about before, you get the kind of increase in percentage of premium without yet necessarily flowing through the decrease in inpatient utilization as we take on additional portions of the risk dollar. Over time, the maturation of the full risk cohorts, as we've seen over the past years as we've moved members cohort at a time into full risk arrangements as we continue to do that as we did in Q1 of this year. You see that margin profile mature and ultimately get to hopefully a similar point as the kind of partial risk members as well. So I think that's what we expect as we continue to move members selectively and prudently into full risk arrangements. We underwrite kind of this margin maturation cycle. We've seen that happen now over several years. And each of those has matured as expected. And so we can kind of space out our membership moving into full risk as appropriate. I do want to mention that almost all of our full risk arrangements do not include Part D as in dog risk. So there are a handful that do and most of them do not. In terms of the geographies where we are full risk, it really varies. Most of our membership, 80% of the revenue approximately comes from California. So I would say still that California does have a large percentage, a majority of the full risk members. However, we have moved over 14,000 Medicare Advantage members into a full risk delegated construct arrangement with a payer partner, for example, in Texas in the first quarter of this year. So -- and we also have full risk delegated contracts in Nevada. And of course, the ACO REACH business is in some aspects, the full risk business also. So we're really in the business of properly underwriting and then appropriately and proactively reducing the cost of care for our populations and then making sure that our financial contractual arrangements are conducive to us capturing some of the value that we're generating for our patients and for our communities over time. David Larsen: And then for Prospect, I think you may have mentioned this earlier. Is it still $80 million of EBITDA? Is that on track? Brandon Sim: Yes, that's right, Dave. Prospect was on track for around $80 million of adjusted EBITDA on an annualized basis. And at this point in time, it is currently tracking a bit ahead of those expectations. David Larsen: And then just one quick one. It looks like your stock has been doing really well over the past couple of months. I guess what do you attribute that to just at a high level? What? Brandon Sim: Sure. I mean we're always happy to see that as it's our job to continue generating shareholder value, of course. I think I hope it's a continued recognition of our leadership and our consistency and stability of our model. The differentiation of our technology platform, the 35% revenue CAGR, the 25% adjusted EBITDA CAGR that I mentioned, which I think is fairly unheard of in health care services over a very long period of time, over 7 years. And ultimately, of course, definitely helps that there's been -- there have been regulatory tailwinds, including the adjustment, the more appropriate, in our view, 2027 Medicare Advantage final rate notice. So I think overall, a lot of positive kind of macro tailwinds lining up and hopefully, an increased recognition of the unique platform that we've built that has really generated free cash flow, profitability, and now rapid growth for over 3 decades. David Larsen: The best health care is when you don't actually have to see your doctor. And that's the model that you guys have created. So nice quarter. Operator: Our next question is from Ryan Langston with TD Cowen. Christian Borgmeyer: This is Christian Borgmeyer on for Ryan. So looking at the second quarter guidance and EBITDA margin, how should we think about puts and takes within the cost of service revenue and G&A lines? For example, any seasonal considerations within medical utilization, in particular that are different this year? Or on the G&A side, any sequential savings from AI or Prospect synergies embedded in that? Chan Basho: In terms of our 2026 guide, probably the best way to think about this is in the first half of the year, we're probably going to see a little over 50% of profitability coming in consistent with what's happened in historical years. As you think about puts and takes, the puts and takes, as we mentioned, it's around HQAF. It's around opportunities with MA and ACO as well as watching in terms of what's going to happen around the Medicaid membership trend. Brandon Sim: And then maybe to answer the other part of your question. We didn't see any abnormal utilization necessarily in Q1. I know there's been talk about weather and the flu season and whether that was heavier or lighter. I don't think things came in pretty operationally clean is how I characterized the quarter and tracked pretty consistently both on the inpatient and outpatient side with the broader medical cost trends that we reported across the business, even drilling down into each line of business as I started off the Q&A session with. So we felt pretty comfortable this quarter. And we're maintaining guidance primarily because we want to take a disciplined and conservative approach early in the year here. Christian Borgmeyer: I actually had a quick balance sheet question actually. I see the accounts receivable balance and the medical liabilities balance are each up like $90 million to $100 million sequentially. Anything to call out there related to any one item or program in particular? Or is that the full risk conversions contributing to that? Chan Basho: Yes, that's the full risk conversion that you're seeing in Q1. Operator: Our next question is from Gene Mannheimer with Freedom Capital Markets. Eugene Mannheimer: Congrats on a good start to 2026. So coming in or tracking at the high end of cost synergies with Prospect. Can you discuss potential revenue synergies there and when you may start to see that realized? And my follow-up would be on the MLR trends at or better than the 5.2% or so that you called out. Did you or can you break that out across the legacy Astrana and the Prospect book? Brandon Sim: Hello, Eugene, thanks for calling in. Sure thing. So on the revenue synergies, we haven't -- those are not included in the $12 million to $15 million synergy range. So we haven't quantified that yet. But we do expect over time that our partners and our providers and ultimately, our members will see the value of our denser network and our ability to drive access to care, high-quality care in a faster way because of the larger network that we now have. So over time, we do think that, that value will be realized by the platform, but we haven't yet quantified necessarily what that looks like. On the trend item, I would say that, as I mentioned before, Prospect came in 6% to 6.5%, 6.2%, 6.3% trend prior to the acquisition. And we are underwriting a 50 basis point improvement in that trend year-over-year. Our overall trend for the year is around 5.2% on a consolidated basis. And I would say that both core Astrana as well as legacy Prospect businesses performed better than expected here in Q1. Again, it's still early on in the year. We don't have perfect visibility, claims visibility yet, for example, on March. So we wanted to be conservative, but things are tracking well here to start the first quarter. Operator: Our next question is from Matthew Gillmor with KeyBanc Capital Markets. Matthew Gillmor: I wanted to follow-up on the full risk contract transition discussion. I think this quarter, you had 40% of members in full risk. I think last quarter, you set an expectation of 36 members in full risk as of the first quarter, so maybe a little bit ahead of schedule. I wanted to see if I had those numbers right and then just get an update in terms of how you're thinking about the pacing of members moving to full risk over the course of the year. Brandon Sim: Hello, thanks for the question. Yes, I think that's approximately right. Around 40% of our members are in full risk arrangements. And that translates into around 80% of our care partners revenue being -- coming from full risk arrangements. And of course, that's because the percentage of premium that we receive in the full risk arrangements per member is obviously higher than the partial risk arrangements. So I think you're continuing to see that the percentage of both membership and revenue continue to grow. In Q1, this took a step up because of the forwards contracts that we had started in the first quarter as we had guided to late last year. And all of those have now been completed. And so that's what's led to the spike here in Q1. On a go-forward basis, I think in our supplemental presentation deck. We did note that we do expect continued growth in the percentage of full risk members. And we'll be phasing that in over time kind of on a regular course basis. Matthew Gillmor: And as a follow-up, we've been particularly interested in your ability to bring this delegated model into new markets. And so the news out of Texas that you've updated us on has certainly been encouraging. I did want to take your temperature in terms of expanding a delegated model either into new markets or even just new states or even just new markets within states like Texas, which many of those places traditionally haven't had fully delegated models. Brandon Sim: Yes, it's a great point. And you're absolutely right. A lot of parts of the country have not necessarily operated in a -- don't even mention delegated model. They haven't even operated really in a value-based care setting in a broad way. And so we recognized the challenges of kind of gone 0 to 1 in a very short period of time. And I think that's why we've been really working on a gradated kind of approach to helping providers and payers along as we continue to take the Astrana delegated model outside of California, outside of Nevada, outside of Texas, and through the rest of the country. And what that looks like really is, first, entering into partial risk arrangements, ensuring that the data feeds that we need are on the ground and ready to go. Ensuring that our relationship with our downstream providers, primary care specialists and even hospitals are strong. Ensuring that our technology platform is integrated directly into the workflow of those providers. And ensuring that kind of our care management orchestration is in place and kind of allowing the economic contractual relationships to kind of follow behind the wake of the operational changes that we're making in terms of how health care is delivered in these new states and/or geographies. So it is a created kind of stepwise approach to getting folks into the validated model. We think that it ultimately will win out because, frankly, at the end of the day, it's just a more efficient model. It's a more valuable model to the health care system and a more efficient one for both payers and kind of the overall system. So we think that logic will take the day here and the economics of it will take the day. But we do recognize that change management takes time. And we're prepared to and have engaged in Florida, I mean, sorry, in Texas and Nevada, for example, on that path forward step by step. Operator: Our final question is from Andrew Mok with Barclays. Thomas Walsh: This is Thomas Walsh on for Andrew. You shared that acuity in the Medicaid population remains favorable in part due to your longitudinal patient relationships. Can you help us understand how those patient relationships mitigated the acuity impact in practice? And are there any other factors on the mix of members disenrolling or otherwise that mitigated the adverse selection? Brandon Sim: Yes, definitely. I think what I was alluding to, to put it more clearly is that the patients that tend to be Astrana members, which -- and the patient attribution mechanism is the choice. The selection of a primary care provider who is an Astrana primary care provider. The members that tend to be attributed to us, tend to not be the members who have low to no utilization because they are almost making an active choice to be an Astrana member and to be engaged in our care model and to be engaged in the longitudinal nature of the care model that we have with our patients as we follow them, for example, across line of business. I mentioned before, the example during COVID, members who lost their jobs and had to switch from a commercial line of business to commercial insurer to potentially something on the exchanges or something on Medicaid, for example, could continue to be in the Astrana ecosystem, continue to have the same care management, continue to see their same PCP and same specialist network. Those are the benefits, I think, of being in the Astrana network. And that tends to insulate us or we think partly insulate us from the level of adverse selection we expected from the disenrollment of members and kind of potentially their lower MLR. That didn't end up playing out the way that -- or to the degree that we thought it would. And that's what's led to some of the improved acuity in the Medicaid population. Thomas Walsh: And following up on ACA attrition tracking better than expectations, similar to trends across the industry. Could you share the actual disenrollment you experienced there? And at what point in the year would you expect to have enough visibility to make an informed revision to the full year membership expectation? Brandon Sim: Yes. I think at the beginning of the year, embedded in our guidance, we thought it would be a 30% to 40% disenrollment number in exchange throughout the year. And I think we had quantified that at a kind of mid-single-digit EBITDA impact headwind, of course. What we're seeing so far this year is not quite the 30% to 40%, really closer to high single-digit attrition in the ACA population. It still is early. We're still in May here. And there could be further disenrollments after the 90-day grace period. But across the industry, as we think about projections for actuarial firms and what others have been saying as well as our own experience. We're now projecting a decline of, call it, 20% to 30% instead of 30% to 40% internally at least. Again, we haven't reflected that in the guidance yet of conservatism, but that's kind of the quantum of the numbers we're talking about. Operator: There are no further questions at this time. I would like to turn the conference back over to management for closing remarks. Brandon Sim: Thank you, everyone, for joining our call today. We appreciate your time. And we hope to see you in the near future at one of our -- one of several conferences we'll be attending or we can catch up at any time if you e-mail investors@astranahealth.com. Again, thank you so much for joining and have a great evening. Operator: Thank you. This will conclude today's conference. You may disconnect at this time. And thank you for your participation.
Operator: Greetings, and welcome to Oshkosh Corporation 2026 First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Davidson, Senior Vice President of Investor Relations for Oshkosh Corporation. Thank you. You may begin. Patrick Davidson: Good morning, and thanks for joining us. Earlier today, we published our first quarter 2026 results. A copy of that release is available on our website at oshkoshcorp.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of GAAP to non-GAAP financial measures that we will use during this call and is also available on our website. The audio replay and slide presentation will be available on our website for approximately 12 months. Please refer now to Slide 2 of that presentation. Our remarks that follow, including answers to your questions, 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 other factors that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks and factors include, among others, factors that we listed in our release this morning and matters that we have described in our most recent Form 10-K and other filings we make with the SEC as well as matters noted at our Investor Day in June 2025. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. Our presenters today are John Pfeifer, President and Chief Executive Officer; and Matt Field, Executive Vice President and Chief Financial Officer. Please turn to Slide 3, and I'll turn it over to you, John. John Pfeifer: Thank you, Pat. Good morning, everyone, and thank you for joining us today. We continue to make progress on our long-term goals in each of our businesses. Customer engagement around our new products and technologies has been strong as demonstrated at CES and the many trade shows where we have participated in 2026. The actions we are taking across the company this year are foundational to delivering our targets for 2028, and we remain confident in the future we are shaping for those who do the toughest work in our communities. First quarter earnings per share were modestly below the expectations we outlined on our last call, where we indicated EPS would be approximately half of the prior year's amount. For the quarter, we delivered consolidated sales of approximately $2.3 billion and adjusted earnings per share of $0.85. Performance in the quarter compared with our expectations was impacted by fewer fire truck shipments in our vocational segment, where a number of planned customer pickups were not completed even though we are still making progress on increasing production. Our outlook for the company has not changed, and we are maintaining our full year consolidated guidance Demand across our segments remains solid, and we have good visibility for the remainder of the year. We are focused on execution and continue to expect improved performance as the year progresses. And we remain confident that we are taking the right steps to drive positive business performance, not just this year, but for the long term. Please turn to Slide 5, and we will review some highlights since our last call. Demand in our access segment is improving, supported by mega projects, including data center-related construction. Orders in the quarter exceeded $1.5 billion, resulting in a book-to-bill ratio of 1.6. Customer engagement remains high, and we are entering the summer construction season with a backlog of $1.8 billion at the end of the quarter. At the same time, demand continues to be uneven across end markets. While mega projects remain a source of strength, broader nonresidential construction activity continues to be impacted by macroeconomic factors. Against this backdrop, our focus on innovation and productivity continues to resonate with customers. At the ConExpo show in March, our JLG team showcased all new boom lifts and our new 26-foot micro-size scissor lift, all designed to improve productivity, serviceability and versatility. Our new boom lifts directly address key customer needs by reducing machine weight and increasing basket capacity. Our micro-sized scissor lifts, which are seeing strong adoption in data center applications provide a safe and more efficient way to access confined spaces. We also highlighted advancements incorporating autonomy, including canvas robotics for drywall finishing and our robotic welding end effector both of which generated strong customer interest as companies look for solutions to address labor constraints and improve job site efficiency. While we are encouraged by strong order activity and backlog, we continue to operate in a dynamic cost environment. We are actively managing the impact of tariffs through supply chain and manufacturing actions and we expect to maintain a competitive cost position as the industry leader. Overall, we remain confident in the long-term outlook for the Access segment and our ability to execute through the cycle as we manage our costs deliver attractive margins over time. Turning to Slide 6. Demand across our vocational segment remains healthy with a strong backlog of $6.6 billion. In the quarter, we increased fire truck production year-over-year, although shipments were below our expectations. This was driven by a number of factors, including weather and travel-related disruptions. We are focused on modernizing and improving production flow and removing bottlenecks to improve lead times, and we are making progress. We expect further improvements in the quarters ahead, supported by increased process efficiency and targeted capital investments. On the innovation front, we continue to see strong customer engagement. At the FDIC show in Indianapolis, Pierce showcase the capabilities and quality of our fire apparatus along with clear sky connected vehicle technology, which enhances fleet visibility, uptime, and coordination for fire departments in the field. At McNeilus, we launched our AI-enabled material contamination detection technology as part of our McNeilus IQ platform. This solution leverages artificial intelligence and advanced analytics to identify contaminants in real-time during collection, helping customers improve efficiency and sustainability. We expect to continue expanding our McNeilus IQ offering with additional technologies over time. Oshkosh AeroTech continues to perform well. supported by strong demand from airports investing in expansion and modernization. Order intake in the quarter was solid, particularly for air cargo loaders and Jetway passenger boarding bridges with key wins in Reno, Orlando and Nashville. Our Jetway backlog now extends beyond 12 months, and we are investing in capacity to improve delivery times. Summing it up, we have strong visibility across the segment, and we expect to convert backlog into revenue as production throughput improves, and we reduce lead times. Please turn to Slide 7. In our Transport segment, we continue to make notable progress executing on our key programs and advancing toward our long-term objectives. For NGDV, production is on track. The fleet has now surpassed 20 million miles and is operating in 48 states. Importantly, feedback from the USPS and their drivers continues to be very positive, reinforcing the productivity and reliability benefits of the platform as we ramp deliveries. As we look ahead, NGDV production will continue to build through the year with a greater contribution expected in the second half. On the defense side, we are also progressing on our FMTV program. We are launching the production of low velocity air drop units with production expected to grow in the second half of the year. These units represent initial deliveries under the FMTV contract extension signed in June of 2025. Closing out my segment comments, we are executing our plans for transport and expect performance to improve in the second half of the year. With that, I'll hand it over to Matt to walk through our detailed financial results. Matthew Field: Thanks, John. Please turn to Slide 8. Consolidated sales for the first quarter of $2.3 billion were flat compared to the same quarter last year as pricing, favorable currency and the impact of changes in cumulative catch-up adjustments in the transport segment offset lower sales volume. Adjusted operating income was $96 million, down from $192 million from the prior year, primarily due to unfavorable mix which includes across segments, products and for access, channel mix with higher NRC sales compared with last year, higher manufacturing overhead costs, which in part reflects our investments for future production and lower sales volume. In the quarter, we recorded a benefit for IEEPA refunds of about $13 million. Our estimate for the full year impact of Cape 1 is about $23 million. This reflects our direct payments and excludes payments made by suppliers, which would be subject to future discussions. Adjusted earnings per share was $0.85 in the first quarter. Free cash flow for the quarter was negative $189 million an improvement compared to negative $435 million last year. The improved result is despite lower earnings and reflected more disciplined working capital management as we built for the summer season as well as higher customer advances. Our expectation for cash conversion remains strong for the year. During the quarter, we repurchased approximately 300,000 shares of our stock for $47 million. In March, we also refinanced our revolving credit facility. The 5-year agreement has similar terms to the previous facility with a capacity of $1.6 billion at a slightly lower interest rate. Turning to our segment results on Slide 9. Access first quarter sales of $943 million were roughly flat with the prior year. Access sales were better than we expected, particularly given the strong sales volume access delivered in the fourth quarter of 2025 in response to announced 2026 pricing. Compared to the first quarter of 2025, lower sales volume was partially offset by favorable currency. As John mentioned, demand has remained robust. We delivered a book-to-bill ratio of 1.6 during the quarter, compared to 1.0 during the first quarter last year. Adjusted operating income margin of 4.1% was about where we expected for the quarter. The decrease in adjusted operating income relative to last year reflected mix price cost dynamics and the impact of lower sales volume. You will recall that Access is our segment most significantly impacted by tariffs. Locational sales of $825 million were down from last year on lower shipment volume, partially offset by improved pricing. Sales volume reflected lower sales of refuse vehicles, as expected, and fewer deliveries of municipal fire trucks despite modest growth in our production compared with the same period of last year. As John mentioned earlier, weather and travel challenges impacted customer pickups, as they were not able to take deliveries of fire trucks late in the quarter. Lower sales volume, higher manufacturing overhead costs partly reflecting our investments in peers facilities and adverse sales mix were partially offset by favorable price cost dynamics, resulting in an adjusted operating income of $94 million and a margin of 11.4% for the quarter. As John mentioned, we are focused on continued improvement in throughput for fire trucks and jet bridges in order to increase the pace of deliveries. Transport segment sales increased $50 million to $513 million in the quarter due to higher sales volume and the impact of cumulative catch-up adjustments. Delivery Vehicle revenue grew by $166 million to $217 million and represented 42% of transport segment sales during the quarter. Delivery revenue grew more than 30% sequentially compared to the fourth quarter of 2025. As expected, defense revenue was lower compared with last year due to lower tactical wheeled vehicle and aftermarket sales volumes. As a reminder, in the first quarter of 2025, we were still building JLTV units with the last units built in May 2025. Transport segment operating income was $4 million, up $3.6 million compared with last year, reflecting lower adverse cumulative catch-up adjustments and higher sales volume, partially offset by higher manufacturing overhead costs and adverse mix. We expect transport operating margin to grow in the back half of the year as we transition out of past fixed price contracts continue to ramp up NGDV production and expect to receive additional NGDV orders. Turning to our expectations for 2026 on Slide 10, we continue to expect our full year adjusted EPS to be in the range of $11.50. We are facing conditions that are more challenging and dynamic than we anticipated 3 months ago, and we expect roughly 30% of our earnings in the first half of the year. The back half will be stronger, reflecting improved price cost and access, higher fire truck production reflecting our investments, building on the FMTV contract and for the NGDV both higher production and our expectation for an additional order. We still expect free cash flow of $550 million to $650 million, unchanged from our prior guidance. At this time, we are not updating or reaffirming our expectations by segment as we continue to manage our business in this evolving economic landscape. In access, we are seeing promising order activity, as you can see in the strong book-to-bill ratio of 1.6, which may result in a modestly greater contribution from this segment. In vocational, while our growth and margins are still expected to be robust, particularly for municipal fire apparatus, our first quarter delivery shortfalls and facility construction timing are likely to modestly reduce the contribution from that segment this year. Transport remains on plan. Our outlook for tariff impact has remained largely unchanged as EPA tariff recoveries are broadly expected to offset the additional cost of the 232 expansion. As John mentioned at the outset, all the ingredients to deliver on our 2028 targets are in place or underway with new and refreshed products advanced technologies and increased production to improve lead times on extended backlogs, the plan to achieve 2028 targets is clear. With that, I'll turn it back over to John for some closing comments. John Pfeifer: Thanks, Matt. Summing it up, we expect continued improvement throughout the year as we execute on our plan. We are operating in a dynamic environment, including changes in tariffs and geopolitical uncertainty but we are actively managing those factors through pricing, cost actions and supply chain actions. We are maintaining our full year adjusted earnings expectations in the range of $11.50 per share, and we remain confident in our progress towards delivering on our 2028 targets. Our confidence is grounded in 3 areas: strong backlog and demand continued production improvements at vocational and continued progress with our NGDV ramp in transport. I'll turn it back to you, Pat, for the Q&A. Patrick Davidson: Thanks, John. I'd like to remind everybody, please limit your questions to one plus a follow-up. Please stay disciplined on your follow-up question. After the follow-up, we ask that you rejoin the queue if you have additional questions. Operator, please begin the Q&A session. Operator: [Operator Instructions] Today's first question is coming from David Raso of Evercore ISI. David Raso: Hopefully, you don't hear the static when I'm speaking that I'm hearing back, please let me know. John Pfeifer: No, you sound good, David. David Raso: That's good to hear. Just curious, the second quarter implied at about $2.60. I know you mentioned you don't want to give business segment guide updates. But can you at least give us a sense of where were you thinking EPS could be for 2Q? I'm just curious how much of the first half got pushed into the second half. And given some of the commentary around why vocational was a bit light, just curious why the catch-up wouldn't be a little bit quicker. So maybe the first part, what came out of 2Q? And if it was sort of weather related, why can't we catch up for that a little bit faster? Matthew Field: David, it's Matt. So the elements in Q2 largely haven't changed. Year-over-year, we were always expecting access to be a little weaker. In terms of vocational we said 2 things. One, obviously, we did have the shipments that would slip into Q2. But we're also seeing some delays in our facilities and so as we implement our production changes, the timing of some of that capacity coming on stream is pushing later into the year. And so that affects a little bit of the seasonality in Q2 as well. John Pfeifer: David, I can give you -- this is John. I can give you a little bit more color. You mentioned that we didn't provide segment level guide. Just some color on what we're seeing. We see right now we're seeing a little bit better expectation on access equipment as we go through the year. You saw the big $1.5 billion of orders. So we're seeing favorability there. We're taking a more measured approach at the same time in our Vocational business. Primarily, we're going to see really big gains in terms of of fire trucks for the year. But we're taking a little bit more measured approach there versus what we originally guided to. It all still leads us to the 1,150 number. David? David Raso: I'm sorry, I'm still here. Just -- the follow up on that about transport defense talking about the rest of the year for the other segments, your postal revenue was generally where I was expecting, and it sounds like are we at that sort of full run rate, the quarterly run rate as the year goes on? And do we need that second tranche of orders to the cumulative accounting catch-up, do we need that set of orders to still hit your guide for transport defense margin? Just curious about that catch-up in the second order that's required. Matthew Field: Sure. So the calendarization of revenue and delivery does -- is expected to grow across the quarters. So we would expect higher revenue as we progress through the year as we continue to ramp up production. But in line with our expectations and the USPS delivery schedules. We are assuming there is an order in the back half of the year as well, and so that's implicit in our guidance. Operator: The next question is coming from Tami Zakaria of JPMorgan. Tami Zakaria: Wanted to ask about the vocational segment. I appreciate the winter weather and the timing-related comments. But just stepping back, do you expect any pre-buy driven demand? Or is that embedded in your guide for the back half? Matthew Field: So we're not expecting significant levels of prebuy. That might happen in the back half, but we're certainly not counting on it. Just for those on the phone listening in, this is really about '27 model year emission standards and chassis. And so we're not counting on that in our guidance. Certainly, if it happens, we stand ready with capacity. John Pfeifer: Yes, our view is, Tami, as if that happens, it will be upside to what we're currently expecting. Tami Zakaria: Got it. If I could ask a follow-up on that, how much volume uptick are you planning in the vocational segment year-over-year without any normalized volume uptick for the year? Matthew Field: It's really going to vary by segment, Tammy. So as we talked about before, we would see refuse vehicles down year-on-year without a prebuy, which is what we talked about on the last call. fire truck production. We are adding production throughput and efficiencies to modernize that line. So second half of last year, we were up roughly 10% year-on-year on our production We would expect this year to be up 10% as well, roughly on production. So continuing to add fire truck capacity there. As John mentioned on the call, we're adding capacity in AeroTech that comes on stream more early '27 than late '26, but have plenty of capacity to support our sales projections there. So we're still -- we'll see growth in some segments. But on a year-over-year basis, we would expect refuse to be down setting aside any prebuy. Operator: The next question is coming from Mig Dobre of Baird. Mircea Dobre: I'm wondering if you can give us a little more color on just this evolving tariff picture. If I understand correctly, you did record a $13 million benefit in Q1. But then now you're dealing with updated Section 232. So how does this flow through the P&L through the year? Do you have more of a headwind now you obviously recognize the benefits. So presumably, that gets unwound to some extent. Matthew Field: Mig, so there are multiple moving pieces in that question, obviously. So the IEEPA refund, we filed that. We put the accrual in Q1, it was about $13.5 million. It's $23 million for the full year. That's a portion of the IEPA. So obviously, our suppliers paid IEFA as well. So they should be getting refunds. As I mentioned on the call, we'll be having discussions with them on recovering those refund payments. And then you've got, as you say, 232 expansion. Responding to that comes in 2 pieces. One, we do see EPO fully largely offsetting the negative impact from that and to the team and access, which is primarily affected is working diligently to mitigate that as well. Some of the best teams in terms of moving around production. We talked about that pretty much half of last year. And so they're working through mitigation plans there as well. So we think it's a negligible to 0 impact on the year between EPA and 232. John Pfeifer: There's more IEEPA to come, Mig, just to make that point. There's more favorability to come in the future. Mircea Dobre: Okay. I guess my follow-up is on price cost. I'm sort of curious as to how you think this dynamic evolves through the year because obviously, your year is guided is very back-end loaded. And it does appear that cost inflation is actually ramping. So presumably, you're going to have more cost inflation to deal with in the back half than you do currently experience in your P&L. So what are some of the things that you're doing to address that to get us anywhere close to kind of the way you structured the guidance. John Pfeifer: Yes. So I'll take that, Mig. It's John. Our price cost gets better and better as we go through the year. You are correct. We're dealing with a lot of -- with a very dynamic environment, both with tariffs and geopolitical conflict, which creates inflation. And we've got incredible work going on, on the cost side, but we also have some things that go on, on the price side. And as the year goes by, we get more and more benefit on both of those. So, so far in the year, we've seen very little benefit on the price side. We get more priced Q2 onward and we'll get more cost reduction to minimize how much price we have to get from our customers as we go through the year. But it gets better and better as we go through the year, which is part of our confidence that the second half is going to be better than the first half. Operator: The next question is coming from Angel Castillo of Morgan Stanley. Angel Castillo Malpica: Just wanted to go back to the vocational segment a little bit. I was hoping we could unpack the margins in a little bit more detail. I guess you noticed some of the shipment slowdown and a more measured outlook in light of that. But could you talk a little bit about, I guess, any impact of manufacturing costs or mix on the business and just kind of your expectations? And related to that, I guess, as we think about kind of anything you can provide in terms of bookends or qualitative thoughts. Just kind of help us gauge what margins now are embedded in the guide versus the 17% you had previously guided to for the year. Matthew Field: Yes. Thanks, Angel. So obviously, volume was a driver in vocational. I mentioned mix. That's really around the mix of segments. So as you think about a bridge as you have a mix out of fire trucks because of the shipments, then you're going to have some adverse mix effect. And then we have invested in additional capacity and throughput in pure specifically. And so as we don't deliver those fire trucks, then we have stranded cost, if you will, on the manufacturing side. So that's really how to think about vocational. In terms of the full year guide, while we're not providing specific guidance by segment, we still see this as a very strong business for the year and the margins we would expect to be in the range of our long-term guidance in 2028, which is 16% to 18%. We originally guided 17%. It most likely will fall below that with some of the changes to our capacity timing, but below the 17% to be clear, but within the 16%. Angel Castillo Malpica: That's very helpful. And then maybe a little bit of a bigger picture or maybe just more macro last going on in terms of geologics with Iran. Just how should we think about the Iran complex impact on your business? Obviously, always start to see any fighting. But just was hoping you could talk about the bigger picture dynamic of impact of any energy prices might have on your business, how that kind of flows through or not? And then also on the flip side, have you seen any step change in terms of orders for defense vehicles or any kind of incremental opportunities for sales there? John Pfeifer: Yes. First of all, the conflict, what it does is that it drives inflation. That's how it impacts us. So when you see inflation, you see steel up 25%. You see aluminum up more than that. We all know what's going on with oil, of course, is primarily an inflationary impact. By the way, these impacts are embedded in our guidance today. So they're all considered in our guidance. We know what we're going to do about it. We've got world-class teams that are working on positioning our footprint to make sure we keep costs as low as we possibly can. On the defense side, our defense business is going well. We're going to -- we're shipping more as we get to the back half of the year on new contracts, which is a big change price, which is part of the reason we're more confident in the second half because of that. We work really closely with the Department of Defense were noted as a high quality, very reliable delivery type of a business with our defense operations. There's not anything that's happened that's going to impact 2026 at this point. we're highly engaged with the Department of Defense to support their efforts. Operator: The next question is coming from Jerry Revich of Wells Fargo. Jerry Revich: John, I'm wondering if I could ask about what you're seeing in access on your telematics data in North America and in Europe, it sounds like utilization is tightening based on what we're hearing from the rental channel. Is that consistent with what you see in the data in North America and separately would love to hear what you're seeing on the data front in Europe? John Pfeifer: Yes. Thanks for the question. As part of our -- when I said, I'll give you a little color on the segment level details, part of the reason that we feel better and better about the access business as we go through the year, we do triangulate the data that we get off of our machines together with what our customers tell us is happening with utilization, which ultimately leads to where they need equipment and when they need equipment, but it triangulates really well. You've heard some of our publicly traded customers talk about it. Utilization is getting better. And it wasn't like it was coming from a bad place, but it's certainly getting a little bit better. And that's a positive sign for the access industry. And in the used market in Access Equipment is also a positive sign. The used market is healthy. And so there's orders for new equipment that's coming in. So by and large, that gives us a little bit more favorable outlook for access Jerry. Jerry Revich: Super. And can I ask you on the USPS side, obviously, they're waiting on funding from Congress. Can you just talk about if production plan would be impacted at all if the order comes 3 months later, 6 months later, can you just update on the current production lead time? John Pfeifer: We currently -- currently, I don't think it's going to affect 2026 because we've got orders on the books to produce 2026. But we expect the United States Postal Service, and they expect we'll continue to place orders on an annual basis as time goes by because we have to keep our supply chain with enough visibility to keep the supply chain primed. United States Postal Service understands that. We understand that. They want to -- the vehicles are doing extremely well. They want a consistent supply of vehicles for their for their required time lines. We're meeting their time lines today. So everything is going smoothly. But in normal course, we expect another order this year. And I don't know that's dependent upon any congressional funding. It's really dependent upon the budget for the United States Postal Service. But this program is moving smoothly. And with A606 accounting, when you get an order, it actually impacts your margins, as you know. That's why the order is important. Operator: The next question is coming from Kyle Menges of Citigroup. Kyle Menges: Great. or the access segment, certainly, orders were a bright spot in the quarter. I'm just curious maybe where you're really seeing that incremental demand by region and perhaps bifurcating between the NRCs and the independents? John Pfeifer: Yes. Thanks for the question. It's largely still driven by the bigger projects, we call them frequently mega projects. These are projects that are hundreds of millions of dollars in size as discrete projects are quantified. So I think data centers power gen and stuff like that. So that's still kind of the bulk of it. NRCs tend to get more of that. So we're weighted a bit more to the NRCs. But that's okay with us. We've got great customers and we serve there to make this happen. But we're also starting to see a little bit of brightness in some private nonres end markets, not all, but some, and we expect that, that will continue to gradually improve going forward. Kyle Menges: Helpful. And then just a follow-up on NGDV production. I think if my math is about correct, you might have been at around plus or minus 12,000 units of annualized production in the quarter. And I want to say the guide assumes that you get to the higher end of that 16,000 to 20,000 production run rate in the fourth quarter. Maybe just talk about how the ramp is going so far and your confidence level in getting to that higher end of the production target by 4Q? John Pfeifer: Yes. Just to clarify, our guide assumes the low end of the range. So annual production going forward is 16,000 to 20,000 units. Part of that's dependent upon the postal services scheduled to receive vehicles will be at the low end of the 16,000 to 20,000 units this year. Production is going well. We're in line with postal service requirements. It's even with a couple of hiccups with snow and things in South Carolina that doesn't happen very often. But we're in line with our expected deliveries on contract and so we feel good about it. Kyle Menges: And sorry, just to clarify, you said you'll be at the low end of that target for the full year or also in the fourth quarter? Matthew Field: For the full year. John Pfeifer: Full year will be a low end of 16,000 to 20,000 units for the full year. Back half is better than the first half. Operator: The next question is coming from Stephen Volkmann of Jefferies. Stephen Volkmann: Can I ask about AeroTech, that was kind of flat year-over-year. It sounds like you have some orders to ramp that, I guess. Just give me a sense of what you're seeing in that business. How do the margins kind of relate to the rest of the segment? And what are you doing in terms of increases for capacity? John Pfeifer: Yes. Thanks for the question. AeroTech is a great business for us. I wouldn't read too much into the shipments were kind of flattish in Q1. Q1 1 quarter. You saw our backlog continue to build in AeroTech. So this business is going to continue to grow. We've got great customers who want to continue to invest they are continuing to invest. The backlog is strong. The margins, all I can tell you is they're double-digit margins in this business. And of course, we'll continue to grow our margins go forward. We're putting -- it depends on the specific product because we do jet bridges and we do ground service equipment, like cargo loading equipment and so forth, depends on the specific products. We're putting a little bit more bricks and mortar into the jet bridges because it's a really strong business for us. The ground service equipment is also a strong business. We're doing more -- a little bit more 80-20 in that business to drive capacity improvement and throughput on the existing production lines. Stephen Volkmann: Super. And then just quickly, Matt, the tax rate was a little lower in the first quarter. What's the full year tax rate now? Matthew Field: Unchanged from our prior guidance on the full rate -- full year rate tax rate. Operator: The next question is coming from Tim Thein of Raymond James. Timothy Thein: The question is on access and Matt, to the extent that perhaps there could be some upside to the 10% margin that you outlined initially. And I know it's not what you're going to in print. But to the extent there is more upside pressure on that part of the business. I'm just curious how the balance of the year is shaping up in terms of the mix within the backlog, specifically thinking about kind of the expectations as we go through the year with respect to price cost and kind of how that's interplay within the customer and product mix. Matthew Field: Yes. Thanks, Tim. So obviously, we're pleased with the quality of the backlog and this -- the book-to-bill of 1.6 is a very strong book-to-bill, which gives us greater confidence for the year shaping up to be a stronger access than what we had originally seen early on. Obviously, price cost, we've talked about that being neutral for the year. That's still the plan, which means the back half will be stronger as you get cost reductions and pricing, as John described. In terms of the margin, we want to see that the year unfold a little bit more before we give specific margins, but certainly holding double-digit margins in this environment and is important. Timothy Thein: Yes. Okay. And then the -- within -- one piece of locational, we didn't yet hit on, just on the garbage truck side, is that -- are the volumes for the year? I know you -- in the first quarter, and we've been anticipating this year to be a softer year. But just any revisions to how you see that playing out and how we think about the kind of the cadence of year-over-year revenue change as we go through the year for that piece of vocational? Matthew Field: Not really. I mean third -- starting in the third quarter, we started to see orders shop off. We've talked about that on prior calls. We see this year kind of being -- well, we see the full year being down, as we talked about earlier. First quarter, we were down about 25%. And I think 25%, 30% for the year is reasonable. John Pfeifer: Yes, I'll just -- Tim, I'll add some color to that. It's similar to what we've been saying, what we said a quarter ago on the call, we expect it to be down in 2025. That hasn't changed. It's about the same. It's just cautious CapEx outlays by customers is primarily the reason. But I'll make a comment that we are investing in technology that customers really care about. We launched the contamination detection technology in Q1, very positive initial feedback on that technology. The fleets remain aged. So long term, we feel really good about this market, a healthy market for us going into 2028. 26 is just not a year that it's growing much. Operator: The next question is coming from Mike Shlisky of D.A. Davidson. Michael Shlisky: If I can circle back to the fire commentary. I guess maybe can you -- just looking at the overall inventories for Oshkosh, they actually were down a little bit, at least days of inventory over the prior year. You said that perhaps fire had some additional finished goods inventory. Could you maybe help at least quantify in dollars how much fire inventory you had at the end of the year and what other areas of Oshkosh had inventory go down? And then also, it's already been May now, have people come in to pick up their fire trucks now that the weather, I assume has cleared up a bit here. Matthew Field: Sure, Mike. Sorry, I'm not going to break out inventory by segment. That would be a bridge too far. But I'll give you some qualitative color. So there are a few things. One, last year, we had substantial inventory as we were ramping NGDV as that production stabilized. We've been burning down inventory there in access, we've done a really good job focused on inventory burning down both finished vehicle inventory but also some of our in process. And so that team has been doing a good job on inventory. They've also been doing a good job on receivables. And so the overall really strong working capital performance for all the segments. In terms of May, yes, people have been taking advantage of the beautiful weather here in Wisconsin to pickup fire trucks. John Pfeifer: Yes, we've had a lot more fire truck deliveries in the first part of Q2. As a result of that pent-up full on shipments due to the factors we mentioned. But there's been a lot of fire truck deliveries so far this quarter. Michael Shlisky: Great. And then my follow-up here is also on fire. Did the weather issues during the quarter caused any issues with people being able to order or configure a truck or test drive a truck with a range of late orders and again, people come in here in April, May, now that let us better to actually ordered some fire trucks. John Pfeifer: Yes. No, that was not -- that's not a factor. Our order rates are still pretty consistent for us in the fire truck market. even with a big backlog. So that has not been an issue. The issue was widespread weather across the country. You saw it in the Northeast, you saw in New York City, there's a lot of places people couldn't get in and out of. And those types of disruptions matter when you have a very formalized delivery process for a fire truck where people have to come in, do their normal inspections before the product can be "shipped". Operator: The next question is coming from Chad Dillard of Bernstein. Charles Albert Dillard: So a question for you on your vocational business and the sequential ramp. So it sounds like you're getting more deliveries. So fire trucks in May. So I'm assuming maybe seasonality is a little bit better than expected. And then just trying to think through the exit rate in the fourth quarter, given where your production ramp is. And then Secondly, can you comment on your 1Q fire truck backlog trends? Was the book-to-bill greater than 1. John Pfeifer: Going by memory, I think about it this way. So Q2 will be sequentially much bigger than Q1. Q3 will be sequentially bigger than Q2 and Q4 will sequentially be bigger than Q3. And in total, we will have a very significant growth rate in fire trucks from 25 to 26, and we expect to continue the same in 2027. And when you look at the backlog and the health of the business, we are making real changes to our ability to produce fire trucks and throughput in our manufacturing plants, which are going to yield very positive results over the next couple of years. Charles Albert Dillard: Got it. That's helpful. And then just going back to that $23 million EPA benefit, any thoughts on what the claim process will be for suppliers? I guess, does that $23 million go out of the future date? And then the remaining $10 million for the rest of the year, like how does that layer in? Matthew Field: Yes. Let me help you understand. So $23 million is the full refund claim. Obviously, some of that was for material that was imported within this year. So it will have limited impact on the year because it just changes what's in inventory. Of the $23 million, $17 million really is associated with prior year. So that would be the good news of that $13.5 million we accrued in Q1. So the remainder of the $4 million, in essence, will be in the second quarter. The suppliers follow the same process we do. So the Cape system opened. It worked effectively. It was very efficient. We started to get cash from it as already this week. I would expect our suppliers to do the same. It obviously is a discussion with our suppliers. And so that will happen as that happens naturally. Operator: The next question is coming from Steven Fisher of UBS. Steven Fisher: Just a couple of follow-ups on the tariffs there. What have you assumed, Matt, for the IEEPA replacement after the 122 tariffs expire in July I think that might be an element of your perhaps price cost in the second half of the year? And also, were there any USMCA dynamics that we should be aware of as part of these changes. Matthew Field: We're assuming the present tariff landscape continues throughout the full year. So we would assume the 122 tariffs basically continue and no change to USMCA. So fundamentally, we're assuming the present tariff landscape extends through the full year. Steven Fisher: Okay. Great. And then a follow-up on the vocational side and the fire trucks. I think you may have said last quarter, correct me if I'm wrong here, that you had about $150 million of planned spending to improve the overall throughput and production, and maybe you'd spent about half of that. Just kind of curious where you stand on that. It sounds like you are making progress. And getting those sequential deliveries to improve over the course of the year and into next year. But just curious, bigger picture on sort of the investments you're making and when we think we can be through that and more comfortable with the overall throughput of the business line? Matthew Field: Yes. Thanks. Good memory. So yes, it was $150 million. We were about halfway through that end of last year. we continue to make the investments throughout this year. We expect the bulk of that investment to be completed by the end of the year. As I mentioned, we had some availability of space and getting permits and so forth. That shifted a little bit more back end than what we had originally anticipated at the beginning of this year, but we would expect the bulk of those investments to be completed by the end of this year with most of that capacity on stream. John Pfeifer: And I'll just let you know, Steve, we have our best people on this, and we have done this before in other segments, and we're already seeing results from the work that we've been doing. Operator: The next question is coming from Jamie Cook of Truist Securities. Jamie Cook: I guess 2 questions. One, John, just on the M&A front, you've been a little quiet for you. You know what I mean in terms of not doing deals in a while. And then I'm just wondering, too, if there's parts of your portfolio that are underperforming relative to your targets, which could be an opportunity for you? And then my second question, just as it relates to the guide, and I guess it being more of a back-end loaded year, how would you characterize sort of what's in your control versus more macro? Because I guess from the call, it sounds like a lot more of it, it's just the capacity, I mean from vocational that's pushing things out. So to the degree, it's under control. My guess is people would get more comfortable with the back-end loaded guide, but just any color there. John Pfeifer: Thanks, Jamie. Let me start with your first question, which is on the M&A front. We always talk about our always on process and always on means we are always looking at targets. And we're very patient and we're very picky about what we think makes sense. If you look at the deals that we've done, we like every single one of them. There's not one that we have any regrets about. They're all contributing to the health of our company. But M&A activity can be a bit lumpy, and we are very focused -- so we've done some smaller technology deals recently. I think we bought Canvas and Canvas is a really important part of JLG's autonomy strategy. And we'll -- so you'll see us continue to do some things certainly on the technology front. And when we see the right opportunity, again, we're patient, we're a bit picky. It can be lumpy. We'll make another acquisition outside of technology as well. Let me go back to the -- or let me go to the second half of your question, which is the second half of this year. What supports our view on the second half of the year. Number one is the access equipment business is continuing to gain a little bit of momentum. We feel good about it. We feel good about our price cost building as we go through the year. And so that's a big part of it. In addition to that, we continue to talk about fire trucks. Fire Truck is a great business for us. fire departments need more trucks. We've got a big backlog. We'll continue to increase production every quarter as we go through the year, and that will materially impact the second half of the year. We've also got our NGDV ramp. It gets bigger in the second half than it has been in the first half, and we expect an order with A606 accounting and order boost margins on the program. And finally, our FMTV contract starts to kick in. The new contract kicks in, in the second half of the year. That's materially higher pricing on that contract and that makes a nice boost to our business as well as FMTVs will have a big jump in pricing and margins. So those are the primary factors. If you look at that, a lot of that is within our control. Operator: The next question is coming from Steve Barger of KeyBanc Capital Markets. Steve Barger: Going back to the AeroTech capacity expansions. After you do the bricks and mortar and the 80/20 actions, how much will capacity expand in percentage terms? How will throughput grow? And what revenue will the business be capacitized to? Matthew Field: I think that will be subject to a future conversation, Steve. It's a good question. We'll have more to say on that in the future. That capacity -- just a little bit of clarification, bricks and mortar is a strong term. We're not building new buildings, but we're expanding some work inside. We're upgrading some facilities, improving throughput, some production efficiencies, specifically around jet bridges that takes a little time. So we'll be talking more about that more around 2027 than 2026. Steve Barger: Okay. And then, John, just following up on the last question about second half weighting and what's in your control. And just extending that thought process to 2028, can you just reiterate why you see that path as achievable? And are you leaning at this point toward the low scenario for '28? Or do you think mid is still achievable? John Pfeifer: No, we still would say mid is right where we expect to be. I mean, when you look at the demand in our end markets, and you look at our backlogs that we've already got, that's the underpinning of it. And then you look at the work that we're doing to rightsize our capacity to be able to deliver that. That's the confidence that we have in 2028. The technology that we build into our products, which is right in line with what our customers really want us to do, whether it's autonomous operation or it's embedding AI or in some cases, still when it makes sense, electrification, that's all part of why we're so bullish on 28. We're defining what the future of these end markets should look like, whether it's an airport, a construction site, a neighborhood operation. We're really defining what the future should be, which is better than what it has been in the past, and that drives our confidence in delivering 2028. Operator: At this time, I would like to turn the floor back over to Mr. Davidson for closing comments. Patrick Davidson: Thank you, Donna. Thanks for joining us on the call today. We will be meeting with investors at several conferences during May and June and have a good rest of the day. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Good morning, everyone, and thank you for joining us, and welcome to Mach Natural Resources LP First Quarter 2026 Earnings Call. During this morning's call, for the reconciliation from non-GAAP financial measures to the most directly comparable GAAP measures, please reference the press release and supplemental tables available on Mach Natural Resources LP’s website and their 10-Q, which will also be available on their website when filed. Today’s speakers are Tom L. Ward, CEO, and Kevin R. White, CFO. Tom L. Ward will give an introduction and overview, Kevin R. White will discuss Mach Natural Resources LP’s financial results, and then we will open the call for questions. With that, I will turn the call over to Tom L. Ward. Tom L. Ward: Thank you, Daryl. Welcome to Mach Natural Resources LP’s first quarter earnings update. Each quarter, we reiterate the company’s four strategic pillars that have guided us since our founding in 2017. The first pillar I will discuss is disciplined execution. We bought only free cash flowing assets at discounts to the producing properties’ PV-10. This allowed us to purchase producing assets without paying for any upside, even though over time we have proven significant upside exists. Each year, Mach Natural Resources LP publishes every well we have drilled and the overall IRR based on the year’s price for oil and gas. We have averaged approximately 50% rates of return on our drilling program since it started in 2018. Said another way, we have invested more than $1.3 billion in properties that others would give no value to and returned excellent results. You can see on Page 9 of our investor presentation that our free cash flow breakeven pricing is best in class for both oil and natural gas. It is rare, if not unheard of, to be a leader in both. It would be difficult to duplicate what we have built. In 2017, we had a strong opinion that the market was entering a time of distress. We focused on buying free cash flow at valuations most sellers would not even consider at first. We called it the stages of grief. Ultimately, we did not deal with management teams but their lenders, either through forced sales or the March bankruptcy process. We did not anticipate the COVID event, but we did anticipate investor rejection of our industry from the poor results of the previous decade in chasing growth with high debt. The result was that our initial unitholders prospered by receiving more than twice their investment through distributions and still owning a company with an enterprise value of more than $3 billion. The purchases we have made continue to bear fruit through their cash flow streams, midstream systems, land that is held by production, and continued drilling on properties we did not have to pay for. Even our purchases since the IPO have been contributing to our drilling program. One would have thought that post the 2022 run-up in prices it would be hard to purchase any viable drilling locations without paying for upside. However, as we review our potential 2026 locations, we are drilling on acquisitions from XTO, Paloma, Cheyenne, Flycatcher, Sabinol, and iCAV, which were all made post December 2023. The second pillar to discuss is disciplined reinvestment rate. We maintain a reinvestment rate of less than 50% of operating cash flow to optimize distributions to shareholders. We did not establish Mach Natural Resources LP to grow our production through drilling; our drilling program is set to stabilize our production. As I mentioned, our inventory is best in class for both oil and natural gas reinvestments. In 2026, a move down in natural gas is being offset by a move up in oil prices. Mach Natural Resources LP has a unique ability to react to these commodity price changes by pivoting from one commodity to another to maximize rates of return. Therefore, we have prioritized our drilling schedule to take advantage of these price changes. Starting May 1, we moved in our first rig to start drilling for oil in the Oswego formation in Kingfisher County, Oklahoma. This is an area that is well known to us. We have drilled more than 250 Oswego locations since 2021 with very good results. In the presentation, we are showing that at $75 flat oil, the changes in 2025 Oswego rates of return move from 39% to 90%. At $85 flat oil prices, the program returns move to 145%. We let pricing dictate where we spend capital. We will also move in a rig to drill Southern Oklahoma Ardmore Basin assets that we acquired from Cheyenne and Flycatcher purchases in 2024. The third oil-weighted rig will be moving into the Red Fork sand of Western Oklahoma. The majority of Red Fork locations were acquired by our limited leasing program and trades with others from our Cimarex acquisition in 2021. This shift in drilling will amount to adding three oil-weighted rigs by postponing the Deep Anadarko dry gas program. We may also delay the completion of our San Juan Mancos program until 2027 to add another rig in the Clear Fork formation from the Sabinol acquisition. By making these changes, we can keep our reinvestment level below 50% of operating cash flow in 2026 even though we remain optimistic about the long-term potential of our natural gas assets in the Deep Anadarko Basin and San Juan Basin. We now have five wells with more than 90 days of production in the Deep Anadarko. These five wells have averaged 90-day cumulative production of more than 12 MMcf of gas per day while our 15 Bcf gas type curve is projected to be 10.6 MMcf of gas per day. In the San Juan, we have begun our 2026 drilling program where we have one rig working drilling Mancos shale wells. The San Juan Mancos is fast becoming known as a world-class natural gas asset with potential for meeting the growing demand that we expect to see in the Western markets over the next five years. We have 575 thousand acres that are held by production that can be developed at any time the market allows. Currently, we will drill seven wells during the summer’s drilling window. We continue to believe that we will be substantially lower than historical drilling costs as we bring in new service providers from the Mid-Con and work with existing service providers in the San Juan alongside our dedicated staff. Our San Juan drilling program in 2025 was exceptional. We drilled five wells that came online last fall and have produced more than 14 Bcf of gas and continue to produce over 60 MMcf of gas a day. These wells have been compared to the best set of wells drilled in the U.S. The San Juan gives us long-term natural gas optionality. When we acquired iCAV, we inherited a volumetric production contract that runs through 2030. Given our limited drilling program, we can keep our production in the San Juan flat at approximately 300 MMcf of gas per day. We currently have approximately 65% of the volumes from the San Juan on this contract at a price of $1.72. If basis continues to be low, we have an effective hedge, and if basis moves higher, we will benefit from our drilling program as the production payment amortizes. This is one of the larger volumes of natural gas headed to the growing Western markets as they develop. Mach Natural Resources LP has 3 million acres of land that are not going anywhere. We have time because our assets are held by production, with few lease expiration dates. This large inventory of investment opportunities was the result of acquisitions made over time since 2018 and gives us maximum flexibility to choose where and when to drill to deliver best-in-class results. Our third pillar to discuss today is to maintain financial strength. This pillar is designed to keep our leverage in check. Historically, we have kept our leverage at or below 1x. The iCAV and Sabinol acquisitions last September have moved our leverage up to approximately 1.3x. Our goal is to move that ratio back to our desired level before we make any more acquisitions that require substantial debt. Therefore, our acquisition strategy is currently on hold unless we find an acquisition that is accretive to our cash available for distribution using equity to lower our debt levels. In the meantime, we can continue with our drilling program and let time move our leverage ratio down. We continue to have interest by sellers to exchange production for equity where we might be able to lower leverage by increasing our cash available for distribution to maintain the status quo. Our goal is to not move away from our current method of distributions unless we feel it is necessary. In that case, we can always use some of our distribution for debt reduction. It is safe to say that our debt levels are very manageable, but they are a pebble in my shoe that I would prefer to move away from and get back to 1x leverage. Our final pillar continues to be the most important: maximize distribution to equity holders. This pillar is the culmination of all we work for. Since inception, our goal is to find and acquire cash flowing assets at distressed prices, reinvest less than 50% of our operating cash flow, keep our leverage low, and maximize this pillar. We have been and continue to be successful. The evidence is in our industry-leading distribution. You can see this in two ways. Our company has had a cash return on capital invested of more than 20% every year since our inception. We have averaged 35% CROCI over the last five years. I believe we are in rare air here. Only a few tech companies can match our CROCI. We have also averaged a 15% yield since 2024. Both are industry leading. I will now turn the call over to Kevin R. White for the financial results. Kevin R. White: Thanks, Tom. The quarter, our production of 158 thousand BOE per day was 16% oil, 70% natural gas, and 14% NGLs. Our average realized prices were $69.73 per barrel of oil, a 20% increase from the fourth quarter, $2.74 per Mcf of gas, and $23.75 per barrel of NGLs. Of the $366 million total oil and gas revenues, the relative contribution for oil was 42%, 45% for gas, and 13% for NGLs. On the expense side, it is worth pointing out our lease operating expense was $101 million, or only $7.12 per BOE. Cash G&A was approximately $5 million, or only $0.37 per BOE. We ended the quarter with $53 million in cash and $305 million of availability under the credit facility. Total revenues including our hedges and midstream activities totaled $286 million, adjusted EBITDA was $195 million, and we generated $170 million of operating cash flow, spent $75 million in development CapEx, which represents 40% of our operating cash flow after interest. In the quarter, we generated $107 million of cash available for distribution, resulting in a distribution of $64 per unit, which will be paid on June 4, 2026 to holders of record on May 21, 2026. With that, Daryl, we will turn it back to you. Operator: We will now open the call for questions. Analyst: I want to see if your shift back to the oilier Oswego drilling program can move the needle. You are maybe at 16% oil now. Can that get to 20% to 25% oil over the next few years? Or does the productivity from your gas assets offset that with higher volumes but at the same mix? Tom L. Ward: It basically keeps our oil production from declining. By moving to the oil side of the business, we might grow a percent or so a year, but really it is maintaining oil production rather than continuing to see a decline. Analyst: That makes sense. And then the second one, your low CapEx requirements continue to impress. I want to understand if there is inflation built into that or maybe built into your LOE given some cost changes we are seeing as a result of the Iranian conflict. Do you have some of that locked in with your vendors and maybe over certain durations? Tom L. Ward: We do not have anything really locked in. We can move rigs at 30- to 45-day intervals, so we really can move back and forth from different areas as needed for higher rates of return. We are seeing some oilfield inflation, thus why it is important to move quickly before inflation hits. As always, oilfield services’ job is to get our rates of return down to 20%, and we want to drill wells that still have high returns. In fact, the lowest we have on the 4/30 curve of the oil wells we will be drilling this year as of the 4/30 curve was 80%. So it is really just chasing the best areas and spending CapEx as our operating cash flow allows us to. The goal of the company is that we will allow growth if it happens, like if prices move up, but not spending more than 50% of our operating cash flow. So it is not that we are restricting growth; our high rates of return allow us to grow by spending less, and that is what we anticipate continuing to do. Remember, that is really because of all the assets we bought during the darker days. They continue to throw off free cash flow. Anytime you are making acquisitions at $20 oil, it pays big dividends in later years. We will reap those benefits for decades. Analyst: That makes sense. Sounds like you are staying flexible. Thank you, guys. Operator: Thank you. Our next questions come from the line of Michael Scialla with Stephens. Please proceed with your questions. Michael Scialla: Good morning, guys. With the new plans, do you maintain your guidance, and do you anticipate putting out any new guidance with the shift in the drilling plans? It sounds like you might change your completion plans in the San Juan Basin. When would you make that decision if you do decide to hold off on completing those wells? Tom L. Ward: We are going to delay—we are planning on delaying the Mancos—but go ahead, Kevin. Kevin R. White: Sure, just to answer your question around guidance, we think the CapEx guidance holds. As you noted, as we shift to oil, we may actually see an acceleration of production versus spending the CapEx on gas drilling, particularly in the Mancos. We will look to revise guidance as we move to the oil program, probably midyear if and when it is appropriate. As we look at the model, cycle times on these wells are shorter than some of our deep gas drilling, so it should actually help this year’s cash generation. Tom L. Ward: And it is not that hard of a decision. Usually, once we spend the capital to drill a well, I would want to not leave it as a DUC. But whenever we can move to a Clear Fork location that at today’s prices is going to have a 100% rate of return, it is just really difficult not to defer the gas whenever basis today in the San Juan is low. We think it will improve, but still we do not want to just guess going into the winter. So we will probably move that until after the first of the year. Then in the Mancos it will really depend on weather for when we can frac. We cannot do anything on the New Mexico side until April, I believe, but we can on the Colorado side as long as we are on the Southern Ute Tribe, weather permitting. And sorry, Mike, if I did not catch all your questions, please ask again. Michael Scialla: That addresses it. It sounds like even with the shift, there is no change to CapEx; it is going to remain the same. You probably anticipate some minor shift in mix of production and certainly leave some upside for cash flow with the higher oil mix. I wanted to follow up on the Mancos. The five wells that you completed last year, it looks like they are performing extremely well. I think iCAV completed a couple of those and you guys completed three of them. Did you, in fact, cut back on the proppant on the wells that you completed? You had said you felt like they were being overstimulated and you could save some money there. Did those results play out the way you thought? Tom L. Ward: We did not change the amount of proppant that was used. iCAV did use—and we will use—less proppant than the industry was using earlier. I think that is the direction we are moving. In the San Juan in general, there were proppant sizes up to 3 thousand pounds per foot; we were using closer to 2 thousand pounds, and I think it was totally adequate. We were able to save some money even last year through a few other different methods, but not in the proppant size. Michael Scialla: Okay. So that line of sight to savings—what did you save per location? Tom L. Ward: I think we are saving about $1 million per location. Kevin R. White: Yes, $1.5 million per location, just from the changes that we made, but it was not in proppant. Michael Scialla: Got it. So you still feel good about that $15 million target that you talked about? Tom L. Ward: Yes, I feel good about something lower, but we will see. Yes, I feel good about $15 million. There is no reason to spend $15 million drilling these wells. Michael Scialla: Sounds good. Thank you, guys. Operator: Thank you. Our next questions come from the line of Jeffrey Grampp with Northland Capital Markets. Please proceed with your questions. Jeffrey Grampp: Good morning, thanks for the time. Tom, a question on the distribution strategy. It seems like in recent history you have been comfortable maintaining the 100% payout with current leverage mid-1x, but the pebble-in-your-shoe comment makes it seem like perhaps you are reconsidering that just to retain some cash for debt paydown. Is that a fair comment, and how do you think about payout ratio over the next few quarters? Tom L. Ward: I hope not. I do think that over time it takes care of itself. If you were to look at our model, actually the EBITDA goes down as oil prices have moved. If oil prices move higher and gas goes where I think it will, it naturally takes care of itself. Private credit really likes us because we have so much free cash flow. If you have a 19% yield and you might get 10% for a while as you pay down debt, it is not the worst thing. But I am a holder just like the rest of the unitholders, and I like having Christmas four times a year. Jeffrey Grampp: Fair enough. For my follow-up, it sounds like the bias based on today’s commodity price dynamic is to defer those gas completions and add that Clear Fork rig. When are you targeting potentially adding that Clear Fork rig, and is it as simple as looking at gas and oil prices over the next few months and the strip to make that decision? Tom L. Ward: We have fairly well made it—just yesterday. The Clear Fork is clearly superior rate of return at today’s prices than completing the Mancos. We could start that July 1 and have kind of a 30-day turnaround. So more than likely, unless something changes fairly dramatically between now and a month from now, we will delay the Mancos and bring on a Clear Fork rig. Jeffrey Grampp: Got it. Understood. Thank you, guys, for the time. Operator: Thank you. Our next questions come from the line of Carson Coronado with Raymond James. Please proceed with your questions. Carson Coronado: Good morning. Are you going to continue to focus M&A in the current basins you operate in, or is there a willingness to step into new basins? And does the current commodity price environment make it harder to get deals done with bid-ask spreads potentially widening? Tom L. Ward: I do not think it is any harder to get deals done in the ones that we have a niche in, which is really staying away from asset-backed security projects where they can fund. Larger deals are not so good, and areas where you pay for a lot of upside are not so good, like the Marcellus or Haynesville or now even the San Juan. The areas where we are pretty good are assets that are $100 million to $300 million in size that others are not chasing, where we can see some distress for whatever reason. It might be that gas goes to Waha where an ABS really cannot go in and hedge very well over a period of time and they cannot compete with us. There is always a way to find things that work. Our issue right now is that we have too much debt to really take on more debt. We want to move down our debt levels so that we can get back into making those $100 million to $300 million acquisitions. We can be more aggressive—not on paying for upside—but more aggressive in size if the seller would want to take equity. That is the only way we could really compete in size right now. Carson Coronado: Thank you. I also had a follow-up question on maintenance CapEx. The low decline rate helps keep the reinvestment rate under 50%. What would be a reasonable maintenance CapEx estimate for us to use? Kevin R. White: I think looking at our existing CapEx guidance is appropriate. If we are measuring based on volume, then when we are drilling gas wells, there is more volume that comes into the system, and if we are drilling oil wells, the equivalent volume is a little bit lower. But as you mentioned, our base decline rate is probably among the lowest, if not the lowest, among the independents. That gives us the ability to essentially stay the same size, grow a little bit, or shrink a little bit based on just half of our operating cash flow after interest. I would largely equate our guidance CapEx with being kind of maintenance CapEx, if not a little bit more productive than CapEx. Tom L. Ward: Yes, that is right. Our drilling program is designed to keep our production flattish. That could be down three or four to up three or four percent depending on what prices are. You will not see tremendous growth from drilling; that allows us to distribute more back to unitholders. Carson Coronado: Great. Thank you. Operator: Thank you. Our next question comes from the line of Ron Sanchez. Please proceed with your questions. Ron Sanchez: I was wondering what your average breakeven price on natural gas would be, and do you have hedging? Kevin R. White: It is basically around $1.72, and we have just today posted a new investor presentation with a slide on that—Slide 9—where we show our breakeven for both gas drilling and oil drilling. It is among the best in the peers. For us, as Tom has mentioned many times before, those are good numbers that we are able to achieve with good cost control, but we are generally just chasing the highest internal rate of return in our portfolio. Ron Sanchez: Thank you. Operator: Thank you. Our next questions come from the line of Derrick Whitfield with Texas Capital. Please proceed with your questions. Derrick Whitfield: Good morning and thanks for taking my questions. Going back to your 4Q commentary on divestitures, does the current higher crude price environment change your view on the need to pursue some of the monetizations you were talking about during 4Q? Tom L. Ward: Yes, Derrick. We were talking about maybe having a partner in the Deep Anadarko. I do not know if that is going to happen or not. We did go out to a few parties. Gas prices have been lower. I am not sure that we would get paid enough to give up any production that is already flowing now, and I am not really a seller at today’s gas prices. So it becomes harder to do until prices move. We really were not looking at selling any oil projects. It was more around whether we could sell some non-EBITDA-generating assets like leases in order to pay down some debt. I doubt that happens, but we will know more next quarter. Derrick Whitfield: That makes sense. Then with respect to the Permian, while not as economic as your Oswego, are there levers there you are considering to increase production in the current environment? Tom L. Ward: Yes. The Clear Fork is in Robertson County, on the shelf. Having a rig there, depending on what our operating cash flow looks like and how close we can get to 50%, we could keep a rig there for the rest of the year. We will see how it all looks, but right now, we are going to have a rig there moving down from Oklahoma by the first of the year. That is in the Permian and those wells are right at 100% rates of return. Derrick Whitfield: That is great. One more on service cost. Could you speak to what you are seeing in the Anadarko at present and your expectations if oil prices remain elevated? Tom L. Ward: If oil prices stay where they are, it would take a fairly high gas price to make us move back to drilling gas wells. Last year that happened as oil prices fell, but today, even at the Cal ’27 strip of $72, that is good enough for us to keep rigs working. The flexibility of moving between oil and gas is good. We have a tremendous backlog of oil locations. We can move in several rigs and drill different locations across Western Oklahoma and in the Permian. It is really price dependent, but it is astounding that we were able to put together 2 million acres without having to pay for it in one of the most oil- and natural-gas-rich basins in the world, the Anadarko Basin. Like our production, it will pay dividends to us for decades. Derrick Whitfield: And on service costs specifically in the Anadarko if we remain in this higher oil price environment? Tom L. Ward: Bits are going up, steel is going up, labor costs are going up, and fuel surcharges are going up. We are starting to see the effects of inflation. We know from 2022 that it comes fairly quickly. It all has to be put into the calculation for how much we can drill depending on what prices we are paying. We are still using our current AFEs; we change AFEs every month depending on where prices are. We price out every well and series of wells we do, so we are fairly quick to react to both oil and gas prices and service costs. Derrick Whitfield: Great update. Thanks for your time. Operator: Thank you. Our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions. Charles Meade: Good morning, Tom and Kevin. Tom, you mentioned four oily plays today: the Oswego, which you gave a lot of detail on, the Ardmore (really more the location than the play), the Red Fork, and the Clear Fork. Can you give us an idea how those plays rank in your appetite for more drilling and how much running room you have in those? Tom L. Ward: Sure. The Sycamore, which is a Mississippian member of the SCOOP in what we call the Ardmore Basin at the Sho-Vel-Tum field, basically in Stephens County, Southern Oklahoma—that is going to have very, very high rates of return at today’s oil price. They are fairly deep, expensive wells, but very good. Continental has most of that area, and maybe a private company, Citadel, as well. It is very good. We only have three locations to drill there, so then we look to have consistent operations elsewhere. The next best is the Oswego, and that is more consistent, and we have dozens, if not hundreds, of locations left to drill in the Oswego. We could even move from Stephens County after we complete those wells to two rigs in the Oswego if oil prices remain elevated. Then the Clear Fork, which we picked up from Sabinol, would be number three, and as I mentioned, we have a rig going there in July. Lastly, because it is a little more gassy, is the Western Oklahoma Red Fork, and if gas prices were to move up, it could move up in the hit parade. But today, that would be our fourth of four. Charles Meade: That is great detail, Tom. Even there, the Red Fork is going to be about 80% rates of return? Tom L. Ward: Yes. Charles Meade: My follow-up is on San Juan Basin supply, demand, and marketing. When you bought that asset from iCAV, you gave a lot of detail about where that gas can go and the options. Prices are pretty tough out there right now, and a lot of gas wants to get to the Gulf Coast, but you have Permian and Waha between you and the Gulf Coast if you wanted to go that way. What are the dynamics we can watch that would signify or be precursors to more favorable pricing in that basin? Kevin R. White: Yeah, I mean— Tom L. Ward: At the time we bought the iCAV assets last summer and closed in September, I would not have thought that our basis hedge was a benefit. We have 65% that we bought on a long-term contract from BP that expires in 2030, effectively at $1.72. Since that time, really due to weather—winter not coming to the West—basically we almost stand alone among public companies in the San Juan in having low basis. Now our realized price has hovered around a dollar in what we receive. I do think that is coming back. To answer your question, it is really more pipe getting out going West, having a larger LNG facility in Mexico, and getting gas to Asia via LNG. That all happens over time. It is pretty good for us now that we did not have to pay up for that gas—we bought it at $1.72 or less. As it amortizes over time, that gives us time for the LNG market to expand, which I believe it is going to. There is a new pipe going across the Navajo Nation that I believe will be FID’d, and along with that, getting gas to the data center buildouts and Southern California, especially the Phoenix market, which seems to be expanding. There is some interest in getting our gas farther West into the upper Western markets and even into the Pacific Northwest. There will be expansion of gas coming out of the West, and really between Hilcorp and us in the San Juan, we control the vast majority of it. It is a good place to be as long as you are patient. It is a five-year program. Charles Meade: Got it. That is great detail. Thank you, Tom. Operator: Thank you so much. We have reached the end of our question and answer session. This concludes our call. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.
Operator: Greetings, and welcome to the Strattec Security Corporation third quarter fiscal 2026 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, investor relations for Strattec Security Corporation. Please go ahead. Deborah Pawlowski: Thank you, and good morning, everyone. We appreciate you joining us for Strattec Security Corporation’s third quarter fiscal 2026 financial results conference call. Joining me on the call today are Jennifer Slater, our President and Chief Executive Officer, and Matthew Pauli, our Senior Vice President and Chief Financial Officer. Jennifer and Matthew will review our financial results, the progress we are making on our transformation, and our outlook. You can find a copy of the news release and the slides that accompany our conversation today on the Investor Relations section of the company’s website. If you are reviewing those slides, please turn to Slide two for the Safe Harbor statement. As you are aware, we may make some forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today’s call. These risks and uncertainties and other factors are discussed in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website as well. I want to also point out that during today’s call we will discuss some non-GAAP measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides. So with that, I will turn the call over to Jennifer, who will begin with Slide three. Thank you, and good morning, everyone. Jennifer Slater: We delivered another solid quarter and continued to make progress on our transformation despite a challenging automotive environment. Our previously completed restructuring actions delivered $1.9 million in savings this quarter. This is a peak level as we lap some of the benefits from the prior year restructuring actions. We generated $11.4 million of operating cash flow in the quarter and ended the third quarter with $107 million of cash on hand. That liquidity gives us flexibility to continue investing in the business, support customers, and navigate a dynamic industry backdrop. While sales were down from the prior year, the decline was in line with expectations, and we continued to improve profitability, generate strong cash flow, and maintain a very strong balance sheet. Despite lower revenue and ongoing foreign exchange headwinds, gross margin expanded to 16.5% supported by restructuring savings, recoveries tied to canceled customer programs, and continued operational focus. As highlighted on Slide four, our priority remains the execution of our transformation plan with discipline and consistency. We are working to build a more predictable, higher-performing company, and that means staying focused on daily operational execution while continuing to put the right processes, talent, and systems in place. During the quarter, we made additional changes within our Mexico operations that are expected to provide $800 thousand in incremental annualized savings beginning in the fourth quarter. More broadly, the actions we have taken over the last several quarters help to improve the way the business operates and better align our cost structure with the business we have today. Equally as important as our focus on improving our cost is a transformation for how we approach growth. As you know, the automotive industry is long-cycle and cyclical, with intense competition. And more recently, there have also been challenging external factors such as tariffs and supply chain challenges within our business and the broader industry. As a result, our strategic growth initiatives are centered on how we build a sustainable business that can deliver resilient and predictable growth even in a challenging industry. From a commercial standpoint, we are focused on capturing additional content with our current customers by deepening our relationships and being involved in advanced development on new platforms. In addition, we are starting to develop with a more diverse set of customers that have U.S. production sites and are looking to source globally. We are also focused on innovation and a product strategy that is anchored to engineering-led access systems, organized into three core product categories of permission, motion, and hold. The team is busy defining technical product road maps that are aligned with customer requirements and current and future technologies. We are very early in our execution on these growth initiatives. Importantly, we have the balance sheet and financial flexibility to support our efforts and the broader transformation of Strattec Security Corporation. With that, I will turn the call over to Matthew to walk through the financial details. Matthew Pauli: Thanks, Jennifer, and good morning, everyone. Please turn to Slide five. As Jennifer pointed out, sales in the quarter were down 4.5% as lower volume and EV program cancellations were only partially offset by pricing benefits and tariff recoveries. The annual impact of the customer cancellations on reduced EV platforms is about $9 million, of which about two-thirds we have already seen in our year-to-date fiscal 2026 results. Our largest declines by customer were with Ford and Hyundai Kia, which were both down a little over 10% year over year in the quarter. During the quarter, we did see higher sales to Tier 1 customers and Stellantis as they increased production. By product, door handles and keys and lock sets were steady while power access and latches were down year over year. Please turn to Slide six. Gross profit for the quarter was $22.7 million compared with $23.1 million in the prior-year period. While gross profit dollars were modestly down on lower sales, gross margin improved by 50 basis points year over year to 16.5% reflecting the value of our transformation actions. The quarter benefited from restructuring savings of approximately $1.7 million as well as recoveries related to canceled customer programs. Those benefits were partially offset by higher labor and benefit costs, incremental tariff costs, and a meaningful foreign exchange headwind. As we previously communicated, the annual cost of incremental tariffs has been approximately $5 million to $7 million, of which about half were IEPA tariffs. We have recovered the majority of the tariff costs on a delayed basis through price increases or pass-throughs to OEMs and will now pursue past AIIPA tariff recoveries from the government, which we will then have to pass back to our customers. On a year-to-date basis we continue to see the benefits of pricing actions, operational improvements, and restructuring savings come through in our margins, although foreign exchange remains an ongoing headwind. Overall, we believe these results show that we are improving the underlying earnings power of the business even in a softer production environment. Please turn to Slide seven. Selling, administrative and engineering expenses were $17.6 million in the quarter, or 12.8% of sales, compared with $16 million, or 11.1% of sales, in the prior-year period. The increase reflects continued business transformation activity, executive transition costs, higher salaries and benefits, and third-party engineering support. At the same time, these expenses also reflect investments we are making to strengthen the business. As Jennifer mentioned, we are continuing to upgrade talent, improve internal capabilities, and support the systems and processes needed to create a more effective and scalable operating model. We remain focused on cost discipline, and over time we still expect SAE to move closer to our targeted operating range. For now, the reported expense level reflects both the work required to transform the business and the near-term investments needed to support that effort. Please turn to Slide eight. Net income attributable to Strattec Security Corporation in the third quarter was $3.2 million, or $0.78 per diluted share, compared with $5.4 million, or $1.32 per diluted share, in the prior-year quarter. On an adjusted basis, net income was $3.7 million, or $0.90 per diluted share. The year-over-year decline in quarterly earnings was primarily driven by unfavorable changes in foreign exchange, which was a headwind in both cost of goods sold and other income and expense. Non-operating other income and expense in the prior year included a $235 thousand foreign currency gain while the current year included a $900 thousand currency loss, the majority of which is unrealized losses on peso forward contracts driven by the sudden and short-lived strengthening of the U.S. Dollar at the end of the quarter. The currency loss had a $0.16 negative impact on earnings per share. Based on the accounting mark-to-market requirements for the forward contracts, this could reverse at the end of the fourth quarter given where the peso is trading today. On a year-to-date basis, earnings per share was up 46% over the prior-year period reflecting the cumulative benefits of cost reduction actions, productivity improvements, and stronger underlying operating performance. Adjusted EBITDA was $10.1 million in the quarter compared to $12.5 million in the prior-year period. FX was the primary reason for the decline. On a year-to-date basis, adjusted EBITDA was $37.9 million, a 23% increase over the prior-year period. Turning to Slide nine. The business continues to demonstrate that it is a strong cash generator with cash from operations in the third quarter of $11.4 million. We ended the quarter with $107 million in cash and cash equivalents. We also continued to reduce debt associated with the joint venture credit facility and, subsequent to quarter end, that facility was replaced with a new revolving credit agreement that extended the maturity and eliminated the Strattec Security Corporation guarantee on borrowings. Our balance sheet remains a significant strength. It supports investments in organic growth, continued process modernization and automation, the flexibility needed to manage through cyclical industry conditions, and enables us to execute on our plans for growth. Please turn to Slide 10. As we look ahead, we continue to expect a moderate market environment including the impact of canceled EV programs and lower production on certain key platforms. At the same time, we believe the business is better positioned than it was a year ago with a stronger operating foundation and clearer priorities. We expect revenue in the fourth quarter will be down 3% to 4% year over year reflecting the same dynamics that we saw in the third quarter. As we have mentioned before, over the next few years we are targeting gross margin of 18% to 20%, which assumes the peso at its five-year average of 19.5. We are currently operating in the 16-plus range. Over the next several years we are targeting SAE of approximately 10% to 11% of revenue, excluding unusual items. Our focus remains on continuing to improve operational performance, maintaining cost discipline, supporting customers effectively, and generating cash. Over time, we remain focused on building a stronger and more consistently profitable business through a combination of cost improvements, modernization efforts, and more effective positioning for future customer awards. With that, I will turn it back to Jennifer to cover Slide 11. Jennifer Slater: Thanks, Matthew. We presented our vision last quarter, which reflects the broader transformation taking place at Strattec Security Corporation and the role we aim to play in safe and secure access solutions. Our vision is to be the most trusted global leader in safe and secure access solutions for the automotive and mobility industries by creating the ultimate access experience for consumers. As we discussed previously, we have been working to sharpen how we align internally around a common purpose and how we present these changes externally. This work supports our internal culture and organizational alignment so the team is engaged with the direction of the company and the role that they play in that future. It also reinforces the importance of innovation, collaboration, and accountability as we continue to transform the business. We believe the actions we are taking are building a stronger company with improved resilience, better earnings power, and a clearer path to long-term value creation. We have a strong balance sheet, an engaged leadership team, and a sharper strategic focus. We are confident in the progress we are making and the opportunities ahead. With that, we will now open the call for questions. Thank you. Operator: We will now conduct a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 to remove yourself from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing 1 to ask a question at this time. The first question comes from John Franzreb with Sidoti & Company. Please proceed. John Franzreb: Good morning, everyone, and thanks for taking the questions. Morning, I would like to start with the $600,000 in canceled programs. I am curious if those are programs that you walked away from or if those are programs that the customer canceled? Jennifer Slater: Yes. I will let Matthew talk a little bit more about the financials. But the canceled programs are really what you have seen in the headlines from our customers on a shift of EV programs back to ICE in North America. And so that is really just the impact of those decisions that the customer made. Matthew Pauli: Yes. And John, it is about a $1.3 million benefit in our results. About half of it is in cost of goods sold, the other half is within SAE. And it is really recovery of costs that we previously had expensed for the development on those programs. John Franzreb: Okay. I guess the reason I phrased the question the way I did was that I know that there is a review of unprofitable or less profitable programs. I am curious where you stand in that evaluation. Jennifer Slater: Yes. We did a portfolio review first, and that is why we made the decision not to continue to invest in our switch portfolio. And then we continue, obviously, to look for cost optimization versus pricing-up opportunities. So that is an ongoing effort for us, John. But nothing in this quarter related to that. John Franzreb: Got it. And since we are talking about particular product lines, I saw in the presentation that power access was down. Maybe can we talk to why that was the case? Jennifer Slater: Yes. That really was just timing of builds from our customers, between Hyundai, Kia, and Ford. So we do not see that impacting long term. That is really more just a timing-of-build impact. John Franzreb: Alright. Fair enough. I guess I will ask one more question and get back into the queue. What is needed to move the gross margin from the 16% threshold to the 18% target range? What are the levers you need to pull still? Jennifer Slater: Yes. I think we are pleased with the progress that we have made so far on gross margin. We have talked about the fact that we still feel early in the transformation and there is still a lot of work to do on cost optimization. So we will continue to have very granular focus on further cost opportunities that will help that gross margin. The other piece is, as you mentioned, the portfolio review on pricing. We talked about in the past that we had really taken the low-hanging fruit, but we are continuing to look at where there are further opportunities on pricing. And then longer term, volume is important. So, I think at this volume level, we are confident we can get to the 18% to 20%, but volume always matters longer term. Matthew Pauli: Yes. The only thing I would add, John, is if you look at our gross margin last fiscal year, it was 15%. If I look at it on a trailing twelve-month basis at the end of the third quarter here, it is just north of 16.5% on a trailing twelve-month basis. So we are seeing improvement in our gross margins from the actions that we have taken to right-size the cost structure and improve the margins. So we feel comfortable with the target, with the items we have line of sight to, to get to the 18% to 20%. Jennifer Slater: And I think it also is a proof point for our cash generation because we have continued to have stable cash generation from the improvements that we have put into the fundamentals of the business. John Franzreb: Alright. I lied then. What were the changes you actually made in Mexico that were beneficial? Matthew Pauli: Yes. We implemented additional restructuring action in Mexico. That is what is driving the additional savings that you will see starting here in the fourth quarter. It is about $800 thousand. Jennifer Slater: And I think, John, that is where we continue to have opportunity. What we balance is making sure that as we optimize the business, we do not impact delivery or quality for our customers. So it is a measured approach of getting our cost structure in the right way. Part of it is just looking at the way we do our business and improving processes. Part of it is the automation activities, the simple automation activities that we have talked about, and continuing to look at benchmark cost structures against where we are at. So this is where we think there is continued opportunity, but it is really in a balanced measure to make sure that we are not impacting our customers from a quality and a delivery standpoint while we right-size our cost structure. John Franzreb: Fair enough. Okay. Now I will get back into the queue. Thank you very much, everybody. Jennifer Slater: Thank you, John. Operator: At this time, there are no further questions. I would like to thank everyone for their participation in today’s conference. You may disconnect your lines at this time. Have a great day.
Operator: Morning, ladies and gentlemen. Thank you for standing by. Welcome to the Wheaton Precious Metals Corp. 2026 First Quarter 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 then the number one on your telephone keypad, or type your questions in the Q&A box of the webinar. If you would like to withdraw your question, please press star 1 again. Thank you. I would like to remind everyone that this conference call is being recorded on Friday, 05/08/2026 at 11:00 AM Eastern Time. I will now turn the conference over to Emma Murray, Vice President of Investor Relations. Please go ahead. Emma Murray: Thank you, Operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I am joined today by Haytham Hodaly, Wheaton Precious Metals Corp.'s President and Chief Executive Officer; Vincent Lau, Chief Financial Officer; G. Wesley Carson, Vice President, Mining Operations; and Neil Burns, Vice President, Corporate Development. Please note, for those not currently on the webcast, a slide presentation accompanying this conference call is available in PDF format on the Presentations page of our website. Some of the comments on today's call may include forward-looking statements. Please refer to Slide 2 for important cautionary information and disclosures. Please note that all figures referred to on today's call are in U.S. dollars unless otherwise noted. With that, I would like to turn the call over to Haytham Hodaly, Wheaton Precious Metals Corp.'s President and Chief Executive Officer. Haytham Hodaly: Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton Precious Metals Corp.'s first quarter results of 2026. I am very pleased to be speaking with you today on my first quarterly conference call as President and Chief Executive Officer of Wheaton Precious Metals Corp. Wheaton delivered a strong start to 2026 with Salobo and Peñasquito outperforming expectations and contributing to record quarterly revenue, earnings, and cash flow. We continue to build on our track record of disciplined capital allocation, announcing several transactions that further enhance the quality, diversification, and long-term growth profile of our portfolio. Most notably, during the quarter, we announced the Antamina silver stream with BHP, the largest transaction in Wheaton’s history and the largest fresh-metal stream transaction ever completed. Antamina is one of the world's premier base metal operations with a long track record, strong performance, significant exploration potential, and a demonstrated ability to replace reserves and extend mine life. The transaction meaningfully increases our exposure to high-quality silver production and reinforces Wheaton’s position as one of the largest companies globally. Subsequent to the quarter, we were also pleased to announce the Jervois stream with KGL Resources, marking Wheaton’s first stream in Australia. In addition, we announced a royalty on the Spanish Mountain project in British Columbia, which Neil will outline shortly. Collectively, these transactions further strengthen our portfolio, expand our geographic reach, and broaden our counterparty base while maintaining the disciplined approach to capital allocation that has underpinned Wheaton’s success. Looking ahead, we continue to see strong interest in streaming as a financing solution across the mining industry. Our corporate development team remains active in evaluating opportunities, and we will continue to focus on transactions that are accretive, well-structured, and aligned with Wheaton’s long-term strategy. Importantly, Wheaton’s growth is not dependent on additional transactions. Our existing portfolio already provides a strong organic growth profile of approximately 50% by 2030, supported by multiple development assets advancing through construction, ramp-up, and optimization. We believe that Wheaton is in a position of exceptional strength, supported by a high-quality portfolio of long-life assets, a robust pipeline of significantly de-risked growth projects, and a business model that has continued to deliver strong margins and meaningful exposure to precious metals. With that, I would like to turn the call over to G. Wesley Carson, our Vice President of Mining Operations, who will provide more detail on our operating results. G. Wesley Carson: Thanks, Haytham. Good morning, everyone. Overall production in the first quarter was 212,000 GEOs, a 22% year-over-year increase, primarily driven by stronger performance from Salobo and Peñasquito. Salobo delivered 69,000 ounces of attributable gold production in Q1, a decrease of approximately 3% year-over-year, primarily driven by lower grades and partially offset by higher throughput and recoveries. As highlighted in Vale Base Metals’ recent public disclosure, coarse particle flotation is the main near-term growth driver at Salobo, supporting the expansion of 12 million to 18 million tonnes per annum, targeting a total throughput of 42 million tonnes per annum by 2029. Vale Base Metals noted that studies and permitting are underway with construction expected to begin in 2027 and implementation by 2029. In addition, Vale Base Metals indicated that it continues to advance a series of growth-focused initiatives to enhance efficiency and support medium- to long-term production growth across its global complex. In Q1, Antamina produced 1.6 million ounces of attributable silver, an increase of approximately 48% relative to 2025, primarily due to higher grades and improved recoveries. Attributable production to Wheaton is expected to increase significantly starting in 2026, reflecting the addition of the new BHP stream, which became effective on April 1, and supported by higher throughput and stable grades and recoveries. Peñasquito produced 2.6 million ounces of attributable silver in Q1, representing a 46% increase year-over-year, supported by higher grades and improved recoveries. After a strong Q1 performance from Peñasquito, we anticipate attributable production to be lower in Q2, reflecting reduced grades and lower throughput due to plant maintenance. Blackwater produced 129,000 ounces of attributable silver and 5,000 ounces of attributable gold in Q1. During the quarter, Blackwater experienced a seven-day unplanned mill shutdown due to a ball mill gearbox failure. Artemis noted that strong grades helped offset the lower throughput resulting from the interruption, and they are maintaining their full-year production guidance with plans to recover the lost production over the balance of the year. Several development projects are in the process of ramping up production, including Mineral Park, Phoenix, Goose, and Platreef, all of which reached initial production in the last eight months. Construction activities advanced on a number of development projects, including the Koné project, where Montage reported that the project remains on track for first gold pour by the end of the year via the oxide circuit, with the hard rock comminution circuit expected to be completed in 2027. Wheaton’s production outlook for 2026 remains unchanged, with attributable production expected to fall between 860,000 and 940,000 GEOs. Production is expected to be weighted to the second half of the year with approximately 45% in the first half and 55% in the second half, driven by mine sequencing at Salobo and Peñasquito, the start of Antamina’s BHP contract in Q2, as well as the ramp-up of the newly operating assets throughout 2026. Production at Salobo is expected to increase through the remainder of 2026 with improved grades as per the mine plan and consistent throughput and recoveries across Salobo I, II, and III. Looking ahead, we project annual production to grow at an industry-leading rate of approximately 50%, reaching 1.2 million GEOs by 2030. From 2031 to 2035, attributable production is currently forecast to average approximately 1.2 million GEOs annually, supported by incremental contributions from additional pre-development assets. That concludes the operations overview. I will now turn the call over to our CFO for the financial results. Vincent Lau: Thank you. As detailed by Wes, production in Q1 was 212,000 GEOs, a 22% increase year-over-year. Sales volumes were 182,000 GEOs, a decrease of 3% from last year due to an increase in produced but not yet delivered, or PBND, due to timing differences between production and sales. On April 1, we closed the previously announced transaction on Antamina with BHP, and we expect Q2 deliveries to include two of the typical three quarterly shipments, with a full-quarter contribution expected thereafter. At the end of Q1, the PBND balance was approximately 184,000 GEOs, representing 2.8 months of payable production. We continue to expect PBND levels to remain between 2.5 and 3.5 months for the remainder of 2026, with the higher end of the range reflecting the potential impact of ramp-up activities at new mines throughout the year. Strong commodity prices, coupled with solid production, led to record quarterly revenue of [inaudible], an increase of 92% compared to last year and driven primarily by a 98% increase in the average realized gold equivalent price. 51% of this revenue came from gold, 47% from silver, and the rest from palladium and cobalt. Net earnings increased by 129% from the prior year to a record $582 million, while adjusted net earnings increased by 132% to a record $583 million. Operating cash flow increased to $766 million, representing another quarterly record, an 812% increase from last year. During the quarter, we made total upfront cash payments for streams of $90 million, including $50 million for Spring Valley and $40 million for Marimaca, as our portfolio of development assets continues to advance toward production. Partially offsetting these disbursements, we received a repayment of $30 million relative to the upfront payment for Santo Domingo, with the amount to be re-advanced at a later date. We strategically monetized a portion of our long-term investment portfolio, generating $323 million in proceeds and a $150 million gain, and redeployed the capital into our core streaming business to support funding of the Antamina BHP stream, which closed on April 1. Overall, net cash inflows amounted to a record $1 billion in the quarter, resulting in a cash balance of $2.2 billion at March 31. On April 1, subsequent to quarter-end, we funded the $4.3 billion upfront payment to BHP for their 33.75% portion of the silver produced at the Antamina mine. The upfront payment was funded through a combination of the cash on hand at closing, a draw on our previously undrawn $2 billion revolving credit facility, and a new $1.5 billion term loan. The term loan and the revolving credit facility provide flexible, non-dilutive financing that may be repaid at any time without penalty. After advancing the upfront payment, the company is now in a pro forma net debt position of $2.1 billion, which, based on our annualized Q1 2026 EBITDA, represents a modest leverage ratio of approximately 0.7 times. With the strength of our production guidance outlined by Wes, we believe we are well positioned to generate strong operating cash flow through 2028 under base case commodity price assumptions, supporting accelerated debt repayment over a relatively short period of time, while continuing to build and grow our already strong capacity to fund existing commitments and potential future stream acquisitions. This concludes the financial summary. I will now hand things over to Neil to walk through the details of our recent corporate development activities. Neil Burns: Thanks, Vincent. It has been a busy start to the year for the corporate development team, and I am pleased to provide an overview of our two most recent deal announcements, which further reinforce Wheaton Precious Metals Corp.’s already exceptional growth profile. On April 1, we entered into a definitive agreement with KGL Resources for a portion of the gold and silver production at the Jervois project located in Australia. The Jervois project represents an important milestone for Wheaton Precious Metals Corp. as our first streaming transaction in Australia, one of the world's leading mining jurisdictions. This fully permitted copper project is positioned to commence construction imminently, with a concentrator designed to process 2 million tonnes per year, producing a copper concentrate with silver and gold by-products. In addition, we believe the project holds significant exploration potential. Under the agreement, Wheaton will purchase 75% of payable gold and silver until a total of 45,000 ounces of gold and 4.3 million ounces of silver have been delivered. After those thresholds, we will purchase 37.5% of payable gold and silver until an additional 15,000 ounces of gold and 1.7 million ounces of silver have been delivered, after which we will purchase 25% of the payable gold and silver for the remaining life of mine. In return, we will make ongoing payments for the gold and silver ounces delivered equal to 20% of the spot price. Each of the step-down thresholds will be subject to adjustments if there are any delays in deliveries relative to an agreed-upon schedule. This mechanism helps to mitigate timing risk. The known resources at the Jervois project are spread across multiple prospects that extend along a 12-kilometer strike length in the shape of a J-curve, which can be seen on the slide. The tenements are underexplored; KGL is utilizing integrated 3D modeling to focus exploration on high-grade areas to expand the Jervois mineral resource and support an extended mine life. The main deposits—Reward, Bellbird, and Rockface—remain open along strike and at depth. High-priority targets include Reward North, Reward South, and Cockatoo Spring. There are more than 20 targets identified and ranked within our area of influence. We feel the project is very prospective, and we are impressed by KGL’s approach to exploration. On April 20, we entered into a definitive agreement with Spanish Mountain Gold to acquire a 1.5% NSR on the Spanish Mountain project in British Columbia, in exchange for consideration of $55 million staged payment. The Spanish Mountain project is an attractive addition to our portfolio, located in a stable, low-risk jurisdiction, with PEA studies projecting a mine life over 20 years and a land package supporting significant exploration potential. Overall, the project's scale and long-term potential align with our disciplined approach to growth in established mining jurisdictions. We are pleased to partner with the team at Spanish Mountain to support its development. With that, I will hand the call back over to Haytham. Haytham Hodaly: Thank you, Neil. In summary, the first quarter was a strong start to 2026 and highlighted the continued execution of Wheaton Precious Metals Corp.'s strategy. We delivered solid revenue, earnings, and cash flow, resulting in record quarterly performance; completed the Antamina stream with BHP, the largest transaction in Wheaton’s history, which adds meaningful additional exposure to one of the world’s premier mining assets and significantly enhances our long-term silver production profile; and our development pipeline continues to advance with multiple assets progressing through construction, ramp-up, and optimization, supporting Wheaton’s sector-leading organic growth profile. Wheaton’s strategy remains clear: stay disciplined in pursuing high-quality, low-risk, long-life, accretive precious metal streams and deliver sustainable long-term value for all stakeholders. We will now open the call for questions. Operator? Operator: Thank you. Ladies and gentlemen, we will now conduct the question and answer session. First question comes from Daniel Major from UBS. Please go ahead. Your line is open. Daniel Edward Major: Hi, thanks very much for the questions. First, on Salobo—you mentioned the Vale commentary on coarse particle flotation. Can you clarify the catalysts and timing on permitting, the expected incremental GEO contribution for Wheaton, and whether there is any incremental capital required from your side? Haytham Hodaly: Thanks for the question. Vale is still working on the capital; they are finalizing their studies right now on this project, and the capital will come out of that work. We are looking at an increase that effectively takes Salobo III from 12 million to 18 million tonnes per year. What will be fed there will be slightly lower-grade material; we are not expecting a dramatic increase in mining rates, but there is quite a bit more material to be fed through. The increases you will see from that will be reflected in our guidance next year as we work through the full impact. In parallel, beyond coarse particle flotation, Vale is looking at a number of other upgrades across the overall project. On permitting, it is much in line with permits for a CTF of this size. As they go further, there may be additional permits required to get up to a higher rate beyond the 42 million tonnes per year that they are targeting right now. In terms of capital from Wheaton, there is no additional capital requirement on our behalf. Daniel Edward Major: That is clear, thank you. Second, now that you have a position in Australia, relative to other regions—there is not as much streaming exposure there—are you seeing other opportunities in the region? Haytham Hodaly: Absolutely, Daniel. When we first went into Australia with a small royalty, it opened up a lot of doors. Now that we have shown we can do streams in Australia and come up with structures that make sense for both parties, we are seeing a lot more interest on that continent. We hope to get more done, and as always, we are looking at a lot of different opportunities—some of them are in Australia for sure. Daniel Edward Major: Final, more model-oriented question: any guidance on what you would expect finance costs booked through the P&L in Q2 to be, including any additional costs associated with the debt drawdown? Vincent Lau: Daniel, it is Vince here. The bank term loan and the RCF debt service costs would be about a 5% interest rate on the current approximately $2.1 billion net debt position. We see repayment happening relatively quickly. Q2 is a somewhat heavy quarter in terms of cash outflows—we made the $4.3 billion Antamina payment and we have two dividends going out—so debt repayment would not be as quick in Q2, but going forward we see that rapidly coming down. In terms of setting up the loan itself, all of those costs were incurred in Q1. There are no additional setup costs. Daniel Edward Major: So about 5% on roughly $2 to $2.5 billion for the P&L—around $30 million or so? Vincent Lau: Yes, that is appropriate. Daniel Edward Major: Okay. Thank you very much. Operator: Our next question comes from Tanya Jakusconek from Scotiabank. Please go ahead. Your line is open. Tanya M. Jakusconek: Great, thank you. Just continuing on the modeling questions, I also think you have the global minimum tax payment going out in Q2. Is that correct? And with two dividends, the Antamina payment, and the global minimum tax, should we expect only a modest debt reduction in Q2 and then a more material paydown later in the year? Also, you mentioned a few mines that will be ramping, and that production split of 45%/55% between H1 and H2—could you flag the ones that may come off in the back half? Vincent Lau: That is right—the global minimum tax will be going out in June, and the amount is about $150 million. We do see some debt paydown in Q2—not a very significant amount—but thereafter, very material repayments going forward. G. Wesley Carson: On the ramp-ups, we will see Phoenix ramping through the year, and Goose coming up to full production by the end of the year. Platreef will also be ramping through this year. The one that would come down in the back half of the year is Constancia—there was some stockpile material from Pampacancha in Q1 that pulled up gold grades; that ended in April, so it will come back down. Tanya M. Jakusconek: Thank you. On the deal market, in prior quarters you mentioned most opportunities were in the $200 million to $500 million range, with a few potentially in the $500 million to $1 billion range, focused on construction financing for large-scale copper and some gold projects. Is that still the right range and mix? And are you seeing any changes to deal structures given competition? Haytham Hodaly: I will pass it over to Neil for an overview. Neil Burns: Sure. The range is quite similar, Tanya. Our pipeline remains very robust around the same levels as Q4. The opportunity mix is probably about 70% gold and 20% to 30% silver. The value range is in the $200 million to $500 million area. We are seeing a few potentially in the billion-dollar range, maybe a couple, but those do take longer to incubate and are paid out as construction advances. M&A-driven opportunities—asset sales—are still out there, and we are hearing rumors of a few more non-core asset sales where we could finance purchasers. Haytham Hodaly: On structure, we understand what competitors are doing, but we stick to what has worked for us and our counterparties, because it is the easiest to execute and deliver into. We continue to look for security, corporate parent guarantees, and the lowest-risk structures for our shareholders—that has not changed. Typically, you see streaming plus, where appropriate, a modest equity component if requested, and we do offer cost overrun facilities. Traditional debt at the corporate level is not something we are looking to provide; it usually makes more sense to expand a stream rather than provide debt. Tanya M. Jakusconek: Has Australia opened any other jurisdictions for you? Haytham Hodaly: There have been a couple, and you may see something soon—smaller in size. We are trying to dip our toe into various areas, but only in very low-risk jurisdictions—nothing that would increase our risk profile. We are focused on postal codes you will recognize. Operator: Our next question comes from Brian MacArthur from Raymond James. Please go ahead. Your line is open. Brian MacArthur: A couple of questions on commitments going forward. With Santo Domingo, you received some money back and will pay it out in the future. Are there other deals where that could potentially happen, or is that a one-off? And on Salobo, you have an $8 million ongoing payment for ten years related to high-grade. Originally you did not think you would pay it until 2027, but in the fourth quarter you moved it in. Is that fixed now—starting 2027/2028—or could that still change with the new plans? Haytham Hodaly: We are always looking to be good partners. If things are delayed and they do not need the capital after an advance, we may allow deferrals so they do not have to pay delayed payment mechanisms they would otherwise owe. Our objective is to see projects advance as smoothly as possible, not to collect delayed payment ounces. We have not seen others come to us for that now, but if needed, we would consider it case-by-case. Vincent Lau: To add, the upfront payments in question are early deposit payments, typically paid before permitting, and they are a small portion of the ultimate upfront payment. In this case, permitting was delayed, we wanted to ensure our cost of capital, and Capstone had other means to satisfy that—so they repaid it temporarily. Good outcome for both parties. Haytham Hodaly: On the Salobo $8 million ongoing payment, that could still change. We are constantly talking to Vale. The plan has shifted more towards increasing throughput rather than the high-grade plan we originally viewed. So timing and amount may still move. Brian MacArthur: On accounting—with the second Antamina transaction, will you report it as one segment or two? Will depletion be higher, and any tax structure differences? Vincent Lau: We will treat it as one segment; you will see just “Antamina” in our statements. The depletion rate will be a bit higher—around $26 to $27 per ounce on a combined basis. Tax is the same agreement as the first stream, subject to the GMT tax. We deplete the asset from an accounting perspective, and the tax is 15% on the accounting income for our Cayman subsidiary. We will provide updated depletion rates next quarter for all assets. Operator: Our next question comes from Cosmos Chiu from CIBC. Please go ahead. Your line is open. Cosmos Chiu: Thanks, Haytham and team, and congrats again on the appointment and a solid start to 2026. First on produced but not yet delivered—it increased again in Q1, the fifth consecutive quarter. With the new start-ups, when could it reverse and draw down? Specifically for Phoenix and Platreef, when could we see sales come through—sometime in 2026? G. Wesley Carson: Thanks, Cosmos. PBND moves in a reasonably predictable manner. It tends to build in Q1 and then we see drawdown later in the year. With new streams coming online, we will see some build, and we will see more with Antamina coming on—Q2 will include two shipments instead of the usual three, so PBND will tick up for Antamina. For Phoenix, the payable period is relatively short—on the shorter end, about one to two months. For Platreef, it is quite long—on the upper end, around five to six months—before we see sales. Cosmos Chiu: On Spanish Mountain, it is a 1.5% NSR royalty. Historically, Wheaton preferred streams over royalties. Is that still the case, and is this just a unique situation? Haytham Hodaly: We still prefer streams over royalties. This royalty came through a ROFR on future financings for stream financing. It is our way of locking in our position when they go to finance the larger project. Cosmos Chiu: On Bill C-59 (Budget 2025) enacted on 03/26/2026 with amendments to transfer pricing—given past debates, is this something we need to worry about? And what changed? Vincent Lau: No, not at all. Our structure is well understood, and the settlement we had with CRA is applicable up to 2025. Going forward under the new legislation, we will operate the exact same way. For example, the Antamina transaction was funded by our Cayman subsidiary—they borrowed at that level and have all the cash flows and their own management team and board. The structure is well defined, and we do not expect changes. At a high level, the government is more specifically defining transfer pricing mechanics, particularly with respect to other companies that may structure their affairs differently than ours; for us, it has no impact. Cosmos Chiu: Lastly, on your 2026 cash outlays excluding Antamina, I get about $196 million for 2026. You have already paid a lot in Q1—$40 million for Marimaca and Koné after the quarter. The big ones still outstanding are Spring Valley and El Domo—what are the triggers? Vincent Lau: El Domo is tied to achieving completion status, at which point we fund—we do expect to fund El Domo potentially in 2026. Spring Valley is based on obtaining key permits; we are hopeful they will achieve that in the near term, so we would look to fund in 2026 as well. To be clear, Q2 is heavy—we will disburse about $4.6 billion including the Antamina acquisition—and the remainder of the year is much lighter at about $200 million. Cosmos Chiu: Great. Thanks again, Haytham, Vince, and Wes. Operator: Our next question comes from Richard Hatch from Berenberg. Please go ahead. Your line is open. Richard Hatch: Thanks a lot. Hey, Haytham and team. Has the Middle East conflict and its impact on global markets affected your ability to write new business at all? Haytham Hodaly: No, not at all, Richard. Operator: Our next question comes from Martin Pradier from Veritas Investment Research. Please go ahead. Your line is open. Martin Pradier: On Salobo, are you changing the number for the year—what is the expectation now with the new items underway? Also, there was a big difference between production and sales this quarter, especially at Salobo; production was down 3%, but sales were down 30%. How should we think about that going forward? Haytham Hodaly: There will be no changes on Salobo for the year. All of the upgrades are over the next several years and, as mentioned earlier, will be reflected in guidance next year as they come online per Vale’s plan. For the production versus sales variance, Q1 is typically lower for sales due to logistics in Brazil—Carnaval actually has a significant impact on the movement of material. We usually see a build of PBND at Salobo in Q1 and a drawdown in Q4. This year is no different. Operator: Our next question comes from John Tumazos from John Tumazos Very Independent Research. Please go ahead. Your line is open. John Tumazos: Thank you for taking my question. Looking back at the Antamina transaction and the $4.3 billion outlay, should we think of that as a unique, once-in-a-generation sort of deal—given you were already in the asset and intimately familiar—or could there be more transactions like this? And as a follow-up, producers seem to trade around $8 per ounce of silver reserve and resource (including inferred), while the silver price is much higher. Relative to Antamina pricing, would it be cheaper to buy a producing silver company? Why do you think producers trade at $8 per ounce—does the market expect a much lower long-term silver price? Haytham Hodaly: Antamina at $4.3 billion is quite unique—you do not often see streams that can provide that much production in any given year. That said, it does open doors for billion-dollar-plus streams over the next few years. With BHP validating streaming as a source of funding, a lot of diversifieds are actively considering portfolio actions to unlock value or deleverage, and streaming will be considered. I would not say another $4 billion deal is around the corner, but billion-dollar deals would not surprise us. On acquiring producers, our shareholders value that we do not add operating, capital, or execution risk. Producers face volatility around growth capital and operations; from our perspective, it does not make sense to move away from streaming with high-quality partners who operate the assets. Vincent Lau: On the valuation question, producers still face the costs to mine that ounce—both initial capex and ongoing opex—whereas under our streams we typically pay 20% of spot (or fixed low cash prices in some cases). That is why our margins are so strong—on silver we are close to 84% margins, on gold close to 86%—you do not see that with producers. That margin difference is a key piece in that comparison. Operator: Our last question comes from Joshua Wolfson from RBC Capital Markets. Please go ahead. Your line is open. Joshua Wolfson: Thank you. Following up on Salobo—there was a comment about grades expected to increase through the year. Q1 results were strong; can you disclose the grade processed or discuss what drove the outperformance? And would it be reasonable to assume production increases over the course of the year if grade increases? G. Wesley Carson: Thanks, Josh. Grade will improve through the year. This is pretty standard for Q1 at Salobo—they usually try to stay out of the bottom of the pit in Q1 due to the rainy season, so they stay in the upper phases (Phase 5/6) and then move back into Phase 4, which has stronger grades, through the rest of the year. That is what drives the increase over the remainder of the year. And yes, it is reasonable to assume production increases over the course of the year with improving grades. Haytham Hodaly: Thank you, Josh. And thank you, everyone, for your time today. The first quarter represented a very strong start to 2026 as we continue to execute on our strategy while entering this new chapter of growth for the company. With continued geopolitical uncertainty driving increased demand for precious metals, we believe Wheaton Precious Metals Corp. offers one of the most attractive low-risk ways to gain exposure to gold and silver. As the purest precious metals streaming company, our pipeline continues to advance, and the strength of our cash flows provides the capacity to pursue new opportunities while maintaining our commitment to disciplined capital allocation. I am incredibly proud to be leading Wheaton in this next phase of growth and look forward to continuing to build on the strong foundation that has made Wheaton a leader in the streaming and royalty sector and a foundational stock in any portfolio. Thank you again, and we look forward to speaking with you all soon. Operator: This concludes this conference call for today. Thank you for participating. Please disconnect your lines.
Operator: Good day, and welcome to the Fidus Investment Corporation First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead. Jody Burfening: Thank you, Debbie, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's First Quarter 2026 Earnings Conference Call. With me this morning are Edward H. Ross, Fidus Investment Corporation's chairman and chief executive officer, and Shelby Elizabeth Sherard, chief financial officer. Fidus Investment Corporation issued a press release yesterday afternoon with the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com. I would also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. The conference call today will contain forward-looking statements including statements regarding the goals, strategies, beliefs, future potential, operating results, and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, 05/07/2026, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements. With that, I would now like to turn the call over to Edward H. Ross. Good morning, Ed. Edward H. Ross: Good morning, Jody, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. In today's call, I will start with a review of our first quarter performance and our portfolio at quarter end, and then share with you our outlook for 2026. Shelby will cover the first quarter financial results and our liquidity position. After we have completed our prepared remarks, we will be happy to take your questions. Fidus' first quarter results were extremely strong from an income statement perspective. With adjusted NII of 62¢ per share, our debt portfolio continued to over-earn our base dividend of $0.43 per share and to support a payout of excess earnings to shareholders. Adjusted NII grew 14.8% to $23.7 million, reflecting a 13.1% increase in interest income on higher average income-producing assets along with higher fee income than last year. We ended the quarter with estimated spillover income of $1[inaudible] per share. Deal activity was relatively modest during the quarter, including M&A transactions completed by our portfolio companies. Overall, our portfolio remains healthy, characterized by niche market leaders with traits that provide long-term barriers to entry that ensure their value proposition and competitive positioning. Through our strict underwriting process, we ensure that we are selecting companies with proven, resilient business models that generate recurring revenue and cash flow to service debt and to provide capital for growth. We remain focused on industries we know well in the lower middle market, leveraging our established relationships with deal sponsors. For the second quarter of 2026, the Board of Directors declared a total dividend of $0.62 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of 19¢ per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on 06/29/2026 to stockholders of record as of 06/16/2026. Net asset value held steady at $742 million at quarter end, or $19.55 per share. Originations in the first quarter amounted to $118.7 million, nearly all of which consisted of first lien debt investments in support of both M&A transactions and debt recapitalizations. We also invested $1.8 million in equity securities of two new portfolio companies, consistent with our investment strategy of maintaining a portfolio that is structured to produce both high levels of current and recurring income and the potential for capital gains from monetizing equity investments. Subsequent to quarter end, we invested an additional $21.5 million in one new portfolio company. Proceeds from repayments and realizations totaled $73.1 million for the first quarter, resulting from a mix of M&A and refinancing activity. We monetized equity investments in two portfolio companies, generating $3.9 million in realized gains. Offsetting these gains was a total of approximately $15 million in realized losses in connection with the conversion of Student Connector's debt into [inaudible]. Looking at net investment activity, which takes debt recapitalizations into account, our portfolio grew by $46 million in Q1. First lien investments comprised 87% of the debt portfolio, reflecting the ongoing migration towards first lien securities. Combined with our $149.6 million equity portfolio, we ended the quarter with a portfolio totaling $1.4 billion on a fair value basis, equal to 102.5% of cost. Overall, the portfolio remains healthy from a credit quality perspective, supported by very solid underlying portfolio company performance. We ended the quarter with only one portfolio company on non-accrual that accounted for less than 1% of the total portfolio on both a fair value and cost basis. Our portfolio remains well diversified by industry, consisting of a mix of manufacturing, distribution, and services companies. In addition, we have a well-diversified group of software and IT services names within our portfolio that are exposed to both opportunities and risks associated with AI. This group represents about 32% of our total portfolio on a fair value basis. We have not seen any negative impacts from AI on this portfolio. Importantly, nearly all of our debt investments in these companies are in highly structured first lien securities with at least two maintenance covenants, and all portfolio companies except for one are backed by high-quality sponsors with proven track records in the space. The weighted average loan-to-value for this portfolio was 42% this quarter, below our total portfolio weighted average loan-to-value of approximately 45% on a cost basis. In addition, the current contractual duration of our debt investments in this category is 2.2 years, enhancing our ability to manage any tougher situations we might encounter down the road. Equity investments in software and IT services companies totaled $16.1 million, or approximately 11% of our total equity portfolio on a fair value basis. In closing, our portfolio remains well positioned to continue to generate adjusted NII in excess of our base dividend and to realize gains from monetizing equity investments. Although M&A activity is currently lackluster in light of the geopolitical and associated market volatility, our pipeline of investment opportunities is decent, and our long-standing relationships with deal sponsors and lower middle market expertise position us to identify high-quality companies that meet our rigorous underwriting standards for investment. We will, as always, manage the business for the long term, staying focused on our goals of preserving capital and generating attractive risk-adjusted returns for our shareholders. I will now turn the call over to Shelby to provide details on our financial and operating results. Shelby? Shelby Elizabeth Sherard: Thank you, Ed, and good morning, everyone. I will review our first quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q4 2025. Total investment income was $47.5 million for the three months ended March 31, 2026, a $5.4 million increase from Q4, primarily driven by a $1.4 million increase in interest income due to increased average debt investments outstanding and a $4.1 million increase in fee income due to a $6.9 million fee related to the refinancing of our debt investments in American Always, partially offset by lower origination and prepayment fees from investment activity. Total expenses, including tax provision, were $22.9 million for the first quarter, a $0.4 million increase versus Q4, primarily driven by a $0.4 million increase in interest expense related primarily to higher average debt balances outstanding, a $1.4 million increase in base management and income incentive fees given the increase in assets under management and higher fee income in Q1, and a $0.9 million increase in G&A expenses. G&A expenses were higher due to the write-off of unamortized deferred financing costs and incremental legal expenses related to our new registration statement, and the timing of annual audit and tax compliance expenses incurred in Q1. These were offset by a $0.7 million decrease in the capital gains fee and a $1.8 million decrease in income tax provision related to the annual excise tax accrual in Q4. Net investment income, or NII, for the three months ended March 31 was $0.65 per share versus $0.53 per share in Q4. Adjusted NII, which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was 62¢ per share in Q1 versus 52¢ in Q4. For the three months ended March 31, we recognized approximately $12.2 million of net realized losses related to a $15.8 million realized loss on the exit of our debt investments in Pseudo Connector, taking this non-accrual off our books, which was partially offset by $3.9 million in realized gains on our equity investments in CIH Intermediate and Zocd. We ended the quarter with $682.2 million of debt outstanding, comprised of $260.5 million of SBA debentures, $325 million of unsecured notes, $85.2 million outstanding on the line of credit, and $11.6 million of secured borrowings. Our net debt-to-equity ratio as of March 31 was 0.9x. Our statutory leverage, excluding exempt SBA debentures, was 0.6x. The weighted average interest rate on our outstanding debt was 5.2% as of quarter end. Turning now to portfolio statistics, as of March 31 our total investment portfolio had a fair value of $1.4 billion. Our average portfolio company investment on a cost basis was $13.8 million, which excludes investments in seven portfolio companies that sold their operations or are in the process of winding down. We have equity investments in approximately 85.6% of our portfolio companies, with an average fully diluted equity ownership of 2%. Weighted average effective yield on debt investments was 12.5% as of March 31, a slight decrease versus 12.6% at the end of Q4. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on non-accrual, if any. Now I would like to discuss our available liquidity. As of March 31, our liquidity and capital resources included cash of $50.4 million, $1.399 billion of availability on our line of credit, and $54.0 million of available SBA debentures, resulting in total liquidity of approximately $244.2 million. I will now turn the call back to Ed for concluding comments. Edward H. Ross: Thanks, Shelby. As always, I would like to thank our team and the Board of Directors at Fidus Investment Corporation for their dedication and hard work, and our shareholders for their continued support. I will now turn the call over to Debbie for Q&A. Debbie? Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Robert Dodd with Raymond James. Please go ahead. Operator: Excuse me. I just put Christopher Nolan on the podium. My apologies. Robert will be next. Christopher Nolan with Ladenburg Thalmann, please go ahead. Christopher Nolan: Obviously, they are preferring the person with the better look over Robert, so I am honored. Well done there. No offense, Robert. Shelby, were there any nonrecurring items in the quarter? Am I missing your comments? Shelby Elizabeth Sherard: No. We did incur a rather large fee that I would characterize as more of a one-time fee. It was about $6.97 million related to the American Always debt refinancing. So that drove the fee income in Q1 and the beat versus consensus. Christopher Nolan: Okay. That is really it for me. Thank you very much. Operator: Thank you, Chris. The next question is from Robert Dodd with Raymond James. Please go ahead. Robert Dodd: Good morning, and thank you, Chris, for letting me go second. I appreciate it. And congrats, Shelby and team, for a really good quarter. A question about that American Always fee. If I look, the position size is about $50 million now, and obviously it was smaller than that before. A $6.9 million fee on a refinancing of a position that size seems pretty high. Now, obviously, the first three last quarter was marked well above cost, so there were some odd differences in how the prior thing was structured. Is it a normal asset that just happened to repay and generate a really good fee, or was there something unusual about the structure of that asset? I am trying to get a feel—obviously it is probably not going to happen every quarter—but can this kind of outsized refinancing fee happen again in different assets? Edward H. Ross: Sure. It is a great question, Robert. Could it happen again to this magnitude? Anything is possible, but it is a pretty healthy fee, as you highlighted, and it is not the norm for every credit by any stretch of the imagination. We have a few other investments where we have fees that can be earned on the back end. In this case, American Always has been in our portfolio for a while. There was a point in time where there was a need for capital on a relatively quick basis, and we ended up being the source of that capital. We priced that capital in accordance with what we thought the numbers should be. This is not our business going forward or anything like that. We are a solution provider, we provided a solution that was needed, and we were paid accordingly for that solution. That is the way I would think about it. Robert Dodd: Got it. Thank you. I wonder if that was COVID-timing related because, obviously, it was before then. I appreciate that. And then more generally, you characterized the pipeline as decent, but the market is kind of lackluster, which is a theme across the space, not surprisingly with the number of macro uncertainties. Would you characterize that lackluster market as driven by these uncertainties—oil, macro, et cetera? And do you think the market needs more certainty for the PE market in your segment to show a little bit more life? Edward H. Ross: Great question. Let me give you a little color on what we experienced in Q1. As most people in this space felt, deal flow was more modest in nature, largely due to seasonal patterns in Q1. That was prior to the geopolitical conflict in the Middle East. At that time, general expectations were for an increase in both deal flow and investment activity throughout the year. As we sit here today, we still have confidence in a pickup in activity, but the pace will be somewhat dependent upon a reduction in the current level of uncertainty in the world today. There is quite a bit of pent-up demand in M&A—nothing new there. The good news from our perspective is the fragmented nature of the lower middle market and its large overall size. That should continue to provide ample investment opportunities for us to pursue, whether M&A picks up or not. We like that aspect of the lower middle market. There is still activity going on today, but it is not close to robust levels. We have investment opportunities with both existing portfolio companies and new opportunities. At the end of the day, we expect an okay to decent originations quarter. We expect repayments to be on the lighter side. A lot of things can change; deals that we expect to close may not close. But that would be our expectation today—some decent growth this quarter in the portfolio, but lighter on the repayment side overall. Robert Dodd: Okay. That is helpful. Thank you. And then following on, spreads—your portfolio yield ticked down a tiny bit versus Q4. Looking forward, there has been talk in the marketplace, certainly with larger buyers, about spread expansion, maybe impacted by flows in the private perpetual vehicles. What are your thoughts on spreads in your end of the market? Do you think stability is more likely, or is there a prospect for expansion in the smaller end of the market? And I would differentiate between the overall market and what you are seeing on the software side. Edward H. Ross: Great question. We are seeing wider spreads, but for truly great assets—great operating companies—there continues to be a high level of competition, albeit slightly better pricing relative to prior to the conflict. There is ample capital out there, so there is competition, but for the right assets we still think spreads are extremely attractive and the terms remain very strong in the lower middle market in terms of covenants, security, and so on. There are opportunities to increase spreads, but for great assets competition is still meaningful. Robert Dodd: Got it. I appreciate it. Thank you, and again, congratulations on the quarter. Edward H. Ross: Thanks, Robert. Good talking to you. Operator: Please press star then 1 if you would like to ask a question. At this time, we have no further questions in the queue. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Edward H. Ross for closing remarks. Edward H. Ross: Thank you, Debbie, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our second quarter call in early August. Have a great day and a great weekend. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Telephone and Data Systems, Inc. First Quarter 2026 Operating Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. I will now hand the conference over to John Toomey, Treasurer and Vice President, Corporate Relations. Please go ahead. John Toomey: Good morning, and thank you for joining us. The presentation we prepared to accompany our comments this morning can be found on the Investor Relations sections of the Telephone and Data Systems, Inc. and Array websites. With me today in offering prepared comments are, on behalf of Telephone and Data Systems, Inc., Walter C.D. Carlson, President and CEO, and Vicki L. Villacrez, Executive Vice President and Chief Financial Officer. On behalf of TDS Telecom, Kenneth Dixon, President and CEO of TDS Telecom, and Christopher “Chris” Bautfeldt, Vice President, Financial Analysis and Strategic Planning. I will now turn the call over to Walter. Walter C.D. Carlson: Thank you, John, and good morning, everyone. Turning to slide three, this morning Telephone and Data Systems, Inc. announced a proposal to acquire the remaining shares of Array not currently owned by Telephone and Data Systems, Inc. in an all‑stock transaction. As Telephone and Data Systems, Inc. continues its transformation, this proposal is the next step in executing our strategy, simplifying our corporate structure, and enhancing our ability to invest in targeted areas of growth. Array has successfully completed its transition into a tower‑focused company with strong fundamentals, and we believe this transaction will position the combined company for long‑term growth. By bringing Array fully under Telephone and Data Systems, Inc.’s ownership, Array’s stockholders would retain a significant interest in the tower business while gaining exposure to Telephone and Data Systems, Inc.’s growing fiber business. Under the terms of the proposal, Telephone and Data Systems, Inc. would acquire all of the outstanding common shares of Array that Telephone and Data Systems, Inc. does not currently own by way of a merger in which each Array common share not owned by Telephone and Data Systems, Inc. would be exchanged for 0.86 of a Telephone and Data Systems, Inc. common share. This exchange ratio assumes that the previously announced spectrum license sales identified in our offer letter will have closed prior to the closing of the transaction contemplated by Telephone and Data Systems, Inc.’s proposal, and that the Array Board, consistent with its treatment of net proceeds from prior spectrum sales, will have declared and paid dividends of $10.40 per share to Array stockholders prior to the closing. At $10.40 per share, Array would distribute approximately $900 million in net proceeds. This exchange ratio reflects an at‑market offer based on yesterday’s closing prices for Telephone and Data Systems, Inc. and Array, subject to the assumptions just described. The transaction is expected to qualify as a tax‑free reorganization for U.S. federal income tax purposes. Telephone and Data Systems, Inc. expects the transaction to eliminate duplicative corporate costs, streamline corporate governance, increase share liquidity, and strengthen the capital structure of the enterprise, providing greater flexibility to pursue strategic investments across all our businesses, including towers and fiber. As noted in this morning’s press release, the proposal is subject to review and recommendation by a special committee of Array’s disinterested directors and the approval of the majority of the disinterested shareholders of Array based on votes cast. It would also require approval of Telephone and Data Systems, Inc.’s shareholders and the satisfaction of customary closing conditions. Telephone and Data Systems, Inc. does not intend to sell or otherwise transfer its interest in Array and will not entertain any third‑party offers for Array or its assets in lieu of this proposal. Telephone and Data Systems, Inc. continues to support Array’s previously disclosed intention to opportunistically monetize its remaining unsold wireless spectrum. Telephone and Data Systems, Inc. looks forward to working constructively with the Array Board’s special committee as they evaluate this proposal. Beyond what I just disclosed, and the information included in our press release and proposal letter to Array, we are not going to comment further on or take questions regarding the offer on today’s call. With that, let us turn to slide three. The enterprise is making good progress on its 2026 priorities. Our focus remains on advancing our strategy with financial and operational discipline. As I just mentioned, the proposal announced this morning will aid in strengthening Telephone and Data Systems, Inc.’s corporate and capital structure, and we look forward to working with Array’s special committee. Both business units continue to make progress toward their operational goals. TDS Telecom continued to add fiber addresses and customers in the quarter. Array is off to a strong start in 2026 and is making good progress growing tower tenancy. In the arena of spectrum, Array closed on a small transaction with T‑Mobile earlier this week and expects the remaining announced T‑Mobile and Verizon spectrum sales to close in the second or third quarter, subject to regulatory approval and other customary conditions. I am pleased with the progress each business unit is making and with the efforts we have underway to strengthen our culture as we go through this period of transformation. I would like to personally thank every associate across the enterprise for their continued commitment and contribution. I will now turn the call over to Vicki. Vicki L. Villacrez: Thank you, Walter, and good morning, everyone. Slide four updates you on our capital allocation priorities. TDS Telecom continues to make nice progress toward achieving its long‑term objective of reaching 2.1 million marketable fiber service addresses, delivering 40 thousand in the quarter. Ken and Chris will discuss more about the opportunities and momentum we are seeing in that space in a moment. We continue to evaluate M&A opportunities in a financially disciplined, accretive, business‑case‑driven fashion. In mid‑April, we announced an agreement to acquire Granite State Communications. As I have communicated in the past, we are primarily focused on small to medium‑sized opportunities that are already fibered up or have an accretive economic path to all fiber and support our clustering strategy. Granite is just like that: fully fibered with over 11 thousand service addresses that are adjacent to several of our existing markets in New Hampshire. We are excited to welcome these associates and customers into the Telephone and Data Systems, Inc. family and expect the transaction to close in the third quarter, subject to regulatory approval. Finally, in the area of shareholder return in the form of Telephone and Data Systems, Inc. share buybacks, we were not in the market during the quarter. At the end of the first quarter, we had a $520 million authorization for Telephone and Data Systems, Inc. share buybacks available, and we remain committed to executing on that program. Across all three priorities, the company intends to be disciplined, balancing the needs of the business and evaluating future returns along with market and other conditions as we move forward. Thank you. I will now turn the call over to Kenneth Dixon to discuss Telephone and Data Systems, Inc.’s fiber business. Kenneth Dixon: Thank you, Vicki, and good morning, everyone. At TDS Telecom, 2026 is focused on executing our fiber growth plan: building fiber addresses, driving fiber sales, and continuing to transform our operations. This quarter, we made progress across all three priorities as we scale our fiber network and advance our long‑term strategy. As shown on slide six, our fiber builds are off to a good start. We delivered 40 thousand marketable fiber service addresses in the first quarter. This is the highest first‑quarter total in our company’s history and nearly 3x our delivery in 2025. This performance reflects both effective execution and construction capacity, including our highest‑ever internal and external construction crew counts. While we are pleased with the record construction number, we still have more work to do. We continue to invest in our internal construction teams by adding headcount and upgrading tools and equipment to support increased build capacity, giving us a strategic advantage. We believe these investments provide greater control over our execution and improve long‑term efficiency. In addition, we have a robust pipeline of addresses currently under construction, positioning us very well for the spring and summer build season. This pipeline includes a mix of addresses from our fiber expansion into new areas as well as fiber upgrades in our existing markets through our Fiber Deeper program and the federal A‑CAM program. As a reminder, the A‑CAM program provides federal support that enables us to bring fiber to approximately 300 thousand service addresses, including those along the route where it would otherwise not be economical, helping to drive copper out of our network. Looking at sales, we ended the quarter with approximately 11 thousand fiber net adds, up 32% year over year. As we continue to scale our fiber footprint, we remain focused on converting new service addresses into customers and improving the overall customer experience. During the quarter, we strengthened leadership in key sales and customer‑experience roles to support these priorities. Our operational transformation is centered on efficiency, improving the customer experience, and simplification. We continue to make progress modernizing our systems and remain on track with our transformation roadmap. I am happy to announce that we have now completed the billing conversion in our cable markets and have also introduced a new Field Force platform to support our technicians. These updates simplify our back‑office processes and provide an improved customer experience. We are now able to launch multi‑gig speeds in our cable footprint. These areas are some of the best markets in the country, and we continue to see great opportunity here, so expect more to come. Finally, as Vicki noted, in mid‑April we signed an agreement to acquire a fiber‑based telecommunications business in New Hampshire. The transaction adds over 11 thousand fiber addresses that are contiguous with existing TDS markets and supports our clustering strategy. Approximately 30 associates will join the TDS team. We are excited about the opportunity to continue to deliver excellent service in this area, and we look forward to closing this transaction in the third quarter, subject to regulatory approval. Turning to slide seven, our long‑term goals reflect our continued focus on executing our growth strategy that delivers scale, speed, and long‑term value. With the delivery of 40 thousand fiber addresses in the quarter, we now serve approximately 1.1 million fiber addresses representing 58% of our total footprint, with 79% of addresses capable of gig speeds. While there is more work ahead, the progress we are making reinforces our confidence in the path forward as we continue transforming into a fiber‑centric company. I will now turn it over to Chris to walk through our first‑quarter results. Christopher “Chris” Bautfeldt: Turning to slide eight, the chart on the left shows our quarterly fiber service address delivery over the past five quarters. As Ken highlighted, our first‑quarter fiber address delivery nearly tripled year over year. This significant increase reflects the additional construction capacity we introduced last year and are continuing to scale this year. Our execution in the first quarter demonstrates the effectiveness of the strategy and the momentum we are building as we advance toward our long‑term goals. The chart on the right illustrates the continued expansion of our fiber footprint. Over the past three years, we have nearly doubled the number of fiber service addresses across our markets, demonstrating steady and meaningful progress. On slide nine, residential fiber net adds were approximately 11 thousand in the first quarter, a 32% increase compared to prior year, driven by continued footprint expansion and ongoing copper‑to‑fiber conversions. Residential fiber connections have also nearly doubled over the past three years, and we expect continued growth as we expand our fiber footprint. Turning to slide 10, the chart on the left depicts our residential revenue per connection, which increased 1% year over year. This growth reflects annual price increases offset by ongoing industry‑wide declines in video attachment rates. The chart on the right is new this quarter and breaks down total residential revenue between copper, cable, and fiber. You will see our fiber revenue is up 13% versus prior year, an uplift of approximately $11 million, which helps offset the legacy revenue stream pressures we are experiencing. In cable, revenues are down roughly 10% versus 2025. As Ken highlighted, we are increasing investment in our cable markets to stem these declines. Overall, total residential revenue declined $5 million compared to prior year; approximately $3 million of this decline is attributable to divestitures of markets that were predominantly copper‑based. We remain hyper‑focused on driving fiber revenue at a pace that is expected to more than offset legacy declines. Slide 11 summarizes our financial performance. Total operating revenues declined 3% in the quarter, or 1% excluding the impact of divestitures. This reflects continued legacy revenue‑stream pressures, partially offset by growth in fiber connections and modest improvement in revenue per connection. Cash expenses decreased 3%, driven primarily by benefits from our transformation initiatives, including lower costs for billing, circuits, and facilities. Adjusted EBITDA declined 3% in the quarter, driven largely by the revenue losses from divestitures. Capital expenditures totaled $126 million in the quarter, reflecting higher construction activity, a robust funnel of addresses under construction, and accelerated investments in our internal construction crews and equipment. Slide 12 reflects our guidance for 2026, which remains unchanged. We are projecting total Telecom revenues of $1.015 billion to $1.055 billion. Current headwinds in our copper and cable markets are guiding us toward the lower half of this range. Adjusted EBITDA guidance remains between $310 million and $350 million as we continue our transformation efforts. Capital expenditures for the year are projected to be between $550 million and $600 million to support our goal of delivering between 200 thousand and 250 thousand new fiber service addresses. Before turning over the call, I want to thank the entire TDS team for their continued execution and focus. Their efforts across fiber delivery, customer growth, and operational transformation are critical to the progress we are making toward achieving our long‑term objectives. I will now turn the call over to Anthony. Anthony Carlson: Thanks, Chris, and good morning. 2026 has got off to a busy but great start. The organization is laser‑focused on fully optimizing our tower operations and monetizing our spectrum. In the first quarter, we saw cash site‑rental revenue increase 64% over Q1 of last year, we also demonstrated sequential tower‑tenancy growth when adjusted for DISH, and we continue to move our announced spectrum transactions forward. Before I get to the details of the quarter, I want to acknowledge the Array Board’s receipt of Telephone and Data Systems, Inc.’s proposal to acquire the remaining public shares of Array. Our Board has formed a special committee of independent directors who have retained independent advisers to carefully evaluate the proposal and make a recommendation as to what is in the best interest of Array’s shareholders. Array will be providing updates as appropriate, but we will not be commenting further or taking questions regarding this proposal today. Moving along to slide sixteen, I want to provide an update regarding DISH. As previously disclosed, we received a letter from DISH Wireless in September 2025 in which DISH asserted that unforeseeable FCC actions impacted its master lease agreement with Array and, as a result, DISH believes it is relieved of its obligations under the MLA. Since early December, DISH has generally failed to make the required payments and is therefore in breach of its obligations. Array continues to take actions it deems necessary to protect its rights under the MLA. Given the ongoing nonpayment, in the first quarter, Array ceased recognizing DISH revenue, and all unpaid 2025 amounts have now been fully reserved. Accordingly, our tenancy ratio no longer includes DISH colocations. When normalizing for this impact, we continue to see sequential growth in our tenancy ratio as depicted on the right, from 0.95 in Q4 2025 up to 0.96 in Q1 2026. Importantly, in Q1 we grew revenue and healthy colocation application volumes while supporting T‑Mobile in its integration. As noted on slide 17, cash site‑rental revenue in Q1 increased 55% year over year from all customers, and when normalized for DISH impact, this increase was 64%. When layering in the T‑Mobile interim site revenue, the increase was 86% year over year, or 98% when normalized for DISH. Our application volume remains robust, and coupled with our existing pipeline, will drive additional revenue growth in 2026 and beyond. Turning to slide 18, T‑Mobile has until January 2028 to finalize its 2,015 committed sites under the new MLA. We continue to anticipate 800 to 1,800 tenantless towers after the integration is completed and all interim sites are terminated. Our ground‑lease optimization work remained a priority in Q1, and we are making progress in reducing the cash burden of these negative cash‑flow assets. As noted previously, this will be a multiyear effort focused on cost avoidance, additional lease‑up, evaluating long‑term command, and decommissioning in situations where it makes sense, a process we have already begun on a subset of sites with no path to economic viability. This approach allows us to thoughtfully assess all potential outcomes for the tenantless tower portfolio. As shown on slide 19 and presented in prior quarters, we have reached agreements to monetize roughly 70% of our spectrum holdings. As a reminder, the sale of spectrum to AT&T closed on January 13, 2026, with the Array Board declaring a $10.25 per share dividend that was paid on February 2. In Q1, the FCC approved the sale of certain 100 MHz licenses to T‑Mobile, and that transaction closed earlier this week. Additionally, the FCC approved the sale of the 600 MHz and AWS licenses to T‑Mobile and, pending closing conditions, we expect that sale to close in Q2. Verizon will close in Q2 or Q3 of this year, subject to regulatory approval and normal closing conditions. The remaining transactions with T‑Mobile are expected to close by the end of 2026, once again dependent on regulatory approval and closing conditions. We continue to pursue opportunistic monetization of our remaining spectrum, primarily C‑band. We view our C‑band spectrum as a highly compelling 5G asset with a mature ecosystem ready for carrier deployment, and with no near‑term buildout requirements, we have ample time to realize its value. Slide 20 summarizes the results of our partnership, or non‑controlling investment interests. As discussed last quarter, investment income and distributions for full‑year 2025 were impacted by several one‑time factors, including the impact of the Iowa partnership selling their wireless operations to T‑Mobile and distributions received from Verizon related to their transaction with Vertical Bridge. For Q1, equity income was elevated due to prior‑period adjustments recorded by the managers of certain investee entities. Regarding cash distributions, certain entities distribute cash only twice per year, resulting in an uneven distribution pattern throughout the year. Slide 22 summarizes Array’s financial results. Year over year, we continue to see the impact of the T‑Mobile MLA driving revenue growth. As noted last quarter, there was a prospective change in classification of property taxes and insurance from SG&A to cost of operations. As such, that is driving roughly half of the year‑over‑year increase in cost of operations. SG&A expenses continue to include costs to support the wind‑down of legacy wireless operations, but sequential quarter‑over‑quarter results are declining as planned. We expect these wind‑down expenses to persist throughout 2026, but with additional reductions over future periods. On slide 23, our guidance across all metrics—total operating revenue, adjusted EBITDA and OIBDA, and capital expenditures—is unchanged. As a reminder, our guidance ranges are wider than industry norm due to uncertainty with the T‑Mobile MLA and the timing of interim site terminations. In closing, I want to again thank Array’s associates for their continued passion and dedication to driving operational efficiencies and growth. We continue to move through our first year as a stand‑alone tower company. I will now turn the call back to Walter. Walter C.D. Carlson: Thank you, Anthony. As I noted in my opening remarks, Telephone and Data Systems, Inc. continues to make solid progress advancing our strategic priorities. Our first‑quarter execution, combined with the momentum we are seeing across the business, positions us well as we move forward into the year. I would like to again thank all of the outstanding associates across the Telephone and Data Systems, Inc. enterprise for their continued dedication and hard work in serving our customers and supporting the advancement of our business. Operator, please now open the line for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please raise your hand. If you have dialed in to today’s call, please press 9 to raise your hand and 6 to unmute when prompted. Your first question comes from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is now open. Richard Hamilton Prentiss: Good morning, everybody. You continue to be very busy. A couple of questions. On the fiber side, the TDS Telecom side, have you looked at whether there is an ability to put fiber into a REIT structure, or any desire at some point to put fiber into a REIT‑like structure to be more tax efficient? Vicki L. Villacrez: Yes, Richard, this is Vicki. I will take that one. We have looked at a number of structural options, but given where we are at today, they are just not optimal. I am not going to speculate going forward on what we may or may not do in the future, but as I think about our fiber program, we are in a really good position. We have a strong balance sheet, and we are focused on funding fiber with our cash. Richard Hamilton Prentiss: Okay. Second question, can you update us as far as the number of shares or percent ownership Telephone and Data Systems, Inc. has of Array Digital, just so we can understand exactly how many of the disinterested might be out there? Walter C.D. Carlson: Let me take that. I think the press releases that have been issued speak to that, Richard. I think 81.9% is the right rough number, and we can get back to you with precise numbers offline. Richard Hamilton Prentiss: That is great. We had some people asking; there were some Bloomberg numbers out there saying 70%. We knew it was 80‑something, so appreciate that. The last question for me, a little more strategic. I know you have been looking at maybe providing more reporting metrics on the fiber business. Any update to what you think you could provide to help people understand what is happening with the fiber business—any cohort analysis or trend lines to help us look at the value of that business as it is going through a capital spending cycle and some EBITDA pressure? Is there a burn rate, and what can you give us to help understand the traction and future look? Vicki L. Villacrez: Lots of questions there, Richard. We will piece those apart. On disclosures, this quarter we added disclosures for our residential revenues and broke them out by technology, so you will see reporting by fiber, cable, and copper. We think this is something that will be helpful to investors going forward. Furthermore, we have included metrics in our trending schedules on our Investor Relations website, so I will point you there. Ken, do you want to jump in on the rest of Richard’s questions? Kenneth Dixon: The metrics that are most important as we move to a fiber‑centric business are, first, how well we are delivering marketable addresses from a build‑plan perspective, and second, our fiber net sales as we sell into that new open‑for‑sale footprint while also increasing our overall penetration in those new cohorts. So build velocity and overall fiber net performance are the two big things. Richard Hamilton Prentiss: I am going to assume as you get fiber out there, the maintenance capital and ongoing capital once you are done with the build drops to pretty low levels. Kenneth Dixon: We definitely see the cash‑cost‑per‑customer improvements on everything—from trouble tickets, copper versus fiber, to a lower call‑in rate—so we love the fiber business. The faster we migrate away from copper and bring it to fiber, we will continue to see improvements in the bottom line. Richard Hamilton Prentiss: Great. That is helpful. Everyone have a great Mother’s Day weekend. Thanks. Operator: Thank you. Your next question comes from the line of Sebastiano Carmine Petti from J.P. Morgan. Your line is now open. Sebastiano Carmine Petti: Thank you for taking the question. Sticking with TDS Telecom and Ken for a second: you hired some sales folks and customer‑experience folks to support your priorities. Where are you from a process‑improvement standpoint—instilling some of your decades of experience running fiber businesses into TDS Telecom? What inning are we in? What near‑term low‑hanging fruit remains to improve process performance and construction build? And on investing in the cable footprint—something we have not heard discussed in a bit—is that strategic and core? How do you think about the blocking‑and‑tackling improvements needed for the cable KPIs to begin stabilizing, given the competitive backdrop and repricing pressures? Kenneth Dixon: Thank you for the question. I would say we are in the very early innings, and we are starting to make very nice progress. I am starting to see wind in our sails. On address delivery, I am very happy with the team’s 40 thousand service‑address delivery—almost three times more than last year. It was important to prove we could keep our crews working all winter, and we accomplished that. We have started the spring and summer months with record crew counts for the two most important quarters of the year. Through April we are at record numbers, a combination of internal and external crews, and we continue to see sequential month‑over‑month crew‑count improvements as we head into May. Going into the second quarter, I am bullish on what we can accomplish because we have the largest funnel of addresses under some form of construction in our company’s history. On sales and customer experience, we see the opportunity to penetrate new addresses as fast as we deliver them. We are very happy with our presales velocity; we typically go in 60 days before an address becomes marketable, and we are seeing excellent results in the low‑20% range. We have put a tremendous amount of sales capabilities into our door‑to‑door channel—adding several vendors in Q4 last year and more in April and May—and we have several others in our funnel. We believe we have to be in the markets and use door‑to‑door to drive our sales agenda. We have also expanded significantly our .com business, which is open 24/7/365; sales have improved significantly, and we will continue to put more resources there. We are now developing our MDU sales capabilities, which is a tremendous opportunity—again, early innings but starting to see nice progress. The 11 thousand fiber net adds—up 32% year over year—is a very good start, and we have momentum. On the cable business, I love our cable markets. We are in some of the best markets in the country. Last year, we decided to convert those markets first onto our new billing system and get them on a single stack across the company. We also made a significant investment in a new field service tool for our technicians to improve overall service delivery, and we are now positioned to move to multi‑gig in 2026. We are just getting started in terms of what we can do in those markets. A lot is going on, but I like what I am seeing, and we have more work to do. We are definitely moving in the right direction. Sebastiano Carmine Petti: For Vicki, on Granite—should we anticipate bolt‑ons like this going forward: smaller systems that are adjacent versus big chunky deals? And does combining entities make it easier to REIT the tower business over time versus the current structure? Vicki L. Villacrez: Sebastiano, thank you. On the second question, we are not going to comment on any impact or implications of the offer on the table, and we cannot speculate on what the future will look like at this point. On Granite, this acquisition is consistent with our capital allocation priorities—building fiber and M&A acquisitions in the fiber space. It is a tuck‑in, it is accretive, and it is adjacent to our current markets in New Hampshire. It is 100% fibered up. We are excited to bring Granite State Communications on board and welcome all of the associates. It brings 11 thousand fiber service addresses to our portfolio. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question is a follow‑up from Sebastiano Carmine Petti from J.P. Morgan. Your line is open again. Sebastiano Carmine Petti: For Chris, on the cost‑transformation efforts, is the $100 million run‑rate savings by 2028 still the right figure? Are we at a point where the cost savings are falling to the bottom line in 2026, or is there reinvestment going back into the business? Christopher “Chris” Bautfeldt: Hi, Sebastiano. Yes, we remain on track to hit $100 million of run‑rate savings by year‑end 2028. As you heard in my remarks, we are starting to see some of those benefits this year. The bigger benefits you will see in 2027 and 2028, but we absolutely are starting to see some of those benefits drop to the bottom line. As I have said before, we do not expect that entire $100 million to fall to the bottom line because some of that is helping offset inflationary cost increases. As we continue to expand our fiber footprint and customer base, we do plan to reinvest some of those savings. We are seeing nice benefits and remain optimistic about the full potential of this program. Sebastiano Carmine Petti: Thank you. And for Anthony, on the upcoming AWS‑3 reauction and upper C‑band next year—any change in conversations regarding monetization of the remaining C‑band and CBRS? Anthony Carlson: Thanks for the question. We continue to believe that the C‑band spectrum we hold is excellent and valuable spectrum, with an ecosystem to support it today. We are not going to be a forced seller in these circumstances. We believe the carrying costs are modest. While we are open to a deal at a fair value, we do not feel it is burning a hole in our pocket. We do not have further updates on a sale of our C‑band spectrum at this time, but we remain very optimistic about realizing fair value at the appropriate time. Operator: Your next question is from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is open. Richard Hamilton Prentiss: On the service addresses, Ken, is the build plan still targeting 200 thousand to 250 thousand service addresses this year, and what would cause you to miss it versus hit it or beat it? Kenneth Dixon: Yes, that is still the target. I have a very good degree of confidence based on the crew counts we have starting the second quarter and the funnel and pipeline of addresses at a new record in terms of construction. I am very confident we are going to deliver within that target. Richard Hamilton Prentiss: And, Anthony, one of the themes at Connect(X) was high‑rent relocation efforts. Do you have an appetite to do some new builds there, and what capital commitment might you put to work? Anthony Carlson: To be very clear, as we have stated multiple times, we are laser‑focused on optimizing the value of the assets we have in hand and see significant upside from our current portfolio. That is not to say we are not open to opportunities, but the going rates we have seen for high‑rent relocations and participating in new builds have not been consistent with what we think we can achieve by optimizing our portfolio. On our own churn, a small nugget: we had only one total tenant churn in the entire first quarter, which speaks to the strength of our portfolio and its relative susceptibility to high‑rent relocation. Richard Hamilton Prentiss: One for Walter—an obligatory satellite question. How are you thinking about the somewhat existential threat of satellite coming into terrestrial, given your assets in broadband fiber and towers? Walter C.D. Carlson: That is an excellent question. Satellite is a technology that has gotten substantial additional focus over the last 18 months and substantial additional investment over the last 12 months. I think satellites will have substantial influence going forward on the communications industry. That being said, we feel very strongly about the continued benefit of a terrestrial tower portfolio, and we feel very strongly about the superior capabilities of fiber networks delivering specific communication into individuals’ homes and businesses without interruption and without fear of being impacted by weather. We are paying attention, and we feel very good about the thrust of both of our businesses. We are watching. Operator: Next question comes from the line of Sergei Dluzhevskiy with GAMCO Investors, Inc. Your line is now open. Sergei Dluzhevskiy: Good morning. First question on the TDS Telecom side. Last quarter, you expanded the fiber build target by 300 thousand edge‑out passings in, I believe, 50 adjacent markets to your current expansion footprint. How do the demographics and churn profiles of these markets compare to your older cohorts? Among this new cohort, what types of markets are you prioritizing for a build sooner rather than later? Kenneth Dixon: We are looking at markets where we have already planted a flag—where we have established our brand and deployed fiber—so we already have technicians and sales capacity. We have looked closely at demographics, competitive intensity, build costs, and expected returns, and then prioritized accordingly. That is our edge‑out opportunity. These markets check the boxes I mentioned, and because we were first to the original market with fiber, the extensions are a natural fit. We believe we prioritized the right markets first with the highest opportunities and returns. Sergei Dluzhevskiy: On cable, what do you like most about your cable footprint? Can you comment on the competitive environment and the investments you are planning—where the dollars will go and how quickly you expect those investments to pay off? Kenneth Dixon: From an investment perspective, our focus now is going to a multi‑gig environment in our cable business, which is the opportunity for 2026. We are operating in highly attractive markets—some with among the highest housing growth in the United States—so we see a definite opportunity going forward. Sergei Dluzhevskiy: On the Array side, the wireless partnerships produce nice cash flow every year. Any updated thoughts on monetizing those stakes? For example, recent transactions valued stakes at about 11.5x cash distributions. At that multiple, your stakes could be worth a significant amount. What could move you closer to taking that step? Anthony Carlson: As we have said before, we like the cash flows from these assets. There are challenges for us with transactions similar to the ones you mentioned. We have them at a very low tax basis. If you looked at the performance of those investments over the very long term and did a DCF, it would be challenging to get a multiple commensurate with the full value. We are open to offers that would deliver full value, but they would have to deliver full value net of taxes. We like those cash flows, so we are not in a hurry to sell. Sergei Dluzhevskiy: Lastly on Array, EBITDA is expected to be somewhat depressed in the medium term, pressured by transition and wind‑down costs. Can you talk about your targets, qualitatively and quantitatively, to take cost out and improve margins in 2026 and 2027? Longer term, post T‑Mobile transition, what kind of margins are realistic? Anthony Carlson: We think there is significant opportunity to improve Array’s margins. We focus on tower cash‑flow margins. First, land is our largest cost, and we have a much lower rate of land ownership than many large public players. There is significant value to be realized by, where appropriate, purchasing more of the land interests under our towers. Second, as a new tower company, we believe we have opportunities to improve as we transition from a maintenance posture aligned with operating a full‑fledged wireless company to one aligned with a tower company. Those are the two big cost‑side opportunities to improve tower cash‑flow margins, in addition to expanding margins by increasing colocations, which we work hard to do every day. Operator: There are no further questions at this time. I will now turn the call back to John Toomey for closing remarks. John Toomey: Thank you again for joining us today. As always, please reach out to us if you have any questions. I hope everyone has a wonderful weekend. Thank you. Operator: This concludes today’s call. Thank you all for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Holdings Inc. First Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. If you need assistance, please alert a conference specialist by pressing star followed by 0. Following the presentation, instructions will be given for the question-and-answer session. Please note that this event is being recorded. I will now turn the call over to Quynh McGuire. Please go ahead. Quynh McGuire: Thanks, and good morning. I am Quynh McGuire, Vice President of Investor Relations. Welcome to our first quarter 2026 earnings conference call. We issued our press release earlier today; you can access it via our website at coppers.com. As indicated in our announcement, we have also posted materials to the Investor Relations page of our website that will be referenced in today’s call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website and a recording of this call will be available on our website for replay through 06/08/2026. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks, and uncertainties, including risks described in the cautionary statement included in our press release and in the company’s filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company’s comments, you should not regard the inclusion of such information as a representation that its objectives, plans, and projected results will be achieved. The company’s actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are Leroy Ball, Chief Executive Officer and Chair of Koppers Holdings Inc., and Brad Pearce, Interim Chief Financial Officer and Chief Accounting Officer. At this time, I will turn the discussion over to Leroy. Leroy Ball: Thank you, Quynh. Good morning, everyone. I am pleased to join you today to provide more insight on Koppers Holdings Inc.’s performance in 2026 as well as provide an update on how we are progressing towards our 2028 transformation targets. Let me start with our major news from this morning. At the present moment, I am in Chicago, where just a few hours ago I delivered the unfortunate news to our workforce here of our conditional decision to begin immediately winding down production at our Stickney, Illinois facility with a target to cease distillation by the end of this year. I note that I am using the word “conditional” because the decision is subject to the satisfaction of any bargaining obligations that might exist with the union representing certain employees at the facility. As outlined on page 4, this conditional decision impacting approximately 85 employees was driven by the continued challenging market conditions that have persisted for well over a decade. When we made the decision to close our other two U.S. facilities for CMC in 2016, approximately 565 thousand metric tons of coal tar were being produced and readily available in North America. After the most recent coke plant closure we announced earlier this year at Algoma Steel, the number has now dropped to 350 thousand metric tons, simultaneously putting pressure on raw material pricing and reducing our throughput. This has resulted in higher unit costs, which have not been able to be fully recovered in the form of higher pricing. Adding to the mix is that despite having spent over $100 million in capital at Stickney over the past five years, which is a multiple of the spending at any other Koppers Holdings Inc. site, we still find ourselves dealing with reliability issues, which means we would still have significant future capital requirements to address aging equipment. This is not a people issue, as the team at Stickney has done heroic work over the past ten years to try to get us to a better place, and I sincerely thank them for their efforts. But the bottom line remains that we feel we have done everything we can to make this operation viable, and we just do not see a credible path to get there. At this time, we are tentatively targeting 2027 for shifting production to our coal tar distillation facility in Nyborg, Denmark. In the meantime, we have further strengthened the supply chain from Nyborg to the U.S. through expanded shipping and terminal capabilities in order to ensure an effective transition for existing pitch and creosote customers. We anticipate investing between $10 million to $15 million to further strengthen that supply chain over the next few years, which can be done while staying within our annual $55 million maintenance CapEx as capital is freed up from Stickney. The discontinuation of production activities at Stickney is anticipated to result in pre-tax charges to earnings of $227 million to $262 million through 2029, which includes $170 million to $195 million of non-cash charges projected to be recorded in the second and third quarters of this year. Cash closure charges of $57 million to $67 million will be spent over a three-year period beginning in 2026. These charges will be funded by the operating and capital cash benefits generated by this action, which are expected to total $15 million to $25 million on an annualized basis and therefore will have little impact on our near-term free cash flow projections except for timing. At the same time, the longer-term result of this move will be significantly accretive to free cash flow. We are estimating that the adjusted EBITDA savings related to this action will reach an annual run rate of $15 million to $20 million in 2027 and beyond, which would result in a 75 to 100 basis point bump in adjusted EBITDA margin. Translating the adjusted EBITDA benefit to adjusted EPS would result in an increase of $1.00 to $1.20 per share. We also anticipate $8 million to $15 million in reduced future annual capital expenditures. I again want to thank our Stickney employees for their continued hard work and determination while operating under persistently tough circumstances. I understand that this situation is incredibly difficult and will have a real impact on our employees and their families, which we will make every effort to minimize. Our priority is to provide the support and assistance needed to help the employees navigate any transition as we map out the future of our CMC business. Now let us move on to page 5, which outlines our results for the first quarter, including adjusted EBITDA of $49.3 million, which is a 10.8% adjusted EBITDA margin. We had operating profit of $22 million and $0.57 in adjusted earnings per share. We generated operating cash flow of $46.3 million and free cash flow of $34.9 million, both cash flow metrics representing a first-quarter record. On a trailing twelve-month basis, operating cash flow of $192 million and free cash flow of $139 million also represent new highs. Capital expenditures, net of insurance proceeds and sale of assets for the quarter, were $11.4 million, and we also deployed $29 million in share repurchases and $1.9 million in dividends while keeping total debt consistent with December 2025. Now let us move on to our Zero Harm accomplishments, as seen on page 6. Thanks to the commitment of our worldwide team, 30 of our 40 sites were accident-free in the first quarter. Our European CMC and PC businesses, as well as our Australasian PC and CMC businesses, had zero recordables in the first quarter. Leading activities, a key contributor to our serious safety incidents, took a step back compared with the prior-year quarter; however, our recordable injury rate improved from prior year. The objective of Zero Harm is to constantly focus on what is most important, the health and safety of our team members, and we will never lose sight of our goal of zero by reinforcing the foundational elements of the safety culture, deploying additional tools and training, and driving environmental improvements in 2026 and beyond. Turning to page 8, we issued our 2025 annual report and 2026 proxy statement, which are available on the Koppers Holdings Inc. website. For more information, please use the QR codes to access these materials. As shown on page 9, Koppers Holdings Inc. gained additional recognition by being named to Newsweek’s 300-member listing of America’s Most Charitable Companies for 2026. This honor reflects our employees’ ongoing commitment to volunteerism and our corporate support of community initiatives and causes. It joins previous recognition of Koppers Holdings Inc. as one of Newsweek’s America’s Most Responsible Companies, USA TODAY’s America’s Climate Leaders list, and TIME’s America’s Best Midsize Companies. On March 30, our leadership team joined me to ring the closing bell on the New York Stock Exchange, celebrating 20 years of Koppers Holdings Inc. as a publicly traded company, as seen on page 10. In addition, I participated in an interview on the financial news program Taking Stock to share the story of our continuing path to sustainable profitability for our customers. Moving on to page 11, Koppers Holdings Inc. will be hosting an Investor Day on Thursday, September 17 in Atlanta. On September 16, the prior day, we will be conducting a tour of our research and development lab of our Performance Chemicals business. On Wednesday evening, the Koppers Holdings Inc. executive team will also host a meet-and-greet reception. Look for more details in the months to come. In the meantime, please mark your calendars and plan to join us for our Investor Day and related activities. I will return in a bit to provide my view on how we are seeing the current year within each business while also reviewing our outlook for the remainder of 2026. For now, I am going to turn it over to Brad to speak in more detail on our first quarter financial performance. Brad? Brad Pearce: My remarks today are based on the information in our press release. As seen on Slide 13, reported consolidated first-quarter sales of $455 million were essentially flat compared with prior-year sales. Relative to the prior-year quarter, RUPS sales decreased by $15 million, or 6%. PC sales were up $21 million, or 18%, and CMC sales decreased by $7 million, or 7%. On Slide 14, adjusted EBITDA for the first quarter was $49 million, representing a 10.8% EBITDA margin on sales, compared with $56 million and 12.2% in the prior-year quarter. By segment, RUPS generated adjusted EBITDA of $23 million, or a 10.3% EBITDA margin; PC generated adjusted EBITDA of $26 million, or an 18% EBITDA margin; and CMC reported adjusted EBITDA of $1 million, or a 1% EBITDA margin. Turning to the RUPS business, Slide 15 shows first-quarter sales of $220 million compared with $235 million in the prior-year quarter. Of the $15 million change in sales, approximately $10 million of the decrease came from the Railroad Structures business that we sold in 2025. The remaining decrease in sales can be attributed to customer mix and price decreases in our Class I crosstie business and lower activity in the Maintenance of Way businesses. These factors were partly offset by volume increases in our domestic utility pole business, higher commercial volumes, and $1.4 million in favorable foreign currency changes compared with the prior-year period, mostly attributed to our Australian utility pole business. RUPS delivered adjusted EBITDA of $23 million compared with $26 million in the prior year due to lower sales and lower sales volumes. Turning to Slide 16, our Performance Chemicals business reported first-quarter sales of $142 million, up from $121 million in the prior-year quarter. This increase was primarily due to a 15% volume increase, higher sales activity primarily in the Americas, and $2.7 million in favorable foreign currency changes from international companies. Adjusted EBITDA for PC increased to $26 million versus $20 million in the prior-year quarter. Profitability benefited from higher sales volumes and higher prices, partly offset by $2.4 million of higher raw material and operating costs. Slide 17 shows that sales in the first quarter for our CMC business were $93 million, compared to $101 million in the prior-year quarter. This decrease was primarily driven by $14 million of lower volumes related to our phthalic anhydride business, which was discontinued in 2025, and lower sales prices across most products, especially carbon pitch, which was down 9% globally. These were partly offset by volume increases in carbon pitch, naphthalene, and carbon black feedstock, as well as $7.6 million in favorable foreign currency changes from international companies. Adjusted EBITDA for CMC in the first quarter was $1 million compared with $10 million in the prior-year quarter due to lower sales prices and higher operating and raw material costs, partly offset by operating cost savings associated with discontinuing the phthalic anhydride business. Compared with 2025, the average pricing of major products was lower by 11% while average coal tar costs were slightly higher. As shown on Slide 19, we continue to pursue a balanced approach to capital allocation in terms of investments to position the company for the future. We spent $11.4 million in the first quarter for capital expenditures. We are anticipating a total of $55 million in gross capital spending for the full year of 2026. Our share buyback activity in the first quarter totaled approximately $29 million, including those associated with tax withholding from our incentive stock plans. We have approximately $45 million remaining on our $100 million repurchase authorization. We also continue to return capital to shareholders through our quarterly dividend of $0.09 per share. At March 31, we had $386 million in available liquidity and $877 million of net debt, representing a net leverage ratio of 3.5 times. We remain focused on our long-term goal of reducing the net leverage ratio to 2 to 3 times. Slide 20 provides additional detail on our total capital expenditures for the first quarter of just over $11 million. We deployed approximately $7 million to maintenance capital spending, with the remaining balance allocated to Zero Harm initiatives and growth and productivity projects. Capital expenditures were approximately $5 million for RUPS and $3 million for both PC and CMC. As highlighted on Slide 21, the Board of Directors declared a quarterly cash dividend on May 7 of $0.09 per share, reflecting a 12.5% increase from the prior year. The dividend will be paid on June 15 to shareholders of record as of the close of trading on May 29. While future dividends are subject to ongoing Board approval, maintaining a quarterly dividend at this rate will result in an annual dividend of $0.36 per share for 2026. With that, I will turn it back over to Leroy. Leroy Ball: Thank you, Brad. I will now review the market outlook for each of our businesses, starting with Performance Chemicals on Page 23. Despite a number of different headwinds on demand, such as the Middle East conflict, higher mortgage rates, lower housing turnover, and general inflationary pressures, our PC business still posted a healthy 15% top-line gain from volume in Q1. As we expected, the gains came from market share growth of about 9% and customer inventory build added about 6%, while organic volumes were mostly flat. Through Q1, that puts us reasonably on track to likely exceed our expected top-line increase of 11% as the inventory build will continue through Q2 and then taper off; however, we will only begin hitting our run rate for market share growth in Q2 as we finish the remaining plant conversions. As I mentioned, most external markers that drive the health of this business, such as mortgage rates, housing turnover, and repair and remodeling spending, are still lagging. But the recent move from our customers is more than it has been in some time that a recovery may be around the corner. We are discounting that optimism for now until we begin seeing it in the numbers. As a result, we are still forecasting flat demand on the base residential business, with a mid–single-digit volume increase expected for our Industrial Products segment as driven by growth in utility pole demand. On the cost side of the equation, there is a lot of noise in the system between potential ITC tariff recoveries, net exposure to the across-the-board 10% tariffs that were put in place in response to the EPA ruling, higher fuel costs from the spike in oil, and copper volatility. I would say we have more working against us than for us right now. With what amounts to a $5 million to $10 million current net exposure, our procurement team has been working hard to offset it by negotiating better pricing in certain materials, while our commercial team has been preparing to implement fuel surcharges. Copper has continued to hold its lofty pricing with modest periodic corrections, but it looks like mid- to high-$5 per pound copper is likely the new low water mark and we are now above the $6 threshold. That is going to require at least $50 million in price adjustments in 2027 to recover that increase. In summary, PC has gotten off to a strong start, giving us confidence to move our sales projection up slightly from our initial view of the year while holding our EBITDA projection where it was, as those additional sales get offset by a net cost increase. That is contingent on base residential volumes holding steady, and our ability to mitigate some of our cost exposure via pricing pass-throughs and other cost reductions. Moving on to our Utility and Industrial Products business, shown on page 24, market sentiment remains bullish for all the reasons we have continued to talk about, which include increasing electrical demand related to buildout of AI infrastructure, crypto mining, EV development, and new manufacturing. Our first-quarter sales increased by 12% due to volume, reflecting that bullishness, with 3% of that 12% resulting from the December 2025 acquisition of our Doug fir supply chain. In our targeted underserved regions, we grew volumes by 9% coming off growth in 2025 of 17%. Market demand remains concentrated on a limited range of pole sizes, and this has put pressure on fiber sourcing and driven up raw material costs, which we are working to recoup to return margins to our long-term target. We expect some cost relief on the whitewood side when our peeler in Leesville, which was damaged by fire last September, comes back online, which will enable us to bring more peeling capacity back in-house and lower our third-party costs. As mentioned earlier, our Doug fir acquisition is showing early dividends by increasing our access to this important fiber, enabling us to better compete for previously unavailable business. On the flip side, the Southern Yellow Pine market is under pressure due to closures of pulp and paper mills and lumber mills, as well as fires that destroyed tracts of timber in the Southeast. With sales volume strong and pricing relatively flat, we have more work to do to bring costs into check. Getting the Leesville peeler back online will help, along with the consolidation of Vance production into Kennedy, which began in Q1 and should contribute $2 million in savings by year-end. We are experiencing higher costs for fuel and freight that we are working to pass on. Additional Catalyst initiatives—our transformation program launched in 2025—are expected to generate further cost savings, which will help to overcome the additional corporate cost allocations that have been shifted to UIP this year and enable our pole business to contribute to the year-over-year EBITDA improvement projected for the RUPS segment. The market outlook for our Railroad Products and Services business is summarized on page 25. Our Q1 top line was down compared to prior year despite crossties sold being consistent with prior year. After adjusting for the sale of our KRS business last August, the main driver of our revenue decline was an unfavorable mix, with lower pricing having a smaller impact. We had a greater proportion of treatment-service-only sales in Q1 compared to prior year, combined with lower green tie purchases and black tie shipments. The severe winter storms that hit much of the country in Q1 knocked our plants offline for a number of days. This impacted production and shipping, which we began making up in March, but uneven customer car flow in and out of our plants also had an impact. Our customers have pledged to work on improving that situation, which should enable us to catch up as the year goes on. While we have had a few customers pull back on their demand for the year, most of it was known as we entered 2026, and a few others increasing demand are expected to more than offset the other railroad reductions. Commercial backlog remains as strong as ever, delivering 3% higher sales in Q1. The price reductions we exchanged for growing our piece of a smaller market this year will be made up through the year as we work to idle the Florence, South Carolina facility by October. We also continue to relentlessly go after costs, with Q1 representing the eighth consecutive quarter of reduced operating expense and direct SG&A compared to the prior-year quarter. While we expect to be in good shape from a demand standpoint this year, the overall lower industry demand is wreaking havoc on sawmills, resulting in reduced production and widespread mill closures. I mentioned our strong cash quarter during my earlier comments, while our RPS business led the way in that area with stellar working capital management, holding inventory in check during a period where we usually see a build. While we still expect strong sales in both RPS and UIP for the year, we are incorporating more of an unfavorable mix into our forecast for the year, also baking in some of the impact from higher oil. This is bringing our revenue projections down by $10 million on both the top and bottom end of our range, as well as bringing our EBITDA projections down proportionally. The outlook for our CMC business is summarized on page 26. Overall, the market continues to be in turmoil, with Q1 results reaching their lowest point since the beginning of our major restructuring efforts in 2016. The war in the Middle East, which began two days after our last earnings call, has only made the situation in this business more challenging as oil price shocks have resulted in rapidly escalating raw material costs. As higher oil prices hold, we will be playing catch-up over the next couple of quarters regarding passing on higher pricing. This is estimated to have a $5 million impact on CMC over the remainder of the year, in addition to the $1 million impact it had on Q1 for this segment. On the plus side, this could potentially create some market opportunity for Australian, European, and North American aluminum producers to fill the void of Middle East aluminum producers and will likely create an opportunity of more sales for Koppers Holdings Inc. The continued uncertainty in the carbon products markets only highlights the necessity to take a major action, which we are doing by ceasing production at our Stickney site. There is no need to repeat all the financial details I previously mentioned, but they are once again outlined on page 26 and speak for themselves. Once we felt comfortable that we had the capacity to reliably absorb the U.S. volume in Denmark and could beef up our logistics assets to further improve reliability, it became a very unfortunate but obvious no-brainer to move forward with shifting production to Europe. While there are no celebrations at Koppers Holdings Inc. to commemorate this action, it is an unquestionable win for our shareholders. This action is expected to pay for itself over the next few years while improving earnings and long-term cash flow significantly. In addition, by significantly strengthening our European operation, we increase the likelihood that weaker European competitors will eventually succumb to the challenging market conditions. For this year, though, we are going to have to reduce both our revenue and EBITDA estimates for CMC due to impacts from higher oil and generally worse market conditions. As shown on page 27, we are a little over a year into our Catalyst transformation and executing successfully on many initiatives. In Q1, we realized $14 million of benefits spread across our business segments and corporate functions. In PC, the driver was market share growth and new products. In RUPS it was the plant consolidation at Vance and market share growth. For CMC and corporate it was procurement savings. In addition, we are using Catalyst to improve our working capital discipline, delivering $16 million in benefits in Q1, driven primarily by inventory control in RPS. Adding the benefits from our Stickney announcement, we have now identified a minimum of $90 million of benefits to be realized from 2026 through 2028. Of that, we expect $30 million to $40 million of benefits in 2026, which is up by $10 million on the low end. This puts us squarely on track to deliver on our 2028 goals of adjusted EBITDA greater than 15%, a three-year EPS CAGR of more than 10%, net leverage of lower than 2.5 times, a three-year free cash flow average of a minimum of $100 million, and our combined PC and RUPS segments making up 80% to 85% or more of our sales. The result of reaching those metrics should result in significant shareholder value creation. Moving on to page 29, our consolidated sales guidance remains at $1.9 billion to $2.0 billion in 2026 compared with $1.88 billion in 2025, with higher sales in PC and RUPS more than offsetting lower CMC sales. The foundation of customer demand is proving to be solid four months into the year, especially for our PC and RUPS segments, as we have now turned the corner on PC market share loss from last year and are starting to see the needle move in the other direction. On Slide 30, we are lowering our adjusted EBITDA forecast to $240 million to $260 million in 2026 compared with $257 million in 2025. The major reason for shifting our previous range of guidance down by $10 million is the impact of higher oil across our entire enterprise. The war in the Middle East was not a variable we had contemplated when we communicated our 2026 guidance in February. While we believe it is contained to less than 5% on our consolidated EBITDA, we believe it is prudent to incorporate it into current guidance at this point while the various other puts and takes are projected to offset each other. Slide 31 shows our adjusted earnings per share bridge, which reflects a range of $3.80 to $4.60 per share in 2026 compared with $4.70 in 2025. Year over year, that represents a 3% increase at the midpoint and a 13% increase at the high end. Most of our projected improvement is expected to come from lower interest expense and benefits from a lower share count. On Slide 32, we now expect an even higher jump in both operating cash flow and free cash flow this year. This will provide the most cash we have had for debt paydowns since 2020, when we received the cash proceeds from selling our KJCC business. Not only would operating cash flow and free cash flow represent new highs at these projected levels, but more importantly, 2026 will represent an inflection point for our step change in cash generation as we expect these new higher levels to become the norm. Our current market cap equates to a 10% to 15% free cash flow yield and places Koppers Holdings Inc. at the top end of whatever industry you want to compare us to and provides several attractive options for how we deploy our excess cash. On Slide 33, in terms of capital spending, we continue to forecast $55 million for the year, consistent with $55 million spent in 2025. Currently, we are spending at a run rate lower than $55 million, but we will still likely spend at that rate for the year as we take dollars that we would have spent at Stickney this year and put them towards bulking up our logistics assets. The foundation we have built over the past decade has set us up to create significant shareholder value over the next several years, and I am confident we will deliver. We still maintain leading shares in niche markets that utilize our essential products with low capital requirements going forward. Coupled with the unlocking of significant cash flow, we find ourselves in a strong position to deliver shareholder value in multiple ways. While today represents a difficult next step, I believe it is the right one for our customers, our team members at Koppers Holdings Inc., and our shareholders who have patiently hung in while we have methodically built a model that is built to last. We will now open the call for questions. Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble the roster. The first question will come from Gary Prestopino with Barrington Research. Please go ahead. Leroy Ball: Hi, good morning all. Hey, Gary— Gary Prestopino: Throughout your narrative on what you are looking for going forward in a couple of your segments, you mentioned you have to get some price increases to offset some of these input increases. In the past, how successful have you been at driving those kinds of price increases, and what is generally the lag? How long does it usually take relative to where we are right now in the next cycle? Leroy Ball: Yes, that is a good question. I think it varies and it varies depending upon business unit as well, but I would say for the most part we have been successful. There is a timing aspect to it. There have been some changes that we have made in some of our agreements, coming through COVID in that big inflationary environment that we were in, where we got caught for a period and were hamstrung in terms of being able to pass on some of these increases. We were able to make some changes in certain contracts that give us more flexibility to pass stuff on a little more currently. Generally, as it relates to passing on fuel surcharges and those sorts of things, I think we have an ability to do that more or less currently, so there is little to no lag that needs to happen there. We have tried, with some of the larger relationships we have, to understand whether this stuff was going to be sustainable or short term, but we have obviously gotten to the point now where we are moving forward on trying to work with passing that on. As it relates to some of the bigger issues in terms of impacts on raw materials that we know are going to linger for a bit, most of our contracts on the CMC side are at least a quarter to six months from being able to pass that on, which is why we talk about the impact we see more or less in the back half of the year that we will get to catch up on until we probably turn the page into either the fourth quarter or into 2027. On the PC side, we tend to go through multi-year agreements and the latest cycle wraps up this year, so discussions will be happening in the back part of this year. Actually, discussions are currently happening about trying to give them some insight into where their overall cost structure looks at this point and what to expect. We will have more news on that as we get to the back half of the year. As we talk about often, we are mostly hedged for the biggest piece of that as it relates to copper, but there will be a reset on that as we head into next year. We are also continuing to work on new products that can help minimize the amount of copper that needs to go in and/or retention rates, so there are all kinds of things that we are working on to try to mitigate and minimize the impact on our customer, hopefully put a few more dollars in their pockets as well as ours, and create more success for the industry. It is a mixed bag, Gary, but bringing the guidance down by $10 million on both the top and bottom end of the range was our best attempt at, from an unmitigated standpoint, what we would expect for the year related to the oil impact, which is the biggest—other than copper, it is the biggest impact that we are currently facing on an ongoing basis. We feel pretty good that we have that captured there with a little opportunity for upside on pass-throughs. Gary Prestopino: That is a good explanation. As it relates to what you are doing within the CMC business, I realize it is a difficult decision. It is always hard to tell people of a decision. Is it mostly cutting excess capacity—there just is not the end demand there—and by folding everything into Nyborg, you would expect that you would get more utilization of that facility and you can get your margins up that way? Is that how we should think about it? Leroy Ball: It is another consolidation play, yes. We have excess capacity at Nyborg that has freed itself up over the past couple of years. At the same time, raw material availability in North America has come down. With what we have remaining here in North America, we found that we could comfortably fit that into our Nyborg operation and have very little incremental cost to do so. We could essentially source raw material from North America, process it there, and still serve the vast majority of our customer base here in North America, and cut out a significant level of fixed cost in the process. So it is a consolidation play. Gary Prestopino: Thank you very much. Operator: The next question will come from Liam Burke with B. Riley Securities. Liam Burke: Thank you. Leroy Ball: Good morning, Liam. Liam Burke: With the shifting of production from Stickney to Nyborg, do you anticipate any competitive disadvantage? Having your in-house creosote for the coatings has been a competitive advantage. Does the greater distance affect that competitive advantage? Leroy Ball: No, we do not believe so. That is really happening today. We already bring a significant amount of creosote into North America. With where the cost structure was at, we believe we will be able to actually improve the reliability of the supply chain because, while certainly distilling in Chicago is closer to your customers, there is no question, the aging equipment that we have there has created a host of reliability issues over the years. We would find ourselves scrambling at times despite the fact that we had operations right here. Nyborg is a beautiful facility, it has been incredibly well maintained, and we do not deal with those sorts of issues there. Yes, you are extending the time to get product back and forth, but we are adding tank capacity here. We already have terminal setups and a fairly mature logistics operation that has been doing this for a while, and our competitor makes similar shipments back and forth across the pond as well. This is not unique, it is not new, and we believe it actually improves the reliability and competitiveness for us, which is a driver for making the decision. Liam Burke: Great. On copper pricing, you have been able to increase prices to your customer with margin, or is that going to create a competitive pricing problem? Leroy Ball: We will be pricing to market because we are not the only one in this situation. Our margins fluctuate; they range anywhere in that 17% to 22% range over time. We had one year where it fell below that—in 2022 or 2023—when we ate a lot of cost, and it was not necessarily on the copper side; it was on other raw material pieces that we were not able to pass through at that point in time. That was an anomaly. On occasion we have bumped above the 22% range. I see no reason why, going through this round, we will not end up somewhere in that range coming out of it. We will have to be competitive, and we will be, while demonstrating to our customers our commitment to them and to the industry in terms of developing new products for them to take to market and helping them from a profitability standpoint. I think we are in a good position to maintain that 17% to 22% margin range overall. Liam Burke: Great. Thank you, Leroy. Leroy Ball: You are welcome, Liam. Thank you. Operator: The next question will come from Michael Mathison with Sidoti & Company. Please go ahead. Michael Mathison: Congratulations on the quarter—you guys were very impressive. Just turning to my questions, you mentioned a $10 million impact this year from the increase in oil prices, which of course fluctuate. They were down a lot the past few days. Is there a rule of thumb that we can use that if oil prices move by X, impact to Koppers Holdings Inc. is Y percent? Leroy Ball: I wish it were that simple because there are so many tentacles to it that it is tough to put your finger on it with that level of precision. You can look at the current situation as a bit of a guide. With oil prices rising suddenly in February up into the $100 to over $100 per barrel range, we are saying that is going to have what we believe up to a $10 million unmitigated impact over the year. That gives you some sense in terms of that level of sensitivity. We do have abilities to pass some of that on, to negotiate higher pricing, because these sorts of things do not just impact us; they impact our competition as well. It is not a situation where any of this is Koppers Holdings Inc.–specific. I believe we will get it back over a reasonable timeframe, and that is what we will work to do. Overall, I mentioned this number is going to be less than a 5% impact. It is meaningful to the numbers we gave out, but in the grand scheme of things, not necessarily so, and it is something that we will be able to pull back in over the next three to twelve months, I would say. Michael Mathison: Fair enough. Turning to the future of the CMC business, if we look forward to 2027 after the planned shutdown at Stickney, is there an EBITDA margin target for CMC that you can share with us? Leroy Ball: We have run those numbers internally, and I would say it would be in line with our overall consolidated margin target. We have talked about one of our transformation target goals being at a 15% or greater EBITDA margin from an overall company standpoint, and our expectation is that this particular business will be right around that number. Michael Mathison: Perfect. Very helpful. Turning to PC, the sales growth there was especially striking. With flat overall market residential sales, what drove the market increase? Leroy Ball: It was a stark change last year as we took a market share hit. We had talked in the back part of last year that we thought we had opportunities to win back some of that market share, and we were able to do that to some extent, while also picking up additional market share from some of our larger customers who still had a little bit of business out there with other suppliers. Through product development we had done, we were able to get them comfortable to make some conversions on plants that were not in our network and get them moved over. On the industrial side, Tommy Kaiser and his team in PC have done a really good job of continuing to develop that business; it is in a nice, healthy spot right now too. Our sales team has consistently done a good job of building that customer and relationship network, and we have been successful more often in winning that business than losing it. You go through phases—we went through a good eight years of wins, and that just made us more vulnerable at some point that some business was going to move away, which happened last year. We did a reset and have proven to our customer base that we understand they are incredibly important to us and it is our job to help them be more profitable and open doors for them to be successful, because their success is ultimately ours. We had signaled that near the end of last year, and now it is being put into action. Michael Mathison: Thanks for the information, and good luck in the coming quarter. Leroy Ball: You are very welcome. Thank you. Operator: The final question will come from an Analyst with Singular Research. Please go ahead. Analyst: Good afternoon, gentlemen. My question is with regards to all this volatility in commodity markets and inflationary pressure. What are you sensing with regards to your competitors? Are you finding any M&A activity opportunities as a result of all this volatility in the markets? Leroy Ball: Yeah— that is a good question. Three of our four businesses hold such significant share that any sort of M&A consolidation activities for us in those businesses are really unlikely from an antitrust standpoint. It does not really matter at the end of the day as it relates to RPS and, for the most part, PC—certainly in North America—as well as CMC. UIP is a different animal and certainly we would have much more flexibility in terms of M&A in that space. We continue to keep up our relationships and have our conversations and see where they go. There are a lot of companies, certainly on the smaller end, that are feeling the pinch, but there is nothing that we have to report at this moment as it relates to that. We continue to monitor and keep our eyes on it, and if something pops up, we will evaluate it. If it makes sense, we will do it. If it does not, we will pass and go on from there. It is really only one business—UIP—where we have that sort of opportunity as it relates to the core business. Analyst: Thank you very much for that insight. Leroy Ball: You are very welcome. Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Leroy Ball, for any closing remarks. Leroy Ball: Thank you. I really appreciate everybody’s patience and hanging in. It has been a tough, hard-fought last year, but the company and our team continue to do an amazing job keeping their fellow teammates safe and keeping everybody focused on the bigger goals at hand. While today is an unfortunate and painful chapter in our history from a people standpoint, for shareholders it is clearly a win, and we are seeing that reflected in the market today. We look forward to continuing to execute on our plans and updating you in the future. Thank you, everybody, for tuning in today. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the TDS NRA first quarter 2026 Operating Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. I will now hand the conference over to John Toomey, Treasurer, Vice President Corporate Relations. Please go ahead. John Toomey: Good morning, and thank you for joining us. The presentation we prepared to accompany our comments this morning can be found on the investor relations sections of the TDS and Array Digital Infrastructure, Inc. websites. With me today and offering prepared comments are, on behalf of TDS, Walter Carlson, president and CEO, and Vicki L. Villacrez, executive vice president and chief financial officer. On behalf of TDS Telecom, Ken Dixon, president and CEO of TDS Telecom, and Chris Bothfeld, vice president of financial analysis and strategic planning of TDS. And on behalf of Array Digital Infrastructure, Inc., Anthony Carlson. Walter Carlson: In my capacity as CEO and chair of TDS, the proposal TDS submitted to the board of directors of Array Digital Infrastructure, Inc. to acquire the remaining shares of Array Digital Infrastructure, Inc. not currently owned by TDS in an all-stock transaction. As TDS continues its transformation, this proposal is the next step in executing our strategy, simplifying our corporate structure, and enhancing our ability to invest in targeted areas of growth. Array Digital Infrastructure, Inc. has successfully completed its transition into a tower-focused company with strong fundamentals, and we believe this transaction will position the combined company for long-term growth. By bringing Array Digital Infrastructure, Inc. fully under TDS' ownership, Array Digital Infrastructure, Inc.'s stockholders would retain a significant interest in the tower business while gaining exposure to TDS' growing fiber business. Under the terms of the proposal, TDS would acquire all of the outstanding common shares of Array Digital Infrastructure, Inc. that TDS does not currently own by way of a merger in which each Array Digital Infrastructure, Inc. common share not owned by TDS would be exchanged for 0.86 of a TDS common share. This exchange ratio assumes that the previously announced spectrum license sales identified in our offer letter will have closed prior to the closing of the transaction contemplated by TDS's proposal, and that the Array Digital Infrastructure, Inc. board, consistent with its treatment of net proceeds from prior spectrum sales, will have declared and paid dividends of $10.40 per share to Array Digital Infrastructure, Inc. stockholders prior to the closing. At $10.40 per share, Array Digital Infrastructure, Inc. would distribute approximately $900 million in net proceeds. This exchange ratio reflects an at-market offer based, subject to the assumptions just described, on yesterday's closing prices for TDS and Array Digital Infrastructure, Inc. The transaction is expected to qualify as a tax-free reorganization for U.S. federal income tax purposes. TDS expects the transaction to eliminate duplicative corporate costs, streamline corporate governance, increase share liquidity, and strengthen the capital structure of the enterprise, providing greater flexibility to pursue strategic investments across all our businesses, including towers and fiber. As noted in this morning's press release, the proposal is subject to review and recommendation by a special committee of Array Digital Infrastructure, Inc.'s disinterested directors, and the approval of the majority of the disinterested shareholders of Array Digital Infrastructure, Inc. based on votes cast. It would also require approval of TDS' shareholders and the satisfaction of customary closing conditions. TDS does not intend to sell or otherwise transfer its interest in Array Digital Infrastructure, Inc. and will not entertain any third-party offers for Array Digital Infrastructure, Inc. or its assets in lieu of this proposal. TDS continues to support Array Digital Infrastructure, Inc.'s previously disclosed intention to opportunistically monetize its remaining unsold wireless spectrum. TDS looks forward to working constructively with the Array Digital Infrastructure, Inc. board's special committee as they evaluate this proposal. Beyond what I just disclosed, and the information included in our press release and proposal letter to Array Digital Infrastructure, Inc., we are not going to comment further on or take questions regarding the offer on today's call. With that, let us turn to slide three. The enterprise is making good progress on its 2026 priorities. Our focus remains on advancing our strategy with financial and operational discipline. As I just mentioned, the proposal announced this morning will aid in strengthening TDS' corporate and capital structure, and we look forward to working with the Array Digital Infrastructure, Inc. special committee. Both business units continue to make progress toward their operational goals. TDS Telecom continued to add fiber addresses and customers in the quarter. Array Digital Infrastructure, Inc. is off to a strong start in 2026 and is making good progress growing tower tenancy. In the arena of spectrum, Array Digital Infrastructure, Inc. closed on a small transaction with T-Mobile earlier this week and expects the remaining announced T-Mobile and Verizon spectrum sales to close in the second or third quarter, subject to regulatory approval and other customary conditions. I am pleased with the progress each business unit is making and with the efforts we have underway to strengthen our culture as we go through this period of transformation. I would like to personally thank every associate across the enterprise for their continued commitment and contribution. I will now turn the call over to Vicki. Vicki L. Villacrez: Thank you, Walter, and good morning, everyone. Slide four updates you on our capital allocation priorities. TDS Telecom continues to make nice progress toward achieving its long-term objective of reaching 2.1 million marketable fiber service addresses, delivering 40,000 in the quarter. Ken and Chris will discuss more about the opportunities and momentum we are seeing in that space in a moment. We continue to evaluate M&A opportunities in a financially disciplined, accretive, business case-driven fashion. In mid-April, we announced an agreement to acquire Granite State Communications. As I have communicated in the past, we are primarily focused on small to medium-sized opportunities that are already fibered up or have an accretive economic path to all fiber and support our clustering strategy. Granite is just like that: fully fibered with over 11,000 service addresses that are adjacent to several of our existing markets in New Hampshire. We are excited to welcome these associates and customers into the TDS family and expect the transaction to close in the third quarter, subject to regulatory approval. Finally, in the area of shareholder return, in the form of TDS share buybacks, we were not in the market during the quarter. At the end of the first quarter, we had a $520 million authorization for TDS share buybacks available, and we remain committed to executing on that program. Across all three priorities, the company intends to continue to be disciplined, balancing the needs of the business, evaluating future returns, along with market and other conditions as we move forward. Thank you. And now I will turn the call over to Ken Dixon to discuss TDS' fiber business. Ken Dixon: Thank you, Vicki. And good morning, everyone. At TDS Telecom, 2026 is focused on executing our fiber growth plan: building fiber addresses, driving fiber sales, and continuing to transform our operations. This quarter, we made progress across all three priorities as we scale our fiber network and advance our long-term strategy. As shown on slide six, our fiber builds are off to a good start. We delivered 40,000 marketable fiber service addresses in the first quarter. This is the highest first-quarter total in our company's history and nearly three times our delivery in 2025. This performance reflects both effective execution and increased construction capacity, including our highest ever internal and external construction crew counts. While we are pleased with the record construction number, we still have more work to do. We continue to invest in our internal construction teams by adding headcount and upgrading tools and equipment to support increased build capacity, giving us a strategic advantage. We believe these investments provide greater control over our builds and improve long-term efficiency. In addition, we have a robust pipeline of addresses currently under construction, positioning us very well for the spring and summer build season. This pipeline includes a mix of addresses from our fiber expansion into new areas as well as fiber upgrades in our existing markets through our Fiber Deeper program and the federal E-ACAM program. As a reminder, the E-ACAM program provides federal support that enables us to bring fiber to approximately 300,000 service addresses, including those along the route where it would otherwise not be economical, helping to drive copper out of our network. Looking at sales, we ended the quarter with approximately 11,000 fiber net adds, up 32% year over year. As we continue to scale our fiber footprint, we remain focused on converting new service addresses into customers and improving the overall customer experience. During the quarter, we strengthened leadership in key sales and customer experience roles to support these priorities. Our operational transformation is centered on efficiency, improving the customer experience, and simplification. We continue to make progress modernizing our systems and remain on track with our transformation roadmap. I am happy to announce that we have now completed the billing conversion in our cable markets and have also introduced a new FieldForce platform to support our technicians. These updates simplify our back-office processes and provide an improved customer experience. We are now able to launch multi-gig speeds in our entire cable footprint. These areas are some of the best markets in the country and we continue to see great opportunity here, so expect more to come. Finally, as Vicki noted, in mid-April, we signed an agreement to acquire a fiber-based telecommunication business in New Hampshire. The transaction adds over 11,000 fiber addresses that are contiguous with existing TDS markets and supports our clustering strategy. Along with approximately 30 associates who will join the TDS team, we are excited about the opportunity to continue to deliver excellent service in this area and look forward to closing this transaction in the third quarter, subject to regulatory approval. Turning to slide seven, our long-term goals reflect our continued focus on executing our growth strategy that delivers scale, speed, and long-term value. With the delivery of 40,000 fiber addresses in the quarter, we now serve approximately 1.1 million fiber service addresses, representing 58% of our total footprint, with 79% of addresses capable of gig speeds. While there is more work ahead, the progress we are making reinforces our confidence in the path forward as we continue transforming into a fiber-centric company. I will now turn it over to Chris to walk through our first quarter results. Chris Bothfeld: Turning to slide eight, the chart on the left shows our quarterly fiber service address delivery over the past five quarters. As Ken highlighted, our first-quarter fiber address delivery nearly tripled year over year. This significant increase reflects the additional construction capacity we introduced last year and are continuing to scale this year. Our execution in the first quarter demonstrates the effectiveness of the strategy and the momentum we are building as we advance toward our long-term goals. The chart on the right illustrates the continued expansion of our fiber footprint. Over the past three years, we have nearly doubled the number of fiber service addresses across our markets, demonstrating steady and meaningful progress. On slide nine, residential fiber net adds were approximately 11,000 in the first quarter, a 32% increase compared to prior year, driven by continued footprint expansion and ongoing copper-to-fiber conversions. Residential fiber connections have also nearly doubled over the past three years, and we expect continued growth as we expand our fiber footprint. Turning to slide 10, the chart on the left depicts our residential revenue per connection, which increased 1% year over year. This growth reflects annual price increases offset by ongoing industry-wide declines in video attachment rates. The chart on the right is new this quarter and breaks down total residential revenue between copper, cable, and fiber. You will see our fiber revenue is up 13% versus prior year, an uplift of approximately $11 million, which helps offset the legacy revenue stream pressures we are experiencing. In cable, revenues are down roughly 10% versus 2025. As Ken highlighted, we are increasing investment in our cable markets to stem these declines. Overall, total residential revenue declined $5 million compared to prior year. Approximately $3 million of this decline is attributable to divestitures of markets that were predominantly copper-based. We remain hyper-focused on driving fiber revenue at a pace that is expected to more than offset legacy declines. Slide 11 summarizes our financial performance. Total operating revenues declined 3% in the quarter, or 1% excluding the impact of divestitures. This reflects continued legacy revenue stream pressures partially offset by growth in fiber connections and modest improvement in revenue per connection. Cash expenses decreased 3%, driven primarily by benefits from our transformation initiatives, including lower costs for billing, circuits, and facilities. Adjusted EBITDA declined 3% in the quarter, driven largely by the revenue losses from divestitures. Capital expenditures totaled $126 million, reflecting higher construction activity, a robust funnel of addresses under construction, and accelerated investments in our internal construction crews and equipment. Slide 12 reflects our guidance for 2026, which remains unchanged. We are projecting total telecom revenues of $1.015 billion to $1.055 billion. Current headwinds in our copper and cable markets are guiding us toward the lower half of this range. Adjusted EBITDA guidance remains between $310 million and $350 million as we continue our transformation efforts. Capital expenditures for the year are projected to be between $550 million and $600 million to support our goal of delivering between 200,000 and 250,000 new fiber service addresses. Before turning over the call, I want to thank the entire TDS team for their continued execution and focus. Their efforts across fiber delivery, customer growth, and operational transformation are critical to the progress we are making toward achieving our long-term objectives. I will now turn the call over to Anthony. Anthony Carlson: Thanks, Chris, and good morning. 2026 has got off to a busy but great start. The organization is laser-focused on fully optimizing our tower operations and monetizing our spectrum. In the first quarter, we saw cash site rental revenue up 64% over Q1 of last year, also demonstrated sequential tower tenancy growth when adjusted for DISH, and we continue to move our announced spectrum transactions forward. Before I get to the details of the quarter, I want to acknowledge the Array Digital Infrastructure, Inc. Board's receipt of TDS' proposal to acquire the remaining public shares of Array Digital Infrastructure, Inc. Our board has formed a special committee of independent directors who have retained independent advisers to carefully evaluate the proposal and make a recommendation as to what is in the best interest of Array Digital Infrastructure, Inc.'s shareholders. Array Digital Infrastructure, Inc. will be providing updates as appropriate, but we will not be commenting further or taking questions regarding this proposal today. Moving along to slide 16, I want to provide an update regarding DISH. As previously disclosed, we received a letter from DISH Wireless in 2025 in which DISH asserted that unforeseeable actions impacted its master lease agreement with Array Digital Infrastructure, Inc., and as a result, DISH believes it is relieved of its obligations under the MLA. Since early December, DISH has generally failed to make the required payments and is therefore in breach of its obligations. Array Digital Infrastructure, Inc. continues to take actions it deems necessary to protect its rights under the MLA. Given the ongoing nonpayment, in the first quarter, Array Digital Infrastructure, Inc. ceased recognizing DISH revenue, and all unpaid 2025 amounts have now been fully reserved. Accordingly, our tenancy ratio no longer includes DISH collocations. When normalizing for this impact, we continue to see sequential growth in our tenancy ratio as depicted on the right, from 0.95 in Q4 2025 up to 0.96 in Q1 2026. Importantly, in Q1, we grew revenue and secured healthy collocation application volumes while supporting T-Mobile and its integration. As noted on slide 17, cash site rental revenue in Q1 increased 55% year over year from all customers, and when normalized for DISH impact, this increase was 64%. When layering in the T-Mobile interim site revenue, the increase was 86% year over year, or 98% when normalized for DISH. Our application volume remains robust, and coupled with our existing pipeline will drive additional revenue growth in 2026 and beyond. Turning to slide 18, T-Mobile has until January 2028 to finalize its 2,015 committed sites under the new MLA. We continue to anticipate 800 to 1,800 tenant towers after the integration is completed and all interim sites are terminated. Our ground lease optimization work remained a priority in Q1, and we are making progress in reducing the cash burden of these negative cash flow assets. As noted previously, this will be a multiyear effort focused on cost avoidance, additional lease-up, evaluating long-term command, and decommissioning in situations where it makes sense, a process we have already begun on a subset of sites with no path to economic viability. This approach allows us to thoughtfully assess all potential outcomes for the tenantless tower portfolio. As shown on slide 19 and presented in prior quarters, we have reached agreements to monetize roughly 70% of our spectrum holdings. As a reminder, the sale of spectrum to AT&T closed on 01/13/2026, with the Array Digital Infrastructure, Inc. board declaring a $10.25 per share dividend that was paid on February 2. In Q1, the FCC approved the sale of certain 700 MHz licenses to T-Mobile, and that transaction closed earlier this week. Additionally, the FCC approved the sale of the 100 MHz and AWS licenses to T-Mobile and, pending closing conditions, we expect that sale to close in Q2. We continue to anticipate that the transaction with Verizon will close in Q2 or Q3 of this year, subject to regulatory approval and normal closing conditions. The remaining transactions with T-Mobile are expected to close by the end of 2026, once again dependent on regulatory approval and closing conditions. We continue to pursue opportunistic monetization of our remaining spectrum, primarily C-band. We view our C-band spectrum as a highly compelling 5G asset, with a mature ecosystem ready for carrier deployment, and with no near-term buildout requirements, we have ample time to realize its value. Slide 20 summarizes the results of our partnerships, our noncontrolling investment interests. As discussed last quarter, investment income and distributions for full year 2025 were impacted by several one-time factors, including the impact of the Iowa partnership selling their wireless operations to T-Mobile, and distributions received from Verizon related to their transaction with Vertical Bridge. For Q1, equity income was elevated due to prior period adjustments recorded by the managers of certain investee entities. Regarding cash distributions, certain entities distribute cash only twice per year, resulting in an uneven distribution pattern throughout the year. Slide 22 summarizes Array Digital Infrastructure, Inc.'s financial results. Year over year, we continue to see the impact of the T-Mobile MLA driving revenue growth. As noted last quarter, there was a prospective change in classification of property taxes and insurance from SG&A to cost of operations. As such, that is driving roughly half of the year-over-year increase in cost of operations. SG&A expenses continue to include costs to support the wind-down of wireless operations, but sequential quarter-over-quarter results are declining as planned. We expect these wind-down expenses to persist throughout 2026, but with additional reductions over future periods. On slide 23, our guidance across all metrics—total operating revenue, adjusted EBITDA and OIBDA, and capital expenditures—is unchanged. As a reminder, our guidance ranges are wider than industry norm due to uncertainty with the T-Mobile MLA and the timing of interim site terminations. In closing, I want to again thank Array Digital Infrastructure, Inc.'s associates for their continued passion and dedication to driving operational efficiencies and growth as we continue to move through our first year as a stand-alone tower company. I will now turn the call back to Walter. Walter Carlson: Thank you, Anthony. As I noted in my opening remarks, TDS continues to make solid progress advancing our strategic priorities. Our first quarter execution, combined with the momentum we are seeing across the business, positions us well as we move forward into the year. I would like to again thank all of the outstanding associates across the TDS enterprise for their continued dedication and hard work in serving our customers and supporting the advancement of our business. Operator, please now open the line for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please raise your hand now. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. Your first question comes from Ric Prentiss with Raymond James and Associates. Ric, your line is now open. Ric Prentiss: Great. Hey. Man, you continue to be very busy. Couple of questions. On the fiber side, the TDS Telecom side, have you looked at is there an ability to put fiber into a REIT structure or any desire at some point to put fiber into a REIT-like structure to be more tax efficient? Okay. Second question, I think this is a legit one. Can you update us as far as the number of shares or percent ownership TDS has of Array Digital Infrastructure, Inc. just so we can understand exactly how many of the disinterested might be out there. Okay. That is great. And we had some people who had been buying and saying there were some Bloomberg numbers out there saying 70%. We knew it was 80-something, so appreciate that. And then the last question for me, a little more strategic looking. I know you guys have been looking at maybe providing more reporting metrics on the fiber business. Any update to what you think you could provide or help people understand what is happening with the fiber business as far as any cohort analysis or any trend lines to help us kind of look at the value of that business as it is going through a capital spending cycle, some EBITDA pressure as you watch the market? Just trying to think through is there a burn rate? What can you give us to help understand the traction you are gaining and the future look of what the fiber business might be. Vicki L. Villacrez: Yeah, Ric. This is Vicki. I will take that one. You know, we have looked at a number of structural options. But given where we are at today, they are just not optimal. And I am not going to speculate going forward what we may or may not do in the future, but, you know, as I think about SunFiber and our program that we have this year, we are in a really good position. We have got a strong balance sheet, and we are focused on funding fiber with our cash. On your disclosures question, we added this quarter disclosures for our residential revenues, and we broke them out by technology. So you will see the reporting by fiber, cable, and copper, and we think this is something that will be helpful to investors going forward. Furthermore, we have included metrics in our trending schedules on our investor relations website, so I will point you there. Ken, do you want to jump in on the rest of Ric’s questions? Ken Dixon: I think the metrics that are most important as we are going to a fiber-centric business are how well we are delivering addresses from a build plan perspective, and then what are our fiber net sales in terms of selling into that new open-for-sale base and also increasing our overall penetration into those new cohorts. So those are the two big things: our build velocity and also our overall fiber net performance. On your follow-up, we definitely see the cash cost per customer improvements on everything from just the trouble tickets—copper versus fiber—the call-in rate is lower, so we love the fiber business, and we think the faster we migrate away from copper and bring it to fiber, we will continue to see improvements in the bottom line. Walter Carlson: Well, let me take the ownership one. I think the press releases that have been issued speak to that, Ric. I think 81.9% is the right rough number, and we can get back to you with precise numbers offline. Ric Prentiss: Great. That is helpful. Everyone, have a great Mother’s Day weekend. Thanks. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question comes from the line of Sebastiano Carmine Petti from JPMorgan. Your line is now open. Sebastiano Carmine Petti: Hi. Thank you for taking the question. Sticking with TDS Telecom and Ken for a second here. You hired some sales folks and customer experience to help support your priorities. Maybe just help us think about where you are from a process improvement standpoint or trying to instill some of your decades of experience running fiber businesses into TDS Telecom. What inning are we in in terms of priorities? What is some of the near-term low hanging fruit that you still think you can achieve to improve process performance and construction build? And then it is interesting you talked about investing in the cable footprint, which seems like something we have not heard talked about in a bit here. Is that strategic? Is that core? How do you think about the blocking and tackling improvements needed in the cable KPIs to begin stabilizing, given the backdrop of what we hear from some of the larger cable guys out there—pretty competitive, pretty intense, some repricing pressures? Just a little bit of color around that would be great. Ken Dixon: Thank you for the question. I would say we are in the very early innings, and I think we are starting to make what I would say is very nice progress. I am starting to see wind in our sails. On address delivery, I am very happy with the team's 40,000 service address delivery—almost three times more than last year. It was important to prove we could keep our crews working all winter, and we accomplished that. We have started the spring and summer months with record crew counts for the two most important quarters of the year when you have the most daylight and opportunity to build fiber. We are also at record numbers through April, a combination of our internal crews and external crews, and we continue to see sequential month-over-month crew count improvements as we head into May. Going into the second quarter, I am bullish on what we can accomplish with service addresses because we have the largest funnel of addresses in our company's history in some form of construction. On sales and customer experience, we continue to see the opportunity: as fast as we can deliver a new address, how quickly can we penetrate that new address and get a fiber customer in there? We are very happy with our presales velocity. We typically go in 60 days before an address becomes marketable, and we are seeing excellent results in that low-20% range. We have put a tremendous amount of sales capabilities into our door-to-door channel. We see that as a huge opportunity. We have been very aggressive in bringing new vendors in—we added several in the fourth quarter last year and more in April and May—and we have several others in our funnel. We believe we have to be in the markets and use door-to-door to continue to drive our sales agenda. We have also expanded significantly our .com business, and we have seen sales improve significantly in a channel that is open 365 days a year and 24 hours a day. We will continue to put more resources there. We are now developing our multi-dwelling unit sales capabilities, and I think there is a tremendous opportunity there. Early innings, but starting to see nice progress. The 11,000 fiber net adds—again, 32% year over year—is a very good start to the year. On the cable business, I love our cable markets. We are in some of the best markets in the country. Last year, we decided to convert those markets first onto our new billing system and get them on a single stack across the whole company. We also made a significant investment in enabling a new field service tool with our technicians to improve overall service delivery. We think we are just getting started in terms of what we can do in those markets, including moving to multi-gig in 2026. A lot going on, but I like what I am seeing, and we have a lot more work to do—we are definitely moving in the right direction. Sebastiano Carmine Petti: And then maybe for Vicki, the deal for Granite—is this what we should anticipate as you look for bolt-ons, smaller systems that are adjacent versus big chunky deals out there? And then, not related to the deal, but does the combined entities make it easier to REIT the tower business over time versus the current structure? Vicki L. Villacrez: Sebastiano, thank you for the two questions. On the last one, again, we are not going to comment on any impact or implications of the offer on the table. We just cannot speculate on what the future will look like at this point. On the second one, this acquisition is consistent with our capital allocation priorities—three-pronged priorities: building fiber and M&A acquisitions in the space of fiber—and this is perfectly aligned with that. It is a tuck-in, it is accretive, and it is adjacent to our current markets in New Hampshire. It is 100% fibered up. We are really excited to bring this company on board and welcome all of the associates with Granite State Communications, and it brings 11,005 service addresses to our portfolio. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question comes from the line of a follow-up from Sebastiano Carmine Petti from JPMorgan. Your line is open again. Sebastiano Carmine Petti: For Chris, a question about the cost transformation efforts. Remind us—is that $100 million run-rate by 2028 still the right figure to think about? And are we at a point now where the cost savings are falling to the bottom line here in 2026, or is there some reinvestment going back into the business to contextualize the cost program? Chris Bothfeld: Hi, Sebastiano. Yes, we remain on track to hit $100 million of run-rate savings by year-end 2028. As you heard in my remarks, we are starting to see some of those benefits this year. The bigger benefits you will see in 2027 and 2028, but we absolutely are starting to see some of those benefits drop to the bottom line. As I have said before, we do not expect that entire $100 million to fall to the bottom line, because some of that is helping offset inflationary cost increases, and as we continue to expand our fiber footprint and our customer base, we do plan to reinvest some of those savings. But we are seeing some nice benefits and are still optimistic about the full potential of this program. Sebastiano Carmine Petti: Thank you. And then one for Anthony. The upcoming auction for the AWS-3 re-auction and then upper C-band coming next year—any change in your conversations regarding monetization of the remaining C-band and CBRS? Anthony Carlson: Thanks for the question. We continue to believe that the C-band spectrum we hold is excellent and valuable spectrum. It is usable property available today with an ecosystem to support it. Additionally, we are not going to be a forced seller in these circumstances. We believe the carrying costs are modest, and while we are open to a deal at a fair value, we do not feel that we are in a position where it is burning a hole in our pocket. We do not have any further updates to give on any developments on the sale of our C-band spectrum at this time. That said, we continue to be very optimistic about realizing fair value in the appropriate time. Operator: Thank you. Your next question is from Ric Prentiss with Raymond James and Associates. Ric, your line is open. Ric Prentiss: Question—just want to make sure on the service addresses, Ken. Is the build plan still this year targeting 200,000 to 250,000 service addresses, and what would cause you to miss it versus hit it or beat it? Ken Dixon: Yes, that is still the target, and I have a very good degree of confidence based on the crew counts that we have as we started the second quarter and the funnel and pipeline of addresses that are at a new record in terms of some form of construction. I am very confident that we are going to deliver in that target you referenced. Ric Prentiss: And, Anthony, one of the themes was the high rent relocation effort some of the carriers are looking at. Assume you do not have a whole lot of high rent locations given the low level of tenancy, but what are you seeing out there on that? Do you have an appetite to do some new builds? What is the ability or capital commitment that you might put to work there? Anthony Carlson: To be very clear, as we have stated multiple times, we are laser-focused on optimizing the value of the assets we have in hand and have significant upside that we believe we can achieve on the towers that are currently in our portfolio. That is not to say that we are not going to be open to opportunities that appear, but from what I have heard anecdotally and some of the numbers that I have seen, the current going rates for high rent relocations for us to participate in new builds—we have not seen numbers that are consistent with what we think we can get from optimizing our current portfolio. In terms of high rent relocation on our side, a little nugget for you: we had only one total tenant churn in the entire first quarter. That speaks to the strength of our portfolio in terms of its relative susceptibility to high rent relocation. Ric Prentiss: One for Walter—an obligatory satellite question. As you think about your assets, broadband with fiber and towers supporting the wireless world, how are you thinking about the somewhat existential threat of satellite coming into terrestrial? Walter Carlson: That is an excellent question, Ric, and it is a technology that has gotten substantial additional focus over the last 18 months and substantial additional investment over the last 12 months. I think satellites will have a substantial influence going forward on the communications industry. That being said, we feel very strongly about the continued benefit of a terrestrial tower portfolio, and we feel very strongly about the superior capabilities of fiber networks delivering specific communication into individuals’ homes and businesses without interruption and without fear of being impacted by weather, but we are paying attention, and we feel very good about the thrust of both of our businesses, and we are watching. Operator: Thanks. Next question comes from the line of Sergey Dluzhevskiy with Gamco Investors Incorporated. Your line is now open. Sergey Dluzhevskiy: Good morning. First question on the TDS Telecom side. Last quarter, you expanded the fiber build target by 300,000 edge-out passings in, I believe, 50 adjacent markets to your current expansion footprint. How do the demographics and the return profiles of these markets compare to your older cohorts? And among this new cohort of markets, what types of markets are you prioritizing for a build sooner rather than later? Ken Dixon: Thank you for the question. We are looking at markets where we have already planted a flag—where we have established our brand and deployed fiber—so we already have technicians and sales capacity. We have looked at demographics, the overall market, and competitive intensity, studied very closely what our build cost ultimately would be, and then what our return rates would be, and we prioritized those markets. That is what we are calling the edge-out opportunity, and we think those are excellent markets in terms of checking all the boxes I just referenced. The key is we were first to the original market with fiber, and now it is just a natural extension. We think we have prioritized the right markets first, with the highest opportunities and also the highest returns. We like the markets that we have selected. Sergey Dluzhevskiy: In terms of cable, maybe following up on the previous question—can you talk a little bit about what you like the most about your cable footprint? Maybe comment on the competitive environment. And in terms of investments you are planning to make, at a high level, where will the dollars go, and how quickly do you expect those investments to pay off? Ken Dixon: From an investment perspective, our focus now is going to a multi-gig environment in our cable business, and I think that is the opportunity for 2026. In terms of the markets that we are operating in, they are highly attractive markets. Some of the cable businesses are in markets that have some of the highest housing growth right now in the United States. That is why we look at these markets and think there is definitely an opportunity going forward. Sergey Dluzhevskiy: A question on the Array Digital Infrastructure, Inc. side. The wireless partnerships produce nice cash flow for you every year, and you are focused on optimizing your tower business and monetizing spectrum. Any updated thoughts on partnerships? If you look at some recent transactions, the last transaction of size was Verizon acquiring minority stakes in some partnerships consolidated at about 11.5x cash distributions. At this multiple, your stakes could be worth a significant amount. Any updated thoughts on monetizing those stakes, and what could potentially move you closer to taking that step? Anthony Carlson: As we have said before, we like the cash flows from these assets. Moreover, there are some challenges with transactions for us similar to the ones that you mentioned. We have them in a very low tax basis. Candidly, if you were to look at the performance of those investments over the very long term and do a DCF on those, it would be challenging to get a multiple that was commensurate with the full value. That said, we are open to offers that would deliver full value on that, but they would have to deliver full value net of taxes. We like those cash flows, so we are not in a hurry to sell. Sergey Dluzhevskiy: Got it. Last question also on the Array Digital Infrastructure, Inc. side. EBITDA is expected to be somewhat depressed in the medium term, pressured by transition wind-down costs and some other costs. Can you talk about your targets, qualitatively and quantitatively, in terms of taking cost out of the business and improving margins in 2026 and 2027, and longer term post T-Mobile transition what kind of margins do you believe are realistic for Array Digital Infrastructure, Inc.? Anthony Carlson: We do think there is significant opportunity to improve Array Digital Infrastructure, Inc.’s margins. We focus on the tower cash flow side. We believe we are on the trend of some of those legacy costs coming out of the business, and Array Digital Infrastructure, Inc.’s direct team is also quite lean. We focus most of our efforts on tower cash flow. There are a couple of areas where we believe we have significant opportunity to improve. First, land ownership: land is our largest cost for our tower business. We also have a much lower rate of land ownership than many of the large public players in the market. So we think there is significant opportunity and value to be realized by, where appropriate, purchasing more of the land interests on current towers. Second, we are a new tower company; we believe that as we transition from a maintenance posture that was more in line with operating a full-fledged wireless company to a tower company, we can improve our margins on that dimension. Those are the two big opportunities we see to improve our tower cash flow margin on the cost side, in addition to expanding margins by increasing collocations, which is something we work very hard to do every day. Operator: There are no further questions at this time. I will now turn the call back to John Toomey for closing remarks. John Toomey: Thank you again for joining us today. As always, please reach out to us if you have any questions. I hope everyone has a wonderful weekend. Thank you. Operator: And this concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good day and welcome to the AdvanSix Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Adam Kressel, Vice President, Investor Relations and Treasurer. Please go ahead. Thank you, Danielle. Adam Kressel: Good morning, and welcome to AdvanSix Inc.'s First Quarter 2026 Earnings Conference Call. With me here today are President and CEO, Erin N. Kane; Senior Vice President and CFO, Patrick Day; and Vice President of Corporate Finance and Strategic FP&A, Christopher Gramm. This call and webcast, including any non-GAAP reconciliations, are available on our website at investors.advansix.com. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change, and actual results could differ materially from those projected, and we ask that you consider them in that light. We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our Annual Report on Form 10-Ks, as further updated in subsequent filings with the SEC. This morning, we will review our financial results for the first quarter 2026, and share our outlook for our key product lines and end markets. Finally, we will leave time for your questions at the end. With that, I will turn the call over to AdvanSix Inc.'s President and CEO, Erin N. Kane. Erin N. Kane: Thanks, Adam, and good morning, everyone. We appreciate you joining us here today for our quarterly call. As you saw in our press release, the AdvanSix Inc. team navigated a number of headwinds to deliver a solid first quarter performance, including the earlier winter-storm-related impacts, and new geopolitical challenges amid continued subdued industrial end market demand. In the quarter, we generated 7% sales growth year over year, supported by improvements in chemical intermediates volume and plant nutrients market pricing, partially offsetting the margin impacts driven by increased sulfur and natural gas costs. We are executing with a focus to recover inflationary raw material input costs by leveraging both our pass-through formula and freely negotiated pricing mechanisms. I would like to thank all of our teammates who contributed to successfully maintaining safe operations during the winter storm earlier this year. While the earnings impact related to this event came in just above the high end of our anticipated range, we were able to save $3 million of planned turnaround expense for the year. Looking ahead, we anticipate significant sequential earnings and cash flow improvement into the second quarter. We are in a solid position as the domestic planting season progresses, and continue to operate amid a tightening acetone global supply and demand environment and a modestly recovering nylon industry. We are maintaining a disciplined focus on cost productivity, capital spending, turnaround execution, and full-year free cash flow generation. We continue to expect full-year CapEx in the range of $75 million to $95 million, with targeted allocation of nearly 20% of that toward high-return growth investments. We also continue to expect debt leverage ratios near the low end of our target range of 1.0 to 2.5 times by the end of this year. Key to our strategy is a keen focus on controllables to support through-cycle profitability and cash conversion while progressing targeted growth strategies and initiatives. We announced yesterday an exciting new opportunity to expand our integrated ammonia platform at our Hopewell, Virginia site to supply the growing regional diesel exhaust fluid (DEF) market. I will share more about this later in the call. Lastly, effective April 27, we welcomed Patrick Day as our new Senior Vice President and Chief Financial Officer. Pat has tremendous experience establishing corporate and financial strategies to accelerate growth and shareholder value. We look forward to his expertise as we advance into our next chapter. I would also like to thank Christopher Gramm for his commitment and support during his time as interim CFO over the last year. With that, I will turn it to Christopher to discuss the financials. Christopher Gramm: Thanks, Erin. I am now on Slide 4 to discuss our results for the quarter. Sales of $[inaudible] in the quarter increased approximately 7% versus the prior year, comprised of 6% volume growth and 1% favorable price. Sales volume growth was primarily driven by favorable chemical intermediates sales. Market-based pricing improved by 3%, primarily driven by an increase in plant nutrients reflecting higher nitrogen pricing amid increased sulfur input costs. Raw material pass-through pricing was down 2% following a net cost decrease in benzene and propylene, which is a major input to cumene, our largest raw material and key feedstock to our products. Adjusted EBITDA was $5 million, down $47 million from last year, primarily driven by the absence of insurance proceeds from the prior year of $20 million, the unfavorable impact of higher sulfur and natural gas raw material prices, higher utility expenses, and $11 million of winter-storm-related impacts. On a sequential basis compared to the fourth quarter, higher sales volume growth supported by improved operational performance was more than offset by escalating raw material input prices. From a free cash flow perspective, the first quarter represents a seasonal use of cash as expected, primarily due to the timing of cash payments for CapEx following the prior quarter outages. The absence of insurance proceeds was also a meaningful driver of the year-over-year change. We continue to anticipate sequential improvement into the second quarter and expect the second half of the year to be a source of cash to achieve our full-year expectations. Now let us turn to Slide 5. On this slide, we are detailing our quarterly sales contributions by product line, as well as price and volume indicators, both year over year and sequentially. In light of the significant raw material inflation and the mix of our formula or index-based pricing mechanisms, we did not fully cover those costs in the first quarter. However, we anticipate recouping a large portion of that shortfall in the second quarter, particularly into the heart of the domestic planting season for plant nutrients. Starting with Nylon Solutions, resin volumes improved sequentially on improved operational performance, while caprolactam volumes moderated in a soft demand environment, particularly for carpet applications. We saw a higher export mix in 2026 which is expected to continue in the near term. With our advantaged position, we are evaluating export opportunities to ensure the best economic output for the integrated enterprise. Domestic pricing steadily increased overall, supported in part by higher input costs. Plant nutrient volumes were flat to down both year over year and sequentially in the first quarter, while pricing strength continued. In the early parts of the year, we witnessed more cautious buying behavior down the value chain and a more risk-averse sentiment from customers amid the higher input costs and rapidly rising nitrogen prices. Lastly, chemical intermediates sales improved on the back of volume improvements year over year. In acetone, as we mentioned on the first quarter 2025 earnings call, downstream MMA saw extended plant outages last year. In 2026, we observed more normalized operating rates down the value chain supporting demand. In addition, given pricing dynamics and trade flows across our key products in this portfolio, we delivered on opportunistic spot sales domestically and in the export markets. Thanks, Erin. I am now on Slide 6 to discuss what we are seeing across our major product lines. Erin N. Kane: Our diversified end market exposure continues to be a strategic advantage providing resilience across cycles. Agriculture and fertilizer remains our largest end market. As we sit here today, our domestic granular sales for this fertilizer year are now expected to be near record levels but closer to flat as compared to the last fertilizer year. While the fertilizer year started off with optimism and a strong fall fill as we have discussed in previous calls, buying has become more cautious given continued challenged fundamentals including farmer profitability and input affordability, cold weather to start the spring, and drought conditions. What that means is we are now selling in-season tons with the ability to work coverage of sulfur input costs. This is important because amid a higher global nitrogen pricing environment on the heels of the conflict in the Middle East, ammonium sulfate pricing actions are largely offsetting sulfur input costs rather than driving margin expansion in this current context. We know that growers value the cost of nutrition. In fact, ammonia for direct application is currently a relatively attractive value for growers. While we are not a large merchant ammonia supplier, we have seen good demand and netbacks and have been maximizing our ammonia availability this spring while slightly moderating ammonium sulfate production. While we capture the benefit from the advantage between U.S. natural gas and global nitrogen prices, we also contend with the impact of sulfur input costs versus the sulfur value proposition we deliver to farmers. On tightened global supply, sulfur quarterly prices settled at a record $655 per long ton in 2026, with current spot prices trading even higher than those levels. This represents over a 30% sequential increase and roughly a 140% surge year over year, so a meaningful increase that the industry is experiencing. Moving to our key nylon end markets, across building and construction as well as engineering plastics, North American demand has not materially changed. Global pricing has moved up with capacity rationalization and material shortages in Europe, lower operating rates in China, logistics constraints, and higher input costs. Our industry pricing mechanisms work to pass through changes in core raw materials, notably benzene, but also natural gas and sulfur. Given global trade flow dynamics, reduced imports have created opportunities to gain share. In this environment, it is critical for our business to remain agile through pricing and mix. We continue to execute our plan, including taking advantage of export opportunities as they arise, increasing prices to offset cost increases, and reducing inventory levels for nylon resin to align with current market conditions. In chemical intermediates, phenol demand remains soft overall, driving lower global operating rates. Coupled with reduced acetone imports into the U.S., all of this is supporting tightening acetone supply and demand dynamics. Acetone price increases have been implemented in the industry to keep pace with rising propylene costs. Spreads have held near cycle averages, and we continue to anticipate that for the full year 2026. Let us move to Slide 7. We were excited to announce yesterday that we have entered into a process design and licensing agreement to assess expansion of our integrated ammonia platform to enable the domestic manufacturing of DEF, a critical emissions control product used across on- and off-highway diesel applications. As background, DEF is an EPA-mandated additive for reducing NOx emissions from diesel engines, with strong and growing demand driven primarily by Class 8 vehicle usage in the Mid-Atlantic and Northeast. Demand for DEF continues to grow to meet environmental standards, and as regulatory requirements expand across transportation, construction, agriculture, and industrial equipment fleets. The AdvanSix Inc. Hopewell facility provides a strong foundation for expanding domestic manufacturing at the site and already produces all required DEF inputs. This potential expansion would complement existing capabilities at the site with full continued commitment to the production of ammonium sulfate fertilizer to serve the U.S. farming industry. Our geographic position uniquely enables reliable supply to meet growing demand in a market currently served by imports and production from other domestic regions. Our investments over time with our ammonia unit operation have paid off in terms of our reliability and output. This project has the potential to unlock further value from our existing assets through increased optionality to serve a broadened customer base. We will advance through detailed engineering and development phases with final investment decision targeted for 2027. Additional updates will be provided as engineering, commercial, and financial milestones are achieved, and regulatory approvals are secured. We anticipate a multi-year capital investment supporting attractive financial returns following expected operational startup in 2029, which align with our long-term value creation objectives and commitment to disciplined capital allocation. Let us turn to Slide 8 before moving to Q&A. AdvanSix Inc. offers a compelling investment thesis with value drivers supporting through-cycle profitability and sustainable performance. Our strategic initiatives and unique combination of assets and business model are core to our durable competitive advantage and long-term positioning. Our global low-cost position and vertically integrated caprolactam production serve us well. In addition, a sulfuric acid platform integration coupled with a leading technology position underpins how we win in plant nutrients. We are progressing our sustained ammonium sulfate growth program and have now announced another high-return investment opportunity to serve the growing DEF market. These capabilities, combined with increasing asset operational agility and diversified products and end market mix, position us to navigate cycles and capitalize on emerging opportunities. We remain focused on delivering on controllable levers, including our non-manpower fixed cost savings program, risk-based prioritization of our capital investments, continued working capital discipline, and 45Q carbon capture tax credits, to support improved cash flow generation. With that, Adam, let us move to Q&A. Adam Kressel: Thanks, Erin. Danielle, can you please open the line for questions? We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. Using a speakerphone, please pick up your handset before pressing the keys. The first question comes from Pete Oesterlin from Truist Securities. Please go ahead. Pete Oesterlin: Hey, good morning. Thanks for taking the questions. Just wanted to start on the DEF ammonia project. I guess, do you have a rough estimate you can share for the capital intensity you expect for this project between now and 2029? And maybe how does the hurdle you are targeting at this point compare to other programs you have had, like Sustain, and the IRRs you have referenced there? Erin N. Kane: Thanks, Pete. Good morning, and appreciate the question. At this time, I would share that we would expect the CapEx for this program certainly to be larger than our Sustain program. Hopefully, you can appreciate that while we are investigating and doing our FEED process, we are having a number of negotiations with folks and, at this time, would keep the actual CapEx range a bit confidential—more to come there. But you can think about it certainly as a larger program than Sustain. That said, our internal targets, as we have shared for high-return growth and cost savings projects, are 20%+ IRR hurdle rates. This project fits well into that range, and we are certainly announcing it now given the fact that this continues to demonstrate real potential for the company. Pete Oesterlin: Very helpful. Thanks. And then, switching gears, when you think about the level of sulfur pricing that you are guiding to for the second quarter, is it your expectation at this point that prices should be at or above that level for the remainder of the year? Even if the Iran conflict ended very soon, how long would you expect until you start seeing some easing for the dynamics that are driving higher prices in that market? Erin N. Kane: You are probably aware that spot prices continue to trade higher than the Q2 settlement. Certainly, as we think about the Q3 settlement that will come in a couple of months—it is settled by two large phosphate producers here in the U.S. and their three largest suppliers. But I think, consistent with what you are probably hearing with others in this space, even if we have a resolution in the Middle East, there is quite a bit of time for things to settle back out. I can share that security of supply is not a consideration for us, seeing that we are buying here in North America. Certainly, there is a lot of sulfur—about 50% of world supply—coming from the Middle East, but we are in a great spot being a North American producer and purchaser. Pricing probably does stay higher for longer. Then we will have to see what it does for demand into its largest applications. Just over 50% of the world’s sulfur goes into phosphate fertilizer. Watching that will be key compared to what we see. But we feel good about our sequential opportunity to recover, and that has been our focus as we progress through Q2. Operator: The next question comes from David Silver from Freedom Capital Markets. Please go ahead. David Silver: Let me just get my questions in order here. I did want to go back to the sulfur question and a couple of your comments regarding ammonium sulfate. I think you mentioned that ammonium sulfate prices are increasing but more or less in line with the rise in sulfur costs. I am wondering—you talked about kind of balanced markets, whereas for most nitrogen fertilizer products, it is somewhat different supply-demand; it is very tight. You do have a very strong vertically integrated production structure. What kind of in-season flexibility do you think you have to maybe exploit some pretty big price differentials amongst the different nitrogen fertilizer products? You have looked at these markets for quite a while. Why not tilt or lean on direct ammonia sales and a little bit less of the ammonium sulfate here? Erin N. Kane: Thanks for that question, David. Hopefully that was teased out a bit in our remarks. We are a big producer and a leader in ammonium sulfate, and that is certainly a place we will continue to play. With ammonium sulfate, we do capture the differential between where nitrogen is priced and our U.S. natural gas position. We also can have that directly in our ammonia sales as well. I would say right now, it is a moderate lever. We can pull back a bit on our ammonium sulfate production. We continue, as we shared last year, to produce ammonia at historically high levels, and then, relative to what we are targeting to sell, that would be consistent with that. Farmers need NPK. They need sulfur. There is a value proposition for sulfur, and we continue to focus on ensuring that they have their needs met there as well. This situation right now, compared to perhaps Ukraine and Russia, has us contending with sulfur. Farmers do seem to be sticking more with ammonia for direct application, and we are looking to take advantage of that too and provide the opportunity that we have off our assets to do so. David Silver: Okay. I am going to follow up with a couple of targeted questions. Firstly, you did talk about the sulfur market. You did talk about your positioning and being able to get all the sulfur that you require. But there is—I am guessing it is unprecedented—this gap between the spot price of sulfur and the contract price of sulfur. I just wanted to clarify that AdvanSix Inc. is able to purchase at the contract price—the lower contract price—under your current supply agreements rather than some mix of contracts and spot pricing. Can you touch on your supply arrangements for sulfur and, in particular, how tight the relationship is between the U.S. contract price versus having to go out into the spot market? Erin N. Kane: I can confirm that we purchase entirely on the contract marker. David Silver: Okay, great. Thank you for that. I did want to follow up maybe on the DEF project—very interesting project and leveraging some of your capabilities. I read the release the other day and then your comments in the prepared remarks. You are going to be adding some urea melt capacity there. Will you also be debottlenecking ammonia? In other words, are you going to have a higher ammonia capacity once the project is finished than you currently have, or how should I think about that in terms of allocating ammonia amongst the nylon, the fertilizer, and now the DEF? Erin N. Kane: This next phase does not require an ammonia expansion. Given our geographical location and our integrated platform, we always look at marginal ammonia debottlenecking, but for DEF we do not need to expand ammonia for the purposes of the project. David Silver: Okay. Very good. Last one for me: I would like to get an update on the Section 45Q credits. I am guessing that the filing for the 2018–2020 period for roughly $20 million has not been received yet. Can you provide an update on that? And then, do you anticipate filing for an additional tranche of the credits to which you are entitled in the current fiscal year? Should we think about that maybe in the $20 million range as well? Christopher Gramm: David, thanks for that question. As you can imagine, there has been a lot of continuing activity around 45Q. We have the audit process underway with the IRS for the 2018 through 2020 years of credit. We anticipate field work being wrapped up in the second quarter, and we are making good progress on the audit itself. In terms of the timing of the cash—and while $20 million was the full value—we have already received $2 million of that in prior years. We are anticipating another $18 million. We would expect the proceeds for that in the second half, subject to IRS approval, but we are expecting that in the second half. In terms of the life cycle assessment for the 2021 year and following, we have submitted those to the DOE, and we are working now with the DOE and the IRS to get those certified. Just as a reminder, we have been at this for over five years, and so this process takes some time as we work through with the government to get their approval and the due diligence that they do. Hopefully those will be coming shortly, but that is the process and where we are. David Silver: Okay. Great. Thank you for the update. Erin N. Kane: Thanks, David. Operator: This concludes our question and answer session. I would like to turn the conference back over to Erin N. Kane for closing remarks. Erin N. Kane: Thank you all again for your time and interest this morning. As we move through the remainder of 2026 and navigate a dynamic environment, we are well positioned to support our strategic priorities as a U.S.-based integrated manufacturer aligned to domestic supply chains and energy, as well as a diverse set of end market applications. We look forward to speaking with you again next quarter. Stay safe and be well. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good afternoon, and welcome to the indie Semiconductors' First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call over to Ashish Gupta, Investor Relations. Mr. Gupta, please go ahead. Ashish Gupta: Thank you, operator. Good afternoon, and welcome to indie's First Quarter 2026 Earnings Call. Joining me today are Don McClymont, indie's CEO and Co-Founder; Naixi Wu, indie's CFO; and Mark Tyndall, EVP of Corporate Development and Investor Relations. Don will provide opening remarks and discuss business highlights. Naixi will then provide a review of indie's Q1 results and business outlook. Please note that we'll be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as representative of views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For material risks and other important factors that could affect our financial results, please review our risk factors in our annual report on Form 10-K for the fiscal year ended December 31, 2025, as supplemented by our quarterly reports on Form 10-Q as well as other public reports filed with the SEC. Finally, the results and guidance discussed today are based on consolidated nonfinancial GAAP measures such as non-GAAP operating loss, non-GAAP net loss and non-GAAP net loss per share. For a complete reconciliation to GAAP and definition of the non-GAAP reconciling items, please see our Q1 earnings press release in addition to a presentation summarizing our quarterly results in more details on non-GAAP measures as posted on our website in advance of this call at www.indie.inc. I'll now turn the call over to Donald. Donald McClymont: Thanks, Ashish, and welcome, everybody. Indie delivered a solid first quarter with revenue of $55.5 million, approximately $0.5 million above the midpoint of our guidance and up 3% year-over-year. Before turning to our business achievements, let me provide some context on the market environment. Looking at the broader automotive semiconductor market, we see a measured recovery with channel inventories largely normalizing and demand environments characterized as cautious but improving. Underlying global vehicle production remains range-bound, while secular content drivers, including the continued transition to software-defined vehicles, expanding ADAS adoption, increasing exterior and in-cabin sensing requirements are fueling demand for semiconductor content per vehicle as was always our thesis. This is a backdrop against which indie continues to advance our radar, vision and photonics portfolios, supporting growth that will consistently outpace the market. On a macro level, geopolitical tensions and shifting trade dynamics continue to impact the global supply chain affecting peers, customers and suppliers alike. These dynamics have contributed to elevated logistics costs and selective capacity constraints across the industry. However, even against this backdrop, Indie is maintaining a positive trajectory, successfully managing through these challenges. indie is experiencing tremendous growth in interest and activity in quantum and robotics. We continue to forge new opportunities with some of the trendsetting emerging companies in these high-growth markets with our expanding photonics portfolio in Quantum and our vision processing and sensor ICs and embodied AI. As noted by the International Federation of Robotics, the broader robotics market, which spans industrial robots, mobile robots, cobots, humanoids and drones is forecast to grow from approximately $88 billion in 2026 to over $218 billion by 2031, a CAGR of nearly 20%. Within that opportunity, the Yole Group states that the global humanoid robotic market is set to increase from $600 million in 2025 to $6 billion in 2030 at a CAGR of 56% and then accelerate to $51 billion by 2035, a CAGR of 55% between 2030 and 2035. Let me now turn to our recent business progress and key achievements during the past quarter. I'm extremely pleased to share that our Tier 1 partner, who recently launched their Gen 8 radar solution built on indie's 77 gigahertz radar technology, representing the first 4TX/8RX radar available in the industry, has committed to a new production order of $25 million, driven by support for 2 key OEMs, one European and one Asian. This milestone is particularly rewarding as this order confirms previously communicated production expectations and multi-OEM acceptance following successful design, testing and qualification over the past many months. We are now positioned to ramp production efficiently, having secured additional back end and test capacity across multiple suppliers in preparation for the ramp ahead. In parallel, we are advancing our second source foundry strategy to support the manufacturing flexibility and in some cases, to support a no China, no Taiwan requirement demanded by certain industry players. Moving to our Vision portfolio. The iND880 vision processor has begun production, supporting eMirror camera functionality at NIO, a premium Chinese EV OEM. This program moved from design to production in approximately 6 months, a testament to our team's technical readiness, execution discipline and close collaboration with customers and partners. And further reinforces our commitment to reducing time to market and accelerating deployment. In addition, the camera mirror system when we referenced last quarter with the largest Chinese OEM is now entering volume production. Additionally, at the prestigious Beijing Auto Show, several exciting new models featured indie technology, including the Buick GL8, the AITO M9, the NIO ES9 and the Cadillac LYRIQ to name a few. These models are now entering the production phase in 2026. A defining advantage of the iND880 and increasingly a focal point in our customer engagements is a DRAMless architecture. By eliminating the need for external memory, the iND880 helps customers navigate any DRAM supply constraints. In many cases, our customers are unable to source memory at all and using the 880 allows them to alleviate line-down situations. If DRAM can be sourced, it comes at a price premium measured in multiples rather than percentages. 880, therefore, massively reduces overall bill of materials in addition to lowering system resource demands on downstream AI processors and improving image signal processing throughput and real-time latency. What was originally an attractive design point for China OEMs has rapidly broadened into a global value proposition. We are now seeing accelerating engagement and likely commitments from U.S. customers often on compressed time lines as the architectural benefits of going memory less are recognized across the industry. We expect this to remain a meaningful growth driver for our vision portfolio through 2026 and beyond. By way of update on our perception software portfolio, following the integration of emotion 3D, we recently announced a strategic partnership with Mahindra, a leading Indian OEM to supply our OMS/DMS perception suite for the electric Origin SUV series. Additionally, we expect commitments from U.S.-based customers in the near future to add to our momentum. Our photonics portfolio continues to gain meaningful traction in the rapidly expanding quantum technology market. During the quarter, we announced the world's first commercially available ultraviolet distributed feedback or DFB laser at 399 nanometers, a wavelength precisely matched to atomic cooling transition of ytterbium, the element used in the neutral atom quantum computing architecture that leads the industry today in physical qubit count. Our broader visible DFB laser family now spans wavelengths from the near ultraviolet to green, addressing the cooling, trapping and excitation requirements across the four atomic species that account for the substantial majority of cold atom quantum computing development. We are actively engaged with several of the leading quantum computing companies on next-generation laser source requirements, and we believe our differentiated photonics platform positions indie as a key enabling supplier to the quantum ecosystem as it scales over the coming decade. In the LiDAR space, we are finally beginning to see the adoption of FMCW technology into multiple markets. Our integration partners are completing designs, which incorporate indie's iND83301 SoC into their products, replacing FPGA-based processing and delivering an 80% reduction in power consumption, a 40% reduction in solution size and a market-making cost position. We are seeing traction not only from the automotive industry, but from multiple areas in embodied AI. A key producer of AMR or autonomous mobile robots for warehouse management is engaged. Generally speaking, the embodied AI market is generating demand for many of our sensing products centered around vision, but including LiDAR and radar with applications also ranging from AMR through humanoids to drones. Our sensing technologies allow robots to better understand and navigate unpredictable environments. And enable the transition from more traditional industrial robot implementations to more advanced truly autonomous units. The pace of engagement is electrifying. We expect that it will begin to lead the automotive market in driving new technology as opposed to leveraging existing technologies. With that, I will turn the call over to Naixi to walk through our financial results. Naixi Wu: Thank you, Donald, and good afternoon, everyone. Indie's first quarter revenue was $55.5 million, exceeding the midpoint of our outlook by $0.5 million, representing an increase of approximately 3% compared to the prior year period. Revenue from our core business was approximately $34.1 million, a sequential growth of over 20%, reflecting the continued momentum in our core ADAS portfolio. Revenue from WuXi was approximately $21.4 million, consistent with our expectations. Non-GAAP operating expenses during the quarter totaled $37.3 million, consistent with our outlook. As a result, our first quarter non-GAAP operating loss was $11.1 million compared to $15.1 million in the comparable period in 2025, demonstrating our continued progress towards achieving profitability. With net interest expense of $2.8 million, our net loss was $13.9 million and loss per share was $0.06 on a base of 223 million shares, consistent with our guidance last quarter. Please refer to the presentation located on our website for a more detailed breakdown of our non-GAAP measures. Turning to the balance sheet. During the quarter, we issued a 4% convertible senior notes due 2031 with an aggregate principal amount of $170.5 million or a net proceeds of approximately $165 million after fees and operating costs. We used these net proceeds to repurchase a significant portion of our 2027 notes for a total of approximately $108 million. The remaining proceeds are retained for working capital and general corporate purposes. This refinancing extends our debt maturity profile by approximately 4 years, lowers our coupon and enhances our financial flexibility to support our growth strategy. As a result of the debt issuance and repayment activity I just discussed, along with routine operating activities, we exited the quarter with total cash and cash equivalents, including restricted cash of $184.7 million, a net increase of $29 million from the fourth quarter of 2025. Turning to the previously announced potential divestiture of our equity interest in Wuxi indie Micro. As you may recall, we entered into the definitive agreement in October 2025 to sell our entire interest in Wuxi to UFA for approximately $135 million, payable net of taxes and fees in cash at closing. Following UFA's shareholder approval in November 2025, the transaction commenced its required regulatory approval process in China, including review by the Shenzhen Stock Exchange and the CSRC, and has continued to advance since then. While the exact timing of closing remains subject to the completion of that regulatory process, the transaction is progressing well, and we remain optimistic that the transaction will close later this year, consistent with our prior updates. Moving to our outlook for the second quarter of 2026. We expect to deliver total revenue between $59 million to $65 million with $62 million at the midpoint. We anticipate a revenue contribution from Wuxi in the second quarter of $25 million with our core business contributing approximately $37 million at the midpoint, representing approximately an 8% growth sequentially or about 20% year-over-year growth in our core ADAS, photonics and adjacent business. We expect our non-GAAP operating expenses to be $38 million for Q2, relatively flat compared to Q1. Below the line, we expect net interest expense of approximately $3.1 million with no tax expenses. Assuming the midpoint of the revenue range and with a base of 227 million shares, we expect to improve our net loss per share to $0.05. From a financial perspective, our strong focus on managing operating expenses and our solid balance sheet, including anticipated proceeds from the sale of Wuxi, indeed is financially well positioned to support our path to strong and profitable growth as design wins ramp through 2026. With that, I'll turn the call back to Donald for closing remarks. Donald McClymont: Thank you, Naixi. indie's business remains very solid as evidenced by strong first quarter results and positive outlook for the second quarter. Radar and vision programs remain firmly on track, highlighted by success of multiple OEMs. With the addition of Quantum and embodied AI, indie's technology leadership and expanding product portfolio positions us extremely well to drive growth. We believe no other semiconductor company offers a product portfolio as well suited as indie's to meet the diverse needs of these emerging markets. We are confident in our business as our radar and vision design wins continue to ramp. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] And we'll take our first question from Cody Acree with Benchmark StoneX. Cody Grant Acree: Congrats on the progress. Donald, maybe we can start with your $25 million order. Can you maybe just walk us through your expected delivery schedule? How does that pace through the rest of the year? Donald McClymont: Well, I mean, first of all, we are super excited to receive the order, especially as it came in sort of one big discrete chunk, and it underlines the commitment of our Tier 1 customer to the end customers that they have committed to them at this point. So we're super excited about that. I mean, obviously, we knew about the situation ahead of time, but the fact that we were allowed to publicly discuss this and highlight this fact was super exciting for us. And hopefully, that gives an indication to the market that the impending reality of what we're doing here with this huge project is coming to fruition. In terms of how we schedule it out, I mean, it's not the only order we have, and it's not the only order that we'll get. And it is sort of, let's say, tied to a couple of key customers to make sure the thinking behind it is really to make sure that we can secure capacity and all that stuff and having the orders on the books is hugely advantageous and helpful in that respect. And we talked about that in the prepared remarks that it was one of the tools that we used to go do that. So we don't expect that we'll give details of when this particular order is running out. But it's going to be the first of many as we drive towards maximizing the revenue that we get out of this project. Cody Grant Acree: Are those wafers already in the path of the work in process? And can you just talk about delivery schedules for revenue ramp? Donald McClymont: I mean we have a bunch of wafers in the line, of course. We've talked about that in the past as well, and we have secured capacity for those guys too. We do expect that it will contribute meaningfully in this year. And obviously, we're just reconfirming that really. Cody Grant Acree: And you talked about wafer packaging, I mean, back-end packaging test and substrate availability and then your diversification of your foundry strategy. Can you just update us on the progress, what's left to be done? And is that now substantially behind you? Donald McClymont: I mean the market is very tight right now because of the demand from AI. It's not going to be something that we can just leave to run automatically. It's going to be something that we're going to have to have a watchful eye over for the foreseeable future. But I think we're comfortable now with the diversification of the supplier base that we have and with our ability to, therefore, deliver to that. Operator: We'll take our next question from Suji Desilva with ROTH Capital. Sujeeva De Silva: Congratulations on the initial PO, Donald. Can you maybe give us some sense of the initial customer -- end customers of your customer and what the auto models they're using this for? Is it premium mainstream, L2+ or advanced L3, L4? Any color that you'd have about where this is landing would be helpful. Donald McClymont: Well, I mean, it's largely mainstream. We're supplying a number of radars per vehicle in most cases. The kind of vehicles that we're supplying to range from low to mid-tier through high tier or even commercial vehicles. And we'll see our products adoption being really deep and large in the penetration of it being very widespread. We -- we're not certainly married to Level 3, Level 4 or anything really higher end. These are products that will -- you'll find on something like a Volkswagen Golf or Toyota Corolla. So it will be deeply penetrated. Sujeeva De Silva: That's very helpful. And can you help us understand how this Tier 1 layers in beyond the initial 2 customers to this PO? Is there -- are there more customers behind it? Or will these 2 customers first ramp initially? How will that progress in your pipeline? Donald McClymont: No. I mean there are a bunch of customers expected to ramp at varying times through all jurisdictions in the field, ranging from China through Europe, through U.S. So this is just specifically that this purchase order really was driven to provide a commitment to the 2 OEMs that we talked about in the script. It's not -- by far -- it's far from limited to those two. Operator: We'll take our next question from Anthony Stoss with Craig-Hallum. Anthony Stoss: Pretty close on the pronunciation. Donald, I wanted to hone in on the iND880. Can you maybe share a range of the pipeline or the opportunity, the design wins you have? And then I'd love to hear if you think the iND880 solution might generate more revenue for you than Radar in 2026? Donald McClymont: It's -- yes, I mean, we've been super surprised and excited by the resonance of this. I mean we knew the commercial value of it, but actually seeing it and feeling it took a little longer to get to some of the customers who are a little more conservative and maybe believe that they would be able to source what they needed in memory and of course, turned out not to be the case. I mean we're seeing pipeline of tens of millions of dollars per year in annual revenue. And it is moving very, very fast indeed because of just the needs must. I mean the memories are hard to source. And if you can get them, they're going for 2, 3, 4x the normal price. So yes, it is maybe even possible that it might exceed radar in this year. Anthony Stoss: Got it. And then in your prepared remarks and in the press release, you talked about drones. Would the same iND880 be going into that? Or what kind of solutions from indie would be going into a lot of these drones that you're talking about? Donald McClymont: I mean we have a bunch of activities ongoing. 880 is one of the products that are being looked at right now. There's a derivative of it, which is also able to have some other functionality, including an AI processor, which we've talked about briefly in the past that may also get used. They are beginning to look at LiDAR processor and even through our automotive Tier 1 customer, we're seeing demand for the radars going on these things, too. So there's a very high level of content. The market is moving extremely quickly and the dollar value of ASPs are good. Operator: We'll take our next question from Jon Tanwanteng with CJS Securities. Unknown Analyst: This is Will on for John. Last quarter, you had some headwinds in the Wuxi business. Can you just talk more about the underlying trends there and how they're developing? Donald McClymont: Yes. I mean there were some headwinds in the China market, particularly at the lower end of the e-vehicle market, really driven by a change in the subsidy policy of the Chinese government, which we saw hit through Q1. And as we highlighted in last quarter's earnings and we reiterated here, we are expecting a good bit of a bounce back in the next quarter. So we believe that those issues are resolving. Generally speaking, in the China market, we see some unit headwinds but the content per vehicle is increasing significantly and so we believe that's offsetting and we are seeing that in the strength, particularly of our vision portfolio in China at the moment. Operator: Thank you. There are no further questions on the line at this time. I'll turn the meeting back over to Donald. Donald McClymont: Well thanks everybody. Thanks for your time and looking forward to seeing you at the investor conferences over the course of the quarter. 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 afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LightPath Technologies Third Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, May 7, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. I'd like to remind you that during the course of this conference call, the company will be making a number of forward-looking statements that are based on current expectations and involve various risks and uncertainties as discussed in its periodic SEC filings. Although the company believes that the assumptions underlying these statements are reasonable, any of them can be proven to be inaccurate, and there could be no assurances of the projected results would be realized. In addition, references may be made to certain financial measures that are not in accordance with generally accepted accounting principles, or GAAP. We register to these non-GAAP financial measures. Please refer to our SEC reports in certain areas of our press releases, which include reconciliations of non-GAAP financial measures and associated disclaimers. CEO, Sam Rubin, will begin today's call with a strategic overview of the businesses and recent developments for the company, while CFO, Al Miranda, will then review financial results for the quarter. Following the prepared remarks, there will be a formal question-and-answer session. I would now like to turn the conference over to CEO, Sam Rubin. Sam, the floor is yours. Sam Rubin: Thank you, operator. Good afternoon to everyone, and welcome to LightPath Technologies Fiscal Third Quarter 2026 Financial Results Conference Call. We report today our latest quarterly results with continued momentum of strong top line growth, continued buildup of our backlog with a strong book-to-bill ratio and improvements in our EBITDA and overall financial performance. All of this is a result of a strategic shift we put in place and have been working to execute on over the last few years. A strategy that leverages our core technologies, coupled with carefully curated acquisitions that allowed us to shift to a vertically integrated provider of high-value infrared optics and camera systems, a shift built around higher revenue and higher gross margins. The third quarter carried that momentum with record revenue, broader customer adoption, a deeper system backlog and just as importantly, stronger margins and cash flow. The LightPath of today looks very little like the component supplier we were a few years ago. We now cover the full stack, proprietary materials, optical assemblies and complete imaging systems. In a moment, I'll touch on that shift, then walk through the programs driving the backlog, the Amorphous acquisition and where growth goes from here. First, BlackDiamond, our proprietary chalcogenide glasses, including those licensed from U.S. Naval Research Laboratories. Those anchor the platform as a domestic supply chain secured infrared glass that is both an alternative to germanium and offer significant advantages in overall system performance. This aligns with the fiscal 2026 NDAA, National Defense Authorization Act, which requires U.S. defense programs to move off of glass and optical components sourced from China, Russia and other covered nations no later than January 1, 2030. Since acquisition cycles starting now, many of our assemblies, cameras and imaging systems are already engineered to those requirements, positioning us as a natural supplier of choice and well ahead of the rest of the market that is just starting to plan their alternatives to Chinese-made materials and optics. It has been roughly a year since we acquired G5 Infrared, the maker of the industry's leading long-range infrared cameras for surveillance and Counter-UAS. G5 is a clear example of what our model can offer. Pair a strong stand-alone business with one of our unique differentiators, in this case, the in-house produced germanium alternative glass and a secured vertically integrated supply chain and the acquired company can execute at a level competitors simply cannot match. In the last year, G5 has booked more than $100 million of new orders, helped by border patrol and Counter-UAS tailwinds. We've publicly announced we are redesigning the cameras to use our BlackDiamond glass. And even before we have completed those redesigns, we already saw an influx of orders for those redesigned cameras. In fact, we are at a point that before we started any real production of the new redesigned cameras, we already know we will need to add more capacity to serve an even stronger demand in the near future. The capacity theme is something we're seeing across the entire business, and I will expand on that some more. It is actually a good segue into other parts of the business. So before I get back into the camera products and then other programs, I will talk about the acquisition we did that we announced last quarter of Amorphous Materials in Texas. Amorphous is a 50-plus year-old manufacturer with complementary technology for glass smelting of chalcogenide, particularly for large diameter optics. Amorphous was founded by one of the pioneers of commercializing this kind of material. I've mentioned it during the last call, but just to reiterate the importance of the technology, I will remind everyone that in optics, the further you want to see the larger the optics needs to be. Until now, with our existing or prior glass melting technology, we've been able to provide BlackDiamond optics up to 5 inches in diameter. Amorphous now unlocks the ability to do larger sizes up to as much as 10 inches and more later on. This has opened the market to large diameter systems, which we need for G5, but also critical in other long-range imaging systems and in particular, satellites for missile detection and tracking. But back to capacity. Acquiring Amorphous gave us an immediate boost to glass production capacity. So between what we have been doing internally and the Amorphous acquisition, we pretty much doubled our glass capacity, and it is nowhere near enough. As we will discuss again and again here, we are investing in capacity in critical areas, and glass is definitely one of those. Having now 2 separate locations to make glass in, one in Orlando and one in Dallas, Texas, definitely affords more flexibility and expansion as well as good contingency planning. To that extent, we plan to move Amorphous into a larger building nearby our Visimid uncooled camera operation in the coming months. This is important because not only is demand for glass outstripping supply right now, even after doubling the capacity, but indicators are that this growth trend will continue, and we will need to continue to add capacity in the next few years. To that extent, in Orlando, too, we have been adding more glass melting capacity as well as capacity and capabilities in other parts of the process downstream, that is after the glass melting. This capacity and those capabilities updates is happening across the entire organization in manufacturing locations in the U.S. and Latvia. And then, of course, the cameras and assemblies business. This quarter that we're reporting in, they represent 44% of the revenue. But more importantly, they represent more than $75 million of our backlog. The assemblies and cameras are actually internal customers for our vertical integration, hence, driving much, if not most, of this explosive growth in demand for glass and optics. But this is just the case for the products that use BlackDiamond. As of today, while all of our assemblies use BlackDiamond, only 2 of the G5 cameras are based on BlackDiamond glass. The remaining G5 cameras were still using germanium. The acquisition of Amorphous was a missing piece in order to complete the redesign of those G5 cameras. Amorphous technology of melting our glass in larger size was needed in order to use BlackDiamond in G5's bigger cameras, which is really the majority of their revenue by dollars. The same applies for larger assemblies. Our optical assemblies business, which has been growing like crazy for the last few quarters, just like the G5 was limited by the size of the glass we could make. Amorphous' large diameter melting now is unlocking a significant business growth in both those areas of the business, assemblies and complete camera systems. How does this tie into the capacity discussion? When we look at our current cameras and assemblies business, and we say it is around $75 million of new orders booked, that is all before we completed the redesign and the new products that are now utilizing the large diameter BlackDiamond. So with the risk of stating the obvious, we expect that over the next few months, we will see another step function in growth in demand for our cameras and assemblies as we redesign them or design new ones utilizing this new capability of large diameter. This will, therefore, require us to prepare more capacity, which is what we're doing now. This includes not only additional capacity in glass and downstream process, but also growing our assemblies capacity, adding shifts and in some places, adding space to be ready for that additional growth. All of that is happening now across all of our facilities in the U.S. and Europe. Additionally, to support this growth and better position LightPath, we recently announced 2 senior additions to the leadership team. Doug Schoen joined us as Senior Vice President of Global Sales; and Ryan Workman joined us as Vice President of Business Development and Product Management, both effective in early April. Doug is a retired U.S. Navy captain with over 25 years in aerospace and defense, having led global sales organization at Elbit Systems of America, Honeywell and Collins Aerospace, managing portfolios north of $1 billion. His background in international defense sales and foreign military sales programs is exactly what we need as we scale globally. Ryan brings with him over 15 years in the defense and federal law enforcement sectors and has a particularly relevant track record at Silent Sentinel, which was later acquired by Motorola Solutions, our largest customer. Ryan is the one that grew the U.S. business of this customer of G5 Infrared to what it is today, including securing significant Counter-UAS and DHS border surveillance contracts. That direct experience in our end markets, combined with Doug's enterprise-level relationships gives us commercial horsepower to convert our growing backlog and strong technology position into sustained scalable revenue growth. Okay. Before I move on to financials, I will give a quick overview on the major programs, but also point out that on many of those, there are specific line items in the U.S. defense budget, which was released a couple of weeks ago and is available to the public to research online. Starting with the NGSRI that as you will see in the budget, is fully financed and even accelerated some of the program. We are very pleased with our progress so far and continue to deliver everything according to plan and even better. However, as I described earlier in previous few times, the only updates we can share in detail about the programs or any updates that are shared by our customer, Lockheed Martin or their customer, the U.S. Army, which as of now has not had any major updates, so we can't really update too much. Navy SPEIR is on schedule, and we expect some new orders with the new federal budget now being released. Border tower, we were expecting already some significant orders to be released, but it seems DHS has not released the funding yet. So that is not an indication in any way of anything changing to the worse or to the better in any way, simply has not moved forward. Some of the smaller programs, such as them that I haven't really indicated by name, so Counter-UAS, this is primarily the Air Force C-UAS programs for which we received multiple new orders. Currently, around $30 million of our backlog is Counter-UAS, again, primarily Air Force SUADS programs. A new airborne system that we previously mentioned and that uses our BlackDiamond material to replace an existing system with far better performance now. This program continues to move quickly. We completed the qualification, an extremely important step and are now preparing for an award towards the end of the summer or early autumn. Space programs, we have a few of those in the work. Most of them are early stages in design and unfortunately, very confidential, so very limited in what we can share. And lastly is the Apache program, which we do not have any new developments there, and there is some uncertainty around it as we're waiting for to see the funding allocated to it. Okay. So specific programs. Of course, as we continue to grow, just like with our press releases, it will become fairly noisy and overly detailed if we go into details about every multimillion dollar program. So we're likely going to focus on the large ones going forward with some updates on others as we can. To close Phase 1 of the transformation, we've moved from components to systems and from commoditized supply to strategic technology leadership. We continue to swap constrained China-linked materials for domestic scalable proprietary alternatives, and we are converting that edge into program wins, large contracts and long-term relationships with top-tier defense and industrial customers. The next phase, rapid scaling over the next 3 years, backed by our strong war chest of cash is now beginning and is aimed at capturing meaningful market share. Now I'd like to turn the call over to our CFO, Al Miranda, to talk about the actual numbers. Al Miranda? Albert Miranda: Thank you, Sam. I will keep my review to a succinct highlight of the financials this quarter. As a reminder, much of the information we're discussing during this call was also included in our press release issued earlier today and will be included in the 10-Q for the period. I encourage you to visit our Investor Relations webpage to access these documents. Revenue for the third quarter of fiscal 2026 increased 109% to $19.1 million as compared to $9.2 million in the same year ago quarter. Sales of infrared components were $6.1 million, or 32% of the company consolidated revenue. Revenue from visible components was $4 million, or 21% of the consolidated revenue. Revenue from assemblies and modules were $8.4 million or 44% of the consolidated revenue. Revenue from engineering services was $0.6 million, or 3% of consolidated revenue. Gross profit increased 161% to $7 million, or 36% of total revenues in the third quarter of 2026, as compared to $2.7 million, or 29% of total revenues in the same year ago quarter. The increase in gross margin as a percentage of revenue is primarily driven by the increase in revenue from assemblies and modules, which generally have a higher margin. In addition, gross margins for infrared components have improved due to a more favorable mix and the resolution of certain manufacturing yield issues that negatively impacted the prior fiscal year. Operating expenses for the third quarter of fiscal 2026 included a fair value adjustment of $3.4 million related to the G5 earn-out liability, which will continue to be adjusted through the operating expenses until it is fully paid out. Excluding this amount, operating expenses increased $1.8 million, or 30% to $7.8 million for the third quarter of fiscal 2026 as compared to $6 million in the same year ago quarter. The increase was primarily driven by the integration of G5 Infrared and AML, increased sales and marketing spend, higher information technology spend to meet customer security requirements and increased SG&A personnel costs associated with filling executive roles, as Sam mentioned, our salespeople and incentive compensation accruals. Net loss in the third quarter of fiscal 2026 totaled $4.1 million, or $0.07 per basic and diluted share, as compared to a net loss of $3.6 million, or $0.09 per basic and diluted share in the year ago quarter. The year-over-year change in net loss was primarily attributed to the change in fair value of acquisition liabilities for the earn-out related to the acquisition of G5 Infrared. Adjusted EBITDA for the third quarter of fiscal 2026 was $1.1 million positive, compared to an adjusted EBITDA loss of $1.6 million for the same year ago quarter. This represents our third consecutive quarter of positive adjusted EBITDA and was primarily attributable to the increase in gross profit driven by higher sales, partially offset by increased SG&A and new product development costs. Although not perfect, we believe that adjusted EBITDA is a better indicator of core operating performance by excluding noncore and noncash items. Cash and cash equivalents as of March 31, 2026, totaled $55.2 million as compared to $4.9 million as of June 30, 2025. Since the raise in December, we used $7 million for AML acquisition and $7.3 million went toward the year 1 earnout for the G5 acquisition. I want to point out that a portion of this earnout payment was required to be recorded in operating cash flows in accordance with GAAP. The operating cash flow looks noisier than reality because of G5 outperforming the earnouts, which GAAP requires to be classified as operating cash activity. If you set aside the GAAP reporting quirk related to the earnout, then operating cash outflow year-to-date would have been $1.3 million. That modest outflow is attributed to working capital, specifically prepaying suppliers for long lead materials to support that growing backlog that Sam spoke of and that's partially offset by customer prepayments. The $55 million cash balance on hand gives us plenty of runway to keep executing on our growth strategy and fund the CapEx and working capital needed to deliver to the growing backlog. Total backlog as of March 31, 2026, was approximately $110.6 million, an increase of 196%, compared to $37.4 million as of June 30, 2025. I'd like to take a step back and give some perspective. Since Q3 last year, on a year-to-date basis, we doubled our revenue from $25 million year-to-date last year to $50 million year-to-date this year. Our backlog is $110 million and continues to grow. This is a substantial amount of growth for a company our size, and I'd like to thank everyone in the organization for a great effort on delivering more and more to our customers every day. To our investors, we are well positioned to continue to grow substantially. We have the resources and cash in place to deliver. Our internal efforts are all about execution to the plan of delivering on the backlog and the growth in the backlog. Our focus for fiscal year 2026 and beyond supports the business opportunities that Sam described. We have a detailed go-to-market strategy that we are funding to target key high-growth areas. Our prior year, current year and future investments in manufacturing are and will continue to bear fruit in terms of quality and on-time delivery. And as a result, in the coming quarters, I expect we'll see margin expansion. With that, I will turn the call back to Sam. Sam Rubin: Thank you. Thank you, everyone, for joining us today. From here, the work shifts to execution. We've built a vertically integrated platform around our own materials technology, one that sits squarely where the defense procurement is heading. The numbers make the point. Over the last 12 months, our revenue has more than doubled and backlog indicates a continued trend. The doubling the size of our manufacturing business in 12 months is a big task and undertaking. Doing it again, continuing to grow at such rate is a monumental task. So with that in mind, I would like to echo what Al just said and take a moment to acknowledge the hard work, dedication and commitment of the entire LightPath team. You, my team, have been doing an incredible job getting us here and are continuing to do a great job preparing us for this continued growth. Thank you for everyone involved in this. With that, I'll turn the call over to the operator to begin Q&A. Operator? Operator: [Operator Instructions] We'll take our first question from Jaeson Schmidt with Lake Street. Jaeson Schmidt: Sam, I just want to start with your comments on the expectation for the step function in demand over the next few months here. Do you envision that being pretty broad-based? Or is that really coming from -- or concentrated in a couple of programs? Sam Rubin: What I see is that right now, areas where -- I'll talk first about cameras and about assemblies. The cameras where we've been having this enormous backlog is mostly existing customers. So these are customers that have integrated our cameras already a while ago into their pan tilt systems or gimbals such and are growing with the orders from them have been growing as those customers grow, in particular, Motorola, which we very much value the relationship and the business there. But it's really existing business that is growing linearly. As we now start switching over to the BlackDiamond and unlocking both more types of camera, but more specifically, really unlocking our availability and our capacity to -- I'm not even sure what the next limit will be, but it's not going to be limited by material as everyone else is. I expect many other customers to switch over to our cameras. And the step function there will be from taking a larger market share of the same type of product we've been doing until now, but simply that we are positioned in a way that we're the only ones that really can produce as many cameras as anyone wants. In the assemblies, it's a bit different. In the assemblies, we've been focused on a subset of the whole assemblies industry, if you would, or assembly available market because we were limited by the size of glass we could do. So we could not make long-range assemblies or zoom lenses, if you would, that get bought by some of our competitors and many of our customers. With this now capability and with some of the new materials we've been already commercializing over the last few months and haven't talked really about too much, we can now design and are designing a lot more new assemblies that are going to take market share of areas we haven't played. So 2 step functions, both enabled by the same thing, but for different reasons. Jaeson Schmidt: Okay. That makes sense. And then I know it's still early, like you noted, but thinking about sort of in space communication or the space programs in general. How many engagements or conversations are you having these days with customers? Sam Rubin: We have 2 that we are fully engaged in, meaning they're already fully designing our product delivering -- sorry, 3 of those, 3 customers that are designing. I'm not sure what programs we have that are much earlier than that. I usually know of them when it comes to the point that they're actually engaged on technical dialogue or want to talk numbers. And those are not free space communication, just to be clear, those are all camera systems on satellites pointed down to look for missile launches and detection. Jaeson Schmidt: Got it. And final one for me, and I'll jump back in the queue. With these capacity expansion plans, how should we think about CapEx over the next 12 months? Albert Miranda: So good question, Jaeson. We we're still -- the CapEx we're spending right now is capacity driven. It's -- so as the backlog grows, we're constantly reevaluating. That said, there are long lead times in the CapEx process. So we have to get some things moving quicker than others. I don't want to say exactly what we're going to spend in the near term. But to put it in perspective, in Q3, Sam and I approved $6 million in CapEx to be spent in order to not only meet the current backlog, but what we think is going to be beyond that. Operator: [Operator Instructions] We'll take our next question from Austin Moeller with Canaccord. Austin Moeller: So do you expect like you would receive more funding through the $54.6 billion for the Drone Autonomous Working Group or from the DHS budget dollars that were appropriate in the reconciliation bill? And would the DAWG funding shift revenue mix further into assemblies and modules and raise gross margin further for drones? Sam Rubin: Okay. I'll start by answering the other way around. First of all, it will be mostly assemblies and cameras, definitely. By far, we're actually -- the more assemblies and cameras business we are, the less we're taking business in optical components because we would rather use that same capacity to make assemblies and cameras, which are much, much higher margins, which answers really your second part of the question. In terms of the funding, I'd say it's all over. So drone -- from the drone dominance, we are receiving already orders. We have a few million dollars of orders of optical assemblies that go into drones. I'll try next time to break that out and give a bit more color to it, but we're starting to receive volume orders of optical assemblies that get coupled to cameras that go into drones, and we're probably the lead supplier in the U.S. for that by far, I'd say. From other areas from the NDAA and such or which part of funding, I think it depends. existing programs, they all come the programs of record, they come from the NDAA funding and such. DHS comes from the Big Beautiful Bill mostly and so on. But in addition to all of that, what we're also working on and is a different type of funding that is funding to support expansion of capacity. And we are working -- it is very early stage, but we're working with different parts of the government, Office of Strategic Capital and so on to secure some of that. It will not be in the near future, but it's definitely something we're looking at for next fiscal year to support some of the expansion. Austin Moeller: Okay. And in some of our conversations with primes, it sounds like there's already an active effort where they're replacing smaller diameter lenses with BlackDiamond glass. So what factors might keep them from swapping out larger diameter germanium lenses with BlackDiamond? Is it just a matter of time? Or is there technical considerations? Sam Rubin: So first of all, not everyone knows that it's possible. This is completely new. And even last week, I met a customer at the trade show that still didn't know about that, even though we've been shouting it from the top of our lungs. So there's quite a bit of education to be done. However, chalcogenide glass, BlackDiamond altogether is a softer material. So design aspects of it are different. It's not that it cannot be used for larger diameter lenses or larger diameter optics. You need to take different mechanics assumptions into account when you're doing that design, which is why we work very, very closely with the customers on those designs. We leverage our experience with the material to help educate them to make sure that their design is sustainable mechanically afterwards. Simply, it's a different strength of material compared to germanium. That said, there's nothing inherently that prevents it from completely replacing or using it in all these same dimensions and uses. And in many of them, it's actually much better because the coefficient of thermal expansion of our glass is very, very similar to that of aluminum or aluminum depends which country you're in and makes it much, much easier to mount it in terms of gluing it and hard mounting it into systems. So it's mostly education of the customers is the short answer. Operator: We'll take our next question from Richard Shannon with Craig-Hallum. Richard Shannon: Congrats on another good quarter here. I guess one way I wanted to talk about the capacity limitations you were having and you're trying to relieve with more investment here. But how do we think about at a high level here, what your revenue ceiling is now? And where can this go in the next, I don't know, 2 to 4 to 6 quarters as you're adding more capacity? Sam Rubin: Okay. I get this one. I would say that everything we have booked and we have in our backlog, we can deliver. There's no risk there that we can't deliver it. What we're planning towards is more the second half of the next fiscal year and increased expansion then. So our backlog is mostly for the next 12 months, the next fiscal year, but not completely. However, it's probably heavier towards the second half where we do need to add some capacity. Richard Shannon: Okay. Fair enough. I want to ask about the space programs. I know, Sam, you mentioned that most of these are confidential, but just kind of at a high level here, especially some of the bigger ones that I think you're hunting here. When do you expect to have decisions on these? Will this happen this calendar year? Is it more of a next year? And any way to help us scale kind of the whole space opportunity relative to some of the other ones like Counter-UAS, border patrol, Navy programs, et cetera? Sam Rubin: Yes. So time line, I have to admit, I am not completely confident on it because this is fairly new to us. We have not done anything of that type, meaning space programs and with the tight requirements on the assemblies and the cameras for that. So there's some learnings there. I would say that the time lines I'm seeing now on prototypes and on development are such that it would be at least a year before anything meaningful in terms of knowing where the wind is blowing even is available to us. In terms of -- sorry, what was the second half of the question? Richard Shannon: Just scaling the size of the opportunity in space versus all the other bigger buckets you talked about in your potential. Sam Rubin: Yes. So I think actually, I don't have the numbers in front of me, but during the Investor Day that we had in February, I gave some numbers there. And I explained that typically a satellite like that is about $40 million, $50 million in total cost. 1/3 of that is the entire optical system payload. And of that, we are just doing the telescope. We're not trying to do the complete camera system or anything like that, just the optical assembly, which is in the millions per satellite, but let's say, below $5 million per satellite kind of thing. And the numbers are fairly well published. Richard Shannon: Okay. Great. Last question is for Al on the gross margins here. So obviously, adding capacity has a little depreciation and some other fixed costs here. Just wanted to know if as you're adding capacity, is there any different view kind of longer term what you think of the gross margin? I mean, you talked about getting to 40% to maybe even higher. Wanted to know how that has changed here with kind of the new scale that you're targeting. Albert Miranda: Yes. Great question. We still expect margins to grow. However, we are scaling fast. And there are some costs in the short-term associated with that. So it will slow down our ramp from where we are today, 36% to 40%, but not much. We're talking a quarter or 2 slip in terms of that overall plan. So from the investors' perspective, they'll just see improvement, but not enough for what we would want internally. But externally, it will walk up to -- we'll continue to walk up the margin chain. Operator: This concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Sam Rubin for his closing remarks. Sam Rubin: Thank you. So before I leave, I'll just frame it one more time to give the complete picture. LightPath is really no longer a component supplier it used to be. We're a vertically integrated systems company, a record backlog, well-capitalized balance sheet and a technology position that's aligned with the most pressing supply chain mandates of the defense industrial base. The NDAA deadline is real. Demand for germanium alternative in infrared systems is real. At this point, so is our ability to deliver. From here, our job over the next several quarters is simple to describe execution to execute, ship on time, move backlog into profit and loss into the P&L and let margins expand as volumes built. With that, I'll conclude, and I'll thank everybody for their time today and look forward to speaking to you again next time. Operator: This concludes today's program. Thank you for your participation, and you may disconnect at any time.