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Operator: Welcome to the FreightCar America, Inc. first quarter 2026 earnings conference call. At this time, all participant lines are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Chris O'Dea with Reverent Investor Relations. Over to you, Chris. Chris O'Dea: Thank you, and welcome. Joining me today are Nicholas J. Randall, president and chief executive officer, Michael Anthony Riordan, chief financial officer, and W. Matthew Tonn, chief commercial officer. I would like to remind everyone that statements made during the conference call related to the company's expected future performance, future business prospects, future events, or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America, Inc.'s Form 10-K description of certain business risks, some of which may be outside of the control of the company, that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events, or otherwise. During today's call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon. Our earnings release for the first quarter 2026 is posted on the company's website at freightcaramerica.com along with the 8-K, which was filed at market close yesterday. With that, I will now turn the call over to Nick for a few opening remarks. Nicholas J. Randall: Thank you, Chris. Good morning, everyone, and thank you all for joining us today. Our first quarter results were in line with expectations and remained consistent with the operating cadence we expect for 2026. At the same time, our commercial differentiation and expanding aftermarket business, which grew 86% year over year, continues to distinguish FreightCar America, Inc. and reinforces the resilience of our business model across market cycles. Our ability to serve specialized customer needs through not only new car builds, but also retrofits, conversions, and our expanding aftermarket platform all play a key role in growing our addressable revenue opportunities and allowing us to fulfill a broader set of customer programs. In short, FreightCar America, Inc. is a truly diversified railcar company and that remains central to our strategy. Supported by our manufacturing expertise and strong productivity improvements, we realized one of the highest gross margin quarters in over a decade, with 17% gross margin in the quarter. This represents an expansion of 190 basis points year over year. What is especially encouraging is that we achieved this performance on lower utilization, highlighting the operational agility and the variable structure of the business. Commercial activity was also encouraging in the quarter, with significantly improved pipeline activity amongst key accounts and solid order intake, including demand for our conversion and retrofit work. We increased our backlog by $19 million sequentially and, together with the expected contribution from retrofit and aftermarket activity, we continue to expect performance to be weighted towards the back half of the year. Internally, as we have scaled our manufacturing footprint, we have been on a continuous improvement journey focused on enhancing productivity and strengthening execution across our manufacturing operations. During that time, we have successfully established four fully operational production lines and have taken a relentless approach in driving efficient manufacturing practices. We are extremely pleased with our progress to date, noting that we have increased productivity by approximately 50% over the last 24 months. In addition, we remain agile and are able to remain flexible as needed, giving us additional operating capacity capability as demand evolves. Together, these actions and capabilities provide additional support to drive consistent margin performance over the long term. At the same time, programs like TrueTrack are helping reinforce accountability, real-time build visibility, and quality throughout the production process, driving greater consistency, reducing rework, and strengthening production discipline across our operations. We also remain focused on the continued expansion of our aftermarket platform, an important part of our strategy to build a broader and more balanced rail business over time. We are excited with the progress we have seen so far with our recent [inaudible], which represents an important step in expanding our aftermarket capabilities. We remain disciplined in how we invest behind that, with a focus on selective adjacent opportunities that strengthen our position in core rail markets, expand our capabilities, and support attractive long-term returns. Overall, we remain mindful of the current new build environment, where industry order activity has remained relatively consistent with last year's levels. Importantly, that dynamic continues to point to underlying pent-up demand as fleets age and deferred replacement needs build over time. As those fleets reach retirement age, customers are increasingly likely to place orders closer to the required delivery timing, which tends to favor more agile manufacturers by creating a shorter lead time environment. FreightCar America, Inc. is well positioned in that regard. With our improved productivity, stronger operating discipline, and a flexible manufacturing model with scalable capacity, we are well equipped to respond efficiently and capitalize on opportunities as replacement demand returns over time. With that, I will turn it over to Matt to discuss the market environment in more detail. W. Matthew Tonn: Thanks, Nick, and good morning, everyone. I will start with a brief update on the market and our commercial activity during the quarter. Industry conditions for new railcar builds remain relatively consistent with the prior year, with expected annual deliveries tied to replacement demand. This dynamic reflects underlying demand as fleets continue to age and replacement needs build over time. Order activity during the quarter was also consistent with this environment, with industry orders totaling 5,654 units compared to 5,085 units in the prior year period. Railroad service metrics continue to trend positively across the industry. Key indicators like reductions in dwell time and increased velocity speak to improved rail service, customer confidence in rail operations, and support long-term rail demand. Through the first quarter, U.S. carload traffic was up over 4% year over year, with 13 of the 20 carload segments showing growth. Grain and chemical carloads posted the strongest growth, which has also been reflected in our pipeline for new covered hopper cars. Overall, first quarter car loadings excluding coal were the highest since 2015 and indicate that despite softness in some sectors, underlying rail demand remains resilient. During the quarter, we saw strong commercial activity, including growth of our sales pipeline across our broad product portfolio of new build and conversion railcars. Further, we continue to see increasing interest in our aftermarket business as customers look to extend the useful lives of their aging railcar fleets through scheduled maintenance activity. Backlog at the end of the quarter totaled 2,058 units valued at approximately $156 million, with a diversified mix across new builds, conversions, and retrofit programs that support a balanced revenue profile. Importantly, we are beginning to see customers who were evaluating new car orders moving forward with purchase decisions. In those instances, our flexible manufacturing footprint and ability to pivot quickly positions us well to meet customer-specific delivery timing requirements. From a market share perspective, we estimate our addressable share of industry new railcars, excluding tank cars, was approximately 17% for the quarter, which is in line with our typical market share. Importantly, this metric does not include our work outside of new railcars, including railcar conversions, retrofits, and rebodies, which further diversifies our revenue base and expands our participation across the broader railcar market. Looking ahead, as Nick mentioned, we remain on track to begin shipments under our tank car retrofit program in the second half of the year, with initial activity expected in the third quarter and more meaningful contribution in the fourth quarter. Overall, while near-term market conditions remain measured, we are encouraged by the level of commercial activity, the strength of our pipeline, and the continued diversification of our backlog. With that, I will turn the call over to Mike to walk through the financials in more detail. Michael Anthony Riordan: Thanks, Matt, and good morning, everyone. I would like to begin with a few first quarter highlights. Revenue for the quarter was $64.3 million compared to $96.3 million in 2025. The year-over-year decline primarily reflects lower railcar deliveries, with 577 units delivered in the quarter versus 710 units in the prior year period. As noted, this was largely driven by underlying demand and expected timing. While production timing impacted first quarter deliveries, we were encouraged by the momentum in our aftermarket business, where sales grew 86% compared to the prior year period. This growth reflects the progress we are making in expanding our presence in the aftermarket, driving further diversification to our business over time. Gross profit for the quarter was $10.8 million compared to $14.4 million in the prior year period. Gross margin was 16.8%, up 190 basis points from 14.9% last year. The improvement in margin was driven primarily by a more favorable product mix that expands beyond new railcars, as well as the productivity gains and operational efficiencies across our manufacturing operations that Nick mentioned earlier. Importantly, we delivered this margin improvement despite lower production volumes, underscoring the benefits of our mix, productivity, and cost discipline. This improvement reflects the progress we have made in strengthening execution, improving throughput, and driving a more disciplined operating model. Selling, general, and administrative expenses as a percentage of revenue increased to 17.7% from 10.9% in the prior year period, primarily reflecting lower revenue in the quarter rather than a meaningful increase in absolute SG&A expense. On the bottom line, we reported net income of $41.6 million, or $1.15 per share, compared to $50.4 million, or $1.52 per share, in the prior year period. Results for the quarter include a $49.1 million non-cash gain related to the remeasurement of our warrant liabilities. Excluding non-cash items, adjusted net loss was $500,000, or $0.04 per share, compared to adjusted net income of $1.6 million, or $0.05 per share, in 2025. This change primarily reflects lower volumes in the quarter. Adjusted EBITDA for the quarter was $3.2 million, representing a margin of 4.9%, compared to $6.4 million, a margin of 6.7%, in the prior year period. The year-over-year decline in adjusted EBITDA was primarily driven by lower deliveries, consistent with the expected quarterly cadence, partially offset by the margin improvements mentioned earlier. We continued to execute a disciplined and measured capital allocation strategy, balancing targeted investment in the business with a continued focus on liquidity and financial flexibility. From a balance sheet perspective, we further reduced debt in the quarter and ended with $52.8 million in cash and cash equivalents. Capital expenditures for the first quarter totaled $147 thousand. Moving forward, we continue to expect 2026 capital spending of $7 million to $10 million, including approximately $4 million to $5 million of maintenance spending as well as targeted investments to complete our previously announced tank car manufacturing initiatives. The productivity improvements we have made, together with our flexible manufacturing footprint and existing production lines, gives us the capacity to support higher production levels as demand improves without significant additional capital investment. Because that capacity is already in place within our current footprint, we can scale production as needed while continuing to direct capital towards opportunities to strengthen the business over the long term, including expanding our aftermarket platform and pursuing selective opportunities that enhance the stability and durability of our revenue and cash flow profile. Overall, first quarter results were in line with our expectations and reflect the planned production cadence for the year. We are reaffirming our full-year 2026 guidance, and our expectations for a stronger second half remain intact, supported by backlog visibility, scheduled program activity, aftermarket momentum, and continued productivity improvements. We will now open the call for questions. Operator: Thank you. 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 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Mark Reichman with Noble Capital Markets. Please state your question. Mark Reichman: Thank you. So if I look at railcar sales revenue divided by railcars delivered, it was a little under $92 thousand for the first quarter. That number drifted down throughout 2025, and that was also true for the backlog value per railcar. So I was just wondering if you could talk a little bit about the product mix changes throughout the year. Would you expect that number to get above $100 thousand? Michael Anthony Riordan: Hi, Mark. This is Mike. You are right. In the back half of 2025, we talked about mix shifting more towards conversions and rebody opportunities we had. The same thing in Q1; it was a heavier conversion quarter. I would expect, as we move into the back half, to see that number go above $100 thousand as the mix will shift back towards new car activity in the second half of the year. Operator: Does that answer your question, Mark? Mark Reichman: It does. The second quarter, would you expect an improvement from the first quarter in that regard as well? Michael Anthony Riordan: From an average selling price, we should see that go up from where we were in Q1 as well, and then build throughout the year. Mark Reichman: Okay. And then just my next question is, I think expectations were for a much stronger second half, but with rail deliveries at 577 in the first quarter, it seems like there might be a little catching up to do to get within guidance. Could you maybe talk a little bit about the cadence of railcar deliveries? And do you think your net railcar orders received, I mean, I think it was 709 in the first quarter, are going to fuel strength into the second half of the year? Nicholas J. Randall: Mark, I will start answering that question. It is really an order pipeline question, and then that will drive the delivery cadence in the second half. This time last year, we talked about how improving our agility in manufacturing—effectively shortening our lead time and improving our response time—would favor people in a market where the number of orders being placed is lower than the replacement average. That is what we are seeing again. We drove a lot of productivity improvements and we have shortened our, or improved, our velocity and shortened our dwell time in the manufacturing plant, which allows us to keep capacity open in the near term for customers as they place orders. Then we get visibility into the full pipeline of our commercial opportunities. We have an increase in the pipeline activity—that is customers talking to us about orders in the 2026 timeframe and our ability to fulfill those orders still within the 2026 timeframe. We are able to have more insights than we do talking about pure booked orders on the pipeline activity—the type of product, what the product is waiting for to become a live order, etc. So yes, it is going to be weighted towards the second half. We said that last year, and it was. We are committing that it will be the same this year. A lot of the work we did, both in our scalable manufacturing and our ability to ramp up from what we did in Q1 to significantly higher numbers without introducing risks, is key to our success in that as well. The order activity, I will pass on to Matt; he can talk a bit more about that. But yes, it is heavy weighted to the second half. We knew that going in and we have designed our plan around that, and we are still confident we can deliver on that. W. Matthew Tonn: I will just add that we have been adept at being able to convert orders with very short lead times. Customers that have been on the sidelines are now moving into the order stage, and our ability with our efficient footprint has allowed us to convert those orders very quickly and deliver. That was executed multiple times within the quarter. And just to comment on the pipeline, the pipeline is continuing to grow. It has been quite active in the latter part of the first quarter and into Q2. I will not speak to order activity in the quarter; we will save that for the next earnings call. But overall, we have a high level of confidence in the strength of the pipeline for 2026, and even pipeline activity into 2027 and beyond. Mark Reichman: That is great. That is very helpful. Thank you very much. Operator: Our next question comes from Aaron Bruce Reed with Northcoast Research. Please state your question. Aaron Bruce Reed: Thank you. A little bit of a follow-on to the comment on the lower deliveries. I was wondering if you could shed a little light around whether deliveries were impacted at all by preparing for the tank car deliveries in the back half of this year. You are not going to be operating on that fifth line, but that fourth line. Did that have any impact as well? Nicholas J. Randall: No, Aaron. The opposite. We have historically talked about having a fifth line on the roof, and we can open that fifth line pretty quickly, in under 90 days. But with our productivity improvements, what we are finding is we are raising the throughput on those first four lines in our ability to convert more cars on those four in a more productive manner. What that means is our installed capacity on those first four is increasing quite significantly compared to what we originally intended, with those productivity and velocity improvements. So yes, we will more than likely do the conversions you mentioned—some tank car conversions—on the footprint we have, possibly not even needing the fifth line for that. It is available to us should we need it. But I would rather sweat the assets as much as possible before we commit to expanded capacity. In short, the volume was not impacted negatively because of preparation work. The preparation work has gone to plan. We have the certification as required, but that has not impeded our freight car business or our freight car capacity. We were simply responding to customer demand profiles during the quarter. Aaron Bruce Reed: Okay, great. And then another follow-up question to that is, last year I think overall deliveries across the industry were around 30,000. Do you have any more insights about what you might expect for the total number of deliveries for the remainder of 2026? And have you gotten any indication of what 2027 might look like? Nicholas J. Randall: I am not going to try to quote year-to-date; I will do it in full years because it is easier to do the math that way. Typically, when we look at deliveries, deliveries are going to lag behind order activity. So we look at the order activity for 2025, which would suggest that deliveries in 2026 are going to be somewhere between 25,000 to 30,000, giving a wide range, given that some can still convert in 2026. That would be kind of consistent. Then I would expect the orders in 2026 to be about that range or slightly higher as they start receiving orders in the back end of 2026 that go into 2027. There is a lag time. Traditionally, if you look in the rail industry, that lag time between order placement and delivery has been as far as 18 months or longer. Typically now, certainly with our agile manufacturing platform, that timing from order placement to delivery can be as short as 9 to 12 weeks in some cases. What we are seeing is a compression of that order cycle from order placement to delivery. We have structurally aligned our operations, supply chain, and support engineering roles so that we are very agile in that process, which allows us to capitalize on that shortened lead time that the market and the customers are beginning to look for. Aaron Bruce Reed: Super helpful. And then I guess one last question: when you look at the total overall number of deliveries throughout the year and your overall market share, even as the industry is seeing deliveries fall a little bit, you are continuing to take market share. Have you seen any competitors take any competitive pricing action to combat the market share you are taking, or is it pretty much the same as it was before? Nicholas J. Randall: I will answer at a very high level and then get more specific. In a free market economy, competitors always respond in some way, whether it be pricing or value proposition or some other way. I would expect that to always be true in the rail space. For us, that means we are very conscious that we have to earn the right to win our work and earn the right to win our market share. We take that very seriously. We have never said we are going to be the lowest-cost producer, but we will be the most valuable producer. We will make sure that we deliver exactly what our customers want and need and enhance our value proposition. We truly believe in our products, our services, and the relationships that we build. When we combine all that together, we win work on our own merits. Competitors can respond to that how they see fit. We will keep an eye on it, but we have grown both in account count and in market share, as you said, and we fully expect to sustain those gains and, in fact, build upon them. As the market deliveries respond back to the normal 38,000 to 40,000 units a year, we truly expect to protect that market share gain through that growth cycle as well. Aaron Bruce Reed: Super helpful. Thank you. Nicholas J. Randall: Thanks, Aaron. Operator: Our next question comes from Brendan Michael McCarthy with Sidoti. Please state your question. Brendan Michael McCarthy: Great. Good morning, everybody. Thanks for taking my questions here. I just wanted to start off on the Q1 gross margin and see if we could dissect that a little bit more. How much of that was structural in nature, or was that more so driven by your higher conversion deliveries in the quarter? Michael Anthony Riordan: Hey, Brendan, this is Mike. I would call the majority of that structural. We did not have any retrofits. But as alluded to, with the average selling price being down, we had more conversions; you will naturally see the gross margin up. As we have mentioned, typically, the bottom-line gross profit on a per-unit basis is relatively similar between conversions and new cars. But you have a lower price tag on a conversion, so you see the margin a little higher. Brendan Michael McCarthy: Got it. That makes sense. I meant to say conversions actually because I think the retrofits are more back-half weighted in the year. Is that correct? Michael Anthony Riordan: Yeah. Brendan Michael McCarthy: Got it. On that point, with the retrofits in the back half of the year, I think you mentioned you are still expecting to see the average sales price step up throughout the year. Can you differentiate that between the two, in terms of delivery cadence? Michael Anthony Riordan: Sure. I think we have mentioned that the retrofit program we have is a two-year program. It kicks off in Q3 for us and really starts going in Q4. Probably about a quarter of that total order will take place in calendar year 2026, with the balance going through 2027. So the retrofits will have a lower impact on ASP this year compared to next year, where the bulk of them are taking place. Brendan Michael McCarthy: Okay. That makes sense. That is helpful. And then last question for me: on the guidance affirmation, how confident are you that you can really hit the midpoint there, and how much of that is backed by you banking on a recovery in industry order flow in the back half of the year and really capitalizing on those short lead times? What is underpinning the confidence there? Nicholas J. Randall: I will walk through that first, and then Matt can put some color around some of the order activity. Yes, the year is back-half loaded. We know that; we planned around that. The back half is not really requiring the industry to get back to normal. We have always planned on the industry order quantity being somewhere around 25,000 to 30,000, similar to what it was last year, and that is what our guidance is based on. If there is a sooner-than-expected return to normal replacement levels, then that would probably support a stronger result. But the assumptions we have in that are based less about industry dynamics, which are good to look at, and more on our relationships and our actual customers and the orders they are working through, and the projects that those orders are going to be delivered for. We are able to base it on the facts of the order pipeline and gestation process and risk-adjust from that. While the industry level is a background that helps set the main scene, when we look at our guidance and our forecast, we are really looking at our own pipeline with a lot more detail and risk-assessing against the orders we have and the projects we are working on and what may or may not influence accelerating or deferring any of those projects. It is not always fully reflective. Last year, we grew market share and we grew unit count even though the industry counts went down significantly. It is going to be a rinse and repeat for us this year—similar dynamics. Still a lot to do, clearly, but I am confident that we are not just mapping it simply to “here is what the industry does, so therefore here is what we do.” We truly believe we have to earn the right for every order, and we work on it on an order-by-order basis with our customers and our projects. Matt, if I missed anything on that. W. Matthew Tonn: Just a couple of comments, Brendan. The back-to-back years of order activity have averaged 23,000 units. We are scrapping more cars than are being ordered. When we have conversations with customers about their needs, we are getting to an inflection point where we cannot keep this low level of order activity and high level of car scrapping and not start replacing railcars. We have spoken in the past about impending demand as we approach the end of the decade, and customers are starting to get— I will not say more serious, but certainly focused on—their demand for railcar needs now. This is what we refer to as a high-quality pipeline. We are seeing much more activity in terms of permitting and funding for railcar builds. So when we talk about how the outlook is for the remainder of the year, it is based upon good order activity that we have seen so far in the quarter, but I think there is also solid, high-quality pipeline activity that gives us high confidence in meeting our guidance. Brendan Michael McCarthy: That makes sense. I appreciate the detail there. That is all for me. Operator: Our next question comes from Mark Reichman with Noble Capital Markets. Please state your question. Mark Reichman: Thank you. Just a follow-up. You can imagine, with 577 deliveries in the first quarter and guidance between 8,000 and 8,500, people are going to be a little skeptical about meeting that guidance. But on the other hand, you have that ABL facility, and that gave you a lot more production flexibility. We cannot really see what is going on behind the scenes, but do you have some deliveries already in the bag that you know are going to get delivered in the third and fourth quarters? I guess what I am asking is whether your recent flexibility in terms of being able to produce and deliver is part of what is behind the lumpiness in the delivery schedule this year. Nicholas J. Randall: I will try to break down the couple of questions wrapped up in that one, and then Matt and Mike can add some color. First, if you just look at our guidance at the entry level, as you said, it is just over 3,450 or so still to do at the end of Q1 to ship in the year. That would say, on a level-loaded basis, call it 1,200 units a quarter, or about 90-something units a week. That is well within our capacity. We have demonstrated much higher shipment profiles than that before. So I do not think there is a capacity concern or ability to flex. We drove the productivity improvements so that we can handle a lot of those delivery commitments sometimes in a single shift as opposed to a double shift. We have a lot of improvements baked into that. So I do not think we have a risk from a capacity perspective; we can flex our volume and throughput very high. Second, on timing: we may build cars ahead of schedule. We may do a build sequence in a prior quarter, but then you have finished goods or on the ABL or some of the financial mechanics that then get the revenue recognition in a later quarter. We sometimes do that. There is not a lot of that in Q1, but you will see some of those in Q2 builds that will ship in Q3 and Q4. That is normal for us as we smooth out that process. Those things do happen and will happen, but they allow us to buffer supply chain variability and maintain consistent output. That usually works better for us. From a pipeline perspective, there is higher customer demand in the second half than there was in the first half, certainly in the first quarter. There is only so much prebuild you can do ahead of time because then you have to pay the storage fees, the movement fees, and a whole bunch of things. With our flexible manufacturing, we are able to deliver when our customers need them rather than having the customer make compromises on shipment timing and storage, etc. When you roll all these things together—between our scalable manufacturing, our operational excellence, our TrueTrack, and our deep relationships with our customers—we are able to flex our delivery times so that our customers do not have to make compromises. That allows us to have another edge as to why we are a supplier of choice for most of our customers. Mark Reichman: That is great. That is very helpful detail, Nick. Thank you. Operator: That was the last question for today, and it concludes the teleconference call. You may now disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Hello, and welcome to the Viper Energy, Inc. first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press *11 again. Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Chip Seale. Chip Seale: Thank you, Andrew. Good morning, and welcome to Viper Energy, Inc.’s first quarter 2026 conference call. During our call today, we may reference an updated investor presentation which can be found on Viper Energy, Inc.’s website. Representing Viper Energy, Inc. today are Kaes Van't Hof, CEO, and Austen Gilfillian, President. During this conference call, the participants may make certain forward-looking statements relating to the company’s financial condition, results of operations, plans, objectives, future performance, and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company’s filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kaes. Kaes Van't Hof: Thank you, Chip. Welcome everyone, and thank you for listening to Viper Energy, Inc.’s first quarter 2026 conference call. The first quarter marked a strong start to the year as production exceeded our expectations and that momentum is carrying into an increased growth outlook for the remainder of 2026. During the quarter, operators in our acreage turned more than 650 gross horizontal wells to production, led by Diamondback’s 114 gross wells in the Midland Basin, with meaningful contributions from leading third-party operators across both the Midland and Delaware Basins. Based on first quarter results and continued strong activity across our acreage, we are increasing the midpoint of our full-year oil production guidance by roughly 2.5% and expect growth to be driven primarily by Diamondback’s acceleration in near-term activity and continued development of Viper Energy, Inc.’s high concentration royalty interest throughout the basin. Importantly, this increased production outlook represents over 5% organic growth relative to our pro forma 2025 exit rate. In addition to this organic growth, Viper Energy, Inc. also continues to execute on our differentiated inorganic growth strategy. Yesterday, we announced the Riverbend acquisition, in which Viper Energy, Inc. will acquire over 3,000 net royalty acres and approximately 2,000 barrels of oil production per day for $337 million in cash and 3.7 million Class A shares. These assets are highly complementary to our portfolio, with roughly 75% overlap on our existing acreage and further increase our exposure to high-quality third-party public operators. Turning to capital allocation, our first quarter return of capital of $0.94 represents 90% of our cash available for distribution, and this is comprised of a $0.68 per share dividend and $0.28 per share of stock repurchases executed in the quarter. As we have outlined, we are committed to returning at least 75% of cash available for distribution, and our return of capital framework is designed to be both disciplined and flexible to fit the needs of our business. Prior to the Riverbend acquisition, we had a further commitment to return 100% of cash available for distribution if we were at or below $1.5 billion of net debt. On that point, it is important to note that $1.5 billion net debt is not a static amount, but instead represents a capitalization mix designed to evolve with the continued growth of the business. Within our broader capital allocation strategy, we will continue to invest in growing our business when the right opportunities present themselves. However, in periods where we are closer to our minimum debt mix, we will provide all that cash back to our stockholders. In closing, Viper Energy, Inc. offers a differentiated investment within the energy sector. Our mineral and royalty model, deep inventory position, and alignment with Diamondback support durable organic growth and strong free cash flow generation. Combined with disciplined capital allocation, we are well positioned to deliver sustainable per-share growth and attractive long-term stockholder returns. Operator, please open the line for questions. Operator: Certainly. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. One moment, please. First question comes from the line of Greta Drefke with Goldman Sachs. Greta Drefke: Good morning, team, and thank you for taking my questions. First off, I was just wondering if you could speak to the number and scale of remaining Permian pure-play packages available that Viper Energy, Inc. could potentially consolidate over time. Do you expect Viper Energy, Inc.’s consolidation strategy to be the roll-up of smaller positions, or are there positions with meaningful scale that Viper Energy, Inc. could evaluate over time? Kaes Van't Hof: Hey, Greta. Thanks for the question. I think it is going to be both. This deal with Riverbend is kind of the first deal in this size range that we have executed at Viper Energy, Inc.’s new pro forma size and scale, meaning post drop-down. I think it is a nice tuck-in acquisition, and we can execute on these very seamlessly. When you think about the opportunity set of deals in this size range, it is quite sizable, actually. In addition to that, there is a handful of larger opportunities. We will see how things play out. It is still tough to get deals done in this market, I would say, but as we showed yesterday, there are ways for buyers and sellers to come together with the volatility to still get deals done. I would say I am cautiously optimistic, but the opportunity set, both medium-sized and larger, is really quite massive for Viper Energy, Inc. We think we have positioned ourselves to be the buyer of choice for those mid-sized to larger deals. A deal like Riverbend would have been a very large deal for Viper Energy, Inc. three or four years ago, and now we are able to finance it without going to the market, able to pay down that financing very, very quickly, and not have a huge overhang on our stock. I think it is pretty clear that any large private equity-backed mineral position that has been built over the last five-plus years is now considering an exit with oil prices where they are. I think we are clearly the buyer of choice, but we need to be disciplined in terms of our valuation framework, and getting this deal done with Riverbend is a good example of that, and hopefully more to come. Greta Drefke: Great. Thank you. That is very helpful. And then for my second question, I just wanted to follow up a bit more on Riverbend specifically. You outlined that about 75% of the asset base overlaps with Viper Energy, Inc.’s existing assets, but I was wondering if you could provide any more detail on the quality and/or geological differences of the other 25% relative to Viper Energy, Inc.’s position. Austen Gilfillian: Yes, so the Midland Basin is going to be a lot of overlap. The Midland Basin is almost three-quarters, call it 70%, operated by Exxon and Diamondback. We are really kind of in the Midland, Glasscock, up in Reagan area, and a lot of undeveloped acreage under Exxon. I would say that looks a lot like Viper Energy, Inc. does today. The Texas Delaware looks pretty similar with some of the Reeves County assets under Permian Resources, for example. What is different is probably some of the New Mexico assets, and that is the exposure that we outlined under Conoco, Oxy, and EOG. So it is really a balanced mix. It gets a lot of what we like in the Midland Basin, and it gets some new, exciting exposure in New Mexico that Viper Energy, Inc. historically has not had a huge presence in. Operator: Thank you. And our next question comes from the line of Analyst with Barclays. Analyst: Hello. Good morning again. I want to ask about capital allocation. Given Diamondback is taking a more opportunistic approach on buybacks, can you speak to the capital allocation process and decision-making for Viper Energy, Inc. in terms of both the percentage of free cash flow being returned and the allocation of that cash return in the form of buybacks versus variable dividend? My follow-up is actually something that you mentioned on the Diamondback call, this resource recovery, that we are on the cusp of a technical breakthrough and could see resource recovery increasing in the Permian. Clearly, that is beneficial for Viper Energy, Inc. Maybe just speak to where you are seeing the productivity trends across Midland and Delaware, and how that potentially higher resource recovery could help drive Viper Energy, Inc.’s production growth down the road as well. Kaes Van't Hof: Good question. I would say the difference between Viper Energy, Inc. and Diamondback still remains that, because of the low or zero CapEx at Viper Energy, Inc. and the fact that this was taken public as a distribution vehicle, we still want to be primarily a distribution vehicle where share repurchases are brought into the equation when we have a unique situation with an unorthodox seller or a non–long-term holder of the stock, or the stock is significantly depressed in terms of valuation. Versus Diamondback, where you have an E&P business with CapEx and different priorities in terms of free cash generation. So we have gone to this number where we are going to distribute at least 75% of our free cash every quarter. This quarter we went with 90% because the balance sheet is in really, really good shape, and we will see what happens in Q2. If we have significantly higher prices throughout the quarter, I think we have flexibility to return anywhere between 75% and 90% of free cash because we know that the excess free cash flow is going to pay down the Riverbend deal very, very quickly. Viper Energy, Inc. is in a really good spot, but I would say overall we are focused on more cash going out the door than repurchases and have less need for debt reduction given the position of the business. On the resource recovery theme, this is a long-term megatheme. I do not have a ton of concrete examples today. Obviously, we have done some tests at the Diamondback level of surfactants and advanced chemicals, and those have been done in areas where we do have Viper Energy, Inc. interest, so Viper Energy, Inc. does get that benefit. It is immaterial today, but using the crystal ball four, five, six years down the road, could that be a material part of Diamondback’s capital plan and therefore Viper Energy, Inc.’s production profile? I think that is entirely possible. The other key advantage that Viper Energy, Inc. has is being in roughly 50% of the wells in this basin. We have differential knowledge as to what everybody is trying across both sides of the basin. As these tests continue, we will have differential information at Viper Energy, Inc. and hopefully leverage that to improve returns across both companies. Operator: Thank you. And our next question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: Hey, Kaes. My first question, just on production guidance: besides the boost in Diamondback, could you talk about what other sort of upside third-party activity you are assuming? And secondly, just on the M&A side, after the prior sale earlier this year, are you holding much that you would now consider non-core at this time? Kaes Van't Hof: I will give you my high level. We have not booked a ton of third-party acceleration or faster development yet in our guide. I think it is likely to come, but we have seen the leading indicators without seeing them convert into dust and wells turning online. If I was a betting man, at these oil prices, things are going to accelerate throughout the basin. Austen Gilfillian: There are two parts to the DUC equation. One is the absolute amount of DUCs and permits that we have; the second part is how quickly those get converted to production. It is easy to see in real time any increase that happens in the DUC and permit count. It is harder to get a feel for the quicker conversion rates. Right now, we are getting the benefit of any increased permitting activity, but we have not modeled increased rates of conversion. That is going to be the biggest driver as you think about how it impacts the next six months. We are watching and monitoring things as they evolve, and we expect some things to come our way, but we probably have not fully baked in the acceleration benefit from third-party operators across the basin. Neal Dingmann: Thanks, Austen. Kaes Van't Hof: On the M&A side, we cleaned up all the non-Permian assets and used that to put the balance sheet in perfect shape. I think we will see a wave of private equity-backed mineral companies at least try to test the market over the next couple of quarters to a year, and we are primed from a positioning perspective to take advantage of that. Neal Dingmann: Thank you. Operator: Thank you. And our next question comes from the line of Paul Diamond with Citi. Paul Diamond: Thank you all. Good morning, and thanks for taking the call. Just a quick touch on Riverbend and the M&A. You talked about the availability of deals, but how has recent volatility impacted the bid-ask of the deals of different sizes? Are you seeing a bit more convergence on those large deals, of which Riverbend is an example? And just one quick piece of housekeeping: cash taxes had a bit of a run-up with recent pricing. At what point do you see things settle down? Is it still like 27% to 28% where things kind of level out, or how much has current volatility pulled that back? Kaes Van't Hof: We only have one good data point with the Riverbend deal. What is interesting about that deal is the strip is so backwardated that we can underwrite a relatively moderate flat oil price scenario for the NAV of that deal, call it $65 to $70 a barrel, and that actually is not too far off from where the strip is. You have the front end that is so high, so yes, we are paying a lower front-year cash flow multiple, but we are not breaking our pick on NAV because the NAV is pretty tied to that long-term mid-cycle price that we are underwriting. Riverbend had owned this position for a while, and they were looking for an exit, and the stars aligned; they were the first to make the move. Credit to them: they now have about 3 million shares of stock that are up 8% to 10% from where we did the deal, and that is a win-win. Beyond that, I have not seen anything else hit the market yet; I just know that supply is likely coming. Austen Gilfillian: On cash taxes, the rate is not changing that much in itself. We still have the 27% to 30% of pretax income, and that is really your 21% statutory rate and the effect of having a higher depletion rate from an income perspective than from a tax perspective. For first quarter taxes, we were higher as an absolute dollar amount than we guided to because income was up, but we expect that 27% to 30% to be a pretty steady rate going forward. Paul Diamond: Understood. Appreciate the clarity. I will leave it there. Chip Seale: Thank you. Operator: And our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: Good morning, and thanks for your time again. Kaes, perhaps for you, more broadly as you think about the green-light environment for Diamondback, what degree of flexibility do you have in the development plan at Diamondback to lean more into the areas where Viper Energy, Inc. has higher NRIs for both 2026 and 2027? And maybe just more specific on 2026 guidance: is it fair to think about the cadence of growth beyond 2Q as a steady build of maybe 1,000 barrels per day per quarter to get to the average of 65.5? Kaes Van't Hof: I think the way we look at it remains the same. We do look at all of our inventory on a consolidated basis for the portion of Viper Energy, Inc. that Diamondback owns. That moves the high-interest area to the front of the development plan. If anything over the next couple of years, given the quality of what we have seen in the Barnett near Spanish Trail, I would bet that area gets accelerated versus expectations over the next 18 to 24 months. One of our best Barnett wells is right off that Spanish Trail, and it is very unique to have an area where you own 100% of the minerals. I think we have a two-well test coming on—it has been a four-well test—coming on in Spanish Trail later this year, and if I was a betting man, I would say that is going to result in accelerated development of the rest of that branch. Austen Gilfillian: On the cadence, I think that is directionally right. We will see how things trend, and if activity gets brought forward, that could move things a little bit, but as we see things today, that seems directionally right. Derrick Whitfield: Thank you. Operator: Thank you. Our next question comes from the line of Leo Mariani with Roth. Leo Mariani: I just wanted to revisit the question of variable dividend versus buyback. On the Diamondback call, you were pretty clear that you wanted to take more of a countercyclical approach and, when well above mid-cycle oil prices, lean more on paying down debt. Obviously, you do not really need to do that at Viper Energy, Inc. Should we be thinking similarly where at a higher-than–mid-cycle oil price, you are more likely to push money to the variable dividends and the buyback could be a bit more muted in the near term? Also, jumping back to the Riverbend deal: you did a good job talking about where the acreage was in terms of key operators. You made a high-level comment that some of the stuff under Exxon was a little more underdeveloped. Can you give a sense of the overall flavor of the inventory there? Is it geared more toward emerging zones, or is there still substantial core legacy zones like Wolfcamp A and Wolfcamp B? And based on what you are describing, if oil prices hang out here, would you expect that production grows a bit over time from that individual piece? Kaes Van't Hof: Generally, you are correct. We are going to lean more towards cash returns at Viper Energy, Inc. It is how the business was set up. We have not used a ton of leverage in deals—particularly the drop-down—and we paid off most of that CTO debt with the non-core asset sale. In the uses of free cash flow, Viper Energy, Inc. has a base dividend that is going to continue to grow. I would put the variable dividend probably a little bit above repurchases, just because that is how the business was set up. I do not think we are going to sit on a bunch of cash at Viper Energy, Inc., given the strength of the balance sheet. The decision tree becomes easier when you are a distribution vehicle versus an overall NAV growth vehicle at Diamondback. We are going to keep distributing cash, we are going to grow these per-share metrics, and that should result in a higher stock price but also higher distributions. Austen Gilfillian: It really highlights the advantage of the business model when you have roughly 90% free cash flow margins. It allows you to do all of the above. You can pay a big dividend with a base plus variable, you can opportunistically invest in the business—whether that is buybacks or acquisitions—and you can have targeted debt reductions, especially in times of higher commodity prices. You do not have to sit around and wonder which of those options to choose, because your investment as a percentage of operating cash flow is pretty low given the margin. On Riverbend inventory, most of the value will come from your core zones being undeveloped, especially in New Mexico and in the Midland piece. If you look at the Midland–Glasscock line, kind of in what we call the four-corners area there, there is a big chunk of legacy Pioneer—now Exxon—completely underdeveloped acreage that I think will be the primary acreage that supports the production profile over the coming years. As you dig in and think about some of the unquantified zones that we did have to pay for, you are getting the emergence of the Barnett in the Midland and also the Woodford in the Delaware, kind of on the eastern edge of the Delaware Basin. We are pretty excited about that. So I think it is a good mix of existing production and also core undeveloped zones, and you get the unquantified upside to go along with it. That is the beauty of the mineral business model. Kaes Van't Hof: On the trajectory, I think 2027 probably grows, and it has got a couple of years of slight growth. Generally, if you zoom out and look over a five- to ten-year period, it looks pretty flat, but 2027 certainly looks higher than the next-twelve-month production number that we put out. Operator: And our next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Tim Rezvan: Good morning, folks. Some of mine have been answered, so just one for you. We were a little surprised that the Viper Energy, Inc. secondary earlier this year was mostly Diamondback selling and not as many unnatural holders. That overhang is still out there a bit. Is there a price at which you potentially would not participate if some of these unnatural holders come to market? How do you think about dampening volatility should they look to sell because shares are back up to about $50? And as a follow-up, we have heard from some minerals peers that, all else equal, a higher strip is bringing sellers to market. Are you seeing that dynamic as well, or are you facing a different dynamic because you are sort of elephant hunting with a couple of the very large packages out there? Kaes Van't Hof: It kind of depends on the size of the deal and the nature of the trade. If it is a sizable deal and we need to make sure it goes smoothly with public shareholders, then we want the long-term holders of the stock to win long term, and that is probably a good use of capital. If it is smaller one-offs, we probably do not need to support it, given the higher float and liquidity of the business. Flexibility is key, and size of the prize is also key. We are well on our way at Viper Energy, Inc. toward that goal of S&P 500 inclusion as the business gets bigger. That is only going to help float, liquidity, ability to exit, and ability to get deals done. Austen Gilfillian: We have seen it on both levels. We are still actively engaged in our ground game, and calls have picked up on that front, surely as a result of where oil prices have moved. We have seen it on the smaller deals, and we have also seen it on the mid to larger packages—the phones are definitely ringing. I just cannot predict yet what the higher strip or volatility means in terms of ability to get deals done. I think the supply is going to be there. It is key for us to stay disciplined, and when the right deals can generate good returns, we will act. If we do that, things will come our way over time. Operator: I will now hand the call back over to CEO, Kaes Van't Hof, for closing remarks. Kaes Van't Hof: Thanks, everybody, for your time. Busy week, and thanks for your support of Viper Energy, Inc. The future is bright. Operator: Ladies and gentlemen, thank you for participating. This does conclude today’s program, and you may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to the Surgery Partners First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dave Doherty, Surgery Partners' Chief Financial Officer. Please go ahead. David Doherty: Good morning, and thank you for joining Surgery Partners First Quarter 2026 Earnings Call. I am joined today by Eric Evans, our Chief Executive Officer; as well as Justin Oppenheimer, our Chief Operating Officer, who joined the company in January. During this call, we will make forward-looking statements. There are risk factors that could cause future results to be materially different from these statements as described in this morning's press release and the reports we file with the SEC. Company does not undertake any duty to update these forward-looking statements. In addition, we reference certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. we reconcile these measures to the most applicable GAAP measure in this morning's press release. With that, I will turn the call over to Eric. Eric? J. Evans: Thank you, Dave, and good morning, everyone. Before we get started, I'd like to introduce Justin Oppenheimer on the call this morning. Justin joined the company as our Chief Operating Officer in January and has made an immediate positive impact on the organization. By way of background, Justin was previously an executive at Hospital for Special Surgery, the world's leading academic system focused on musculoskeletal care, where he held several roles overseeing operations and strategy. Justin will be available to answer questions during the Q&A portion of our call, and we look forward to using to know him better in the months ahead. Now moving to our first quarter operational and financial performance. I'll start with a brief overview of our first quarter results, followed by additional color on our progress across the 3 pillars of our growth algorithm, organic growth, margin improvement and capital deployment. Let's start with the highlights. We are encouraged by our start to the year. First quarter performance broadly in line with our internal expectations, reflecting improved stability across the portfolio and initial signs of recovery in areas that were pressured towards the end of 2025. As a reminder, we ended last year with a select number of clearly identified addressable headwinds, particularly within a small subset of our surgical hospital portfolio. Entering 2026, our focus has been on restoring operating consistency and predictability, better supporting physician transitions and positioning the business for sustainable growth. We believe our first quarter results reflect early progress we have made and position us well to meet or exceed our 2026 objectives. At a high level, during the quarter, we delivered approximately $811 million of net revenue, same-facility revenue growth of 4.4% and adjusted EBITDA of approximately $102 million, as we continue to execute against the foundational drivers of our long-term growth strategy. Dave will walk through the financial details shortly. Tracking our first pillar, organic growth. Same-facility case growth of 0.6% in the first quarter was modest and below our long-term growth algorithm driven by primarily by temporary weather-related disruptions early in the quarter that led to case losses or deferrals in several higher volume but lower acuity markets. Importantly, these impacts were not broad-based and did not materially affect the higher acuity portion of our portfolio. We would also note that this performance is relative to a strong prior year comparison where we delivered approximately 6.5% same-facility case growth in the first quarter of 2025. As we have noted in the past and given the continued acuity shift in our space, we believe the total same-facility net revenue metric remains the best to assess our growth as it reflects both total cases, acuity and rate improvements. At 4.4%, our same-facility revenue growth was in line with our first quarter and long-term expectations. We remain focused on executing our organic growth strategy centered on expanding surgical case volumes while strategically shifting towards higher acuity procedures. To this end, we continue to see favorable trends in our musculoskeletal service line with total joints performed in our ASCs growing 14.6% year-over-year. Our investment in surgical robotics continues to support this momentum. Our portfolio consists of 73 surgical robots, further supporting higher acuity procedures, we can perform safely and efficiently across the platform. We remain focused on thoughtfully deploying this technology to enhance our capabilities where it drives clinical value and enables us to earn more complex, higher acuity cases. Physician recruiting remains another key driver of long-term growth. During the quarter, we recruited approximately 140 physicians with a strong concentration in orthopedics, ophthalmology, GI and other priority specialties. While new recruits take time to ramp, these additions position us well for accelerating volume and acuity as the year progresses. De novo development continues to provide one of the highest returns on capital across our portfolio. During the first quarter, we opened one de novo, bringing our total openings to 9 over the trailing 12 months. Our de novo ASCs are heavily weighted towards MSK, aligning closely with our long-term strategy to expand higher acuity capabilities in attractive markets. Turning to margin expansion. Our adjusted EBITDA margin was 12.6%, in line with our expectations for the seasonally lower margin first quarter. Overall, cost management was solid in the quarter, with both labor and supply costs showing sequential improvements as a percentage of net revenue relative to the first quarter of 2025, which Dave will provide greater detail on in his comments. Our proactive efforts allowed us to partially offset the onetime pressures related to reestablishing incentive compensation, increased provider taxes and tariff pressures that are detailed in our posted slides. Regarding payer mix, while we did see modest payer mix pressure in the first quarter, the trend is moderating from the second half of 2025, and we are continuing to take action to both recover and grow our commercial market share as well as to reduce our expenses to improve our Medicare case profitability. Importantly, regarding the 3 surgical hospital markets we discussed on our fourth quarter call, they are executing their plan through the first quarter, and I am confident that our new leadership teams that are in place will continue to drive progress. Moving into -- on to our third pillar, capital deployment towards M&A. During the first quarter, we deployed approximately $4 million of capital. Our pipeline remains active, and we continue to target deploying approximately $200 million in capital annually. While first quarter deployment was modest, we continue to have a healthy pipeline and remain optimistic about our long-term opportunity to be an accretive consolidator in the very fragmented ASC landscape. As a reminder, our full year 2026 guidance does not factor in any potential impact of M&A. In parallel to continued execution of disciplined M&A, we have made progress on our portfolio optimization initiative. Our efforts remain focused on a small number of larger surgical hospital markets that have broader services than our core short-stay surgical focus. We are in advanced discussions on one key opportunity in a larger surgical hospital market and are working through customary diligence and transaction considerations. Our Board is actively engaged in this process, and we continue to target an announcement in mid-2026. As we continue to advance our portfolio optimization efforts, our focus remains on unlocking financial benefit to the company through reduced leverage and improved free cash flow conversion. Before turning the call back to Dave, I want to thank our teams across the organization as well as our physician partners for their focus and execution, particularly in navigating a dynamic operating environment. We remain confident in the durability and value of our model, the strength of our physician partnerships and our ability to execute against our strategy as we move through the remainder of the year. With that said, I will turn the call back to Dave. Dave? David Doherty: Thanks, Eric. Adjusted EBITDA for the quarter was $102 million. Compared to last year, results reflected the planned impact of payer mix and provider tax items discussed on our fourth quarter call and embedded in our 2026 outlook. Against that backdrop, overall performance came in modestly ahead of expectations and in line with our underlying assumptions for the year. Supply expense represented approximately 27.2% of net revenue during the quarter, while SWB expense was approximately 30.5% of revenue, both showing modest improvement year-over-year. Both professional and medical fees and G&A expenses were broadly in line with the prior year. Other operating expenses were 7.3% of revenue, higher year-over-year, reflecting the provider taxes we have previously discussed. While these items contributed to margin pressure during the quarter, they were fully contemplated in our internal expectations and full year outlook. Collectively, expense ratios were generally consistent with the prior year and our expectations. Same-facility case growth was 0.6%, with several specialties contributing above 2% growth, including vascular and orthopedics. These trends helped offset case deferrals driven by weather-related disruption in higher volume, low acuity markets early in the quarter, which we estimated affected growth by approximately 40 basis points. Working capital performance remained solid. Days sales outstanding were approximately 66 days, consistent with both the fourth quarter of 2025 and the first quarter of 2025. Interest expense increased year-over-year by approximately $7 million, reflecting higher rates following the expiration of our interest rate swap. This increase represented a meaningful cash headwind during the quarter, though it was partially offset by base rate reductions we executed on our credit facility in 2025 and by improved working capital performance. Operating cash flow for the quarter was approximately $12 million, an increase from $6 million from the prior year period, reflecting improved underlying performance consistent with typical first quarter seasonality and timing-related movements in working capital. Capital expenditures during the quarter included $9 million of maintenance-related spend, largely associated with equipment refreshes, information technology and routine facility investments necessary to support ongoing operations. In addition, we made $58 million of distributions to our physician partners, consistent with the historical patterns and our partnership-based model. Net leverage under our credit agreement was approximately 4.3x, which is consistent with the fourth quarter. GAAP net debt to adjusted EBITDA was approximately 5.1x. We remain focused on disciplined capital allocation and expect to continue to drive gradual deleveraging over time, supported by earnings growth and ongoing portfolio optimization. During the quarter, we deployed approximately $4 million on acquisitions. Based on internal development reporting, we estimate these acquisitions will contribute approximately $7 million of revenue in 2026. Regarding our share repurchase authorization, we did not repurchase shares during the quarter. As discussed previously, we will remain disciplined in the use of this program and we'll evaluate repurchases opportunistically based on valuation, liquidity and alternative uses of capital. We are reiterating our full year 2026 revenue guidance of $3.35 billion to $3.45 billion and adjusted EBITDA guidance of at least $530 million. For the second quarter, we expect revenue to represent 24% to 24.5% of the annual target and adjusted EBITDA to be 23% to 23.5%. We -- as you've heard from us today, we continue to manage the business prudently with a focus on enhancing execution and protecting and growing margins. While we know there is still work to be done as we continue to navigate near-term market dynamics, we believe our early efforts have laid solid groundwork for continued improvements in 2026. In addition to disciplined execution of our organic growth strategy and continuing to drive operational efficiencies, progress on M&A and our portfolio optimization initiative represents additional potential levers to accelerate our return to our long-term growth algorithm. We remain confident in our full year outlook and more broadly, our ability to return to consistent and sustainable growth, fueled by the strength of our unique short-stay surgical platform. With that, I will turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] We take the first question from the line of Brian Tanquilut from Jefferies. Brian Tanquilut: Congrats on the quarter. I know it was tough. So maybe I'll start with Justin, since you're new to the earnings call, just curious, I mean, you've been here about 4 months now. Anything you can share with us in terms of what you see -- what you've learned about the company, the operations and then what areas of opportunity you see in terms of like blocking and tackling or areas of further productivity and efficiency gains where you can make a difference in the operations. Justin Oppenheimer: Thank you for the very first question. Maybe what I'll do is just highlight 3 categories of early observations just to stay organized, maybe one around people second around our organization's positioning and three, our operational priorities. So the first, our people, I've spent nearly every week on the ground in our markets, spending time with our people and physician partners. And very impressed with the positive culture of Surgery Partners. It's palpable. Everyone is committed to their patients, to their physician partners to each other. We have talented people who want to have an impact and create value for our physician partners and our shareholders. And so I think just a level set summary on our people, and I think our culture is very strong. Initial talent assessment as our core operators are strong. There's always places to shore up, but that's to be expected. The second category just around our organization's positioning. One of the reasons I joined Surgery Partners is its positioning in the market. The tailwinds in this sector are real, and you can really see them on the ground. Patients want and appreciate the convenient high-value care that we're producing. Physicians want to bring their patients to our efficient facilities and partnered facilities and payers want the procedures done in the right setting. And so you can really see this on the ground. And what's more positive from my mindset is Surgery Partners is the only company at scale focused solely on the management of surgical facilities into the future. So this has been all confirming. To get to your question about operational priorities, with the cultural foundation and these industry tailwinds, the priority is really on execution. And I do believe there are a lot of embedded earnings with better execution, a real focus for our teams coming out of the first quarter is on organic growth and operational excellence. And those have been the central themes coming out of my first 100 days. Growth means physician recruiting and physician relationships, operational excellence means hardwiring cost management and really pulling the key levers that make surgical facilities. And so both our teams and you all hear this drumbeat of growth and operational excellence from me throughout the year. So maybe I'll end with that. Brian Tanquilut: That's very helpful. Maybe, Dave, just shifting gears quickly. As I look at the P&L, a lot of progress here on SWB, supplies cost and even profits. So just curious, I mean, how do we think about, number one, what those levers were pulled during the quarter? And second, the sustainability of these levels of cost essentially its operations level. J. Evans: Yes. Thanks, Brian. I may jump in here, and then I'll let Dave add a little color if he wants to. First of all, thank you for the comments on the quarter. Glad to have a solid start to the year. I think when we look at the cost controls and Justin has been jumping in with this, our team has been focused on cost management for a long time. But we came out of last fourth quarter with a real focus on driving some cost out of the business to improve margins on the Medicare business. You're seeing that show up in SWB and supply management. We do think there's still opportunities there. We've talked about -- if you look across the business the last 5 years, we have consistently improve margin over time. We do have some near-term headwinds. We've outlined in our slides, but we still feel really good about the team's ability to continue to take advantage of our scale in efficiency to drive those costs down as a percent of net revenue. So I don't know, Dave, if you have anything to add to that. But I mean I would say we believe Q1 with a lot of confidence in our ability to manage those costs and to find ways to drive improvement around margins. David Doherty: Yes. I'd just supplement that with a couple of things maybe to highlight where we're going to see some of this pressure coming through on those headwinds that we've cited. And we experienced a little bit inside the first quarter. So those are legitimate headwinds that we're seeing. Reestablishing the bonus is a big one that will start to show up in the second quarter, and you'll really start to see that more significant in the third quarter. So you'll see a little bit of pressure really more of a return to normal on that SWB line as a result of that. The provider tax pressure that we'll see will pop up in our other expenses, and that's a net new item for us. I think historically, that number has been around $200 million for the year. That number will be a little bit elevated this year as we overcome those new -- those new pressures that we've talked about before. Offsetting all of that is exactly what Eric was talking about and what we alluded to in our fourth quarter call as we adjust to the payer mix that we've talked about, cost containment is the other way that we're doing that in a strong partnership. That's what we're really excited about the early work that Justin has done. That we'll see kind of across the board supplies G&A and SWB improvement accelerating more in the second half of the year. Operator: We take the next question from the line of Matthew Gillmor from KeyBanc Capital Markets. Matthew Gillmor: I appreciate the comments on the 3 markets showing some recovery. I just wanted to see if there's any additional details to share, especially with respect to some of the payer mix dynamics that you called out last quarter. J. Evans: Yes. Thanks for the question, Matt. And Justin has actually been on the ground a lot as have I in those markets. What I would say is, look, the pressures have moderated, although there are certainly -- it sounds like we've bounced back completely. We've talked about a little bit. We've got new leadership teams in those markets. We've also got a just -- we've had a lot of time to sit down with our physician partners and focus on the fact that despite all their hard work and growth efforts, they didn't necessarily see it flow through. And so the focus on really, really coordinating closer and tighter to make sure we're competing appropriately for each and every commercial patient to maintain and grow that market share has been there. We've also done a lot of work around just timing of physician transitions, and that continues to be a focus area for us. I would say pretty pleased with the first quarter. Those 3 markets are in line with where we expected them to be making progress. And again, I will reiterate, while those 3 markets had pressure, they are really great markets for us overall. They continue to have really strong payer mix in general, despite the pressure. They also have really, really strong market positions. But yes, no, it's encouraging to see those get back online. Obviously, the fourth quarter was an unexpected kind of challenge in those 3 markets, and we're excited to kind of see the early progress. David Doherty: Great. And then following up on the comment you made about surgical robots and the contribution to total joints. Can you maybe just sort of paint the picture in terms of the growth in surgical robots over the past maybe a year or 2? And how many you think you can add to the portfolio over the next couple of years? J. Evans: Yes. Great question. I mean surgical robots really over the last 4 or 5 years have been an unlock for us and largely with physicians that might have already been partners are using our facility. And we did not feel comfortable bringing those higher acuity cases until they had the matching technology. We continue to see technology in general robotics, whether it be orthopedic robots in some cases, some of the new soft tissue robots that are coming out. The ability for us to make it easy for physicians to move patients safely and have the same level of technology they get in the traditional acute care setting has been a big unlock. And we still see opportunity there. Again, roughly 70% of our total facilities have the ability to do MSK. And a lot of those over time have added robots. We still have a ways to go there. I mean you see that even -- we're still seeing strong double-digit growth in total joints. I don't see that changing in the near future. There's still a lot of cases to transition. When you think about -- we talked a little bit in the opening comments about our de novo pipeline, again, very, very MSK heavy. I think you can expect to see robotic expansion there as well. So we think we're in the early innings. Over the last several years, I mean, we've added double-digit robots on average most every year, continue to find opportunities for that. And in some cases, as we're out recruiting, one of the things we have to be very focused on is how do we match up technology and capacity in a way that's attracted to physicians. And I think our team does that very, very well. Operator: We take the next question from the line of Ben Hendrix from RBC Capital Markets. Benjamin Hendrix: I just wanted to talk a little bit about the lower acuity deferrals weather-related that you saw in the first quarter, just how you're thinking about those getting back on the schedule. Should we expect some skewness in the second quarter in terms of the case growth versus rate balance? And how do you expect that mix to kind of track through the rest of the year? J. Evans: Ben, thanks for the question. So as far as the weather-related deferrals, obviously, I think you've heard all of our peers and everyone talk about January and February, certainly had some weather where it hit us tended to be in markets where we had a lot of kind of high volume, lower acuity procedures, think GI and eyes. About -- Dave mentioned in the script, about 40 basis points of impact on our growth. So instead of 60 basis points, we would have been at 1%, still not where we expect to be long term. As far as getting those cases back, some of them will probably come back over the course of the year. The reality of it is when you lose those cases for weather, you lose a day, it's hard. A lot of those really busy facilities. They're full most of the time. And so yes, we'll capture some of that, but I wouldn't think it's going to lead to any kind of real skewing. The good news is we've seen really strong growth within high acuity. So I don't know, Dave, if you would add anything to that. David Doherty: Yes. Maybe just one thing, just a reminder on the calculation for same-store rate, particularly on a business that has high-acuity business and lower acuity business. And it's not a return of those cases, but a return to normalcy sequentially between the first quarter and second quarter, we'll put a little bit of pressure on that rate just sequentially, if you're looking at net revenue per case. Benjamin Hendrix: And just to follow up. We're getting some incomings on the cash flow from operations print. Just any more detail you can provide on the working capital dynamics you're expecting? And how should we about timing of cash flow realization through the year? J. Evans: Yes, I'll let Dave dive into the details. I'd just say high level on free cash flow, we're very, very focused on driving improvement there. First quarter was an improvement over last year. This business produces a lot of cash. We've got to make sure we continue to convert that and grow with our business along the way we see lots of opportunities in working capital. I'll let Dave talk about a few of those that he's working on this year. David Doherty: Yes. Yes. So first off, just dissecting the first quarter cash flow from operations. We did have some benefit from working capital relatively marginal. I'll talk about that in just a quick second. But other factors that you can kind of look at lower below-the-line spend year-over-year as that number comes back down as we've been guiding to more in line with long-term historical perspective. And interest cost is interesting. There's 2 components of our corporate debt. As you might recall, last year, we did refinance our term loan and the revolver, bringing that down to very good interest rates of SOFR plus 250 basis points. That generated a net positive for us in the quarter of about $9 million. However, in the quarter, that was offset by pressure from unwinding the last quarter's benefit of the interest rate swap that we had last year and then marginally higher debt that we hold related to our refinancing of last year. So working capital, we will now kind of overcome that. Starting in the second quarter, you won't see that interest pressure from the interest rate swap termination. So that unlock should start to happen there. On a working capital basis, again, something I'm super excited about working with Justin and his team on is embedding greater working capital discipline at the facility level. Our days sales outstanding was 66 days in the quarter. That's the same as it was in the fourth quarter. We need to make that better as we progress throughout the course of the year, and we've got plans in place. That's the single largest lever that we have at the facility level in order to unlock that cash flow. Our physician partners are aligned with that because they get better distributions when that happens. So we do expect that, that unlock should happen over the course of the year. Operator: We take the next question from the line of Whitt Mao from Leerink Partners. . Benjamin Mayo: I may have missed this, but how much were the provider taxes in the quarter, both revenue and other operating expenses? David Doherty: Yes. Thanks, Liz, for the question. Yes. So as a reminder for the large group, we did talk about new headwinds that we're facing this year that fall into kind of 2 categories. In one state, the -- pretty much the only state where we have any exposure to Medicaid that was in across the board, 4% rate reduction that started to impact us in the fourth quarter of last year and did impact this year. That had a very small impact on revenue, almost inconsequential, but of course, that flows all the way down to the bottom line. And we also had provider taxes introduced in 2 new states, for which we have virtually no Medicaid business just for the fact that we carry the title hospital in those 2 markets. The combined pressure on the adjusted earnings line for those 2 things is estimated to be around $8 million for the full year, a little bit more front loaded because of that Medicaid rate pressure only affects 3 quarters of the year. So we're a little bit more than 25% of that number impacting our results, split between revenue and other operating expenses. Benjamin Mayo: Okay. So divide it by 4, so more than 2 in the quarter year-over-year was the pressure... David Doherty: That's fair. Benjamin Mayo: Yes. Okay. And my other question is just around like what we're seeing with a lot of the payers that continue to push this campaign around prior authorization. And I'm just wondering if you're seeing any changes with the plan's behavior? And then just also any comments you have around CMS' prior of demo with the Wiser model, whether or not that's having any impact one way or the other. J. Evans: Yes. Thanks, Whit. Appreciate the question. Look, we are certainly all on board and in favor of all the work the payers are talking about when all of the prior authorizations. We do see in markets one of the great things about our model is we are aligned with payers and saving the system money. So this idea of payers making it harder to get approval in the wrong setting of care is a great thing for us. We obviously fully supportive this push to reduce prior authorization burden going back to that 66 DSO days and all the other complexities we face, obviously, would be a welcome headwind -- or a welcome tailwind for cash flow. So we do see payers making real efforts there, and I do think that benefits our business moving forward just because of our cost position. With regard to the Wiser program, that has gone in place the Medicare demo. We have seen -- early on, there were some learnings there just to make sure, as you know, it add some more administrative, unfortunately, work on our side. But we feel like we're through understanding the program. We don't see any material impact. And we understand the goals of that program, which, again, I want to make sure patients are getting the care they need the right care in the right place. All of those efforts align perfectly with our mission, which is really to provide high-value care at the right setting, right care, right place, right price. And so we think those are going to be long-term tailwinds. We haven't seen tremendous impact there yet, although there are certainly markets where we are hearing that it's harder for physicians to get their patients into a hospital when there's an ASC option, and that's great. Operator: We take the next question from the line of Joanna Gajuk from Bank of America. Joanna Gajuk: So can you give us an update on the portfolio optimization and selling or, I guess, reducing exposure to your surgical hospitals? J. Evans: Sure, Joanna, thanks for the question. Obviously, it's something we've talked about for last several quarters is portfolio optimization. We remain committed to reviewing those opportunities within our portfolio to do several things. I just want to remind everyone what we're looking to accomplish with this. One is to make -- to actually delever faster, so finding a way to help us delever improving free cash flow conversion. Some of those places are a little bit more capital intensive than our core business. The third is really to improve our growth rate going forward. And then lastly, just simplify the business to our core short-stay strategy. So we do see opportunities there. It has been -- as you bring up here, the timing of this, it's been hard to predict. We do have a large market, we mentioned in my comments earlier that we are in the final stages of, we are still targeting midyear. But I'd be clear on that, that we're going to be very disciplined on making sure these are good assets, making sure we get the right value while we're committed to portfolio optimization. We want to do it in a way that's accretive to shareholders and make sure we accomplish those things that I talked about earlier. So there's one market that's in the very advanced stages there. We're targeting midyear. We'll see. Obviously, nothing is done until it's signed. And then there are a couple of other markets that we're going to be exploring and we'll give you the right -- we'll give you the updates as those are appropriate. Joanna Gajuk: And I guess with that, if I can, any update on your Investor Day that you were planning? I guess, is it still in the works? So are you waiting to complete more of these before you have this meeting? J. Evans: Yes. No, we're definitely still committed to doing an Investor Day. As we've said before, we are tying that to having something meaningful done within our portfolio optimization. We do plan to do that later this year. And so we're staying very closely tied to that timing. And as we have something to update you on there, we'll obviously do it quickly. Operator: We take the next question from the line of Andrew Mok from Barclays. Unknown Analyst: This is Thomas Walsh on for Andrew. You shared some of the deliberate actions taken to address payer mix pressures from the back half of 2025. How did commercial mix come in, in the quarter? And could you comment more broadly on the view of the strength of the consumer wallet and employment trends in your markets? J. Evans: Sure. So commercial came in about 50% for the first quarter, which was -- had a little pressure. If you look at sequentially, and we always have a little bit of pressure. Obviously, our population is aging. We've got to take commercial market share to stay even. But I feel pretty good about the moderation of that. We are seeing some -- again, some improvement signs there. It was not nearly the same pressure we saw in the fourth quarter, but also did not totally abate. So we're very, very focused on that. I think from your question around just the consumer wallet, it's interesting, the pressure we saw in cases in the first quarter relative to kind of lower acuity, higher volume rates was mainly around weather. I think it's a little early to say. I mean the economy still seems to be holding up relatively well. I'm not ready to say that we're seeing consumers make different decisions. But again, one of the hardest things in health care is to determine why patients don't walk into your doors. But we feel good about the start year for growth. When it comes to -- I think you're kind of alluding to some of the pressure, too, that's been on exchange -- the exchanges and kind of patients transitions there. We've mentioned before because of the nature of our business. We don't really have ERs. It's purely elective. We have not historically in most markets, seen a lot of those HIX patients. And so we haven't really felt a material pressure there, but we continue to watch that. The good news is we're not exposed to kind of payer mix weakening. The only thing that we would have to watch closely is there some kind of dampening or postponing of procedures. And I think it's too early to say we've seen any of that. We continue to believe have great confidence in our outlook for cases this year, which admittedly is a bit below our kind of long-term algorithm of 2% to 3%. Unknown Analyst: And following up, you provided second quarter revenue and EBITDA outlook, that appears slightly below your normal revenue seasonality and some below consensus estimates. Are there any timing elements in the second quarter to consider or for the remaining of the year? J. Evans: Yes. Thanks for the question. I mean there's always some timing elements. I would say -- let me start off by saying we were very confident in our full year guidance. The second quarter guide is just a prudent guide from where we sit today. We feel it's -- actually, if you look at the longer-term seasonality, it's relatively in line with what we've said historically. Certainly, we're entering Q2 with confidence in how the business is progressing this year. We feel good about our ability to meet or exceed our outlook. And I think you should just say that -- I should say it's early in the year. It's a prudent guidance for Q2. I don't know, Dave, if you would add anything. David Doherty: Yes, perhaps just a point of emphasis when you're doing a comparison year-over-year. In the second quarter of last year, we -- I'm sorry, in the third quarter of last year, we announced one of our initial portfolio optimization efforts that took a surgical hospital from a consolidated position down to a deconsolidated position. So that revenue would have been in the second quarter last year, not in the revenue for this year. Any other factor that's going to affect your year-over-year performance inside the second quarter are those headwinds that we've highlighted in our financial supplement. Operator: We take the next question from the line of Sarah James from Cantor Fitzgerald. Sarah James: I want to continue that topic a little bit more. Can you help us bridge the first half to the second half, the EBITDA ramp there? How much of that depends on payer mix recovery versus your cost actions? J. Evans: Yes. Thanks for the question, Sarah. I think look, if you want to -- if you're thinking about bridging the first half performance second half performance, we are not -- there's nothing embedded in there that's some dramatic improvement in our payer mix. So we do have -- again, we're seeing moderation so that is contemplated, but it's -- the second half does not depend on that. From a cost standpoint, we're always working on ways to more efficiently run the business. We do expect to continue to drive improvement on that throughout the year. But I think what I would say is from a seasonal adjustment standpoint that this is a relatively normal spread. And we feel really confident in our ability to deliver not only on Q2, but on the full year. David Doherty: Maybe if I just add just to that fair -- for your benefit. As a reminder, I mentioned this a little bit earlier on the call, but some of those headwinds that we've noted are more front-end loaded and the biggest one being that Medicaid cut, which will not affect our year-over-year performance in the fourth quarter. And the other thing is -- the other 2 things, Eric did mention the focus on cost containment in the industry as those pick up, and we kind of mature into those, those will have an impact inside the second half of the year. And then finally, that portfolio optimization work that we talked about a little bit earlier in my last question, the increase that comes from an earnings perspective, as we talked about last year, is mostly back half of the year weighted. So those are the key components that would drive better performance in the second half of the year, all relatively marginal. But when you add them together, that's how you get north of 50% of the earnings in the second half of the year which is normally the case. It's normal, yes. Operator: We take the next question from the line of A.J. Rice from UBS. Albert Rice: First question around the deal activity, you did $4 million in the quarter, you're saying you're still reiterating the $200 million spend. That's been an area of volatility the last 2 years, 2 years ago above expectations last year, well below. Can you comment on visibility on that deal spend, what the pipeline looks like, what the competitive landscape looks like? J. Evans: Sure, A.J. And it's a great question. Actually, the point you're bringing up is exactly why we don't have it in guidance this year, right? I think we've struggled the last several years with kind of over and under and the timing of M&A is fickle. We'll say, look, we feel good about our pipeline. We continue to see new things coming in. And certainly, it's a very fragmented industry. So big picture that $200 annual number is one that we are continuing to talk about long term. Obviously, off to a little bit of a modest start this year, but we do feel good about the pipeline. It's always a little bit fickle. I would remind everyone that anything we do on the M&A pipeline is pure upside to guidance. And so we do -- look, I expect we're going to make progress. I think last year, we ended up finishing not too far off A.J. I think we had up spending about $180 million had some great deals. We finished up with a big one in the fourth quarter. it was back-end weighted, obviously. And this year, it looks like we're going to end up being a little back-end weighted to given the first quarter. But look, I would say we're were the last kind of only stand-alone short-stay surgical operator. We're well positioned in the market that need -- that is going to continue to consolidate. We think we're well positioned to be one of those consolidators. And so like I don't -- long term, nothing's changed, but the timing is fickle and admittedly, it's been a slow start. Albert Rice: Okay. The other thing I was going to ask you about, you mentioned that you recruited roughly 140 physicians in the quarter. I usually think of the heavy recruiting periods more in the second half of the year, the back half of the year, but maybe not in your case. But just give us a perspective on that. Is that sort of normal course? Or are you -- is that a step up? And anything to call out on where their focus is in terms of any kind of surgical specialty or anything? J. Evans: Yes. Great question. I would say the 140 is kind of -- is basically in line with where we would expect in the first quarter. You're right, we are back-end loaded when it comes to recruitment. That's always the case. And so our physicians that we recruited in August through December of last year, obviously contributing into this year, that will be where you'll see that number raised in the back part of the year. Very focused still on MSK. We spend a lot of time on those higher acuity services and so the team is focused on driving growth there. I would say as a kind of a positive of those 140 doctors this year, they are, by doctor, higher net revenue in total than last year's recruiting class. So again, we very much closely watch kind of that performance. And we've got a very targeted list we're going after. The good news is with technology and with the inpatient only list coming off, that eligible list of proceduralists who can bring all their cases continues to grow. We continue to stay focused on going after the right docs. But definitely back-end loaded, I feel good about the early start. Operator: We take the next question from the line of William Spivack from TD Cowen. Will Spivack: Can you just talk about your expectations for the split between case growth and revenue per case growth as the year progresses? David Doherty: Yes. Thanks, William, for the question. So what we have implied in our guidance for the year continues to be approximately 3-plus percent same facility revenue growth, which is how we prefer to look at this. As you saw in the first quarter, we had just under 1% same-facility case growth. I think you'll skew more positively on the rate side as the year progresses. Of course, as I mentioned earlier, with the return to normalcy in the second quarter, that may be pressured a little bit. But -- so that -- I would consider that to be normal fluctuations. But you'll roughly get an equal contribution between both of those, perhaps skewing a little bit more towards the rate side. Will Spivack: Okay. Just as a follow-up, just to clarify a question from earlier on the other OpEx and provider taxes. So I think you said that was about a $2 million headwind maybe a little bit more to EBITDA in the quarter. So I think other OpEx was up about $15 million. Can you break out how much of that other OpEx increase was the provider tax side so we can kind of back into the revenue as well? J. Evans: Yes. So there's a lot of moving parts there because of all the different states and how they flow through. If you think about in total at a gross level, that OpEx expense related to provider taxes is about $11 million, with the biggest part of that being the new states that we've added. But we'll certainly -- we're happy to go through those details. Then I would also say that other operating expense, if you look at it over time, it does fluctuate quite a bit. This year, though, that change is driven by those provider tax changes, not only in existing states, but importantly and the biggest contributor this year as the new states that added those. And unfortunately, added those without any Medicaid benefit for us. We're obviously still going to be very active in advocacy on some of those areas. So I don't think those things are necessarily forever, if we can work on them, but that's where that's showing up, and that's roughly the numbers. David Doherty: Yes. Yes. I would say a large majority of that year-over-year increase is related to provider taxes, roughly a little bit less than half of that relates to the new provider taxes associated with those programs from which we get no benefit. The good news is those -- even though there may be a big number on provider or other operating expenses, they are in facilities that we don't have a significant ownership interest in some cases, they're relatively small. So that does move down to -- in line with kind of what our long-term growth algorithm, the way I answered with question earlier. So the adjusted earnings piece of that is going to be a little bit lower -- a lot lower, I should say. Operator: We take the next question from the line of Bill Sutherland from the Benchmark Company. William Sutherland: Just want to think about the de novos for a second. Can you give us a sense of kind of what's in the pipeline and maybe how they're sort of moving towards consolidation as a group? J. Evans: Bill, I appreciate the question. We are excited about the de novo pipeline. We have 5 expected to open later this year, 7 more in the pipeline, and we continue to see interest in that area. It is a place where we see the opportunity for accretive growth. Unfortunately, it takes a while to show up. As we've talked about, it takes 12 to 18 months to syndicate and 12 to 18 months to build, a year to get to cash flow breakeven, but the return on these is quite good. And so we're getting into that point where we've been doing this now for a couple of years, it will start becoming run rate. We are not yet to the point, Bill, where we're doing buy-ups in those facilities. We've got about half of those that are with health systems about half that are independent although that independent number, I think, is going to go up over time. In those independent centers, there will be an opportunity as they ramp, we expect to buy up and consolidate those centers. But we're not to that level of maturation, but we're super excited about where those are heading. And feel good about the opportunity to continue to have that be a nice lever to help meet our growth. Operator: Ladies and gentlemen, we take the last question from the line of Benjamin Rossi from JPMorgan. Benjamin Rossi: Just following up on your physician recruitment comment, in the language from the final OPPS rule, much of the logic stream from CMS' discussion about removing the inpatient-only list come from this concept of greater physician autonomy over where they treat their patient case load. Just taking a step back, when thinking about the changes that allow physicians to take a greater portion of their book of business into the outpatient setting, what do you consider to be some of the remaining obstacle they're paying points for doctors that prevent them from treating their entire caseload of Medicare and commercial patients in the outpatient setting at this point? J. Evans: Yes. Great question, Benjamin. I appreciate the question. So the inpatient only [indiscernible], we are very excited about the fact that the government has decided to put the decision back in the physician's hands. As you probably know, over the last 10 years, the government has spent a lot more money than it needed to because they were behind on getting Medicare caught up with what was happening with commercial patients. It happened with total joints. It certainly happened in vascular procedures. And so you I think you look at some of these things, and the government has seen repeatedly where commercial has moved faster and doctors that move patients safely based on technology in front of their list on the Medicare side. So we're always excited when the government leans in to prefer our setting because we know we create great value. We've got great outcomes. So continue to see that as a nice tailwind for the business going forward. Some of the obstacles that still remain. There are some states that haven't caught up with CMS in certain areas of vascular and EP. There are -- in cardiovascular. There are -- I think there's obviously always different parts of the country that physicians have. It's a little bit sometimes going to be a little bit of gill mentality. They have their own reasons they think patients can't be safely treated and certain side of care that we have to go through. Technology is sometimes a barrier. There are certain specialties where the technology, the robotics technology, for instance, is sometimes a limiting factor for ASCs to be able to afford the capital. We think there's real opportunity with payers and with some of the new technologies coming out to fix that issue. So There are some minor things left. I do think that a lot of those things continue to melt away as physicians experience our side of care, continue to have great outcomes with patients and higher acuity. And we're thrilled that no matter which administration has been in democratic, republic and they've supported the ASC space. But in particular, this administration with the removement of the inpatient-only list, that plays perfectly into our thesis, perfectly into what we're trying to deliver for the health care system, and we expect that, that's going to be a nice tailwind for us in the coming years. With that, I appreciate -- go ahead, sorry. Benjamin Rossi: No, sorry, I just wanted to say appreciate the color there. Just real quick then. Now 140 new additions on physician recruiting. Any comments on if these are replacing retirees and departures versus being truly additive? J. Evans: Yes. So I think in the first quarter, we feel really good about the additions we have had. Some of those would be replacing retiring some of them are pure net adds. I don't have that net number. We haven't released that. But I would say we're pretty happy with our start around this recruiting. We do see it as additive to the -- to our growth profile going forward. We're going to be closely watching that this year. Obviously, last year, we had a bit higher retirement rate than we've seen in the past, and we are adjusting to that to make sure we manage that very, very carefully. But super excited about kind of the early reads on recruitment this year. And again, I think as technology and as government regulation allows us to target additional procedures, it certainly continues to open up that world of recruits for us, and we're being very focused on that. So -- appreciate the question. I think that was our last question. I appreciate everyone's time today. And look, I'll let you enjoy the rest of the day. Thanks so much for your time. See you. Operator: Thank you. Ladies and gentlemen, with that, we conclude today's conference call of Surgery Partners. Thank you for your participation. You may now disconnect your lines.
Operator: Hello, everyone. Thank you for joining us, and welcome to the ADM Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's call, Kate Walsh, Director of Investor Relations for ADM. Ms. Walsh, you may begin. Kathryn Walsh: Welcome to the First Quarter of 2026 Earnings Conference Call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer; and Monish Patolawala, our Executive Vice President and Chief Financial Officer. We have prepared presentation slides to supplement our remarks on the call today, which are posted to the Investor Relations section of the ADM website and through the link to our webcast. Some of our comments and materials may constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These statements and materials are based on many assumptions and factors that are subject to numerous risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation and the materials. Unless otherwise required by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events. In addition, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and presentation slides, which can be found in the Investor Relations section of the ADM website. I will now turn the call over to Juan. Juan Luciano: Thank you, Kate. Hello, and welcome to all who have joined the call. Please turn to Slide 4, where we have outlined this quarter's performance highlights. Today, ADM reported adjusted earnings per share of $0.71 and total segment operating profit of $764 million for the first quarter of 2026. Our trailing fourth quarter adjusted ROIC was 6.4%, and cash flow from operations before working capital changes was $442 million for the quarter. Operating performance was robust during the quarter as our team advanced our company priorities, and our crushing and ethanol businesses benefited from an increasingly constructive commodity and margin environment. In particular, soybean crush and ethanol margins strengthened meaningfully as the market anticipated the finalization of renewable volume obligations for 2026 and 2027, which the EPA published on March 27. We commend the administration and the EPA for advancing our renewable volume obligation that strengthens markets for American farmers and enhances America's energy security. The RVO drives demand for corn, soy and other domestic feedstocks, and it supports a reliable domestic fuel supply chain that offers consumers dependable choices in their daily lives. I also want to thank our team for delivering on our plan in a complex and rapidly changing environment. Based on our expectation that we will continue to successfully advance our priorities throughout the remainder of the year, combined with the expectation that the constructive margin environment we are in continues, we are raising our earnings guidance range for 2026. Our full year adjusted EPS guidance range is now $4.15 to $4.70, up from our previous range of $3.60 to $4.25. Please turn to Slide 5. As we look at our strategic priorities for 2026, we remain focused on continuing to reduce our manufacturing and transaction costs, generating strong cash flows, investing in our growth platforms, and further developing and expanding our deep bench of talent to support our strategic priorities. Based on these priorities, we achieved notable progress in a number of areas during the first quarter. Here are several highlights. Our Ag Services business achieved higher North American export activity, which included increased shipments of soybeans and sorghum to China, and the continuation of a strong corn export program. We demonstrated the ability to capture underlying margin opportunities in crushing and refined products and other subsegments. We also delivered strong soybean meal sales during the quarter, driven by robust global consumption. Our team capitalized on the constructive margin environment for ethanol, with strengthening ethanol margins more than offsetting the continued softness in starches and sweeteners volumes. And our Nutrition business achieved higher flavor sales, and we're seeing momentum built around natural colors and flavors. Also, we are seeing the benefits of our strategic portfolio actions taking hold. From a manufacturing standpoint, we made solid strides in increasing throughput and decreasing unplanned downtime across our production footprint. During the first quarter, our team delivered strong global crush volumes, with oilseeds tonnage increasing 2% compared to the prior year quarter, and we achieved the best overall global site crush production on record. For Nutrition, the team continued to improve operational execution, and we are seeing substantial progress with the continued recovery of our Decatur East plant and animal nutrition operations. As we look ahead, we're also targeting a meaningful reduction in transaction costs across our global footprint, including further automation and use of AI in workflows to reduce manual touch points, errors and cycle times. These initiatives also extends to our supply chain management and freight and logistics networks. We continue to pursue high-growth opportunities that are designed to generate enduring returns. We recently created a new senior innovation and growth leadership role responsible for accelerating projects in this area across the enterprise. A number of the initiatives underway are already generating revenue, and we are encouraged by the progress we are making. I'll talk more about this on the next slide. All of this is bolstered by the development we are doing around our workforce talent and capabilities. We're strategically focused on making sure we have the right people and skills for both our business needs today and for the future. For example, we recently established the ADM capability center in India to build and maintain deep technical and functional experience in priority areas. In summary, our team is executing well against our plan, and we're taking advantage of market opportunities while consistently strengthening the performance of our operations. Looking through to the rest of 2026, we have clear priorities that are centered around ensuring we have the right talent and capabilities in place to drive growth, margin expansion and cash flow, while remaining steadfast in our discipline around cost management and capital allocation. And to that end, we remain committed to returning value to our shareholders with the dividend we paid in first quarter representing our 377th consecutive quarterly dividend. Please turn to Slide 6. We're making disciplined investments today in the platforms that will drive our growth for tomorrow. Our next wave of value creation is grounded in 5 key pathways that span both near-term opportunities already contributing to growth today as well as long-term initiatives that will continue to scale over time. Importantly, these are areas where we understand the markets and the customer needs and where we believe we are well positioned to win. I'll take a few moments now to discuss our growth pathways in a little more detail. Starting with advanced nutrition, we are developing innovative solutions as customers shift from artificial to natural ingredients, particularly in colors and flavors in North America. We are expanding both capabilities and capacity to meet growing demand for healthier products that deliver on appearance, texture and taste. Within functional health, we continue to build on our leadership in digestive and metabolic health and immune support, with a growing pipeline of solutions targeting stress, mood and sleep. For biosolutions, our initiatives are centered on valorization or the unlocking of new markets for our existing products, essentially doing more with what we already produce. A concrete example of this is a starch-based component we developed for fabric softeners, for which we were recognized earlier this year with the best innovation contributor award by Henkel Consumer Brands. In precision fermentation, we see significant opportunities at the intersection of biology and engineering. Advances in technology are enhancing the efficiency and scalability of our existing fermentation assets and we're expanding our portfolio of cleaner, simpler and more sustainable solutions. For example, during the quarter, in animal nutrition, we successfully completed a trial for a scalable animal-free protein for pet food. And in the human nutrition space, we progressed the development of a novel enzyme with widespread functionality in food applications. And in decarbonization, we are leveraging our existing carbon capture and storage footprint to develop a broader portfolio of solutions. This includes serving customers with high purity CO2 needs, expanding renewable natural gas operations and advancing pathways to convert ethanol into sustainable aviation fuel. During the first quarter alone, we sequestered approximately 300,000 metric tonnes of CO2, a milestone that underscores our leadership in this space. Taken together, these platforms represent a compelling set of value creation opportunities that leverage our core business and provide meaningful expansion into new markets for years to come. With that, let me hand it over to Monish to share a deeper dive into our first quarter financials and full year outlook. Monish Patolawala: Thank you, Juan, and I wish you all a very good morning. Please turn to Slide 7. AS&O segment operating profit for the first quarter of 2026 was $273 million, down 34% compared to the prior year quarter. Included in the first quarter of 2026 is approximately $275 million of net negative mark-to-market and timing impacts, of which roughly 70% were attributable to the crushing subsegment, and the remaining balance was 2/3 attributable to refined products and other and 1/3 attributable to Ag Services. In the prior year quarter, the net negative impact of approximately $22 million were mainly related to Ag Services. The Ag Services subsegment in the current quarter generated operating profit of $200 million, representing an increase of 26% compared to the prior year quarter. The increase was driven primarily by higher export activity in North America, which was supported by increased trade with China and a strong corn export program. Additionally, prior year quarter results were pressured by certain export duties. For the crushing subsegment, we reported an operating loss of $79 million for the quarter, which represents a decrease of $126 million from the prior year quarter. The decrease was driven by net negative mark-to-market and timing impacts. The team executed well during the first quarter of 2026, with planned productivity improving compared to the prior year quarter. Additionally, soybean meal sales remained strong throughout the quarter as a result of strong global demand. For the refined products and other subsegment, operating profit was $86 million, down 36% compared to the prior year quarter, primarily driven by net negative mark-to-market and timing impacts. Equity earnings from our investment in Wilmar was $66 million for the quarter, down 8% compared to the prior year quarter. Turning now to Slide 8. For the first quarter, Carbohydrate Solutions segment operating profit was $356 million, representing an increase of 48% compared to the prior year quarter. The period-over-period increase was primarily a result of strengthening ethanol margins, supported by effective risk management and policy incentives. In the starches and sweeteners subsegment, operating profit was $229 million, representing an increase of 11% compared to the prior year quarter. The increase was driven by stronger results from ethanol in our corn wet milling plants in North America, and was partially offset by lower global liquid sweeteners and starches volumes and margins due to similar trends to what we saw last year. In the vantage corn processors subsegment, operating profit was $127 million, representing a $94 million increase from prior year quarter. ADM's corn dry milling ethanol operations benefited from strengthening ethanol margins, supported by effective risk management and policy incentives. Overall, base ethanol EBITDA margins for the quarter were higher both sequentially and compared to the prior year quarter. Now turning to Slide 9. For Nutrition, segment revenues in the first quarter were $1.8 billion, down 1% compared to the prior year quarter. Human nutrition revenue increased by 3% year-over-year, driven primarily by higher flavor sales and inclusive of foreign exchange gains. Animal nutrition revenue decreased by 5% year-over-year, with the decrease primarily attributable to our previously disclosed portfolio exits and the formation of the animal feed joint venture with Alltech, which was partially offset by foreign exchange gains. Nutrition segment operating profit was $135 million for the first quarter, representing an increase of 42% compared to the prior year quarter. Human nutrition operating profit was $104 million, up 39% compared to the prior year quarter as a result of higher flavor sales and foreign exchange gains as well as the continued recovery of the Decatur East plant. Animal nutrition operating profit was $31 million for the quarter, up 55% compared to the prior year quarter. The increase was primarily attributable to benefits associated with strategic portfolio and cost optimization actions taken over the last year, foreign exchange gains and the increased focus on higher-margin product offerings. Corporate and other businesses contribution to operating profit was lower compared to the prior year quarter, driven primarily by higher claim settlements in other business, which were partially offset by lower corporate function costs. Turning now to Slide 10. For the first quarter of the year, ADM generated cash flow from operations before working capital of approximately $442 million, approximately flat relative to the prior year quarter. We continue to be very disciplined in the areas in which we invest. During the first quarter of 2026, we invested $194 million and maintain our expectations of full year 2026 CapEx being in the range of $1.3 billion to $1.5 billion. During the quarter, we distributed $254 million in dividend, marking our 377th consecutive quarter of paying a dividend. And lastly, our net leverage ratio at March 31 was 2.2x, which is higher than the previous quarter. However, this is generally in line with our expectations given the normal seasonality of our business and the impact of higher commodity prices. Our year-end net leverage ratio expectations remain at approximately 2x. Now on to Slide 11, where we have provided details on our updated 2026 outlook. Earlier today, as Juan mentioned, we raised our current outlook for 2026 adjusted EPS to a range of $4.15 to $4.70, up from the previous range of $3.60 to $4.25. There are 2 main drivers to our guidance range. First, the expectation that our team will continue to solidly execute against our plan for the remainder of the year; and second, the expectation that the improved margin environment for crushing and ethanol businesses will continue. Overall, our guidance range is underpinned by several factors. In AS&O, first quarter 2026 results include approximately $275 million of net negative mark-to-market and timing impact. Negative mark-to-market and timing impacts are the result of increasing commodity prices, and in this case, signal improving underlying market conditions for us. As a reminder, the final impact of the mark-to-market and timing impacts will be realized when the underlying inventory forward contracts and futures and foreign currency contracts are executed. Based on that, the majority of the $275 million of net negative mark-to-market and timing impacts reported in the first quarter are forecasted to reverse in the second quarter. The remaining impacts are forecasted to reverse during the second half of this year. As a reminder, we cannot and do not estimate new mark-to-market and timing impacts in our guidance, and there could still be additional mark-to-market and timing impacts in future reporting periods. In Ag Services, we are assuming that China will resume a normalized buying pattern for North American soybean. For Carb Solutions, we expect strength in ethanol margins supported by policy incentives will continue to more than offset softness in starches and sweeteners as the same consumer behavior trends we experienced in 2025 continue to pressure S&S volumes and margins. Expectations for year-over-year growth in Nutrition remains intact, with operating profit increasing primarily as a result of higher flavor sales, continued recovery in Decatur East and margin expansion in Animal Nutrition as we maintain our focus on higher-margin product lines and ongoing cost optimization initiatives. We will continue to closely monitor external factors, including consumer trends, energy costs, supply chain dislocations along with global trade and tariff dynamics, foreign exchange and ethanol industry development throughout the balance of the year. We also are progressing the cost savings program we launched last year, and remain on track to achieve our targeted aggregate cost savings of $500 million to $750 million over the 3- to 5-year period which commenced in 2025. In summary, Q1 presented a dynamic market environment, characterized by significant events that created challenges but also created opportunities, and we were well positioned to capitalize on the environment as evidenced by the underlying margins across our Ag Services and Oilseeds businesses and our ethanol operations. Beyond that, we continue to execute well in our Nutrition business, particularly in our flavors product line. In closing, I would like to recognize our ADM team members for their focus and dedication in executing against both our near-term objectives and our strategic priorities. It is their hard work that positions us well in a rapidly shifting global landscape, enabling us to continue delivering on our financial commitments and consistently returning value for our shareholders. With this, I'll hand it back over to Juan. Juan? Juan Luciano: Thanks, Monish. As we look ahead, we are increasingly constructive on our outlook for 2026. Despite the complexity of the global environment, the policy clarity we now have, combined with our team's disciplined execution, position us well to deliver meaningful growth in 2026. Beyond 2026, we have a clear road map for long-term value creation that we're actioning, one that leverages both our deep capabilities and the breadth of our operations to create enduring value for years to come. With that, we'll take your questions now. Operator, please open the line. Operator, please open the line. Operator: [Operator Instructions] Your first question comes from the line of Manav Gupta from UBS. Manav Gupta: Congrats on a strong quarter and a guidance raise. The beat and race story is always welcome. My quick question here is, obviously, sir, there's one part where the RVO is helping you, policy formalization is helping you. But there is another part where [ world ] is generally short diesel, and what we are seeing out there is globally shortages of diesel and one area where U.S. is somewhat unique is we have this level of higher renewable diesel, biodiesel production, we can do to meet some of those challenges. And I just wanted your view on it. Are you already seeing out there, producers with ideal plants who are not running that hard in 2025 already looking to run much harder in 2026? And how does that benefit ADM? If you could talk a little bit about that. Juan Luciano: Yes. Thank you, Manav. Listen, I think we said it in the previous quarter what we expected the RVO impact was going to be in the market. The first thing that we said, it was going to come in RINs coming up, and we saw RINs going up by $1. Then that created a margin for all these biodiesel plants and renewal diesel plants to come on stream. That pulled soybean oil demand and that increased crush margins, so crush rates. So if you look at on margins. So if you look at crash rates for March, we jumped 6%. So crush rates in March for North America run about 10% higher than last year. So I think that it happened in the sequence we expected. Probably, it's happened with more violence than we expected. It was faster maybe because of pent-up demand. We've been waiting for RVOs for a couple of years or maybe the effects of shortages or the perception of shortages given the Strait of Hormuz issues. But -- so we see that. We see that biodiesel traded mostly with RVOs, I would say. And we see those plans coming on stream. So yes. Manav Gupta: Perfect. My quick follow-up is on human nutrition, a very positive trend, revenue up 3%, but profit up 39% in human nutrition. Can you talk a little bit about that positive trend? And what's driving the improvement in profitability in the human nutrition business? Juan Luciano: Yes, the team did a very good job. Of course, part of the drivers are in flavors, and I think that our -- they can continue to convert our pipeline, and maximizing profitability with product mix, cost management, the normal levers you pull in these cases. I would say you also have to remember that we finally brought the Decatur East plant back. That product has always been lauded as the best quality in the industry. And now we are back with our full volume and recovering the position we lost over the last couple of years. So I think that very strong performance in both areas in human nutrition, and we expect that to continue into Q2. Monish Patolawala: Manav, as for our script, we had some foreign exchange gains that help us there, too. But operationally, the team did very well. Manav Gupta: Congrats on a very good quarter. Operator: Your next question comes from the line of Ben Theurer from Barclays. Benjamin Theurer: Congrats on a very good first quarter. Maybe just following up on some of the changes to guidance, and if you could maybe help us frame a little bit the high versus the low end of it? I mean, I guess the market was expecting some sort of a race. But just to understand what factors you're kind of like seeing that could drive you to the higher end of that new guidance versus what are the risks that keep you on the lower side? That would be my main question. Juan Luciano: Yes. Let me give you a flavor, and maybe Monish can chime in later. So we underpin the raising guidance on, of course, the continued advancement of our priorities that the team continues to execute well, and this constructive biofuels environment that we got after the clarity with the RVOs. If you think about the businesses, from an AS&O Ag Services perspective, we expect a normalization of the offtake of soybeans from China. And then we continue to expect a constructive biofuel environment going forward. We expect the majority of our -- you know the big mark-to-market, we have $275 million in Q1. We expect the majority of that to come back in Q2. But of course, margins, as they continue to climb, we may generate new mark-to-market that we don't have the ability to forecast, that is not included in our guidance. From a Carb Solutions perspective, we expect the same dynamics, a little bit of softer sweeteners and starch, with a strong ethanol dynamics to continue into Q2 and probably the rest of the year or at least the rest of the summer. And nutrition growth continued to be intact the way we see it forward with strong flavors, with still a strong recovery of specialty ingredients given by the Decatur plant being back. And animal nutrition continues to -- on a smaller scale because it's smaller than human continue to put very good year-over-year improvements based on their improvement plan, but now they are shifting to more specialty products. So all in all, we see most of our business doing very, very well. Monish Patolawala: I think, Ben, you had a question on what risks also we are watching. If you've seen the strip we had laid it out, but just again to reiterate. Of course, we'll watch all external events that play out. But energy costs, foreign exchange, input cost for nutrition, global trade policy, all of those tariffs are all things that we are watching, and we'll keep you all posted as we see things evolve. Benjamin Theurer: Okay. Fantastic. And then just quick follow-up on the sweeteners and starches business within Carb Solutions. Obviously, that continued weakness something we've kind of like seen industry-wide. What are the -- are there any specific measures that you can take to kind of like maybe stop the bleeding a little too harsh, but like stop the decline be supportive here? Are there any things around innovation or things that you can do shifting away from that business on the sweeteners side? What are like the things you're looking at in order to kind of like manage that business? Juan Luciano: Yes. We've been working for many years in the diversification of the grind that you've heard us many times saying the fight for the grind. So we produce many products and that helps sometimes soften this. You heard us saying talking about biosolutions and how we are moving some of those products into different applications, industrial applications. So we have some successes with starches in places like personal care or fabric softeners, things like that. So is a slow because, of course, those markets are smaller than a sweeteners market, and then it takes more effort, but we continue to have efforts there to diversify the grind. We can't invent that Mexico will help us with a great World Cup. Everybody will drink lots of softdrinks. Benjamin Theurer: I'm going to do my best. Juan Luciano: Help us. Operator: Your next question comes from the line of Pooran Sharma from Stephens, Inc. Pooran Sharma: Congrats on the strong results here. I maybe wanted to just focus on -- absolutely, the first question, just wanted to focus on ethanol. Can you talk about what is driving margin strength here? I think it's export demand. And there was momentum prior to the start of the conflict with Iran. So just want to understand from your point of view, what is -- what's driving this? And have you seen any incremental upside from the conflict? Juan Luciano: Yes. Listen, as you said, before the conflict, we were already seeing good margins for ethanol. I think that we had rough weather, in general, that affected some of these plans with the polar vortex in January or something. So we were coming into an environment we had strong domestic demand, given by the tightening of the RINs and the values of the RINs. Also a strong export demand. Demand for exports were about 10% year-over-year. So that was pulling on an industry that was not producing fully, and I draw down inventory. So we are going a little bit through maintenance now before the driving season anyways as well. So we expect that to do well. Don't forget that ethanol at about $2 per gallon is incredibly competitive globally. You have [ our but ] trading at north of $3.50. So there is a big incentive here to blend domestically, so we expect domestically to something in the range of 14.5 billion gallons, give or take. When you add to that, 2.4 billion gallons, that is our expectation for exports, that's almost close to 17 billion gallons. I still remember how much I was celebrating with our exports worth 1 billion gallon a few years back. So now we're talking about 2.5 billion gallon. Whether those exports are being held by maybe the conflict or the tightness, maybe there is some of that. But you see more and more countries trying to bring resilience to their fuel system by diversifying into biofuel. So you see Vietnam increasing now to E10, you see Brazil going now to B32. So you have many countries popping up into that, and they are -- all of that is helping the U.S. export. Pooran Sharma: Great. Appreciate the color there. And just really quickly, was there any 45Z incorporated to ethanol earnings? And then when we think about modeling this, should we be adding this to segment income? Or should we be excluding these from the tax line? Juan Luciano: Yes, you should be including it to segment income. And I would say, yes, we have. And of course, we continue to work on all the details that need for implementation of that. But the team has done a good job. And at this point, for the year, we are expecting an impact of about $150 million for a full 2026. Operator: Your next line comes from the line of Andrew Strelzik from BMO. Andrew Strelzik: Obviously, a very dynamic environment out there, inverted curves. I was hoping that maybe you could help us think about the kind of earnings cadence through the year, whether it's first half, back half split or however you want to frame that? And also, to what extent you have visibility for the balance of the year versus where you typically are at this time of the year, obviously, that had been a little bit of an issue in prior quarters. So curious where that is, too. Juan Luciano: Yes. Listen, I've been doing this for quite a while. So at the beginning of my mandate, I remember we were like 48.5 to 51.5 or 48-52 in our split first half, second half. Since our product mix has shifted and maybe the U.S. is not as competitive as exports of grain. Probably now we are talking about something like 49-51 type of split between first half and second half. Of course, there is a lot of uncertainty still. The visibility we have, listen, what we get to this point of the quarter, for Q3, if you will, we're probably sold about 30% in mill and about 50% to 60% in oil. So we still have a piece open there. And of course, for Q4, it's only maybe 10%. So we still have a lot to go through. In general, I would say customers are not buying that much in advance. The oil industry is normally more spot. And I would say the -- for our oil customers and for human consumption is also relatively, we don't have a huge book yet. So I think we're trying to stay open. So. Monish Patolawala: I'll add on, Andrew, for Q2, when you think about the operating -- the quarterly cadence that Juan mentioned. Just on Q2, Q2 will be stronger than Q1. A couple of things we've talked about, the mark-to-market of $275 million approximately that we took in Q1. Majority of that will reverse in Q2 and the balance in the second half. Secondly, seasonally, nutrition is higher, especially our flavors product line. So that you can factor that into. And the third one is strength in ethanol, as Juan mentioned. So that's all put together. You'll also see tax rate was a little lower in Q1, that will normalize itself over the year. And then the second piece is, as we have talked about, we've been very prudent on cost and CapEx through first quarter. And as we are starting to see the constructive environment, we will continue to invest in our growth initiatives, continue to invest in digitization, all of that setting us up for the long-term value creation for ADM. Andrew Strelzik: Okay. That was super helpful. And my follow-up is related to that. You talked about pretty tightly managing the capital spend. But as your earnings trajectory improves, in this more constructive environment, whether it's '26 or beyond, how are you thinking about capital allocation incrementally? Are there more CapEx projects on the radar? Maybe you could talk about those as -- maybe it's the buyback that's more interesting. Just how you're thinking about capital allocation? Juan Luciano: Yes. We continue to invest with our balanced framework of capital allocation that we have maintained for a few years, always our biggest opportunities in cost and growth projects, and we give priority to that. As Monish just described, we have a lot of projects related to cost savings in manufacturing, but also our low cost to serve and increasing capabilities. And we also have our fuel in 5 growth platforms that will serve us well, that we like very much because they have a balance of short-term, medium-term and long-term impact for ADM. So it gives us a good cadence going forward. So then, of course, we honor the dividend, and we will continue to try to pay and grow the dividend every year as we have done for many, many years. I think this year, we just paid -- this quarter, we paid like 377th consecutive dividend, which is an incredible record for the company. And of course, probably what is embedded in your question is what are we going to do with M&A or buybacks. And we will continue with our prudent bolt-on M&A. So we've done that when we see value opportunities are there or something that fits strategically to our developments. And yes, it is plausible that as our cash flows improve and our balanced capital allocation remains the same way, that potentially, we could do buybacks into the future. That's not out of the question. So we will continue to monitor how things evolve. Operator: Your next question comes from the line of Heather Jones of Heather Jones Research. Heather Jones: The first question is going back to what you were saying about the cadence of earnings. And if I understood you correctly, saying roughly half will be in the second half? And if I take the midpoint of your guide, that would apply only 20%, 25% year-on-year growth and would imply you get close to where second half of '24 was. So just wondering, the biofuel policy, not just in the U.S. but globally, is the most constructive it's ever been. And so just wondering, what are the things in your business that are giving you pause that would cause the year-on-year growth to not be more robust than that? Or is this just conservative? So that's my first question. Monish Patolawala: Yes. Heather, it goes back to what Juan and I have talked about in our prepared remarks as well as a few of the questions that have already been asked. When you thought about when we came into the year, we had talked about a more back-end loaded. Secondly, as everybody knows that the RVO is coming in, we pretty much called the trajectory, right? It just came in faster than we thought. And based on that, we felt that it's prudent right now based on the mark-to-market reversal, there's normal seasonality we get in nutrition as well as ethanol strength that we'll see 49% to 51% first half, second half. The other things, when you factor in the second half, right now, there is an inverted curve. And that inverted curve is for multiple factors, including some of the risks that exist in the economy right now. We also have a slightly higher tax rate that will come in, in the second half of the year, and we will invest more in R&D and digitization that I talked about. But when you put all that together, when we look at the first quarter, the team started very well. You've seen that they've been able to capture the opportunities and margins that existed. So as that curve moves through and the opportunities exist, I can tell you the team is very well geared to take advantage of that. 2Q is a very important quarter for us because we have to make sure that all these executions happen. We'll get some more clarity as the world continues to evolve. We've got policy dynamics that we are watching through. Our assumption is that China will continue to buy its normal volume in Q4, but that's to be watched. So put all that together, we raised our guidance from $3.60 and $4.25 to $4.15 to $4.70. Again, the team is executing well, good start to Q1, and we'll continue to execute over the next 3 quarters, and we'll keep you posted. Heather Jones: Okay. And then my follow-up in on ethanol. And so -- it sounds like you raised the amount that you think will -- the 45Z will benefit earnings somewhat for the full year. But I mean, it was an extremely strong quarter both in the wet milling side and dry. And European market has been strong for some time. So just wondering what changed? I mean, were there risk management -- was the risk management benefit unusually large? Or should we consider -- should we assume that the kind of strength that we saw in Q1 is sustainable throughout the year? Juan Luciano: Yes. Heather, there are so many factors to consider here in 45Z. You need to think about the carbon intensity score by every plant, the prevailing wage, the amount of carbon we sequester, the production volumes, but also the industry pricing reaction to this policy. So at this point in time, given what happened in the Q1, we are increasing the expected amount. I think we mentioned last time it was going to be 100 million. Now we're saying it's 150 million. I think that that's how we see it at this point in time. Could it be a surprise for the positive? We hope so. At this point in time, that's what we're looking at. Operator: Your next question comes from the line of Steven Haynes at Morgan Stanley. Steven Haynes: I wanted to ask on Carb Solutions maybe just in the quarter, kind of within the [ 3 50 ] or so of operating profit that you all did. Can you maybe just help us think a bit about how much of that splits out between ethanol versus the nonethanol piece? Obviously, we can see the VCP part of it, but it's harder to disaggregate within sweeteners and starches. So if you could just provide any additional color there, that would be helpful. Juan Luciano: Yes. Maybe I can provide the dynamics and maybe Monish, if you want to give more granularity later. I think we continue to see a certain weakness in sweeteners. So our sweeteners and starches volumes are down 3% and margins are down a little bit more than that. Of course, Carb Solutions, corn plants are very big energy users and chemical users. So the cost of those plants are not doing great right now with the conflict, although we continue to improve our operational performance. Energy is up and some of the chemicals are up. I think we started to see starches getting better and stabilizing in their volumes. And ethanol has been the good actor of the quarter. So we -- EBITDA margins per gallon went up like $0.18 from the same quarter last year. So driven by all the factors I think I explained before in one of the questions. So I will say, hopefully, that gives you an idea. That's our expectation, if you will, for the second quarter that those dynamics will be maintained. And the nature of the results should be similar. Of course, are easy to see in BCP. And in the wet mills, we produce about 22 different things out of a wet mill. So it's more difficult to quantify there because also, we try to optimize that mix all the time, looking at the different margins, at the different grind providers. So that's not that easy to call. But I hope with the granularity I gave you provide you enough to -- for you to build your models going forward. Operator: Your next question comes from the line of Dushyant Ailani from Jefferies. Dushyant Ailani: Maybe my first one, could you talk a little bit about the soybean meal demand? I know I think earlier in your comments, you mentioned that you use strong demand there. But could you maybe just talk a little bit about the puts and takes in terms of how that evolves through the course of the year? Juan Luciano: Yes, of course. Listen, soybean meal continues to be strong. If you look at the soybean meal versus corn ratio, that sit near 2 or below, that sustains strong inclusion in feed formulas. You see even that's more acute in China where corn prices are higher. So global soybean meal demand continues to surge driven by still healthy livestock profitability and expanding of the daily output. So the U.S. has a big book for exports on soybean meal. I think that, that was helped a little bit by Argentina. Argentina lost all the cushioning from the old crop. And now basically, their crush is limited by the harvest, and harvest was a little bit delayed by a couple of weeks because of the floods. So I think that we are exporting a lot and demand has been very good. So that has provided another strong leg of the crush. Today, soybean oil is probably like 52%, 52.5% of the crush. And that's putting -- that's probably, as much as we are crushing, we probably tighten up the meal balance because meal is so strong. So I hope that helps. Dushyant Ailani: Yes, that does. And then my follow-up question is on Decatur East. I think you said that it's basically fully up and running. I think in the prior call, you had mentioned that there were some customers that had moved away. Have you been able to recover all of them? What's the data status on that? Juan Luciano: Yes. No, of course, you won't recover this immediately. People -- our absence was long, more than a year, so people took different commitments on that. And we are rapidly trying to recover that. We have now a full -- our full volume is being offered. And as I said, I think that we trusted our good quality. The preference that customers have traditionally have for this product will bring us back. But the team is making progress, not full -- We haven't recovered our full position yet, and that will probably take a while. Operator: Your final question comes from the line of Matthew Blair from TPH. Matthew Blair: You mentioned the inverted soy crush future spur previously. Could you talk about what's really driving that? Like are there fundamental factors that are pulling on future margins? Or is this just like a matter of liquidity and less liquidity in the outgoing months? Juan Luciano: Yes, I think that there is a strong immediate demand for soy and for oil and meal. And of course, there is uncertainty about what's happening in the future in the second half where there is -- at this point in time, you have very strong demand for soybean oil, very strong demand for soybean meal and a relatively flat soybean trading in kind of a flat range, if you will. So all of a sudden, you look at the future and you need to think about, okay, what's going to happen with the trade deal and Trump visit to China? Will that move soybeans? And then you think about resolution of the conflict, crops and weather and all those things. So energy prices, so there are a lot of uncertainties in the second half. And I think that, that's I think Monish showed it or mentioned it before in the guidance. We're looking at consumer impact. We're looking at demand. We're looking at inflation. We are looking at many things. So I think the curve is reflecting that. And to the extent that we move forward and those dynamics continue, the curve may be extending forward, so -- and shifting into the future. So we are monitoring that. Operator: We have reached the end of the Q&A session. I will now turn the call back to Kate Walsh for closing remarks. Kate, please go ahead. Kathryn Walsh: Thank you all for joining the call today. We appreciate your continued interest and support of ADM, and wish you a great rest of your day. Goodbye. Operator: This concludes today's call. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Procore Technologies, Inc. FY '26 First Quarter Earnings Call. [Operator Instructions] I will now hand the conference over to Matthew Puljiz, SVP of Finance. Matthew Puljiz: Good morning, and welcome to Procore's 2026 First Quarter Earnings Call. I'm Matthew Puljiz, SVP of Finance. With me today are Ajei Gopal, President and CEO; and Rachel Pyles, CFO. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call include forward-looking statements regarding, among other things, our financial outlook, platform and products, customer demand, operations and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties and assumptions and are based on management's current expectations and views as of today, May 5, 2026. Procore undertakes no obligation to update any looking statements except as required by law. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We'll also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release and our periodic reports filed with the SEC. With that, let me turn the call over to Ajei. Ajei Gopal: Good morning, everyone, and thank you for joining us. Continuing our momentum from 2025. Q1 saw strong performance that exceeded the high end of our guidance. For Q1, we delivered 15.7% revenue growth and 17% non-GAAP operating margin, which represents 650 basis points of year-over-year expansion. I'm particularly pleased with these results given the ongoing headwinds from a challenging construction environment. On our last earnings call, I outlined why Procore will be an AI winner. Our flagship products and early investments in AI, including our acquisition of Datagrid, has positioned us well to capitalize on the disruptive technology. Building on our flagship system of collaboration with nearly 3 million active users and a massive proprietary dynamic data set, Procore AI can deliver outcomes simply not possible with traditional software. In that call, I walked through a real example of a customer using our AI agents as a digital coworker capable of executing complex high effort tests with [indiscernible] a critical advantage for an industry facing a severe labor shortage. This also opened a meaningful new dimension to our TAM as Procore AI can access construction labor budgets well beyond the industry's software spend. Our path forward is defined by a powerful economic duality, upside opportunity through AI monetization and downside protection through our volume-based model. I believe Procore will unlock unprecedented value as the definitive winner in the Agentic AI era. I would like to begin today's call by discussing the great progress we have made with Procore AI on last call. Then I want to discuss our continuing success with our flagship solutions. Finally, I'll discuss our intention to continue to improve margins and free cash flow per share. Let me start the Procore AI, which include our recent acquisition of Datagrid. I am pleased that the technology integration has proceeded rapidly leveraging the foundational security and platform investments we had made earlier in Helix. We have taken the best of both products to provide customers with new capabilities and are now executing on a combined product road map for Procore AI. Our solution enables customers to deploy embedded Procore AI agents that can execute tasks such as RFI analysis submittal cross-checking and compliance auditor. We recently released agents in the triggers, which enable customers to define automated event-driven AI workflows transitioning from reactive to proactive test execution across their projects. We are piloting a new voice AI interface designed for field workers who want hands-free access to project data on the job site. We also recently introduced a specialized contract review agent that can efficiently analyze construction documents that flag any risk in the contract. By building on the foundations already established in Procore AI, we were able to introduce this workflow in fewer than 30 days, and it is already being tested by customers. As the hard Procore AI is a reasoning engine purpose-built to construction. It understands the language and logic of the project. For example, when an RFI is how a submittal connects to a drawing, how a change order gets approved. On top of that, it works as a [indiscernible] system that holds context across multiple steps. It don't just answer a question, it understands the threat. For example, why is the middle was sent, what is obligate and what needs to happen next. Think of it as a digital coworker that encodes the logical construction decision making, reasoning about the project the way and experienced practitioner would. This data and contact can only be accessed within a system of record and coloration like Procore. That capability is backed by a tool library of dozens of construction-specific capabilities, including co-compliance capulators, drawing analyses and documents cross-referencing engines. And it is still early. As we continue to develop Procore AI, going deeper into our proprietary data and broader across project types, the reasoning engine will only become more capable. We expect our solution to continue to improve with every layer we unlock, and we have a long runway ahead of us. Turning to go-to-market. We made a deliberate decision to launch Procore AI through a dedicated specialist team working today as an overlay alongside our core sales force. The team is very small and intentionally so. The goal was to learn what the commercial motion looks like before scaling it. We are now working on translating those learnings into enablement for the broader sales force and we expect much of our sales organization to be selling Procore AI in Q3. I'm excited that customers are adopting our Agentic solutions in addition to our flagship offering. A great example of this is within the estimating department and one of our Enterprise customers Crest operations. Crest is already seeing transformative ROI from Procore AI. For their most complex projects, bidding is an audios process involving thousands of data points across massive sets of doing. By leveraging Procore AI, Crest has done a manual process that could spend weeks of effort down to an automation that can take as little as 20 minutes. This isn't just an incremental improvement in speed. It is a fundamental shift in their competitive advantage, allowing them to bid more accurately respond to opportunities faster and ultimately drive a level of ROI that was previously unattainable. Moving to our flagship solutions. In Q1, we have driven more innovation at a faster pace than ever before. We expect that these new product capabilities will help to drive sales, increase customer satisfaction, and improve retention. I'll start with the largest and most mature part of our business today, U.S. general contractors. We are focused on improving our platform by enhancing products like quality and safety and by extending Procore Connect to support RFI in addition to drawings. I'm particularly pleased with the general availability of the updated Procore scheduling, our natively connected scheduling solution that has already been implemented by over 2,000 companies since February launch, making it one of the fastest adopted products in our history. Together, these releases defend and extend our leadership while opening new expansion opportunities in civil and infrastructure construction. In Q1, Trinity Group a long-time GC customer expanded its construction volume commitment to $1.1 billion, a 6x increase. Trinity is evolving from a heavy user of siloed tools into a platform-first organization to support rapid growth and the growing complexity of large-scale bills and is increasingly relying on the Procore platform to help run its business. Now let me move beyond general contractors. On our last call, I focused on owners, including data center operators, this time, I would like to discuss new functionality available to specialty contractors as well as international customers. For specialty contractors, we introduced materials management which provides end-to-end supply chain visibility for self-perform contractors from procurement and better management through delivery tracking to the job site. This is part of our broader investment in a purpose-built self-perform platform that unifies resource management, financial and scheduling for the specialty and self-perform contractor market. This represents a significant step in our strategy to serve the heavy construction market where equipment costs can be just as material as labor for some projects. Also in Q1, Helm Group, a leading specialty and mechanical contractor in the Midwest, ranked #61 on the E&R 600 significantly expanded its construction volume commitment after 18 months of successful usage. The company which specializes in major projects like data centers and Northwestern University's new football stadium initially started with only a portion of its construction volume. Following a successful initial rollout of project management tools, Helm Group decided to standardize on Procore. The primary goal of this expansion was to achieve increased labor productivity, mitigate risk and streamline project management operations in a single location. Moving to international markets. We launched a new BIN model federation and streaming viewer, which enable customers to federate and navigate large 3D building information models directly within Procore. A key requirement for winning upmarket in Europe. This is the anchor of our European common data environment strategy, which combines bin, asset management document management and product execution into an ISL-19650 compliance solution. This positions Pro port as the connected construction platform for markets where CD clients is a contractual requirement. In Q1, we signed a new contract with Collin Construction Limited, a large general contractor headquartered in Dublin. Collin had been using over 25 disconnected point solutions and is now standardized on Procore's unified form to solve reporting and mobile access challenges. The customer anticipates saving over 46,000 labor hours over the next 3 years, the equivalent of more than 13 full-time employees as well as decreasing nonrecoverable change order by 25%. Moving to strategic partnerships. In Q1, we announced that we are integrating the Procore platform with NVIDIA on [indiscernible] VSX Blueprint to accelerate the building of AI factories and other critical infrastructure. This integration will establish a digital thread throughout the entire construction life cycle to build safer, faster and smarter infrastructure. The combination of Procore and NVIDIA solutions will enable teams to rapidly model design changes using a high fidelity, physically accurate 3D digital twin resulting in infrastructure that comes online faster and is optimized for pet performance. This has started our strategy of developing meaningful relationships with leading vendors that will reap rewards in the long term. Next, I would like to briefly talk about our use of AI to enable us to grow more efficiently in the future to increase the speed of the organization and to improve margins. Today, every Procore employee has access to at least one AI platform from the leading vendors. In R&D, we're in the middle of incorporating AI to transform our operating model. The part of that organization that have already gone through this position are able to deliver products faster and more efficiently than before. The rest of the organization will follow R&D leads, and we expect to see and efficiencies from these changes to provide our financial model with incremental leverage in 2027 and beyond. Rachel will expand on this opportunity in a moment. And speaking of Rachel, I'd like to take this opportunity to formally welcome her to the team as our new CFO, along with our new CRO, Walt Hearn. Rachel and Walt, our business and technology [indiscernible] and each held a key leadership role with me at ANSYS. They are highly qualified individuals who is successful in vertical software. We have all worked together and know how to meet challenges and deliver value as a team. I'm excited they are joined Procore at this critical time. I have been CEO of Procore for about 6 months now, and my enthusiasm of the job, the company and the construction industry has only grown. I remain optimistic for Procore's future, which is reflected in our financial performance for Q1, where we exceeded the high end of guidance and increased our full year outlook. A special thanks to my colleagues at Procore of their hard work and dedication to our customers and stakeholders. Looking to the future, Procore plans to grow its presence in the construction industry become wider in the AI era and continue to compound free cash flow per share. And with that, I'd like to turn the call over to Rachel. Rachel? Rachel Pyles: Thank you, Ajei, and good morning, everyone. I am incredibly excited to be joining Procore at such a transformative moment. Before we dive deeper into the numbers in the overall business, I would like to briefly touch on why I joined Procore and my approach to the CFO role. Joining this organization represents a rare opportunity to serve as the CFO for a category leader that is digitizing the industry that builds the world. Beyond Procore's established leadership position, I see a compelling financial profile with clear levers for long-term value creation. Furthermore, my prior history with Ajei and Walt ensure strategic alignment from Dave Batten allowing us to move decisively as we scale. I'm thrilled to be part of this journey and look forward to building on the strong foundation already in place. My philosophy as CFO will be anchored in the pursuit of durable, profitable growth. Given Procore's market opportunity, this should remain our top priority. The pursuit of durable growth will be underpinned by disciplined and thoughtful capital allocation strategy, specifically to reiterate our capital allocation philosophy. First, we will prioritize high ROI organic growth investments. Second, we will remain targeted with acquisitions that accelerate our strategic road map. Finally, we are committed to returning excess capital to shareholders via opportunistic share repurchases. By aligning our investments with this framework, we aim to consistently compound free cash flow per share, ensuring that our category leadership translates directly into long-term value for our shareholders. Moving on to our Q1 results. Total revenue in Q1 was $359 million, up 15.7% year-over-year. Q1 non-GAAP operating income was $61 million, representing a non-GAAP operating margin of 17% and up 650 basis points year-over-year and free cash flow was $56 million, up 20% year-over-year. As for our key backlog metrics, current RPO grew 21% year-over-year and current deferred revenue grew 17% year-over-year. Turning to commentary on our results. We delivered another quarter of durable revenue growth driven by healthy demand across our customer base. This performance was underpinned by 3 primary strengths. First, we secured several significant new logo wins that highlight our increasing market share. Second, we saw a meaningful shift towards larger-scale engagements with a 6-plus figure ARR wins growing 24% year-over-year. And finally, we generated strong pipeline in the quarter. This momentum in high-value customer wins and overall pipeline strength gives us confidence in our trajectory and sets that a favorable foundation for 2026. Our strength in the quarter also contributed to strength in CRPO. This metric continues to benefit primarily from longer average contract duration. When normalizing CRPO for this dynamic, the year-over-year growth was consistent with both Q1 revenue growth and ending ARR growth. Once contract duration stabilizes, reported and normalized CRPO growth will eventually converge with revenue growth. Our performance this quarter unexplored our commitment to driving long-term shareholder value. By delivering durable top line growth, combined with strong year-over-year margin expansion, we improved our growth in year-over-year free cash flow. Those items, coupled with limiting our share count growth via disciplined equity compensation and our share buyback activity drove meaningful improvement in our North Star metric, free cash flow per share. We believe this approach of compounding free cash flow while managing our share count remains the most effective way to maximize returns for our shareholders over time. Looking ahead and to expand upon Ajei's commentary, we view AI as a fundamental catalyst for our long-term financial profile. On the top line, we expect AI to serve as a tailwind to revenue growth as we monetize high-value capabilities and deepen platform engagement. Regarding our margin profile, we do anticipate modest headwinds to gross margin given the increased compute expenses to support these workloads. However, we expect this to be more than offset by the tailwinds to our operating expenses as we leverage AI to drive internal efficiencies and scale across all functions. Ultimately, the convergence of durable growth and an optimized cost structure reinforces our conviction that AI will be a powerful tailwind to free cash flow per share, creating a highly efficient engine for long-term shareholder vacuum. With that, let's move on to our outlook. For the second quarter of 2026, we expect revenue between $364 million and $366 million, representing year-over-year growth of 13% at the high end. Q2 non-GAAP operating margin is expected to be between 17.5% and 18.5%. For the full year fiscal '26, we are raising our revenue guide to a range of $1.499 billion to $1.53 billion, representing total year-over-year growth of 13.6% at the high end. We are also raising our non-GAAP operating margin guidance for the year by 50 basis points to be between 18% and 18.5%, which implies year-over-year margin expansion of 390 to 440 basis points. Finally, we are maintaining our free cash flow margin guidance of 19%, which implies year-over-year free cash flow margin expansion of approximately 280 basis points. To wrap up, we are pleased with the quarter and are excited about the momentum we have created for the remainder of the year. We are confident that we can continue to provide durable growth, margin expansion, limited share count growth and compound free cash flow per share. With that, let me ask the operator to open it up for questions. Operator: [Operator Instructions] Your first question from the line of Joe Vruwink with Baird. Joseph Vruwink: [indiscernible] congratulate Rachel on your appointment. I wanted to start with a few things on financials. One is good to see the upside, but the magnitude of upside in revenue and CRPO is, I suppose, a bit less than the prevailing experience where you've been beating by 3% to 4% anything to read into that? And then the second is just on the outlook. You're bringing up the full year by more than the 1Q upside but it looks like that overage or upside remainder is weighted to the second half. Maybe what's informing your expectation there? Rachel Pyles: Thanks, Joe. I appreciate the question. Excited to be here. First, what I would say about our overall financial deal, we were really pleased with the results. If I think about we had strong pipeline, we had strong new logos. So just overall excited about the performance. In terms of the revenue upside that you saw, that was really consistent with what you saw in Q4 in terms of a beat so nothing really different there. And then if you think about our guide, Q2 at the high end is consistent with the Street estimates. No change in our guidance philosophy. We're still going to give you guidance that we feel a high level of conviction in. Joseph Vruwink: Great. And then I wanted to ask on broker scheduling and maybe a bit more feedback since general availability. I remember -- there is discussion at ground break, just spotlighting this particular area is one that's really differentiated in terms of pulling in the full Procore platform capability and AI to the extent that this gets adopted or maybe see as a landing point, does it open richer cross-sell opportunities or maybe give customers more obvious and explicit exposure to what Procore AI can do? Ajei Gopal: Yes. I mean absolutely, Joe, thanks for the question. Look, we're excited about broker scheduling. Firstly, we were able to get the product out and we were able to see very quick adoption because it's essentially natively connected into the platform, and that gives customers tremendous benefits when they take advantage of the product. And obviously, we're in a position to, as part of our strategy, continue to add more AI capabilities, and that will obviously reflect in the flagship products as well. Operator: Our next question comes from Saket Kaila with Barclays. Saket Kalia: Welcome, Rachel. Ajei, maybe for you, maybe just to zoom out a little bit. I'd love to get your views on kind of where we are in this construction cycle. There are tons of factors, of course, to consider. But I know you spend a lot of time with customers, what are they saying to you right now just about project starts this year and how they're thinking about the environment? Ajei Gopal: Saket, thanks for the question. So I would say that the construction environment has been pretty stable, certainly from the -- in the time that I've been with the company now with -- in the conversations that I've had with customers, it's been pretty stable over the last couple of quarters. What I would say, though, is that there's different levels of excitement about certain portions of the business. In fact, last time I talked about data centers, and even though data centers represent a relatively small amount of the overall construction volume, there's a lot of excitement about data centers. And certainly, there we are in the center of the conversations I mentioned in the script in the prepared remarks, I mentioned our relationship with NVIDIA, where we are working with them on a blueprint to accelerate the building of AI factories and other infrastructure. So those kinds of activities create a lot of excitement because there's those data centers are front and center right now. But otherwise, it's a pretty stable demand environment. And obviously, I'm excited about those conversations with customers because it does reflect their trust in Procore and their perspective on how we can help them as we move forward together. Saket Kalia: Got it. That makes a ton of sense. Rachel, maybe for you. It was great to see CRPO growth kind of continue at 20%. And of course, you noted the duration benefit there as well. Maybe the question is, how do you think about the glide path for maybe that growth rate starting to converge with revenue growth? Rachel Pyles: Yes, thanks, Saket. That's a great question. So CRPO has remained strong. We are starting to see that average contract duration start to normalize. So between Q4 and Q1, duration stay kind of roughly flat quarter-over-quarter. If you look forward kind of once that duration does stabilize, it will probably take around 3 to 4 quarters following that stabilization before you see the CRPO and the revenue growth kind of comes together. Operator: Our next question comes from Dylan Becker with William Baird. Dylan Becker: Maybe, Ajei, for you to start. It sounds like kind of platform consolidation remains a key theme in kind of the customer conversations and expanding volume. And I think that makes sense, right, in the context of leveraging your agents, utilizing more of the platform to deliver more of that -- realize maybe more of that value. I guess to what extent is that AI conversation playing a role in kind of catalyzing adoption from an industry perspective? And maybe validating the perception or buy-in into Procore AI strategy to help those customers solve for productivity, if that makes sense. Ajei Gopal: Yes. So if I understand the question, let me just -- let me sort of address it, and then if I miss the point, please ask more. But when I've had a number of conversations with customers about the overall platform and about AI, in general, certainly in the context of construction. When you talk to customers, many of them I mean, they don't really have the time or the inclination to become experts for AI and construction. They look to us as being their technology partner. They've worked with us for years. They trust us. And their objective is they just want to be able to build better projects, that's their business. And they want to make sure that their vendors, their tech vendors and their tech partners are in a position to do their job, which is to bring them the best and the latest technologies, including, of course, AI to be able to help them perform what they need to do. And so the fact that we are able to provide Agentic AI capabilities that have such compelling value. The fact that we're able to provide Agentic AI capabilities from within the context within security within the framework of their system of record, of their system of collaboration where they store their data, with the area where they rely on to participate with all of their partners and our projects, I think that gives them a lot of comfort as we are making these investments. So we can have those conversations with them. They see what we're able to do. And and that's been very positive for us. And I'll give you an example of customer engagement. We just had one of our largest customers here in Austin for hackathon last week. And they brought together about 85 of their employees, and it was a multi-day event. And we were able to, in the context of the platform, we were able to post their creation of agents and they've built something like 300 custom automation agents that they were able to pull together for their particular use case. So that just gives you an example of how customers are able to take advantage of our genetic capabilities under the overall umbrella of the Procore platform. Dylan Becker: Very helpful. And maybe to kind of stick with you or Rachel, love your kind of perspectives here. But as kind of an extension of that, you called out kind of some of the commercial learnings and how you're kind of deploying agents maybe being deployed a bit more broadly in the go-to-market muscle in the third quarter. I guess maybe kind of any learnings in receptivity around what the monetization strategy is going to look like. And then I think -- you also called out the internal efficiency leverage is kind of be felt more into 2027 and beyond. But maybe just kind of reconciling or how we should think about the timing between 2026 and 2027 for some of these benefits to layer in? Ajei Gopal: So in terms of the go-to-market, it's pretty much what I said in the script, which is we wanted to make sure that we completed the -- or we made significant progress on the technical integration between the projects. And as you know, we did the acquisition of Datagrid earlier this year that the data grid platform with the data capabilities were integrated into the Helix work that we've done earlier. So there was a lot of good positive energy there from that integration work. Coming out of that, we have obviously an updated product capability where we're now with a small overlay sales force, as I described, of a very small number of people talking to customers in conjunction with the sales force, but really as an overlay so that we can get the value proposition, the ROI down. And then the expectation, of course, is in Q3 that we'll be in a position to roll it out to the larger sales force. Our expectation is for our genic solutions that we'd be in a position to be able to monetize that and some capacity-based consumption-based licensing structures. In contrast with our ACV-based pricing licensing structures for our flagship offerings. And so that's the path going forward. As far as the -- I'll let Rachel address the rest of the question. Rachel Pyles: Yes, absolutely. So Ajei, I think highlighted a lot of the top line benefits that we're expecting from AI and from the token-based model we rolled this out across the sales force and engage our customers. So I'll speak a little bit more about kind of the margin impact. So I think that as we see more agents deployed, we're going to start to see some gross margin headwinds that come from that. Now I think over time, those will really be managed in 2 ways. So first, I'm optimistic that those overall costs themselves will come down kind of over the long term. Similar to, I think, about a little bit like cloud computing, when cloud computing, everyone moved to the cloud, costs were up, but then over time, those came down and optimistic that will happen here. But even more importantly, on our side, the benefits that we expect from deploying AI within our own workflows across all parts of our organization, I expect will more than offset any headwinds that we see from the gross margin. So I'm really excited about that opportunity and it gives me even more conviction about our margin expansion kind of over the long term. Dylan Becker: Ultimately, is this more of a fine tune? Or should we expect major changes going forward again? I'm just trying to kind of gauge the approach. Ajei Gopal: Great question. Thanks. So as I've been looking at the company, look, my core takeaway is that we have a really strong foundation. We certainly have great relationships with customers. We have built a great platform on which to be able to build our products and we've built a great platform in which to be able to sell and support our products. And so I think we're in a good place, of course, where we are today. But the reality is that the world that we're in continues to change the market conditions continue to change. Technology continues to evolve. And I believe that every company needs to be in a position to change to reflect market circumstances and the need to continue to move faster. And so what I felt was important as we go to this next stage was to make sure that I could bring on a couple of executives who I know well, who would allow us to be able to move really fast in a complex business environment, we stand what it means to run a global business. And certainly, you have that with Walt and Rachel I've worked as well for a number of years. given where we are with the opportunity, we need to continue to be able to move fast. And I expect Walt to provide leadership along the different dimensions of growth our organization as he has in the past working together with me. So I'm excited about his participation with the company. I'm excited about the foundation that we have and I'm excited about our ability to continue to evolve our business to take advantage of the optionality in front of us. Dylan Becker: And just a quick follow-on with Rachel saying the guidance at hasn't changed, but you're seeing decelerating growth at least in your guide. So many are asking, are you embedding the potential disruption of more changes in this guy in the front half of the year. Is that why it's so conservative on the total year deceleration? Rachel Pyles: So if I think about just coming back to our guidance philosophy, we consistently have a beaten raise methodology, and that's what you're seeing us do here. So really nothing different than what we've done historically. Ajei Gopal: So our expectation is to continue to execute as we improve our business. And so there isn't any subliminal message here. Operator: Our next question comes from DJ Hynes with Canaccord. David Hynes: Ajei, do you think the network effects of the business model get any stronger as AI is increasingly embedded into workflows and collaborators get insight into those capabilities. In other words, like is it only the payer that will realize the benefits of Helix and your AI agents? Or does the whole ecosystem equally benefit, which could be a good thing for generating broader demand? Ajei Gopal: Well, when you think about Procore, Procore is intrinsically a system of collaboration, right? Because if think about the nature of construction. Construction is essentially multiple parties getting together on a project of one and with strong commercial relationships between the parties with an ongoing sequence of changes and modifications, et cetera, based upon the realities of the day-to-day activities that are taking place on the construction side. And so it is intrinsically a system of all parties collaborating in a very safe and secure manner where changes are -- have financial consequences and therefore, need to be audited and managed effectively. That is a -- that is kind of a very unique -- it's a very unique environment. It's not just a sort of a system of record that's available to just a single party. And as such, when we're in a position to take advantage of and create a genetic workflows the benefit accrues to all of the people who are collaborating on the project because, obviously, as we create digital coworkers, for example, which is one way to think about agents. If you think about digital cowork is helping that allows people to be able to make decisions faster more effectively, that creates more speed that creates more accuracy in the overall collaborative effort on the construction side. David Hynes: Yes. Yes. Okay. Makes sense. And then, Rachel, I'm not sure if I missed it, but can you give us a sense for how much data grid and FX impacted both revenue and CRPO in the quarter. I think investors are trying to wrap their arms around inorganic ex FX growth rate in the quarter. So anything on that front would be helpful. Rachel Pyles: Yes, absolutely. So first with FX, FX on our overall consolidated business was immaterial. If you think about where you see FX it comes through in our international business, there was about a 2 percentage point impact in that business. But from a consolidated perspective, it was de minimis. On the Datagrid side as well, data grid, as Ajei said, we're just finishing the integration and going into GA shortly those capabilities. So Datagrid was really immaterial to the overall results. Our organic business continues to grow 15% to 16%. Operator: Our next question comes from Adam Borg with Stifel. Adam Borg: Maybe, Ajei, just on the macro going back to that, we talked about it being stable over the last 6 or so months. I'd love to talk a little bit more about the government vertical, in particular, especially following the FedRAMP modern authorization earlier this year. Ajei Gopal: Yes. Yes. Sorry, you said you want to talk about the government vertical and then I lost you [indiscernible] ask the question. Adam Borg: Apologies. Yes, just the government vertical, especially following the FedRAMP Moderate authorization earlier this year. Ajei Gopal: Okay. Yes. So look, I think the FedRAMP thing, we were very excited about the FedRAMP authorization that we got earlier it is fundamentally a longer-term play for us because it allows us to participate in some of these government contracts. There is inherently some latency in government contracts, but it is in order to allow us to participate with them, we need to have that authorization. So government agencies require the authorization, the GCs that build on their behalf required authorization. We're certainly able to have these conversations with customers but the impact takes a little bit of time before from the time of announcement to the time that you can actually see it as well. Adam Borg: Super clear. And maybe as my quick follow-up. Earlier this year, Procore began offering 4 bundled packages each with 3 tiers. Just curious how that new package and pricing is -- really new packaging has been receptivity from the customer base. Ajei Gopal: Yes. So we had a chance to roll that out earlier, and the feedback from customers has been positive. I think it gives us an opportunity from a proper perspective to really position the right capability for the customer, depending on what they're looking for. And it certainly gives us an opportunity to generate incremental monetization as our customers move up that packaging stack. So it's still early days, but we're pleased with the capabilities that we have. And frankly, I guess the other point is that the intent behind the packaging was to really streamline the sales cycle. So it provides an ability for customers to be able to digest kind of a bundled value price as opposed to wondering about multiple a la carte items. And that gives customers a very clear path to being able to add an adoptable products. And so that combination, I think, is something that I think works so well for the customer and frankly, works out well for us as well. Operator: Our next question comes from Matthew Martino with Goldman Sachs. Matthew Martino: Ajei, I wanted to touch on international for a moment. With Walt now in the seed, where do you see the most meaningful opportunities to strengthen the international franchise from your here? And how do you think about the trajectory of that part of the business over time? I know you announced some new products as well to capture the upmarket in Europe. So if you could tie all that together. Ajei Gopal: Yes. So on the new products, just to slide together, we announced a CDE in Europe. And in fact, last week, I believe, we had an innovation conference in London, where customer feedback on the CDE was very positive. I think we had something like 170 regional customers and prospects. We had strategic partners and I think that continues to help reinforce our central role in the construction type system because, certainly, in that geography, the CDE is an important aspect of the tech ecosystem. And so that's one of the reasons why we're very pleased with that. I would say that, overall, if I were to Think about our go-to-market. I mean, obviously, international has been a relatively smaller part of our business relative to the opportunity. And it's obviously an area where we will spend some more time. I think the U.K., Ireland is where we're spending some initial momentum, but we do see opportunities in EMEA and with Walt in seat, I think we'll have an opportunity to continue to accelerate that part of the business, and we're looking forward to seeing that. Matthew Martino: Got it. And then, Rachel, for you, you laid out a capital allocation framework across organic investments, targeted M&A and opportunistic share repurchases. So as the new CFO stepping in, how are you thinking about the relative priority of those 3 buckets in the current environment? Rachel Pyles: Yes, absolutely. Thanks for the question. As I think about it, I really do them in that order. So first, focusing on organic growth and making the right investments there. And then to the extent that we the M&A becomes available that helps us accelerate our strategic road map, we will definitely pursue that. I think about those 2 things kind of one and then the other M&A, you can't always predict when it's going to happen and when it's going to be available. But certainly, we'll look to pursue those opportunities. And then finally, third would be the strategic opportunistic share repurchases. Operator: Our next question comes from Daniel Jester with BMO Capital Markets. Daniel Jester: Maybe, Rach, just starting with you on the seasonality of margin performance this year. I think last quarter, it was suggested that maybe the fourth quarter exit rate of margin expansion this year might be a little bit lower from sort of typical events and things like that. Any updated color on how we should be thinking about the margin trajectory this year. Rachel Pyles: Yes, absolutely. Thanks for the question. So we're confident in kind of our overall margin profile. As you imagine all expenses are linear. And so margin does move around in the quarters. But from an overall perspective, you're very confident in our full year margin expansion numbers. Daniel Jester: Okay. And then, Ajei, just on the comments about specialty contractors that you made. It's great to hear about that. And I think in the past, I think there's a lot of focus on owners and as great opportunities for Procore. Maybe can you just double-click on the specialty contractor opportunity and how you can maybe see that additive to growth this year? Ajei Gopal: Well, we certainly -- with respect to specialty contractors, I think we've had, from a product perspective, incremental releases that we talked about. I talked about materials management on the call. And obviously, I talked about equipping telematics. Both of those are areas of products that I think will help with our specialty contractors. I mean we give them essentially a place to manage documents to attract labor to track equipment to coordinate the DCs to get paid faster. So there's a lot of value that we're in a position to provide 2 specialty contractors. I'm excited about the area, and this is this is obviously one of the areas of focus for us as we go forward. Operator: Our next question comes from Jason Celino with KeyBanc Capital Markets. Jason Celino: So maybe my first question is kind of the incremental operating leverage comment that you expect to see in 2027 from AI. When we think about this internal AI adoption, I guess where is Procore on that journey today? Or said another way to drive that incremental leverage next year. are those AI efficiencies that you've already implemented? Or is that based on a road map of AI adoption you look to take on? Ajei Gopal: So let me just jump in here a little bit to talk about kind of where we are today in terms of our use of AI. Look, when you think about -- and I mentioned this in the script, but I'm excited that within our R&D organization, we're in the middle of transforming our operating model using AI. And my expectation is that as we go through that transformation, the rest of the organization will be in a position to follow the lead the R&D organization has -- is driving. And to be honest, we are already seeing the benefits of that and the part of the R&D organization that has adopted a very different model from a more traditional model, taking advantage of Agentic capabilities. We're starting to see increased speed in terms of product delivery, increased capabilities. So that value and benefit is something they're excited about. We're in the middle of that taking place. And obviously, the rest of the organization will follow. And we expect, obviously, the speed and the efficiencies from those changes are the basis of some of the financial leverage that we talked about for the next year. Rachel Pyles: To kind of add on to what Ajei said, he mentioned R&D is going first and then the capabilities out to the rest of the organization. But I would also note that we do have AI capabilities in other parts of the organization and our employees have access those tools, although not quite as advanced as on the R&D side. As we go into '27, I'm excited about seeing that all come together and seeing the efficiencies really across all parts of the organization. So I don't -- you're not going to see the leverage coming just from one place. It will really be coming from all lines across the P&L. Jason Celino: Okay. Great. And then in prior questions, you've talked about seeing a stabilized macro, but maybe going a step deeper in your conversations with customers, how are they managing the increase in oil prices. Obviously, it adds to the project cost, and it doesn't sound like it's affecting near-term project starts, but curious how conversations are going in more recent discussions. Ajei Gopal: I mean I think the important thing to recognize is the projects that we are involved in working with customers on all long-term projects. And so there it's not about what happens that's perhaps contained to one quarter or another. So no customers have really, in my conversations have really talked about this as being a long-term consideration. And so we continue to see a stable demand environment for the products and from our customers. Operator: Our next question comes from Ken Wong with Oppenheimer. Hoi-Fung Wong: When looking at the shape of the guidance, it does seem to imply second half acceleration from 2Q. Should we think of that as just purely mechanical? Or are you guys -- as you think about the business, as you look at what's in the pipeline that there is some business momentum, there is some improvement and an inflection coming in that back half? . Rachel Pyles: Thanks, Ken. It's really mechanical. So consistent with what you've seen us do in the past, we did a beat and raise this quarter. Again, that no change in our guidance last year. We're continuing to give you guidance that we feel a high level of conviction in. Hoi-Fung Wong: Got it. And then Ajei, I think it was someone alluded to earlier, but again, great to see you pair up with Walt again. As you and Walt look at the current go-to-market, any additional changes you think that needs to be made whether it's in terms of the organization or just the approach to selling. Any thoughts there that you can share with us? Ajei Gopal: Well, Walt has been officially in the seat for a little over a month, April 1. So he's still evaluating the organization, the team, et cetera. But look, Walt understands the vertical software motion, he spent years in vertical software. Obviously, we work together in a vertical company -- vertical software company. So he understands the motion. He understands the customers and how to have those conversations. And he was, frankly, with me working -- we were working very closely together on the journey that we went through in our last company to be in a position to take the sales organization and continue to scale it both internationally as well as across multiple customer segments and continue to expand the business. So I'm excited about Walt's capabilities but certainly, what I can tell you is that even as we make changes, and obviously, every sales leader will find areas of ongoing improvement as we make changes we will -- my expectation is that we will continue to execute as we improve, and I'm excited about that. Operator: We have reached the end of the Q&A session, and this concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Harley-Davidson 2026 First Quarter Investor and Analyst Conference Call. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Shawn Collins. Thank you. Please go ahead. Shawn Collins: Thank you. Good morning. This is Sean Collins, the Director of Investor Relations at Harley-Davidson. You can access the slides supporting today's call on the Internet at the Harley-Davidson Investor Relations website. As you might expect, our comments will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today's earnings release and in our latest filings with the SEC. Joining me for this morning's call are Harley-Davidson, Chief Executive Officer, Artie Starrs; and Chief Financial and Commercial Officer, Jonathan Root. With that, let me turn it over to Harley-Davidson, CEO, Artie Starrs. Arthur Starrs: Thank you, Shawn, and good morning, everyone, and thank you for joining us today for our Q1 2026 financial results as well as an introduction to our new strategic plan, which we're calling back to the bricks. I'll begin with an overview of our Q1 performance. Jonathan will then provide additional financial commentary before we turn to our strategy. Before I get into it, I'd like to take a moment to acknowledge our deeply committed and passionate Harley-Davidson employees, who worked tirelessly to bring Harley-Davidson alive across the world. Thank you, Team HD. Starting with retail sales. We're pleased with our performance this quarter. North America delivered a 14% increase versus the prior year, contributing to global retail sales growth of 8% in what remains a challenging consumer environment. These results reflect the impact of the actions we've taken to drive demand and improve execution. As noted on the Q4 earnings call, dealer health and inventory levels remain a key focus for the company. During the quarter, we reduced global inventory by 22% year-over-year as we continued to prioritize dealer inventory sell-through and aligning wholesale shipments with retail demand. We'll share more detail on this in our strategy discussion. Strengthening dealer relationships has also remained a priority. We recognize the critical role our dealer network plays in the Harley-Davidson ecosystem, and we're encouraged by the renewed sense of partnership and momentum across the network. This will be an important driver as we move forward into our next chapter. During the quarter, we also formally reopened our Juno Avenue headquarters in Milwaukee, Wisconsin. Affectionately referred to by our Harley-Davidson Community as the bricks with our employees at headquarters returning to the office for the first time since 2020. Finally, we've been encouraged by the early reception to our new marketing platform, Ride. I'll speak more about the brand platform and the value we believe it will bring as part of our strategy presentation. With that, I'll turn it over to Jonathan. Jonathan Root: Thank you, Artie, and good morning to all. I plan to start on Page 4 of the presentation, where I will briefly summarize the financial results for the first quarter. Subsequently, I will go into further detail on each business segment. Let me start with our consolidated financial results for the first quarter of 2026. Consolidated revenue in the first quarter was down 12% and driven primarily by HDFS revenue being down 54% as it moved into a new capital-light model after the closing of the HDFS transaction, where we sold a significant part of the retail loan book and agreed to a forward flow in which we expect to sell approximately 2/3 of future originations. Consolidated operating income in the first quarter came in at $23 million compared to operating income of $160 million in Q1 of 2025. This was driven by a significant year-over-year decline in operating income at both HDMC and HDFS as we expected. The operating loss at LiveWire was $18 million which was in line with our expectations and $2 million favorable to a year ago. In Q1, earnings per share was $0.22, which compares to $1.07 in Q1 of 2025. Now turning to Page 5 and HDMC retail performance. In Q1, North American retail sales of new motorcycles were up 14% versus prior year with approximately 24,000 motorcycles sold. In Q1, retail sales of new motorcycles outside of North America were down 4% versus prior year with approximately 10,000 motorcycles sold resulting in Q1 global retail sales of new motorcycles being up 8% versus the prior year with a total of approximately 34,000 motorcycles retailed. While we are relatively pleased with the start to the year, particularly in the U.S., we remain mindful of the global consumer discretionary landscape, which remains uneven. We are aware that pricing continues to be on the top of customers' minds given the current global setup that includes inflationary pressures, interest rates that continue to run above recent historical lows and global geopolitical uncertainty. In North America, Q1 retail sales were up 14%, where U.S. retail sales were up 16% and Canada retail sales were down 8%. Results were driven by continued strength in our Touring and Trike models as consumers reacted well to our new 2026 Motorcycle Launch and targeted customer incentives. This translated into a significant market share gain with Harley-Davidson reaching 38% of the U.S. 601 CC+ market, up 2 percentage points year-over-year. Dealer inventory in North America declined 21% year-over-year, reflecting a more balanced setup as we enter the main riding season. In EMEA, Q1 retail sales posted a modest decline of 3%. In the quarter, performance reflected a subdued economic environment in Europe, although supported with early model year 2026 product momentum across the continent, as evidenced by the quick sell-through of new units that began arriving later in Q1. The Rev Max platform continued to outperform the broader portfolio led by adventure touring, which showed strong growth year-over-year. In addition, from a market share standpoint, we moved from 2% to 4% of share in the European market in Q1. In Asia Pacific, Q1 retail sales declined by 9%. In the quarter, we experienced modest declines in the core portfolio, including touring, strike and soft tail reflecting broad-based pressure across Japan, Australia and China, partially offset by positive results in our noncore motorcycle portfolio with strength in adventure touring. In Latin America, Q1 retail sales delivered another strong quarter with retail up 21%, where both Brazil, our largest Latin American market and Mexico were up, while other Latin American countries were down modestly year-over-year. Touring and Trike were the standout categories in the market. Dealer inventory at the end of Q1 of 26 was down 22% versus the end of Q1 of '25. Specifically, North American dealer inventory was down 21% and dealer inventory outside of North America was down 23%. This has allowed Harley-Davidson dealers to start the upcoming 2026 writing season with a largely appropriate setup. In addition, the quality of dealer inventory is healthier today than 1 year ago as it is more current from a model year standpoint. At the end of Q1, North America dealer inventory was comprised of approximately 2/3 of current model year 2026 motorcycles. In comparison, in the prior year period, a little less than 1/2 of all dealer inventory was current model year. We expect this improvement in healthy dealer inventory to pay dividends in future periods and believe it sets Harley-Davidson and our dealers up for greater success. Before we get into revenue, let's conclude with some information on wholesale shipments. From a wholesale shipment perspective, in Q1 of 2026 and we delivered approximately 37,300 units compared to 386,000 units in Q1 of 2025, which is down 3% year-over-year. As we are now beginning the prime riding season in North America, we have recently heard from dealers that they could benefit for more inventory with regard to particular places, models, entrant levels. This is a good sign, and we expect to ship more units on a year-over-year basis in Q2 and Q4, while running lower in Q3 in comparison to the prior year period. We expect this will get us to a more even shipment cadence across the quarters in comparison to what we have delivered in recent years. Now turning to Page 6 and HDMC revenue performance. In Q1, HDMC revenue decreased by 2%, coming in at $1.1 billion. We point out that from a business line standpoint, motorcycles came in at $836 million C&A plus apparel came in at $200 million and licensing and other came in at $20 million. The drivers of overall revenue at HDMC included lower volume or shipments and lower net pricing and incentive spend. These were partially offset by favorable foreign currency. Now turning to Page 7 and HDMC margin performance. In Q1, HDMC gross profit came in at 25.3%, which compares to 29.1% in the prior year. The year-over-year decrease was driven by the unfavorable impacts of increased tariff costs of $45 million in Q1, which will be covered in more detail in the next slide, net pricing and incentive spend due to effective sell-through of prior model year dealer inventory. Product mix, lower volumes and higher-than-expected supply management costs as we work through a unique supplier situation. These were partially offset by the positive effects of tariff recovery settlement from prior years and favorable foreign exchange. In Q1, operating expenses totaled $248 million which was $49 million higher compared to prior year. This falls into two broad buckets. The first piece is a restructuring expense of $15 million, driven by costs incurred related to strategic changes, including the company's decision to eliminate certain roles, resulting in onetime employee termination benefits and other recurring charges. The second piece consists of $34 million of additional costs in the quarter specifically due to higher warranty spend due to select product recalls, select people costs, primarily related to executive team changes on a year-over-year basis, increased marketing spend as the marketing development fund matures, and limited other discrete expenses to operate the business. In Q1, HDMC had operating income of $19 million, which compares to operating income of $116 million in the prior year period. Turning to Slide 8. In 2026, the overall global tariff regulatory environment continues to evolve. There are a number of factors at play in the space, including the potential for increased tariff recoveries and evolution in the application of IIFA Section 122 and updates to Section 232 steel and aluminum tariffs. In Q1, we saw the most significant year-over-year impact in tariffs we expect to experience this year. This is a result of the increased tariff levels, which were initially put in place beginning in Q2 of 2025. In Q1 of '26, the cost of new or increased tariffs was $45 million. As tariff policy changes, there are lags associated with the various tariff levels as these adjustments work their way through our parts inventory imported prior to the current Section 232 pronouncement. We continue to pursue mitigation actions where possible and pursue tariff recoveries when viable. We note that recent U.S. administration tariff regulation announced in early April, included an exemption on certain motorcycles and for parts and accessories for the use in the manufacturing promoter cycles. We would note that Harley-Davidson is a business very centered in and around the United States. 3 of our 4 manufacturing centers are U.S.-based and 100% and of our U.S. core product is manufactured in the U.S. This change will serve in helping mitigate the impact to tariffs to Harley-Davidson and enable us to strengthen our commitment to U.S. manufacturing. At this point in time, we expect the cost of increased tariffs to be in a range of $75 million to $90 million for the full year 2026, which is favorable to what we guided to in our prior quarter. From a cadence perspective, our expected tariff amount will decrease consecutively as we work our way across the remaining quarters in 2026. Turning to HDFS on Page 9. At Harley-Davidson Financial Services, Q1 revenue came in at $112 million, a decrease of 54% driven by lower interest income due to the decline in retail receivables related to the sale of loan assets as part of the new HDFS transaction. Other income within HDFS revenue was favorable year-over-year due primarily to new servicing fees, investment income and new gains on third-party loan sales. HDFS operating income was $22 million, representing an operating income margin of 19.9%. On the expense side, interest expense and the provision for credit loss expense were both significantly lower, which was due to the decreased size of the retail loan portfolio and related debt on a year-over-year basis and as expected. With the change in strategy associated with the HDFS transaction. The HDFS team continues to manage expenses prudently with operating expenses decreasing by $1 million versus prior year. Turning to Page 10. In Q1, HDFS' annualized retail credit loss ratio on managed loans was 3.6%, which compares to 3.8% in the year ago period. We are pleased with HDFS loan origination activities as total retail loan originations in Q1 were up 14%, coming in at $671 million in Q1. We Total gross financing receivables were $2.5 billion at the end of Q1, where retail receivables were $1.3 billion and commercial receivables were $1.2 billion. Now turning to Slide 11 for the LiveWire segment. For the first quarter of 2026, LiveWire revenue increased 87% over prior year driven by increases in electric motorcycle and static brand electric balanced bank units. Consolidated operating loss decreased by 11% and resulting from improved gross profit and lower selling, administrative and engineering expenses. In turn, this drove an improvement of over 25% in net cash used by operating activities in Q1 of '26 compared to Q1 of '25. For 2026, LiveWire's focus is heavily geared around the imminent launch of its F4 Honcho products, in particular, continued network expansion cost savings and improvements and product innovation and development focused on products that will be profitable and positive drivers of cash flow. Now turning to Slide 12. We wrapping up with consolidated Harley-Davidson, Inc. financial results. We had net cash use of $228 million from operating activities in Q1 and which compares to $142 million of operating cash in the prior year period. Operating cash flow was lower than the prior year due to reduced cash inflows at HDMC on lower wholesale shipments. Also at HDFS, the operating cash flow decreased due to reduced interest income and due to new originations of retail finance receivables under the forward flow arrangement that were classified as held for sale, which is classified as an operating activity under U.S. GAAP. As a result, the originations to be sold to our strategic partners or outflows reduced cash flow from operations as there were no comparative retail finance receivable originations classified as held for sale in the first quarter of the prior year. This was partially offset by the inflows from the proceeds from the sale of retail finance receivables classified as held for sale. This will remain a distinct year-over-year item as we move through 2026 as a result of the HDFS transaction, which concluded throughout the second half of 2025. Total cash and cash equivalents ended Q1 of 2026 at $1.8 billion compared to $1.9 billion a year ago. As part of our share buyback strategy, in Q4 of 2025, we entered into an accelerated share repurchase agreement to repurchase $200 million of the company's common stock. As part of the ASR agreement, we received $160 million or 80% of the notional worth of shares or 6.3 million shares delivered to us before December 31, 2025, with the remainder expected to be delivered in early 2026. On February 12, 2026, our ASR was concluded, and we received an additional 3.1 million shares on February 13 2026. These shares had a value of $64.7 million, considering the share price during the ASRs performance period. Beyond the ASR, the company also repurchased another 3.5 million shares on a discretionary basis for $63.3 million in the first quarter of 2026. Therefore, in Q1, we repurchased a total of 6.6 million shares worth $128 million on a discretionary basis. We note that since our Q2 of 2024 earnings announcement, where we also announced a plan to repurchase $1 billion worth of our shares through 2026 that we have repurchased a total of 26.8 million shares. That is a total value of $726 million of Harley-Davidson shares purchased. We are pleased with the performance and have decided to conclude reporting on this program as we look forward to aligning our capital allocation approach with the updated strategy that Ed and I will walk through shortly. Share buybacks remain an important part of our capital allocation strategy, and you will hear more on this, including a refreshed and updated approach to capital return to shareholders. As we enter the main riding season, we remain pleased with our dealer inventory levels and leading market share position in the U.S., new model year '26 motorcycle launch, including the new limited touring motorcycles and the all-new redesigned trike models. We are also pleased with the reception to a number of new, more affordable motorcycles, which have a focus on critical price points to help stone demand. While we are not changing our financial guidance, we would note that our optimism on the year has increased. This is due in large part to our retail results in North America, and we are also pleased with the early action of our cost reduction. For the full year 2026, the company reaffirms its guidance and continues to expect at HDMC retail units of $130,000 to $135,000 a and wholesale units of 130,000 to 135,000. We believe that global dealer inventory levels are healthy, and therefore, we expect retail and wholesale to have a largely one-to-one relationship in 2026. In line with my earlier comments versus prior year, we expect shipments to be higher in Q2, relatively flat in Q3 and then up again in Q4. At the same time, we continue to expect production units at HDMC to be lower than wholesale units shipped in 2026 as we work to prudently manage overall company inventory levels. For 2026, we expect this will have a deleverage impact, which will put pressure on operating leverage and operating margin, but we expect to come into alignment by next year. In addition, we still expect to face a greater overall cost for incremental tariffs in 2026 compared to 2025 and which we covered in detail previously. As a reminder, in full year 2025, we incurred a cost of $67 million in new or increased tariffs. And in 2026, we forecast a cost of between $75 million to $90 million of new or increased tariffs based upon current tariff levels and versus the 24 baseline. This is an update to the prior range we provided of $75 million to $105 million. At HDMC, we expect operating income of positive $10 million to a loss of $40 million. At HDFS, we expect operating income of $45 million to $60 million. As a reminder, the new business model at HDFS, given the HDFS transaction, where Harley-Davidson Financial Services now employs a capital-light derisked business model and has significantly changed financial earnings profile relative to before the transaction. For LiveWire, we are forecasting an operating loss in the range of $70 million to $80 million. And with that, I'll turn it back to Artie to cover our strategic plan. Arthur Starrs: Now turning to our strategic plan for Harley-Davidson. On behalf of our Harley-Davidson community, Jonathan and I are excited to introduce our Back to the Bricks plan. Designed to reignite brand enthusiasm with riders around the world while driving profitable growth for our dealers and shareholders. It is grounded in the work we've done since October. We've spent significant time assessing the business, engaging deeply with dealers and riders and most recently, through a global road show where we connected directly with the majority of our dealer network in all of our global dealer advisory councils. The Back to the Bricks plan will restore Harley-Davidson and position the company for growth. First, we are intensely focused on leveraging Harley-Davidson's competitive advantages, specifically brand, diversified revenue channels and most notably, P&A and financing products and our dealer network. Second, we are leaning into a true win-win model with our dealer network. Our dealers are not only our retail channel, but the frontline builders of our rider community. They are the true source of strength and a competitive advantage when our dealers win the enterprise wins, and so do our shareholders. Third, we have already taken immediate actions to recapture share by better serving the large and community of riders, where Harley-Davidson has a clear right to win. Fourth, we're doing this from a position of strength and plan to leverage our balance sheet, bolstered by cost and restructuring actions to enable both investment in the business and returns to shareholders. We are executing against a clear path to strong and growing free cash flow and EBITDA margin. And lastly, we brought on some great leadership talent to support the business as we enter this new chapter for the company. Moving to Slide 3. There are really three things that define Harley-Davidson. First, we are a 123-year young brand that designs and manufactures the best motorcycles in the world. combining iconic design, precision engineering and a look, sound and feel that is unmistakably Barley Davidson. Second, through our best-in-class dealer network, we serve a global community across segments. We've helped define over decades. Our riders show up in powerful ways through hog chapters, rallies, events and by giving back to their local communities. And third, maybe most importantly, is the culture of riding. Since starting at the company, I've spent time with riders and dealers at events, rallies and swap meats. And what stands out is the emotional connection riders talk about their motorcycles, their rides and their community in deeply personal ways. For them, riding isn't just about getting somewhere. It's about the experience itself. The ride is the destination. Turning to Slide 4. We're in the midst of a bold restoration of the business to drive value for shareholders. What's clear is that our heritage remains a powerful advantage, not something to preserve, but something to build from. It starts with our portfolio. Taking a step back over the last several years, we leaned heavily into touring and electric. Going forward, we are shifting to a more rider-centric portfolio, one that is more accessible, more customizable and better aligned to the needs of the full spectrum of our riders. Touring will always remain our core. We're building clear pathways into the brand that support long-term touring growth. While also addressing other writing occasions and styles. Importantly, we can do this using our existing platforms, moving from too many of too few to a more balanced lineup. We're also adopting an enterprise profitability model, recognizing that our success is directly tied to the success of our dealers. When dealers win, we win. By aligning Harley-Davidson and dealer economics, we can create more value for riders, stronger profitability for dealers and more dependable cash flow for shareholders. I'll come back to this in more detail shortly. Another key pillar is parts and accessories. Customization is at the heart of Harley-Davidson. It's how riders make each bike their own what we often think of as freedom for the sole or more personally freedom for our so. We're reestablishing parts and accessories as a core growth driver, one where we have a clear right to win, and in alignment with dealers as this is an important component of their profitability. We're also reinforcing motor clothes and apparel, growing from the core of the brand. On promotions, as inventory has normalized, we are shifting to a more targeted and disciplined approach, one that supports volume while protecting margins. An expanded portfolio will play an important role here as well. From an investment standpoint, we continue to see upside in existing platforms, particularly within touring, but our near-term focus is on executing better with the platforms we already have rather than introducing entirely new ones. By leveraging our existing platforms and powertrain to bring new motorcycles to market, we are operating with a more capital-efficient model. Finally, we've taken important steps to refocus our brand around our community as reflected in the launch of the ride marketing platform. Taken together, we believe these actions position us to revitalize the business by leaning into what has always made Harley-Davidson strong and executing with greater clarity and discipline. As you can see on Slide 5, a we've experienced a decline in retail volumes, and that's had a direct and meaningful impact on both company and dealer performance. At the core of this is a loss of relevancy with riders, most notably with the exit of iconic motorcycles like the Sportster, which limited accessibility and contributed to lower volumes. Additionally, we are excited to introduce Sprint the perfect entry for many to the Harley-Davidson brand. At the same time, as volumes declined, our cost base remained largely fixed putting pressure on margins and driving a greater reliance on broad-based promotions, particularly on higher-priced motorcycles. And importantly, lower throughput at has had a direct impact on our dealers, reducing traffic, compressing profitability and limiting the performance of key revenue streams like parts and accessories and service. All of this reinforces a critical point. restoring profitable volume is central to improving overall performance. And that's exactly what our strategy is designed to address, making the brand more accessible through a combination of portfolio changes, more targeted pricing and promotions and improved operational execution. Moving to Slide 6. While recent performance has been impacted, the underlying market opportunity remains significant. We see meaningful white space in existing markets, areas where Harley-Davidson has strong legacy equity and a clear right to win. Across new motorcycles, used motorcycles, parts and accessories and apparel, there is share of wallet that we were capturing as recently as 2019 that we are no longer capturing today. That creates a very direct opportunity to regain market share and do so in segments where our brand is already strong. Importantly, this strategy is not about entering new categories where we lack a competitive advantage. It's about doubling down in the categories we know where we have credibility, scale and deep rider connection. We believe this positions us to regain lost share while driving meaningful volume growth over time. Now turning to our strengths on Slide 7. The foundation of Harley-Davidson is its legacy, an unparalleled brand with unique American heritage, as recognized recently by USA TODAY as part of their 50 iconic brands that shaped America Series. Underpinned by a best-in-class dealer experience, deeply committed riders and craftsmanship that delivers something truly unique. When I first joined the company, those advantages were immediately clear. And as we've looked more closely at the data, they've only become more compelling. We are one of the most recognized and esteemed brands in the category and in many ways, we help define it. Our dealer network is a true competitive advantage, consistently delivering a best-in-class customer experience and serving as the frontline of our brand. Our riders have an incredible affinity for Harley-Davidson. They don't just buy our products, they live our brand. It's a level of loyalty and engagement that is difficult to replicate. And all of this is anchored in superior craftsmanship and quality that continues to resonate strongly with our riders. Taken together, these strengths provide a powerful foundation as we execute our plan and move the business forward. Now turning to our strategic road map on Slide 8. Against the backdrop we've just discussed, we've developed a plan for the next several years that unfolds in three clear phases. First is the reset. This phase is already underway and focused on taking cost out rightsizing dealer inventory, strengthening our dealer relationships and rolling out the ride marketing platform. We're making progress across all these areas, and today, we'll provide an update on that momentum. Second is the growth phase. Beginning next year, you'll see a more expanded and balanced portfolio designed around what riders want, while leveraging the full life cycle of the motorcycle to unlock additional revenue streams. Parts and accessories will play a much larger role both in dealerships and as a core revenue driver. At the same time, we're refining our promotional approach to be more targeted, driving traffic and volume while preserving profitability. And third is the acceleration of value creation. As the portfolio becomes more accessible and better aligned to needs of our full spectrum of riders, we see opportunity to deepen ridership engagement. This includes greater participation in the used motorcycle ecosystem as well as further driving adjacent areas like apparel and licensing. With the foundation established in the first 2 phases, we believe we are well positioned to drive more sustainable enterprise growth in wider economic enterprise benefits. Turning to Slide 9. What are we doing right now? We've already begun putting this plan into action, and we're encouraged by the early momentum. As part of Phase 1, our actions on cost and inventory have been swift and effective. We've moved quickly to reduce head count and take cost out of cost of goods sales, creating room to reinvest in key growth areas like parts and accessories. As we previously outlined, we expect to deliver at least $150 million in annual run rate cost savings that will impact 2027 and beyond versus 2025 levels. At the same time, we've made meaningful progress on inventory. Global retail inventory is now at a much healthier level, down significantly, 22% year-over-year. So we still see opportunity to improve assortment and allocation at the dealer level. Importantly, these actions are starting to translate into results. we're seeing sales momentum return with retail growth and market share gains, including an 8% increase in global retail sales in Q1 2026. Now turning to our dealers on Slide 10. The Harley-Davidson dealer network is a clear competitive advantage, and our strategy is intentionally designed to support and strengthen their profitability. I firmly believe this company will go only as far as our dealers take us. That's why dealer profitability is a central pillar of our plan. Since joining, I've spent a significant amount of time with dealers, along with the broader leadership team, listening and learning directly from them on the ground. Our focus is on earning their trust and ensuring they're confident and excited about the path forward. We've already taken action through inventory rightsizing, better alignment on promotions and structural improvements to dealer programs. And we're not done. There are additional actions ahead that we expect to further strengthen dealer economics. Our objective is clear: to materially improve dealer profitability over time, supporting a stronger, more stable network and enabling long-term growth. As shown on the slide, we are targeting a meaningful step-up in dealer profitability over the next several years. Moving to Slide 11. It's important to understand the role dealers play in the Harley-Davidson ecosystem. Dealer profitability is nonnegotiable and ultimately a win for shareholders. At the core, brick-and-mortar economics and frontline enthusiasm are directly linked. When our dealers are profitable, they can invest in their business, delivering a better rider experience at the point of interaction with our brand. Stronger dealer economics also reduced the need for discounting and OEM promotional support, helping preserve the premium positioning and long-term health of the brand. Dealers are not just our primary sales channel. They are a powerful marketing engine, building the brand and local communities at scale. When they are successful, we unlock the ability to invest more in rider growth through initiatives like Riding Academy, HOG engagement and events that deepen connection to the brand. And importantly, healthy dealer profitability attracts capital, bringing more investment into the network and supporting long-term rider-centric growth. Moving to Slide 12. I want to spend a moment on the lens through which we're now viewing growth and profitability. We've done significant work to better understand how we make money as one enterprise, Harley-Davidson and our dealers together. What's clear is that focusing solely on wholesale and retail motorcycle margins is an incomplete view. A motorcycle generates value over its entire life cycle across parts and accessories, service finance and insurance and ultimately, the used market. And importantly, Harley-Davidson and our dealers participate in that value at different points in time across multiple revenue streams. So going forward, we're managing the business against this broader enterprise economic model. By increasing new motorcycle volumes, we not only drive profit at the point of sale, we also expand the base of motorcycles in the market, which fuels downstream revenue across all of these channels. We believe this will create a more stable diversified and sustainable earnings profile over time. It also changes how we think about the portfolio. We intend to bring motorcycles to market in a way that supports the full enterprise profit model not just the economics of an individual launch for motorcycle. We expect this to reduce pressure on any single product and lead to more balanced performance across cycles. And importantly, the portfolio changes we're making, particularly around accessibility and customization play directly into this model by supporting higher volumes and stronger life cycle value. Over time, we plan for this to become a compounding growth engine. The return of Sportster and the introduction of new models like Sprint are great examples of how this approach will create value across the system. We're really excited to announce that our iconic Harley-Davidson Sportster will be returning in 2027. This has been the most requested motorcycle from both our riders and our dealers, and we're bringing it back better than ever. Sportster is a perfect embodiment of back to the bricks, and it fits naturally within our enterprise economic model. For context, Sportster has historically been a middle weight highly customizable motorcycle with an air cooled powertrain and accessible starting price point, making it an important entry to the Harley-Davidson brand. While it was discontinued in 2022, it has remained incredibly strong in the used market, often retaining value at or above original MSRP, which speaks to its enduring appeal. With its accessibility, we expect Sportster to drive higher volumes. And with its customization potential, we expect strong attachment to parts and accessories as riders personalize their motorcycles. Beyond the motorcycle itself, Sportster also creates opportunity across apparel, licensing in the broader wider ecosystem. Importantly, it demonstrates how our strategy generates value across the full life cycle from the initial sale to entry into the used market. Taken together, Sportster is a critical part of our plan to restore volume, strengthen our portfolio and drive long-term enterprise value. We look forward to sharing more specifics later this year. Additionally, we're excited to bring Sprint to market beginning in the back half of 2026. This lightweight, customizable and accessible motorcycle provides a great entry to the brand for many riders. We are excited to be returning to a space that we haven't been in since the 1960s. And we believe that the Sprint will provide a great starting point for riders to enter the brand as they progress through the portfolio. Over the coming periods, we will be providing more detail on how this aligns with our portfolio planning and lifetime value creation. Moving to Slide 15 and zooming out to a broader view of the portfolio, we are taking deliberate steps to realign the portfolio. Making it more rider-centric and better positioned to replicate the value creation cycle we just discussed across more models. Over the past few years, pricing and portfolio decisions reduced accessibility for some riders which contributed to lower volumes and ultimately, pressure on profitability. We're addressing that directly. Going forward, you'll see a more balanced lineup across price points. while still maintaining our premium positioning. We're also expanding the use of blank canvas motorcycles, which we know is a key differentiator for Harley-Davidson. Giving riders more opportunity to personalize their motorcycles through genuine parts and accessories. These changes are informed by deep analysis of the used market, direct dealer engagement and what we've learned from recent promotional activity. Importantly, we see clear gaps in the portfolio that we can address efficiently without starting from scratch. We're leveraging our existing platforms in Powertrain, where we see significant room for growth, allowing us to expand the lineup without incremental capital investment. Taken together, this positions us to deliver what riders want, improve accessibility and drive stronger volume and life cycle value across the portfolio. Now turning to parts and accessories on Slide 16. This is one of our most important revenue channels and a significant growth opportunity. We believe there is a potential to drive 20% to 30% sales growth over time. We also recognize that we've under-invested in this area in recent years. Customization is at the core of the Harley-Davidson experience and a key driver of dealer profitability. No two Harley-Davidson motorcycles on the road are the same and that's exactly how riders want it. So we've laid out a clear road map to rebuild our leadership in parts and accessories, leveraging our dealer network and existing manufacturing and supply chain capabilities. That starts with expanding our assortment, including reinstating approximately 30% of SKUs that were previously eliminated. We're also refocusing on core categories where Harley-Davidson has historically been strong. Like seats, exhaust, lighting, windshields and handlebars and pairing that with an increased emphasis on blank canvas motorcycles that are designed for personalization. Importantly, we're integrating parts and accessories into the motorcycle launch process, ensuring availability at launch, supported by HDFS financing and aligned dealer incentives. As we execute this, we expect stronger dealer performance, increased attachment rates and ultimately both revenue growth and margin expansion over time. Turning to Slide 17. We're also refining our approach to promotions. Historically, our promotional activity has been broader and less targeted. More recently, we used promotions to help reset elevated dealer inventory. Which, while necessary, put pressure on profitability. Now with inventory at healthier levels, we're shifting to a more disciplined and targeted approach. Focused on driving traffic and conversion at a lower cost. An important enabler of this is our expanding portfolio, which allows for more value-based messaging across a broader range of products. rather than relying on heavy discounting on a narrower mix. We're also strengthening our capabilities with recent hires who bring deep experience in performance marketing in automotive retail. And the launch of our marketing development fund in 2025 is a key step in better aligning scale with more effective localized dealer messaging. Together, these efforts are improving how we manage incentive spend, driving more predictable growth while recognizing that many riders don't require heavy promotion to convert. The result is a more efficient model. which we believe will support volume recovery while protecting margins. Now turning to our marketing approach on Slide 18. Last month, we launched our new brand platform, Ride, which really brings everything together. It's built on a simple but powerful insight, joy and Swagger. At its core, Ride celebrates the experience of riding and most importantly, our riders themselves. They and their motorcycles are the stars of the show. This reflects a broader shift in how we show up as a brand. We're moving toward more authentic, rider-focused storytelling that reinforces the community and culture at the heart of Harley-Davidson. We're also reallocating our marketing investments. moving away from a heavier e-commerce spend and toward top of funnel, brand-building efforts to drive awareness and engagement. You may have even seen us recently on Wheel of Fortune. At the same time, we're making better use of tools like the marketing development fund, while upgrading our digital platforms and programs to support both global scale and local activation. And perhaps most importantly, the power of ride is that it gives us a single unified voice while still allowing flexibility for riders and dealers around the world to bring the brand to life in their own way. It connects all aspects of Harley-Davidson from product to community to marketing under one cohesive platform. And as you can see on the slide, it creates a clear and flexible framework for how we bring the brand to life across riders, dealers and markets around the world. Over time, we expect this to drive stronger engagement, deeper relevance and ultimately growth. Now I'll hand it over to Jonathan to take you through the financial section. Jonathan, over to you. Jonathan Root: Thanks, Artie. Now turning to our financials on Slide 21. All of the facets of the strategy we've just laid out support our financial growth trajectory over the next few years. We believe we have a clear path to achieving $350 million plus EBITDA in 2027. The path to get there is clear and execution-driven anchored by roughly $150 million in fixed cost reduction, better alignment between wholesale and retail volumes the full impact of Sportster and Sprint, targeted expansion in high-margin parts and accessories and more effective disciplined promotions. Beyond 2027, the story doesn't stop. We expect continued strong growth driven by further cost absorption, a broader P&A and motorcycle portfolio, incremental product improvement and smarter incentive execution. The bottom line is, this is a structural step change in profitability with clear levers and meaningful upside ahead. Now on Slide 22, we'll take a closer look at how we get there. This bridge outlines the key initiatives that will drive EBITDA improvement. In the near term, the focus will be on cost reduction and operating leverage, which we see as the primary drivers of performance. With these actions already underway, we have a clear line of sight to achieving $350 million or more. Beyond 2027, a Drivers for continued growth will include, but not be limited to, improvements in motorcycle margins and volume supported by growth in parts and accessories. Turning to our medium-term targets on Slide 23. We expect to return to sustainable growth across key metrics. We expect to achieve mid-single-digit retail unit growth over the medium term. As Artie discussed, this return to growth will be driven by the significant actions we are taking across our business. Furthermore, we expect the momentum in retail units and other enabling actions to drive mid-single-digit growth in P&A and AML. Combined with the ongoing inventory rightsizing, we expect this return to growth to have a significant impact on dealer health. From a margin standpoint, we expect to drive significant improvement in gross margins approaching 30%, while operating expenses as a percentage of sales decreased to less than 20% and from the 25% in 2025. Over the midterm, we expect CapEx to remain broadly in line with recent expenditure levels. In totality, we expect to deliver attractive top line growth and drive towards a 10% to 12% EBITDA margin over the medium term. These targets reflect a more balanced and resilient business model underpinned by the Back to Brick strategy. I'll now touch briefly on HDFS on Slide 24. We believe that the business remains a highly strategic asset. Following the transaction, we have transitioned to a more capital-light model while maintaining HDFS' role in supporting motorcycle sales and dealer financing. We recently held a call to discuss the HDFS business in greater detail but at a high level, we expect HDFS to see improved returns while reducing capital intensity. We expect to continue to strengthen HDFS' leading position in powersports and intend to expand our high-value finance and insurance product suite with optimized offers supporting motorcycle sales. In connection with our enhanced P&A offerings, plans to leverage additional financing to drive P&A sales. Lastly, we are also better training dealers to maintain the best-in-class penetration rate of HDFS. With all this in mind, we are targeting $125 million to $150 million in operating income for the business by 2029. Turning to capital allocation on Slide 25. Our priorities remain consistent. We will reinvest in the business where we see opportunities to drive growth across the key initiatives of our strategy. We also remain committed to returning capital to our shareholders through share buybacks and dividends. Additionally, we remain open to opportunistic value additive M&A. And with that, I'll hand it back to Artie. Arthur Starrs: Thank you, Jonathan. To conclude, Harley-Davidson is built on a strong foundation, an iconic brand a deeply loyal rider base and a differentiated dealer network. We're excited about the path forward. Our dealers are energized, and we're seeing real enthusiasm from the rider community around back to the bricks. This strategy is intentionally grounded in our core strengths, and we're doubling down on what makes Harley-Davidson unique, especially our dealer network. Importantly, execution is already underway and we're seeing early signs that our actions are delivering results. We're doing this from a position of strength with a solid financial foundation to support both investment in the business and returns to shareholders. And we have the right team in place. energized and equipped with the experience needed to deliver on this plan. We remain committed to working closely with our dealers every step of the way to create value for our riders and ultimately for our shareholders. Thank you for your time this morning. And with that, we'll take your questions. Operator: [Operator Instructions]. We'll take our first question from today, and that is from the line of Robin Farley from UBS. Robin Farley: Two questions, if I may. First is -- just wondering what medium term is 2029 medium term just to kind of put a finer point on thinking about the targets? And then the other question is a little bit with tariffs, some of the bridge to your 2020 EBITDA is from, I guess, lower tariffs lumped in with some other things. And so if you could just help us think about that what you're expecting, what's factored in, in terms of tariff refunds into that? And your full year was unchanged, but tariffs seem a little better, so maybe there's an offset there. And then just -- I don't know if the manufacturing for Sprint, if you're assuming tariffs on that, if that's going to be outside the U.S. and potentially tariffs. So I know that's a lot of tariff balled up into one, but just whatever you want to address. Arthur Starrs: Great. Robin, thank you. It's already -- appreciate the questions. I'll take the first one, and then I'll let Jonathan handle the tariff specifics. When we said medium term, we mean 3 to 5 years. So hopefully, that helps on the tariff piece of Jonathan? Jonathan Root: Yes. So from a -- so thank you, Robin. From a tariff standpoint, I think when you look at our 2026 estimate, we obviously have a midpoint of $83 million on that, if you look within the first quarter, we had $45 million in tariffs that were paid. That leaves $38 million, again, just using the midpoint for simplicity for the balance of the year. Our viewpoint is that, that tariff amount will consecutively decrease by quarter as we benefit from the current tariff structure that we laid out on our slides. So in effective Q2 as we got into April, there were some changes from an overall tariff philosophy perspective that were put out there. You see the benefits of those. Obviously, that sort of accrues over time. we think that, that sets us up for 2027. We're not providing 2027 guidance at this point. But at 2027, that is arguably more attractive than where we are from a 2026 perspective. So you can infer and use some of your own judgment on where that lands. From a tariff refund perspective, there's obviously a tremendous number of companies large and small across the United States that are working on tariff refund and approach to tariff refund right now. Obviously, we will be working and following all of the guidelines that we need to from a tariff refund perspective, but a little difficult for us to talk through some of the specifics on timing. And when all of those dollars will hit throughout the year, we certainly have a little bit of benefit baked into our expectations, but it's not a tremendous driver for us. It's really more as we look, what are the current tariff rules that are in place how do we think that will accrue and you see the benefit that we've put in place from a guide perspective versus what we originally guided to for 2026. Operator: Our next question comes from the line of James Hardiman with Citigroup. Your line live. James Hardiman: So two questions on sort of the back to bricks opportunity. I guess, first, when we talk to investors, the 1,000-pound gorilla fair or not is sort of the demographic backdrop, right, specifically lower popularity of motorcycling if you think about younger generations maybe relative to their baby boomer counterparts. Artie, obviously, that's something that you've had to consider how does the back to the Bricks address that? Obviously, you've got some market share recapture goals that are pretty aggressive. Is there any concern that market share gains could be offset by category declines if those demographic headwinds persist? And I did have a follow-up if we could. Arthur Starrs: We can, James, thanks for your question. I think -- the biggest thing in this strategy back to the Bricks is we're prioritizing rider needs in a rider-centric portfolio. So we specifically called out. Two examples of how we're doing that. The Sportster, one of our most iconic motorcycles as recently as 5, 6 years ago, the market for that motorcycle is 35,000 to 40,000 plus on a global basis. Our riders and many younger riders and our dealers have expressed it is the #1 universal request from the motor company to deliver around a great Harley-Davidson Sportster and what we're talking about today is the 83. And so when I look at the demographics, how young people have always entered our brand, over 123 years. It has been motorcycles like the Sportster and over the last 30 or 40 years, the sports there has been a critical entry point to the brand. The second motorcycle is the Sprint, we have not had a motor cycle like the Sprint in some time. We see it filling an important need in Riding Academy, as someone who recently went through Ride Academy, being able to get on a motorcycle and then buy that same or a similar motorcycle is a gap in our current portfolio, which we're extremely enthusiastic about what this print is going to do. And I'd remind you that the number of designations at least in the United States right now, it's quite strong, as strong as it's been. And we see the opportunity for us as we present the brand as you look at the marketing campaign, this concept of Joy and Swager is something that we believe is and will resonate with young people. It's core to bringing young people into the brand over many, many years, which the brand had done successfully. So I'm quite optimistic. And the portfolio of motorcycles we're bringing forward, I think, addresses this well. James Hardiman: That's great. And it's a great sort of dovetail into sort of my follow-up question. Obviously, as we think about your medium-term target, of mid-single-digit retail growth, most specifically, I think if investors felt comfortable with that number alone, this would probably be a $40 or $50 stock, right? But help us understand that target while factoring in the return of sports there and the introduction of Sprint, how much of that retail growth is coming from those items? I'm just trying to understand sort of the organic versus the inorganic contributors to that mid-single-digit retail growth. Can you get to a place where the organic piece is also growing at a nice clip? Arthur Starrs: Sure. So thanks for the question. The Sportster is an important part, and Sprint obviously complements it as well. I referenced the volumes on Sportster historically. I'll go back to we feel that if we meet our riders where they're at, we can grow at these levels and beyond. I'm not going to give a specific number in terms of how much Sportster constitutes the amount of growth. But just based on historical numbers of Sportster that have sold and a projected number of Sprint, we believe that a significant portion of the growth will come from there. In addition to that, this concept of decontented or blend canvas motorcycles that we referenced in the presentation is something our dealers have been asking for. And it does a couple of things. Number one, is it leverages existing platforms and powertrains that we have and provides more accessibility across Touring and soft tail. Which is extremely exciting. And I'll remind everybody that some of these things were in Q4, we took action with things like our solo introduction, they're already working. So some of the retail success that we saw in Q1, we've effectuated in these plants. So I'm very enthusiastic about growth in both cruising and touring with a more distributed and accessible portfolio of motorcycles. Sportster is a big part of it. And given what's sold historically in Sportster, I'm quite confident and what's happening in the used marketplace on Sportster, if you look up in some of the used market channels, it's extremely exciting to see residuals maintain, and it's difficult to get your hands on an 83 right now, which means there's a real need. That's great color. Jonathan Root: James, the one piece that I would add to is, as you refer back to what was in the strategy deck, there's a page in there that talks through the multiyear view of motorcycle and the ancillary revenue streams. And so as you listen to Arty talk through changes to that portfolio, some of the kind of early wins that we've been seeing with solo models and some of the benefits that our price point focus is beginning to drive. That obviously has showed up in the first quarter from a retail standpoint. So inside of Q1, we've demonstrated the benefit to the approach that has been laid out. And then from an overall strategy standpoint, as we think through a life cycle and lifetime view, we can really envision people moving through the portfolio. We can see the benefit that accrues to both Harley-Davidson and our dealers that aligns with what Art talked through, and that's what gives us so much confidence in where we're going with the midterm targets and what's been laid out there. Operator: Our next question is from the line of Joe Altobello with Raymond James. Joseph Altobello: A couple of questions on the category expansion here. You talked about Sportster talked about Sprint. It sounds like those are smaller bites. Are there other sort of subcategories that you're looking to expand into as well, just beyond smaller CC engines? And then second question, there's a reason why Sports or was discontinued, right? It was hard to make money. So how is the economics of that bike changed? Arthur Starrs: Great question, Joe. Thank you. Let me take the second one first. So our team has done an extraordinary job over the last couple of years working on this project. And we have the cost at a place that we're extremely comfortable against the expected MSRP that we referenced. More importantly is this enterprise profitability model that has been just a fantastic way for us to communicate with our dealers. And when you think about the value that a motorcycle like Sportster Brings to Bear, it's very exciting when you look at the parts and accessories relevancy and opportunity. When you look at the service revenue that it brings through our dealerships, when you look at the used market that it feeds and maintain such strong residual values. So we're comfortable with the profitability of the motorcycle itself. However, we're extremely excited about how it juices the economics for the overall enterprise. To your first question, as it relates to other additions inside the portfolio, you can expect to see and the slide in the materials that references some of the current holes in the portfolio, those are examples of where our dealers via our riders have specifically asked for motorcycles from us that they expect. They expect from us and have gotten in the past. Some of these include maybe a little bit more content, and many of them include less content. But once again, within existing families and with existing platforms and powertrains, and I'll I can't give much more detail than that. I will share [ one teas ] with you, which you may have seen on social media, which you can expect from us to continue to do, and that's to get feedback from riders at the Mama Tried Show here in Milwaukee, subsequently at Daytona and then the MotoGP race in Austin, we teased a modern expression of our iconic Cafe racer. And it's got an extraordinary buzz and feedback from our riding community. And I think that would be the type of motorcycle that is still large in terms of large displacement powertrain that you can expect us to get feedback from riders, and you might see that from us and the market. But we're very excited about the response to it. Joseph Altobello: That's very helpful, Artie. I can just quickly follow up on that. The U.S. market for you has outpaced international for quite some time. Is the sports there is the Sprint part of that strategy to grow your international business? Arthur Starrs: The Sportster is number one request from global dealers. If you walked into our dealership in Shanghai, if you walked into our dealership in Louisville, Kentucky, if you walked into a dealership in Frankfurt, Germany. And you asked the deal or the sales team lead in those dealerships, what can Harley-Davidson do for you, you would hear bring back to Sportster. So yes, but it's global truth in terms of the enthusiasm around that bike. Operator: Our next question is from the line of Andrew Didora with Bank of America. Unknown Analyst: Just kind of change gears a little bit to HDFS, Jonathan, the $125 million to $150 million op income target. I guess, what kind of -- I know the business has changed here. I guess what kind of receivables balance you kind of anticipate growing to over. Through that time frame? And then more importantly, just the revenue breakdown of HDFS, how should we think about maybe just interest income contribution versus the more kind of fee-based services income as the segment grows. Arthur Starrs: Okay. Andrew, thank you for your questions. I'll start with a little session that we put out a couple of weeks ago on HDFS that really walked through that business, the different revenue streams of that business in a little bit more detail. than obviously what we've covered here in earnings. That's probably a good refresher in terms of where that business goes as we move forward and what we're seeing. Obviously, from a revenue stream perspective in terms of where we are -- we have -- we did at the end of last year, sell off the back book as we've covered. And then on a go-forward basis, we continue to service those loans, so important that we are continuing to make sure that we are retaining the customer focus on the interaction and then a lot that we think we can do as we think through how we move those customers through the portfolio over time in the way that we're marketing to them. On a near-term basis, we obviously will make sure that for any originations that we have from this point going forward, we retain 1/3 of those originations on our balance sheet and then 2/3, we have the ability to sell off to our partners. We continue to service all of those loans. So over time, the fee income associated with servicing is something that continues to grow. We also retain the revenue streams fully relative to protection products we also retain the revenue streams fully relative to card products and what we do from a card perspective, and then we also fully retain everything from a wholesale and commercial loan standpoint. So dial in or tune into the recording that's available on our IR website that will walk through that in more detail. A couple of other pieces that I would call out from an HDFS standpoint, we're really pleased with what we're seeing on our managed annualized retail credit losses. So we have a page inside of the Q1 deck that highlights the year-over-year-over-year improvement in credit losses. So pretty excited that we have Q1 '26 kind of back below where we were not only in Q1 of '25, but Q1 of '26. So overall, I think the dynamics of the business are performing pretty well. We obviously have provided the $125 million to $150 million guide with the viewpoint that, that is a more capital-light model versus the way that we've run historically. So while the operating income is at a different level. We're really excited about the return that, that generates for our shareholders and obviously, frees up a lot of capital for us to remain committed to the shareholder priorities that we put out there from a capital allocation standpoint. So hope that helps. Unknown Analyst: Okay. And then I know, Jonathan, you mentioned in your prepared remarks, like interested in opportunistic M&A. Just curious kind of what could that entail? Is that more on manufacturing capability or brand side? Just curious there. Arthur Starrs: Yes, Andrew, it's Artie. I think we would look at any M&A as something that would accelerate the core areas of growth that we've laid out in the strategy. So anything that could drive dealer profitability would certainly be of interest. Parts and accessories would certainly be on the table. It was listed as the third thing right now. So it's not a top priority for us. But we do want to call out that anything that would make us stronger and allow us to drive the strategy faster, we would consider. Operator: Our next question is from the line of Molly Baum with Morgan Stanley. Unknown Analyst: I kind of wanted to ask maybe one or two about the affordability dynamics right now for your customers. You made a comment in the prepared remarks about how many riders aren't requiring have or don't require having promotion to convert. So can you maybe talk about you as it for motorcycle buyers at present and what you were seeing from a promotional standpoint in 1Q and maybe even right after you cleared through some of the heavy inventory levels? And then just how you're thinking about affordability more broadly in the current environment and going forward. Arthur Starrs: Thanks, Molly. Yes. On affordability, I really look at it as accessibility. So it's certainly price is a part of it, but also meeting riders where they're at and filling their needs with our portfolio. So when we look at Q1, we were pleased certainly with how the promotions restored the dealer network to healthier inventory levels, and that was focused on model year '25 touring. But we were also pleased with motorcycle sales that weren't promoted. And it demonstrated to us in some of the maybe more modest tweaks we made with the 26 launch an action in Q4. And going forward, having more options available to riders is important. Certainly is price, but also features and benefits. The freeze I'm using internally is we've had too many of too few models on dealer floors. And by using and leveraging existing powertrain existing platforms, we can have a much broader assortment of motorcycles to present across, certainly, Sprint and sports are good examples, but even within legacy cruising and touring. And what excites me about this is we're going to be more nimble as it relates to promotional activity. If you think about the promotions in Q1, we had a challenge. We actioned it on a model year '25 touring. But going forward, we will have more diversity within the touring lineup, where we can be a bit more surgical and segmented on which motorcycles we may have to promote at various points in time and maintain healthier margins on the balance, so to speak. It's something dealers have asked for and we're going to be delivering on that as part of our go-forward plans. Unknown Analyst: Great. And maybe if I could ask one follow-up on the dealer profitability piece. You had talked a little bit about last quarter about some immediate changes you made with the fuel facility model adjustments, changes to e-commerce strategy. you kind of talk about how much of the doubling profitability by '26, doubling again by 2019. How much of that is kind of improving the cost base, getting excess inventory to the system versus how much is structural from these strategy changes that you're making? Arthur Starrs: What we put in place in Q4 and what is in place currently we believe is appropriate. There's always the chance that there's small adjustments that we would align with our dealers on. But the Back to the Bricks plan and the targets that we put forward do not contemplate a change in the structural arrangement with our dealers. The e-commerce strategy that we made tweaks to in Q4 as part of the go-forward plans. We instituted a marketing development fund, which is in place right now. So there's no structural change that no material structural change that's contemplated in driving the profitability. It's inventory. It's the right motorcycles at the right time with a rider-centric portfolio. and certainly leaning into this marketing campaign, we think is going to pay a lot of dividends. Jonathan Root: I think, Molly, the pieces worth adding on the dealer profitability side of the equation to is that, obviously, volume and throughput makes a pretty meaningful change in their bottom line. So as we think through the -- again, going back to the strategy and the page that we built out that really helps you envision all of the different revenue streams for both Harley-Davidson and our dealers. That's a pretty important page to envision the way that we're running the business as we move forward. And so through that, the targets that we have on the mid-single-digit growth rates that you're seeing, are really, really important for us and the benefits that accrue to our shareholders, and they are equally important for our dealers. And then in addition, as you see us really double down on our growth surrounding P&A. Not only do you see P&A benefits from an overall revenue and margin standpoint. But inside of the dealer side of the equation, it does also drive some really nice service growth. So we're pretty excited about the way that we actually get our dealers back to something that we think is a much healthier and much better way to run their business. Operator: Our next question is from the line of Tristan Thomas-Martin with BMO Capital Markets. Tristan Thomas-Martin: I just want to kind of circle back to two questions I was asked previously. First, just in terms of the Sprint, my understanding is it's being built overseas. So how do kind of reason tariff changes regarding imports potentially impact pricing on that? And then have you -- did you provide a breakdown of your medium-term retail CAGR like your expectations for U.S. versus global markets. Arthur Starrs: Sure, Tristan. I'll take -- I guess I'll take both of those. As it relates to Sprint, we're finalizing the specific production plans. We did call out that Sportster, U.S. Sportster will be made in New York and our York, Pennsylvania facility. And obviously, we're pleased with the revised guidance that we put forward on tariffs for 2016, and we do contemplate based on current expectations that we have some favorability in tariffs going into '27 across the portfolio. And I'm sorry, the second question was the CAGR in terms of CAGR on U.S. versus international, we're not breaking that out. I will tell you that there's not a material change, U.S. versus international, primarily because the motorcycles that we're talking about here and the rebalancing of the portfolio and filling in the holes are similar globally. So we generally have the same portfolio around the world right now. As I mentioned, the dealer request and enthusiasm around Sportster in particular, and motorcycles that are raw blank canvas and allow for parts and accessories, genuine parts and accessories additions to them are globally wanted. And so we don't have, I'd say, a material difference in the growth trajectory by market. Tristan Thomas-Martin: Okay. And just one follow-up on kind of the aftermarket plan. I'm not sure if I'm reading between the lines correctly, but are you -- is there going to be more focus on dealership kind of aftermarket add-ons versus factory aftermarket or kind of factor add-on you mean parts and accessories in our dealerships and some customization at the dealership level? Arthur Starrs: Yes. Yes. So what we're saying is we expect to have more motorcycles in the portfolio that are maybe more approachable from a price perspective and have less accessories on them. And then our dealerships would be equipped with the P&A to personalize them for the riders which is consistent with what the brand has done over many, many years. So it's frankly leaning into a legacy strength where P&A has maybe not been as a focus for us with many of our motorcycles, in particular large touring motorcycles, having a fair amount of content. Operator: Our next question is from the line of David MacGregor with Longbow Research. David S. MacGregor: I guess the question is on LiveWire and just the rules that LiveWire plays in this product portfolio in vision. And just if it is sort of something you can -- are considering staying with just how we should think taking maybe that 3- to 5-year outlook you'd expressed earlier, just with the use of cash for that business over the next 3 to 5 years? Arthur Starrs: Yes, David, thank you. This is Artie. The first thing I'll say is we're excited about LiveWire team's efforts this year and the pending launch of the Hangzhou bike, which is, I think, an interesting and exciting addition to the portfolio, and we'll be monitoring that closely rest of the year to see how that does. But we're very excited to see how that comes to market. I'll repeat what I shared on previous earnings as it relates to LiveWire. We funded the loan in the back half of 2025. And that's our outstanding capital commitment, and we don't have intentions to fund the business directly from Harley-Davidson at this point in time. David S. MacGregor: Is there a way that you can influence demand. I mean you're talking about creating a higher level of interest back to James' questions with demographics. And I'm just wondering if there's a way that you can shape demand as well on the electric front or you feel like there's steps you could take to maybe at a higher level of engagement. Arthur Starrs: Yes. We're focused on this back to the Bricks plan and driving dealer profitability and getting the portfolio in a place that we think riders want from us. Cream and his team are focused on the electric side of the house at this time. Jonathan Root: Yes. And David, one piece that I would add, David, on the kind of demand influences that through what you would have seen with what we delivered in Q1 we certainly believe that when we get the right alignment on marketing promo and kind of how we run that, we can drive traffic to dealers, and we can drive higher close rates. As you heard already talk about, I think one piece that always fits with me from an RD perspective is too many of too few. And you heard him reference that earlier on the call today when we think through where the portfolio is going and some of the pieces that we have, the ability to drive, we're really excited as the product portfolio becomes a little bit more nuanced in terms of what we're putting into market. We can lean into a lot of the strategies that we've really demonstrated some good success with and do that in a much more targeted way. So pretty excited about where we're going from the midterm as we think about both what we've demonstrated within Q4 of last year, Q1 of this year. And then with what we've lined up from a strategy perspective, where we're going. So excited to see that kind of demonstrated ability that we've put in market so far and how that aligns with the strategy that's built out. David S. MacGregor: Do you have goals in place for building dealer support for LiveWire? Jonathan Root: The LiveWire team is certainly working on their approach to how they manage their dealer relationships. Operator: Our next question is from the line of Brandon Rolle with Loop Capital. Brandon Roll?: First, just on the dealer profitability improvement. Would you be able to size the headwind from maybe a more standardized rebate program to HDMC margins? Arthur Starrs: Thanks, Brandon. You're talking about HD-1 rewards in the holdback? Brandon Roll?: Yes. I think under the previous management team, they had kind of made the rebate program or rewards program a little more difficult to pull back some margin into the company. So it seems like that's going back out to dealers. And I was wondering if you're able to size the headwind, if any, to or HDMC margins. Arthur Starrs: Yes. I would characterize the headwind as modest over medium-term period. The previous holdback was variable. So it was based on sales targets, and this is fixed. I wouldn't characterize it as it's not the primary driver of the profitability improvements that we're experiencing or forecast. I think it's a small amount on a year-over-year basis, but it's not the primary amount. The larger impact which I heard consistently from our North American dealers, both in the fall and again on a recent road show was the predictability was so important. Predictability of having the fixed holdback was critical in terms of staffing levels, being able to project cash flow throughout the year. And I think it's just an example of us understanding our dealers businesses. and respecting what they need to run their business well and service our riders well. And so I'm pleased where we are and where we are today is precisely what we've modeled going forward. Brandon Roll?: Okay. Great. And just one last one. On your U.S. dealer network, how do you feel about the current size of the network? Obviously, there's been a lot of dealer consolidation over the last few years. Do you feel like you have the dealer networks at the right size? Or are you going to continue to kind of, I guess, move away from inefficient dealers and, I guess, not shrink the dealer network, but maybe make it stronger. Arthur Starrs: We're always looking for ways to make the dealer network stronger, and we love the fact that we have individual maybe smaller dealer owners, dealer principles in certain markets. And we also feel privileged to have some larger entities that own groups of dealerships. And I think the -- the strength of our brand is a balance of both. One of the amazing things about Harley-Davidson dealerships is we have dealerships along these iconic rides. Where families in some cases, have owned these dealerships for decades, in some cases, 70, 80, 90 years and extremely proud of that. And at the same time, we had recent acquirers in the market where some of our largest and some of our most profitable dealer owners are getting bigger in the system and I love them all. We're committed to having a healthy dealer network, and we're not precious about size. We're precious about dealers that are enthusiastic about our brand and serve riders well. Operator: Thanks for your question. Ladies and gentlemen, we have time for a final question from the line of Jamie Katz with Morningstar. Jaime Katz: I will make it quick. I get most of the profit improvement that you guys have, a lot of it looks like it's coming from leverage within SG&A. But can you talk a little bit more specifically about the top opportunities that are being targeted for cost reduction this year? Just so we can get a better idea of where that low-hanging fruit is coming from. Arthur Starrs: Jamie, thank you for your question. Yes, so it's obviously a balance of some head count and then obviously some non-headcount-related costs and then also some cost of goods related actions. Our teams are -- have done a fantastic job in Q1 at identifying areas. We've obviously done a significant amount of both competitive benchmarking, but also what's the right thing for Harley-Davidson and ensuring that we can grow going forward. We're not going to provide detail beyond that at this time, but we're very confident and the targets that we put forward and specifically the $150 million plus that we've earmarked for 2027 and beyond. Jaime Katz: Okay. And then just quickly, I know there was some gross margin impact by pricing and mix. Is there any way to think about how those are trending over the remainder of the year just sort of from where you stand today? Arthur Starrs: Yes, Jamie, I'll let Jonathan take that one. Jonathan Root: Okay. Thank you, Jamie. So as we look at pricing and mix and sort of compare that to relative stability, I think, as we look through Q2, Q3 and Q4, you did hear in the Q1 financial comments, a little bit more information relative to timing. So take a listen to that call in terms of how we talked about year-over-year quarters and what you see there. So from an overall pricing mix perspective, pretty flat to kind of a little bit of favorability in the balance of the year. As we look at what's coming, we're pretty excited about what we're going to be introducing, and you'll see some of the impacts from that. Please take a listen to what we talked about from a timing standpoint, that will be important as you're thinking through what our trajectory is going to look like for the year. And then you will see a little bit less of an impact from incentive-related activity. So as we've talked about, we were pretty aggressive in what we did from Q1 from a Q1 standpoint, we're really pleased with where we landed dealer inventory. And so we think that really set us up for a very successful balance of the year. And hopefully, that sort of helps address your question. Operator: Thank you for your questions. And ladies and gentlemen, that will close down our Q&A session for today. Artie, I would like to turn it back over to you for any closing comments. Arthur Starrs: Well, thank you, everybody. I appreciate you participating in today's call. And hopefully, you can tell how enthusiastic our team is, and I am in particular about our path forward, and we look forward to updating you on our progress, and we'll talk to you next earnings. Thank you. Jonathan Root: Thank you.
Carrie Gillard: Good morning, and thank you for joining Shopify's First Quarter 2026 Conference Call. I am Carrie Gillard, Director of Investor Relations. And joining us today are Harley Finkelstein, Shopify's President; and Jeff Hoffmeister, our CFO. After their prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are based on assumptions and, therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements. We undertake no obligation to update or revise these statements, except as required by law. You can read about these assumptions, risks and uncertainties in our press release this morning as well as in our filings with the U.S. and Canadian regulators. We'll also speak to adjusted financial measures, which are non-GAAP and not a substitute for GAAP financial measures. Reconciliations between the 2 are provided in our press release. And finally, we report in U.S. dollars, so all amounts discussed today are in U.S. dollars, unless otherwise indicated. With that, I will turn the call over to Harley. Harley Finkelstein: Thanks, Carrie, and thanks to everyone for joining us. We've got a lot to talk about today. Commerce is moving at lightning speed right now and so is Shopify. So first, let's kick off with the headlines. Q1 GMV was $101 billion, that is up 35%. I'll say that again, Q1 GMV was $101 billion. That is the second consecutive quarter our merchants have done over $100 billion in sales. Now that is commerce at a truly vast scale. Our revenue was $3.2 billion for the quarter, that is up 34%. And our free cash flow was $476 million, delivering a 15% free cash flow margin. That means we've now put up 4 straight quarters of 30% or more revenue and GMV growth alongside mid- to high teens free cash flow margins every single quarter. There are very few publicly traded companies today that are able to make that claim at anything like the scale. It is a very small club and that is something we are very proud of. And the reason is actually very simple. We've never lost sight of our mission to help our merchants win. And that is why every day, we are seeing new businesses light up with their very first sale. And in tandem, we're seeing more of the world's biggest brands migrating to us from all corners of commerce. In Q1, we signed 3 legends of luxury, Mulberry, BevMo! and LVMH. And in fashion, we welcomed Ragan Bone, luxury outlets, the Outnet and RooGuilt Group and the iconic Lands End. BevMo!, one of the largest liquor store retailers in the U.S., has brought us into power all of their locations with Shopify point-of sale. And Orvis, the outdoor brand that was founded in 1856 is moving to Shopify for a full unified commerce solution. Meanwhile, Q1 saws go live with incredible brands like The Benetton Group, Victoria's Secrets, Body, Epic Shop by Vail Resorts and Reitmans. And here's the best part. We're not just winning the retail legends of today, we're powering the retail legends of tomorrow, and it's happening really fast. We'll get into some real merchant stories later because the velocity we're creating is important to understand. Okay. Let's step back for a second. There's a lot of noise around what AI will mean, at an individual level, at a company level and at a cultural level. Now here's our perspective. First, we're not approaching a new era anymore. We are already in it. In 2026, AI is now Shopify's native language. We bet early on AI and forced its adoption. It's embedded in everything we do, the products we build, the channels we power, the way every single person on the team operates. AI has become an exoskeleton for everyone at Shopify, giving them a virtual team of agents and that makes room for rapid experimentation. It allows them to pursue multiple ideas at the same time and then double down on the winners. And here's what else we believe to be true. No group benefits more from AI than entrepreneurs. The logic is simple. AI is making entrepreneurship dramatically more accessible and in fact, accelerated. That means we're going to see more entrepreneurs, and they're going to scale more easily. AI-powered shopping democratizes discovery. Reach is not just influenced by budget anymore, it is influenced by relevance, which benefits both merchant and buyer. And the right products fund the right shopper at the right moment. And this is enormous potential for new and scaling merchants. And because we win when they win, it also has enormous potential for Shopify. So let's just say the thing. There's always going to be some market confusion when we see a significant shift like we're seeing right now with the rise of AI. We've seen it before. I'm sure we'll see it again. And every single time the world gets more complex, Shopify gets more valuable. We absorb more of that complexity into our systems and become more valuable to merchants. So when we look at this new era of commerce that we're in, there are really 3 core principles that [indiscernible] by Shopify is in such a strong position. That's what we're focused on, and that's what we're going to talk about today. The first principle, Shopify has a huge advantage that is about to compound. We have 20 years of commerce data. We have data on purchase intent across millions of merchants, hundreds of millions of buyers and billions of products. And in a world where real-time information is now table stakes, the edge is the insight beneath it. And that requires a depth, not just access but experience. We've seen merchants start, stall, pivot and scale millions of times across every category and geography. It allows us to build on the real behavior of commerce and to keep shipping products grounded in insights only we have. Deep experience applied at speed. That is very hard to replicate and it compounds. Every capability we add embeds merchants further into the platform and grows the value of being on Shopify. And Sidekick is the perfect example of this. As a reminder, this is our intelligent assistant, which is trained on our knowledge base, payer with completely personalized Intel, it has it each merchant's particular business. Now last quarter, we told you the numbers were encouraging. Well, that was just the beginning. The number of weekly active shops using Sidekick in Q1 was up 4x year-over-year. We saw over 12,000 custom apps created in Q1 alone using Sidekick. And nearly half of all Shopify flows generated in Q1 were built with Sidekick. And Theme Edits just from last quarter are in the multimillions, growing over 1,000% in a single quarter. Every app built, every automation created, every task completed is the merchant getting more done with less and running a smarter and a more productive business on Shopify. In a world where discovery is changing faster than ever, where AI is reshaping help buyers find products and how information surfaces, these merchants are moving faster using Sidekick to keep pace with where commerce is going. And then there's Pulse. Sidekick's smart suggestions feature, which proactively delivers personalized recommendations for merchants using market trends and data from their store, which Sidekick then executes on the merchant's behalf. And I'll give you a great example that I just saw the other day. It was an accessory brand, and Pulse noticed that this brand was getting attention in the right places. Its products were being endorsed by fashion publications and showing up on celebrities' Instagram profiles. So it proactively suggested that the merchant create a social proof page on their website to build trust and validation. And once the merchant agreed, Sidekick created that page on the merchant's behalf, and it was already all within minutes. Now just a few months ago, that process multiple specialists, marketing design, copywriting and often an incremental cost to the merchant and likely several weeks from start to finish. And now it is happening autonomously in minutes at 0 incremental costs to the merchant. And that is just one of the smart recommendations being served up to that merchant as part of their daily operations. This is our compounding advantage. Commerce intelligence, power smart tools that drives merchant success, which in turn, powers more commerce intelligence. Now that leads nicely into the second principle, which is the demand conversion flywheel. It should be getting more obvious that every quarter that Shopify is no longer just the platform to convert demand, we are becoming the platform to create it to. And that end-to-end position is a major advantage for merchants. First and foremost, online GMV growth accelerated year-over-year. This is our DNA, the core of our business. The online store is not going anywhere. In fact, we believe that new and emerging and AI channels places like ChatGPT, Microsoft Copilot, Google AI Surfaces and Meta will be a tailwind to driving e-commerce growth and penetration over time. So let's talk about these channels. We are the only platform that enables discovery and selling inside ChatGPT, Copilot and Google, all from one single system of record. And the early signals on AI channels are really compelling. And in the first quarter, AI-driven traffic to Shopify stores has grown 8x year-over-year, while orders from AI-powered searches have increased nearly 13x. And within this, new buyer orders are occurring at nearly twice the rate of other channels. Okay. Now let's talk about Shopify's catalog because this really, really matters. To date, we've structured more than 1 billion products with clean attributes, real-time pricing and accurate inventory. So AI agents can surface the most relevant products in seconds, and the results speak for themselves. Traffic from catalog-powered AI searches convert 2x more than traffic from general AI searches where the agent is working from scraped or often outdated information from across the web. That is the value Shopify brings. Okay. I'll give you another example of driving demand. Campaigns, which is one of our ad products, finding new customers one of the hardest things we're running the business. Paid marketing has historically been expensive, complex and simply out of reach for smaller merchants who don't have the budget or the expertise to compete with larger brands. Well, campaigns is changing that. In Q1, the number of merchants with a live campaign was up 3x year-over-year. That is not a small signal, that is a product that is starting to have a true impact on our merchants. And what I love is the impact this is having on SMBs, in particular, because a lot of them would not otherwise have had access to performance marketing at this level. For some of the smaller merchants, shop campaigns is contributing as much as 1/4 of their total GMV. That is not a nice to have. That is a growth engine. Shopify is giving them economies of scale that were previously only available to the largest brands. And with new channels added in Q1, including ChatGPT, Pinterest and Microsoft monetize, we're bringing more services and more reach and more buyers into the ecosystem. Here's another example of driving demand, the Shop App. Shop App had a strong Q1. GMV was up 70% year-over-year, a clear signal that the buyer network is deepening and shop is becoming a meaningful commerce destination in its own right. Monthly active users grew over 40% year-over-year and unique buyers purchasing directly on Shop grew over 50% compared to Q1 of last year, meaning more new shoppers are discovering and buying through the Shop app than ever before. And remember, the Shop app is just one facet of shop, which is the buyer-facing side of Shopify. Sign in with Shop is our user verification tool, which recognizes buyers across devices, stores and surfaces with no sign in friction. And usage is growing steadily. We are up 3x year-over-year, and it is now enabled across nearly our entire merchant store from base. In an agenetic world, this really matters. Agents need to know who they are buying for and we are ready. This is the Shopify flywheel. We're not just converting demand, we're also intelligently creating it by surfacing the right products, personalize the right shoppers at exactly the right time. Our compounding advantage, the billions of data points we've collected over 20 years of commerce, powers our demand conversion flywheel, which is moving faster every quarter. These are not small things. These are the principles that will power the future of commerce. Okay. The third principle I'll leave you with is what I call invisible complexity. Here's the thing. The hardest parts of commerce are the parts that nobody sees, and this is where Shopify thrives. We saw it when the online DTC boom happened and everybody wanted to build their own stack. We saw it when social commerce started to take off and people predicted storefronts would migrate into their social feeds. And we've been seeing it again this year with some uncertainty around what AI will mean for commerce. But commerce is massively complex. We just spent 2 decades making it look easy. Merchants bring their product and we handle everything else. And every time the world gets more complex, that role becomes more valuable. And the industry agrees, as you might have seen with the latest news on the Universal Commerce Protocol, or UCP, which we co-developed with Google. UCP is an open protocol that makes agentic commerce work at scale. It enables the full commerce journey, product discovery, checkout, payment post purchase across any platform with any payment processor. We codevelop UCP because we believe the future of commerce runs an open standards, not closed systems. And then we created the UCP Tech Council, the technical body, that steers the protocols direction to ensure it evolves to meet the needs of businesses, platforms, developers and consumers. We are now seeing the biggest and most innovative companies across essentially the entire industry coming together around UCP to help push agentic commerce forward. And last month, Amazon, Meta, Microsoft, Salesforce and Stripe all join the counsel, committing their expertise in Internet scale transaction processing to build one universal protocol for commerce. The companies that power how the world shops are now building on one standard, and Shopify is at the center of how commerce gets done in the age of AI agents, and this is what it looks like in practice. Payments is another perfect example of invisible complexity. It's designed to feel simple, but under the hood, it's anything but fraud detection, tax calculation, compliance across dozens of markets, currency conversion, identity verification, payment authorization, all working together invisibly at lightning speed. Shopify Payments is built on top of all that comprehensive tooling, designed to ensure merchants can sell easily across every channel, including a agentic without adding incremental complexity. And for small businesses, especially, this matters enormously. Managing and reconciling multiple payment processors is a distraction no merchant needs. And we do not do this alone. We work with the best-in-class partners, Stripe, Affirm, Globally, PayPal, local payment methods all over the world, all integrated and all available and all managed in one place. Merchants get the breadth of a global payments ecosystem with the complexity of managing it themselves. This is the Shopify difference. In Q1, Shopify Payments processed $67 billion of GMV, up 41% from last year, reaching 67% penetration. That number keeps moving up every quarter because merchants trust the full platform, not just the check at moment. And then, of course, their Shop Pay, the Internet's favorite checkout, because we believe it is simply the easiest way to buy anything anywhere, one tap, done. All the complexity of payments completely hidden. In Q1, Shop Pay processed $35 billion of GMV, up 59% year-over-year. Outside the U.S., Shop Pay GMV in Q1 grew over 70% as we continue to expand into more markets, supporting major local payment methods all over the world. making it not just the Internet's favorite checkout, but one that feels native to buyers wherever they are. In fact, international is another perfect example of massive, but almost invisible complexity. Q1 delivered international GMV growth of 45% with cross-border GMV representing 16% of total. We are consistently rolling out new updates and products to grow our international footprint. In Q1, we quietly shipped updates that individually may not make headlines, but together are steadily making Shopify more native to more places. Things like merchant billing, which is now in 7 new European currencies or capital now available in France or smart market and smart language recommendations where merchants get relevant recommendations based on the markets they sell into. Every quarter, we build more. And we removed more barriers for merchants all over the world to choose Shopify. Now let's talk enterprise because there's perhaps nowhere that this idea of invisible complexity shows up more clearly. Custom stacks and legacy platforms were built for a world that no longer exists. They're slow to adapt, expensive to maintain and increasingly unable to keep pace with how buyers shop today, let alone tomorrow. Our value proposition is straightforward, better conversion, lower total cost of ownership and a unified commerce system that actually works at a speed and a price point legacy platforms cannot match. You see this shift most clearly in heritage retail, brands like Orvis, Mattel and Hunter Douglas. These are companies that built their names over decades, or in some cases, centuries. They know retail. What they're grappling with is the technology underneath, legacy systems that are costly, slow and holding them back. And they're not just coming to Shopify for an online store. We're in the room for a much bigger conversation. Unified Commerce, POS, Payments, B2B, agenetic surfaces, the full picture. And once they join, they stay. More products, more surfaces, more of their business running on Shopify. But enterprise growth is not just about brands choosing Shopify, it's also about brands growing up on Shopify. Groons, for example, the gummy supplement brand that launched in Shopify in 2023, well, last month, they were acquired by Unilever for over $1 billion. In just over 2 years, they scaled to hundreds of millions in revenue. So the opportunity here is large and growing, and we're continuing to go after it. In just the last 2 years, the total number of large merchants doing $100 million or more in GMV on Shopify has nearly doubled. That is real growth. And it's coming from merchants that are scaling into that category as well as those that are already there and looking to modernize for what's next. And all of this puts us in an incredibly strong position to continue driving this part of the business. On our last call, I said we'll see more billion-dollar brands born in the next 10 years than the last 100. And a lot of people thought that was hyperbole. It was not. Groons is a perfect example, and everything we're building is designed to make this happen faster. So when I zoom out, this is what I see. Over 2 decades, we've collected deeper commerce knowledge than almost anyone else on the planet. We've used that knowledge to build a platform that makes it not just possible, but common for a single entrepreneur to become a massive business in a couple of years, if not less. And we're now moving into an era that will benefit entrepreneurs more than any other group. There is simply no job that will be more accelerated by AI than entrepreneurship. That means there are about to be a lot more entrepreneurs, and that means more people that need the Shopify platform. And in the meantime, we're continuing to deliver strong and durable growth. real operating leverage, fast product velocity and a platform advantage that keeps compounding. And with that, I'll turn the call over to Jeff. Jeff Hoffmeister: Thanks, Harley. Q1 reflects strength across all dimensions of our business, not just any one in isolation. Our growth is broad-based across geographies, merchant sizes and channels. International, enterprise, off-line and BB are all scaling. Underneath all of this, the cohort dynamics continue to compound. I believe that remains one of the most underappreciated characteristics of our business. Each quarter's results are an aggregation of successes over many years of merchant cohorts. Each new cohort stacks on top of the prior one and our newer cohorts are larger than the ones before them, a reflection of the breadth of merchants we are attracting. But what's incredible is that the older cohorts, even the merchants who have been on Shopify for many years, are not plateauing. They continue to grow. As an example, in Q1, almost 90% of our revenue was from merchants who have been on the platform for more than a year. The driving force is our platform and product velocity. That's the structural advantage of Shopify. We give you everything you need by operating across the entire commerce stack. It's not the power of any 1 element of the platform. It's how they all work together to help merchants accelerate their success. It's a knowledge and expertise readily available through Sidekick. It's the speed, context and simplified complexity behind checkout. It's the ability to sell across every channel, every surface and every geography from day 1. Internally, we are making every function faster, sharper and more productive. An output per employee is improving through deliberate AI usage. The result is that we are building more, shipping more and serving more merchants. The leverage we have and continue to deliver is what funds ongoing investment. In AI infrastructure, global reach and platform death. That discipline is what we have demonstrated consistently. We will always lean into growth because as we grow, we invest more in driving success for our merchants and for Shopify. Now let's take a closer look at our GMV. Unless otherwise specified, all growth rates are presented on a year-over-year basis. Q1 GMV was $101 billion, marking our second quarter with GMV over $100 billion, representing growth of 35% or 30% on a constant currency basis. Diving deeper into different GMV perspectives, let's first look at merchant size. In recent quarterly calls, I've talked about 3 strata, merchants doing up to $2 million in GMV, those doing $2 million to $25 million in GMV and those doing more than $25 million. We saw strength across merchant GMV bands consistent with recent trends. The $2 million to $25 million GMV band added the most incremental revenues year-over-year, but the other 2 segments were not far behind. And the greater than 25 million band merchants are growing the fastest. Further, when we look at just our merchants doing more than $100 million in annual GMV, we see a consistent and accelerating growth story. The share of our revenue coming from that segment has grown each year, up over 200 basis points in the last 2 years. This is a multiyear view playing out exactly as we expected. Moving to regions. Europe maintained its momentum with European GMV up 48% or 35% in constant currency. 2025 was an outstanding year in Europe. So delivering continued mid-30s growth in constant currency against that backdrop reflects years of deliberate investment in that market. North America accelerated from an already strong Q4, demonstrating the continued durability of our core market. That is, of course, on significantly higher GMV levels, demonstrating our ability to not only grow well in our largest market, but also further tap into the immense opportunity outside of the U.S. Regarding same-store growth and new merchant acquisition, the contribution from each was relatively balanced, a split that has remained consistent for multiple quarters now. Finally, turning to channels. Two channels to call out this quarter. Offline GMV was up 33% and accelerating from Q4. The fastest-growing slice within off-line remain merchants operating more than 20 stores, which this quarter had location growth of 50% year-over-year. B2B GMV grew 80% in Q1 with broad growth across both new and established merchants. In Q1, we made several other features of our B2B offering available to most of our standard subscription plans, given these merchants the ability to manage their wholesale and D2C's needs side-by-side in 1 place. Now turning to revenue. Q1 revenue grew 34% or 32% on a constant currency basis, fueled by the GMV outperformance. North America grew 33%; Europe, 42%; and Asia Pacific, 30%. The pace of growth in Europe speaks to the opportunity that remains ahead. And while growth internationally continues to outpace North America, North America had its strongest quarterly growth rate in over 4 years. Merchant Solutions revenue grew 39%, driven primarily by the strength in GMV and increased penetration of Shopify payments. $67 billion of GMV was processed on Shopify Payments in Q1, that's 41% higher than the prior year and 67% of GMV, 3 points higher than Q1 of 2025. We see a clear path for the rate to continue moving higher, stemming from deeper penetration across all geographies, growing adoption in the 15 European countries in Mexico where we launched payments last year, expansion into new countries beyond the 39 where we are today and continued Shop Pay momentum. Near term, Europe will be a headwind to Global Payments penetration metrics, given the recent launches of payments in numerous countries last year, but that should prove to be a tailwind for us over time. Subscription Solutions revenue grew 21%. The incremental year-over-year revenues were fairly balanced across 4 elements: monthly subscriptions for our plus plans, monthly subscriptions for our standard plans, variable platform fees and lastly, revenue from apps, themes and domains. The growth in our plus and standard monthly subscriptions reflects 2 things working simultaneously, new merchants coming on to the platform and existing merchants upgrading as our businesses scale. Both are driving the growth. The growth in variable platform fees reflects 2 primary factors. The average VPF rate has increased and plus merchants this past quarter grew faster than our overall merchant base. The growth in our revenue from apps, themes and domains reflects both the quality of our developer ecosystem, with thousands of apps extending the capabilities of our platform and changes to our developer revenue share terms that created a favorable comparability dynamic, which it largely normalize as we progress through the year. Q1 MRR grew 16% year-over-year with continued growth across standard, plus and point of sale. As a reminder, Q1 was the final quarter where our year-over-year growth rates in MRR are impacted by our rollout of 3-month trials in our largest markets in Q1 2025. That headwind is behind us. Plus MRR represented 35% of MRR for the quarter, up from 34% a year ago. Q1 gross profit grew 32%, coming in slightly ahead of our expectations, driven by the outperformance in revenue. Our gross profit has now grown in a compounded annual growth rate of 29% over the past 3 years. Gross profit for Subscription Solutions grew 21%, with gross margin coming in at 80%, in line with Q1 2025. Economies of scale and efficiencies and support were partially offset by increased LLM cost, driven by growing merchant usage of our AI products, most notably Sikik. We expect this dynamic to continue. The more merchants use these products, the more data we have and the better the outcomes we can deliver. And the better the outcomes, the more deeply embedded they become in the platform. Additionally, changes to our developer revenue share terms I mentioned earlier also contributed a tailwind to gross profit dollars. With the biggest benefit expected in Q1, normalizing as we progress through the year. Merchant Solutions gross profit grew 40% with gross margin coming in at 39%, essentially flat year-over-year. No specific items to call out as similar dynamics played out as we have seen in prior quarters. Operating expenses were $1.2 billion for the first quarter or 37% of revenue, a 4-point improvement from Q1 last year. We continue to drive operating leverage through 2 key elements: growing gross profit dollars and delivering continued headcount discipline. Both of these allow us to invest in further AI usage internally and our returns-based marketing, which in turn helps fuel more growth, R&D, sales and marketing and G&A as a percentage of revenue each improved year-over-year. Transaction and loan losses came in at 3.7% of revenue, up from 3.2% in Q1 2025. As a reminder, the dollar amounts here tend to scale with volumes in our payments, capital and credit products. Each of these products continues to grow well. So the goal, of course, is to keep loss rates low as we scale merchant adoption. Payments revenues continues to grow very nicely. As I mentioned earlier, and our loss rate in payments in Q1 was below Q1 of last year. Credit was the largest component of the year-over-year increase. Q1 free cash flow was $476 million or 15% of revenue, in line with our outlook. As previewed on our last call, these results reflect a slightly higher effective tax rate. One item to note before turning to outlook. Beginning in the second quarter, we are adopting an accounting treatment for our merchant cash advances. That will match the accounting for our capital loans. This transition was prompted by some regulatory changes in Canada and related subsequent changes to our merchant cash advances product in Canada. For Q2, relative to our current accounting, this change is expected to be a tailwind of approximately 0.5 point to free cash flow margins. With that, let's move to our outlook for Q2. We expect Q2 revenue growth in the high 20s year-over-year. The expected sources of growth are consistent with the drivers that we saw in Q1 with the one key difference being that our Q2 revenue guidance assumes approximately 0.5 point of FX tailwinds versus the more than 2 points of FX tailwinds that we saw in Q1. We expect our gross profit dollars to grow in the mid-20s. The differential in the revenue versus gross profit growth rates is driven by the continued mix shift between the growth rates of Merchant Solutions and Subscription Solutions, which is expected to narrow compared to 2025 and the continued strength of payments. We expect operating expenses in Q2 to be 35% to 36% of revenue, an improvement from the 37% we delivered in Q1 and a meaningful step forward from the 38% we delivered in Q2 of last year. Turning to free cash flow. For Q2, we expect free cash flow margins in the mid-teens. In summary, Q1 continued the momentum of an outstanding 2025. We delivered the highest quarterly revenue growth rate in over 4 years, both for the business as a whole as well as the U.S. specifically. Strength was broad across merchant sizes, channels and geographies. Gross profit has compounded at 29% annually over the past 3 years, and our commitment to these free cash flow margins remains unwavering. The business is durable, our position is unique and our conviction is that the investments that we are making today in AI infrastructure, in the merchant-facing surfaces being built on top of it and the data advantage that comes from powering a meaningful share of global commerce will further strengthen our position. As entrepreneurship enters a new era shaped by AI, we sit here today with the platform, the scale and the momentum to be at the center of it. With that, I'll now turn the call back over to Carrie for your questions. Carrie Gillard: Thanks, Jeff. We will now take your questions before turning the call back to Harley for some final words. [Operator Instructions] Our first question comes from Justin Patterson of KeyBanc. Justin Patterson: Great. It seems like there's a natural flywheel between AI supercharging product velocity and Sidekick effectively driving uptake of new features. How should we think about that flywheel playing out and what it means for KPIs? And then just a quick one for Jeff. How do you balance the benefits of AI versus rising token costs? Harley Finkelstein: Thanks, Justin. Next for the call. It's Harley. I'll start with the first part. Look, I mean, Sidekick is really becoming a merchant's co-founder. It's becoming the new way merchants run their business. This is not a tool that they open occasionally, but this is this active presence that shows up every day. It now with Pulse, it proactively suggest ways to improve their business and then execute it on their behalf. And so numbers in Q1 were not just encouraging, I think are remarkable. Weekly active shops are up 385% using Sidekick. We saw 12,000 custom apps built in Q1, which is up like over 200% quarter-over-quarter. And if you look at Shopify Flow, which is really used for business processes for our largest merchants, nearly half of all Shopify flows generated in Q1 were actually built with Sidekick. So this is a huge compounding advantage. This allows us to not only leverage our 20 years of commerce insight, and this incredible data set we understand about how businesses operate, but also to pair that with the specific needs and the specific use cases of what a merchant requires. So I think how merchants are using it is important. The early signals really matter here. And we're seeing these. Merchants that are just starting to play with it really become power users very, very quickly. So roughly half the conversations are about store setup, design and theme configurations. And then once they gets set up, it's about growing the business faster. So it is something that we knew would be well received by merchants, but I think the efficacy and the efficiency of driving value is something even we are incredibly surprised by. It's amazing. Jeff Hoffmeister: Yes. I mean -- and I'll pick up on that very point in terms of where Harley left it. The impact that we're seeing, not only in terms of how our merchants are using Sidekick, but how we're using it internally has been super impactful. Harley in his comments talked about the exoskeleton, which we give our not only our engineers, but really everyone throughout the organization in terms of how they can do more with AI and it's proven to be very, very impactful. So it's really not even a question of where are we using AI, but where aren't we using AI? Because it's been an extensive usage in pretty much all departments within the company. So we're, of course, mindful of the right tool for the right problem, and we were mindful of the cost and we think through that. But this is something we're seeing significant benefits in terms of how employees are deploying it and how merchants are getting value out of it. Harley Finkelstein: Yes. I think actually, AI right now writes well over 50% of our code today, and that number is going up significantly, not down. But I think more than any other company, AI, Shopify's native language. Carrie Gillard: Thank you for your question, Justin. Our next question comes from Bhavin Shah at Deutsche Bank. Bhavin Shah: Great. Harley, as you think about expanding your product capabilities and how you can better serve merchants, how do you approach building versus partnering more broadly? And how might that differ from more software like solutions versus some that are more fintech-related? Harley Finkelstein: Yes. Look, I mean, Shovel's philosophy around partnership has, I think, been long study, but we partner where we can get massive leverage and where we think there's a company out there that's doing a really great job we can plug into. And when we think there isn't something out there that is 10x better than what we can do ourselves, we just build it. And that's always been the case, particularly when it comes to even the app ecosystem, you're seeing at the same time more merchants using Sidekick to build these custom features for their shop. But at the same time, you're seeing more app developers build for Shopify's ecosystem than ever before. In fact, we've now put the app approval process on rails using incredible AI testing so that we can get more apps into the app store faster. And if you talk to partners and particular app developers that are building for commerce or retail, for the most part, Shopify's and our app stores become their default go-to-market. It is the place where they build for. So that will continue. And just in terms of how we think about generally, these larger-scale partnerships, obviously, there are these amazing new surface areas. We talked -- obviously talk about agentic quite a bit, whereby it should be incredibly clear that Shopify's at the epicenter right now, this AI era. And so we are currently the only platform on the planet powering, selling inside of ChatGPT, Copilot and Google, all from one system of record. So when we see these opportunities to work with other companies, we show up with a catalog, we show up with all the functionality and the right APIs and so that they can move faster too. And I think that's the reason why Shopify has been uniquely positioned as one of the best companies to partner with an all of tech. Carrie Gillard: Thank you. Our next question comes from Dominic Ball at Redburn Atlantic. Dominic Ball: So 2 questions on as AI is lowering the barriers to entrepreneurship, are you seeing acceleration in SMB merchant sign-ups? And second question is with integrations with Claude, ChatGPT, does AI risk pushing Shopify sort of back from a merchant's UX perspective? Harley Finkelstein: Yes. I'll take the second part and then Jeff can talk about the first part of that question. Look, agents do not buy pass Shopify, just the opposite. In fact, they write right into Shopify. I mean, I think you saw in sort of recent headlines that merchant store fronts really matter. You saw ChatGPT move to in-app browsers for their checkouts. So it's literally the Shopify store front within the chat. And again, when a buyer is shopping in ChatGPT, they're browsing Shopify's incredible catalog. So the momentum on agentic has been amazing. We're always trying to find new ways for merchants to have an easier time to build their company -- their businesses better, faster. We have more integrations even announced yesterday, where Shopify now make store building and management as easy as having a conversation where you can sort of effortly connect your existing store right to your favorite chat agentic application and then chat to add products or just inventory across locations. But this idea of combining Shopify's incredible platform and the product the way that we think more entrepreneurs are looking to build, we think, put Shopify and pull position when it comes to the agenetic entrepreneurial evolution. And I think Jeff will talk a bit about ads, but I think there is no -- let me say this actually in the most simple terms, and there is no job that is more AI safe than entrepreneurship. And I think there's also no place that you're going to see more acceleration with AI than maybe entrepreneurship in general. And I think as Shopify is the entrepreneurship company, I think that's going to be great for entrepreneurship in general, that's also be great for Shopify. Jeff Hoffmeister: Yes. I think that's the perfect launch point to your first question, Dominic, just in terms of what we're seeing in merchant additions and kind of whether this is going to accelerate some of the things we're seeing, especially on the SMB side. Harley alluded to it, like we do think there will be tailwinds here. I think from our vantage point, you look this -- and you see this in the growth numbers, right? The growth that we delivered in Q1 was exceptional. One of the things I made it -- one of the points I made in my comments was it essentially evenly split between same-store sales growth and new merchant acquisitions. And so you can see that in terms of what we're doing at the top of the funnel, merchant adds more broadly. It's true across geographies. You see this in some of the data. There was some U.S. census bureau data in terms of the number of startups that you see on a monthly basis. So we're seeing some signs of it. It's early to say, "Hey, AI was the thing that was the specific spur of additional activity in terms of start-ups." But the pipeline looks as healthy isn't as strong as we've ever seen it. Carrie Gillard: Thanks, Dominic. Our next question comes from Nick Jones at BNP. Nicholas Jones: You put out some really great kind of statistics or growth rates for Pulse and Sidekick. As we think about AI investments from here and maybe how it translates to margin expansion. How are the AI investments in terms of kind of creating structural advantages versus maybe keeping up with table stakes that we're hearing across maybe other platforms to make SMB's lives easier, more efficient that makes sense, I guess, kind of what is kind of a structural advantage and what is increasingly maybe table stakes that folks are looking for as businesses deploy AI across their platforms? Harley Finkelstein: I mentioned earlier that I think Shopify is internal, like AI is now Shopify's native language. What I mean by that is that we bet really early and we force its adoption across our company. And I think AI has given this exoskeleton everyone at Shopify, where effectively every single person on the team has this virtual team of agents that creates incredible opportunity for these like rapid experimentation. It allows them to pursue multiple use at the same time then double down on what's winning. And I think I mentioned in previous answer that AI now writes well over 50% of our code and that number is going up. But what that actually means is that our best engineers aren't writing a few lines of code or doing less. It means they're operating at this much higher level. They're directing reviewing and making calls that we're able to provide -- we're able to do because of 20 years of context. So AI handles the execution and they handle the judgment. And I think the output proves that. We shipped over 300 new products and features last year alone. We kept our flat headcount, which we're very proud of. And that's only possible because something has changed fundamentally. I know Tobi has been taking a bit about river, which is a perfect example of it, but it's this AI coding partner built right into Slack for the entire team where they can pull into any threat, any conversation and do, frankly, a remarkable amount of the engineering work. And we built it because we needed it and now it's deeply embedded in how we operate. So I think more than any other company, Shopify is very much leveraging AI in an incredible way. Carrie Gillard: All right. Our next question comes from Michael Martin at MoffettNathanson. Michael Morton: Harley, you've had a lot of success with the enterprise over the last 2 years. I wondered if you could talk a bit about your learnings with your go-to-market strategy, if you see any opportunities for tweaks? Or if you're really happy with the product market fit and it's just more of an execution game. And then quickly one for Jeff. Just on OpEx growth. You've been really tight with headcount management. And any additional color on the destination and duration of the investments you're making in OpEx lines would be really helpful. Harley Finkelstein: Let me start with our enterprise and Jeff could jump into OpEx. I mentioned this on the call, but I'm going to repeat it because I think it's important. The number of merchants doing over $100 million of GMV on Shopify has nearly doubled in the last 2 years. I think we have now -- we're in the right to be in every serious enterprise conversation, and that's the shift. Our go-to-market engine sort of runs 2 tracks in parallel. Obviously, SMB is all about velocity and the enterprise is really more about depth. And we've built this dedicated team and professional services that embeds into that enterprise motion. Product is unequivocally a major driver. When we show up, we show outcomes. We show speed, we show cost, we show conversion, we show simplicity. And I think more and more with these very large brands that are coming on, brands that I mentioned on this call, they're looking for this unified commerce platform. They're looking for basically the last migration they're ever going to have to do. And so when Shopify shows up, with this global scale this unified platform, but also allowing them to sell right away across ChatGPT and Copilot, our differentiation is frankly quite structural. And I think at our scale, that compounds. I think that advantage will grow over time. And we can also move at this incredible pace, which works well. So I think generally, the strategy is working really well. We're focused now on just faster execution. We've also learned that -- I think the enterprise is human executive trust unequivocally moves deals. This is an area I'm personally spending a lot of time in myself. And I think our installed base on the enterprise is a flywheel. I think growth begets more growth. And if you look across every vertical or product category, the fact that we now have and are adding the top merchants and top brands across every vertical, that means that flywheel is speeding up. And there are places where we are improving pricing clarity, making the ROI way more obvious. There are some edge cases that we're already closing the gaps where potentially deals take longer than they should. But the strategy is really, really working in a way that I think you're -- I mean, you're seeing the results now. So now it's about execution and consistency. I think now it's about turning more consideration into more winning when it comes to the enterprise, and that's where I'm spending a great deal of my time and I'm incredibly optimistic about that. Jeff Hoffmeister: Yes. And Michael, to your question on OpEx and where that's going, overall, things remain exactly as we've been talking about in terms of the discipline we're delivering on free cash flow margins. You saw this in the significant growth that we had in That, of course, drops more gross profit dollars down, and that gives us the opportunity to continue to invest like we have been and find the areas where we can continue to drive that top line itself. You referenced headcount. We've obviously been disciplined for 3 years now. We're -- on any given year or in fact, slightly down from the year before. I don't see that changing. We've talked a few times in terms of already on this call in terms of how we're using AI internally and the efficiencies, the acceleration that's giving us, and we expect that to continue. And as we spend, as you can tell from some of the marketing efforts that we've done, marketing, and I mentioned this on the call that sales and marketing as a percentage of revenue is down year-over-year as was G&A as well as R&D. So we can continue to drive those down as percentages, but marketing dollars themselves will be up year-over-year, but we're just getting better and better and better on the marketing spend. And I mentioned on the last call that roughly 40% of our marketing dollars was in Europe in the performance marketing side. We continue to see success in Europe on this piece. One of the things we've actually seen on the marketing spend in Europe because we spent a little bit more the granularity we get has been meaningfully increased. The signal value we get has allowed us to be much more effective in Europe than even though we've been historically on the marketing spend. And we've increased the percentage of marketing spend which is performance. So the pieces which were not core, hardcore performance marketing we've reduced. So we're really in a spot where I think we can do some really interesting things on OpEx. The only difference, and I talked about this a little bit on the last call, the only difference really between last year and this year is going to be a little bit on the taxes in terms of what we're seeing on the effective tax rate. But we're at a spot now where that should level off. So from our vantage point, we feel really good about driving the gross profit dollars growth, which allows us to do everything we need to and obviously have the dollars left to do the share repurchase among other things. Carrie Gillard: Our next question comes from Rob Wildhack at Autonomous. Robert Wildhack: Harley, I wanted to ask about the demand creation principle you highlighted in the prepared remarks. We hear you loud and clear on the products and tools that Shopify offers merchants to create demand. I was wondering if you could compare that to what a non-Shopify merchant can do or is doing to get themselves discovered by LOMs. Like what are the table stakes there? What are some of the savvier non-Shopify merchants do? Because I think that would be really interesting context for the Shopify agentic toolkit. Harley Finkelstein: Yes. I mean, as I mentioned, on sort of demand creation, I think we're making a lot of progress on the sort of customer acquisition piece. I think there's now -- started with one way, now there's multiple ways for buyers to discover our merchants, job campaigns. Shop app and obviously some of the agentic discovery. But in terms of some of the stuff we're doing with the agentic plan, for example, again, that rolled out early March. That mean that any brand and any platform can now sell across AI channels via Shopify catalog and no Shopify stores acquired. It's remarkable. Everyone -- pretty much every merchant, every brand retailer in their Board meetings are talking about how they get it discovered. And so what we're seeing now is that ultimately, it is -- obviously, we have a way to help them with that. And I think we've now made it clear that Shopify is sort of at the center of this. Again, I mentioned earlier, but I'll say it again, we're the only platform powering selling inside of ChatGPT instead of Copilot and inside of Google all from one system. And what we're seeing already in terms of the proof points is that orders from AI searches are up nearly 13x. AI-driven traffic to Shopify stores has grown 8x year-over-year. And new buyer orders from AI searches are actually occurring at nearly twice the rate of traditional organic search. The big thing though with catalog is that I think a lot of non-Shopify merchants are seeing that catalog is actually doing a much better job of organizing and syndicating their products across every agentic surface versus sort of the old scraping thing that was happening prior to catalog. So it's doing 2 things. One, it is unequivocally getting Shopify connected with a lot more non-Shopify merchants per se beginning those conversations, which, again, may lead to them joining the agentic plan or ultimately may lead them to come into Shopify for their entire migration, which obviously is our plan and our hope. But even if they just want to be part of catalog and just be part of the agentic plan on its own, that already is a massive lift to them relative to everything else. I mean Shopify catalog is now the authoritative source for product discovery. There's now 1 billion products across millions of merchants. The data is structured, the pricing gets accurate. There's real-time inventory, clean attributes, and OpenAI and Microsoft are already using the catalog to power discovery. But so I think generally, this plan, this agentic idea, agentic plan idea is working really well for us. And I think the retail industry has certainly taken notice. Carrie Gillard: Our next question comes from Samad Samana at Jefferies. Samad Samana: So I wanted to pull on the agentic commerce thread. I think Stripe sessions was last week, and they're obviously a very close and successful partner of Shopify's. And they are all that several kind of new updates that allow whether that's agents to buy directly with the product catalog that someone's using and/or native checkout inside of Facebook by partner with Meta. I'm just curious as you see the surface area of commerce expanding. Can you just help us understand that if a Shopify merchant has these alternative channels where they're checking out, how the monetization still works and if the economics change? Because, obviously, you guys sit at the center of all this and are partnering with everybody, but I think investors are just trying to understand how monetization economics look as the surface area expands. Harley Finkelstein: Let me start on your first question. So I feel like I need to say this very clearly, but Stripe and Shopify are really incredible, long-standing partners that -- and I think we've been building the future of commerce together. We've partnered with them now for over a decade across payments and financial products. And I think what you're seeing is both companies are very serious infrastructure companies that are working together. The key to the -- I think the key to this is the partnership is actually deepening. Stripe recently joined our UCP Tech Council alongside Amazon, Meta, Microsoft and Salesforce, we were the founding member. And just to kind of be clear about this, UCP is now becoming the industry standard. And Shopify built it. It is the only standard that covers the full commerce journey end-to-end. And UCP, whether -- does all the work from discovery to transaction to fulfillment. We now have about 20 retailers and platforms that are part of the UCP. Stripe has now joined the UCP Governing Council, with us in Google, which is the overarching governance body for the protocol. But this is what it looks like when an open standard wins. Now in terms of agentic generally and just to kind of be very clear about kind of checkout and how that operates, I think it's really important. So I said this earlier, I'll say it again. As you saw recently, merchant store fronts really matter. So you -- when you saw ChatGPT move to an in-app browser in their checkout that is literally the Shopify storefront right within the chat here. And so it functions exact same way from an economic perspective as it would if any consumer is buying on a Shopify store. It's just a new surface area. Back to my point earlier that I'll repeat because think it's important is that every merchant, obviously, wants to have recurring customers. They pay for the customer, they want to see more of that. But the idea that now some of these agentic services now introducing new consumers, like net new consumers to Shopify merchants through services, we think, is an incredible thing as it allows our merchants to expand their total addressable market and, therefore, Shopify's as well. So generally, it's going really well, but we're really, really happy with where we lined with UCP. The relationship with Stripe is fantastic. We presented at Stripe session as well to your point here. But we compete where 2 serious companies naturally wood, but we also partner where our merchants need us to. And every time a new frontier opens, whether it's stable coins, or agentic commerce or financial products, we really do build alongside each other, and that's been true for over a decade. Carrie Gillard: ; Our next question comes from Colin Sebastian at Baird. Colin Sebastian: I guess, Harley, I mean, at a high level, I mean just the rapid market share gains we're seeing here on a same-store GMV basis. I know there's a lot of focus on ultimately what the impact will be from agentic commerce. But I mean you're assuming -- we're assuming e-commerce growth accelerates, do you envision Shopify taking even more share or share at a faster rate going forward? And then a quick follow-up. I'm curious on how you're thinking about the role of the App Store, especially with all the activity in Sidekick. Is there as much utility from the external app store? Is there an opportunity maybe to allow merchants to extend what they're building out to the broader community? Harley Finkelstein: Actually, it's a great question. Merchants that have built, specifically some of the larger merchants, the midsize and enterprise merchants that have built custom apps on Shopify. We've actually seen them at some point, decide to shift from just being a merchant and -- a merchant and as an app developer, some of them have actually discovered this incredible tooling. They're building for their own business and then put in the App Store as well. But in terms of what Sidekick is doing, like Sidekick actually, we see as a real supplement to the App Store, not a replacement. In fact, if you're -- you probably have noticed that we're spending a lot more time without app billers than ever before. hosted a town hall a couple of weeks ago with thousands of our biggest app developers. We have additions dot dev happening in Toronto this summer, which is in person with our app developer community, which has already sold out. actually, we think there's never been a better time to build on Shopify App Store. The applications that are being built by Sidekick are really very specific nuanced feature sets for particular merchant businesses. And so for most of them, it really is just for the individual merchant. We see them we see those -- the opportunity for the app developers just to continue. That being said, though, what is happening that is super interesting is that now merchants who may have had to spend weeks or even months building a feature either internally or hiring an agency to do so. They're able to do so much more work themselves using Sidekick and that means they're able to go much faster. So the first part of your question sort of around e-commerce in general. Remember that e-commerce in the U.S. is still sub-20% of total retail. And what we're seeing is a part of the reason why the stat around this kind of proof point new buyer orders from AI searches are occurring at nearly twice the rate of traditional organic search. The reason that is so important is because what we're seeing is that merchants are now discovering new buyers on these genetic services that they may not otherwise have seen. So we do think it's going to pull more consumers into e-com who may have been laggards. We also see that it may introduce new on e-com native shoppers to start doing so on a more regular basis. Net-net, though, we think that's going to mean more GMV for merchants. And certainly, our business model is predicated on the more money our merchants make, the better Shopify does. Jeff Hoffmeister: Yes. And Colin, the only other point I'd add is just think about, again, the quarter we just posted in terms of what that means to the momentum of this business. Like the strongest growth rate we've had in the U.S. in 4 years, the strongest growth rate we've had in our business overall in 40 years. we're believers in what's happening here. Carrie Gillard: And our last question will come from Richard Tse at National Bank. Richard Tse: Yes. Thank you. There were some recent reports that you guys are considering moving deeper into financial services. Like I'm wondering if you can maybe comment on that and then potentially how that would impact some of your existing partnerships. Jeff Hoffmeister: Yes. I mean I would say, as you know, Richard, we've had -- if you think about financial services, the first product we really had was capital, and that product is roughly 10 years old. That's something that we've had for a while has worked really well. there's other suites of products that we provide in kind of financial services more broadly. This is 1 of the areas where we have seen merchants, and this is one of the things which is classic core Shopify, which has helped merchants and situations, which they either face complexity or they face opportunities where we can help them do that. And that's one of the things we found in our capital business where we've been really thoughtful in terms of how we do lending and to help them accelerate their business. So as that capital business has continued to grow, some of the things you've had on balance and credit have continued to grow. And so that's something that we want to support. And that's one of Harley and I have been just as we've talked about the growth levers of this business and all the things are going to provide durable growth over the years. This is one of the things that we've talked about. There has been -- to your point, there's been some stories out there in terms of some of the money transfer licenses and some of the flexibility that would give us to help us accelerate the growth for merchants, and that's one of the things we're going to continue to do. We're going to go to where we think we can add the most value to merchants, and this is 1 of those segments. Harley Finkelstein: You look at capital, I mean, capital continues to expand more markets, smarter offers, better pricing, look at balance, balance is now deepening its utility for merchants and their data operations. I think financial services is just becoming more embedded in a more valuable part of the Shopify platform. And it's not a [indiscernible] product, it's embedded in the platform that merchants already trust, and it's -- We think there's a lot more to do there. Maybe before we just hang up here, a couple of sort of final things before we close the call that I think might be helpful. I just want to start with this. I just want to say how proud I am of this team and the current execution that we're into this company. I'm coming up to over 16 years at Shopify, and I think this is Shopify operating at its best. It's important to remind everyone that the numbers that we're putting up this quarter, they are not an accident. They are the result of a very, very clear strategy that is being executed exceptionally well. We're almost halfway through 2026. And I think AI is certainly Shopify's native language. We bet early on it and we force this adoption. And now it is as reflexive inside our company as any company, it's embedded in everything we do and the products we build and the channels we power, the way every single person on the team operates. And I think it's become this incredible exoskeleton for this company. Finally, I'm going to say this again because it's important. The AI era is not coming, it is absolutely here. And we think there's simply no job that will be more accelerated by AI than entrepreneurship. In fact, it may be the most AI safe job out there, which -- and what that means going forward is that there will be more entrepreneurs, and we think that means there's going to be way more demand for the Shopify platform. We think tomorrow's billion brands are being born today. They're being board on Shopify and just incredibly proud of the team. This is Shopify at its best. Carrie Gillard: With that, this concludes our first quarter 2026 conference call. Thank you for joining us. Goodbye.
Operator: Good morning. Welcome to the Waters Corporation First Quarter 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded. If anyone has objections, please disconnect at this time. It is now my pleasure to turn the call over to Mr. Caspar Tudor, Head of Investor Relations. Please go ahead, sir. Caspar Tudor: Thank you, Lila, and good morning, everyone. Welcome to Waters Corporation's First Quarter Earnings Call. Joining me today are Dr. Udit Batra, our President and Chief Executive Officer; and Amol Chaubal, our Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language. In this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company, including the financial and operational impact of Waters combination with the Biosciences and Diagnostic Solutions business of Becton, Dickinson and Company or BD. We will provide guidance regarding possible future results, as well as commentary on potential market and business Waters Corporation over the second quarter of 2026 and full year 2026. These statements are only our present expectations and are subject to risks and uncertainties. Please see the risk factors included within our Form 10-K, our Form 10-Qs, our other SEC filings and the cautionary language included in this morning's earnings release. During today's call, we will refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are attached to our earnings release or in the appendix of the slide presentation accompanying today's call. Unless stated otherwise, all organic revenue growth rates are presented on a constant currency basis and are in comparison to the first quarter of 2025. For acquired company revenue, unless stated otherwise, all results cover our period of ownership from the transaction closing date on February 9, 2026, through to the end of the quarter for acquired company revenue growth rates, unless stated otherwise, all growth rates are presented on an estimated as-reported basis, covering the period of ownership in comparison to the prior year equivalent period that predates Water's ownership. Finally, we do not intend to update our guidance, predictions or projections, except as part of a regularly scheduled earnings release. or as otherwise required by law. On today's call, Godet will begin with our key messages and business highlights. Amol will then review our financial results and outlook. After that, we will open up the lines for questions. I'll now turn the call over to Udit. Udit Batra: Thank you, Caspar, and good morning, everyone. We delivered an excellent first quarter as a combined company, marking the start of a new powerful era of growth across our 4 divisions. We achieved double-digit organic growth in our legacy businesses, delivered meaningfully better-than-expected revenue for our newly acquired businesses and grew adjusted earnings per share by 20%. We also took decisive steps towards building our new platform for sustained long-term growth, driving strong momentum and underpinning our raised full year growth outlook. Before turning to the numbers, I want to recognize our teams for delivering this strong start to the year. They are enacting immediate operational improvements, continuing to deliver pioneering innovation and collaborating effectively to deliver revenue synergies already, all while ensuring a smooth transition from BD. It is a true privilege to work with my colleagues, and I'm proud of what they have accomplished. In the first quarter, total company as reported revenue was $1.267 billion, comprising of $747 million of organic revenue and $520 million of Biosciences and Diagnostic Solutions following February 9 acquisition closing date. Organic revenue grew 13% as reported and 11% in constant currency, exceeding the high end of our constant currency guidance range by approximately 200 basis points. Orders again, outpaced sales. Biosciences and Diagnostic Solutions revenue exceeded guidance by $40 million and grew an estimated 7% on a reported basis versus the prior year equivalent period, a strong opening performance for these businesses under Waters' leadership. On a full quarter pro forma basis, comparable revenue growth also exceeded expectations and improved meaningfully relative to fourth quarter trends. Execution initiatives launched at the close -- at closing drove flat year-over-year reported growth despite a $20 million headwind in respiratory testing due to the weak flu season. Excluding these impacts, growth was approximately 3% for the full quarter. With our strong top line performance, combined with disciplined cost management and operational excellence across the organization, adjusted EPS grew 20% year-over-year to $2.70 per share, exceeding the high end of our guidance range by $0.35. Let me now cover these drivers of strength in more detail. Beginning with our organic revenue performance. The Analytical Sciences division grew 12% in constant currency, with instruments up 8%, chemistry up 13% and service up 14%. In pharma, we grew mid-teens with sustained above-market performance supported by our unique exposure to idiosyncratic growth drivers, continued strong instrument replacement and excellent adoption of new products in our high-growth adjacencies. In academic and government, we grew high teens, driven by strength in Europe and broad-based demand for our revitalized high-resolution mass spec portfolio. In industrial, we grew low single digits, led by chemical analysis and continued momentum in PFAS testing applications. Thanks to the effective cross-divisional collaboration, given our diligent integration planning, approximately 1 percentage point of analytical sciences growth was driven by tandem quadrupole mass spectrometry sales through the Biosciences channel and early proof of revenue synergy realization. Within the Advanced Diagnostics division, the clinical business unit previously reported within the Waters division grew 14% despite DRG weakness in China. Strength was led by double-digit growth in the Americas and Europe. The Material Sciences division grew low single digits, reflecting solid performance across core industrial and high-growth applications given present macro conditions. Turning now to our newly acquired businesses. The Biosciences division delivered $230 million of revenue, representing 7% estimated growth on an as-reported basis from the closing date of the transaction to the end of the quarter. Flow research and Flow clinical, both grew 7%, Reflecting improved execution and increased commercial activity. Reagents grew low double digits, while instruments remain pressured due to U.S. academic and government trends, and ongoing China-related constraints, including export restrictions of high-parameter products and lack of a localized product portfolio. Meanwhile, overall demand for our recently launched FACSDiscover A8 and S8 systems remained strong. On a full quarter pro forma basis, Biosciences declined 1%, marking a significant improvement from the 10% decline in the fourth quarter of 2025. This inflection is further underscored by our ex-China growth which was 4% for the full quarter. As we localize the China portfolio in the second half of this year, launch additional new products and implement incremental new commercial actions as the year progresses, the business is poised for further acceleration throughout 2026. Within the Advanced Diagnostics division, Diagnostic Solutions delivered $288 million of revenue, representing 8% estimated growth on an as-reported basis from the close date. Microbiology grew 10% and reflecting improved commercial momentum tied to the newly enacted KPI discipline ahead of our BACTEC FXI launch in blood culture. On a full quarter pro forma basis, Diagnostic Solutions business grew 1%, a clear acceleration from high single-digit decline in the fourth quarter of 2025. Excluding respiratory testing headwinds, growth was 6% for the full quarter, reaching mid-single-digit underlying growth sooner than expected. At the divisional level, including the clinical business unit, Advanced Diagnostics grew 3%. Excluding these same respiratory headwinds, the Advanced Diagnostics division grew 7.5% for the full quarter pro forma basis, reflecting strong underlying momentum. This inflection was delivered even ahead of the full benefit of our commercial execution initiatives and new product launches and despite a 2% China DRG-related headwind that will annualize into the baseline in the second half of the year, positioning the business for continued acceleration as we enter the back half of the year. Less than 90 days post close, we have already made notable progress after taking control of the Biosciences and Diagnostic Solutions businesses as is evident in our results. Immediately after the February 9 closing date, we launched a 180-day plan to reinvigorate growth centered on a focused set of rapid execution initiatives. Early results have been outstanding, driving a clear and meaningful step in revenue -- a step-up in revenue performance relative to the pre-closed performance trends. Our first priority was to instill focus, accountability and urgency across our newly acquired businesses. We have since substantially increased the frequency and rigor of forecast and funnel reviews, with deeper inspection of conversion rates, deal progression and pipeline quality. This has driven greater visibility and transparency, faster decision-making and improved commercial execution. In parallel, we have taken deliberate actions to increase commercial activity across the organization. We have raised expectations around customer engagement, driving our sales team to spend more time in the field, getting in front of the customers and increasing outbound activity. This has been reinforced with clear KPIs and daily management, resulting in meaningful increases in call volume customer visits and pipeline generation, which is driving stronger funnel trends and overall commercial momentum. Our second near-term priority under our 180-day plan is pricing discipline. We have deployed our experienced Waters pricing team across Biosciences and Diagnostic Solutions where we have conducted a comprehensive pricing review and are establishing 2 new deal desks. We are already seeing tangible results with pricing actions taken right away in the quarter, already beginning to augment revenue performance. In addition, we are actively reviewing reagent rental contracts and utilization data to identify commercial opportunities. Within U.S. Diagnostic Solutions alone, our initial review of 1,600 contracts has identified approximately 700 that are currently out of compliance, representing a double-digit million shortfall annually. We see meaningful opportunity to improve operational follow-through on these contracts in the quarters ahead. Our third near-term priority is to regain share in Flow research. We have already approved and initiated actions to localize manufacturing of Flow instruments in China to improve market access and reduce export complexity, addressing a key source of share loss. We intend to begin manufacturing key products in China for China, starting in the third quarter, which is already providing our team a strong impetus to begin competing for tenders that require local manufacturing. We're applying the same playbook that has made our analytical sciences business a growth leader in China. For Flow research reagents, we're improving product availability and speed to customer by adjusting our distribution strategy, leveraging new channels and mobilizing Waters' existing distribution network. These actions are expected to begin resolving prior constraints that have impacted share beginning in the second half of this year. We remain the market leader in downstream high-volume life science applications, spanning LCMS, light scattering and precision chemistry workflows together with related service and informatics. In the first quarter, we launched our next-generation Microflow LC Chemistry Columns with MaxPeak Premier technology, delivering up to twice the sensitivity of traditional microflow columns for used in high-throughput bioseparations, DMPK and OMEX applications. In light scattering, we also recently launched our omniDAWN Multi Angle Light Scattering Detector, which is an industry first extended range detector for use in UPLC and meeting the rising throughput and resolution requirements of our customers. These new product launches increased our degree of differentiation when serving large molecule applications in our attractive end markets. In microbiology, we recently announced that our next-generation blood culture system, the BACTEC FXI, has received CE marking under the European Union's In Vitro Diagnostic regulation, representing a key milestone in our microbiology product road map and delivered ahead of schedule. BACTEC FXI is a groundbreaking new product that combines industry-leading automation, allows 60 sample loading and offers a 3-hour faster detection time than the current generation BACTEC, which was launched over a decade ago. This system is now available in Europe and Japan, and we're pursuing additional regulatory approvals in other key global markets in the months ahead. In molecular, we recently received FDA clearance for our BD Onclarity HPV self-collection kit and BD Onclarity HPV assay, enabling at-home cervical cancer screening with extended genotyping for multiple high-risk strains. This solution allows patients to collect their own sample at home, which is then analyzed in the lab using the BD Onclarity HPV assay, removing barriers to the screening access. Cervical cancer is highly preventable, yet remains significantly underscreened. Nearly 1 in 4 women in the U.S. is not up to date with cervical cancer screening despite HPV being the primary cause of nearly all cervical cancers. Screening gaps persist due to access challenges, discomfort and patient avoidance of pelvic exams, self-collection directly addresses these challenges by offering a less invasive and more convenient alternative with a proven ability to increase screening participation. As the most comprehensive at-home cervical cancer screening tool available, we are empowered by a mission to remove these barriers that prevent individuals from receiving routine screening. Our goals are aligned directly with the priorities established by the U.S. Department of Health and Human Services, which identified expanding at-home testing as a top public health priority last year. We have already begun to sign contracts with strategic partners as we bring this solution to market. Now turning to the synergies. On cost synergies, we remain firmly on track to deliver our $55 million target for 2026 driven by organizational optimization, procurement savings and network optimization with a clear line of sight to deliver. Since February 9, we have moved quickly to enact our restructuring plan and are now in advanced stages of implementation. We expect these actions to improve cost efficiency by optimizing spans and layers, eliminating redundancy and achieving a leaner centralized cost structure as part of the integration. The associated savings will hit the P&L beginning in the third quarter of this year. We've also activated our centralized spend control tower, increasing visibility into indirect spend and driving more disciplined procurement execution. These actions are enabling us to capture savings across key categories while improving control and accountability. At the same time, we're also taking business level cost actions, separate from our synergy program and rightsizing costs in areas where there is clear opportunity to realign with the revenue base. together with our growth outlook, these actions support solid margin progression in the second half of the year. On revenue synergies, as I mentioned earlier, we're already ahead of plan. We have moved quickly to activate cross-selling across the combined commercial organization, leveraging the Biosciences channel to drive incremental demand for mass spec in pharma clinical settings. We expect further contribution as we continually scale these efforts throughout the year. As we progress through 2026, additional synergy levers will start to build across instrument replacement, service plan attachment and e-commerce. In total, we remain well on track to deliver $50 million of expected revenue synergies this year. On instrument replacement of the 22,000 ripe for replacement, 12,000 are BACTEC, with over 50% greater than 5 years old and over 25% greater than 10 years old. Since February 9, we have accelerated the U.S. and European launch of BACTEC FXI by 3 to 5 months relative to the inherited business case, creating earlier revenue capture across the significant installed base opportunity. On service plan attachment, we have completed the first ever full coverage analysis of low microbiology and molecular diagnostics installed basis. Beginning this quarter, we are assigning these opportunities to account-level representatives supported by clear KPIs and our water service leadership team. an effort, we expect to drive at least $20 million of incremental revenue over the next 5 years. On e-commerce, we have scaled our digital capabilities team in recent weeks. We now have more than 100 full-time employees in our e-commerce team at our global capability center in Bangalore. This investment is a key enabler of a future best-in-class e-commerce platform, strengthening our competitive position and driving increased customer adoption of digital ordering channels, which is a key synergy. Turning now to 2026 guidance and our value creation road map. We have begun 2026 with significant momentum, driven by the instrument replacement cycle, idiosyncratic dose drivers and accretion from our high-growth adjacencies. As a result, we are raising our full year 2026 organic constant currency revenue guidance to 6.5% to 8%, reflecting our strong first quarter performance and embedding $15 million of expected revenue synergies from cross-selling of mass spec. For the acquired businesses, we now expect Biosciences and Diagnostic Solutions to generate approximately $3.035 billion of reported revenue in 2026, which includes $35 million of expected revenue synergy contribution tied to the vectors I just covered, including instrument replacement, service plan attachment and e-commerce. Together, total 2026 reported revenue is expected to be approximately $6.405 billion to $6.455 billion based on latest FX rates. Turning now to EPS. Given our strong first quarter results, updated FX assumptions and the prudence embedded in our second half outlook, we are raising our full year adjusted EPS guidance by $0.10 to $14.40 per share to $14.60 per share, reflecting growth of 10% to 11%. With our synergy levers now underway, we have an excellent platform for continued strong performance as a new powerful era of growth begins, unfolding in 3 phases over our midterm outlook. In Phase I, where we are today, the incremental performance at our acquired businesses is tied to immediate operational improvements, such as those outlined in our 180-day plan, together with early revenue synergies from cross-selling. The strong Q1 results give us confidence that this foundation is being built at speed. In Phase II, these operational improvements are then joined by our full first tranche of revenue synergy levers, spanning instrument replacement, service plan attachment and e-commerce. These are near-term well-defined opportunities that are expected to begin contributing starting in the third quarter of this year. In Phase III, the strategic power of this combination becomes most visible. New product launches and bioseparations taking flow into QC in bioanalytical characterization and our new platform launches such as rapid stability testing are expected to add further incremental growth vectors as we increasingly leverage our joint capabilities. Each of these spaces takes us further up the growth curve from the mid-single-digit pro forma growth rate where our full year guidance sits today, progressively upwards into the high single digits over the next several years. This is very similar to what we have seen at our legacy Waters business over the last 5 years. At the same time, we expect to drive significant margin expansion augmented by our cost synergies and expect to achieve at least 100 basis points of adjusted operating margin expansion every year through the end of the decade. Together, this powerful equation yields a mid-teens adjusted EPS growth algorithm and one we are executing against with increased confidence. In summary, we are laser-focused on delivering value through our execution and operational improvements, innovation launch excellence and synergy realization. With this transformation already underway, this value creation journey is beginning now and we are doing so at speed. With that, I will now turn the call over to Amol to cover our financial results and guidance in more detail. Amol Chaubal: Thank you, Udit, and good morning, everyone. In the first quarter of 2026, we continue to deliver industry-leading growth. We delivered reported revenue of $1.267 billion, which was ahead of expectations. Momentum remained strong at Waters organically, and our newly acquired businesses delivered a strong start as our 180-day growth revitalization plan began to take hold. Organic revenue was $747 million, growing 13% as reported and 11% in constant currency, which was 200 basis points above the high end of our guidance range. Our newly acquired businesses delivered $520 million of revenue during our period of ownership, $40 million of our guidance and representing 7% estimated as-reported growth versus the comparable prior year [ stop period ]. Importantly, performance was ahead of expectations on a full quarter pro forma basis as well. As reported growth for the full quarter was flat improving notably versus the prior quarter and underscoring the strength of our execution and growth revitalization initiatives. Excluding $20 million of respiratory testing headwind, growth was 3% for the full quarter. By geography, as reported, revenue was $505 million in the Americas, $412 million in Europe and $350 million in Asia. We effectively managed our supply chain and mitigated elevated freight costs, tariff costs and inflationary pressures while continuing to invest for the long term. Total company adjusted gross margin was 54.7%, approximately 200 basis points better than expected. Adjusted operating margin was 23.6%, also approximately 200 basis points better than expected. This reflects strong margin results in a dynamic macro environment and one achieved before the benefits of our cost synergies and broader cost actions start to flow through the P&L. Our operating tax rate came in at 15.6% and net interest expense was $38 million. With our top line strength, disciplined cost management and operational excellence, adjusted EPS grew 20% to $2.70. On a GAAP basis, we reported a diluted loss per share of $0.87, reflecting acquisition-related purchase accounting charges, including amortization of acquired intangibles and inventory step-up as is typical following a transaction of this scale. Free cash flow for the quarter was $42 million outlay impacted by deal-related transaction costs and the timing of net cash settlement with BD. Turning to our results by operating segments. The Analytical Sciences division, which is our legacy waters division, excluding the clinical business unit, delivered as reported revenue of $607 million, up 14% as reported and 12% in constant currency. In constant currency, instruments grew 8%, chemistry grew 13% and service grew 14%. Instrument strength was broad-based across both LC and MS driven by robust replacement activity and our idiosyncratic growth drivers across GLP-1s, PFAS, India generics and biologics. Leveraging the Biosciences sales channel, we also achieved strong mass-spec results in pharma clinical settings, as Udit outlined. Chemistry growth was again led by MaxPeak Premier and new products within bioseparations which have been a vertical success. Our service results reflect strong pull-through from recent expansion in service plan attachment levels. By end market, pharma grew 14%, non-pharma grew 8% as academic and government grew 18% and industrial grew 3%. Within Pharma, spending trends remain strong across ethical pharma, CDMOs and Chinese biotech. Growth was broad-based with high single-digit growth in Americas and Europe. Asia grew nearly 30%, led by over 50% growth in China, low teens growth in India and low teens growth in Japan. Within academic and government, growth was driven by strong spending trends in Europe and solid demand globally for our revitalized high-resolution mass spectrometry portfolio, including Xevo MRT and Xevo CDMS. In China, we continued strong capture of stimulus standard opportunities. Within Industrial, Asia grew mid-single digits, Europe grew low single digits and the Americas was flat. Growth was led by chemical analysis and PFAS applications. For PFAS, we sustained strong growth despite a tough prior year comparison led by double-digit growth in both Europe and China. The Biosciences division, which represents the former BD Biosciences business delivered as reported revenue of $232 million, representing 7% estimated as-reported growth from the closing date to the end of the quarter versus the comparable prior year [ stopped period ]. Reagents grew low double digits while instruments remain pressured due to U.S. academic and government trends and China-related constraints such as lack of localized product portfolio. Overall, Flow Research grew 7% and Flow Clinical grew 7% with stronger commercial execution driving increased activity levels across both business areas. Within Flow Research, performance was led by reagents and strength in our FACSDiscover A8 and S8 instruments, particularly in Europe. Within Flow Clinical, ex-China grew 13% while China declined 25% due to DRG headwinds. By geography, Europe grew over 30%, the Americas grew 10% and Asia declined high teens, led by China. On a full quarter pro forma basis, Biosciences declined 1%, representing significant sequential improvement versus the fourth quarter trend tied to our commercial actions. On an ex China basis, Biosciences growth for the full quarter was 4%. The Advanced Diagnostics division comprises of the former BD Diagnostic Solutions business, and the mass spec Diagnostics clinical business unit previously reported within Waters division. Total as reported revenue for the division was $349 million. Diagnostic Solutions delivered $288 million of as reported revenue, representing 8% estimated underlying growth from the transaction closing date to the end of the quarter. The clinical business unit delivered $61 million of revenue, up 16% as reported and 14% in constant currency. On an as-reported basis, microbiology revenue was $203 million, reflecting 10% underlying growth for the own period, driven by improved commercial momentum as our execution initiatives began to take hold. Ex China grew low double digits, while China declined 12% due to DRG headwinds, which was better than expected. Molecular Diagnostics and Point of Care revenue was $84 million, reflecting 2% underlying growth for the owned period. On a full quarter pro forma basis at the divisional level, advanced diagnostics grew 3%, which includes a 4.5% headwind from respiratory and a 2% headwind from China. The acquired Diagnostic Solutions business grew 1%, reflecting a significant improvement in growth versus fourth quarter trends. Growth for the full quarter was driven by microbiology, which grew 5% led by high single-digit ex China growth. Excluding the same respiratory headwind, Diagnostic Solutions grew 6%, setting us up well for the rest of the year as these headwinds are not expected to recur. The Material Sciences division delivered as reported revenue of $79 million in the quarter, representing an increase of 6% as reported and 2% in constant currency. Growth was led by strength in high-growth segments such as batteries and electronics testing as well as aerospace, and we saw continued momentum in electric vehicles and data center applications. However, this was partially offset by soft trends in core industrial applications such as chemicals and materials. Now I will share further commentary on our full year outlook and provide our second quarter guidance. Beginning with organic revenue, we have entered 2026 with significant momentum, driven by instrument replacement cycle, our idiosyncratic growth drivers and accretion from our high-growth adjacencies. We are raising our full year 2026 organic constant currency revenue growth guidance to the range of 6.5% to 8%, reflecting our strong first quarter performance and embedding $15 million of expected revenue synergy contribution. We now expect foreign exchange translation to have neutral effect on organic sales, which translates to organic reported revenue of $3.37 billion to $3.42 billion in 2026. Turning to our acquired businesses. We now expect Biosciences and Diagnostic Solutions businesses to generate approximately $3.035 billion of revenue in 2026, which includes $35 million of expected revenue synergies. Together, total reported 2026 revenue is expected to be approximately $6.405 billion to $6.455 billion based on latest FX rates. The restructuring actions tied to our cost synergies are taking place towards the end of the second quarter, together with business level cost realignment. This supports solid margin progression in the second half of the year. In addition, we have a range of operational initiatives in place to fully offset anticipated impact of elevated freight, raw materials and component costs due to ongoing conflict in the Middle East for the balance of the year. Together with our strong first quarter results, we now expect our full year adjusted EBIT margin to be 28.2% in 2026. Below the line, net interest expense is now expected to be approximately $186 million. Given diligent work by our tax team, our full year tax rate is now expected to be approximately 16%, which we expect to persist in future years. This translates to a full year 2026 adjusted earnings per fully diluted share of $14.40 to $14.60, which is a $0.10 raise in our guidance range, reflecting our strong first quarter results, partially offset by incremental prudence embedded in our second half assumptions and updated FX rates. For the second quarter of 2026, we expect organic constant currency revenue growth of 6% to 8%. Foreign exchange represents a headwind of approximately 0.5% at current rates, resulting in organic reported revenue guidance of $814 million to $829 million. We expect revenues from the Biosciences and Diagnostic Solutions businesses to be approximately $802 million in the second quarter of 2026, which represents approximately 2.5% of reported growth. Together, these results in our total reported second quarter 2026 revenue of $1.616 billion to $1.631 billion. Second quarter adjusted earnings per fully diluted share is expected to be in the range $2.95 to $3.05, which is flat to 3.4% growth given the full burden of higher interest costs and newly issued shares and ahead of cost synergies and business level cost action benefits that begin to flow through the P&L starting in the third quarter. Turning to our implied guidance assumptions for the second half of the year. Even with the full year raise in organic growth guidance, our strong first quarter results and the second quarter guided midpoint of 7% implies a prudent 6% organic constant currency growth in the second half of the year. This is deliberately lower than what was implied in our prior guidance as it further derisks our back half organic growth outlook. For the Biosciences and Diagnostic Solutions, our strong first quarter performance and second quarter guidance also meaningfully derisks our implied second half outlook. Our second half assumptions reflect a prudent growth rate of 1.5 percentage points above our second quarter guidance, well supported by incremental commercial and operational actions already underway and a favorable prior year comparison. With that, I will now hand it back to Caspar. Caspar Tudor: Thanks, Amol. That concludes our prepared remarks. We are now happy to open the lines and take your questions. Operator: [Operator Instructions] Our first question will come from Tycho Peterson with Jefferies. Tycho Peterson: Maybe just starting with the guide here, a number of moving pieces. Obviously, the $40 million beat on the BD side, you've got headwind you called out. So it looks like the base business is getting better by about $5 million on an organic basis. The $35 million in revenue synergies, though, can you maybe just touch on where you think those are coming from earlier? I know you gave a little bit of color, Udit. And then what's captured on pricing? I know you kind of flagged that as maybe showing up a little bit earlier. Amol Chaubal: Yes. I mean, look, on the revenue synergies, the first phase of revenue synergies is around things such as instrument replacement, service plan attachment and e-commerce and that's what is embedded in that $35 million outlook. What's not embedded in that guide is the pricing actions that we are taking. What's not embedded in that guide is also how we've successfully neutralize the impact of tariffs on our legacy Waters business. And what's not embedded in that guide is the benefits of being more disciplined on our reagent rental contracts. Udit Batra: Yes. So Tycho, just building on that, I think that the revenue synergies that Amol outlined, the 3 levers we've talked about in the past. But what's really new is the 180-day plan, right? I mean we basically work diligently to look at how we were doing funnel reviews, how -- what the activity was in the field. In fact, in some cases, the weekly call rates have actually doubled, right, and especially in the U.S. Advanced Diagnostics business. We've also implemented pricing improvements and with our deal desk both in bioscience and diagnostics. And we're looking at reagent rental contracts across the Diagnostic Solutions business. And having looked at roughly 1,700 or so accounts, close to half of them are out of compliance, and that's a double-digit opportunity. So these will start to now play out in the -- in starting Q2. And then finally, we are localizing our portfolio in China, really using the same playbook that we did for the Analytical Solutions business, which has incredible growth this quarter, right? So really following that labor. What's not really incorporated is the 180-day plan, which is having quite an early impact. Tycho Peterson: Okay. And then for the follow-up, Udit, can you talk about biology. Obviously, there was a comp factor there, but 10% growth is notable, up low double digit ex China. Just talk about your confidence in turning that business around, obviously, the new BACTEC coming fairly soon. So yes, maybe just talk about your confidence in recovery there. Udit Batra: So Tycho, maybe first, just some contextual comments, right? Take a step back, I mean, Waters is focused on high volume regulated applications, right? That's what we've done throughout our existence. We take sort of lean brands and then with smart commercial execution, really meaningful new products, deliver what we are seeing as industry-leading growth for our Analytical Sciences business, both growth and margins, right? And we intend to do the same with microbiology, where the unmet needs are very significant and we've gotten off to a fantastic start. Microbiology has the same characteristics, high-volume regulated applications with significant unmet needs. Really great start, about 5% to 6% growth in spite of the DRG headwinds. And as you go into the back half of the year, the baseline becomes easier and the FXI launch, we're very excited about that should augment not just the revenue synergies from instrument replacement, but the underlying business itself. So really exciting times and significant unmet needs that excites our team. So expect to see that business nicely. Operator: Your next question will come from Patrick Donnelly with Citi. Patrick Donnelly: Udit, maybe one on the core kind of legacy Waters instrumentation side. It seems like LCMS, you had a pretty nice quarter. I know you called out pharma. And then it seemed like [indiscernible] actually improved a little bit. Can you just give a little more color on what you saw how the biopharma conversations trended in the quarter? And then as well, just ack ago, what you're seeing there? Udit Batra: Yes. So sure, Patrick. Look, first on instruments overall, LCMS was high single digits, yet again. The replacement cycle is still underway, contributing nicely, especially in the U.S. and in Europe. It's augmented by the new products, Alliance iS and now the Xevo MRT having a wonderful start and chemistry doing a great job there as well and the idiosyncratic growth drivers, right? You see GLP-1 testing focus on biologics, India generics, all contributing to the instrument growth rate. Now to your question on pharma itself, I mean, really pleased with what we see, right, to what I said to Tycho as well for a downstream high-volume regulated player, right? And we've seen terrific trends there. We brought new products into that space. We're seeing mid-teens growth overall, high single digits in Americas and in Europe, where ethical pharma is leading the charge with instrument replacement. In China, we saw over 50% growth driven by biotech CDMOs and emerging innovative large pharma companies that are homegrown in China and India continued its track with genetics. So feel extremely good about what's happening in pharma. I mean that remains one of our strengths and really sort of looking forward to what the rest of the year brings in that category. Patrick Donnelly: Okay. That's helpful. And then maybe one on BD. I guess in hindsight, now that you guys have been behind the curtain a little bit here for a few months. When you look back at the 4Q kind of underperformance, how much do you think was just kind of an air pocket as the transition of the management happened? I guess what I'm asking is on the execution improvement versus the actual market improvement, what have you seen from 4Q to 1Q and then the expectations going forward? Udit Batra: Yes. Look, I mean, as we've come into come into the ownership. We've seen tremendous collaboration with -- amongst the teams. The integration plans were put together across the BD teams and the Waters teams and it was, in some ways, an advantage to have time between announcement and close. So that diligence really got the quarter -- the owned period of the quarter off to a fantastic start, right? I mean the diligence that you've seen with Waters in the past with really sort of focusing on high-quality funnels. I mean our funnels look better than they ever have. the forecast accuracy improved as a consequence. We've implemented the pricing initiatives across the 2 new businesses, really incredible transparency and collaboration on looking at reagent rental contracts and also the China localization piece. So the 180-day plan itself was put together in collaboration with the teams. And to your question on air pockets, et cetera, it's very difficult to judge such things. I mean it was a declining business. But you see an advantage of just giving it focus. And what I'll remind you is that these are 2 businesses that have leading brands, really sort of brands that define the category. They are in high-volume regulated settings, and our Waters playbook is very relevant there, and you're seeing the impact of that. Operator: Your next question will come from Vijay Kumar with Evercore ISI. Vijay Kumar: Great. Udit and Amol, congrats on a nice spread and thanks for all the detailed disclosures in the presentation. That was really helpful. Maybe my first one on this BD performance in Q1. And when I look at the full quarter reported growth for BD, it looks like it was flattish, but for the period owned under Waters, it was up 5%. Maybe just talk about this delta between the full quarter versus period owned. Was there any timing shipments, those kind of things that aided performance under Waters ownership. Is this because of extra days? And I'm curious, I think the prior guidance was assumed BD to grow maybe up low singles 2%. Has that changed at all? Amol Chaubal: Yes. I mean, look, when we put together our guidance, we factored in things such as there will be a few extra days because of the quarter, but also a few days when the situation will be disturbed during the close, right? And that's how we sort of prepared our guidance. The way the teams executed makes us feel really proud that things are working, the 180-day growth revitalization plan is starting to bear fruit, and that's what sort of resulted in this significant $40 million beat, right? And what we've done with that is we've sort of derisked our second half of the guide and makes it far more palatable. We've sort of taken down sort of point of care in the second half of the year to not be an average, but significantly below average. And that gives us a lot of room to outperform and puts us in a great spot for the remainder of the year. Vijay Kumar: Understood. And then maybe my follow-up on -- given that you mentioned that days of back here, when you look at core Waters, it 11% organic, what was underlying organic ex days? When you say back half is 6%, is that for core organic or pro forma organic inclusive BD. And given your comment on order strength, I'm curious on why back half couldn't be better. Amol Chaubal: Yes. So I mean, look, the extra days benefit our recurring revenue. And roughly, we had 4 extra days in terms of working days, and that brings about 4% more recurring revenue, which is roughly 2% more total revenue for the legacy Waters business. But even if you strip that out, I mean, chemistry grew 13% and service grew 14%. So both of them, even after you take out 4% flying at meaningfully elevated levels versus the historical performance, and that's to do with how our teams are executing really well in the field. For the guidance perspective, our first half growth for the legacy business constant currency is roughly 9%, and we've derisked the second half. One for the 4 or so extra less working days that we have in Q4, 2 just because of the current macro, right? And so the second half embedded constant currency growth guidance is roughly 6%. That puts us in a really solid spot because we're not seeing any of that in our funnel. On all remains very strong, and we continue to fly at the altitude that we are flying at that gives us great confidence on the second half of the year. Udit Batra: So Vijay, just to sort of conclude that thought. As you go into the remainder of the year, I mean there's fantastic momentum on the base business. There's no 2 ways around it. The 180-day plan has sort of got off the acquired businesses to a great start. But remember, there's a lower baseline already starting in Q2 with the respiratory headwinds gone. For the latter half of the year, there is no DRG sort of headwinds anymore as well. And then you augment that with new launches, FXI BACTEC, as well as the A7 in our Bioscience business and the reagents and the revenue synergies that start to play out as well. So we are really sort of positive about the setup that we see for the balance of the year. Operator: Your next question will come from Doug Schenkel with Wolfe. Douglas Schenkel: So first, on competition. One -- I guess there's 2 here. Your team is bringing a new level of discipline to the life science business. I'm just wondering if there's been any notable competitive responses worth calling out. The second question is, there's 2 product areas where you are or will soon be competing with private equity-owned businesses. Generally speaking, how does competing with PE differ? And does this create new opportunities for the business? Udit Batra: Excellent questions, Doug. Look, on waters itself and competition, I mean, I'll repeat what I said earlier, we are diligent about being focused on high-volume regulated settings, right, where the drivers are very well understood and are consumption oriented, and that's allowed us to outpace the market over the last several years. And in those setups, I mean, we have leading brands. We had it with the legacy Waters business. Now we have it with Bioscience, which defines the flow cytometry category and reagents and with the diagnostic solutions business with microbiology. So we feel very good about the brands we've inherited and we're working hard on bringing the same execution discipline that has bought waters to the top of the league table, both in growth and margins and free cash flow. So as we start, and your question to, sort of, I think the microbiology business that's been acquired by PE players, I mean, we think it's going to be quite rational in terms of pricing. And we are a pricing leader in the categories we compete in because we bring in tremendous innovation into the markets. And we expect something similar from the PE player. So not worried. I mean, I think we are now in a position where, as a team, we're more focused on unmet needs on proof of principle of our new products, commercial execution than anything else. Operator: Your next question will come from Evie Koslosky with Goldman Sachs. Elizabeth Koslosky: So starting with the core business, can you talk to the mid-teens growth in chemistry. I think it's well above the full year guidance that you previously gave of around 6% to 7%. So how durable is this growth moving forward? And what's the updated guide for chemistry in the full year? Udit Batra: Let me start, and then Amol can talk to the guide. I mean, you can say nothing more than just being ecstatic about what we're seeing with chemistry, right? I mean this is a journey that started a few years ago when we took our R&D dollars and dedicated 70% to 80% of them in bioseparations and the steady stream of new products is driving growth, right? I mean that's what you saw in the latter part of the year last year, and you see it now as virtually all new molecular entities, especially biologics, are first looking at Waters offering and then going elsewhere. So we feel very good about where we stand. And as you look at the mid- to long term, I mean, there is no reason to believe that all of this will not flow downstream and chemistry on the mid- to long-term basis, should now be instead of a 7% grower, a 9% to 10% grower at least. I'll let Amol comment on the balance of this year and our guide assumptions. Amol Chaubal: Yes. I mean, look, in Q2, there was a little bit of pull forward, which we outlined in our last year's Q2 earnings call. And in general, we've been cautious given we had such an amazing double-digit growth in industry every quarter last year. We are sort of reducing the guide for this year to like 6.5% full year. Just to be prudent. But I mean, what we are seeing in Q1, 13% growth, that is real and that we expect to continue. The only reason we are guiding at 6.5% is the baseline is pretty strong, and we're being prudent. Elizabeth Koslosky: Great. And then on the acquired asset, can you talk to the decision to localize the manufacturing in flow cytometry in China? How much of an investment does this represent? What's the local competition like? And then how durable are some of the market growth drivers like MNC pharma funding in the region? Udit Batra: Yes. I mean, look, I, thanks for the question. But let me start sort of at the highest level. I mean pharma in China is doing extremely well. I think we talked about this several quarters ago. roughly 1/3 of all biotech molecules that are unlicensed by large pharma now come from China. That has then helped the CDMO industry grow and also is giving birth to sort of fully integrated innovative pharma companies in China. And pharma for us in China grew over 50%, right, behind these trends and strong, strong execution. And this sort of result was only possible because we have a fantastic team in China that insisted that we localize our portfolio in China to be available to customers across the board, and we did that first for Analytical Sciences business. And we intend to do the same for Biosciences where at this point, not much of the portfolio is localized. So we're doing that at a rapid pace. We have our own site in Suzhou, where we'll start doing this. And in Q3, you should start seeing the orders flow in from the localized portfolio. There is another headwind in China for the flow business, which relates to export controls. And there, we've streamlined the process dramatically during integration planning and now since the close of the deal. In fact, we've seen the highest number of orders flow in, in the last few days ever since the ban went in place. So it's the same playbook EV that allowed the Analytical Sciences Solutions business to now really set the standard for the industry's growth in China, and we expect to do the same for Bioscience. Operator: Your next question will come from Puneet Souda with Leerink. Puneet Souda: The first one on pricing versus volume. Could you talk a bit about how much of the growth was driven by volume in the quarter? You talked quite a bit about pricing initiatives. But wondering if you could drill down a bit and just give us some volume growth metrics in the BD business? And how sustainable is the pricing tailwind just given the competition and, let's say, the microbiologic business? Amol Chaubal: Yes. So on the legacy Waters business, we did roughly a little over 200 basis points of price, and that's consistent with how we've been performing the last few years. On the BD business, we did just about 0.5 percentage of price, which is in line with how BD has been doing historically. That's also what we've embedded in our full year guide, nothing different from the historic performance. We do see a very meaningful opportunity to bring the BD business where our legacy Waters business is. And as Udit outlined, we've already instituted 2 deal desk. We see tremendous areas of opportunity, not just in pricing but also in tariff mitigation and also in reagent rental contract compliance. All those are opportunities we are pursuing, none of which are in our guide. Udit Batra: Yes. And just to sort of add one other comment on pricing. There are pockets already, Puneet, in the in bioscience and diagnostics, where we see pricing similar to what we've been able to implement in the legacy Waters business. The reason we're not putting it, embedding it into the guide is simply because we want to see that play out and be sort of pervasive across all geographies. And so really good starting point and I expect that to be an upside as we go through the year. Puneet Souda: Got it. And then on the core, I mean, congrats on the momentum there. I just wanted to get a sense of -- in the LCMS instrument replacement cycle, where do we stand? Are you seeing sort of a pull forward of that replacement cycle peak that, I think, you were expecting in '27? Could we see that in '26 now? Just wanted to get a sense of where we stand in the replacement cycle. Amol Chaubal: Yes. I mean, the replacement cycle is going really well. And as we outlined, right, I mean it's first started with large pharma than the CDMO step team. There are still some participants like the CROs and the Chinese branded generics and some of the biotechs that are still not replacing even when their fleets are significantly overaged. And so that gives us a good runway into 2027. And then keep in mind, 2021, 2022, were very large instrument placement years, and those instruments then come up for replacement in 2029, 2030. And so one would say, hey, you may hit a bit of an air pocket as we go through 2028. And that's exactly where the reinsuring dynamic plays out because a lot of reshoring placements would likely happen second half of '27, all of 2028. So the setup is really good. We could move seamlessly from one instrument replacement cycle to another with the reshoring bridge in between. Operator: This concludes the Q&A portion of the call. I will now hand it back to Caspar. Caspar Tudor: Thank you, Lila. This concludes our call. We look forward to connecting with many of you at upcoming events and conferences.
Operator: Good day, and welcome to the IAC First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Christopher Halpin, COO and CFO. Please go ahead, sir. Christopher Halpin: Thank you. Good morning, everyone. Christopher Halpin here, and welcome to the IAC First Quarter Earnings Call. Joining me today are Barry Diller, Chairman and Senior Executive of IAC; Neil Vogel, CEO of People Inc.; and Tim Quinn, CFO of People Inc. IAC has published a presentation on the Investor Relations section of our website today entitled Q1 Earnings Presentation as well as a letter from our Chairman published last week. On this call, Barry, Neil, Tim and I will provide some introductory remarks referencing that presentation and letter and then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance and are based on current expectations and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent annual report on Form 10-K and in the subsequent reports we filed with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release, investor presentations, our public filings with the SEC and again to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. And now I will turn it over to Barry. Barry Diller: Thank you, Chris. Good morning, everyone. I wrote a letter that I hope everyone has read because it says it far better than I can say about this transition that we're undergoing. A lot of people ask why now? Well, the truth is this is really been going on for the last couple of years as we simplified -- want to simplify our operations. We've been through -- since this organization started 30 years ago. We've been through 4 cycles. Each time we've gone through one of those cycles, we've been a smaller enterprise because we spun off so many public entities. I like that because I think that gives us kind of energy and focus to build up again. I also think that the 2 principal assets probably, hopefully, the only assets that the company will have in the future. I'm talking about the -- actually the present rather than the future, people and our interest in MGM Resorts. In a way, as I wrote, I think there's a perfect hedge. One is in the virtual world primarily, that certainly prints a lot of magazines as well, but it's very much in the digital world and the other is very hard assets of resorts in the United States and in China, and a building in Japan. But rather than me [indiscernible] around, I hope you'll just take a second to read the letter. I'm not -- actually, I should do the thing that they do with Amazon, which is, all right. Now we'll take 5 minutes for everyone to read the letter and be silent, but I'm not going to do that. I would like though to be sure to thank Mr. Halpin, who has been with us for many years outstandingly. And is this the last call which you will be on or you'd be on the next one, too? Christopher Halpin: It's sort of a coin flip. So we'll figure it out at [indiscernible]. Barry Diller: We'll have one more of you, but thanks for a great information. Christopher Halpin: Thank you. Barry Diller: And with that, let's move on. It's much better, actually, I think for all of us, if you just ask pointed questions and we'll respond pointedly. Christopher Halpin: Fair enough. We're just going to do a few prepared remarks just to lay out some key pages. So Neil, do you want to kick it off? Neil Vogel: Sure. Everyone goes on to Slide 5. And you can see we, again, at People Inc., we had a very solid quarter. We delivered 8% digital revenue growth, our tenth consecutive quarter of growth and digital adjusted EBITDA margins expanded to 20% from 18% in Q1 of last year. Our performance is underpinned by diversified audience and revenue mix, a real diverse audience and real diverse revenues and a laser focus on meeting our audiences where they are now. To that end, in the quarter, we continue to invest in a host of new products and services including what BD calls or inversion projects and what we've called our inversion projects. These are businesses built off of our iconic brands that extend and transcend traditional publishing models, accelerating our nonsession-based revenue. We have a few updates on the early projects we've talked about and some highlights of what's to come. There's real traction around our [indiscernible], our recipe locker tool, the People App and InStyle breakout series, the intern and the boss on social media. We expect to roll out in Q2 a membership club for a super fans of Southern Living among our strongest audiences and plan to follow with a similar program for food and wine. And something very exciting for us. We're launching a new social shopping tool based on the learnings of our scaled commerce business, where shoppers can easily save and store their pics for future purchases in a very innovative way, that's to come as well. We plan on a drumbeat of product launches through the coming quarters. So you can expect that from us. And look, our focus is meeting audiences on their terms and the next slide further illustrates this. So if everyone flip to Slide 6. You'll see the trends over the last few years continue. As you can see, our opportunity is clearly on the right side of this page, core web sessions continue to be challenged. Google search traffic declined as expected, and we expect that will continue. Traffic from the Open Web also declined a bit as a substitution rate from core web sessions to off-platform audiences increases. The driver of our growth continues to be though these off-platform audiences, which grew 27% in Q1. We see strong performance across Apple News, TikTok, Instagram, YouTube and syndication partners. And our audience trends align with where users are today and how advertisers and marketers want to connect with them. As you can see in our numbers, the strategy is working. That takes us to Page 7. Our big story continues to be our nonsessions-based revenue, which grew 24% year-over-year in Q1. Non sessions-based revenue continues to grow as a percentage of our digital revenue. We're now at 41% versus 35% in the first quarter versus the first quarter last year. Similar to last quarter, this is led by Decipher, our AI-powered targeting tool, ad-targeting tool by our social and custom ad programs by Apple News and by strong licensing performance, including the addition of our Meta deal. We also maintained a healthy business in sessions based revenue by delivering a solid quarter and continued strong monetization of these audiences. The strength of our brands is really driving premium rates. And look, the model for our future is clear and in focus. One, strong growth from our non-session-based revenue streams; two, executing against our sessions-based businesses; and three, connecting directly with our audiences and advertisers and meeting them where they are, including our big focus on our version projects. We're very proud of the quarter, and I'd like to welcome Tim to the call who's going to give a rundown of the financials. Unknown Executive: Great. Thanks, Neil. It's great to be here, and I'm excited to have a chance to work with everyone. I, along with almost the entirety of our management team have been in our positions for over a decade, both working with and for Neil and under the leadership of IAC. So this continuity is a big part of the success that we've had together and something that we think is -- it gives us a lot of confidence as we undertake what's going to be an exciting transition. So we look forward to that. Referencing Slide 8 for a second and refocusing on the financials. As Neil said, we had a really strong quarter in Q1. Digital revenue grew 8%, and we saw digital margin expansion of about 200 basis points, generating solid 45% digital -- incremental digital margins. This is a testament to the strength of our brands, the diverse revenue models that they support and the continued discipline we bring to all of our investment decisions. Print EBITDA declined in the quarter, which was expected. There is some quarter-to-quarter volatility there, but we reiterate our expectation that full year print EBITDA will cover people in corporate overhead with the caveat this year, excluding the estimated $15 million of Google litigation expense. Finally, I want to highlight that we continue to generate really solid and predictable free cash flow of almost $50 million in the quarter, putting us on track to exceed $150 million of free cash flow this year. That's on net debt of about $1.1 billion. So we feel really good about the balance sheet and the opportunity to continue to delever rather quickly. Moving on to Page 9. I want to highlight some changes we made to our segment repeating. We transitioned the management of a business we call M&I, which is a legacy media agency business, previously captured within our Print segment, which now operates under the decipher team in Jim Lawson. As a result, we reclassified the business from print to digital, both for Q1 and over historical periods. The reason for this is it unlocks 2 exciting new opportunities for us. Number one, it opens up a new distribution channel for Decipher, notably independent agencies and political advertisers previously untapped by our sales team. The second opportunity is by putting this business and operations under Decipher, we can offer these advertisers a more advanced product delivering superior performance and at better margins to People Inc., and you saw some of that benefit -- some of that accrued to our benefit in Q1. One point on political advertising. Historically, People Inc., has not run political ads on our branded properties, but we can now target this ad category on third-party sites using Decipher. These political ad cycles create a little bit of volatility in the numbers, especially related to the 2024 presidential election cycle. Excluding those political dollars, just to give you a baseline, M&I was -- revenue was flat, excluding political. So that's the business we're bringing over. This change in segment reporting resulted in about a 200 basis points drag in digital revenue growth in Q1. So the 8% growth would have been 10%, but for the change. Ultimately, however, this move is expected to accelerate growth and adoption of December, particularly in the second half of this year. This change -- all these changes did not impact our guidance for the year, which remains in reiterating digital revenue growth of mid- to high single digits, delivering total company adjusted EBITDA in the $3.10 to $3.40 range. With that, I'll hand it back over to Chris to take you through the IAC changes. Christopher Halpin: Thanks, Tim. Moving to Slide 11, we'll talk through financial performance beyond People Inc. this past quarter. It was a busy quarter on a number of fronts as we continue to execute on our core strategy of simplifying IAC and building our cash balances. First off, we completed the sale of Care.com in March, generating $296 million in net proceeds. Following closing, Care.com is now presented as a discontinued operation in our consolidated financials. We think this caused a little bit of confusion overnight, which we'll talk about more later. Barry Diller: I mean I hope it's the thing that caused a lot of confusion given how banged up we got just from people not being able to add properly. Christopher Halpin: We'll work with them on it, BD. We continue to allocate capital to the 2 companies we know best and believe in, IAC and MGM. We repurchased 2.9 million shares of IAC for $111 million since our last earnings call, and we've now bought back 13% of IAC since the beginning of 2025. We also purchased 1 million incremental shares of MGM for $37 million, increasing our ownership to 26%. As Barry said in his letter, we continue to view both stocks as the priority areas of capital allocation. Our Emerging and Other segment showed strong performance this quarter as both Vivien and the Daily Beast continued their momentum with both seen accelerating revenue growth in the 2 companies combining to generate about $4 million of adjusted EBITDA in the quarter. We also closed operations in our Search segment in April. As many of you know, this was a noncore business that had frankly lived on well past many expectations. As previously disclosed, Google notified us late last year that it would not renew our search contract under the existing terms. Following negotiations across the first quarter, we came to the conclusion that we could not confidently operate the business profitably on the new terms on offer from Google. As part of the shutdown, we incurred $7 million in costs from severance and the write-off of prepaid software and the search business will also now be shown as a discontinued operation starting in our second quarter financials. One other note, we sold an unutilized domain name for $7.5 million this past quarter. With the search business now closed, we will look hard at monetizing the portfolio of domains that underpin that business including [ ask.com ] creating cash raising opportunities. Finally, there's a lot of noise in comparing year-over-year profitability in the first quarter. So we laid out on the bottom right of the page, some key onetime items, including last year, a large noncash lease gain at People Inc. and the costs associated with our CEO separation and this year notable severance transaction and litigation expenses. Moving to Slide 12. Last week, in parallel with Barry's letter, sharing his rationale for a planned rebrand of IAC as People Inc., we issued an 8-K summarizing the key elements of the consolidation of the corporate functions of IAC parent and the People Inc. subsidiary. The underlying principle is with 1 core operating business in People Inc., 2 layers of corporate expense, 1 at IAC and 1 at People Inc. are no longer necessary and don't make sense. When we managed a number of operating businesses, the IAC corporate layer provided strategic oversight, shared services and M&A support to the individual companies enabling them to operate independently and positioning them for growth and success. But with the sale of Care.com and the narrowing of our focus to People Inc. and MGM Resorts, the opportunity presented itself to eliminate duplicative functions and generate significant savings. We've mapped out a careful consolidation plan in which over the course of the coming quarters, more than half of the corporate employees of IAC, including much of senior leadership will transition their responsibilities to counterparts at People Inc. and exit the company. Key areas in this consolidation are accounting, tax, internal audit, legal, M&A, among others. Each employee has a specific exit date and a retention plan in place to ensure they remain engaged until the consolidation is complete. The full transition process is planned to run through February 2027. We expect annual run rate operating expense savings of $40 million and a reduction in stock-based compensation of $20 million to $25 million. These savings will phase in over the coming quarters as employees depart, with the second quarter of 2027 being the first clean quarter where the P&L will show the full savings of the consolidation. Total onetime expense of the rationalization is $63 million, comprising $15 million in cash severance and related expenses, of which $10 million was recognized this past quarter and then $48 million of stock-based compensation expense, which will be recognized over the next 4 quarters. Kendall Handler, our superb Chief Legal Officer, and I will leave in mid-August, following the filing of second quarter financials and then will remain on as advisers through March 2027. Further, we expect that Neil will become CEO of the parent company, newly renamed People Inc., and Tim will become CFO in that same mid-August timing. All of us are working together to have a smooth transition to set up People Incorporated for continued success. Finally, moving to Slide 13. This will be the last slide we present before going to Q&A. I know you're happy about that. On guidance, we reaffirmed People Inc. adjusted EBITDA guidance at $310 million to $340 million while raising emerging and other guidance to $5 million to $15 million of adjusted EBITDA based on the strength at Vivien and the Daily Beast. As a reminder, Care.com is now a discontinued operation, so it is removed from both our financials and our guidance. We saw a couple of reactions overnight that cited a Q1 IAC consolidated miss and reduced guidance. But our analysis is that those market commentators and a number of analysts failed to adjust for Care's revenue and EBITDA being removed as discontinued ops. As a reminder, search will also be classified as such and will not be in our reported or historical revenue and prospective revenue and adjusted EBITDA and is not part of our guidance. We've raised corporate expense guidance to $95 million to $105 million due entirely to the severance that I just mentioned before and other onetime charges. Following completion of the consolidation, we expect annual run rate IAC corporate costs to be around $45 million and stock-based comp for the entire companies declined to $30 million. These figures are prior to any future reallocation of People Inc. leadership cost to the corporate level, which may occur. However, any such shift in cost allocations would have no impact on expected consolidated expense savings. With that, let's go to Q&A. Operator, first question, please. Operator: The first question will come from James Heaney with Jefferies. James Heaney: Can you just talk about the next chapter of IV? Like what do you think the next 5 years are going to look like? And what are the key areas of capital allocation going forward? And then would you still look to do M&A and select new areas? And then I have a follow-up. Barry Diller: Well, I can't tell you what the next 5 years. I can't tell you -- I mean, I can tell you with the next year, maybe or months are going to be. 5 years, who the [indiscernible] knows. What we have is, I think, extraordinary opportunity with what we got. I mean, what Chris has just gone over really is kind of a great cleansing. And that cleansing, as I said, has been going on for a while now. The combination of it was actually this quarter, changing our name, doing all of the tasks continuing to shed noncore assets, core assets, as we said before are hopefully going to be just 2. We've got plenty of capital. We've got a very good balance sheet. We can go in whatever direction that there is opportunity. I think that biggest -- probably the biggest opportunity we have in front of us is the work that is being done in our publishing business and people and what we call [indiscernible] inversion, which is -- we've got 19 different initiatives, having nothing to do with standard advertising or subscription revenue. Out of this, I think we can build wholly owned or partnered extremely large businesses in all sorts of categories. The thing that I came to understand about people is across the -- how many -- actual -- I mean, I always get this figure wrong. How many magazines do we have [indiscernible]? Neil Vogel: We have about 40 brands and 9 or 10 significant brands, so invested. Barry Diller: Throughout this, there is so much we know about so many things that no one actually else knows. And instead of being in the kind of tried and true publishing model of licensing, your brands and licensing all this knowledge and all that stuff for other people to exploit, we're going to exploit it. And out of that, I would be -- I'd be giantly disappointed if we are not able to build real substantial businesses having nothing to do with advertising, having nothing to do with subscriptions, but having to do with goods, services, products, et cetera, that out of the corpus of our understanding in all these areas, we have a better advantage than anyone else. And the other thing -- one other little note is, we published, what, $300 million or so actual hard copy things that are in people's homes or whatever, an additional page cost us 0. How many actual other digital impressions do we have? [indiscernible] so if we come up with and if we don't come up with it, we're really [indiscernible]. But if we come up with good ideas, we can promote them at not a dollar really additional cost to us. What a megaphone that is for the future. So I -- that's the work that we're going to do. Wherever else, what [indiscernible] we're going to use our cash flow, we're going to continue to opportunistically buy our stock. We'll continue to invest in MGM Resorts, which I also couldn't be more excited about its future. So this is -- again, it's been worked on for the last almost 2 years. But this moment forward is a clean, clear, simple sheet that we get to write on, and we got, I think, all the necessary tools. So a bit long-winded, but there it was. Next question. James Heaney: Great. And I actually just had one follow-up on just the macro environment [indiscernible] sorry, just from environment across people and other businesses, just kind of what you're seeing from geopolitical any other macro factors would be great? Neil Vogel: Yes, I'll do a quick take on the ad market. I think last quarter, we told you guys on a 10-point scale, it was a 6 out of 10, I think it's still a 6 out of 10. There's opportunities, there's risks. Tim is here with us now. He can give us some color across industry. Unknown Executive: Yes, there's certainly strength in places like health and pharma, tech, telco, areas that are exposed to the consumer are a little bit soft or particularly the average consumer, I would say, things like CPG, food, bev. And we did see a little bit of a slowdown in planning related to the Iran issue and conflict. We think that's abating a little bit now, but it's still a little bit touch and go. But overall, as Neil said, the market is strong, but it's not -- I wouldn't call it ripping. Barry Diller: Good enough to do our job unless something changes. Christopher Halpin: Yes. And I would just say, across the portfolio, we've been talking about the divergence between high income and low income for a while. I didn't know that was called K-shape but now that's called K-shape. I think that's just only continued and maybe probably unfortunately being exacerbated for the country, what's going on right now. Operator: Your next question will come from John Blackledge with TD Cowen. John Blackledge: Could you talk about the key drivers of the 1Q People Digital revenue line items saw the outsized growth at performance marketing and licensing and other revenue? And just any color on revenue trends in the second quarter. And then on digital EBITDA, that was better than expected. Just any -- any color on the drivers of the upside to margins? And how should we think about 2Q and the rest of the year? And if you -- and just lastly, if you can give some color on like 1 or 2 of the separate initiatives as part of the inversion process, that would be great. Neil Vogel: Let me do the inversion first, and then Tim can take the string of other questions. So the emergent stuff that [indiscernible], look, most importantly, it has energized our organization. We are really in a great spot where we own these brands that are iconic and pillars of sort of [indiscernible] culture at American a couple of stats, some updates on things we've talked about. One of the first things we did is we launched this recipe Locker. We're probably more than half of the recipe traffic on the Open Web right now. We launched it a little more than a year ago. We have 3.5 million registered users. We have 40 million recipe saved. We have a lot of momentum and a whole bunch of new product initiatives launching in the next couple of months. The People app, which we've talked about before, again, the real win here is how we're engaging people. Visit to the app is about 3x as long as a visit to the web. If we get people playing games, which is the most popular thing on the app, it's a 20-minute visit. We're up to 430,000 users since the last call. And I think the important thing to note about both MyRecipes and the People app, which have taught us how to engage users directly and all of these new skills is, as BD said, we have not gone outside our own assets at all to grow these things. And as we roll out and as we tighten up financial models around these, that's a really big opportunity. Another thing worth mentioning is we've really looked at social video and social video series is sort of like the new TV. And we have a real breakout hit on our hands in style with 2 properties called the intern and the boss. They were -- the first property the interim was launched about a year ago across all these episodes, which are 3-minute long episodes, 4 minute long episodes. We've got 45 million views in a year, and a robust sponsor business has grown around... Barry Diller: Just one side that a while ago that just on internal 1 package, 1 series alone, which is they do multiple series a year, multiple [indiscernible] one episode was like [indiscernible]... Neil Vogel: We have been very fortunate that we've been able to sell a season is about 20 minutes long in total 6 or 7, 3-minute episodes and we have sold full seasons in that neighborhood, some more, some less. So there's a lot of interest in what we're doing and different... Barry Diller: Completely homegrown. Neil Vogel: Completely homegrown, completely made by us. We own all the rights. We own everything, and it's a really successful venture that we're now modeling across people and a whole bunch of other properties... Barry Diller: So Southern Living, Southern Living one of our strongest [indiscernible] hello, if somebody cough, whatever. There are a couple of things in Southern Living that I think are really interesting. It's such a loyal base. So a couple of [indiscernible]... Neil Vogel: Yes, Southern Living is a really big important property for us. Culturally, it is incredibly important in a big part of the country... Barry Diller: One of the things that I learned about and for those people who are the follower of South. Now from [indiscernible], which is a particular southern drink, it is. Southern Living is going to -- has developed. You keep saying that you're going to let me taste this... Neil Vogel: We are going to let you taste it, but not right now... Barry Diller: That we are making our own team, our own brand, which we are going to manufacture and distribute and under the Southern Living branded Southern Living Suite T. That -- who knows where that actually goes. If it emerges out of the South, and so many of these beverages have been geographical in where they've started and then they go nation and worldwide. Who knows what that can become. Also, Southern Living does these houses. And I mean, they build every year... Neil Vogel: We sell architectural plans to build Southern style houses, really high end houses. They're very, very beautiful houses. Barry Diller: Yes. And also, this community, I mean, we may develop a Southern Living actual housing community, branded Southern Living for that kind of lifestyle that, again, we'll own and hopefully operate. Neil Vogel: So when BD mentioned before, 19 different ideas, there are actually probably more than 19 ideas floating around. And we are really chasing these down. I think going back to the tea, it's a really good example. Barry Diller: We can do each one, it can be a separately organized, finance business, whether our capital or other people's capital, that is a stand-alone P&L of its very own separate and apart from this historic publishing business that can spin off -- span off individual profit P&L businesses that have their own revenue, their own structure, et cetera. And you say what can happen again, it won't happen in a year. But in the next years, as I say, 5 years out, this could -- this is the fertile ground for dozens of businesses as we're looking at this because we got the intellectual property that can give us an edge in this that I think no one else has once we begin to concentrate on it, which is what we started to set [indiscernible] I guess we should go to the next question. John Blackledge: Well, let me just -- I'll tackle the financial questions as well. Barry Diller: What was that? Unknown Executive: Which was how do we get through Q1, [indiscernible] Barry Diller: I mean that's [indiscernible] people want to hear about our future rather than enabling little figures that no one pays attention to. Look, if you all paid attention to what happened to Care.com, and how it affected this what last quarter or whatever the confusion in guidance and all of that, that would have been, I would say, paying attention to the business. Unknown Executive: What I would just say is that Q1 was a continuation of Q4, which was really strength -- incredible strength in licensing and commerce, in particular, with the ads business roughly flat as we navigate these volume challenges. What I think the future is, is what BD is saying and Neil is saying, which is these non session-based revenue models, which currently comprise about 40%, 41% of our revenue, grew 24% in Q1. And that is the future while we kind of hold the line on the traditional sort of session-based media model, as it relates... Barry Diller: I mean, we've lost -- how much of our traffic have we lost from Google? Unknown Executive: From Google, 65%. Barry Diller: Okay. What publisher has navigated this transition anywhere close to how you have all navigated this. We have transitioned from depending -- everyone has been -- and I said for a decade more that we all kind of our surf on the property and land of the monopoly of Google. And this transition out of depending upon someone else to give you traffic, which is what every animal has done in this digital world for the last almost 20 years. And we have now transitioned out of it into 2 positive territory of our own traffic with our own hands, not dependent on anyone else. I find it incredible that no one really recognizes that feat for what it has been. [indiscernible] Unknown Executive: We think that's the future. And we're going to -- we think we see that 40% that is the traditional model grow meaningfully over the coming quarters and years. Barry Diller: And it's our. We don't have to -- we don't have to beg or borrow or getting these end of conversations with the monopolist. And we're really on our own firm ground, which is completely different than I think almost -- not almost -- it would be every other publisher other than the New York Times and the Wall Street Journal that have strong subscription revenues. Operator: Your next question will come from Cory Carpenter with JPMorgan. Cory Carpenter: I wanted to ask about MGM in Turo. Maybe Barry for you with MGM. Could you just talk to what you see as the benefit of keeping MGM within People Inc., why not split that out separately? And then on Turo, any update you guys can provide on how that's performing? And is that a business that you plan to hold on or also are looking to divest? Barry Diller: I don't do the MGM thing. Yes. The answer is, of course, it is. Look, this corpus used to house 50, 60 different businesses. We can certainly handle 2. And MGM -- the prospects for MGM, I think our outstanding. MGM -- once we get closer to, we're building a large resort in Japan and each year that we get closer to its opening. I mean the only gaming resort -- and some great size, a $12 billion project that will open in Japan and, I don't know, [indiscernible]. The closer we get to it, the closer people will understand how discounted MGM is. I'm quite happy for it to be discounted now because it allows us -- MGM has bought back 45 -- almost -- we have a little 45% of its stock over the last 5 years. Its operations have been solid. People talk about Las Vegas. [indiscernible] through also endless cycles. Nobody is killing Las Vegas. Their current conditions that bother going into that have particularly for instance, Canada, we're, I think, down -- I may get the stat wrong, 40%, something like that, from Canada, which was a very good draw for Las Vegas because of the policies of the administration and other onetime items and things. And it's just, I'm kind of glad it's been discounted because it has allowed us to buy back so much of the stock, which I think -- that -- the discount that it currently has will close at some point. I'm not anxious for it to close too soon. Christopher Halpin: Turo has executed well on its strategic effort to return to growth. We've talked previously that Turo experienced a real slowdown in volumes coming out of the froth of the pandemic. And that, combined with industry pricing pressures due to both working off pandemic highs and also some mistakes in electronic vehicles made by competitors. So the confluence of those 2 drove Turo revenue growth to mid-single digits at one point. Company generated over $1 billion of revenue in 2025, but management really focused last year with the Board on driving substantially more growth reinvigorating marketing and improving cost efficiency. They hired a new CMO and David Cornes, who we believe is making the right steps to drive greater brand awareness. We've always said with Turo awareness in testing the product in many ways is the biggest challenge, repeat rate, NPS reviews are excellent. So David and team are focused at getting more people into the funnel and trying it and we're excited to see that play out. They also promoted Cedric Matthew to Chief Business Officer in order to improve pricing, matching and execution across the marketplace. These efforts have borne fruit with Turo returning to double-digit revenue growth year-over-year in the first quarter, really led by increases in volumes. Rental car market pricing is no longer a headwind, and the company really has a clear game plan to drive more new users in. And we think it's an experience that blows away any [indiscernible]. Barry Diller: If you asked us 6 months ago, I don't know whatever we'd say. I would have said okay, let's sell our interest in this. We're not going to increase it. We're not going to take over control of it, et cetera, et cetera. But it's now performing very well. I doubt in a year or 2 or 3, it will be part of this corpus because it will probably go public at some point or get sold by some strategic player or whatever, but it's now operating solidly. And my attitude is, unless somebody comes along and so it's a big little brick on our table, we'll keep it as it grows and it will spin itself out in some form, and we'll take the cash. Christopher Halpin: Yes. The only thing I'd say is I totally agree. They continue to improve gross margins and adjusted EBITDA margins solidly profitable with free cash flow. So full agree. Operator: Your next question will come from Ross Sandler with Barclays. Ross Sandler: Neil or Tim, just wanted to go back to the off-platform revenue. Could you just talk a little bit more about how you're diversifying the traffic to off-platform and what you're doing to kind of drive monetization and better margins in that business and kind of what you see for the medium-term kind of growth rate there. And then second question is somewhat related, but any update on the Google ad tech litigation like a time line for remedies and what we might hope to have as an impact to our business? Neil Vogel: Yes, I'll do the lawsuit piece, and then I'll let Tim go through the numbers. As we've said before, the lawsuit that you're referring to is sort of what people call the Google Ad Tech lawsuit, it's building on [indiscernible] that Google legally uses dominance to monopolize the ad server and ad exchange markets. We believe we can fully rely on the government's findings here, and we believe damages will be significant given our scale and level of participation in these markets. Barry Diller: I mean it's not really a lawsuit in the sense of law suit because the ruling has already taken place. They've already said that Google is guilty of this [indiscernible] other thing. We and a bunch of other people have based on that huge claims, I mean, they are [indiscernible], they are legitimately huge. I mean -- and to me, it's like, okay, we will just wait for this process, which I guess is like a year or 2 or something like that... Unknown Executive: We intend to invest between $10 million and $15 million in it this year. We expect that it will take the entirety of this year into next year optimistically to resolve in the first half of next year, unless we were able [indiscernible]. Barry Diller: Yes, I mean it's just a money trough. How big, we don't know. Ross Sandler: Yes. And then to transition to Tim's answer, by the way, very high margins. Unknown Executive: Yes, correct. That's correct. Barry Diller: You can walk across the street with your check, the cash [indiscernible]. Neil Vogel: I would like to catch that, [indiscernible]. I'll do a quick background on the off-platform and I'll let Tim take the numbers. The -- just if you zoom out, the reason why our offering [indiscernible] the reason why our off-platform business is working is if you zoom out, we bolted is because we have these terrific iconic brands. And since we bought Meredith 5 years ago, we've worked incredibly hard to put our brands in a position where they can do all of these new things and where their permission to come into people's lives different ways. And whether it's some of the inversion projects or whether it's things like our historical events and things we've done, we've got real momentum because our brands are so strong, particularly the 7, 8, 9 brands that we talk about the most. And I'll let Tim get into talking about the specific drivers, but this is the underpinning of everything we're doing going forward. Unknown Executive: as we were saying before, 41% of our revenue grew 24% in Q1. That revenue is comprised of licensing, which is everything from Apple News to our AI deals to content syndication, as we've been saying and Neil has said a few times, we're creating more content today than we ever have in the past and distributing it across more platforms with success than we've ever had in the past. What is unique to us, we think, as we've highlighted a little bit here, is we have the combination of brands, audience size and reach, data about those audiences. And in the current incarnation, a sales team to go out and access advertisers to sell into those audiences. And so that's where we can control our own destiny, and grow, again, the nonsession-based revenue streams at, we think, really attractive rates, and that's the future for us. And we -- and it's not all speculative. We actually did it in Q1. Operator: The next question will come from Justin Patterson with KeyBanc. Justin Patterson: Two for Neil, if I can. First, I would love to hear more about your top priorities for Decipher for the year? And then second, just as you step back and look at how AI has changed the traffic funnel, what are some of your latest learnings there and how you think you can continue standing up a durable business for the next few years? Neil Vogel: Sure. I'll do the AI question first, and then we can talk about the other question, Tim can help with that. If you look at where AI is for us from here, we feel very strongly about this. We have more opportunities going forward than we believe we have risks. If you go back in time 1 year or 2 years and you look at the risk of AI for us, they all had to do with search. And is AI going to disintermediate our audience sources. That already happened. And we came off the -- other side of it with a more diversified business and I believe is a stronger business. Now we're looking at AI as opportunity. And I'll just dovetail back to what Tim just said. We are making 50% more content than we made 3 years ago at the same cost, and I would argue at an incredibly -- at a way higher quality and everything is still made by humans. We are able to do that because all of our processes, we are able to streamline with AI. We are able to use AI and Decipher to really tighten our ad targeting. We're able to use AI in our commerce business to really understand what makes people respond to offers. And AI for us, and people -- we are embracers of the future. We are deeply unsentimental about processes of how we've done things. And we've taught our 3,500-person organization, how do you use AI, -- like we don't have an AI [indiscernible] it is your job in your seat to understand who AI applies to you, and it's really, really working. And the thing that people think is somehow AI is in congressive brands. What has happened with us is in a world where people's output is now increasingly confused as to, is this real, this is not really mistake. Brands are the -- they're there -- it's a value now. People trust us. They know what they're going to get. And we can now harness AI to make our brands and our brand offerings stronger. We think the opportunities are massive. And look, we are AI optimists at our place. And I think that is really important. And again, dovetails into all the things we're doing with inversion and all the things we do day-to-day to sell ads, like putting AI in your business when you have these incredible brands and they're all powered by humans is an incredible opportunity. Barry Diller: I think that's really well said. I will just add one thing about what I said earlier about what a wonderful situation is. I also have a natural hedge inside your own house. AI at MGM is actually meaningless. It is obviously being used internally to make the systems better in all sorts of ways. But nothing is going to get no AI until we get into the final simulation, whenever that comes. But nobody is going to get between a customer and one of our resorts is not possible to happen. And so it's this wonderful kind of hedge in the world. If everybody worrying about how AI is going to change the story their business, et cetera. At MGM, guess what, people are going to come to our places. There's not going to be a way for AI to in any way to disintermediate them. And I truly love that one. It's really the fundamental reason I got interested in that area is because I was worried a few years ago about all sorts of areas of ours being dependent upon other people's control and here is this place where if you offer customers a great experience they're going to come to it. All right, end of that. Neil Vogel: Quickly on the Decipher. Look, we're very optimistic about the Decipher. It really expands our TAM across the Open Web and CTV. And most importantly, it works. We have incredible first-party data. We have all kinds of AI powering going on, and I'll let Tim [indiscernible]. Unknown Executive: Yes, I just think I want to reiterate what you'll say is our capabilities are getting more sophisticated. We're getting our products are better. We have now our premium sales team selling it to existing advertisers. We have this M&I sales team selling it to the middle market independent agencies and political advertisers. We're really excited about it. And again, I reiterate what we said last time, we think it adds 200 to 300 basis points of growth to our growth rate back half of this year and into next year. Operator: The next question will come from Youssef Squali with Truist. Youssef Squali: So Neil, maybe just a follow-up to the advertising question. Can you maybe talk about the level of visibility you guys have in performance marketing and licensing revenues within people in particular? And any chance of seeing maybe additional licensing deals announced? And then Barry, given the very high free cash flow nature of the business and the cash you have on hand, et cetera, any interest in maybe starting a dividend to attract some yield-seeking investors at this point? Neil Vogel: I'll go first. I'm assuming you mean AI licensing deals, very quickly, these seem to be bucketing into 2 categories. One, the All You Can Eat deal, which is sort of like the foundational LMs like our Meta deal and like our OpenAI deal. And then there are the more marketplace deals like our Microsoft deal, which will be pay-per-use deals. We -- since we started locking traffic, we have found -- we've entered into very productive discussions with all kinds of players, both expected and unexpected in this market with the exception -- exception of Google. And what we are seeing is we're entering a phase of AI where the Internet -- the available source of information have been crawled and what's really valuable is people who are making new information. We make an awful lot of new information, and it's really valuable to people. So I would expect we will have more to report on this in the future. I've got nothing now [indiscernible] it's just -- it's also early. It's really -- also early on all of it. But the key thing we've done, and we believe this is the right thing to do is we want to be early and we want to seed at the table with everybody, and that is our take. And so far so good. We'll obviously keep you guys updated as things develop. Christopher Halpin: The only thing I'd add is the pivot, the strategic shift that Neil and Tim have already talked about of moving all of the content development overwhelmingly from evergreen to new content makes us even with so many other content sources getting washed out to see in the competitive pressures really positions people link even better with all of the AI models as a constant producer of new information, which is what they need... Unknown Executive: High-quality volume of quality... Barry Diller: Sorry. As far as the dividend is concerned, sure. I hope as we build up cash, I think we should be a dividend-paying operation. So I would expect that to happen in the future. Operator: The next question will come from Jason Helfstein with Oppenheimer. Jason Helfstein: I guess as a follow-on on capital allocation. Given the healthy forecast for free cash flow this year, should we just assume that, that is basically deployed between a combination of buybacks, MGM purchases and potentially a dividend? Or is there kind of a desire to see that kind of just build up on the balance sheet for optionality? Barry Diller: Well, I mean, listen -- no, sorry, let me start again, which is -- the answer is yes, which is we're kind of use our cash to continue to shrink the capitalization of this company opportunistically. I think we'll continue to invest in MGM. And yes, I would think -- I'm not so sure we'll do it within -- I don't people do it within the next few quarters. But sure, we will pay an appropriate dividend. I don't have any -- I think the investments we're going to make are going to be inside the operations of people. I don't see anything. We're not -- we're actually collapsing our -- we had a very large M&A group. We will have a very small M&A group out of this. I'm not seeing that as a -- like as we operated historically, we were out there for all of the opportunities that came along with being very early into e-commerce and Internet activity. So so we were always on the lookout, always in any sector, in any place. We're not that anymore. I don't want us to be bad. We have so much opportunity in-house. That's where we should direct our capital. Operator: And the next question will come from Matt Condon with Citizens Bank. Matthew Condon: I just want to ask on affiliate commerce growth. It seemed like you guys had a healthy quarter there. Can you just talk about the drivers and just the future potential there to sustain growth? Unknown Executive: I would just say that the commerce business has been remarkably consistent and resilient for quarters and really years. It's a testament to our team and their ability to drive growth, meaning [indiscernible] growth to recaptures, otherwise, that business wouldn't be growing. We're doing that by creating more [indiscernible] as Neil highlighted, and deepening the partnerships and relationships with the retailers. So there was an earlier question about visibility. We have solid visibility there. Obviously, the consumer is performing well, and we feel good about it and kind of sites. We have some new products coming out soon that we're excited about. Barry Diller: The only thing I would add is in by, and we'll see you in a while. Thanks, Chris again. So please [indiscernible] your income probably will be with us the next thing is that I hope that out of this in the coming days, we straighten out these numbers so that what was a very good first quarter won't be misinterpreted as something other than that, which it seems to have been at least overnight. Christopher Halpin: Which is the Care discontinued app. Barry Diller: Yes, yes, yes. Other than that, I wish you all well. Thank you all, and we'll see you -- well we don't see, but you'll hear from us. Neil Vogel: Thanks all. Unknown Executive: Thank you, operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Welcome to USA Compression Partners, LP First Quarter 2026 Earnings Conference Call. During today's call, all parties will be in a listen-only mode. At the conclusion of management's prepared remarks, the call will be open for a question and answer session. If you would like to ask a question during this time, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Thank you. And this conference is being recorded today, 05/05/2026. I would now like to turn the call over to Clint Green, President and CEO. You may begin. Clint Green: Good morning, everyone, and thank you for joining us. With me today is Christopher M. Paulsen, Senior Vice President and CFO; Christopher Wauson, Senior Vice President and COO; and other members of our leadership team. This morning, we released our operational and financial results for the quarter ending 03/31/2026. Today's call will contain forward-looking statements based on our current beliefs and certain non-GAAP measures. Please refer to our earnings release and SEC filings for reconciliation and definitions of non-GAAP measures and related risk factors. As we discuss performance, please note that the JW acquisition closed on January 12, and therefore, Q1 earnings exclude the impact of revenues and expenses for JW Power for the first eleven days of the quarter. Before we get into the quarter, I want to take a moment to recognize our team on safety. Our people go to work in the field every day, working around complex equipment, driving millions of miles a month, and the way they return to their family matters more than any financial metric we report. In 2025, our combined TRIR finished at 0.39, a 50% reduction from 2024 and well below the BLS industry average of 0.70, a benchmark we have now beaten for twelve consecutive years. We are proud of these results, and we remain committed to continuous improvement. Moving to the quarter, which included two integrations that established upward momentum for the company. First, we kicked off the integration of JW Power at a time when horsepower lead times continued to extend. Customer discussions commenced immediately upon closing, starting the process of onboarding new customers to the USA Compression Partners, LP platform. As of early March, we have integrated the combined operations organization and established a new reporting structure. Second, on February 1, our integration of legacy USA Compression data into a new ERP system was completed. Our respective integration teams worked long hours to enable a smooth transition of both, and I cannot be more appreciative of their efforts. Throughout it all, we have maintained our operational momentum while delivering DCF and leverage metrics that show meaningful year-over-year improvement to our unitholders. The company is now broadly diversified across every major basin, horsepower class, and customer type. In the last few months, we have contracted over 90% of our 2026 horsepower, which will more than double the new horsepower deployed in 2025. Additionally, we have continued the momentum in our small horsepower class with utilization up nearly 10% year over year. The introduction of JW Power's manufacturing capabilities is enabling us to manage a dynamic compression market differently than in the past. Certain new engine lead times have recently tripled from 50 weeks to approximately 150 weeks. And while historically we might hesitate to commit to the full horsepower cost that far in advance, we are now able to directly acquire highly marketable engines with optionality to package for our own internal contract compression needs or future resale to third parties. Engine costs represent approximately 25% to 40% of the total skid cost, with just a fraction of that cost provided as a deposit. In the event of an unexpected contract compression market shift over the next several years, we believe we could also divest those engines for other use cases, further reducing any unlikely downside exposure. Additionally, the diversity of our manufactured compression products, including mid-sized large horsepower, electric, and high-pressure gas lift, supports more competitive pricing for our customers while enabling us to adapt to the ever-changing marketplace. So far, the oil-directed rig count remains flat this year, but producers are showing more optimism looking out over a twelve-month horizon than we have seen for some time, reflecting a much improved commodity backdrop. The twelve-month oil strip has significantly lagged physical spot prices and arguably is underpriced for an immediate and permanent ceasefire, much less a long-term conflict. We believe spot natural gas prices do not reflect the LNG risk associated with the Strait of Hormuz. Finally, 2026. I will now turn the call over to Christopher Wauson, our Chief Operating Officer, who will provide additional insights to our current operations and our out-year growth plan. Christopher Wauson: Thanks, Clint. As of today, the operations and commercial organization have been integrated with both JW employees and legacy USA employees under new reporting structures consistent with a best-in-class approach, the longer-term result will be streamlined route optimization, customer contracts, vendors, inventory, safety protocols, and systems. As discussed in the prior quarter, we expect $10 million to $20 million of annual run-rate synergies by year-end 2027, and we are still tracking towards those estimates. The current new compression lead times have presented a new challenge for near-term business continuity and long-term planning for both contract compression and manufacturing. As a result, we have already placed orders for engines and package components for 2027 and engines for 2028 and a portion of 2029. Package component lead times remain well inside of engine lead times, but we will continue to monitor and place these orders when needed. These advanced planning efforts should enable new contract compression growth to stay largely consistent with 2026, in excess of 100 thousand horsepower each year. As far as our manufacturing book is concerned, we have some specialty horsepower slated for resale, but the vast majority is expected to go into our fleet. Our 2028 orders are nearly entirely weighted to large 3,600 series engines, which are the most desired by our compression customers while also having substantial optionality for sale should the market shift. We continue to have robust conversations across our diverse customer portfolio and, as Clint mentioned, we have contracted more than 90% of nearly 110 thousand new horsepower expected to be added to the fleet in 2026 and are presently in the middle of multiyear strategic planning discussions with some of our strongest customers to shore up our 2027 book. Notably, we experienced lower churn rates than expected in Q1, which is a reflection of the tightness in the current market. This backdrop, coupled with the idle units acquired from JW, positions us for outside horsepower growth in the back half of the year and into early 2027. Finally, while oil prices have moved up significantly in the last month, we are focused on minimizing cost increases tied to lubricants. If oil prices were to remain at current levels, we would expect much of that increase to show up in the second half of the year as our lubricant contracts renew. I will now turn the call over to Christopher M. Paulsen to discuss our financial results in detail. Christopher M. Paulsen: Thanks, Chris. For basis of comparison, our quarter and year-ago financials exclude the benefit of JW that closed on January 12. For Q1 2026, our income statement reflects the results of JW's contributions for 79 days in the quarter, and therefore our non-GAAP financial numbers, including EBITDA and DCF, reflect the same. By contrast, our non-GAAP operating metrics tied to horsepower, including utilization, average revenue per horsepower per month, and average active horsepower, are calculated based on month-end and therefore fully reflect JW's horsepower contribution for the quarter. As we highlighted in our December 1 deal announcement, while JW provides meaningful near-term accretion and immediate deleveraging, the company in aggregate also has lower gross margin than our legacy asset base, in part due to the manufacturing and AMS operations that contributed approximately 10% of legacy EBITDA. Turning the page to Q1 results, we increased pricing to an all-time high averaging $22.73 per horsepower, a 5% increase in sequential quarters and an 8% increase compared to a year ago. Average active horsepower ended at 4.438 million. Our first quarter adjusted gross margins came in at 64.4%. Regarding the consolidated financial results, our first quarter 2026 net income was $38.3 million, operating income was $91.4 million, net cash provided by operating activities was $86.1 million, and cash interest expense, net, was $47.1 million. Our leverage ratio at the end of the fourth quarter was 3.74 times. Turning to operational results, our total fleet horsepower at the end of the quarter was approximately 4.931 million horsepower, adding approximately 1.037 million horsepower as compared to the prior quarter, largely tied to the JW acquisition. Our average utilization for the first quarter was 91.9%, a decrease compared to the prior quarter after incorporating JW. First quarter 2026 expansion capital expenditures were $26.4 million and our maintenance capital expenditures were $9.2 million. Expansion capital spending in Q1 primarily consisted of new units, while maintenance capital activity was deferred for a few weeks in February due to the implementation of SAP on February 1. For the remainder of the year, most growth capital will be focused on new horsepower and reconfiguration, while maintenance capital will normalize towards our full-year projections. We continue to maintain our full-year adjusted EBITDA range of $770 million to $800 million, distributable cash flow range of $480 million to $510 million, maintenance capital range of $60 million to $70 million, and expansion capital range of $230 million to $250 million. As Christopher Wauson noted, we are nearly fully contracted for 2026 and are placing advanced orders to maintain full utilization of our manufacturing complex for several years. As stated in February, our near-term target is to maintain a 3.75 times debt to EBITDA, and we made significant progress towards this goal in Q1. While we hit this target for the quarter, we anticipate it will tick higher in Q2 as we take delivery of new horsepower, then trend back lower by year-end. Energy high-yield markets remained open and very resilient throughout the Iran conflict. Our improved leverage metrics put the company in a strong position to access capital markets later this year to the extent we want to provide more consistency in our debt tranche sizing and duration. This quarter was a whirlwind of activity for our operations and finance teams as we implement new systems with new assets and new faces. The execution was nothing short of exceptional as we laid the foundation for more acquisition opportunities to come. We will stay disciplined and evaluate opportunities that fit with our financial goals and core competencies. In the near term, our business will be improved through a gross margin push, working to improve structural cost and the efficiency of the JW organization in the face of an inflationary oil environment. And with that, I will turn the call back to Clint for concluding remarks. Clint Green: Thanks, Chris. This business demands that we stay close to our customers every single day, understanding their needs, anticipating where they are headed, and making sure we are ready when they call. The discipline does not change with the commodity cycle. What is changing is the opportunity in front of us. The demand for natural gas, both to move it and to power the infrastructure around it, continues to grow, and we feel very good about our position in that story. The relationships we have built with our suppliers combined with our manufacturing capabilities give us a real advantage in an environment where equipment lead times remain extended. We intend to use that advantage. We are bullish on contract compression overall, and I am excited about where we are headed. We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 again. Your first question comes from the line of Nate Pendleton with Texas Capital. Please go ahead. Nate Pendleton: Good morning, and congrats on the record results. So you had a really strong quarter across the board. Can you talk for a moment how this compared to your internal expectations following the JW integration? And then maybe your decision to keep the guidance the same here in lieu of those results. Clint Green: Yeah, Nate. Thank you for that. I mean, I feel like we are in line with where we thought we would be as we put this model together late last year and decided to move forward with the acquisition. We have already worked through some of the operational changes in the structure. We are working hard on our routing and ways to save going forward. But overall, we are really happy with where we are at in the process and excited about where we are headed by year-end and then through the future. Nate Pendleton: Got it. Thanks, Clint. And this is my follow-up maybe for Christopher M. Paulsen. I believe last call, you talked about looking for a distribution coverage expanding beyond the 1.6 times marker as sparking some conversations. With coverage now over 1.7 times, can you talk about how you weigh adding to an already strong distribution versus other uses of capital? Christopher M. Paulsen: Sure, Nate. Just before that, just to add a little bit to Clint's comments as it relates to the JW transaction as well. I think we mentioned this before, but we have been generally very pleased with the sophistication of their operations. As we start to embark upon another SAP implementation for their operations in particular, we are seeing some things that we want to adopt in our own, which is fantastic and which is probably expected from a company that has been doing it for 60 years. So there are areas of manufacturing that are done exceptionally well, areas as it relates to customer interaction and outreach that have been done exceptionally well, the retail side of the business. So I will just point to that as well. But as it relates to your distribution question, we were pleased to see that number tick up to 1.72 times. Part of that relates to the fact that we had a bit of a partial quarter. We ultimately had lower maintenance expenditures. That was due to the SAP implementation itself. We did a couple weeks of paper stacking as it relates to the transition. We really had kind of a quiet period for about a week and a half where we told our folks to limit their maintenance expenditures, and so as a result, our maintenance expenditures were down, and therefore, DCF ticked up. Now that being said, we also did not account for the DCF over those eleven days while fully accounting for maintenance capital. So I think net-net, we feel really good about setting up for a durable and really a disciplined approach to distribution over time and our distribution policy. We want to see something sustained for a period of time and continue to hit our financial metrics in terms of leverage, but also continue to see and repeat these types of numbers before I think we would begin to approach the conversation about any change in distribution policy. Nate Pendleton: Understood. I really appreciate all the detail. Congrats again. Clint Green: Thanks, Nate. Operator: The next question comes from the line of James Rollyson with Raymond James. Please go ahead. James Rollyson: Hey, good morning, gentlemen. Clint, you talked about lead times stretching out again. It is pretty remarkable to see how that has spread to numbers we have never seen before, and it seems you are pretty well ahead of the game by placing orders for engines out multiple years. I am curious how you are seeing your customers and maybe even competitors in terms of how they are set for planning out this far in advance. Because it was not long ago that customers were caught by surprise when, a couple years ago, lead times were beyond a year, and now we are almost three years. So I am just curious how you think the customer base and the industry is set for planning on these extended time horizons. Clint Green: Yeah. It was a little bit of a surprise at one point with the lead times. We were running around 55 to 70 weeks just depending on the day, and then overnight, Cat went to 100 weeks or 108 weeks, and that is when we got in gear pretty quickly to try and figure out how we were going to cover that. So we got creative for 2027 and were able to pull some stuff in, and then for 2028 we decided to go ahead and make that engine order. The customers, I think they are dealing with it just like we are. Thankfully, we are able to provide for our customers with our plans for the future. And competition, I have not really heard what they are doing on any front. I am sure they are trying to figure it out just like we are. I think our capital program has gone from a one-year program to probably a three-year outlook and taking pieces of it at a time as we have to order engines. Now, a lot of it is driven by the generator orders, because you see that Ariel and cooler manufacturers, those lead times are still at 25 to 30 weeks. They are not stretched way out. So I think everybody is taking it in stride, and we are trying to make sure our customers are taken care of. James Rollyson: Yeah, well, kudos for being ahead of the game. Then I guess there is a follow-up. Maybe you guys can talk about OpEx, or mainly higher oil prices that will drive lube oil and fuel costs up to some extent in the second half if oil prices stay up here. Curious how you think about your ability to pass that on given how tight the market is and maybe the lag effect of being able to price that on. Obviously, you did not change your guidance, so it is not impacting your margins at this point, but just curious how you are all thinking about it. Christopher Wauson: Yeah. No. Thanks for that. One thing with inflation, with oil prices, all of our costs are going up. So we are continuing to drive efficiencies in the organization to protect that margin. And as contracts expire and renewals come up, we do plan to address that accordingly. So it is kind of twofold. We are going to manage it as best we can and continue to drive for efficiencies. That is the biggest win here. James Rollyson: Appreciate the color, guys. Thanks. Operator: The next question comes from the line of Elias Max Jossen with JPMorgan. Please go ahead. Elias Max Jossen: Hey. Good morning. Just wanted to start on the outlook for new unit procurement. It seems like you have got orders placed for the next several years. So how should we think about the cadence of unit additions over these next couple of years? I know some of your peers have given an outlook through the decade, but just curious how we should think about new units in the fleet. Thanks. Christopher Wauson: One thing we are trying to do is stick to that 100 thousand-ish horsepower of growth year over year, maybe even up to 125 thousand, just depends on how things shake out. But that is the beauty of our manufacturing business. We can control that a whole lot better now. It is a lot more optionality. It enables us to really make those decisions and do what is best for our customers and the organization. Clint Green: Yeah. Hey. This is Clint. I want to add on that. I talked about a three-year capital program, and we are really only talking about the cost of the engine for that three years. We have the engines ordered, but we will wait and monitor lead times on compressors and coolers, and that way, we can order those, you know, within 40 weeks or something like that to have them in time for the engines to arrive. So I want to make sure everybody understands we are not committed to the full compressor cost going out three years. It is just a deposit on the engine so far. Elias Max Jossen: Got it. That is a helpful clarification. And then maybe shifting over to some of the stronger pricing we saw this quarter as well as the utilization noise from the JW integration. Can you help frame run-rate levels on both of those metrics going forward? Should we expect continued pricing growth, and how will fleet utilization, you think, ultimately shake out once you are fully integrated? Thanks. Christopher M. Paulsen: Hey, Eli. So as it relates to the first part of that question, on the utilization front, the utilization is reflective of the fact that we brought in over a million horsepower and essentially got that optionality, I think, on the cheap. As we mentioned in our acquisition call, we noted that we felt like there were 900 thousand-plus readily deployable. We have taken the initial pass through that fleet, and that is why you see the over a million horsepower within our total count. We will continue to review that and look more deeply into that total capacity. And part of that will be as we continue to increase orders, increase our small horsepower utilization—as we noted, we increased it over 10% year over year—we see that potential to improve from here. Those are some of those units that we will evaluate. So presently, the horsepower utilization that you see, I think, is a baseline for new run-rate. I think it can only improve from here, both in terms of small horsepower and also as we dig deeper into some of that capacity. We may ultimately decide that that capacity is no longer deployable within our operations but can be used on other operations elsewhere. As it relates to the revenue side of the question, the revenue has continued to improve as we know—5% to 8% in terms of revenue relative improvement. We see that continuing to improve consistent with the way in which we have approached it in the past. As we see cost increase, many of our contracts, and I should say most, are CPI-U based. We have seen CPI-U tick up almost 100 bps from not very long ago. So one, we will have the CPI-U support as it relates to revenue. But two, we are partnering with our upstream and midstream companies. We always do just that. They understand through any cycle that there is a give and take, and we recognize that too and have partnered as it relates to the business and would anticipate that as our costs increase, there will be some relative cost increase on the other side of that. We just need to have constructive conversations. And that is a big part of having great relationships within the business and being around since '98 and having nearly two decades of relationships with our top 10 customers. Elias Max Jossen: Got it. Super helpful. Leave it there. Thanks. Operator: And once again, if you would like to ask a question, please press the star 1 on your telephone keypad. The next question comes from the line of Douglas Irwin with Citi. Please go ahead. Douglas Irwin: Hey, team. Thanks for the question. Maybe one on JW Power here. It sounds like the manufacturing business is already maybe changing the way you approach your growth backlog a little bit. Just curious, now that you have had a bit more time with these assets under your belt, if there may have been any other opportunities or surprises you have been able to uncover with regard to synergy opportunities that maybe you did not fully appreciate beforehand? Clint Green: Yeah. This is Clint, Doug. Thanks for your question. I mean, we fully expect to—or we hope to—find some diamonds in the rough that we were not expecting. Definitely, the manufacturing business, the capacity there is between 100 thousand and 125 thousand horsepower in that facility, which is kind of what we expect to grow or plan to grow—maybe a little north of that—over the next few years. So we feel like that will give us a lot of flexibility. The operations side of it—being in every basin now and having facilities that are across the road from each other in several spots—there may be some synergy opportunities there. We think there is more to come. We are just trying to dig through all the opportunities and figure out which ones really come to life. Douglas Irwin: Got it. That makes sense. And then maybe just a higher-level one as a follow-up. Looking at Slide 4 here in your slide deck, you call out a need for over 10 million incremental horsepower by 2030, which is obviously a huge number. Just curious what you see as your role in meeting that demand moving forward. Do you potentially see a need to lean even further into growth relative to what you already messaged here over the next couple years? And if you can, maybe talk about what basins on that map you see yourselves as having the biggest advantage in? Christopher M. Paulsen: Yeah. This is Chris. Great question. As it relates to that, part of it is what is the right forecast? We are always actively reviewing the overall forecast for natural gas, understanding the LNG markets and data center markets—they are exceptionally fluid, as you well know. Ultimately, we feel really good about the forecast that was put forth on that particular slide and the forecast as it relates to those basins. It is all related to the relative natural gas price as well. Ultimately, the Rockies, for instance, is an area that we would say at a higher gas price would probably be in a flattish range, whereas I think the rest of those areas are well established in terms of their growth trajectories at current pricing, if not above. As we think about our place in this trajectory, we want to be in a position to maintain our current standing and our current market share. We know that in areas like the Northeast, we have an outsized market share, and it is an area that has returned to growth. There are really fundamentally sound measures that support that 5 to 7 Bcf. I think if we see coal-to-gas switching, that number increases from here. That is really based on announced projects, and there is still probably more to come there. As it relates to the Gulf Coast and the Permian that are going to make up more than half of that, we are well situated there. We are a big player in the Permian. We are a huge player in the Gulf Coast and Mid-Con, and we want to maintain our market share, if not grow it, in those respective areas as well. Douglas Irwin: Awesome. Thanks for the time. Clint Green: Thank you. Operator: And the next question comes from the line of Analyst with Stifel. Please go ahead. Analyst: Thank you. I just wanted to follow up on that last question. Listening to the Energy Transfer call, they were talking about the U.S. becoming a preferred supplier to the global outlook when everything settles out from the war. As you think about that, should we expect to see an acceleration of your business? Clint Green: We fully expect so. This is Clint. If you look at the market, there is 15% to 20% of the LNG capacity effectively locked in because of the Strait of Hormuz right now. JKM prices yesterday were at $16, and U.S. gas prices are at $2.80 to $3. If you back up to January and February of this year, JKM was $9 to $10 and U.S. Henry Hub pricing was $2.80 to $3.20. So even though JKM has gone up, we have not seen the pricing increase here in the U.S. Part of that is takeaway capacity. By the end of the year, we are going to have a lot more capacity coming out of the Permian. There are several LNG facilities either expanding now or under construction. If you look at the U.S. Department of Energy’s website, they show five of those facilities will be online within the next 24 months. With all that said, if gas takeaway is able to get out of the Permian and get to the facilities on the Gulf Coast, and is able to get on boats and go across the ocean, the demand for U.S. natural gas is going to go up. We could not be more excited about the natural gas story right now, whether it is dry basins or the Permian or wherever. Any of that growth, with us being in all the basins, means that we have to grow with it. So we are super excited about the prospects of the future here. Analyst: Appreciate that. And then let me ask you about the extended lead times. When you look at the 3,600s and you are talking, I believe, 2.5 thousand horsepower and up, is that all being driven by AI backup power or primary power, and so you are competing against that? Is that what is really taking the lead times up, or is it something else? Clint Green: Well, it is both. It is natural gas-driven engines that are generators that are driving that market up significantly. A lot of people are ordering generation. Then you have folks ordering natural gas compression engines to supply the gas to the generators. Cat really does not have big plans to expand their manufacturing facility in the near future for the 3,600 series, which is the 4.5 thousand up to 5 thousand horsepower. Those are the drivers behind it. I think we are to the point now where we are starting to look at other engine manufacturers' options, whether it is domestic or international, because I believe there is a hole that we have got to start filling in the future if this is going to continue out. Operator: Thank you. And there are no further questions at this time. I would like to turn it back to Clint Green for closing remarks. Clint Green: Thank you all for joining our call today. As always, we are deeply appreciative of our employees and the stakeholders that enable us to conduct our business every day. With that, we want you all to have a great day. Thank you for joining, and see you next time. Operator: Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.
Operator: Welcome to the Powell Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star and then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would like to turn the conference over to Ryan Coleman, Investor Relations. Thank you, and over to you. Ryan Coleman: Thank you, and good morning, everyone. Thank you for joining us for Powell Industries, Inc.'s conference call today to review fiscal year 2026 second quarter results. With me on the call are Brett A. Cope, Powell Industries, Inc.'s Chairman and CEO, and Michael W. Metcalf, Powell Industries, Inc.'s CFO. There will be a replay of today's call available via webcast by going to the company's website, powellind.com. A telephonic replay will be available until May 12. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, May 5, 2026, and, therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results, that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials, and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I will turn the call over to Brett. Brett A. Cope: Thank you, and good morning, everyone. Thank you for joining us today to review Powell Industries, Inc.'s fiscal 2026 second quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. The Powell Industries, Inc. team delivered another solid quarter of operational efficiency and order growth, as the momentum we experienced at the start of our fiscal year continued through the second quarter. Activity levels across each of our core end markets remained healthy, with notable strength in the quarter from liquefied natural gas projects, a mix of electric utility distribution and generation projects, and also data center projects within our commercial and other industrial market sector. Revenue in the quarter grew a steady 6% compared to the prior year, and continued solid project execution across the company delivered a gross margin of 29.6%. We recorded $490 million of new orders in the quarter, bringing our midyear total to nearly $1 billion in new awards. I would also note that our order book in the quarter continued to be very well balanced across the markets in which we compete. During the quarter, we were awarded two mega projects, one for a data center and a second for an electric utility generation project. Each of these projects is in excess of $75 million in value. The balance of the order book in the quarter was comprised of a higher number of small- and medium-sized projects. Our backlog now sits at $1.8 billion, 12% higher than the prior quarter and 33% higher than one year ago. The growth in our backlog now provides visibility well into our fiscal 2028. The composition remains healthy with a mix of projects of varying sizes that will help maximize productivity across our manufacturing plants. As of quarter end, the electric utility market represented 30% of our total backlog, while the oil and gas market, excluding petrochemical, and the commercial and other industrial markets each accounted for 29%. The diversification of the business in the electric utility market and more recent expansion of our commercial and other industrial market, anchored by a demand driver from data centers, are contributing to reduced cyclicality in the business, allowing us to plan beyond the current cycle and invest more broadly alongside our customers with greater visibility. At the same time, our outlook for our core oil and gas market remains strong. We are in the initial phase of a multiyear buildout of LNG export capacity. We believe the structural cost and competitive advantages possessed by U.S.-based exporters has been elevated by the risk of multiyear-long capacity impairments across the international markets and the need for importers to diversify and replace those volumes. We are cautiously optimistic that the petrochemical market is in the early stages of a cyclical inflection after several years of lower activity levels. We are seeing some activity in the gas-to-chemicals market and are further encouraged by recent upward price revisions within the global polyethylene market. I would like to take a moment to mention a commercial development that took place subsequent to quarter end. I am very pleased to share that Powell Industries, Inc. was awarded a mega project for the first phase of a new greenfield data center. The scope of this award is in support of a behind-the-meter design for the first phase of a planned multiphase campus. This project award is in excess of $400 million. This project now marks the largest project award in Powell Industries, Inc.'s history. This award is a testament to our employees, our culture, and the entire Powell Industries, Inc. team across the company as we assembled a multidivision, multicountry execution plan to meet the demanding timeline on this project. To that end, recent order trends, our market outlook, and our continued organic product development continue to support prudent additions in manufacturing capacity. Last quarter, we signed a lease for incremental space located near our Ohio facility. This past quarter, we leased office space in the Houston metro area, which will serve as a second satellite engineering center. This center complements our initial satellite engineering office that we announced and opened last year. This second center is geographically located to further enhance our ability to add critical members to our world-class electrical and mechanical engineering and design teams. In response to the growth of our backlog, we are evaluating a smaller leased facility of approximately 50 thousand square feet near our Moseley campus. This space would help support a new $8 million investment in fabrication equipment for short-term rapid expansion of our metal fabrication capacity. We have previously shared our efforts to evaluate a larger investment in a facility that would require $70 million to $100 million of capital and provide upwards of an additional 250 thousand to 300 thousand square feet of factory capacity. While we continue this assessment, we are currently evaluating complementary options for bridging between short-term requirements via a leased facility versus a somewhat longer term of a greenfield facility buildout. We are being very thoughtful throughout this process and expect a decision within the next few quarters. Meanwhile, the expansion of our Jacinto Port facility is progressing on schedule. This incremental 335 thousand square feet will be critical to ensuring our ability to support all of our end markets, but specifically by providing our oil and gas customers with a premier domestic facility to produce engineered-to-order power distribution solutions for both on- and near-shore projects as well as continued support for offshore applications. Operationally, our teams across our facilities are rising to meet the challenge of accelerating growth. We remain disciplined on the commitments we have made to our customers while staying focused on continuous improvement and driving incremental efficiencies throughout every step of our operations. As noted earlier in my comments around the recent large data center award, Powell Industries, Inc. has a market-leading strength that is inherent in our people and internal collaboration. When our teams across our North American facilities come together, we are able to leverage our substantial footprint to tackle large challenges either for a single project or a broad step-up in market demand as we are currently experiencing. Critically important to our growth and future needs, I would also like to call out the increased efforts of our strategic sourcing and supply chain teams. It is essential that our team engages our partners to both broaden and deepen those relationships and optimize our supply chain in support of our future growth. On the M&A front, we continue to evaluate a growing pipeline of inorganic opportunities that complement our organic initiatives and better position us within key markets. Candidates include complementary products and/or capabilities to our current portfolio or are oriented toward building out our services franchise. Along these lines, our recent acquisition of REMSDAQ continues to progress well and has quickly proven synergistic and accretive across the company. Lastly, pursuant to our ongoing efforts to build a stronger, more diversified business, we have recently begun investing in resources to build a wider funnel of government-related work, including U.S. military and defense applications. These are markets with secular, long-term growth drivers that typically carry recurring revenue profiles, which would be conducive to growing our services franchise. We are in the early days of this effort but believe our U.S.-centric supply chain, operations, and workforce leave us well positioned to play a critical role within the markets that support our national security and defense. On a related note, I would like to briefly commend the White House's recent presidential determination under Section 303 of the Defense Production Act, which formally designated both substations and switchgear, among other electrical products and their upstream supply chains, as essential to national defense. Ensuring the domestic production of critical electrical gear is essential to America's ability to deploy large-scale grid infrastructure, and the presidential memorandum authorizes the Department of Energy to expedite procedural requirements and immediately deploy federal capital to expand domestic grid manufacturing capacity. In summary, we remain very pleased with our financial performance for the first half of the year and are encouraged by the commercial dynamics that we continue to see across the markets we serve. With that, I would like to turn the call over to Mike to walk us through our financial results in greater detail. Michael W. Metcalf: Thank you, Brett, and good morning, everyone. In the 2026 second quarter, we reported total revenue of $297 million compared to $279 million, or 6% higher versus the same period in fiscal 2025. New orders booked in the 2026 second quarter were $490 million, which was nearly double the orders booked in the same period one year ago, and included two mega orders, each with an order value exceeding $75 million. The first mega order reflects the largest utility order that the business has ever recorded and is for a large generation facility in the Eastern United States. The second mega order in the quarter for medium-voltage electrical distribution equipment is destined for a data center in the Central United States. As a result of the strong commercial activity across our key end markets, book-to-bill ratio for both the second quarter as well as the 2026 first half is 1.7 times. The continued momentum across all end markets, particularly domestically, and the resulting orders volume in the second fiscal quarter elevated our backlog to $1.8 billion, a 33% increase, or $438 million higher versus the same period one year ago and $189 million higher sequentially. The composition of our backlog continues to diversify, with our core industrial end markets across petrochemical and oil and gas representing 33% of the total backlog, while the electric utility and commercial and other industrial markets represent 30% and 29% of the $1.8 billion of backlog, respectively. As Brett mentioned, in early April, after the close of our second fiscal quarter, the business secured a mega order in the data center end market with a value in excess of $400 million. This order value is not reflected in either the orders or backlog numbers for the 2026 second quarter, and will be included in our fiscal third quarter reported numbers. Turning to revenue, compared to the 2025 second quarter, domestic revenues were higher by $4 million, or 2%, while international revenues were up by $14 million to $64 million, primarily driven by the offshore projects that are being executed in the Far East and Africa as well as an uptick in project volume across our U.K. operation. From a market sector perspective, revenues increased 35% in the commercial and other industrial market versus the 2025 second quarter, while the electric utility and the oil and gas markets increased 14% and 11%, respectively. Offsetting these increases, the petrochemical market declined by 37% versus the same period one year ago on the softness across this end market over the past several quarters. The light rail traction power market was lower by 10% on relatively light volume as a percentage of the total business revenue. Gross profit increased by $5 million to $88 million in the 2026 second quarter versus the same period one year ago. Gross profit as a percentage of revenue was slightly lower by 30 basis points to 29.6% of revenue versus the same period a year ago, and was 120 basis points higher sequentially. Margin rates exiting backlog continued to benefit from strong execution and volume leverage across all of the Powell Industries, Inc. divisions, with favorable project closeouts contributing roughly 90 basis points of margin tailwind in the 2026 second quarter. Selling, general, and administrative expenses were $20 million in the current period, an increase of $4 million compared to the same period a year ago, primarily driven by higher compensation expenses across the business. SG&A as a percentage of revenue increased by 90 basis points year over year to 8.7% in the current fiscal quarter, but declined sequentially by 130 basis points reflecting a higher revenue base in the 2026 second quarter. In the 2026 second quarter, we reported net income of $45.9 million, generating $1.25 per diluted share, compared to net income of $46.3 million, or $1.27 per diluted share, in the 2025 second quarter. On 04/02/2026, the company effected a three-for-one forward split of its common stock and proportionally increased the number of shares of authorized common stock from 30 million to 90 million shares. This was at market open on 04/06/2026. Share and per share amounts disclosed have been retroactively adjusted to reflect the stock split. During the 2026 second quarter, we generated $51 million of operating cash flow, principally driven by higher earnings generated in the second fiscal quarter. Investments in property, plant, and equipment in the fiscal second quarter totaled $1.8 million, reflecting modest capital spending on equipment maintenance and production assets, as well as capital expenditures related to the Jacinto Port expansion project. The majority of the $12 million to $13 million planned investment to upgrade the Jacinto Port fabrication yard is expected to be incurred during the 2026 fiscal year. At 03/31/2026, we had cash and short-term investments of $545 million compared to $476 million at 09/30/2025, and $501 million at 12/31/2025. The company does not hold any debt. Looking forward, as we move into the back half of 2026, we remain encouraged by sustained commercial activity across our core end markets. Coupled with our continued focus on execution, our ability to leverage volume across our global manufacturing footprint, and the size and quality of our backlog, Powell Industries, Inc. is well positioned to deliver strong cash flows and earnings performance. We will now open the call for questions. Operator: To ask a question, please press star and then one on your telephone keypad. 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 and then two. At this time, we will pause momentarily to assemble the roster. We are showing the first question from Tomo Sano with JPMorgan. Please go ahead. Analyst: Hey, good morning. Congrats on the quarter. Given the strong $490 million in orders booked in Q2, and then with the addition of the $400 million-plus data center orders, how should we think about your order outlook for Q3 and beyond? And also, in light of this, how do you plan to manage the associated increases in SG&A and R&D expenses, please? Brett A. Cope: Tomo, I will take the first part of that and have Mike jump in on the SG&A side. The outlook is strong. Activity entering Q3 shows no letup, just as in the prepared comments. We started at the beginning of the year with Q1 flowing into Q2. We feel good about all three of our core drivers in the commercial and other industrial market, which has really blossomed over the last two years; oil and gas, which we are built for with a very solid outlook; and I love the utility space, and we are hunting hard in that space. It has always been the distribution side, but now with the uptick in generation, that is business that we want as well. The capacity adds that we are doing, the incremental so far, and the larger one that is under evaluation, align with that. The data center order noted in the prepared comments was a team effort. It has roughly a two-year burn; it will run through fiscal 2028. As we typically share, we are very thoughtful about our schedules, and we feel good about how it lays in across all of our facilities and meeting the commitments we have made on that job. On the cost side, we are making some investments in the business. We have largely invested in some of the strategic pillars that you find on the investor slides, especially around service and automation. On the heels of the acquisition of REMSDAQ, we have added resources in the United States to start expanding that business, along with some synergistic adds we found in the data center market in the short term. We are still progressing our medium- and long-term plans that align with the reason we bought the business to begin with, which was to expand in the utility market. Michael W. Metcalf: Good morning, Tomo. With respect to SG&A costs, they continue to trend in the upper single digits as a percentage of revenues as we invest in some of these new programs that Brett alluded to. The increase on a year-over-year basis is driven by higher base and, to a lesser extent, variable incentive compensation expenses in the first half, in addition to the REMSDAQ acquisition. Remember, for the first half of last year, we did not have REMSDAQ in the numbers; this year we do. As we focus on growing the business organically and standing up some of these new capacity adds to address the market demand, while in addition investing in new initiatives such as the government initiative that Brett talked about in his prepared comments, these are investments that we are making in SG&A from a people and infrastructure perspective that we feel will generate a positive return as we look forward. On R&D, it is trending higher, which we view as favorable. We finished the quarter at about 1.4% of revenues, and you can expect this to probably hold in the range between 1% and 1.5% as the team ramps up the organic initiatives to develop and commercialize new products. Analyst: Thank you, Brett and Mike. And just one follow-up, if I may. Your strong core engineering capabilities, along with execution strengths such as ETO and key systems, have clearly earned customer trust. How do you view the evolving competitive landscape given increasing demand and expanding supply? What steps are you taking to maintain your competitive edge? Brett A. Cope: It has become much more competitive the last couple of years. There are a lot of new entrants, some new private equity money coming in and trying to build up new models. They are slightly different than what we do, but everyone is playing in the same general area. Powell Industries, Inc. takes pride in the fact that we have a long-tenured group and a very family approach in the way we compete. As noted in the prepared comments, we are adding a second center here in Houston to attract additional talent to the team, and we think that will prove fruitful in the next couple of quarters. We are also reengaging our offshore centers, expanding their capability, doing training, and investing there to ensure that we have options offshore as well. Buried within the whole model, in the data center and discrete commercial markets, we have talked about what the engineering load will mean to power this cycle that is going to be a lot more product-centric. We are still in the early innings, but we are starting to see that around the company. Mike and I just finished our spring operational tours, and I can share that we are seeing some nice engineering efficiency on these large jobs in the data center market, which will reduce the burden and allow us to make some adjustments in how we allocate our resources going forward on these different segments. That is an encouraging sign we suspected, and we are starting to see early returns to that thesis. Analyst: Hey, thanks for taking the question. Maybe a follow-up on that $400 million-plus order you got in April—fantastic. Is that all outside, or is there some inside the four walls as well? And you mentioned first phase and potential for additional phases—maybe start there. Brett A. Cope: Hey, Chip. Good morning. Fantastic opportunity. As you have gotten to know our model, when you get in earlier, given our strong engineering capability and our ability to work with our clients and really effect a great solution regardless of the market, that is exactly what this was. We were brought in early on a behind-the-meter project. It is not a simple job—they are generating on-site and there is some complexity around that. Again, that fits us very well. The initial award is all outside the data center. It is sizable—gigawatts in the initial phase—and there are multiple planned phases that we are anxious to see progress over time. We are certainly hopeful that they will. It is in the NeoCloud space. We think we will get a shot at the internal side of the data center on this one. There is no guarantee today, but we will do everything we can to put our best foot forward as this evolves now that we are on the early phases. We are following that commercially to see if we can get that over the line. Analyst: Excellent. And, Brett, two more on that one. Margin implications, given it is such a large order, and then the timeline being pretty quick—how are you thinking about execution risks and how will you manage that? Brett A. Cope: I think the margin potential fits with the comments made today and on earlier calls. I definitely believe there is opportunity here as we unlock our product-centric models as they develop across the company. Once you do the initial design, it is a multiproduct program. It is quite wide-reaching across the different products we offer at Powell Industries, Inc.—a mix of voltages, quite a bit of 15 kV, a lot of 38 kV, both primary switchgear as well as secondary switches that we produce here, along with the CableOS product in Chicago. It touches just about every division in the company in the North American footprint, which is why in the prepared comments we highlighted how we put the team together. For each one of the divisions, we will unlock some potential as we ramp up volumes. On timing, it is not $400 million over the next five years; it is a two to two-and-a-half-year buildout because we were able to use the incredible footprint that we have in the company. It was a real team effort. We came together and broke the order apart. We have done that in the past on other jobs. I go back to Hurricane Harvey where a job came in and the client needed it really quick. That is a super exciting competitive advantage that Powell Industries, Inc. has—our footprint is so similar from factory to factory with metal fab and our processes that we can lever that in times of need or market demand, as we are seeing now. That is absolutely what we have done here. We are excited to have earned the award and anxious to make it a success and, as you noted, see the additional phases in future years. Analyst: If I could sneak one last one in—around capacity, you outlined where you are going and the potential to grow capacity. Given strength across all your markets and data center in particular, if you were to see similarly sized opportunities, what is your ability to meet those as they come along? Brett A. Cope: We are definitely reacting, thus the comments in the prepared remarks. Along with any job, when we evaluate schedule, we look at everything all the way down to supply chain. We are clearly adding short-term capacity here in Houston, especially around what we can control on the metal fab side. While the organic build continues, we are looking at a pivot in the near term to maybe add a larger leased space that is a little bit more efficient. There are a lot of builds in different locales, including here in Houston and some other commercial centers in North America, where things are already there, and with minimal modification, we can get them productive quicker. If and when the next one comes, we could follow the same model. The constraints would be people and supply chain, which are not easily unlocked, but we would attack it with the same vigor that we attacked this one. Mike and I are very involved in the supply chain side, and the whole team has gone out over the last couple of quarters to really engage it much better, to ensure that as we make our schedules on our proposals and make firm commitments, we are backed by supply chain so we do not have a miss there. As long as we can unlock that, it will come back to just attracting talent and getting them trained and into the Powell Industries, Inc. model to execute. That would be the number one concern moving forward. Analyst: Yes, thank you. Good morning. My first question is on pricing power. Brett and Mike, you talked quite a bit about strong markets, but in your commentary, you mentioned pricing is stable, broadly keeping in line with inflation. Why are we not getting more pricing if the markets are as strong as they are? Brett A. Cope: We are getting some price, Manish, for sure. In certain product areas that have become constrained in the demand–supply curve, we are absolutely moving up price incrementally in those markets across all three verticals. We are very sensitive to where you can push price and where you need to hold your ground. Between price and efficiency gains, as we start to build our plans for 2027 and beyond, we will get a good feel in Q4. I do not think it will come out so much in the numbers in Q4, but internally we will start to see it. Going back to the earlier question on our operations reviews, we are seeing efficiency build, and I think that will come out as price. We will be able to better report on it as we hit the end of this fiscal year and prepare into 2027. Analyst: My other question pertains to you taking on larger, more complex projects. How should we think about the cadence for margins going forward? And then more specifically on the $400 million-plus award for the data center—was that a solo award, and how does that change your perspective on the TAM for Powell Industries, Inc. in the data center market? What percentage of market share is reasonable that you can achieve? Brett A. Cope: Those questions go together. On this particular job, we really do well on the complex power story problem, and this one has a degree of complexity that we had not seen in some of the other data center jobs that we have been building our market segment on. We got involved early. There is a unique complexity beyond the behind-the-meter design that is akin to a power island that we might see on an industrial facility or even an offshore platform, where you are generating and distributing load locally. These behind-the-meter projects have a higher degree of complexity around the gear and the automation, and that fits us very well. So the TAM on behind-the-meter is going up for Powell Industries, Inc., beyond a straight utility connect. We are interested in both—it is not that we will not pursue both models—but the behind-the-meter opportunity for Powell Industries, Inc. is clearly going up with this complexity equation. Depending on how they are generating—whether it is a mix of resources or renewable—there are a lot of ideas we are seeing commercially. Our excitement for that potential is growing. And yes, the $400 million award we got post quarter end was one purchase order. Analyst: Thank you. Operator: We have the next question from the line of Alex Rygiel from Texas Capital. Please go ahead. Analyst: Thank you. Just a maintenance item here first. Backlog as a percentage of total by market—could you provide that once again? Michael W. Metcalf: Yes, sure, Alex. As we deconstruct the backlog segmentation for Q2, roughly 5% was petrochemical, 30% was utility, 6% was traction, and 29% was commercial and other industrial, which includes data center, which is in the low twenties as a percentage of that 29%. The rest is other industrial and energy-related categories. Analyst: Very helpful. And then as you look into the data center market more broadly, how many customers are you working for right now, and how many customers are you talking to right now? You can generalize, but I am trying to get a sense of how broad your sales effort is into that segment. Brett A. Cope: Hey, Alex. It is becoming broader every quarter. If you go back a couple of years ago when data center was 7% of the backlog and then 15%, 22%, and now jumping the next couple of quarters, it started through different channels—in what I would call indirect channels through distribution or through partners where we were getting a piece of the scope, not really getting a look at the whole opportunity, whether outside the data center or inside the data center. Over the last couple of years, we have been adding resources—front-end, applications, folks from the industry—to help us better understand how to attack that market more thoughtfully, and that is clearly delivering a return. Today, we still have that indirect OEM and partner model, which has grown, but we are clearly driving our own direct destiny where we are getting in earlier and having direct conversations with the contractor or the ultimate end client, or a combination of the two, and that is starting to grow. We like both channels to market and will continue to thoughtfully invest where it makes sense to support the broader buildout of the market. Analyst: Hi, guys, and thanks for taking the questions. I am curious about how you are handling the spike in metal prices in 2026, and how that impacts the gross margin profile on a go-forward basis? Michael W. Metcalf: Good morning, John. We are very proactive with our metals, specifically copper. As you know, we use a lot of copper, and we do have a hedging program for copper. It essentially acts as an insurance policy to protect the margins that we have in backlog. We stay on top of steel and aluminum as well, and we are pretty proactive with the supply chain for those core commodities. Analyst: Got it. And I think in the prepared comments, you said something about small- to mid-sized projects being a net benefit in the quarter. Can you drill down a little on what is going on there? Brett A. Cope: Good morning, John. We had the two sizable jobs noted—the data center job we logged in the quarter pre-close of March and the utility job, which I do not want to lose sight of; I love the utility business. When you look at the balance—and you know our model well—when we get that nice mix of having those anchor jobs in the backlog and then being able to put different size jobs—the small zero to $10 million job and then the next step up, the $10 million to $50 million—that mix, given the cycle of a project build, is really advantageous for the Powell Industries, Inc. model. We bring the project in, we schedule it, and there are stop-and-hold points throughout its cycle. Given different job sizes, it gives us leverage to move the crews in and around it. When we lose that mix, it creates another pressure in the business to manage through the P&L of each of our factory locations. The really healthy bulk of small and mediums that came in Q2—and is continuing in commercial activity as we look forward—is very healthy and very encouraging for how we think about planning the business. We wanted to call that out. Analyst: Certainly. And is it running above that $50 million threshold, Brett, or no? Brett A. Cope: No. We see the normal cadence of potential out there going forward in terms of those jobs that are larger than $50 million. There is still a healthy mix across all of our core markets; the timing is the variable. Analyst: Good morning, Brett and Mike. Brett, the outlook is very strong, and you are considering a potential expansion of $70 million to $100 million. Given the outlook and what you are seeing, what do you need to see more of before you make that commitment? It seems like the business is very good and you could go ahead with it. What else might you need to make that commitment? Brett A. Cope: John, not too much more. Mike and I have a board meeting in a couple of weeks. We have been talking to the board the last couple of quarters about it. With the active quarter and with the commercial activity maintaining, we had to react on some of the short-term needs—unlock some needs that may be not optimal, if I am completely honest, but they will absolutely get a good return and were needed. I think we are just about there in being able to support not only the market activity but also our intentionality on our strategic builds, which is why we called out some of the work on the service side. That team is maturing; they are doing a great job building sub-strategies within that growth strategy of ours, and they are getting more confident. That adds into the options A, B, and C for the next big chunk of space. Analyst: If we think about it and, say, in three or four months you make that decision, what kind of timeline would it be to get something like this constructed and up and running? And what might be the revenue capacity or potential of such a new manufacturing space? Brett A. Cope: A greenfield is probably going to run us, conservatively, two years. The actual build time is less, but the variable is always permitting. That is one of the reasons that, given the rapid growth, we may bridge that with a similar-sized leased facility and have to outlay some capital for the cranes and things we would need for the various activities over a two- to five-year lease term while the other facility is being built. If we go the lease route, there is still some permitting, because no facility is purpose-built. You get the shell and you still have to do some things to it. We would see revenues quicker—we would move inventory to that space, get the cranes, and you would probably be looking at productive capacity within six months. Analyst: Total revenue of such a facility? Brett A. Cope: It is going to scale; it depends on the mix of service, projects, and products that we ultimately put into that, but you can run $100 million to $250 million. Analyst: Have you had to turn down any orders at this point? Brett A. Cope: I would not say we are turning anything down. Are we able to meet the schedules of everything coming in the door? The answer is no. We have a really broad funnel. We have expanded our process around that funnel with the growing commercial and industrial segment and the growing resources there, plus the growing capacity. The team play, as we noted today, has become much more prevalent day in and week out here at the company, which has been fantastic—seeing the company come together and the team really work across functional areas, geographies, and facilities. We are unlocking every little bit of opportunity, which has been fantastic to see. We are not able to respond positively to all the opportunities, but where we cannot hit exactly what they ask when they come in the door, we engage them on sequencing and constructability of their site and other things we can do to work together. Those conversations, given our model, are pretty effective at reaching a good solution for both the client and for Powell Industries, Inc. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Brett A. Cope for any closing remarks. Brett A. Cope: Thank you. Mike and I thank everyone for joining us this morning. We are very encouraged by the commercial strength we are seeing across each of our core end markets and continue to expect another strong year for Powell Industries, Inc. I would like to thank the entire Powell Industries, Inc. team for their hard work and commitment to both Powell Industries, Inc. and, of course, to our customers. Mike and I look forward to updating you all next quarter. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Greetings, and welcome to the MFA Financial, Inc. First Quarter 2026 Financial Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Harold E. Schwartz, General Counsel, to begin. Thank you. Harold E. Schwartz: Thank you, operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect management's beliefs, expectations, and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “should,” “could,” “would,” or similar expressions, are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors, including those described in MFA's Annual Report on Form 10-K for the year ended 12/31/2025, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks, uncertainties, and other factors could cause MFA's actual results to differ materially from those projected, expressed, or implied in any forward-looking statements it makes. For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's first quarter 2026 results. Thank you for your time, and I would now like to turn this call over to MFA's CEO, Craig L. Knutson. Craig L. Knutson: Thank you, Hal. Morning, everyone. Thank you for joining us for MFA Financial, Inc.'s first quarter 2026 earnings call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer, Michael C. Roper, our Chief Financial Officer, and other members of our senior management team. I will offer some general remarks on the macroeconomic and political landscapes and will then provide an update on MFA's business initiatives and portfolio activities. Then I will turn the call over to Mike, followed by Bryan, before we open up the call for questions. Moving to market conditions in the first quarter of 2026, it was very much a tale of two market environments. Fixed income markets began the year with a continuation of the strong investor demand and low volatility we experienced in 2025. The economy continued to exhibit resiliency and the labor market seemed to stabilize, particularly with a surprisingly robust January nonfarm payroll print in early February. Mortgages performed particularly well, aided also by a directive for the GSEs to purchase $200 billion of agency mortgage-backed securities in early January. Unfortunately, the party ended abruptly with the onset of a war in Iran, which spiked volatility, pushed rates sharply higher, and dramatically raised oil prices. Higher energy prices renewed fears of inflation, and markets adjusted expectations for fewer or even no rate cuts later this year. Mortgage spreads widened significantly against this backdrop and contributed to an economic return for MFA in the first quarter of negative 1.2%. However, despite the market volatility and heightened geopolitical tension, markets remained open and orderly. We priced two Non-QM securitizations in March and, while spreads were modestly wider, the market functioned normally. This is a testament to the expansion, maturity, and depth of these markets over the last four years. The second of these two Non-QM securitizations was a relever of two previous deals, which is a good example of what we often refer to as an underappreciated source of optionality—our ability to call these deals as they season and pay down, enabling us to lower borrowing costs and unlock additional capital. We grew our investment portfolio to $12.5 billion in the first quarter, adding almost $700 million of agencies, including TBAs, $471 million of Non-QM loans, and Lima One originated $219 million of business purpose loans. Our asset management team continues to work diligently to resolve delinquent loans in the portfolio. This can be maddeningly time-consuming, but our team has been working out delinquent loans for over a decade, the majority of which were purchased as nonperforming loans. They are the best in the business at this and uniquely suited to the task. Finally, our listeners will recall that we began a program in the third quarter of last year to issue additional shares of our two outstanding preferred stock issues via an ATM and use the proceeds to repurchase common shares at a significant discount to book. While this program is modest in size thus far, this is very accretive and, importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock. Finally, we continue to pursue expense reductions both at MFA and at Lima One, which Mike will discuss shortly. I will note that we have added an additional distributable earnings metric that we are introducing in response to requests from analysts and investors—distributable earnings prior to realized credit losses—and Mike will describe this in more detail shortly. We believe that this new DE metric offers a useful representation of how we think about the earnings power of the portfolio, and for those of you that follow commercial mortgage REITs, it should be a very familiar concept. Taken together, MFA has a diversified business strategy that includes multiple attractive target asset classes with a robust ability to source these assets, a reliable and proven ability to obtain durable nonrecourse leverage to generate attractive ROEs, a highly confident in-house asset management capability, a keen focus on expense management, and a demonstrated responsible capital issuance philosophy. I will now turn the call over to Mike to discuss our financial results. Michael C. Roper: Thanks, Craig, and good morning, everyone. At March 31, GAAP book value was $12.7 per share, and economic book value was $13.22 per share, each down approximately 3.8% from 2025. MFA again paid a common dividend of $0.36 and delivered a quarterly total economic return of negative 1.2%. For the first quarter, MFA generated a GAAP loss of approximately $10 million, or $0.11 per basic common share. Our GAAP results for the quarter were adversely impacted by net mark-to-market losses on the portfolio of approximately $28.8 million, driven by higher rates and wider spreads through March 31. Net interest income for the quarter was $59.2 million, an increase from $55.5 million in the fourth quarter, driven by rate cuts late last year and growth in our investment portfolio. These benefits were partially offset by interest income reversals totaling $3.5 million associated with loans moving to nonaccrual status in our transitional loan portfolio during the quarter. On the G&A front, we are happy to report that we again made significant progress with our cost reduction initiatives. In February, we entered into a series of agreements to relocate our corporate headquarters to a new location here in New York without paying any early lease termination fees. As a result of these agreements, we expect some short-term noise in our reported G&A, including $2.4 million of accelerated noncash depreciation expense recognized this quarter and an additional $5 million expected in the second quarter. Following these accelerated noncash charges, we expect to realize run-rate expense reductions of approximately $4 million per year related to the move, which is nearly $40 million in total over the remaining term of our prior lease. Including the expected savings from the relocation, we now estimate that our expense reduction initiatives have achieved nearly $20 million per year of run-rate overhead savings versus 2024 levels. Moving to our DE, distributable earnings for the first quarter were approximately $31.1 million, or $0.30 per share, up from $0.27 per share in the fourth quarter. The increase was primarily attributable to a $0.03 benefit associated with the lease modification and approximately $0.02 of higher mortgage banking income at Lima One. These benefits were partially offset by an aggregate $0.02 charge related to higher carrying costs on REO and higher realized credit losses on our fair value loans. We remain focused on growing ROEs, and we continue to expect our DE will begin to reconverge with the level of our common dividend later this year. As Craig mentioned earlier, this quarter we are introducing an additional non-GAAP measure which further adjusts our distributable earnings to exclude realized credit losses on our residential whole loans held at fair value. We are providing this new disclosure to give additional context around our distributable earnings as credit losses on our legacy multifamily portfolio continue to flow through DE. As we have noted on prior calls, because resolving NPLs does not impact our DE long after the loan has been marked down in our GAAP results and book value, these losses can potentially obscure the current earnings power of the portfolio. While credit losses are a normal and recurring part of investing in credit assets, we expect that the resolution of the legacy multifamily portfolio and improvements in processes and underwriting more broadly at Lima One should result in significantly lower loss rates across more recent vintages of origination. As a result, we believe this new metric, alongside our reported GAAP results and our existing DE disclosure, can give investors a clearer view of the underlying earnings capacity of our investment portfolio as we work through the resolution of these troubled legacy assets. While the timing of loan resolutions and resultant credit charges can be difficult to reliably forecast, we expect realized credit losses on the legacy transitional loan portfolio to accelerate meaningfully in the second quarter before beginning to normalize as we move through 2026 and into 2027. As a result, we expect that the difference between DE and this new supplemental DE measure will narrow considerably over time. We anticipate reassessing the usefulness of this new measure as the runoff transitional portfolio continues to wind down. Finally, subsequent to quarter end, we estimate that as of the close of business on Friday, our economic book value was approximately flat to the end of the first quarter. I would now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One. Bryan Wulfsohn: Thanks, Mike. We acquired over $1 billion of residential mortgage assets in the first quarter. This included $471 million of Non-QM loans, $400 million of agency securities in addition to $300 million of TBAs, and $219 million of business purpose loans originated by Lima One. Non-QM remains our largest asset class. During the quarter, we grew our Non-QM book to $5.5 billion. We added $471 million of new loans with an average coupon of 7% and an LTV of 68%. Although our portfolio has grown significantly in recent years, along with the broader Non-QM industry, we remain highly focused on credit quality and continue to review every loan prior to acquisition. Credit performance in our Non-QM book remains strong, with a default rate just above 4%. During the quarter we issued two securitizations. First, in early March, we issued our twenty-second Non-QM deal, selling $326 million of bonds at an average coupon of 5.12%. The newly originated loans in that deal carry an average coupon above 7%. Later in March, we re-securitized over $400 million of seasoned Non-QM loans that had been in two deals we issued several years ago. This relever unlocked approximately $40 million of cash and additional financing capacity. We expect this move to be accretive to our earnings moving forward. During the quarter, we continued to grow our agency portfolio, which now exceeds $3.5 billion in size. Our investments this quarter continued to focus on low pay-up spec pools. After the escalation in the Middle East unleashed a broader sell-off, spreads widened by nearly 40 basis points from the tights, and we took advantage of the volatility, establishing a $300 million TBA position in late March. Since then, we have seen spreads retrace about 10 basis points. We expect to add to the portfolio depending on market conditions and excess investment capacity. Turning to Lima One, Lima originated $219 million of business purpose loans during the first quarter. This included $145 million of new transitional loans and $74 million of rental term loans. We continue to sell the longer-duration rental loans at a premium to third-party investors. This quarter, we sold $81 million, generating $2.7 million of gain-on-sale income. Mortgage banking income at Lima rose to $7.7 million, an increase of 34% from the fourth quarter. During the quarter, Lima's monthly submissions and origination pipeline reached their highest level since 2024. With the recent opening of our wholesale channel and the relaunch of multifamily lending underway, we expect Lima's contribution to our earnings to grow from here. Lastly, touching on our credit performance, during the quarter, delinquencies rose in our residential loan portfolio to 7.8%. The increase was driven primarily by elevated default activity in our legacy multifamily book, which, as a reminder, has been in runoff mode for the past two years. We have made further progress shrinking that multifamily book and resolving nonperforming loans since quarter end. Our delinquency rate has already fallen back to 7.3%. We look forward to recycling that capital back into income-producing assets as we move through the year. In summary, Q1 was a productive quarter for our investment platform: we grew the portfolio, executed two Non-QM securitizations, saw strong momentum at Lima One, and continued to move our credit borrowings toward non-mark-to-market financing. We believe the current environment positions us well for the year ahead. And with that, I will turn the call over to the operator for questions. Operator: We will now open the call for questions. Thank you. Ladies and gentlemen, at this time, we would like to begin the Q&A session. Your first question comes from Bose Thomas George with KBW. Please state your question. Bose Thomas George: Yes, good morning. Actually, how much capital was tied up in the remaining multifamily transitional portfolio at quarter end? And just your guidance on the convergence between the DE and the dividend—does that include paydowns as well? Michael C. Roper: Hi, Bose. Yes, to answer your second question first, the forward guidance on DE reconverging by the end of the year does include anticipated paydowns of some of the troubled assets and redeploying into our target assets. To answer your question on how much capital is locked in that multifamily book, it is just over $100 million—$101 million at the end of the quarter. Bose Thomas George: Okay, great. Thanks. And then on the expenses, after the second quarter, when that noise is over with the depreciation, what is a decent run rate for expenses going forward? Michael C. Roper: Yes. So I think there is always a little bit of noise from quarter to quarter in our G&A for various reasons. For example, this quarter we had about $4 million of accelerated noncash stock-based comp charges, which is consistent with the first quarter of the past few years, and then the $2.4 million of the accelerated depreciation. So if you take this quarter and normalize for those one-timers and then about a penny a quarter—or roughly $1 million a quarter—for the lease changes, I think that is a pretty good start for the run rate of G&A. Bose Thomas George: Okay. And each first quarter will have that noncash comp piece that kind of bumps it up a little bit? Michael C. Roper: Yes, exactly. The accounting rules require us to expense awards made to retirement-eligible employees on the grant date instead of over the three-year service period. Bose Thomas George: Okay. Okay. Great. Thank you. Operator: Next question comes from Marissa Wilbos with UBS. Please state your question. Marissa Wilbos: Thank you and good morning. On the Agency MBS portfolio, how should we think about it? Is it ultimately something that you are going to rotate back into Non-QM and BPL, or is this a strategic reweighting in the portfolio? Bryan Wulfsohn: Yes, I would think we will most likely have some exposure, but the level of exposure will be wound down a bit depending on the attractiveness on the credit side. So as Lima grows its production, you could expect that agency portfolio to receive paydowns, and we could also sell bonds to help fund the growth at Lima One, in addition to Non-QM purchases as well. Marissa Wilbos: Okay. Great. And for Lima One, what is its posture on AI and automation within servicing and underwriting? Is there a cost target that you are willing to share for 2026, 2027 there? Bryan Wulfsohn: We are trying to reduce G&A there by roughly 10% plus, and we are on the way to doing that. We had some efficiencies gained in Q1. We are utilizing AI down there, utilizing the Claude and Anthropic AI infrastructure to help accelerate those moves. It is unclear if there is an exact percentage of cost reductions we can say AI will accrue to the business, but it is one of those things that we are exploring, and there will be ongoing benefits as we utilize the AI code and agents down there. Marissa Wilbos: Okay. Great. Thank you. Operator: Your next question comes from Matthew Erdner with JonesTrading. Please state your question. Matthew Erdner: Hey, good morning, thanks for taking the question. I would like to touch on the multifamily. Is there anything that specifically drove the delinquencies to increase quarter over quarter significantly? Bryan Wulfsohn: Well, the whole portfolio’s loan structure was three-year terms with two-year extensions. They are all really coming up on maturity and have been extended. So at this point, there might be some where the borrower has been out trying to get refinancing, and they realize they cannot get the same amount of proceeds that they borrowed initially, so then they call it a day, and we have to deal with the property or work out a mutual resolution. Really, I think it is the fact that as they are toward end-of-life, you see more delinquencies in certain cases where the borrower is unable to refi or sell the property timely. Matthew Erdner: Got it. And then, as it relates to that, should we expect you guys to bring some of these properties in, stabilize, and then sell? Or are you going to look for them to hit the market, see what they can get, and then move on from the asset? Bryan Wulfsohn: It is really a case-by-case basis. Some assets we will try to stabilize where it makes sense depending on the time and capital required to do so. But in some instances, it just makes sense to hit the bid and move on. Matthew Erdner: Got it. That is helpful. And then one last one for me as it relates to this. I appreciate you throwing in the adjustment there for DE. Should we expect a number kind of similar to 3Q levels? Michael C. Roper: Yes, so, as I said in my prepared remarks, it is really hard to have a reliable forecast of when exactly the losses are going to hit. Every foreclosure is different, every borrower is different, and there can be some timing differences from quarter to quarter pretty easily. I think with that said, in the immediate term—we expect this primarily in the second quarter—we are expecting somewhere in, call it, the high teens of credit losses on multifamily resolutions. Part of the reason why our guidance is the back half of 2026 is that one bad multifamily loan rolling through the next quarter can be a 3 or 4 cent swing in DE, depending on the timing of that resolution. But our base case is somewhere in the mid to high teens of credit losses for the second quarter before beginning to normalize in the back half of the year and into 2027. Matthew Erdner: Got it. I appreciate the comments. That is helpful. Thank you, guys. Operator: Your next question comes from Mikhail Goberman with Citizens JMP. Please state your question. Mikhail Goberman: Hey, good morning, guys. Hope everybody is doing well. If I could just clear up one thing: when you talk about distributable earnings converging with the $0.36 dividend in the latter half of the year, are you referring to the current $0.30 figure you printed in Q1 or the $0.34 prior realized credit losses figure? Michael C. Roper: That is referring to our $0.30 DE, or the DE with loss adjustments. Mikhail Goberman: Gotcha. Thank you for that. And in looking at the Lima One pipeline, what do you guys see as the product mix going forward? Obviously, a very good quarter to start the year. Do you see momentum picking up in Q2, Q3? And your thoughts on the product mix going forward? Bryan Wulfsohn: Right now, the mix is really split between transitional and rentals. As we bring wholesale more online, we could see growth on the rental side accelerate. But we are also seeing great growth on the transitional side. When we said the pipeline is the highest it has been in the past couple of years, that is plus or minus $200 million at the moment. In terms of what the pipeline converts to actual loans, you might be, say, 50% to 60% to 75%, depending on coupon, timing, and other factors. So that might go to roughly $100 million per month, plus or minus, in the near term, and we still expect to grow from there. One thing we have not really hit upon yet is multifamily is relaunched, but the pipeline and submissions are really not including multifamily figures. We think we are in slow growth mode there; we have looked at a lot of loans, but we have not closed anything yet. The hope is that multifamily really comes online in the back half of the year and could help accelerate growth on top of what we are doing on the transitional and rental side. Mikhail Goberman: Great. Thank you, guys. Michael C. Roper: Thanks, Mikhail. Operator: Your next question comes from Doug Harter with BTIG. Please state your question. Doug Harter: Thanks. On the transitional loans, could you just remind us at what level those are marked and how we should think about resolutions and working through that book and any impact that it should have on book value? Michael C. Roper: I will speak to the second half of your question first. We mark these loans every quarter to fair value, and that is not just what we would expect in a credit loss situation—it is what we think we could sell the loan for. There is not a huge market for delinquent transitional loans, so a loan rolling delinquent can have a pretty big impact on its fair value even if we think the LTV is good enough to be money-good on that asset. As far as the mark level, it is a story of the current loans versus the delinquent loans. The current loans, with their, call it, 10% to 11% coupon, tend to be marked just slightly below par. For the delinquent loans, it is really on a loan-by-loan basis. I think the weighted average total discount for the portfolio in multifamily is just over $50 million, and then single-family is probably closer to about $15 million to $20 million discount. Doug Harter: Great. So it just depends on the ultimate resolution, but you feel like on the delinquent loans you have been fairly conservative? Michael C. Roper: Yes, for sure. We have always taken great pride in our marks process and have extreme confidence in the level of our marks. I think we have said over the last few quarters that as we have resolved some of these delinquent loans we are generally—almost entirely—generating gains. This quarter, we resolved another $160 million of delinquent loans, and the P&L versus our prior mark on those assets generated a gain of about $14 million this quarter. So, again, all of the empirical evidence, including where we have executed loan sales in prior quarters, gives us a lot of confidence in where we have these assets marked. Doug Harter: Great. Thank you. Michael C. Roper: Thanks, Doug. Operator: Thank you. And there are no further questions at this time. I will now hand the call back to Craig L. Knutson for closing remarks. Thank you. Craig L. Knutson: All right. Well, thanks, everyone, for your interest in MFA Financial, Inc. We look forward to speaking with you again in August when we announce second quarter results. Operator: Thank you. And that concludes today’s call. All parties may disconnect. Have a good day.
Operator: Morning. My name is Jason, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade Company's First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. 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 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 Chris Forrey, Senior Vice President of Finance and Investor Relations. Mr. Forrey, you may begin your conference. Chris Forrey: Thank you, Jason, and good morning, everyone. I would like to welcome you to Boise Cascade Company's First Quarter 2026 Earnings Call and Business Update. Joining me on today's call are Jeff Strom, our CEO; Kelly E. Hibbs, our CFO; Joanna Barney, leader of our Building Materials Distribution operations; and Troy Little, leader of our Wood Products operations. Turning to Slide two. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA, and segment income or loss to segment EBITDA. I will now turn the call over to Jeff. Jeff Strom: Thanks, Chris. Good morning, everyone, and thank you for joining us for the earnings call. I am on Slide three. As I step into the role of CEO, I want to express my deep confidence in our company, our talented people, and our established direction. We have a strong foundation and a proven strategy that has positioned us well in the marketplace, and I am committed to building on that momentum. My thanks to our outstanding team whose dedication, expertise, and commitment to our customer and supplier partners are what drive our continued success. I am excited to lead us forward, focused on delivering sustained value for all of our stakeholders. Let me turn to our first quarter results. Total U.S. housing starts increased 1% compared to the prior-year quarter. However, single-family housing starts were off 5% for the same comparative period. Our consolidated first quarter sales of $1.5 billion were down 2% from 2025. Our net income was $17.8 million, or $0.50 per share, compared to net income of $40.3 million, or $1.06 per share, in the year-ago quarter. Our businesses delivered solid results for the quarter despite continued demand uncertainty resulting from geopolitical events, volatile mortgage rates, and severe weather. The challenges of consumer sentiment and home affordability remain the most significant headwinds for residential construction activity. In this environment, we are continuing to leverage our integrated model, which consistently demonstrates its value and resilience, particularly in challenging market conditions like these. As a follow-up to our previously disclosed legal matter that was resolved last week, this was a legacy issue involving certain hardwood plywood purchases made at a single distribution facility in Pompano, Florida between 2017 and 2021. We bought the wood from a former U.S.-based supplier that improperly imported the products. We were not involved in creating or operating the supplier scheme, but we did not follow some of our own internal processes that would have prevented us from making these purchases. We have taken responsibility for that and have strengthened our processes to prevent this from happening again. Kelly will now walk through our segment financial results, capital allocation priorities, and second quarter guidance, after which I will provide insights on our business outlook and make closing comments before we open the call for questions. Kelly E. Hibbs: Thank you, Jeff, and good morning, everyone. BMD sales in the quarter were $1.4 billion, down from the first quarter of 2025. BMD reported segment EBITDA of $48.2 million in the first quarter, compared to segment EBITDA of $62.8 million in the prior year. Selling and distribution expenses were up $8.2 million from the first quarter of 2025. In addition, gross margin dollars decreased $6.5 million compared to the prior-year quarter, reflecting lower gross margins on all product lines, particularly EWP. In Wood Products, our sales in the first quarter, including sales to our distribution segment, were $398.2 million, down 4% compared to the first quarter of 2025. Wood Products segment EBITDA was $32 million compared to EBITDA of $40.2 million reported in the year-ago quarter. The decrease in segment EBITDA was due primarily to lower EWP sales prices as well as higher per-unit EWP conversion costs. These decreases were offset partially by lower per-unit OSB costs, as well as higher plywood sales volumes and price. Moving to Slides five and six, BMD's year-over-year first quarter sales decline of 1% was driven by net sales price decreases of 3% offset partially by net sales volume increases of 2%. By product line, general line product sales increased 4%, commodity sales decreased 5%, and sales of EWP decreased 7%. Sequentially, BMD sales were up 2% from the fourth quarter of 2025. Weather had a significant impact on first quarter sales activity at our Southeast and Northeast distribution centers, as the affected locations were closed for a combined 35 days in January and February. The impacts were evident in BMD's daily sales pace during the quarter, with daily sales of approximately $21 million in both January and February before rebounding nicely in March to $24 million. Our first quarter gross margin was 14.4%, down 30 basis points year over year. The decline was driven by EWP competitive pricing pressures, as well as lower margins on general line. BMD's EBITDA margin was 3.5% for the quarter, down from both the 4.5% reported in the year-ago quarter and the 4.1% reported in the fourth quarter. Lower gross margins, coupled with the effects on our operating expense leverage from branch closures in the first quarter, negatively impacted our EBITDA margin result. Turning to Slide seven, on a year-over-year basis, first quarter I-joist and LVL volumes were down 51%, respectively. Sequential I-joist and LVL volumes were up 168%, respectively, driven by seasonal demand improvements and channel restocking ahead of the spring building season. As it relates to pricing, first quarter EWP sales prices declined about 7% year over year and remained flat sequentially. Turning to Slide eight, our first quarter plywood sales volume was 373 million feet compared to 363 million feet in the first quarter of 2025. The year-over-year increase in plywood volumes was due primarily to the restart of operations at our Oakdale mill in the fourth quarter of 2025. Sequentially, our plywood sales volumes were up 5% from the fourth quarter of 2025 as anticipated due to seasonal demand improvement. The average plywood net sales price was $343 per thousand in the first quarter, representing a 1% increase year over year and 4% sequentially. We attribute the recent improvement in plywood pricing primarily to weather-related supply constraints in the South combined with reduced imports. Notably, Brazilian imports declined by more than 60% year over year in 2026. However, following the late February Supreme Court decision that validated the use of IEPA to impose tariffs, higher import volumes are anticipated, which are expected to influence market dynamics in the coming months. I am now on Slide nine. We had capital expenditures of $40 million in the first quarter, $23 million of spending in BMD and $17 million of spending in Wood Products. The capital spending range for 2026 remains at $150 million to $170 million. Roughly a third of BMD's 2026 spending relates to growth projects across our system, with the balance of our spending in both segments attributable to business improvement and efficiency projects, replacement projects, and ongoing environmental compliance. Speaking to shareholder returns, we paid $10 million in dividends during the quarter. Our Board of Directors also recently approved a $0.22 per share quarterly dividend on our common stock that will be paid in mid-June. Through the first four months of 2026, we repurchased approximately $91 million of our common stock, including approximately $66 million in the first quarter. Since the beginning of 2024, we have repurchased approximately 12% of our outstanding shares. As of today, approximately $148 million of our outstanding common stock is available for repurchase under our existing share repurchase program. As expected, we utilized cash in the first quarter, primarily driven by seasonal working capital needs along with our planned capital investments and shareholder returns. However, the ongoing strength of our balance sheet remains in place, which positions us well to continue the pursuit of our strategic objectives. I am now on Slide 10, where we have outlined a range of potential EBITDA outcomes for the second quarter, along with the key assumptions underlying these projections. As we look ahead, end market demand remains uncertain, and certain cost inputs are volatile. For BMD, we currently estimate second quarter EBITDA to be between $65 million and $80 million. BMD's current daily sales pace is approximately 15% above the first quarter sales pace of $22 million per day. Gross margins are expected to be between 14.25% and 15%. Importantly, as our guide suggests, if our current sales pace is sustained, we expect BMD to show a healthy sequential improvement in EBITDA margin. For Wood Products, we estimate second quarter EBITDA to be between $32 million and $47 million. Our EWP order files are showing seasonal strength, and we expect sales volumes to increase mid-single digits sequentially. EWP pricing is expected to range from flat to low single-digit declines sequentially. In plywood, we expect sequential volume increases in the mid-single digits. On plywood pricing, quarter-to-date realizations were 8% above our first quarter average, with the balance of the quarter market dependent. We expect our per-unit manufacturing costs will be comparable to the first quarter, as higher volumes and early results from focused site improvement plans across our manufacturing system are expected to offset recent energy-related cost increases. I will turn it over to Jeff to share our business outlook and closing remarks. Jeff Strom: Thank you, Kelly. I am on Slide 11. Given the current environment, visibility into end market demand for 2026 is limited. For much of the first quarter, mortgage rates declined to the lowest level in over three years. However, recent geopolitical turmoil has led to volatility in Treasury and mortgage rates alike, introducing greater uncertainty on the remainder of the spring selling season. Homebuilders are responding to the cautious demand environment with thoughtful approaches to starts, home sizes, location, and inventory. As a result, maintaining our focus and staying agile remains central to Boise Cascade Company's strategy for delivering outstanding service across a broad selection of in-stock, industry-leading building materials in any operating environment. The alignment of our two business segments is evident every day and is a driving force in our world-class operations. Enhanced channel visibility supports the alignment of our production rates and inventory strategies with end market demand. Cross-divisional coordination and our strong financial position provide the security and flexibility for our teams to execute our strategy and deliver long-term value creation. We are committed to continuously seeking new opportunities to leverage our integrated model by driving greater efficiency, responsiveness, and innovation across our organization. As we consider the future of homebuilding, we remain confident in the structural drivers of U.S. housing demand, which include the persistent undersupply of housing driven by generational tailwinds, near-record levels of homeowner equity, a decade of underbuilding, and an aging U.S. housing stock with the average home being more than 40 years old. The strong fundamentals for both new residential construction, repair, and remodeling reinforce the industry's favorable outlook. Boise Cascade Company's investments throughout the business cycle give us confidence that we can outpace industry growth as these market tailwinds materialize. Thank you for joining us today and for your continued support and interest. We welcome any questions at this time. Jason, please open the phone lines. Operator: Thank you. We will now begin the question and answer session. Our first question comes from Michael Roxland from Truist Securities. Please go ahead. Michael Roxland: Yes. Thank you, Jeff, Kelly, and Chris for taking my questions. First question I had, Kelly, just in response to one of your comments regarding Brazilian import and lower tariffs. You mentioned expecting to see them in coming months. Have you started to see any increased plywood or wood flows from Brazil at this juncture? And it also seems like my second question, just EWP prices in the first quarter sort of stabilized quarter over quarter. One of your peers was showing mid-single-digit decline in pricing. Can you provide any more color around what is driving the price stability in your business maybe versus some of your peers? Kelly E. Hibbs: Yes. So my understanding, Mike, is that the true answer is yes. We are expecting to see more and more of that show up at the ports, maybe a little bit delayed because there was a phenol disruption at a manufacturing site in Brazil. But we know the wood is coming and we are seeing quotes show up in the coming months. Jeff, do you have some more color on that? Jeff Strom: I would add that there has been some that has showed up, but not significant enough that would cause any major impact. Troy Little: Yes. I mean, we were able to hold prices relatively flat since the third quarter of last year, but that is definitely not a function of less pressure in the market. It has come back. There has been more chatter. There is regional pricing pressure from our competitors still. We have the conversations with homebuilders and still a strong concern for home affordability. So right now, it is just a matter of being very strategic. It is regional conversations, making sure that we are competitive, but we are not leading with price, leading into our model and our service proposition. Fortunately, so far, we have been able to hold prices, and right now, quite honestly, our order file is strong, which allows us to be selective in how we address our pricing. Operator: The next question comes from Ketan Mamtora from BMO Capital Markets. Please go ahead. Ketan Mamtora: Good morning, and thanks for taking my question. Perhaps to start with, can you talk about freight and transportation inflation that you are seeing across both Wood Products and Distribution? If you can quantify that headwind and how you all are mitigating that? And then, when I think about the second quarter EBITDA guidance, appreciate that it is a dynamic environment. As I think about your top end versus the bottom end of the guidance range, can you at a high level talk about what that contemplates? Should I think about your current daily pace getting you to the midpoint of the guidance range in Distribution? Is that the way to think about it? Troy Little: Ketan, this is Troy. In terms of diesel prices, we are seeing that in various aspects of our business. The biggest one for us is probably in our resin costs. That is the input cost that is affected related to the increase in prices. We did have a price increase probably in the 10% range around our resin. Then we have some direct cost, if you think about fuel for rolling stock and things like that, which is not a huge spend for us, but that will be an impact. Moving veneer around the system, we see that in our wood costs. Then there is the indirect, every piece and part that comes into our system has some type of inflationary pressure around freight. We are working on our cost control on the opposite side of that to help mitigate some of that. It is hard to quantify all that, but I think we are still comfortable that we should have comparable manufacturing costs, as Kelly mentioned. Joanna Barney: And then I will jump in on the Distribution business. Diesel rose significantly during the quarter. We were paying almost double at the end of the quarter what we were paying at the beginning of it. Most of it we are able to pass on through our daily transactions with our customer base. There are some fuel surcharges, and our people have done a tremendous job of passing those along, but there has been some short-term impact to our margin on program business where freight was included as part of the original program. At times, there are delays in what we are able to go out and recoup as far as those costs. I would also add that there has been a lack of trucks and drivers due to tight immigration policies. That has impacted freight rates and the availability of trucks as well. Jeff Strom: The thing I would add on the BMD side is that every load that goes out of our warehouse every single day, we make sure that we optimize. We are sending out a full truck to spread that freight as efficiently as possible, and we have been working really hard on doing that. Kelly E. Hibbs: So, Ketan, let me take a shot at the guidance piece. I will start with BMD first and then give you a little color on Wood Products also. You kind of hit it in your question, which is we still have two months to go in the quarter. End market demand is pretty uncertain, and how much of the demand we have seen so far is replenishing the channel versus end market demand is a little hard to tell. There are unknowns and volatility around the cost inputs. That is why we draw a pretty wide range around our EBITDA forecast for both businesses. Specific to BMD, if you assume that the sales pace we spoke to so far this quarter is sustained, and our margins are at the midpoint of the range that we put out, that would get us into the midpoint of the range, into the low $70 millions. That would get us back to a really good spot in terms of a healthy improvement in EBITDA margin, into the mid-4% range. In Wood Products, it is a similar theme in terms of the challenges with forecasting. Troy spoke to good order files in EWP and pretty good order files in plywood, but we know, particularly in plywood, how quickly things can flip. Again, that is why we purposely put a pretty wide range around those results. Operator: The next question comes from Susan Marie Maklari from Goldman Sachs. Please go ahead. Susan Marie Maklari: Good morning, everyone. Thanks for taking the questions. My first question is around thinking of the environment that we are in and the increase in macro uncertainty that we saw at the end of the first quarter. Has that had any impact on the mix you are seeing between sales coming out of the warehouse versus direct? What is the overall read of your customers, and how is that influencing the guide and how we should think about the flow through to results? And within general line, can you talk about what you are seeing from your suppliers in terms of competitive dynamics and pricing over the next couple of quarters? Jeff Strom: I will take a stab at the first part. What we did see in the first quarter, when commodities started to move and prices were down to begin with, was people stepping in and buying more directs than we have seen in the past few quarters. There was absolutely a shift to that. But as we move forward, with the uncertainty that is out there, that most often creates more reliance on distribution, and we are absolutely seeing that. Our warehouse business continues to be very strong and continues to be what people want to use. Joanna Barney: On suppliers and pricing, we saw late in the first quarter somewhere in the neighborhood of 25 to 30 price increases. Some of those were surcharge-driven, based on gas and freight, but most of them were product price increases. We are seeing broader product offerings and suppliers starting to understand that there has been some strength in the market that they are pushing into, and they are starting to move their prices accordingly. Operator: The next question comes from Kurt Yinger from D.A. Davidson. Please go ahead. Kurt Yinger: Great. Thanks, and good morning, everyone. I just wanted to go back to BMD. Looking at the volume performance there, even if we strip out an assumption on hold-in, it looks pretty flat, which I would say is good in this market. Can you talk about whether it is product category or customer initiatives that seem to be bearing fruit there? And then on the gross margin line, as we move into the back half, is the competitive environment so challenging that it would be tough to get back to that 15% plus gross margin level, or is that still an attainable goal? Joanna Barney: I would say it is both product and customer initiatives. As a backdrop, we had some margin return-on-sale impacts that were either a onetime event or not expected to be permanent. To Kelly's point in his prepared remarks, we had 38 days of closures with weather. Some of that business we recaptured, some of it we lost, but our costs remained fixed, so there was an impact there. We had fuel surcharges that we passed through, but there is timing that goes on there, so there is a margin shift. Within general line, we are focused on growth of our home center special order business, which we grew by double digits, and we continue to build out our door segments, gaining market share there. We are driving top-line revenue. Tied to our door initiative, we have pushed into the manufactured housing sector and saw double-digit growth in the first quarter, with a lot of upside opportunity there. We are making strides with our digital strategy. Our e-commerce business was up 57%. On commodities, you will continue to see us outperform the market because we have built out commodity technical systems that give us early indicators and real-time views into trends, inventory levels, and market segments, so that we can move quickly across our system. Our commodity volume and footage was flat to up in the first quarter, and we actually saw margin expansion, in spite of lower pricing. We feel confident that we are expanding our market share in commodities based on the systems we have built and the educated risks we take in putting inventory on the ground, built on years of experience and the expertise of our people. That has helped us in deflationary pricing environments to hold on to our volume and expand our margins. On gross margins versus 15% plus, I think it is an attainable goal. The current demand environment is uneven and rate-sensitive. There are still a lot of opportunities, but they vary by geography, product category, and builder type. When interest rates dipped below 6%, we saw strength return pretty quickly. If rates pull back and geopolitical tensions ease, BMD could see some improvement from seasonality as commodity prices improve. We are still seeing pricing pressure on EWP, although it is abating. We have had margin impacts across a wide breadth of general line products, and we saw year-over-year commodity price deflation, but we have offset that with margin expansion. If nothing changes in rates or tensions, we would have a more measured outlook: some seasonal improvement, but not a broad-based acceleration. Operator: The next question comes from George Staphos from Bank of America. Please go ahead. George Staphos: Hi, everyone. Good morning. Thanks for taking my questions. First, is there a way that you can give us a ballpark figure for the inflation you have seen in your cost of goods on an annualized basis that you have yet to recover in pricing actions already? Second, on plywood, you said there is some wood already showing up from Brazil and South America, but it has not had a big effect. Why do you expect it might have a bigger effect? What would some of the factors be, given your experience? Kelly E. Hibbs: I will start on the first one and speak specifically to Wood Products. In BMD, we are seeing some freight increases that we will largely be able to pass through over time. In Wood Products, the big items subject to inflationary increases that we are experiencing now and did not really see much of in the first quarter are glue, natural gas, and purchased electricity. Generally speaking, that is roughly 10% of Wood Products cost of sales. To the extent we see, and we have seen, about 10% increases in some of those key inputs, that gives you a sense of the cost impact, assuming volumes remain the same. On the second question around plywood imports, Jeff? Jeff Strom: We have not seen a huge impact because there has not been a whole lot that has come in so far. Why do we expect there will be an impact? It is supply and demand. It depends on where it comes in—what port, whether it is a big plywood market or not—and how much comes in. If there is a lot and a big price advantage, imports will grab some share. We have seen that before. But with what is happening there, there has been a delay with transportation and freight coming over. It will be wait and see when it gets here. George Staphos: As a quick follow-up, what are the spreads between current market pricing and what the quotes are coming in on imports? Can you give us a sense of the arbitrage? Jeff Strom: When it first got here, if I remember right, it was about a 10% difference between the two—what the pricing spread was when it first arrived or what they are quoting. Operator: The next question comes from Jeffrey Stevenson from Loop Capital. Please go ahead. Jeffrey Stevenson: Hi, thanks for taking my questions today. How much did restocking ahead of the spring selling season contribute to the improved sequential EWP volumes during the quarter? And could you provide an update on current EWP channel inventories at this point of the year compared with both last year, when they were elevated, and historical levels? Also, could you provide an update on the new Thorsby line and how we should think about the ramp and production at the facility as we move through the first half of the year? Troy Little: Undoubtedly, the better part of the first quarter was probably a restocking story. Maybe late in the quarter there was some follow-through, so it was a combination of both. Our order file grew to a solid two-week order file, and we have carried that through April and into May. On channel inventories, there is still a reliance on two-step distribution. Talking to our channel partners, they have increased inventory, but they are not back up to the high end of their targets for this time. On Thorsby, it is largely as planned. Right now, we are testing out and getting our products certified in the various depths and series. That is expected to go through the second quarter. In terms of sellable product, we would not have sellable product until probably the beginning of the third quarter. To a degree, that is capacity we have, but demand will dictate. To the degree demand is there, we will start producing out of Thorsby; to the degree it is not, we will use that as throttle. Going into the third quarter, I would not anticipate that being a huge volume contributor right now. Operator: Our next question comes from Reuben Garner from Benchmark. Please go ahead. Reuben Garner: Thank you. Good morning, everyone. Maybe just a follow-up on EWP price-cost dynamics. I think you referenced an expectation of low single-digit sequential pricing declines. What is driving that? You mentioned a strong order file and inflationary pressures. Is it still just so competitive, or supply-related? Is there a lag from competitiveness several months ago that is flowing through now? Why would we see sequential declines when we have a strong order file and inflationary pressures? And then on the BMD side, I think, Kelly, you mentioned margin pressure in general line products. Is there something unique going on there in any specific categories driving that? And where do inventories stand today in general line, and how are you thinking about them for this year? Troy Little: It is flat to down. There is enough chatter out there that we could see continued erosion from the competitive environment—primarily on retaining business. On delivered cost, if freight increases are not fully passed through the channel, there is some impact to net sales price on the freight side. That combination may lead to a little erosion, but we are not anticipating a lot. That is why we have the flat to low single-digit range. Joanna Barney: From a margin compression standpoint, the biggest pressure we have seen has been across engineered wood, but that is abating. The rest of general line shows small margin impacts across a wide breadth of products, mostly market-based at the distribution level—nothing out of the ordinary. On channel inventories, the business starts we have seen are starting to normalize a bit. The channel is lean but relatively stable. Customer purchases have been more consistent than the start-stop we saw last year. We have started seeing price increases from multiple suppliers on the general line side as well. Jeff Strom: I would just add that single-family is such a driver for us, and single-family demand is very much muted. When it gets like that, everybody is fighting for what is out there. It is hyper-competitive right now across pretty much everything. Operator: And the next question is a follow-up from Kurt Yinger from D.A. Davidson. Please go ahead. Kurt Yinger: Great. Thanks. Troy, have you seen any derivative impact in terms of the EWP price conversations you have had, maybe specifically on floor systems, given what we have seen in dimensional lumber inflation? And then, looking at the outlook, it sounds like the order book is pretty strong. I know the first quarter benefited from some restocking, but it does not seem like much of a sequential seasonal lift in EWP volumes in the second quarter versus the first. Is that related to the restock dynamic or more of an assumption around some softening in single family as we progress into summer? Troy Little: Nothing that I am aware of on floor systems. Typically, once you get builders to convert to EWP floor systems, you do not see them convert back. On open-web truss, that is a competitive product to I-joist, and the cost inputs for those products have been quite volatile in recent quarters. But I-joists are maintaining share. We were happy to see the good sequential volume increase we saw in I-joist. Kelly E. Hibbs: On the outlook, it is a little hard to sort out exactly how much of the first quarter was end market versus channel restocking; it was some of both. As we move into the second quarter, if you read the transcripts from the national homebuilders, they are very focused on sales pace and moving spec inventory, moderating their starts pace to their sales pace. Some are talking about increasing starts, but more seem to be talking about decreasing starts and transitioning a bit more to build-to-order, given improved cycle times. That all plays into the narrative. We are doing our best to pick up the demand signal from the homebuilder channel, which suggests we are not going to see a big seasonal increase into the second quarter. Operator: This concludes our question and answer session. I would like to turn the conference back over to Jeff Strom for any closing remarks. Jeff Strom: Thank you for your continued interest in Boise Cascade Company. Please be safe and be well, and we look forward to talking to you next quarter. Thank you all. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Shamali, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Incorporated's first quarter 2026 earnings conference call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session for the members of the financial community. At that time, if you have a question, you will need to press star and the number one on your telephone keypad. To withdraw your question, please press star and the number two. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded today, 05/05/2026, and will be available for replay as an audio webcast on Public Service Enterprise Group Incorporated's Investor Relations website at investors.pseg.com. Please go ahead. Carlotta Chan: Good morning, and welcome to Public Service Enterprise Group Incorporated's first quarter 2026 earnings presentation. On today's call are Ralph A. LaRossa, Chair, President and CEO, and Daniel J. Cregg, Executive Vice President and CFO. The press release, attachments, and slides for today's discussion are posted on our IR website at investors.pseg.com, and our 10-Q will be filed later today. Public Service Enterprise Group Incorporated's earnings release and other matters discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We will also discuss non-GAAP operating earnings, which differs from net income as reported in accordance with Generally Accepted Accounting Principles, or GAAP, in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's materials. Following our prepared remarks, we will conduct a 30-minute question-and-answer session. I will now turn the call over to Ralph A. LaRossa. Ralph A. LaRossa: Thank you, Carlotta, and thank you for joining us to review Public Service Enterprise Group Incorporated's first quarter 2026 results. Starting with our financial results, Public Service Enterprise Group Incorporated reported net income of $1.48 per share and non-GAAP operating earnings of $1.55 per share. Our first quarter results reflect continued investment in utility infrastructure, focused on reliability and cost-saving energy efficiency programs at PSE and G. At PSEG Power, higher gas volume and capacity revenues have more than offset the absence of the zero emission certificate program that concluded last May. With this solid start to 2026, we are maintaining our full-year non-GAAP operating earnings guidance in the range of $4.28 to $4.40 per share. On the operations front, I am very pleased to report that our utility and nuclear operations delivered excellent reliability during one of the harshest winters in decades. In preparation for these extreme weather events that included high snow accumulation, ice, and arctic air temperatures, PSE and G initiated its winter weather readiness procedures and ensured adequate staffing for timely storm response. Starting in January with Winter Storm Fern through Winter Storm Hernando in late February that dropped 30 inches of snow on parts of Northern New Jersey, PSE and G systems held up well during intense conditions. For the relatively small group of customers that were affected by the weather, PSE and G was able to restore service to virtually all customers within 24 hours. I cannot say enough about our employees who carry out PSE and G's storm response work, who brave the elements to keep the lights on and homes warm for our customers. The utility experienced peak winter gas send-out on February 7 following over a week of subfreezing temperatures. These conditions underscore the need for continued investment in gas infrastructure modernization to address the impact that extreme temperatures have on our aging cast iron gas system. Despite this year's winter weather, PSE and G is on track with its 2026 capital spending plan of approximately $4.2 billion, investing in critical energy infrastructure, cost-saving energy efficiency, and system modernization for reliability and to meet new demands. During the same time, we have worked with the Governor's office and the New Jersey Board of Public Utilities to keep electric rates flat in 2026, in keeping with Executive Orders 1 and 2 that are addressing utility costs and generation supply. PSE and G's electric customers will also benefit from the update reflecting the latest Basic Generation Service auction results, which will go into effect on June 1. On February 1, we also kept residential natural gas rates flat for the remainder of the 2025–2026 winter heating season, delivering to our customers the lowest gas bills in New Jersey and in the region. And there is more good news for PSE and G electric customers. In early March, FERC issued an order supporting PSE and G and the State of New Jersey's objection to PJM transmission cost allocations. FERC's ruling reallocating these costs is expected to result in significant refunds of over $100 million, based on our estimates, to PSE and G customers after PJM's implementation. While this matter is still being litigated at FERC, it is another example of how Public Service Enterprise Group Incorporated works in partnership with the state at the regional and federal levels to keep our customer bills as low as possible. I would also like to mention that we are ramping up PSE and G's technology-driven conservation efforts. PSE and G recently launched two new ways to reduce energy use during peak times to save customers money and help reduce strain on the grid. The first is our demand response program with over 32 thousand residential and small business customers already enrolled to receive an upfront payment for reducing air conditioner use and other activities like EV charging during selected peak hours throughout the year. The second program is our new residential time-of-use rate that can save customers money by shifting some of their usage to off-peak time. This new rate option leverages the more detailed electric usage made available by our AMI investment in smart meters. Combined with our energy efficiency programs, PSE and G offers customers a variety of ways to reduce energy usage, manage their bills, and starting this summer, participate in creating a more flexible energy grid through our virtual power plant pilot. The BPU has started the process of implementing this directive in the first executive order. We expect that the BPU consultant will release the study this summer and that a stakeholder process on the topic will continue throughout the remainder of the year. We intend to fully engage with the BPU throughout this process. Now turning to PSEG Power. First, I would like to congratulate the PSEG Nuclear team for completing a second consecutive breaker-to-breaker operating run at Salem Unit 2 to begin their refueling outage this April. That notable accomplishment contributed to a 95.5% capacity factor and supplied 8 terawatt hours of reliable, carbon-free baseload energy to New Jersey and the grid during the first quarter. Last week, FERC approved the extension of the PJM price collar through the 2029–2030 base residual auction. This extension is expected to stabilize the effect of upcoming auctions on New Jersey's BGS default prices, even as regional demand growth advances with a limited supply response. As part of an all-of-the-above long-term approach to increase New Jersey-based generation supply, Governor Cheryl recently signed legislation lifting a decades-long moratorium on new nuclear construction. The announcement made at our three-unit site in Salem County highlighted broad support from policymakers, legislators, and labor leaders. Public Service Enterprise Group Incorporated is engaging in efforts to advance new nuclear development at the PSEG site. We believe the site's unique strengths, including an early site permit, prime logistics, access to a skilled workforce, and opportunities to leverage our operating expertise through contractual arrangements, make it a leading candidate for new nuclear deployment. We have also been watching developments related to PJM's proposed reliability backstop procurement auction. It is intended to be a one-time procurement, or emergency auction, to accelerate new dispatchable generation that can be brought online by 2031 to serve data center–driven load growth. More details from PJM are expected over the next month, and we will continue our vigilance during the stakeholder process to advocate on behalf of PSE and G's customers. Wrapping up, Public Service Enterprise Group Incorporated had a strong operating and financial quarter to start the year by doing the right thing for our customers, our communities, and our shareholders, with an eye towards a sustainable future. Our corporate reputation for excellence beyond our well-known reliability and customer satisfaction awards was recognized again last week when Public Service Enterprise Group Incorporated was named to the Dow Jones Best-in-Class North America Index for the 18th year in a row. We are maintaining the broad set of financial projections that we shared late in February, starting with our five-year regulated capital investment plan of $22.5 billion to $25.5 billion at PSE and G, and $24 billion to $28 billion for PSEG both through 2030. This investment program supports the utility's 6% to 7.5% compound annual growth in rate base, also through 2030, and helps drive a 6% to 8% non-GAAP operating earnings CAGR at Public Service Enterprise Group Incorporated over that same period. I would highlight again that items including nuclear revenue opportunities above current market prices, winning additional competitive transmission solicitations, or making incremental system investments to connect several thousand megawatts of solar and battery storage resources to the grid to meet new demand would be incremental to our 6% to 8% non-GAAP operating earnings CAGR. I will now turn the call over to Dan, who will review this quarter's results, then rejoin the call for our Q&A session. Daniel J. Cregg: Great. Thank you, Ralph, and good morning, everyone. Public Service Enterprise Group Incorporated reported net income of $1.48 per share for the first quarter of 2026, compared to $1.18 per share in 2025, and non-GAAP operating earnings were $1.55 per share for the first quarter of 2026, compared to $1.43 per share in 2025. We provided you with information on slide 8 regarding the contribution to net income and non-GAAP operating earnings by business for the first quarter, and slide 9 contains a waterfall chart that takes you through the net changes quarter-over-quarter in non-GAAP operating earnings per share, also by major business. Starting with PSE and G, which reported first quarter net income and non-GAAP operating earnings of $577 million for 2026, which compares to $546 million in 2025, utility results reflect ongoing investment in energy efficiency, gas system modernization, and transmission, the seasonality of gas demand, and the continued gradual increase in the number of electric and gas customers. Starting with the waterfall on slide 9, compared to 2025, transmission margin increased $0.01 per share due to higher investment. The first quarter distribution margin increased by $0.07 per share compared to the year-ago period and largely reflects incremental gas margin from the third quarter 2025 GSMP II extension roll-in, an increase in the number of customers in the quarter, and higher gas demand outside of the decoupling mechanism. Higher investment in energy efficiency also contributed to distribution margin in the quarter. Distribution O&M expense was $0.01 per share higher compared to 2025, reflecting an increase in operating costs due to inflation and extreme weather in January and February. Depreciation and interest each rose by $0.00 per share compared to 2025 due to capital investments and higher long-term debt interest rates, and for utility taxes and other, lower flow-through taxes had a net favorable impact of $0.0 per share in the first quarter compared to the prior-year period. First quarter weather, as measured by heating degree days, was 5% colder than normal and 8% colder than 2025, but had a limited impact on utility margin. As you know, the Conservation Incentive Program, or CIP, mechanism decouples weather and other economic sales variances for a significant portion of our distribution margin, while helping PSE and G promote the widespread adoption of energy conservation, including energy efficiency and solar programs. Under the CIP, the number of electric and gas customers drives margin, and residential customer growth for both segments was about 1% over the past year. On our regulated capital spending program, PSE and G invested approximately $800 million during the first quarter, and we remain on track to execute our full-year 2026 plan of approximately $4.2 billion focused on continued investments in infrastructure modernization, energy efficiency, electrification initiatives, and load growth. We have also maintained our five-year regulated capital investment plan of $22.5 billion to $25.5 billion through 2030. PSE and G began the next phase of the GSMP III program in the first quarter, and we anticipate investing a total of $1.4 billion over the three-year period. The GSMP III program's total includes approximately $1 billion in accelerated recovery and $360 million in stipulated base. Also in the first quarter, the BPU certified the results of the annual New Jersey Basic Generation Service, or BGS, auction that was held to secure electricity for customers that have not selected a third-party supplier. These auction results will have the effect of lowering the cost of electricity supply by 1.8% on PSE and G residential electric bills for energy and capacity starting June 1. Moving to PSEG Power and Other, for 2026 we reported net income of $164 million compared to $43 million in 2025, while non-GAAP operating earnings were $201 million for the first quarter compared to $172 million for 2025. Referring again to the waterfall on slide 9, the first quarter 2026 net energy margin was flat compared to the year-earlier quarter, as higher gas operations and capacity prices were offset by the absence of zero emission certificates, lower generation volume, and the absence of fuel and energy management fees under the renewed LIPA contract, which commenced in January 2026. O&M costs declined in the quarter, providing a $0.06 per share benefit compared to the same period in 2025, primarily reflecting a net reduction in operational expenses and an adjustment to tax reserves. The impact of higher interest costs and lower depreciation expense netted to a drag of $0.01 per share in the first quarter, reflecting incremental debt at higher interest rates partly offset by lower depreciation expense, reflecting our expectation that the NRC will approve a 20-year license extension for the New Jersey nuclear units. Lastly, taxes and other items had a net favorable impact of $0.01 per share in the quarter compared to 2025. Touching on some recent financing activity, Public Service Enterprise Group Incorporated had ample liquidity totaling $3.9 billion at March. This includes approximately $400 million of cash on hand, primarily related to net PSE and G financing activity during the quarter. Public Service Enterprise Group Incorporated entered into a $500 million 364-day variable-rate term loan in February, further supporting our liquidity position. Also during the quarter, all of our revolving credit facilities totaling $3.75 billion were extended by two years through March 2031. On the financing front this past January, PSE and G issued $1 billion of secured medium-term notes, consisting of $500 million of 4.20% MTNs due 2031 and $500 million of 5.63% MTNs due 2056. A portion of these proceeds were used to repay $450 million of MTNs at just under a percent that matured in March 2026. Public Service Enterprise Group Incorporated also has limited exposure to variable-rate debt, which totaled approximately $915 million and consists of two 364-day term loans and commercial paper, and represented a low 4% of our total debt at March. Looking ahead, our solid balance sheet continues to support the execution of Public Service Enterprise Group Incorporated's five-year capital spending plan, directed mostly to regulated CapEx, without the need to issue new equity or sell assets, and provides for the opportunity for consistent and sustainable dividend growth, as demonstrated by the 2026 indicative annual rate of $2.68 per share established by our Board in February. This new dividend rate represents an annualized increase of approximately 6% for 2026 and marks our 15th consecutive annual increase. In closing, we delivered solid operating and financial performance to begin the year, and are maintaining Public Service Enterprise Group Incorporated's full-year 2026 non-GAAP operating earnings guidance of $4.28 to $4.40 per share. We are also reaffirming our 6% to 8% compounded annual growth rate for non-GAAP operating earnings through 2030 based on the continued execution of our strategic plan. That concludes our formal remarks, and we are ready to begin the question-and-answer session. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session for members of the financial community. If you have a question, please press star and the number one on your telephone keypad. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing star and the number two. If you are on a speakerphone, please pick up your handset before entering your request. One moment, please, for the first question. The first question comes from the line of Shahriar Pourreza with Wells Fargo. Please proceed with your question. Analyst: Hi. Good morning, team. It is Constantine here for Shar. Thanks for taking the questions. That is why I paused a little bit there, Constantine. I was not sure if it was you or him. So I did not want to say hello to Shar first. How are you, Constantine? Oh, doing quite well. Thank you so much. Just maybe a quick one starting on the BPU and the legislative process on utility constructs. The different branches finding their footing in terms of priorities? Is there anything in the cost-of-service model getting attention? Or, I guess, do the changes in ROE move the needle on affordability, or is there just a general recognition that the pressure is coming from the supply-demand that is really outside the state? Ralph A. LaRossa: Look, I totally agree with what you just said. I think a lot of people are finding their footing, and there have been a lot of constructive conversations between the companies, the administration, legislators, and the BPU. I think everybody is trying to do exactly what you said: find their footing. Everybody does recognize the challenge has been generated from outside the state, but we also know that we have some responsibility to do what we can from an affordability standpoint for our customers. So everybody is trying to row in the same direction. I hope you hear my tone. I feel positive about the way that we are trying to approach it as a team approach rather than a finger-pointing approach at this point. Analyst: Great. Appreciate that. Maybe shifting to the PJM capacity and reserve auction process. Some of the neighbors have been vocal around it. What could we see in terms of your participation in the RBA from both the power side and as the EDC? Any concerns around capacity cost allocation for your zone? Ralph A. LaRossa: Yeah, Constantine, as you said, there are a lot of people being pretty vocal about it. I would say we should all be a little bit calm and watch what happens here. There are a lot of steps to go through, and I do not want to overreact to anything. Obviously, we need to protect the customers and the utilities, and make sure they are not being burdened with planning assumptions that are being driven outside of anybody's responsibility. We have some states that have IRPs with their own planning assumptions, PJM with its own planning assumptions, and then you have customers putting in requests. All of that needs to be balanced, and putting that on the back of the utilities just does not seem to make a ton of sense for anybody. We will see how that plays out over time. I feel like it is a chance for us to bring more generation in. We all know there is a resource adequacy problem. I do not know how much we are going to get done—“we” being the region—by 2031, but I think it is a good step that we are trying, and I hope it produces some results. I think the limiting factor of 2031 is going to make it really tough for this to be a game changer. Daniel J. Cregg: And, Constantine, inherent within your question, you did talk about cost allocation. Very consistent with our actions related to the FERC decision around cost allocation, we are going to continue to look out for our customers and, in this instance, like the one we referenced in the prepared remarks, we will continue to make sure that those allocations, to the best of our ability, are going to be fair for our customers. Analyst: Maybe just to clarify, do things like the capacity price cap extension provide any additional upsides on the power side versus the 6% to 8% plan? Ralph A. LaRossa: I think we had envisioned and spoken in the past about the fact that we thought things were going to stay about where they were, so I would leave the comment there. Analyst: Appreciate it. Thanks so much for the time today. Operator: Our next question comes from the line of Carly S. Davenport with Goldman Sachs. Please proceed with your question. Ralph A. LaRossa: Hey, Carly. Carly S. Davenport: Good morning. Thanks so much for taking the questions. Maybe just starting on New Jersey, we do have a stakeholder meeting being held by the BPU this week on Executive Order 1, focused on the utility business model. Anything that you are expecting out of that meeting in terms of focus areas or what you think is on the table to address as we think about the utility business model in New Jersey? Ralph A. LaRossa: Consistent with what we have said in the past, we expect performance to be one of the biggest issues that will be on the table, and we welcome that. In the areas that we have seen focus in other states, our performance has been exemplary, and I would expect that to continue. I would, in some ways, welcome the recognition of our utility for the work that has been accomplished from a reliability standpoint, from the ability to hook up customers, and from customer satisfaction. Those three areas are areas where we think we have a lot of strength, and where the performance conversation goes, we would be supportive of that. We will be participating and constructive in the conversations. Carly S. Davenport: Got it. Okay. Great. That is helpful. Sticking in New Jersey but on the nuclear side, you mentioned the lifting of the moratorium in your prepared remarks. Can you talk a bit about how you envision Public Service Enterprise Group Incorporated participating on the nuclear front in the state, and what some tangible updates could look like as we think about the opportunities around new nuclear? Ralph A. LaRossa: We have been leaning in. It is clear that the federal administration is supportive of additional generation, and it looks like nuclear is one of those areas where there is momentum. The signing of that legislation was a great event and a great signal from the administration of their support. We are going to continue to do what we have been doing, which is try to enable it and advocate really hard for the state. We think we have a great site down at Salem. The port construction was completed; it will make some construction activities easier. We have great labor in that area, and we have the technical capabilities and operational performance to deliver additional megawatt-hours out of that area. So we are going to be advocating hard and try to stay lockstep with the administration on that. Carly S. Davenport: Great. Thank you so much for the time. Ralph A. LaRossa: Thanks, Carly. Operator: Thank you. Our next question comes from the line of Jeremy Tonet with J.P. Morgan. Please proceed with your question. Ralph A. LaRossa: Hey, Jeremy. Jeremy Tonet: Hi. Good morning. Jeremy Tonet: I was just wondering if I could start with a large load increase here. Could you provide a bit more color on the current state of conversations and interest there? Where does the total count stand versus last quarter? I think it was 11.8 as of December. Daniel J. Cregg: Yeah, Jeremy, that is about right. It is interesting—last year, if you go through the year, we saw quite a significant increase as you stepped through time. You were seeing the knee of the curve as the interest more broadly was coming about in data centers. I would say directionally you have seen that level off within the state. That 11 thousand we always talked about as being somewhere—maybe 10%, 15%, 20% of that—may come to fruition if we look, based upon history, at what we have seen within different new business coming forward. It is hard to predict, which is a broad topic across the sector. We are still in that ballpark. The change that we saw across last year had us put that forward so people could get an understanding, and with the leveling off, there is a little bit less to talk about on that front. We still pursue the ability to try to serve some of that load, either here or in Pennsylvania, where we have the Peach Bottom units, and that activity continues. Jeremy Tonet: Got it. That is helpful. That leads to my next question. Could you provide some color bifurcating between the states as far as interest or type of activity and conversations? At the same time, how does demand response currently factor into any of these discussions, and has that changed over time? Daniel J. Cregg: I do not think the demand-response factor has changed the discussions over time, but the first part of your question provides more differentiation, literally by virtue of what type of data centers are interested in going where. Absent significant tax incentives in New Jersey, you have not seen sizable interest in New Jersey. That has been a consistent concept that we have talked about for a while. In other states—there are plenty—some of the larger hyperscalers have the ability to derive financial incentives, and they are following those incentives from everything we have seen. The opportunity set to serve them follows suit with that. Jeremy Tonet: Got it. Makes sense. I will leave it there. Thank you. Ralph A. LaRossa: Thanks, Jeremy. Operator: Our next question comes from the line of Nicholas Amicucci with Evercore ISI. Please proceed with your question. Ralph A. LaRossa: Hey, Nick. Nicholas Amicucci: Hey, guys. How are we? Just a couple quick ones from me, if I could. When we think about the cadence at Salem and the potential for the capacity upgrade, would we pretty much assume that you would be seeking the extension first and then any firm announcement on a potential upgrade? Ralph A. LaRossa: You are talking about the license extension first? Nicholas Amicucci: Yeah. Daniel J. Cregg: The Salem units have current licenses that run through 2036 and 2040. Anything we would do to extend that another 20 years would happen in advance of that. What we have talked about with respect to the uprate, by comparison, is either the outage in 2027 or the outage in 2029 is when we would anticipate those coming on. There will be activity on the license extension, but you will see the upgrade come through within those time frames I mentioned. Ralph A. LaRossa: Very specifically, we are not counting on that extension to be in before we do the upgrade. That is not a gating factor. Nicholas Amicucci: Got it. Perfect. And then, given the strong performance—obviously somewhat weather-driven—in the first quarter, the adjusted EPS is roughly 36% of the midpoint and pretty above seasonal. Understanding it is early, what would you need to see going forward to move to the upper half of the range or increase guidance altogether? Daniel J. Cregg: On a normal year, even when you are decoupled, just volumetrically you are going to see a lot more coming through in the winters and the summers. There is a piece of that you see coming through from this winter. If I were to give you a one-word answer, it would be “summer”—what the summer ends up looking like. We are decoupled, so we do not have as much of an impact from that perspective, but there are elements—whether it is weather driving demands a little bit higher on gas or snow removal and things of that nature—that have an impact on results. We have more of those types of events in the winter and in the summer. I would say get through the summer and see what we look like. Ralph A. LaRossa: The other piece to this—just to remind you—we mentioned gas ops and that there was some value generated from our gas operations group. That also goes to offset customer rates pretty dramatically. So another good news message for the customers in New Jersey that we were able to transact in that area. Nicholas Amicucci: Perfect. Thanks, Dan. Thanks, Ralph. We will see you guys in a couple of weeks. Operator: Thank you. Our next question comes from the line of Julien Patrick Dumoulin-Smith with Jefferies. Please proceed with your question. Julien Patrick Dumoulin-Smith: Hey. Good morning, Ralph and team. How are you guys doing? Ralph A. LaRossa: Good, Julien. How are you? Julien Patrick Dumoulin-Smith: Quite well. Thank you very much. Appreciate it. Ralph A. LaRossa: Looking forward to another video. Daniel J. Cregg: Really. Come on. Bring it on. Let us do it. Gotta keep it lively. Julien Patrick Dumoulin-Smith: Let me ask you about PJM here. How do you think about your participation—whether in a bilateral context or outright in some other permutation? We have heard comments this morning and elsewhere. How do you think about that coming together, and how would you set expectations around this process? You are keeping close tabs on this at the state level and at the PJM level. How would you set expectations about what ultimately happens in terms of backstop versus bilateral versus capacity not getting procured on a timely basis? Ralph A. LaRossa: Your question—participation—you mean in new generation? Julien Patrick Dumoulin-Smith: In any flavor. I am curious about the process and then separately your participation in any flavor. Ralph A. LaRossa: The number one thing that we have been on—this goes back a long time, before the words “resource adequacy” were popular—is reliability: the reliability of the grid. We have been on that since 2003, since the lights went out. We start from there—looking out for reliability—and then looking out from a customer cost standpoint. We need to make sure that we are protecting the customer, number one, and making sure that there is enough product to deliver to those customers, number two. I am not sure that the way it is currently drafted really does both of those things. There is a concern about putting that burden on the LDCs versus the LSEs and whatever other acronyms we want to throw in there. We will participate in the process and we are going to advocate strongly. We have a new CEO at PJM who has just stepped into the role. Before we pass any judgment on what is going on at PJM, let us give them a chance to get their feet under them, get the organization structured the way they want, and the rules and proposals the way they would like to see them. We will continue to look at this from the customer's perspective and advocate on that behalf. Part two is when you think about generation—where is this supply going to come from? We get the question all the time: will you participate? We have always said we will do utility-like generation. We think we have some sites that make sense. The question is the fuel supply, and whether that is a fuel supply that makes sense for the state that those sites sit in. We are open to it, but it has to be utility-like investments when we have those conversations. Julien Patrick Dumoulin-Smith: Got it. Okay. Fair enough. And when you talk about new nuclear—understood why—how do you think about next steps in the state? You have got to get the right risk construct. Tangibly, what would the next step look like to show progress if there is to be something to happen? Ralph A. LaRossa: It is going to be a combination of government supporting the effort. You will need to see strong support from the federal government. There are rumors around that in different ways, shapes, and forms from different departments in Washington. Number one, we would need federal support. Number two, you would have to have state support. I think you need states looking for offtake agreements, you need hyperscalers looking for offtake agreements, and you need companies supporting it. A combination of things would have to come together. It all, to me, starts with the government being aligned—and aligned for the long term. You need to ensure that not only do you have some financial support, but that you have permitting support and siting support. We have heard a lot of that from our Governor—that streamlining permitting is one of the things they want to do here in New Jersey. Again, aligned with building new generation. I do not see any state taking on new nuclear without the support of the federal government. Julien Patrick Dumoulin-Smith: To elaborate on the last one, is there timing on when you could follow through on contracted new generation, whether gas or more specific storage or solar? Ralph A. LaRossa: You have to see what all the rules are—that was my point. When you look at this reliability backstop, we will see what those rules are when they come out. If that is a pure market solution, that is not something we are interested in. We are not interested in participating in that; that is not our core business. But if we are looking for rate base—utility-like—we have done that in the past: 30-year PPAs, those types of things. I do not know what will come out of this RBA. Also, remember, it is only on the capacity side. You still have the whole energy side that you have to figure out how you get a contract for. Julien Patrick Dumoulin-Smith: I hear you. Alright, I will leave it there. More to go. Ralph A. LaRossa: Thanks, Julien. See you in a little bit in May. Operator: Thank you. Our next question comes from the line of Michael P. Sullivan with Wolfe Research. Please proceed with your question. Michael P. Sullivan: Hey, guys. Good morning. Ralph A. LaRossa: Hey, Michael. Michael P. Sullivan: Picking up on your last comment—the energy side of the equation—any color you can give on the sharp move in PJM pricing and how you are thinking about that on both sides of the house? Any color on longer-term hedges, and then how you are thinking about the bill impact from that on the utility side? Daniel J. Cregg: Michael, this is Dan. The most immediate impact on the bill is going to be the BGS that we procured in February. From a bill perspective, we know what things are going to look like, and for PSE and G customers, they are going to see their bill go down 1.8% by June 1 because of what happened on BGS. From a customer perspective, that will change again next June 1. There is a lot of stability inherent within the BGS construct that the state put together many years ago that still exists. More broadly, if you think about markets, one of the things markets are trying to figure out is where this RBA goes and what it brings in from a supply perspective. People are weighing their views as to how much load is going to come on the system and what generation is going to be there and needed. Ultimately, through the market construct, that is how prices are going to be set. Those are the bigger questions that people will continue to digest. Like in any other market, they will use the available data, but in this instance it is how much load is going to actually come online and when, and the same two questions around supply. In general, I think you are going to have a tighter market because the path to incremental demand is a little bit clearer from a volumetric perspective than the path to incremental supply. Michael P. Sullivan: Okay, that is helpful. Any color on how much you are hedging into this in the out years? Daniel J. Cregg: The thing that we have said is that for the prompt year we are pretty close to fully hedged, and then as you look through the couple of years, we cascade off a little bit. Analyst: Next, just the next couple months here into the summer resets at the legislature—anything you expect or are focused on getting done between now and then? Ralph A. LaRossa: I think affordability remains a hot topic here in the state. We are prepared for those conversations as they continue to take place, and we continue to be supportive. I think there is a possibility for people to be talking about resource adequacy solutions and something else that might be out there. We are monitoring, and once those issues—if there is any legislation introduced—come up, we will assess them and comment on them. Analyst: Okay. Great. Thank you very much. Operator: Thank you. Our next question comes from the line of Analyst with KeyBanc Capital Markets. Ralph A. LaRossa: Good morning, Sophie. Analyst: Good morning. Thank you for taking my questions. I am curious if you see any opportunities for yourselves in the upcoming PJM transmission open window. Daniel J. Cregg: We even hit a little bit of that in the prepared remarks. On an ongoing basis, we look at what comes through those open windows. We will do exactly the same thing this summer when the next window opens. I would call it a careful look at what makes the most sense for us. We have a pretty deep well of experience in building transmission, but that does not mean everything makes sense for us. We go through carefully, and to the extent that we think something does, we will put in a competitive bid. To remind you, the capital plan that is in place does not have anything that we have not already won through a competitive process. But I absolutely think we have the skill set to expand in that area, and we will increment the capital plan to the extent that we do win as we go forward. Analyst: Thank you. Then on data centers, I appreciate your comment that absent incentives they are not necessarily looking to locate in New Jersey. Is there an option for your New Jersey assets to have virtual PPAs, virtual offtake with a facility elsewhere, or is that not a major focus right now? Daniel J. Cregg: We are deliverable beyond New Jersey, and even today power flows on the grid in the region. There is absolutely the potential for us to do something with the New Jersey units or the Pennsylvania units beyond the node they are at and beyond the zone they are in. So yes, that is possible. Analyst: Okay. Thank you. Daniel J. Cregg: Thanks. Operator: Thank you. Our next question comes from the line of Analyst with Bank of America. Please proceed with your question. Analyst: Hi, guys. Thanks for taking the question. First on the BGS auction—you got the 1.8% reduction that is going into effect in June. How are you thinking about the repeatability of that, with capacity prices either staying at the same level or going lower and potentially power prices going up? Do you think you can keep up the same decreases year over year? Daniel J. Cregg: You understand the pieces as well as we do. The way that auction works is that it is for a three-year period for a third of the load. You are taking a look—at least by design, unless there are delays at PJM—at capacity auctions that have already transpired. So that is a known item. We do not know what they all are now, but we will know by the time the auction comes around. Then a forecast of what energy prices look like—that is probably your biggest variable as you go forward. The other thing I would say is that being an auction for a third of the total demand, any impact—if you were to see a $3 impact to the price of energy—you would see a $1 impact come through to the bill because of the gradual effect. You would see that $1 increase across three years. The gradualism of that mechanism provides gradualism in the impact on rates to customers. Beyond that, trying to estimate exactly where things are going to go is tough to do. Ralph A. LaRossa: To reinforce something Dan said, the last time we had sticker shock was due to a capacity market delay. Even if prices are incrementally up a little bit, you are not going to have that same sticker-shock situation that we experienced a year ago when the BGS price came in so high because the capacity prices had piled up for three years. Those increases sitting there caused the challenge that we had. It was not necessarily incremental, especially in what we believe is a very good mechanism in the BGS, where you have this third/third/third. Daniel J. Cregg: But for the delay in the capacity auction, you would not have seen the magnitude of the year-over-year increase that you saw. Analyst: That is very clear. It makes sense. And then on the RBA—we have talked a lot about it on this call—but I saw the proposal that you filed jointly with some other EDCs. How are you thinking about the ideal things that need to be solved and would be in your favor for that? I saw that the load-serving entity should be the cost responsibility, but anything else you would point out? Ralph A. LaRossa: The key is the planning process. You really have to make sure that the planning process is a solid one and there is consensus around it. Whoever is the planner winds up with the accountability—that is the key. To have the planning done by a town and the accountability sit at the county level does not make a ton of sense—I am just using a parallel there. We have to get all of that aligned. States have IRP requirements. In addition, PJM has been granted by the EDCs responsibility for transmission planning. You put those pieces together, and it is kind of odd for that to wind up back with the EDCs. Therefore, the LSEs—the entities that have been identified with the responsibility—are where we believe the burden should sit. Analyst: That all makes sense. Very clear. Thanks so much, guys. Operator: Thank you. And our last question comes from the line of Anthony Crowdell with Mizuho Securities. Please proceed with your question. Anthony Crowdell: Hey, Ralph, Dan. Thanks for squeezing me in on a busy morning. Just a follow-up to, I think, Nick's question earlier on the nuclear upgrades and maybe the timing of them. When do you file for approval for the uprates? Is that an additional CapEx opportunity, or is it further out in the five-year plan, or do you already have any included in your current plan? Daniel J. Cregg: We have the capital for the uprate included, and the timing is going to depend upon which outage it goes into, Anthony. As I said—2027 or 2029. We will have an outage for those units in 2027 and an outage in 2029. Depending upon how it moves forward, that is when we will end up seeing that uprate go through. You are asking about the uprate, not the license extension, right? Anthony Crowdell: No—more the license extension. I am sorry if I was not clear. Ralph A. LaRossa: For the license extension, we will get information back over the next X amount of years. I know NRC is trying to move that a little bit quicker than they have in the past. At that point, they will let us know whether or not we have to change the oil, change the tires—what needs to be done. We will be able to forecast the CapEx at that point. Anthony Crowdell: Is it within the five-year period, or could it also be outside the five-year period? Ralph A. LaRossa: We would certainly gain consensus with NRC on the work that needs to be done in the five-year timeline, and I think the work will be completed outside the five-year timeline. Anthony Crowdell: Great. That is all I had. Thanks so much. Ralph A. LaRossa: Thanks, Anthony. Operator: Thank you. There are no further questions at this time. I would like to turn the floor back to Mr. LaRossa for closing comments. Ralph A. LaRossa: Thank you all for your interest and dialing in today. I know it is a busy day for many of you on the call, so I appreciate you taking the time. I look forward to speaking to everybody at AGA. I will end with another thank you to our team here for the work completed through this past winter. The weather was not easy for us, and people continued to work above and beyond our expectations. Thank you to the team, and thank you all for calling in. Looking forward to seeing you all at AGA later this month. Take care. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your line at this time. Thank you for your participation.
Operator: Good day, everyone, and welcome to the Thomson Reuters' First Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Gary Bisbee, Head of Investor Relations. Please go ahead, sir. Gary Bisbee: Thanks, Margo. Good morning, and thank you all for joining us today for our first quarter 2026 earnings call. I'm joined today by our CEO, Steve Hasker; our CFO, Mike Eastwood; and our incoming CFO, Gary Bischoping. Steve and Mike will discuss our results, and then we'll take your questions following our prepared remarks. [Operator Instructions] Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure underlying performance of the business. Today's presentation contains forward-looking statements and non-IFRS and other supplementary financial measures, which are discussed on this special note slide. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these reports on our website or by contacting our Investor Relations department. Let me now turn it over to Steve Hasker. Stephen Hasker: Thank you, Gary, and thanks to all of you for joining us today. Before I begin our prepared remarks, I'd like to recognize our colleagues at Reuters, who learned yesterday that they have won 2 2026 pullet surprises for journalism, bringing the total pullet surprises to 15 since 2008. So congratulations to Alexander and everyone at Reuters. We have had a strong start to 2026 with revenue growth ahead of our prior expectations and margins in line. Total company organic revenues rose 8%, up from 7% throughout 2025, driven by 9% growth from the Big 3 segments. We are reaffirming our full year 2026 outlook for organic growth in a range of 7.5% to 8%, including approximately 9.5% for the Big 3 segments and for our margins to rise by 100 basis points year-over-year to approximately 40%. Good momentum continues from many areas in our portfolio. This includes double-digit growth from key products, including CoCounsel, Pagero, SafeSend, SurePrep and our international businesses. We continue to invest heavily in innovation, and we remain focused on delivering against our robust product road maps. Commercial momentum across our AI-enabled offerings continues to build, highlighted by strong adoption trends for Westlaw Advantage. Later in my remarks, I will discuss why we are uniquely positioned to provide producery-grade AI and provide an update on adoption and usage trends. We also remain excited by the development of Thomson, our proprietary legal focused large language model. Thomson has begun to outperform leading frontier models on specific legal tasks and provides us with important optionality as we continue to execute our AI innovation road map. Our capital capacity and liquidity remain a key asset we are focused on deploying to create shareholder value, and we made solid progress on this during the quarter. In February, we raised our annual dividend by 10% for the fifth consecutive year. We repurchased $262 million of our shares in the first quarter. And yesterday, we completed the previously announced $605 million return of capital and concurrent share consolidation. Together, these transactions have reduced our share count by approximately 2%. We remain committed to a balanced capital allocation approach, and we continue to assess a number of inorganic opportunities with more than $9 billion of estimated capital capacity through 2028, we are positioned to be both aggressive and opportunistic. Now to the results for the quarter. First quarter organic revenues grew 8%, organic recurring and transactional revenue grew 8% and 10%, respectively, while Print revenues declined 5%, in line with our expectations. Adjusted EBITDA increased 9% to $881 million with a margin of 42.2%. Turning to the first quarter results by segment. The Big 3 segments delivered 9% organic revenue growth. Legal organic revenue again grew 9% despite softer government growth. Legal, excluding government, accelerated to 11% in Q1 from 9% last quarter. Continued momentum from Westlaw and CoCounsel Legal were the key drivers. Corporate's organic revenue grew 9% driven by offerings in our legal, tax and risk portfolios and segments international businesses. Tax, audit and accounting organic revenues grew 10% driven by CoCounsel for tax and audit, our Latin American business and SafeSend. Reuters' organic revenues rose 6%, driven by within the agency business and our contract with LSEG. Lastly, Global Print organic revenues declined 5% year-on-year. In summary, we're pleased with our start for 2026. I'll now discuss a concept we've recently coined what we call fiduciary-grade AI and provide a few updates on customer adoption and usage. The AI workflow market is evolving rapidly, and we see 3 tiers of solutions emerging. First, general purpose productivity tools that are broadly useful but lack domain depth. Second, professional grade AI built for specific fields, but operating environments where some error is tolerable. And third, the one that defines our business, which is fiduciary-grade AI. Work in law, tax and audit operates under strict regulatory and professional standards because the consequences of being wrong are severe. A small error can mean a lost case, a failed audit, a meaningful financial exposure or worse the loss of customer trust. And that's why professionals in these fields cannot rely on probabilistic answers. They need deterministic solutions that produce work that they can verify, validate and stand behind. We believe that the winners in fiduciary-grade AI will be those who train agents to automate complex work with the accuracy and accountability that fiduciary professions demand. This is a difficult standard, but one we are equipped to meet. In fact, one where we believe we have met with Westlaw Advantage because we bring 4 key assets, which set a standard that cannot be watched. The first asset is our proprietary authoritative content. Without authoritative data, you have no source of truth and thus cannot ground or validate your AI outputs. General purpose models trained on broadly available information, lack this source of truth. We have spent decades building and curating unique proprietary content repositories in legal, tax and compliance, including Westlaw, Practical Law, Checkpoint and clear. These are not easily replicable. The second asset is our deep domain expertise. We have the largest team of subject matter experts in our markets, totaling approximately 2,600 people. This domain expertise is critical. As our experts not only help create our content, but also play a key role in training our AI agents and evaluating and validating their outputs. Let me share an example. Since last July, teams have seasoned attorneys and data scientists have invested thousands of hours building the CoCounsel bench evaluation framework, a growing repository of gold standard [ onces ] to real-world legal queries. CoCounsel bench is used to evaluate and improve the performance of our AI products throughout development so that our AI solutions meet the exacting standards legal professionals require. The third is data privacy and governance. Our messaging to customers is very clear. Their inputs will not become part of our AI output. When a client's privacy is paramount, we protect their workflows, strategic approaches and confidential information. The idea that a fiduciary is training a third-party platform with their clients' confidential information is a third rail issue for the professions that we serve, which makes our commitment in this area, an important trust factor with our customers. The fourth is our customer support infrastructure. When a litigator is working through a complex research matter in Westlaw or a CPA needs help understanding intricate tax regulations as they prepare a tax return they can call our expert reference attorneys and tax analysts. We invest heavily in these capabilities to support our customers and their outcomes in real time. No frontier model or AI-focused start-up offers this. In summary, our authoritative content, train domain experts, data privacy and governance and our customer support together uniquely positioned Thomson Reuters to deliver fiduciary-grade AI solutions to the standards our professional customers demand. Let me next share a few updates on the success we're having with customer adoption of our AI products. I'll start with an update on Westlaw Advantage. As is shown on the left side of the slide, customer feedback has been strong, supporting our view that the new agentic deep research capabilities offer a meaningful step forward in performance. Through 8 months, adoption is running faster than what we have seen with the 2 prior Westlaw upgrade cycles, contributed to our revenue growth from law firms accelerating to 11% in the quarter. Last quarter, we mentioned our work on the next-generation version of CoCounsel Legal, which incorporates a similar agentic framework that has been so successful with Westlaw Advantage. We built from the ground up, it delivers on the vision we set out from the start, an AI companion that works alongside lawyers through every task and every stage of a matter grounded in the trusted sources of knowledge that they can rely on. On the right half side of the slide, we share feedback from 3 customers that have participated in the alpha development stage, which supports our optimism. We recently entered beta with a broader set of customers using the product and look forward to a full launch of next-generation CoCounsel legal in the third quarter. In February, we announced an important milestone, achieving 1 million users for the advanced AI features in our product portfolio through CoCounsel. On the topic of usage, let me share several other statistics to describe the growing customer interaction with our AI features and offerings. Firstly, monthly CoCounsel [ SKUs ] in legal have quadrupled year-over-year with strong growth in both the U.S. and international markets. Secondly, we've seen significant growth following the Westlaw Advantage launch with the number of advantage users and deep research searches, both up more than 7x in the last 6 months. And thirdly, CoCounsel for tax and audit weekly conversation volume has grown approximately 5x since September, reflecting accelerating adoption. And in summary, we remain excited about the building momentum from our AI solutions and the opportunities ahead as we execute against our innovation road maps. Before turning to the financials, I'd like to acknowledge a very important leadership transition. Our Chief Financial Officer, Mike Eastwood, will be retiring at the end of this week after 26 years with Thomson Reuters. Mike has been a trusted partner to me and the Board and has played a central role in strengthening the company's financial discipline, capital allocation and operational execution through a period of significant transformation. I want to sincerely thank Mike for his many contributions and wish him well in his retirement. At the same time, I'm pleased to welcome Gary Bischoping as our incoming Chief Financial Officer. Gary is an accomplished tech executive and finance leader who brings deep financial expertise, strong operational experience and a long and successful track record of driving growth. Gary has been working closely alongside with Mike, me and the leadership team to ensure a seamless transition. We're confident in Gary's leadership and look forward to partnering with him as we continue to execute our strategy. I'll now turn it over to Mike for a review of our financial results. Michael Eastwood: Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk to revenue growth before currency and on an organic basis. Let me start by discussing the first quarter revenue performance for our Big 3 segments. Organic revenue grew 9% in the first quarter, continuing the strong trend from recent periods. Legal Professionals organic revenue grew 9% again this quarter despite the slower growth from government we discussed last quarter. Key drivers from our product perspective remain Westlaw and CoCounsel. While government slowed to 1% year-over-year growth, legal professionals, excluding government accelerated to 11% growth, up from 9% in the fourth quarter. The strength was broad-based with our large, mid and small law segments, all growing at double-digit growth rates. Our Corporate segment grew 9% organically, driven by 8% recurring and 12% transactional growth. Pagero, Confirmation, Westlaw, CoCounsel, and our international businesses were key contributors. Tax, audit and accounting organic revenue increased 10% and recurring and transactional revenues grew 10% and 11%, respectively. Our Latin America business, CoCounsel for tax and audit, SafeSend and SurePrep were key drivers. The tax, audit and accounting first quarter growth rate was impacted by 2 product updates that shifted revenue recognition towards the second half of the year. For the full year, we remain confident in our 11% to 13% revenue growth outlook, with acceleration from Q1 levels, driven by rising revenue contribution from our newer AI-driven offerings in the U.S., a key product line extension at Dominio in Brazil, and the product updates I just mentioned. Moving to orders. Organic revenue rose 6% for the quarter driven primarily by growth from the news agreement with the data and analytics business of LSEG and our agency business. The latter included $3 million of intercompany transactional licensing revenue related to Reuters News content being used for other Thomson Reuters products. Finally, Global Print revenues decreased 5% on an organic basis. On a consolidated basis, first quarter organic revenues increased 8% up from 7% throughout 2025 and slightly ahead of our expectation from a quarter ago. At the end of Q1, the percent of our annualized contract value, or ACV from products that are Gen AI-enabled was 30%, up from 28% last quarter. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $829 million, up 9% from the prior year period with a margin of 46.7%. Reuters adjusted EBITDA was $34 million with a margin of 16.1%. Global Print's adjusted EBITDA was $43 million with a margin of 38.6%. In aggregate, total company adjusted EBITDA was $881 million, a 9% increase versus Q1 2025, reflecting a flattish year-over-year margin of 42.2%. Our Q1 results included $12 million of severance expense related to our initiatives to reimagine how we work. Turning to earnings per share. Adjusted EPS was $1.23, up 10% from $1.12 in the prior year period. Currency had no impact on adjusted EPS in the quarter. Let me now turn to our free cash flow. For the first quarter, our free cash flow was $332 million, up 19% from $277 million in the prior year. EBITDA growth was the primary driver of the year-over-year increase in free cash flow. I will also provide a quick update on several capital allocation items. In the first quarter, we repurchased $262 million of our shares through the NCIB announced in February. Yesterday, we completed the previously announced $605 million return of capital and concurrent share consolidation. Together, these transactions reduced our share count by approximately 9 million shares or 2%. I will conclude with a few thoughts on our outlook. As Steve outlined, we are largely reaffirming our full year 2026 guidance. We continue to expect organic revenue growth of 7.5% to 8% with the Big 3 growing approximately 9.5%. Within the Big 3, we now expect legal professionals to grow by approximately 9% or the upper end of the prior 8% to 9% framework. We see 2026 adjusted EBITDA margins of approximately 40% up 100 basis points versus 2025, and we expect free cash flow of approximately $2.1 billion. We are raising our interest expense outlook by $30 million to a range of $180 million to $190 million to incorporate the $1.2 billion share repurchase and return of capital we announced on February 25. Inclusive of the higher interest, we expect these transactions to be accretive to our per share earnings and cash flow. We continue to expect the tax rate for the full year to be approximately 19%. I would also note, we plan to pay down the $500 million bond that matures later this month with cash and commercial paper borrowings. Turning to the second quarter. We expect organic revenue growth in a range of 7% to 8% and our adjusted EBITDA margin to be approximately 38%. As a reminder, the sequential decline in our margin into Q2 is primarily due to the normal seasonality of our tax, audit and accounting professionals business segment. I would like to thank you all for your trust and engagement over my 6 years as CFO. It has been an honor to lead such a strong team, and I am really excited for and confident in the company's future. Let me now pass to Gary Bischoping. Gary E. Bischoping, Jr.,: Thank you, Mike. I'm truly excited to be joining Thomson Reuters at such a pivotal moment in the company's evolution. Throughout my career, from my years at Dell to my CFO roles at Varian Medical Systems and Finastra and most recently as an operating partner at Hellman & Friedman, have been drawn to organizations at the intersection of innovation, transformational growth and value creation. Thomson Reuters is exactly that. What brought me here is a unique position this company holds, a trusted global content-driven technology company with strong competitive advantages, a clear strategic vision, a dynamic innovation engine and an extraordinary opportunity ahead in the AI era. I look forward to partnering with the leadership team to drive the next chapter of growth and value creation for our customers, our people and our shareholders. Now I'll turn it to Gary Bisbee for the Q&A. Gary Bisbee: Thanks. Margo,we're ready to move ahead with Q&A. Operator: [Operator Instructions] But we'll go to our first question from Drew McReynolds with RBC. Drew McReynolds: And Mike, congrats on everything, real powerhouse and appreciate all the transparency just in your role as CFO. It's been great working with you. The 2 questions that I had. I think first, maybe for you, Steve, on the legal LLM or the proprietary LLM Thomson. Can you just kind of flesh that out a little bit, just obviously getting good results from it, but how it kind of integrates into your product road map and maybe a little bit more granularity around that? And then secondly, as you look at the fiduciary-grade AI segment of the market, at a high level, obviously, in terms of potential TAM expansion within that segment as you roll out new AI capabilities, just comment on some of the moving parts and how you're doing TAM overall. Stephen Hasker: Yes. Thanks, Drew. And thanks for your comments about Mike. I share your thoughts on his transparency. So with regard to the Thomson model. So you may remember we made a very small acquisition a number of years ago, a business called Safe Sign as testing from SafeSend. And Safe Sign is a collection of of scientists working under the direction of Jonathan Schwarz who's a Google DeepMind researcher. And they're split between Cambridge and Harvard and Imperial College. And essentially, what they had done, we thought was some very early exciting work in building a large language model for legal. And Jonathan was attracted to Thomson Reuters because of the access to our data and our experts, and we are attracted to the quality of the team that Jonathan has built. And so we've really poured fuel on that fire. And Jonathan and his team, to their credit, have built a model, which as I mentioned in my prepared remarks, is outperforming the frontier -- the very latest frontier models for certain legal tasks. And I think the punchline here, Drew, is it provides us with optionality. So for example, we may -- we've built a series of AI products that are model-agnostic. So that's CoCounsel and Westlaw Advantage. We may decide to put some or all of the tasks performed by those agents across to the Thomson model, particularly if it continues to develop at the rate that it has been. So that's one option for us. I think one of a number of other options is we've attracted a significant amount of interest from our largest and most sophisticated customers. So law firms and General Counsel's office as to whether they can access models and start to use those models in conjunction with their own information. And so I think the punchline there, Drew, is we're very excited about the work that Jonathan is doing and the early results. And I think towards the back end of this year, we'll start to make some of the calls as to exactly how we're going to exercise the options I described amongst others. In terms of fiduciary-grade AI and the TAM expansion, I think for some time, as you know, we've been talking about the idea that law firms would replace their -- some of their real estate spend with increased technology spend. And then ultimately, as these tools develop and the change management within the firms starts to take hold, that they may be able to automate significant tasks, particularly at the sort of entry levels and particularly some of the research and document preparation human analysis work. And with CoCounsel Next, the next version of CoCounsel Legal, which, as I mentioned, is now in beta and is testing very, very strongly. We're starting to see, I think, that the process whereby the very high stakes work that has to be right that can't hallucinate is to understand real confidence in and around CoCounsel Next as a tool to support that. And with that, we think that the TAM expansion is just starting. I think we're starting to see it with the 11% organic growth in legal in the first quarter. And we're confident that, that is a trend that will continue for a number of years to come. And so you couple that with our product road map and the sort of change management support that we're increasingly providing to law firms into general counsel's offices. And I think our confidence is growing in the sort of organic growth characteristics of that legal professionals business and of the legal portion of our corporate business. Operator: And we'll next go to Stephanie Price with CIBC. Stephanie Price: Two questions from me. Just on the revenue guide. Hoping you could talk a little bit of the cadence of revenue here. With the Q2 outlook, it does look like H1 revenues are kind of tracking a bit ahead of the full year guide. Can you kind of think about what gets you to the top and bottom end of that revenue guide? And then my second question is just on Anthropic. Obviously, views TRI as a key client. Just curious how you think about vendor relationships here that you have with the LLM and how you envision the partnerships evolving over time? Michael Eastwood: Yes. Stephanie, I'll start and then ask Steve and Gary to supplement. I'll provide a few different viewpoints in regards to your question on the 2026 revenue guidance. First, you alluded to, our Q1 at 8% was slightly higher than the guidance that we provided in February at 7%. Two key factors there. Our legal professionals had really strong demand for Westlaw Advantage, which we launched back in August of 2025 at ILTACON. And second, we continue to have strong demand from our CoCounsel legal product. Secondly, within corporates, we had really strong growth from Pagero, thanks to Laura Clayton McDonnell, Ray Grove and the full team there, Gustav. And then secondly, within corporates, we had higher transactional revenue growth in Q1. A portion of that, we had a few million dollars that shifted of transactional revenue from Q2 into Q1. Second part of your question you alluded to in regards to Q2, our revenue guide for [indiscernible] 7% to 8% organic revenue growth for Q2. Obviously, we're pleased with the Q1 start. A couple of factors to consider for Q2. Q2 does not include any forecasted additional content licensing deals in Q2, which means more modest revenue growth for orders. And then secondly, in Q2, we expect Corporates transactional growth to moderate from the Q1 levels that we saw. That takes us into, I think, the third element of your question in regards to our total revenue guide of 7.5% to 8%. We remain very confident in delivering on that 7.5% to 8% for each of the Big 3 legal professionals, as noted in my prepared remarks today, approximately 9% Corporates, our revenue guide for the full year is 9% to 11%. And then for tax, audit and accounting professionals 11% to 13%. So for the Big 3, we remain very confident there. In regards to factors to consider, Stephanie, in regards to that range of 7.5% to 8%. Big 3, once again, is approximately 9.5% is the quarterly net sales and if you look at our quarterly distribution of sales quota, Q1 is traditionally the lowest sales quarter -- sales quota quarter, which was again Q1 2026. Q4 traditionally is our highest sales quota quarter. It will be again in 2026. So we're really pleased with the momentum of the Q1 sales. And as we go into Q2, we're very pleased with the pipeline across the Big 3. So I think that is a key factor, Stephanie, if you think about that 7.5% to 8% range. Certainly, we have transactional revenue, transactional revenue varies by quarter and also by the segment, but the biggest factor for me is the continued momentum in the net sales or bookings throughout the remainder of the year, which we have very strong confidence in. Westlaw Advantage, as we discussed in February, had a strong December, strong Q4, which helped drive that increase in legal professional revenue growth in Q1. We expect that to continue CoCounsel Legal, if you go through each of the segments, overall confidence, Stephanie. I'll pause before we go into the Anthropic question to see if that was helpful. Stephen Hasker: Yes, Stephanie, the -- so as I mentioned, our AI platforms and agents have been built to be model agnostic. And so what we do is sort of constantly evaluate the latest frontier model releases to see which are best suited. And currently, we think for products like Westlaw Advantage and CoCounsel Legal that that the Anthropic Board models are best suited. But as I said, we can and we are model agnostic and we can and have in the past change the models out. So we've been -- Anthropic are an important vendor to us. We were one of the earliest enterprise customers to Anthropic and continue to work closely with them in terms of the co-development and our products. But we have a level of independence there as we go forward. Operator: And next, we'll go to Kevin McVeigh with UBS. Stephen Hasker: Kevin? We might come back to Kevin. Operator: We'll next go to Vince Valentini with TD Cowen. . Vince Valentini: Congrats to Mike as well on well deserved times been great working with you. Stephen, everything seems so good that the overall results seem strong. You obviously are going to call out areas of the business where you're doing well and where there seems to be a lot of them. Is there anything that's worrying you these days? Do you see any customers who have left your platform, either in legal or in tax? And if so, have you done exit interviews to sort of say what are you leaving for anybody going to [ Parvi or Lavoro ] or maybe just a native AI service like Quad and thinking that's good enough. Are you seeing any -- I don't know with the opposite of a green shoot a dark shoot here of anything that worries you that if more customers started doing that, it could be problematic in the future? Or is it just simply nothing and you're still winning across the board? Stephen Hasker: Yes. Yes. Thanks, Vince. It's a great question. So everything worries me. The team here will tell you paranoid a lot of things. So I won't bore you with everything there. But what I would say is a couple of things. As you know, we've been focused on retention since the change program. And I think we're finally starting to see the green shoots and things tick up in terms of our customer retention. And that's across -- across the different segments. But we're seeing a broad-based positive signs in terms of retention. So there is nothing new or worrying in terms of customers moving away from our content-driven technology products across the Big 3. What I would say is I think we're at a phase where there's lots of law firms trialing lots of different tools. So if you speak with a law firm, they'll be running a trial of or they'll have implemented CoCounsel or they implemented 1 or 2 other tools. And I think that's why we're so excited about CoCounsel Next. We think that it's a big step forward, and it represents the combination of content, expertise, data privacy and support in ways that none of our competitors can match. And so we're increasingly confident that as we pull that into full release and scale it up in the U.S. and beyond, that will start to accelerate from some of the competitors that exist. Vince Valentini: Okay. Fair enough. And I just try to clarify something. I'm not sure I understand the 7x and the 5x figures you gave, both Westlaw Advantage, Deep Research and the CoCounsel for tax were not available a year ago. So I assume that's not a year-over-year figure, and it wouldn't be relevant if you measured it from day 1 to now, it's obviously going to increase exponentially, but I assume you wouldn't have given us the number, if there wasn't some relevance to it. So can you just help me unpack... Michael Eastwood: You want to expand the starting of this. . Gary E. Bischoping, Jr.,: Yes. Vince, so on the Westlaw advantage, what Steve mentioned was over the last 6 months. And so that began a few months after launch. And for CoCounsel tax and audit, it was the number of customer conversations in the product has gone up 5x since September. Stephen Hasker: Yes. And let me sort of expand on it, Vince, to explain why we mentioned those stats and why we're excited. I think to an earlier question, we see the TAM expanding from law firms, from general counsels from tax and audit firms for different reasons, but basically spending more on technology and starting to get to levels that are comparable with other professions in terms of the percent of revenues that is spent on technology. We think over the next few years, they're going to start to approximate or at least get within the same ZIP code as some of the other professions. So that's the first sort of TAM expansion. I think the second is we've talked since our last Investor Day about AI being the means with which Thomson Reuters can play a larger well success of our customers. And if you take something like -- okay, if you take something like prior versions of Westlaw, which was the leading sort of point solution for litigation research, and you compare that to Westlaw and Practical Law integrated in CoCounsel. We envisage a world where the first thing a lawyer does when they get into the office in the morning is switch CoCounsel alone. And it's a companion throughout the entire day, whether they're doing litigation research, whether they're drafting, whether they're drafting a motion to compel or a motion to dismiss, whether they're doing an SEC filing, whatever it might be, and are similar with ready to review and ready to advise in the context of our tax accounting business. So we really do believe this is the vehicle for a pretty significant increase in the number of touch points with our customers and the users. And that, I think, is an exciting growth vector that we plan to fully explore in terms of the product road map in the coming couple of years. Operator: We'll next go back to Kevin McVeigh with UBS. Kevin McVeigh: And let me add my congratulations, Mike. You've obviously done an exceptional job helping set you folks on the path today, and I wish you well. I guess, maybe can we talk about the AI-related ACV, you've seen pretty good momentum there. I think the number is 30%, which is up from last quarter. Any sense of where that ultimately settles? And I guess the spirit of my question is, I think there's been so much concern, which we think is overdone. We think there's a real big opportunity beyond the core. So maybe talk about just the ACV growth? And then ultimately, Steve, maybe some of the other addressable markets, whether it's mid- to down market, you can really start to focus on with the technology. Michael Eastwood: Kevin, happy to start there, and thank you for your kind remarks there. I'll just go back in time 5 quarters ago, we introduced the AI-enabled ACV metric. We were at 15% 5 quarters ago. As you said, we're now at 30% as of March 31, 2% increase versus year-end. We expect that to continue to increase each month, each quarter, Kevin. We'll continue to provide that on a quarterly basis. Gary will there. We think that's a really important signal for us. As we've discussed in the past, Westlaw, Westlaw Advantage the high end of Practical Law, CoCounsel Legal, CoCounsel tax and audit or some of the drivers there. As we launch CoCounsel Next later this year, we think that will be a further seamless for this AI-enabled metric. Also, I think we mentioned in prior quarters, some of our products, especially in the ONESOURCE array or a suite of products as they become AI-enabled. At some point in time, I speculate, Kevin, there's going to be more of a step change. Right now, we're seeing 2 to 3 percentage points increase on a quarterly basis. I think that certainly continues to increase over the time horizon. We're very encouraged on our product pipeline, innovation pipeline. And as that continues to go forward, the underlying ACV metric will continue to increase. You specifically asked, Kevin, about maybe a point in time orders to get to. I think it just continues to increase over time on a quarterly basis. Stephen Hasker: Yes. Let me talk about the sort of -- some of the dynamics to your point, Kevin, about mid- to down market opportunities. I'd point to a couple of things. So typically, when we put out a new version of Westlaw, it was the most -- it was the largest firms with the biggest budgets in the most sort of one of a better term sophisticated procurement organizations, whether that was a Chief Knowledge Officer or a CTO that would evaluate the tool and and adopt it first. And then we'd sort of grow the ACV number as it penetrated further and further down market. If you look today at CoCounsel, we get sold litigators and sold transaction attorneys in the Midwest of the U.S. and in Canada and Australia, the U.K. elsewhere. We'll take one look at it and say, okay, sign me up. And Aaron Rademacher, who runs the small law segment, Lucy Mackin, who runs mid law, have done a wonderful job of getting these tools in the hands of customers of all sizes. And that's a fundamentally new dynamic, and I think it's starting to contribute to that growth acceleration that we saw in the first quarter. So that's the first one. I think the second one is at the very most sophisticated end, you have sort of legendary litigators and transaction attorneys who litigator, whose entire sort of profession has been based on sitting in conference rooms with the collection of peers partners and refining their arguments over hours or even days in advance of a trial. Those same attorneys are increasingly using Westlaw Advantage for that process and decreasingly spending the time of their partners. And that has certainly exceeded my expectations in terms of the sophistication of the products that we're putting into the marketplace and the kind of the sophistication of work that we're able to, in a sense, automate and supplement. And then I think in the tax space, we're seeing the same thing. Typically, it was the largest firms with the biggest budgets. But with products like ready to review and ready to advise, these are appealing at least in the early going, and it's still early for those products, these are appealing to the smallest firms that have a collection of clients in one particular geography. So AI, as I said, I think the TAM is growing on the back of these firms spending more money on technology, but it's also growing in terms of the, as you said, the mid- to down market opportunities and the opportunity at the very top end. So we see sort of multiple vectors of growth, as I said, that we're planning to to explore in the coming years. Operator: And next, we'll go to Tim Casey with BMO. Tim Casey: Could you talk a little bit about EBITDA margins going forward? And when you kept the guide stable. Just wondering about the balance between operating leverage and business mix and so forth. And as a follow-on, how should we think about transactional revenues? Are they similar margins to recurring revenues? Or are they lower margin? Michael Eastwood: Yes. Kevin, Tim, I'll start with each of those. First, in regards to EBITDA margin. I'll share a few comments in regards to both Q2 but for the full year. In regards to the Q2 margin, as noted in my prepared remarks, 38% EBITDA margin for Q2, we remain confident in our full year outlook for 100 basis points margin expansion, 2 key drivers there, the underlying operating leverage that we continue to have and achieve. And second is the growing benefits from our efforts to reimagine how we work through AI-driven automation. Andrew Pearce, Liz Bank, Jason Win, Mike Goddard, Kirsty Roth various leaders within our business, continue to drive our productivity initiatives in regards to reimagining how we work. So if you look at the full year, Tim, that's why we're confident in 100 basis points. If we look at just Q2 separately, 3 factors to consider. We do have increased LLM cost. Second, we have some modest M&A dilution in Q2, and as I mentioned in my prepared remarks, the tax, audit and accounting professional business led by Elizabeth Beastrom, has seasonality there. So then that takes us naturally into H2 and why are we confident with higher margins for the second half of 2026. One, we have continued productivity from the AI automation, reimagining how we work that I just mentioned, that is building in Q1, Q2 that continues to build and have an uplift in Q3, Q4. Second, the M&A dilution that occurred both in Q1, Q2 and that begins to lap in Q3, Q4, meaning it goes away. And then the third item I would mention is the LLM cost. We saw LLM costs begin to increase in August of 2025 with the launch of Westlaw Advantage. As we go into Q3, the degree of increase for the LLM cost lessens because it, in essence, begins to lap and begins to normalize there. So hopefully, Tim, that was helpful, in regards to really the evolution of our margin in Q2, and there will be a step up in Q3, Q4, which we have line of sight on, as I mentioned, which gives us confidence to deliver the 100 basis points improvement for the full year. Your second question related to transactional revenue. Transactional revenue profitability does vary areas like professional services will traditionally have a lower margin than some other products, say, some of the AI content licensing revenue that we have in borders would be at the high end. And then if you look at the continuum on the left side, the lowest piece would be things like professional services. On the right side, the high end would be Reuters AI content licensing revenue and then you have a distribution across that. So there is a pretty good wide distribution on the transactional revenue, Tim. Hopefully, that was helpful. Tim Casey: Yes, Mike, just a follow-up. What -- is there not a concern that LLM costs will continue to increase as you lean into your proprietary Thomson model? Michael Eastwood: With the LLM cost, as we have more and more AI offerings, certainly, that increased on a variable basis. But if you look at LLM costs, although they're increasing, they remain a relatively small for all cost for Thomson Reuters. So we have it appropriately factored into our forecast and in our guidance. Steve talked about the Thomson LLM earlier. As we go through the end of '26 into '27, could that be an avenue to help us manage the LLM cost? The answer is yes there, but I'll emphasize the LLM costs overall for total TR is a relatively small cost. But what's happening is why I mentioned it for Q1 and Q2, it began in Q3 of 2024 and is building. Steve, anything to add? Stephen Hasker: No. I think as I said, the optionality around the Thomson model is twofold. One, the quality and accuracy that model, given that it's been specifically created the legal task. And secondly, the fact that we can run it on a per unit basis at a fraction of accessing a frontier model. So those 2 things are attractive, and we're going to keep investing in it as we have been, and update you as we go. . Operator: And next, we'll go to Andrew Steinerman with JPMorgan. Andrew Steinerman: I just wanted to know within the revenue guide, particularly for legal professionals for the year, what's assumed in terms of the government practice as we move through '26. And then also overall for the '26 revenue guide, are you assuming a contribution from CoCounsel Legal Next? Michael Eastwood: First, in regards to government, Andrew, we expect the growth to remain subdued near term. We are optimistic regarding the reacceleration of government revenue led by Pat Eveland. Once we lap the losses and downgrades that occurred last fall, so we'll see as we approach the end of 2026, an uptick in the overall government revenue. So we have assumed when we think about legal professionals overall that the government growth rate remains subdued near term, and then begins to increase towards the end of 2026, and then that will increase as we go into 2027. And can you repeat the second part of your question, Andrew? Andrew Steinerman: Sure. I just was asking in the 2026 revenue guide, are you assuming any revenue contribution from the new product CoCounsel Legal Next? Michael Eastwood: Yes. Certainly, we're very pleased with the progression of CoCounsel Legal. And when it's launched sometime in Q3, we're very optimistic with the sales momentum there. So it will provide some degree of revenue for us in the latter part of 2026. But the larger contribution from CoCounsel Next will happen in 2027, just with the revenue recognition. I would call out Emily Colbert and Rawia Ashraf in regards to the work that they're doing on it, very pleased with beta. I think now we're in the third week of beta for CoCounsel Next. So good momentum and progress there. And we expect really good sales momentum, Q3, Q4, Andrew, but then the rev rec really beginning to take hold as we go into the latter half of '26 and then '27. Operator: And next, we'll go to Aravinda Galappatthige with Canaccord Genuity. Aravinda Galappatthige: Wanted off of my best to Mike as well, an outstanding tenure as CFO from my vantage point. All the best, Mike. And just wanted to start on the capital allocation side. Obviously, you announced a sizable buyback and return of capital. Is it -- correct me if I'm wrong, you bought back $262 million worth of shares as of March 31. Am I correct in assuming there haven't been any more utilization of that block since the remaining $340 million or whatever, since April? And then perhaps generally your view on stepping that up. I mean the companies that have seen setoffs in their stock, including some of your comps have announced more sizable buybacks and you certainly have the flexibility to do that. I wanted to get your thoughts on that. Michael Eastwood: Sure, Aravinda, multiple questions there. First, just a reminder, we did complete the $605 million return of capital yesterday with the cash distribution being executed. Your question in regards to the NCIB, we have not done any additional purchases beyond the $262 million that occurred in Q1. We do plan Aravinda to complete the remaining $338 million in the second quarter. That is our intent. In regards to our overall balanced capital allocation approach, certainly, we have the annual dividend increase 5 years in a row now of 10%, still focused on strategic M&A. And that leads to your point in regards to the optionality to consider additional capital returns. It is something that we will continue to discuss with our Board. The next meeting is in June, followed by September. So certainly, with the very strong balance sheet that we have, Aravinda, is something that we will continue to have discussions with our Board with no specific commitments today to announce or to discuss but we agree that it is certainly an option for us to consider additional NCIB share backs. We agree that they are accretive today and we certainly have to balance it with strategic M&A opportunities. Aravinda Galappatthige: And just a quick follow-up, smaller question on Westlaw Advantage Deep Research. I forget, Mike, if you had given any numbers on adoption there, any targets or any sort of recent adoption numbers that you've quoted. I was wondering if you can speak to that. Michael Eastwood: Yes. We have not quoted specific adoption numbers on Westlaw Advantage. 5 quarters ago when we pivoted to the overall GenAI enabled metric. We thought that was more encompassing of our total portfolio. I can't share some additional points on Westlaw Advantage. It is definitely trending faster that being the ACV penetration, trending faster than the prior to Westlaw upgrade cycles that we had there. We're certainly very encouraged with the fast start on sales and very strong customer usage there. I can confirm again, very strong sales for Westlaw Advantage in the first 8 months since it was launched August of 2025. And as I look at the pipeline for Q2, whether it be global Westlaw, midsized firms or small law, very strong pipelines. We would anticipate and forecast that Westlaw Advantage continues to have a strong Q2 and a strong 2026 overall and 2027. Very encouraged with the progress there. I think Steve may have mentioned Mike Dahn earlier, Emily Colbert, who lead Westlaw Advantage, just a hell of a job there. Operator: And next, we'll go to Jason Haas with Wells Fargo. . Jason Haas: I'm curious, was there any negative impact to sales cycles or anything from the conflict in the Middle East in 1Q? . Stephen Hasker: es, go ahead, Mike. . Michael Eastwood: No negative impact, Jason, in regards to the conflict. Stephen Hasker: It certainly -- it's certainly amongst other global events caused an uptick in the Reuters subscription business. And I think put the spotlight on the quality of that coverage, Jason, but as we've described over the years, our business, we're fortunate enough to have a business that is largely immune to the cycles. Jason Haas: Okay. That's great to hear. And then just as a follow-up, on the tax, law and accounting professionals business, can you just share why that was slower at 10% organic growth in 1Q and what drove the deceleration through the year? Michael Eastwood: Sure. I'll take each of those, Jason. First, in regards to tax, law and accounting, 10% organic growth in Q1. It was impacted by revenue recognition timing shift or 2 products that will normalize in H2. In simple words, we had some revenue recognition that shifted from Q1, Q2 into Q3, Q4. If you look at it on a full year basis, it normalizes or harmonizes, that was the biggest factor. If you look at the full year in regards to why we're confident, once again, Elizabeth Beastrom and team drives that, we're confident in delivering the 11% to 13% range that we have previously provided. I would emphasize 3 factors: First, the revenue recognition timing that I just mentioned, that normalizes. Second, Adrian Fognini has a key product line extension with our Dominio business in Brazil. I can confirm that Dominio continued to grow approximately 20% again in Q1 but with the key product line extension and launch for Dominio, that will provide incremental growth in revenue internationally for the TAP portion of business. And then thirdly, Jason, is the newer AI-driven offerings in the U.S. will provide additional lift as we go through this year. But once again, very confident in achieving 11% to 13% for the full year. Operator: Next, we'll go to Doug Arthur with Huber Research. . Douglas Arthur: Yes, Mike, just staying with tax and accounting for a second. The costs in the quarter were up quite a bit. I know you had mentioned that on the fourth quarter call. Was that partly or mostly the SafeSend acquisition impact? Michael Eastwood: We had 3 factors, Doug. First, we had some modest dilution from the Additive acquisition that we closed last fall. Second, we made some additional investments in our product line in Dominio that I just mentioned that has an upcoming launch. And then thirdly, a portion of the $12 million of severance that are referenced for total TR that impacted TAP. So the convergence of those 3 factors was the reason for the lower margin for TAP in Q1. Operator: And next, we'll go to Maher Yaghi with Scotiabank. Maher Yaghi: Great. And congrats, Mike, on great tenure at Thomson. I wanted to ask you, I know you disclosed the ACV on GenAI, but could you provide some KPIs that prove that AI is lifting net revenues and not just increasing usage example like Westlaw Advantage upgrade attachments versus CoCounsel paid expansion into new horizontal segments of the market something that can give us some sense of that AI is adding top line revenue growth, not just on your existing subscription basis that you used to have in the past, but expansion into new segments of the market. Michael Eastwood: Yes. I think, Maher, the most prominent metric that I provide both Steve and I mentioned in our prepared remarks, legal professionals or law firms revenue, excluding government, 11% organic growth in Q1, up from 9% in Q4 really speaks to the penetration that we're getting across every segment of legal professionals and law firms, that's led by Raghu Ramanathan and his team there. We had double-digit organic growth in global large law firms, midsized firms and small firms. And we have the highest growth ever in each of these segments in Q1. I apologize if that's overly simplistic, Maher, but driving that 11% growth in Q1, up 9%. I think it's a pretty tangible metric for us to just continue to monitor. And we have confidence as we go into Q2 and the full year in regards to that 11%. Maher Yaghi: Okay. Great. And just one follow-up question on the margin expansion in the second half. Can you give us maybe some -- like a bridge that helps us understand where the improvement in the margins year-on-year will be coming from in the second half? Is it all from do we imagine how we work business productivity improvement that you have? Or -- some of it can also come from AI revenue growth? Michael Eastwood: Yes. Certainly, as we continue to expand our overall revenue growth, that will help us in margin, just given the significant operating leverage that we have. Secondly, I'll just reemphasize the work that we're doing and reimagine how we work, that will accelerate as we go into Q3, Q4. So that continued operating leverage, higher revenues, the benefits from reimagining how we work. And then also just sorry to be repeated, if I mentioned earlier, the M&A dilution laps or decreased in the second half of 2026. That also helps us. And then also LLM calls since we had them last year also helps when you do it year-over-year. And if you look at a bridge on the full year margin expansion. . Operator: Next, we'll go to Toni Kaplan with Morgan Stanley. Toni Kaplan: And I'll add my congrats to Mike. It's been really terrific working with you over the years. So all the best. Steve, wanted to go back to your comment that many customers are utilizing multiple AI and technology tools, which is something we've seen as well. And I see the advantage of having your AI product utilizing the Westlaw Legal data and research. And so I guess my main question is, if you have the strong AI product, which I think you do. And I guess, why isn't it more compelling that -- and you are seeing success, so I don't want to take that away. But I guess it seems like a natural that someone would want to choose strong AI product with the really strong legal research. And so I just wanted to understand why this hasn't taken off across the top 100 law firms, for example. Stephen Hasker: Yes. Toni, I think as we recently published, we've got to 1 million CoCounsel users across various instances of the product. So we're proud of that, we're sort of happy with this, if you like, the starting point as we sit here today. I think, though, back to Vince's questions to what worries me. I think if I were giving this a hard grade I would say that within the legal realm, it has taken us too long to really unleash the sort of power, if you like, in the authority of our content, Westlaw, Practical Law and so forth and our experts. And that's why we're excited about CoCounsel Legal. We think it's a big step forward. It's fully agentic. It's a deep research built product. It's been built by, in large part, the same engineers and data scientists that did Westlaw Advantage. And I think for the first time, what the market is going to see is an agentic legal assistant that is grounded in that authoritative content. The prior versions in the legal realm were built on the case text methodology without full access to our content. And so you could critique us for taking a while to do that, but we wanted to get it right, and we think we have. And certainly, the early beta testing suggests that we have. So we'll keep refining it. We'll keep learning and investing and scaling it. But Toni, I think that explains why you've got a pretty sort of fragmented market with multiple tools being measured and why we're increasingly confident going forward. Operator: Next, we'll go to Curtis Nagle with Bank of America. Curtis Nagle: Great. Maybe just staying on that topic, Steve, just elaborate a little bit more on the feedback you're hearing from clients on next-gen version of CoCounsel underlying demand. And I guess just how material of an upgrade cycle do you think we could see? And to what degree that is factored in guidance, so don't sound like me at this point. Stephen Hasker: Yes. I mean, Curtis, we're -- I think we've got to sort of look at exactly where the marketplace is at. And in my view, and this is a view that's shared by many of the managing partners that I interact with on a daily basis. The tools, including ours, and we think especially ours now that we've got CoCounsel Next in the marketplace, are ahead of the change management within the firms, right? It's one thing to sort of give a lawyer access to one of these tools and have him or her save a few hours in place many hours a day. It's another thing to rewrite the basis on which a young attorney produces a work product, run that up the chain, gets feedback, refines it and eventually it goes from a partner to a client for review and discussion, that process, I think, is just beginning. And that's why from a revenue standpoint, we -- as I said, we're proud of the 1 million users. I think we're off to a good start, CoCounsel, the next version of Legal is a really exciting step forward for the entire industry in our view. But it's going to take the change management to sort of mirror that for this sort of virtuous circle to really kick in. And as that happens, we are confident in the revenue and the growth prospects and we like the margin profile, but it's -- I think it's still fairly early days. Operator: And next, we'll go to George Tong with Goldman Sachs. Keen Fai Tong: I'll add my congrats, Mike, on your retirement. In terms of the legal ex government organic growth acceleration from 9% to 11%, can you discuss how much of that acceleration came from volumes versus sell versus pricing? Michael Eastwood: George, I don't have at my fingertips the breakdown between those 3 components like reiterate is that we had really strong performance across all of our segments. As I've mentioned before in prior releases of new versions of Westlaw, we would see first the traction in the large law firms and then it would begin to evolve in the mid and small with Westlaw Advantage, we're seeing consistent track across large law, mid low and small wall. And we're seeing the retention rates continue to hold there, George. I think that given seeing strong performance across -- and I should also mention John Shotwell in Europe across all geographies, across all segments of legal professionals and law firms we're seeing really strong adoption of Westlaw Advantage and CoCounsel Legal, and that's what's driving that 11% for legal, excluding government. Keen Fai Tong: Got it. That's helpful. And as a follow-up, can you share how legal government performed in the quarter? Michael Eastwood: Legal had a 1% growth in Q1. That was down from Q4. As I mentioned in the February earnings call, we had the cancellations and downgrades in government in the second half of 2025. So we also indicated in February that Q1 would have a lower growth rate for government in Q1 given that rev rec impact. And as a follow-up to one of the questions I received earlier as we go into Q3 and Q4, and we began to lap those cancellations and downgrades, we're very confident that Pat Eveland team will drive accelerated organic growth for government and the latter part of '26 and then into '27. . Operator: And at this time, I'd like to turn the call back over to Gary Bisbee. Please go ahead. Gary Bisbee: Yes. Thanks, everybody. We're around if you want to follow up. Have a good day. Thank you. Operator: Okay. Thank you. And this does conclude today's call. We thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Addus HomeCare's First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead. Darby Anderson: Thank you. Good morning, and welcome to the Addus HomeCare Corporation First Quarter 2026 Earnings Conference Call. Today's call is being recorded. To the extent any non-GAAP financial measure is discussed in today's call, you will find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2026 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its first quarter 2026 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir. R. Allison: Thank you, Drew. Good morning, and welcome to our 2026 First Quarter Earnings Call. With me today are Brian Pop, our Chief Financial Officer; and Heather Dickson, our President and Chief Operating Officer. As we do on each of our quarterly earnings calls, I will begin with a few overall comments, and then Brian will discuss the first quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the first quarter of 2026 was $363.6 million, an increase of 7.7% and as compared to $337.7 million for the first quarter of 2025. This revenue growth resulted in an adjusted earnings per share of $1.62 and as compared to adjusted earnings per share for the first quarter of '25 of $1.42, an increase of 14.1%. Our adjusted EBITDA was $44.5 million compared to $40.6 million for the first quarter of 2025, an increase of 9.7%. For the first quarter of 2026, cash flow from operation was $52.4 million as compared to $18.9 million for the same period in 2025. As of March 31, 2026, we had cash on hand of approximately $103 million. With our strong cash flow in the first quarter, we reduced our bank debt to $94.3 million, leaving us with the financial flexibility to consider larger acquisitions as we continue to pursue expansion of our market reach and creating geographic density. During the first quarter, we saw an impact on revenue due to the widespread weather event that occurred towards the end of January. Our team did a good job of rescheduling affected personal care visits where possible. However, we could not make up for every weather-impacted miss visit. While the amount of the revenue was immaterial to our company overall, we did see a loss of revenue of approximately $1.5 million as a result of these storms. However, February and March returned to our normalized revenue expectations. As we announced on May 1, we closed on the acquisition of the Personal Care operations of home court home care based in Fort Wayne, Indiana. This acquisition marks our entry into an attractive state, which is adjacent to our largest personal care market of Illinois. We have been interested in Indiana for some time as over the past 3 years, they increased rates and worked to eliminate client wait lists. I'm excited to welcome all of our new team members from home court home care. We have also entered into a definitive purchase agreement for an additional personal care operation in Indiana, which will complement HomeCourt home care. We anticipate that this additional Indiana acquisition should close in the coming months subject to customary regulatory approvals. These 2 acquisitions continue our strategy of entering new markets with scale and where we have the ability to expand our services. As we mentioned on our last earnings call, the State of Illinois increased our rates in personal care service effective on January 1, 2026, adding approximately $17.5 million in annualized revenues. This most recent rate increase continues to show the important support we are receiving from our state partners as we continue to provide these much-needed services to our elderly and disabled clients. We also understand the New Mexico legislature included increased funding of $10 million for home and community-based services in the budget for the upcoming fiscal year. We are waiting for communications from the New Mexico Medicaid department regarding how and to which programs the funding will be extended. As we have stated before, we continue to believe that the 80-20 provision of the CMS Medicaid access rule will be eliminated in the near future. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be an encouraging development for both our industry and our company. All our recent communications indicate that this part of the Medicaid access rule is expected to be eliminated this year. During the first quarter of 2026 we continued to experience positive current trends in our Personal Care segment. Our number of hires for [indiscernible] in the first quarter of 2026 was 108, up sequentially from 103 hires per day in the fourth quarter of last year and consistent with the first quarter of 2021. We achieved this number in spite of the impact of the weather event I mentioned earlier. As we have mentioned in the last few quarters, our clinical hiring remains consistent and has been mostly stable outside of a few of our urban markets. However, even in those markets, we have been able to staff our operations appropriately. Now let me discuss our same-store revenue growth for the first quarter of 2026. For our Personal Care segment, our same-store revenue growth was 6.5% compared to the first quarter of 2025. During the first quarter of 2026, we saw personal care same-store hours increased by 2.2% compared to the same period in 2025 and while our percentage of authorized hours served in the first quarter remain consistent with what we experienced in the fourth quarter of 2025. On a sequential basis, Personal Care same-store census was down slightly, partially due to the weather we mentioned before. However, during the first quarter, we saw growth in clients served in Illinois, our largest market, which is something we had anticipated for a while. This is important as we look to achieve year-over-year census during 2026. Turning to our clinical operations. Our hospice same-store revenue increased 7.7% compared to the first quarter of 2025. Our average daily census increased to 3,804 for the first quarter up from 3,515 for the same period last year, an increase of 8.2%. For the first quarter of 2026, our hospice medium length of stay was 23 days as compared to 25 days for the fourth quarter of 2025 and 19 days for the first quarter of 2025. We are very pleased by the continued growth in our hospice segment over the past several quarters. While our home health same-store revenue decreased when compared to the same quarter of 2025, our home health operating income improved over last year's first quarter and sequentially versus the fourth quarter of 2025. It is also important to understand that over 25% of our hospice admissions in New Mexico and now in Tennessee are coming from our own Addus Home Health operations, which overlap in these 2 markets as we continue to focus on our bridge program. We are pleased to see more patients receiving the benefit of the full continuum of post-acute home-based care and anticipate seeing similar clinical teamwork developed in Illinois, where we also have both home health and hospice operations. We continue to believe that size and scale are important to health care services and have been the focus of our strategy for the past 10 years. We continue to evaluate opportunities, which will increase both density and geographic coverage as well as seek to further strengthen our relationships with states and managed care organizations. Recently, we have begun to see an increasing number of personal care opportunities. Due to our focus on maintaining a conservative balance sheet, we have the ability to actively pursue these transactions. Recently, there appears to be more optimism around home health care due to the final home health rule for 2026 being more favorable than was originally proposed. While there is still some uncertainty about the future rate increases, there does seem to be more potential activity in home health care. While we will be open to home health opportunities, we will continue to be diligent as we evaluate possible transactions to further our strategy. Before I turn the call over to Brian, it is important that I thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all have come to understand that the majority of this population prefers to receive here at home, which not only remains one of the safest but also the most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients and their families. With that, let me turn the call over to Brian. Brian Poff: Thank you, Dirk, and good morning, everyone. The first quarter of 2026 marked a solid start to a new year for Addus. The results for the quarter reflect our continued ability to execute our strategy and deliver consistent growth. Results were highlighted by a 7.7% increase in top line revenue to $363.6 million and a 9.7% increase in adjusted EBITDA to $44.5 million when compared with the first quarter of 2025. Our Personal Care Services segment, which accounted for 77.3% of our revenues, was a key driver of our business. Revenues for the segment grew to $281.1 million, an increase of 8.8% overall and an increase of 6.5% on a same-store basis compared to the same quarter last year. We are continuing to see contributions from our acquisition of Gentiva's Personal Care operations in late 2024 and the acquisitions of Helping Hands home care services and [indiscernible] Home Care, both of which were acquired in the back half of 2025. The revenues of Gentiva's Personal Care operations are included in our same-store numbers for the first time this quarter. In addition to higher volumes, we are continuing to benefit from rate support in some of our key state markets including our 2 largest in Illinois and Texas. Our first quarter results included the impact of the 3.9% rate increase in Illinois, which became effective on January 1, 2026, and as well as the 9.9% rate increase in Texas that became effective on September 1, 2025. Our hospice care business continued to perform well and accounted for 18.1% of revenues for the first quarter. Our hospice revenues were $65.8 million, with a same-store increase of 7.7% over the same period last year and year-over-year improvement in average daily census. For the period, Home Health Services, our smallest segment, accounted for 4.6% of first quarter revenue at $16.7 million. We continue to look for ways to support and expand our home health service line, including through acquisitions, as we believe important synergies can be realized by offering multiple levels of home-based care in the markets we serve. Yesterday, we announced 2 transactions in Indiana, HomeCourt Home Care based in Fort Wayne which closed on May 1, and the signing of a definitive agreement to acquire additional operations of a similar size in the state. Currently, HomeCourt serves approximately 240 clients with annual revenues of approximately $9.7 million. We anticipate our second acquisition in the state will close later this year. We believe our announced expansion into Indiana, a new market for Addus is aligned with our strategy of broadening our geographic coverage with density and scale. Our team looks forward to welcoming the clients and caregivers to the Addus family. We intend to provide additional details on the second acquisition when regulatory considerations permit. Strategic opportunities will continue to play a role in our long-term growth planning. Our primary focus will be on identifying opportunities where we can leverage geographic coverage and density providing us with a competitive advantage. We will also seek opportunities to add services to meet our ultimate objective of offering multiple levels of care in the markets we serve. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our strategy. As Dirk noted, total net service revenues for the first quarter were $363.6 million. The revenue breakdown is as follows: Personal Care revenues were $281.1 million or 77.3% of revenue, Hospice care revenues were $65.8 million or 18.1% of revenue and home health revenues were $16.7 million or 4.6% of revenue. Other financial results for the first quarter of 2026 include the following: our gross margin percentage was 31.9%, consistent with the first quarter of 2025. As usual, our gross margin was affected in the first quarter by our annual merit increases and the annual reset of payroll taxes. Looking forward, we anticipate our gross margin percentage will remain relatively stable and consistent with our historical annual pattern. G&A expense was 21.4% of revenue compared with 21.7% of revenue for the first quarter a year ago. Adjusted G&A expense for the first quarter was 19.6% and compared with 19.9% a year ago as we continue to generate leverage from our growing revenue base. The company's adjusted EBITDA for the first quarter of 2026 was $44.5 million compared with $4.6 million a year ago, an increase of 9.7%. Adjusted EBITDA margin was 12.2% compared with 12% for the first quarter of 2025. Consistent with 2025, we anticipate our adjusted EBITDA margin percentage for the full year will remain above 12%. Adjusted net income per diluted share was $1.62 compared with $1.42 for the first quarter of 2025. The adjusted per share results for the first quarter of 2026 exclude the following: acquisition expense of $0.06 and noncash stock-based compensation expense of $0.20, including the impact of accelerated vesting for the previously announced retirement of our former President and COO. The adjusted per share results for the first quarter of 2025 exclude the following: acquisition expenses of $0.13 and noncash stock-based compensation expense of $0.13. Our effective tax rate for the first quarter of 2026 was 22.7%, benefiting from the excess tax benefit related to our stock compensation. For the full year 2026, we expect our tax rate to be in the mid-20% range. DSOs were 63 days at the end of the first quarter of 2026 compared with 38.2 days at the end of the fourth quarter of 2025 with DSOs for the Illinois Department of Aging at 47.4 days compared with 54.7 days at the end of the fourth quarter of 2025. As expected, we saw a resolution in some of the normal timing differences in payment cycles we experienced around year-end. Our net cash flow from operations was $52.4 million for the first quarter of 2026, a strong start to the year. As of March 31, 2026, the company had cash of $103.1 million with capacity and availability under our revolving credit facility of $650 million and $547.8 million, respectively. Total bank debt was $94.3 million at the end of the quarter a reduction of $30 million from the end of the fourth quarter of 2025. We have continued to reduce our revolver balance in the second quarter of 2026, with $10 million paid to date. We have a capital structure that supports continued pursuit of our strategic initiatives. Looking ahead, we expect to maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio while also focusing on enhancing shareholder value. This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions. Operator: [Operator Instructions] And our first question comes from Brian Tanquilut from Jefferies. Brian Tanquilut: Maybe I'll start, Dirk, when we think about the caregiver app rollout, I know that's something that you're working on in Texas. How do we think about the progress there? And what it will take to get it to where you want it to be as quickly as possible? And then what are the expected benefits for that? I mean, how do we think about the P&L translation of this app rollout and why it's important. Heather Dixon: Brian, I'll start, and then Dirk can add to anything [indiscernible] that I say. So I'll start with just the progress that we're seeing. With that Caregiver app, we now have deployed it in all 3 of our 3 largest states, Illinois, as you know, has been deployed for a while, and we're continuing to see really good utilization and uptick of that utilization throughout the state. In New Mexico, we have deployed it for a portion of our branches. We have some special nuances associated with the state EVV system there. So we're going to roll it out in 2 tranches. But we have deployed it, and we expect to be deploying to the rest of the branches soon in the coming quarters. And then finally, in Texas, we rolled it out during Q1, and we're seeing some really positive momentum in the utilization of that and caregivers actually downloading that app. We saw even in the first few days to a week, we saw up over 10% of our caregivers had already adopted that app. So we're seeing really good momentum. And as we think about where we go from here, there are a couple of things. One, continue to roll it out to other locations, and that's really going to enable our caregivers and help us focus on increasing our service percentage. And then two, we can use that to really drive communication and really create a good engagement -- positive engagement with our caregivers. R. Allison: Yes, Brian, and I think what Heather just mentioned, there are the 2 aspects that we really focus on and why we invested in the caregiver app. You've seen positive momentum in Illinois for the percent of hours served that we believe a large part of that is directly attributed to the fact that there's the caregiver app at the allows to be particular career to see how many hours are left on the authorization and make sure that we're serving to an appropriate amount. Also, we think it can allow us to be a little more sticky, as Heather said, with our caregivers, make it easier for them to know what their paycheck is going to be to know their hours served and now also the ability for them if they want to pick up additional hours we have this app out there that allows them to be able to do that in an effective manner. So those are really the benefits that we're looking for from this app. Brian Tanquilut: That makes sense. And then maybe my follow-up, Heather, for you or maybe for Brian. As I think about the length of stay on the hospice side, you just gotten questions on cap risk and how you're thinking about that. So just anything you care with us just on the hospice cap concern. Brian Poff: Yes, Brian, right now, we don't really have any cap consideration. We actually are managing, I think, our referral mix and our patient base pretty well. Discharge length of stay was a lite here this quarter. But again, those are just a factor of the people that actually discharged during the quarter and probably not indicative of you would pick a cap. Our median length of stay, as Dirk mentioned, was 23 days, which actually is probably a little bit low for us. I think we've got a really good mix and no cap concerns for us at the moment. Operator: Our next question comes from Raj Kumar from Stephens. Raj Kumar: Maybe just a date on the kind of from each states. I'm curious kind of Indiana, more specifically. I know when you guys went into Texas with Gentiva, that was kind of on the front of the state passing or kind of in the process of passing a rate update. So curious on the kind of Indiana rate backdrop and any commentary there? Brian Poff: Yes. I think in India, specifically, I mean we talk about some other states as well, Raj. Indiana, as Dirk mentioned, we've seen some nice rate support from that over the past several years. I think if you went back about 5 years ago or so, I'm not sure it would have been probably quite as attractive for us, but we've seen nice support for them, a nice margin and that stay pretty consistent with where we are on a consolidated basis. I think the ability for us to do 2 acquisitions simultaneously or in close proximity gives us really good coverage. I think we've always wanted to have a pretty good footprint when we go into a new market. I think if we were to do one the other, it probably wouldn't have been quite as attractive, but I think doing both gives us a nice -- a nice place to start in Indiana and the ability to continue to add either additional services or more density there. So we're more placed on the map where we have opportunities. I think just thinking about it from a budgetary standpoint, Obviously, Texas is every other year. So they're not going to meet this year. So nothing to really report on that in our kind of reference New Mexico, we just finalized their budget. There are dollars allocated for home and community-based services. We're just trying to determine it gets the information on the logistics of how that will pass down to providers. Indiana -- I mean, I'm sorry, Illinois, is our largest market is still [indiscernible] has not been finalized our budget this year. Our understanding is there's conversations from the union as we would expect every year about our services and rates, but nothing to report. We would expect them to probably finalize their budget over the next few weeks. So we'll know more then. But those are probably the 3 largest obviously, that we keep our eye on. Raj Kumar: Got it. And then maybe looking at home health, I guess there was a shift in the payer mix trend higher Medicaid year-over-year. I guess maybe anything to call out on that front, I guess, more intentional or just kind of how it played out. And I guess, has it been paying better than MA if it is intentional. I'm just kind of curious on the payer mix trend for home health in the quarter. Brian Poff: Yes. I think [indiscernible] quarter probably a little bit of a mile, we had some rate updates, some positive rate updates in one of our programs that kind of falls into that other bucket that you saw in our press release yesterday. So we saw that in the quarter, we'll probably revert back to more historical norms next quarter. Nothing intentional. I think, obviously, we're focused on making sure we try to get the best rate possible in the business that we take in home health. I'm trying to make sure that it's profitable. Our guys on the payer side are having conversations consistently with folks on trying to get as many episodic rates as we can and looking at taking cases that makes sense for us from a profitability perspective. Operator: The next question comes from Matthew Gillmor from KeyBanc. Matthew Gillmor: Maybe following up on some of the census comments for Personal Care. I think I saw the census was down a little sequentially you mentioned Illinois was up, which is encouraging. I just wanted to confirm I heard that correctly. And then maybe more broadly, I know census for personal care, oftentimes is lower in the first quarter. And if Illinois was stronger, does that imply there was weakness elsewhere? Or would you just sort of categorize it as sort of normal seasonal trends. Just wanted to see if there's any other details to share on this topic. Heather Dixon: Sure. I'll take that. So as Dirk mentioned, we did have some weather impact of the quarter. and that impacted our sequential census growth. That's what you saw as a slight sequential decline. But you did hear correctly, we had census improvements throughout the quarter, and we saw gains as we exited the quarter. And I think, very importantly, March since this exceeded January and February census. So we're focused on those sequential gains. And going forward, that should lead to year-over-year gains as we move through the next couple of quarters. And then specifically in Illinois, we were very pleased to see that start the care exceeded discharges throughout the quarter, and that led to sequential monthly improvement there as well. And so as we exited the quarter for Illinois, we saw a nice trajectory, and frankly, overall with census, and then we saw that trajectory really continue as we moved into the second quarter as well. There is nothing to point to. It's not that Illinois is masking anything else. It's just as our largest state and one that we're very focused on. We wanted to be sure that we shared the positive improvement that we've seen there. Matthew Gillmor: That's great. Appreciate it. And then maybe following up on some regulatory topics. CMS has made some comments that have been skeptical of the self-directed care model within personal care and sort of home and community-based services. broadly, especially with some key states like New York, which I know you don't have exposure to I was curious if the skepticism on the self-directed care model created opportunities for Addus more broadly, given your focus on the agency directed model? R. Allison: Self-directed care does have an issue. You don't have anybody in between the patient and the caregiver and the patient to make sure that the surface is actually being performed. So it's -- the state has a little more responsibility on themselves to do that. So we saw in New York that it was a program that was probably in our mind, going to have issues and not really sustainable. That's why we left New York. There's also issues out in California. There is a large issue out there because it's self-directed care. We don't participate in medical out there, most of the business we have is VA and private pay. But as you look at it, we've been saying for years, Personal Care is a great service and much needed and saves the states a lot of money but it needs to be done in the right way. And one of the things that is an advantage to having the companies like Addus and others sit out there hiring the caregiver and matching them with the patient is that we have responsibilities to do a lot of extra things to make sure that service is being provided. Whether that's supervisory visits, actually in person calls on the telephone, we have EVV. We have to make sure that the client shows up. I mean the caregiver shows up and stays the amount of time when they leave so that we're billing a proper number of hours. So there's a lot of compliance issues that are placed on companies like Addus as opposed to the self-directed care where there's very little, if any, of those. So we think it's a real encouragement to our industry. From our standpoint, we agree with the fact that there needs to be a look and make sure that when you're paid for services, those services are being rendered. We think that will benefit a company like Addus. Operator: The next question comes from Sean Dodge from BMO Capital Markets. Christopher Charlton: It's Chris Charlton on for Sean here. Maybe back on Personal Care. You've again driven strong growth in same-store a billable hours even amid a declining census. Can you just share some more detail on some of the dynamics behind the strength here and continuing to fill a strong percentage of the authorized hours and kind of how you anticipate that evolving throughout the year as you expect to return to some census growth? Heather Dixon: Sure. Sure. I'll take that. Chris, I'll start with talking about billable hours and sort of what we're doing that really fuels that growth in billable hours. A couple of things specifically. One, we're working on refining our operational processes from the support center and then also from the branch perspective, and that's particularly with scheduling and utilization of our authorized hours. And then as we talked about just a couple of minutes ago, we've been focused on creating tools and deploying them that will help our providers, actually, the caregivers have access to those hours as well, and that's in the form of the app. What we have seen is improvement in that service percentage or fill rate. So the hours that we are posting are really a higher utilization of the authorized hours. We're seeing that in most of our states, and we're seeing that specifically where we have deployed the app and we've had some really good usage. And we would expect for that opportunity to improve the service percentage to improve as we move throughout the year, particularly as we deploy the app in Texas, one of our largest states. If you think about from Q4 to Q1, your question about even though census is down just a bit sequentially, billable hours are up. I think that's just a function of the weather that we saw earlier in the quarter and nothing else really to point to there. R. Allison: Let me jump in on census because I know everybody is focused on that number, and it is an important number. It's not one that we get paid on billable hours. So we really focus on making sure we get the proper amount of hours per census as opposed to just census per se because you got to get the right census. You got to get the right hours from that patient coming on board to make sure that it's something we can serve appropriately and profitably. That being said, we do understand that people are looking at that. And I think the important thing this quarter that's very exciting to us is Illinois made the turn. And Illinois is one we really worked on the last 4 quarters to get it back into a growth mode. It just so happens this month, Texas was a little soft coming out in January, really. And so we saw a little bit of effect in Texas for the census for the quarter. But by the end of the quarter, Texas was back. Illinois was continued to grow. So the important thing is we believe most of our states now are in the situation where starts of care are exceeding discharges. Sometimes you're going to have a little bit of issue in a state maybe during a quarter. But the general trend is we think we've seen that change. And now we think all 3 of our big states are in that particular situation where we should grow census. Christopher Charlton: Okay. That's helpful. And then on home health, obviously, there was some encouraging adjustments to the final rate from CMS there last year. As you kind of come up on their initial proposal for 2027 rates in the coming months. Maybe just qualitatively, can you just share some thoughts on the backdrop and kind of what you would like to see initially just kind of give everyone some clarity that the environment might be starting to stabilize and might be looking just to be a more favorable backdrop for some opportunities there? Brian Poff: Yes. I think I can take that one, and Dirk can add some color as well. I think in Dirk's comments, I think, obviously saw some positivity in the final rule last year. I think we're interested to see what the rule will look like this year. It feels like maybe there's more appreciation coming out of CMS for what the industry has gone through the last few years, I think, in kind of focusing on some of the areas where there might have been some issues that might have impacted the way that they've looked at reimbursement in the last few years. And the industry, I think, has been lobbying for some time for them to see that in the way that some of the things in the fraud, waste and abuse area potentially have been used in the calculation. And with those kind of maybe out of the mix and maybe identified, I think we're hopeful that, that means maybe there'll be more positivity in the rate that we'll see coming up this year. So a small segment for us. We think there's a lot of synergies of having multiple lines of care. So something that we'll watch closely, but things that we're still interested in looking at. Operator: The next question comes from Andrew Mok from Barclays. Unknown Analyst: This is Jeffrey on for Andrew. So I appreciate all the color around the Personal Care segment, but maybe I just wanted to better understand Addus' exposure to self-directed personal care and the impact that's had on recent Personal Care segment results. R. Allison: Yes. We don't really see an impact from self-directed care in most of our states. As we mentioned, there was some issues in New York. We left that state. California, we used to -- if you go back 10, 15 years ago, we did business in California, and California really decided to go self-directed care, and it wasn't something that we provided. So we focused on states that really understand the difference between sub-directed care and agency care. And that really goes back to what I said a few minutes ago, was what you get with agency care is a compliance program. You get companies like Addus that are making sure that, that care never who may or may not just because it's called family caregiver. It may not actually be a family caregiver or a family member. It may be somebody that knew the patient and is willing to serve in that market. So for that aspect, we still do all the things. We do all the training. We make sure that EVV is in place. We go through our complete compliance program to make sure that we are being paid appropriately and that we're providing the appropriate care that per the plan of care. So really from us, the self-directed care does not have a direct impact, but we are glad to see that they're looking at self-directed care to make sure that it is following the rules just like agency care. Unknown Analyst: Okay. And maybe on the hospice side, I think revenue per patient day growth was negative for the first time while could you help us better understand the dynamics there? -- including any trade-off with average length of stay? Brian Poff: Yes. I think there's 2 elements to that this quarter. I think primarily, we talked last year that we had some positive impact from the implicit price concession or revenue adjustment, whichever term you want to use. And I think we had indicated we expected that revert back to kind of historical norms. And I think that's where we were this quarter. So that definitely was part of the consideration between last year and even Q4 rated into Q1. I think there's a little bit of probably impact from just mix as well, but nothing really material there, but those are really the 2 factors. Operator: The next question comes from Constantine Davides from Citizens. Constantine Davides: Dirk, you highlighted your balance sheet strength and ongoing debt reduction both in the quarter and post the quarter and I guess can you just comment a little bit on the size of the opportunities in the M&A pipeline, whether that's starting to skew up a little bit more in recent months? R. Allison: Yes. What we're starting to see this year, and there's already 2 or 3 opportunities out there that are upside that we're looking at. I think it's really something that changed probably in the last 3 months or so where we're seeing processes begin on these larger opportunities. And that's one of the reasons, I think, constant team that we've worked very hard to keep our balance sheet clean. It's the reason we were able to do Gentiva very quickly and bring it on board. So we're looking at some of these bigger opportunities that because of our balance sheet, we could do and bring on fairly rapidly without having to stress our balance sheet. So again, they are out there. They're in a process, and we're more looking at them. Constantine Davides: And when you say of size something along the size of -- or scale of Gentiva. R. Allison: Yes, they're similar concise to Gentiva. That's correct. Constantine Davides: Great. And then a quick follow-up on India. You talked about that being -- that state being attractive and good rate momentum, I guess, in recent periods. Where do rates kind of compare to either other states you're in or your blended average? R. Allison: The rates are a little higher than some of the Midwestern states. I mean, obviously, Illinois is going to be our highest market. But Indiana, if you look around the other states around there, the rates now are very -- there are nice rates. There are rates that we can operate in very effectively. Also, there seems to be a little less competition in Indiana in the number of providers of our care. So it's a state that we've been looking at. And with -- I think it was in like 2023 time frame is when they really raise their rates to make them more competitive. Ever since then, we've been looking for opportunities to get into a state. And this [indiscernible] home court home care brought to us and the other acquisition that we announced allow us to that state and start looking for other opportunities to grow. Operator: The next question comes from Ryan Langston from TD Cal. Ryan Langston: Maybe just dovetailing off Indiana. Obviously, strategy to enter states the size and scale. Do you know if you combine the 2 assets where that would put you in terms of market share in the state. And I just caught your comments on decent rates and competition dynamics. But anything else in particular that made Indiana attractive? Brian Poff: Yes. I can start and Dirk could add some color on. I don't know that we have a detail of exactly where we stand. I think it's going to be a good footprint for us from just a coverage standpoint. All in, the other acquisition is going to be similar size. So we're going to be just under $20 million in revenue, which is a pretty good start for us in the state. I think one of the things that made it attractive for us in addition to what Dirk had kind of referenced is the managed Medicaid component. Obviously, a lot of the larger players there, I think United and those folks, we have good relationships with all of those guys, as everyone knows kind of nationally. So I think it is a good fit for us as it's always been something that's been part of the profile that we like as we get into states that have managed Medicaid where we can have those relationships in place. So I'm excited about that. Ryan Langston: Okay. And then I appreciate the commentary and response to Matt's question, but maybe just more broadly, obviously, this administration is really focused on fraud, waste and abuse and have made some statements to that quite a bit over the past several months to a year plus. Like I guess, just in general, what do you think any of that could mean for Addus? Is that potential benefit because you're so large and sophisticated maybe versus some of your smaller competitors in your markets? Just maybe more broadly, what do you think this administration sort of stands on FWA, how that could affect that? R. Allison: Yes. One of the things that Addus as did, we participated with the alliance in talking to the current administration about the fact that front abuse is out there, and it causes companies that are legitimate providers. It causes issues with various things you can talk about. And so from the standpoint of Addus, we're glad to see the administration focus on fraud and abuse. We spend a lot of money on compliance. We have for the last 10 years, we want to make sure that when we operate in a state that we're following the rules and we're doing what's proppant. And at times that you find that maybe something was built in properly, we pay it back very quickly to stay in compliance with the state. So the fact that we are large, we spend millions of dollars into the compliance aspect, we think -- bodes very well for what the administration is trying to do, and that is take out the players -- mostly smaller players, but take out the players that aren't doing the right thing. They're just billing and not following through with what they need to do to make sure the rules are being followed. And more importantly, the most important thing is that the care is being given to the patient. There's a reason that patient has a plan of care that has stayed approved, and that is they need that care. And so for us, calling out personal care, we'd rather than just call out home care and talk about the fact that there's a lot of fraud and abuse in home health. There seems to be an in hospice. From a personal care standpoint, we believe that we're a leader in the industry, and part of that being a leader is to lead the compliance effort. And so we're pleased with the fact that we're focused on that. And we believe long term, it will be a benefit to our company. Operator: The next question comes from Jared Hasse from William Blair. Jared Haase: Maybe just one for the model. I appreciate all the detail you guys have given as far as hiring and some of the initiatives you have going on like the caregiver application. That hours per se a month metric has been about 70% for a couple of quarters now. I guess, is there anything structurally that would cause that decline? I think the typical seasonality would have that sort of continue to grow sequentially over the rest of the year. But I just want to make sure that's sort of the right expectation to level set how we're thinking about things for the model, just given the moving parts as it relates to sort of census and volume trends. Brian Poff: Yes, Jared, I wouldn't expect to see that. There's nothing structurally that's going to cause that to decline. I think you're always going to have a little bit of ebb and flow in mix in the states. But with the efforts that we're using in the caregiver app and that rollout and thinking about our full rate, we would actually probably expect that longer term to actually continue to grow because we think there are hours that are available for clients under their care plan that we are currently not serving. So no, I wouldn't expect from [indiscernible] I would not expect to see that decline for any structural reason. Jared Haase: Okay. Got it. That's helpful. And then maybe just another one on Indiana as a market for you guys. I'm just curious do you get any sort of regional leverage in a market like Indiana, just given obviously the proximity to your largest market, Illinois. I don't know if there's any sort of infrastructure that you're able to leverage that would help you scale up and extract synergies a little bit more quickly than normal. Brian Poff: Yes. If you look at it from where we have markets around India, obviously, we're very large in Illinois. We're in Michigan, we're Ohio. So Indiana is kind of right in the middle of that geographically. So if you think about from just a regional or leadership perspective, there's not going to be a need for us to add any additional layers there. They should be able to just talk under kind of what exists for us on the infrastructure today. Obviously, you'll have people in those branch locations. But really that should be the limit of it. So from a -- just from a lift perspective on G&A, that definitely should slide right into the operations that we have that kind of surround the state. Operator: Next question comes from Clarke Murphy from Truist. Clarke Murphy: I had a follow-up on labor. I appreciate all the commentary that you guys have around the caregiver app and hiring trends. But I wanted to see if you guys are seeing perhaps any benefit on labor availability, even some of the macro concerns that seem to have amplified over the last couple of months and the impact that, that's had on kind of a broader consumer environment. Heather Dixon: I'll take that. The short answer is that we're seeing positive hiring trends and we are seeing some of the leading indicators in terms of wage inflation and availability of candidate full trend in the right direction. And frankly, with wage inflation, we're back to sort of that normal roughly 3% base, a little -- some are a little higher, some are a little lower. But in terms of candidates, we're seeing really good candidate flow across our markets. As Dirk mentioned, we're always going to have small kits where it's a little bit more difficult to staff, but that is really limited to mostly rural locations and frankly, just a couple of skilled categories in those rural locations, but we continue to [indiscernible] though those so that we can make sure we're hiring the right staff to drive growth and to serve our patients and clients. So really seeing some good trajectory there. Now whether it's attributable to the macro environmental issues, that's really hard to say, of course, but I can tell you that we are seeing positive trends. Jared Haase: Got it. And then just switching gears to capital deployment. The other question I had was just if I think about your current pace of debt paydown relative to your debt balance suggests absent M&A be kind of largely paid off by the end of the year. Just wanted to see absent any large-scale M&A, how that would potentially impact your capital deployment priorities going forward? R. Allison: We spent a lot of time talking about this at our Board meeting, as you would expect with the company in our position. I think the thing we see that maybe is not as apparent to outsiders is the number of deals that are now starting to come on board. We're starting to see some larger transactions as we mentioned. And remember, with those large transactions, there still are a number of smaller transactions that we just announced that are out there that we consider in most cases, backfilled. And in this case, it was entering into a new market. So we believe that before our data is paid off, we will put to work, a great deal of our capital in these opportunities that are out there. So it led us to decide that that's really what we understand we're going to use our cap for today. Now if that didn't [indiscernible] over the next year, you would see us maybe come up with a different decision on how we use our capital. But we believe right now that with the opportunities that are there for us, and we'll be able to use our debt and our cash and debt to grow the company. Operator: The next question comes from Ben Hendricks from RBC Capital. Michael Murray: This is Michael Murray on for Ben. You saw some pretty good leverage on adjusted SG&A even with the weather headwinds. Are there specific cost initiatives driving this improvement? Do you think the caregiver app is helping there? And how should we think about SG&A ratio as we move through the year? Brian Poff: Yes. I would say, first, the caregiver app probably isn't going to really have an impact on G&A. I think what we continue to see is kind of ongoing leverage, particularly on our corporate G&A as we grow our revenue base as we would expect. So we're not having to obviously add incremental cost there. On the labor side, as we kind of mentioned earlier, this year in this cycle, we're back to kind of a 3-ish percent kind of default rate there, so kind of back to norm. I think kind of going forward, we do give our merits on March 1. So we think sequentially into Q2, there's going to be a little bit of additional dollars in G&A in Q2 as those kind of flow through for the full quarter. But nothing else really from a seasonal perspective. So I think we would expect it to maintain a pretty stable percentage of revenue and continue to see additional leverage as we grow. Michael Murray: Okay. And then just shifting gears to home health. Organic revenue declined 6.6%. I think you previously indicated a return to growth in the second half of this year against some easier comps. So just wanted to get an update on admission trends, the impact of your new leadership and your confidence in achieving that time line. Heather Dixon: Sure. Michael, I'll take that one and talk about home health. Just start by reminding everybody, it's less than 5% of our business. But that said, we've made changes from a leadership perspective and then also from a sales perspective and how we go to market for that business recently. In Q1, we saw our margins really where we want them to be. And so our focus is now on volume. We did see some positive trends in Q1. In fact, in Q1 2026 new admissions, total volume and total visits, all improved sequentially versus Q4 2025. So that is the trend that we would like to see. That's part of what we're focused on seeing and we continue to think that certainly later this year and feel good about that statement. Just to just step back a little bit at a higher level picking up on something that Dirk said earlier, the real value in our home health business is the interconnecting care that we provide and the correlation that we see in markets where we have multiple lines of service there and different levels of care between those lines of service. So for example, I think it bears repeating in New Mexico and also Tennessee, where we have what we call the bridge program in place, and we really focus on creating referrals and admissions from home health into hospice for patients where that's appropriate, we've seen those rates exceed 25%. And we've also now begun that program in Illinois. Obviously, Illinois Home Health is a little bit earlier for us, but there is great opportunity there and opportunity to continue that pattern Operator: And our next question comes from A.J. Rice from UBS. Albert Rice: First, I think at one point, you were -- had said that you thought in the second quarter, you'd still see above average growth in personal care and hospice and then it would moderate in the second half. Just wanted to give you a chance if there's any update. Are you thinking about seasonality, what that might be or if there's any comments on thinking about the seasonal layout of the business for the rest of the year. Brian Poff: Yes, A.J., this is Brian. I think maybe not so much seasonal, but I think you started thinking about comps over prior year and some of the rate impact, particularly in Personal Care. I think our prior comments that we expect it to be probably toward the high of our kind of normal 3% to 5% range, if not above. So starting this year, obviously, at 6.5% same-store basis. We would still expect that to be the case for the remainder of this year. I think once we kind of get confirmation on New Mexico and that flowing through as well, that will obviously benefit the back half of the year. So I think we still feel pretty comfortable with that commentary thinking about kind of where we'll be on a same-store basis for each quarter going forward in [ BCS ]. Home health -- I mean, sorry, hospice has been double-digit plus in same-store. I think we had guided people to think that's probably not long-term sustainable. Our ultimate expectation is probably upper single digits, so we're just under 8% this quarter. I think we've seen some nice trajectory in ADC coming out of the quarter. We were a little bit softer coming off of the holiday. So I think that sets us up pretty well. I think going forward to be in really good shape to continue to meet that as well for the remainder of this year. Albert Rice: Okay. And then I guess your comments about M&A and the pipeline and so forth. Obviously, these deals are more in the personal care arena. You sound like you're feeling a little better about the home health backdrop. Would that be something you would now sort of lean into again on M&A? Or is it still too early to do that? R. Allison: I think we would look at home health deals today as opposed to maybe a year ago. As you can understand, we'd be very careful in what we did, make sure it's strategically met. For us, the overlap with our hospice and personal care so that our [indiscernible] bridge program can work. But yes, we would start looking at home health care opportunities today. Operator: The next question comes from Joanna Gajuk from Bank of America. Joanna Gajuk: Full of questions here. So on personal care same-store hours per business day, I think grew, call it, 2%, 2.2% -- so what was it excluding weather? I know you gave a revenue, I guess, impact from that? And what was it as you exited the quarter? So essentially what I'm trying to get at is kind of what was your growth in March? And do you expect sort of the acceleration and a little bit higher over the rest of the year on that metric? Brian Poff: Yes. I think, Joanna, I think our target has always been and we've been talking about it for some time now. We can keep that same-store hours per business day between 2% and 2.5%, we're probably going to be in a pretty good spot. We've been 2.4% each of Q3 and Q4 [indiscernible], but we were a little bit softer as we kind of mentioned in Heather -- with some of the weather we saw in January. So we're probably not going to go into kind of a month-by-month metric on that. I think we feel pretty comfortable coming out of the quarter with where we were from just a census perspective in hours in March and going into that 2% to 2.5% range still feels very, very solid for us going forward. Joanna Gajuk: It's great. 2.5%. And then the gross margins, so Q1 is seasonally low, right? But can you help us kind of call out anything as we think about Q2 from Q1? Brian Poff: Yes. I think yes, seasonally is usually always our low watermark of the year with the reset of payroll taxes and our merits. I think traditionally, what we see is -- usually you see a little bit of improvement with some of the payroll tax caps getting Q1 into Q2. So usually, there's a little bit of benefit into Q2. Q2, Q3, usually pretty flat. I think Q4 usually is the best quarter for us from a margin perspective, just with some additional benefit from payroll tax caps but also our hospice rate increase kicks in, in that quarter as well. I think if you look at the mix of our business, personal care was a little over 77% this quarter. As a comparison, you think about that versus hospice and home health, hospice and wealth have a higher gross margin. So if that mix gets back more to 75-25 on skilled and non-skilled that would benefit as well, but mix is going to potentially play in as well. So I think we feel really good coming out of the quarter on the track for [indiscernible] ADC. So if that were to be a bigger part of our mix going forward, that would benefit our gross margin percentage as well. Joanna Gajuk: And the last one on the quarter. The stock comp was higher sequentially from Q4. Is there -- was there something kind of onetime in nature? Is the $5 million a good run rate? Or is this something outside of [indiscernible]? Brian Poff: Yes. That's not a run rate. I mentioned in my comments. So with our former President and COO, retiring, there was some accelerated vesting as part of this retirement that impacted the quarter, but should be onetime and would not be continuing going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks. R. Allison: Thank you, operator. I want to thank each of you for taking the time to join us today on our call, and we hope that you have a great week. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sunstone Hotel Investors, Inc. First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given at that time. I would like to remind everyone that this conference is being recorded today, 05/05/2026, 11:00 AM Eastern Time. I will now turn the presentation over to Mr. Aaron R. Reyes, Chief Financial Officer. Please go ahead, sir. Aaron R. Reyes: Thank you, Operator. Before we begin, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those described in our filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider these factors in evaluating our forward-looking statements. We also note that the commentary on this call will contain non-GAAP financial information including adjusted EBITDAre, adjusted FFO, and hotel adjusted EBITDAre. We are providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Additional details on our quarterly results have been provided in our earnings release and supplemental which are available in the Investor Relations section of our website. With us on the call today are Bryan Albert Giglia, Chief Executive Officer, and Robert C. Springer, President and Chief Investment Officer. After our remarks, the team will be available to answer your questions. With that, I would like to turn the call over to Bryan. Please go ahead. Bryan Albert Giglia: Thank you, Aaron, and good morning, everyone. We were pleased with our performance in the first quarter which came in ahead of our expectations even with some weather-related headwinds across a handful of our markets. The strength was broad-based, with continued solid group results and transient performance that was better than anticipated. Overall, RevPAR in the quarter grew an impressive 14.6%. Excluding Andaz Miami Beach, which continues to ramp nicely, RevPAR grew 5.7%. This strong revenue performance, combined with continued focus on cost controls at the hotels and at the corporate level, allowed us to generate meaningful growth in earnings. The added benefit of our accretive repurchase activity drove even greater growth in earnings per share with first quarter adjusted FFO nearly 29% higher than last year. Our resorts once again led the portfolio with combined comparable RevPAR growth of over 18%. While the rebound at Wailea Beach Resort was expected, it has been impressive, where revenue grew 14% in the quarter even with significant cancellations from the two weather events that impacted the Hawaiian Islands in March. While we will need to navigate some repair work and disruption following the storms, the outperformance in January and February, and the trends that we are seeing for the remainder of the year, continue to point to a sustained recovery in Maui. We were also quite pleased with performance at our wine country resorts, which turned in a combined 34% growth in RevPAR driven by better contributions from both group and transient business. As we shared with you on our last call, we were encouraged with how Andaz Miami Beach performed over the festive period and into the early weeks of this year. That trend has continued, with results exceeding expectations in the first quarter. We are seeing further strength into April, with second quarter benefiting from strong transient and group business with major events like the F1 race last weekend and the World Cup coming this summer. During the first quarter, the Andaz ran 86% occupancy at a $564 rate and produced $6.5 million of EBITDA. The concept ran a similar occupancy but at a rate over $900 per night. Q1 was an absolute success for the Andaz, and we are encouraged with how much opportunity we have to continue to grow rate closer to its peers and build on our multiyear growth story. We have had a solid start to the year, and we are well positioned to deliver on our earnings expectations in 2026, and we look forward to the resort’s next phase of growth into 2027 and beyond. Our urban hotels had a noisier quarter as we navigated a challenging Super Bowl comp in New Orleans and weather-related headwinds across the East Coast. RevPAR declined 9.3% in the first quarter across our urban portfolio, but out-of-room spend performed better and limited the decline in total RevPAR to only 2.9%. At JW New Orleans, revenue was lower given the benefit of the Super Bowl in the prior year, but despite the challenging comp, our hotel continued to gain share. After picking up nearly 15 points of RevPAR index in 2025, the JW again outperformed the comp set in the first quarter and now sits at over 150% relative to the group, demonstrating the strength of the hotel’s location, superior room product, and recently upgraded meeting space. In addition, our New Orleans hotel had one of its best first quarter production results in years, with group bookings growing over 50% relative to the prior year. In Boston, the quarterly performance was hampered by the severe winter weather that disrupted travel earlier in the year. Overall, we expect the first quarter to be the toughest quarter for our urban portfolio with sequential growth in RevPAR through the balance of the year. Our convention hotels turned in better-than-expected performance with RevPAR growth of 5.2%. Performance varied widely, however, as we experienced the push and pull of a few large events. In Washington, D.C., we had a very challenging comp given the inauguration last year. After increasing over 24% in 2025, RevPAR at our Westin D.C. Downtown was 9.8% lower this year due to the tough comp and higher group attrition from the severe winter storms that occurred in the quarter. Despite this decline, our performance was better than expected as stronger transient demand helped to partially offset the sluggish group backdrop in the market. Additionally, the Westin had a solid booking quarter with transient pace for the next six months up 11% relative to last year, pointing to a continuation of the current transient trend. On the flip side, RevPAR increased over 27% in San Francisco where the Super Bowl added compression to a market that was already on a positive trajectory. In fact, if you look only at January and March, RevPAR was still higher by 14% as the city benefited from an active event calendar and an increased level of commercial activity in the downtown area. Performance at the Renaissance Orlando SeaWorld was impacted by isolated group cancellations earlier in the quarter and a shift in the mix of business, which led to a decline in rooms RevPAR but generally flat total RevPAR given the benefit of strong contribution from out-of-room spend. We expect the balance of the year to be more conducive to growth in Orlando with particular strength in Q3 and Q4, where second half group pace is up over 40% relative to last year. Lastly, in San Diego, we were pleased to see better transient performance in the market, which has given us a more optimistic outlook for the year. We are in the final stages of our meeting space renovation at the [inaudible] and we expect that our second quarter will be the toughest comp of the year with sequential improvement through the third and fourth quarters as we benefit from better group patterns and our new meeting space. On the expense side, we were particularly pleased to see better productivity in the rooms department, which allowed us to keep comparable departmental expense growth on a per occupied room basis to only 1%. This better cost performance was partially offset by higher utility expenses, property G&A, and sales costs. Overall, our comparable portfolio, excluding Andaz, saw expense growth for all costs increase 3.4% on an absolute basis during the quarter, or 2.4% per occupied room. This was generally consistent with our expectations and allowed us to grow margins by 140 basis points. Given the cadence of our quarterly revenue growth, we expect that the first quarter will be our strongest margin growth performance of the year, but we are continuing to work with our operators to focus on cost controls and drive efficiencies wherever possible. As part of our last earnings call in February, we noted that we were encouraged by the trends we were seeing in recent operations, but that broader uncertainty gave us reasons to be cautious. This remains the case today with recent events only reinforcing this view. We continue to monitor events that could impact costs and the demand for travel. While we did not see any measurable impact on our first quarter operations, an elongated period of heightened volatility or sustained increases in fuel prices could present headwinds. That said, performance in the first quarter was meaningfully ahead of our expectations, and based on what we see today, we are comfortable revising our full-year outlook higher to reflect these results. Given the elevated uncertainty, we will continue to be measured in our expectations for the rest of the year. If more of the momentum from the first quarter carries into the balance of the year, or if some of the special events slated for later this year outperform our modest expectations, then we could be positioned to deliver stronger performance. We are encouraged by the increase in hotel transaction activity and believe the environment may be becoming more conducive to executing our capital recycling strategy and demonstrating the value of our portfolio. In the interim, we continue to deliver value to shareholders through an additional $50 million of accretive common and preferred stock repurchase activity so far this year. We expect to continue opportunistic repurchase activity as pricing allows while we focus on generating profitability growth from our operations and realizing the benefits of our investment projects. And with that, I will turn the call over to Robert to give some additional details on our capital investment activity. Robert C. Springer: Thanks, Bryan. We have gotten off to a busy start on the operations and investment front. As we shared with you last quarter, our planned capital projects for 2026 were concentrated in the first half of the year, and I am pleased to report that we have made solid progress executing them on schedule and on budget. In San Diego, we are wrapping up the renovation of the meeting space. The finished product looks great and should help the hotel to maintain its leadership position in the market. Recent trends in the city have been more encouraging, and based on what we see today, we expect better performance in the latter part of this year; the hotel is pacing ahead for 2027. In Miami, we are also finishing construction on Bazaar and we are very pleased with how the space is coming together. We expect to begin training activities in late summer with the restaurant opening in early fall to take advantage of the full high season in the market. As we shared earlier, our renovated resort is already attracting some great group business, but the addition of Bazaar will round out the property, further increasing its appeal with luxury travelers and higher-end groups. We anticipate that Bazaar will not only help drive incremental room-night demand at the hotel, but will be a dining destination for guests from nearby properties and local residents as well. Elsewhere across the portfolio, we will be starting some facade work and a rooms refresh at Ocean’s Edge Resort and Marina in the middle part of the year as part of a broader effort we are working on to drive incremental revenue and earnings to this resort. We will also be completing some smaller routine projects across the rest of the portfolio. As Bryan noted earlier, our Wailea Beach Resort was impacted by a series of severe storms that came through the Hawaiian Islands in March and brought heavy winds and substantial rainfall. While our resort remained operational during the storms, we did sustain wind and water damage in some of the guest rooms, public spaces, and portions of the roofs. We are currently working to restore impacted areas and should have most of the public space and guest room-related work completed in the coming weeks. We will, however, have some additional repair work to do on a few roofs, which will not be done until later this year. We are working closely with our insurers to pursue cost recovery for the repair work and lost business from the storms. It is too early to share any of those details. Based on what we see today, we expect that incremental capital expenditures needed at Wailea will likely mean we will be in the upper half of our existing CapEx guidance range for 2026. We are still working through the details of the approach and timing of the required spend, and cost recovery from our insurance policies, and will share additional information as part of our next call. With that, I will turn it over to Aaron. Please go ahead. Aaron R. Reyes: Thanks, Robert. As we noted at the top of the call, our earnings results for the first quarter came in ahead of expectations driven by broad-based strength across the portfolio. RevPAR increased 14.6% in the quarter, including an 890 basis point benefit from Andaz Miami Beach. Total RevPAR for all hotels increased 13.4%, including an 810 basis point benefit from Andaz. Given our mix of business, we anticipated that rooms revenue would grow faster than total revenue in the first quarter, which was the case, but ancillary spend performed better than we thought and the guidance ranges that I will discuss shortly reflect a more optimistic outlook for out-of-room revenue growth than our prior expectation. The stronger top line performance in the quarter contributed to earnings that were ahead of our expectations, including adjusted EBITDAre of $68 million, an increase of 18% relative to last year. When combined with the added benefit of our accretive repurchase activity, adjusted FFO per diluted share was $0.27, an increase of nearly 29% from last year. Our balance sheet remains strong. We have no debt maturities prior to 2028 and net leverage stands at only 3.5 times trailing earnings, or 4.6 times including our preferred equity. Since December, we have repurchased over $19 million in liquidation value of our traded preferred stock at a 21% discount, a positive impact on both FFO and NAV. Included in our press release this morning are the details of our updated outlook for 2026. Our revised guidance ranges reflect the outperformance we saw in the first quarter but retain a degree of caution for the balance of the year given the uncertain backdrop. We now expect that rooms RevPAR for all hotels in the portfolio will increase between 57.5% to a range of $236 to $242. This reflects the full year benefit of Andaz Miami Beach, which is expected to contribute approximately 400 basis points of growth at the midpoint. Based on what we see today, we now expect total RevPAR to increase between 5% to 7.5%, an increase of 125 basis points at the midpoint, which captures our higher expectations for growth in ancillary spend. This would now imply a range of $390 to $400 with a similar 400 basis point benefit from Andaz. As we noted on our last call, the first quarter will be our strongest revenue growth quarter of the year with the remaining growth quarters being between the lower end and the midpoint of our RevPAR and total RevPAR guidance ranges. While Andaz will certainly provide a lift to our results all year, the impact will become less pronounced as we get further into the year and begin to lap more of last year’s operations, with the revenue growth benefit estimated at approximately 500 basis points in the second quarter and 150 to 200 basis points in each of the third and fourth quarters. This revised revenue growth is now expected to translate into adjusted EBITDAre in the range of $238 million to $252 million. Based on where we sit today, we expect our FFO per diluted share to now range from $0.88 to $0.96. This updated earnings per share range reflects the benefit of better operations and our recent share repurchase activity. In terms of the distribution of our earnings by quarter, based on the midpoint of our updated range, the first quarter accounted for roughly 28% of our full-year earnings, with the second quarter expected to comprise approximately 28% to 29% and the balance split more or less evenly across the third and fourth quarters. Moving to our return of capital, since the start of the year up to April, we have repurchased $35 million of common stock at a blended price of $9.11 per share. In addition, we have also purchased over $14 million of our preferred stock at a blended price of $19.84 per share, or a 21% discount to its liquidation value. This common and preferred stock repurchase activity has been accretive to both NAV and earnings per share, and while we retain capacity and appetite for additional share repurchases, our revised 2026 outlook does not assume the benefit of additional buy activity. In addition to our share repurchases, our Board of Directors has authorized a $0.09 per share common dividend for the second quarter and has also declared the routine distributions for our Series G, H, and I preferred securities. Before we conclude our prepared remarks, I will turn it back over to Bryan for some additional thoughts. Bryan Albert Giglia: Before we open the call to questions, I want to provide an update on our 2026 objectives. The Company remains focused on realizing the value of our portfolio. Over the past few years, we have sold hotels at what have proven to be attractive valuations and redeployed proceeds into the most accretive option available at the time. While most of the proceeds went to repurchase common or preferred stock at a discount, we also acquired assets when our cost of capital became more competitive. Given the improving transaction market, we expect to recycle capital in 2026 and take advantage of strong private market values for certain assets. This would then allow us to redeploy proceeds into additional share repurchases at a discount to NAV or liquidation preference, or potential hotel acquisitions under the right circumstances. We remain focused on executing transactions that will result in the best risk-adjusted returns to our shareholders. The Board and management remain committed to maximizing the value for shareholders and are open to pursuing any alternative that would reasonably be expected to result in value creation. We will now open the call for questions. Operator, please go ahead. Operator: To ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Thank you. Our first question comes from Duane Pfennigwerth from Evercore ISI. Peter Laskey: Yeah, hi. This is Peter on for Duane. Thanks for taking the question. So, if we zoom out and think about the 14-hotel portfolio and that portfolio reaching some level of stabilization, what are some of the building blocks left to get there? And, said differently, what are some of the growth drivers beyond what you have provided for 2026? And then you mentioned the transaction markets are getting more active. Could you just quickly expand on that, and what sort of assets are you seeing being marketed? What are brokers saying? Bryan Albert Giglia: Sure. Good morning. Let me start, and then Aaron can provide some additional detail. When you look at the building blocks, there are several pieces. First, Andaz is a multiyear story. We had an excellent Q1. The resort is ramping up. We started to see this at the end of Q4 last year and into Q1 this year, and it is ramping. The group business has been very strong. The transient business continues to grow, and we are very happy with the performance so far. That said, when we look at Q1 and we look at our rate, which was in the mid-$500s, and we look at the comp set, we still have a lot of room to grow. The comp set was running over $1,000, so that is a lot of room for us to expand into next year. Also, fourth quarter last year was the same delta, and so fourth quarter this year we have room to grow. Opening the Bazaar at the end of this year into the high season, the beach club just opened, which also serves as additional meeting space for the resort. So Andaz has a very good two-year-plus trajectory. Maui is also another asset where we have room to grow. We talked about this last year of having to have the island stabilize, and we saw that with Ka’anapali reaching a stable 70% occupancy in the fourth quarter. Our transient volume started to recapture our index and our share in the fourth quarter of last year and has continued into this year, and given where we are relative to prior EBITDA, there are still several millions of dollars of EBITDA growth that we will get into next year. San Francisco is another market for us that has grown and rebounded very well, but still has quite a ways to go, and everything we are seeing in that market from group demand, transient demand, and citywide demand has been very positive and will go into 2027 and beyond. As far as San Francisco’s strength, we have also seen that help wine country and the two resorts there, where as the citywides and the city of San Francisco do better, it then leads into additional leisure demand up in wine country. So I think those are the big pieces that we will continue to see grow throughout the next few years. On your question about the transaction market, we see additional equity capital coming into the markets and increasing the number of deals and potential transactions, which is good and healthy. Right now, you are seeing more luxury assets out there, given where the recovery has been and the demand and productivity of those assets. There is a lot more on the luxury side. As the year goes on and some of those transactions are announced and closed, we will start to see more of the higher-quality, upper-upscale assets come to market too. Aaron R. Reyes: I might add to that. I think Bryan hit the broader points of what we have going on across the portfolio. On top of that, we have the added benefit of the activity that we have been doing. We have been thoughtful in how we have allocated capital both to our common stock and most recently to our preferred stock as well. When we think about not just EBITDA growth, but growth on an earnings per share basis, we have capacity for significant accretion in FFO per share. Operator: Our next question comes from Michael Bellisario from Baird. Please go ahead. Your line is open. Michael Bellisario: Good morning. Bryan, just want to follow up on your acquisition commentary. Maybe high level, can you talk about the criteria that you are looking at for potential acquisitions in terms of markets, brands, initial yields, and then also the appetite for buying a cash-flowing asset versus doing another deeper-turn renovation project? Bryan Albert Giglia: Sure. With what we have done in the past and the way we have approached things, I think it is important, especially for a portfolio our size, to make sure that we have some degree of balance. We have a lot of deeper turns that are coming back online and/or ramping up assets. We have capacity for that. That said, like everything we do, we have to look at the options available to us and what is the best allocation of capital, whether it be using our balance sheet or recycling an asset, on a risk-adjusted basis, what makes the most sense for our shareholders. Up until this point, that has absolutely been share repurchase and repurchasing our preferred at a meaningful discount to liquidation preference. Going forward, that is a balance. As our cost of capital improves and our stock price improves, then we look to balance that with potential acquisitions, mainly coming from recycling capital where we can take advantage of private market values in specific markets or asset types where there is a lot of demand right now, and we can potentially realize a portion of the future upside today, and then redeploy that into something that has good growth, maybe not quite as much growth, but at a much more compelling initial yield that provides future opportunities. Every day we make the decision of how we will allocate additional capital. Where we stand right now, our common and preferred are still very compelling. As that changes, the preference would probably be more stabilized. If you look at the types of hotels and resorts that we have, we like assets usually slightly larger, that have a good group component with some secondary, whether it be leisure or business transient. There are varying degrees of rebranding activity, whether it be like the Westin D.C. or the Marriott Long Beach, with different degrees of renovation but the same game plan where we are able to capture more index through finding a brand that could do better. That is our focus. Today, our equity and preferred are very attractive, but as the space improves, that gives us more opportunity to deploy into assets. Operator: Our next question comes from Smedes Rose from Citi. Please go ahead. Your line is open. Smedes Rose: Hi, thanks. Maybe just switching to a couple of market questions. On the Andaz, I think in the past you had talked about maybe mid- to low-teens EBITDA contribution this year. Are you still comfortable with that? And are you seeing any lift from the World Cup helping that property? And then I was hoping you could comment on a couple of the larger group markets where you operate. You mentioned a lot of strength at the JW in New Orleans. Are you seeing strength overall in that market? It seems like it has been kind of weak on the group side. And could you also touch on Orlando and San Diego? Bryan Albert Giglia: Morning, Smedes. We feel, based on where the asset has performed, that we are comfortable with the range we have given, inching toward the higher side of that with some opportunity to achieve it this year. Remember the seasonality of the market. The asset will be a little bit skewed more toward the first quarter this year as it is ramping up, and Q1 through April is a big piece of the annual EBITDA. Based on what we have seen so far, transient bookings forward, and group bookings forward, we feel very comfortable with that range. As far as the World Cup goes, we have had really good events in the market this year. The national championship and F1 last weekend were fantastic. For the World Cup, we continue to be measured in our various markets where we have matches. It is a good time in the year for Miami because the summertime tends to be the lower season, so having additional international travel coming into the market will be good. As we get closer, we will have a better understanding of the ultimate impact, but right now we continue to be somewhat measured across our markets for the World Cup. On the broader group markets, when we look at first quarter and second quarter, transient has been the strongest segment across the board, and transient at some of our large group hotels has been better than anticipated. The way our group calendars and bookings laid out this year, the first half was always the weaker of the two, and our pace picked up in Q2, Q3, and Q4 depending on the asset. For the second half, New Orleans pace is up significantly. Orlando also had a tougher comp in the first half but has a really good second half. D.C. has stronger citywides and does pick up, and there are some events in D.C. that should be helpful. Looking forward, we have a great transient base of business for the next six months that is booking very strong. We did not have the greatest group bookings in the first half, but in the second half that is where it picks up and gives us a solid setup. There are also variables out there that could impact travel or fuel costs. We like what we see and the setup, but we will remain measured until we get a little more time to see what other external impacts there could be. Operator: Next question comes from JPMorgan. Please go ahead. Your line is open. Analyst: Hi. This is Michael Hirsch on for Dan today. Thanks for taking my question. In the prepared remarks you mentioned seeing some group cancellations during the first quarter across the portfolio. Could you provide any additional color on attrition or overall group trends and pacing for this year or next? And for my follow-up, you touched on the World Cup in Miami. For your broader portfolio, could you remind us what your outlook is for the RevPAR uplift, and what about recent World Cup demand trends are leading to your more measured approach? Bryan Albert Giglia: Overall attrition is probably down slightly from where we were last year. There were a lot of government cancels last year. We are always going to have cancellations and some attrition throughout the year. Some of the storms on the East Coast did impact various groups, with a couple of weeks where groups either could not get to the destination or had to cancel last minute due to storms. Those were more specific to weather or specific events and not overall group patterns. What we are seeing on the group side is ancillary spend continues to be very strong. We continue to see corporate groups and associations both perform well. Our group pace picks up into the second half of this year, and while it is a little early to start talking about future years, 2027 pace looks good at this point. On the World Cup, our measured approach is how we started the year. It was too early to have bookings. There was the expectation that things would be very strong, but without a recent history and not having business on the books, it did not make sense to anticipate rate increases and major demand. As we get closer, we have seen data points from brands and others indicating a shorter-term booking window. We do have some group business on the books—there is a group in San Francisco, a group in Miami—but it is limited. If we see international travel very strong during that time and last-minute bookings pick up, that will be additive to our second and third quarter, but it is not in any of our guidance at this point. Operator: Thank you. Our next question comes from Compass Point. Please go ahead. Your line is open. Kenneth Billingsley: Hi, this is Ken. Thank you for taking my question. I wanted to ask about out-of-room spending. Your total RevPAR guidance grew faster than RevPAR. Could you talk about what is driving some of that? How much of it is fixed spending associated with the room and how much is discretionary? And away from just the group-specific piece, on out-of-room spending not related to group, are you seeing that being stronger as well? So a lot of that flip there is on the occupancy side, not so much that they are necessarily spending more per room? Bryan Albert Giglia: Good morning, Ken. Even with groups, there is a portion that is discretionary. You have your minimums and contracted amounts, but as you get closer to the event, you see groups buying up different things—adding items—and at certain times they subtract things. What we saw in the first quarter, not just for corporate group but also association, was better spend. The contractual amount is there, but the additional add-ons or upgrades—whether AV, food options, beverage options—were strong in the quarter, and we do not see that slowing down at this time. Outside of group, yes, it is also up. It is a function of occupancy, too. In Wailea, a market with significant out-of-room spend for transient customers, as we regain our occupancy share, those customers spend more at the bars, restaurants, and other amenities. We are seeing that on the transient side too—more at resorts than at a business transient hotel where there are fewer options to spend. On the group side, we are seeing more spend per occupied room. On the transient side, it depends hotel by hotel. Maui is probably a mix of both occupancy and spend. At some of the more luxury resorts in wine country, there is generally more spend—spa, food. Occupancy was up a little in the quarter, but we are seeing strong spend across. Operator: Our next question comes from Chris Darling from Green Street. Please go ahead. Your line is open. Chris Darling: Thanks, good morning. Bryan, I understand guidance may prove conservative, but if I look at what is implied for the rest of the year, it seems to suggest flattish to slightly declining margins for the rest of the year. Can you put that outlook into context and talk about how you see expenses trending for the rest of the year? And I may have missed this earlier, but could you elaborate on the recent operating performance at the wine country hotels and your outlook for the rest of the year there? Bryan Albert Giglia: In general, we see expenses increasing 3.25% to 3.5%. If you look at the RevPAR gain distribution quarter to quarter, the first quarter was and will be our biggest growth quarter. We had margin expansion in the first quarter. As we go through the rest of the year, we saw good productivity in Q1 and we are planning on maintaining or increasing productivity, especially in the rooms department. Depending on where RevPAR shakes out, margins could be positive to slightly up or maybe neutral for the rest of the year. If we are conservative on RevPAR, we will have better flow-through and margins will tick up. Given where the implied RevPAR guidance is and that expenses are growing in the low-to-mid 3%, we will revise after another quarter under our belt, but for now that is the most prudent outlook. On wine country, first quarter is the low season and the most challenged on occupancy. The key to profitability or getting to breakeven in Q1 is the right amount of group business. We have focused the resorts on building that base. It comes at a lower rate but with higher ancillary spend. Both resorts worked very hard to get as much group on the books as they could and had great group on the books this year. Transient demand was better than expected, and while we had bad weather on the East Coast and in Hawaii, in California and wine country they had great weather in Q1, which helped. Going forward, both hotels continue to have very good transient demand. Four Seasons has very good group pace for the second half. Montage has decent group pace and is a little farther ahead in establishing its group business. We are doing more group room nights this year than ever before—about 55% of total occupancy—and we would like to see that in check at about 60% to 65% for that asset. Luxury is outperforming, and combined with improved demand from the Bay Area that feeds up there, our outlook for both is very strong for the rest of the year. Operator: Our next question comes from Ladenburg. Please go ahead. Your line is open. Analyst: Just following up on the wine country hotels. Even though it is still a loss, performance was a $4 million improvement in EBITDA relative to the first quarter of last year, which is pretty meaningful. As you think about disposition plans, are those potential candidates, particularly now that the JW Marriott in Marco Island is sold and the luxury market seems to be unthawing in terms of financing availability? And a follow-up: operations are trending the right way, but your guidance, like your peers, stays cautious. Are there outliers in terms of the World Cup impact that it could have based on your outlook today? What is the upside if the World Cup does better than you are expecting? Bryan Albert Giglia: I do not know if Marco Island is a direct comp for these two, but we have been very clear: when we look at our portfolio and potential dispositions, we want to capitalize on private market values. There are certain types of assets right now—luxury being one of them—and markets where there is a lot of interest. We do not comment on transactions before we have something to publicly say, but based on our actions and the criteria I just highlighted, we are clearly out there exploring various opportunities at all times to identify assets we can recycle and redeploy proceeds into our common, our preferred, or, as I said earlier, different acquisition targets as things improve. Monetizing low-yielding assets is something that could be achievable right now in the current market, and we will look at doing what we can. There are a lot of luxury assets out in the market now, including older portfolios returning, so there is a lot of supply. Recycling assets is a core tenet of our strategy, and we are focused on doing it. On World Cup upside, it will add significant compression. Looking at our portfolio, Q1 had great transient demand. The next six months of transient bookings are up significantly across our convention, urban, and resort hotels. Transient is very strong. Our second half group pace is very strong. Hotels are booking significant current-year and future-year business. If World Cup comes in stronger, that is additional compression and benefit that will accrete to our performance. The caution is that there are events out there that could impact the cost and demand of travel, and like others we will remain cautious until we see those potential impacts alleviated. Operator: Our next question comes from Logan Shane Epstein from Wolfe Research. Please go ahead. Your line is open. Logan Shane Epstein: Yes, thanks for taking the question. Last quarter you talked about government-related transient coming back to San Diego in the first two months of the year. Did that trend continue into March and April, and how do you expect that to impact both San Diego and D.C. for the rest of the year? Bryan Albert Giglia: We saw the largest increase in transient demand in Long Beach in the first quarter, with defense and other government-related business. San Diego had transient pickup; it was more negotiated and some discount as well, and the negotiated piece could be government-related, including consultants and contractors. In D.C., we saw a little less government-related, but we saw strong transient driven by the rebranding to a Westin—we are picking up more corporate accounts and more retail accounts. Looking at our rate and occupancy index compared to pre-Westin, we are gaining share in the market. Some of that will be government-related as everything in D.C. is to some extent, but the real driver is the benefit of the rebranding we did. Operator: Our last question comes from Chris Jon Woronka from Deutsche Bank. Please go ahead. Your line is open. Chris Jon Woronka: Hey, good morning, thanks for taking the question. Bryan, you covered a lot on Miami and Andaz and what still needs to happen to get fully ramped up. It seems like you had a good start in Q1. Can you flush out a few more details on whether there is also a group story and ancillary beyond the rate story? How much will things like the beach club factor in? Bryan Albert Giglia: Our target for group is probably about 25% for the hotel. This year we will run around 20% of the business as group, which is better than we anticipated going into the year. We have seen not only group volume but the quality of group continue to improve as we move throughout the year. Miami is a repeat market for both transient and group customers. That quality of group—whether for Art Basel or other major events—we did not really participate in last year. We will have groups in this year, and next year we will likely have even better groups. While there is still occupancy to build on the group side, the group side will also be a rate story. At the end of Q3 and into Q4, when Bazaar opens, that will bring a level of energy and notoriety into the hotel that will be a big catalyst for overall rate as well. Everything has accelerated in the first quarter. We have seen group pickup and quality increase. There is still occupancy and ancillary spend to capture, and as we move into next year it becomes more of a rate story, with a lot of space between our current rate and the market rate that will be very meaningful to the hotel’s cash flow. Operator: We have no further questions. I would like to turn the call back over to Bryan Albert Giglia for closing remarks. Bryan Albert Giglia: Thank you, everyone, for your interest, and we look forward to seeing many of you at upcoming conferences. We also look forward to anyone we have a chance to get through the new Andaz. We have had many tours, but are always available to show off this really remarkable resort. Thank you. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to the Crescent Energy Company First Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference call, press zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reid Gallagher from Investor Relations. Please go ahead. Reid Gallagher: Good morning, and thank you for joining Crescent Energy Company’s First Quarter 2026 Conference Call. Today’s prepared remarks will come from our CEO, David Rockecharlie, and our CFO, Brandi Kendall. Our Chief Operating Officer and Executive Vice President of Investments will also be available during Q&A. Today’s call may contain projections and other forward-looking statements within the meaning of federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict, our business strategies, and other factors that may cause actual results to differ from those expressed or implied in these statements and our other disclosures. We have no obligation to update any forward-looking statements after today’s call. In addition, today’s discussion may include disclosure regarding non-GAAP financial measures. For reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measures, please reference our 10-Q and earnings press release available under the Investors section on our website. With that, I will hand it over to David. David Rockecharlie: Good morning, and thank you for joining us. First, I would like to say thank you to all of our investors, our talented colleagues, and everyone who has been part of our journey as the Crescent Energy Company team. Together, we have executed a consistent strategy, uniquely combining investing and operating expertise to deliver better returns, more free cash flow, and profitable growth. Today, Crescent Energy Company is a top 10 U.S. independent oil and gas producer with more scale, more focus, and more opportunity than ever before. On this solid foundation, we will continue to build tremendous value in the months and years ahead. And our update today gives us great confidence in Crescent’s future. Crescent delivered another strong quarter. We outperformed on production, generated meaningful free cash flow, and made significant progress integrating our Permian assets. As always, I want to begin with three key takeaways. First, strong execution drove outperformance. We exceeded production expectations driven by faster cycle times and some key steps in optimization of our producing base. We further increased free cash flow through an opportunistic refinancing, lowering our cost of capital. Second, we are thrilled with our Permian acquisition, where our integration is ahead of plan, and we see meaningfully more upside every day. We have already exceeded our initial synergy target, capturing $120 million to date, and we are seeing early improvements in both well costs and production. And third, our differentiated combination of investing and operating expertise continues to deliver significant free cash flow both in the quarter and in our future outlook. Let me now discuss the quarter in more detail. We produced a record 341 thousand barrels of oil equivalent per day for the quarter, including 140 thousand barrels of oil per day, and generated $192 million of levered free cash flow. Importantly, first-quarter production was above expectations on both total equivalent volumes and oil volumes, driven largely by base production outperformance and acceleration in the Permian from improved cycle times. While our development plan remains fundamentally unchanged, we are selectively accelerating volumes to capture higher near-term returns while continuing to drive operational efficiencies and lower well costs across our asset base. In the Eagle Ford, we continue to see steady efficiency gains. We continue to increase our use of simul-frac completions across our development, which is reducing costs and accelerating volumes. At the same time, we have strengthened our 2026 development program through an active ground game, increasing lateral lengths and working interests. In the Permian, we are off to a strong start and capturing early wins. The initial phase of our integration focused on stabilizing the assets. We have right-sized capital intensity and implemented our returns-driven operating approach. We are now focused on optimization and have seen impressive early results, with $120 million in synergies captured to date, already exceeding our original target. To provide a few examples, we have improved the operational planning around our development program, efficiently increasing wells per pad and adding roughly 100 thousand incremental lateral feet to our 2026 plan through offset acreage trades and land optimization. We have accelerated cycle times in our 2026 development plan, and we are already having success reducing well costs. From rebidding service contracts to changing fuel usage and facility design, we have achieved over $500 thousand of savings per well versus the prior operator. These are not one-off wins. They reflect Crescent’s operating model and our track record of buying assets and making them better. And importantly, we still see meaningful upside from here. In the Uinta, we have had strong execution, with well costs down roughly 20% year over year as we implement the same proven approach you have seen from us in the Eagle Ford. Implementing simul-frac, increasing efficiency, and extending laterals are just a few of the tools we have brought to the basin to optimize the capital program and increase well returns. Activity this year remains focused on our core Utelem Butte development. Additionally, after strong results in additional formations across the basin and on our acreage, we are investing more capital towards the prudent delineation of our broader resource opportunity. With our meaningful cost improvements and the tremendous stacked resource potential across our position, we see significant opportunity for value creation ahead of us in the Uinta. Our minerals and royalties business has shown similar strong performance. Our portfolio of world-class resource and high-margin cash flow provides valuable exposure to cost-free organic growth. And at current prices, we expect the portfolio to generate approximately $200 million of EBITDA this year, representing a meaningful increase versus our original guidance. Across the portfolio, the results are clear. We are executing well, improving our assets, and generating strong returns and significant cash flow. Our unique combination of investing and operating skills delivered this quarter, and Crescent Energy Company is better positioned than ever before to continue delivering impressive results and long-term value for investors. With that, I will turn the call over to Brandi. Brandi Kendall: Thanks, David. Crescent Energy Company delivered another quarter of strong financial results, generating approximately $690 million of adjusted EBITDA and approximately $192 million of levered free cash flow. These results reflect both strong execution and a portfolio built to generate outsized free cash flow. During the quarter, we also improved our cost of capital with an opportunistic refinancing. We reduced interest expense, extended maturities, and further strengthened the balance sheet, all of which support higher free cash flow going forward. Our capital allocation framework remains consistent and disciplined. First, the dividend. We declared a $0.12 per share dividend for the quarter, continuing our long history of returning cash to shareholders. Second, we remain committed to maintaining a strong balance sheet. We ended the quarter with approximately $2 billion of liquidity, no near-term debt maturities, and a clear pathway to lower absolute leverage over time. And third, our free cash flow provides significant flexibility. At current prices, we expect to generate approximately $1 billion of levered free cash flow in 2026, which gives us the ability to reduce debt, fund accretive M&A, and repurchase shares when appropriate. Our focus remains on long-term per-share value creation, and our scale, cash flow profile, and balance sheet strength give us multiple ways to achieve that. With that, I will turn the call back to David. David Rockecharlie: Thanks, Brandi. Before we open the call for Q&A, I want to reiterate our key messages. First, our base business continues to outperform. We exceeded expectations on production, delivered strong financial results, and continued to improve the efficiency of our operations. Second, our Permian integration is ahead of plan. We have already exceeded our initial synergy target and see further upside ahead. And third, our differentiated combination of investing and operating expertise continues to deliver strong returns and significant free cash flow. Not long ago, Crescent Energy Company was a new public company producing just over 100 thousand barrels of oil equivalent per day. Since then, we have driven profitable growth, significant free cash flow, and meaningful operating efficiencies to create a top 10 U.S. independent oil and gas producer, delivering impressive results like you have seen today. Our strategy remains consistent and, with more scale, more focus, and more opportunity than ever before, we believe Crescent Energy Company has never been better positioned to deliver impressive performance and long-term value in the months and years ahead. We will now open the call for questions. Operator? Operator: Thank you. We will now begin the question-and-answer session. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We will wait for a moment while we poll for questions. We take the first question from the line of Neal Dingmann from William Blair. Please go ahead. Neal Dingmann: Morning. Nice quarter. David, my first question is just on your operational efficiency. Specifically, how much upside are you already seeing on the Vital assets? It seems like you are already very quickly seeing some upside there. Would love to hear color. Joey: Hey, Neal. This is Joey. I will take that one. We have really hit the ground running. The way I like to describe how we have attacked this is just taking our integration capabilities and moving from a defensive position to an offensive position as quickly as we can. I really like the way slide seven frames it. We wanted to stabilize as quickly as we could. Of course, slowing down the activity helps. I liken it to the way they talk about football: slowing the game down helped us immensely. And we have quickly moved into the optimization process. Some of the first things that we did was rebid our services, which was incredibly timely because we had some 100% diesel fleets out there operating and we were able, through the bidding process, to find some dynamically gas-blending fleets, DGB fleets. If I were to talk about one lever, that would be the biggest one that we have really hit to reduce our cost because displacing 55% to 75% of the diesel, particularly in light of diesel costs currently and also with the gas prices that we are getting in the Permian, it was just a huge win, and you can see the impact of that on slide 12, which I really like as well, being able to get $25 per foot reduction. So that was a big one. Some of the things that are coming down the pike, it is kind of the same playbook, different days: larger pads, implementing simul-frac. Previous operator had maybe done one or two pads towards the end, and we are doing as many pads as we can. I think we are going to be approaching 50% of our wells this year with the simul-frac. And then just doing the things that we do: reducing cycle time, right-sizing artificial lift, reducing facility sizes. The opportunities are plentiful, and I am really proud of how well the team has hit the ground running. Neal Dingmann: Great. And then secondly, wondering—you saw, for instance, Diamondback boost activity. What would it take for you all to do something similar, maybe a rig or two? David Rockecharlie: Hey, Neal. I will just start by taking a quick step back and again reiterating why we talk so much about investing and operating. Deployment of capital is investing. We are really pleased with the M&A that has taken place over the last three years. That is dollars in the ground in a $60 oil price environment, and we think in today’s environment we should be grabbing as much cash flow as we can for the benefit of investors. So we do not see increasing rig activity into a higher price environment. We see producing barrels at really high margin and returning cash to the balance sheet and investors. Operator: We take the next question from the line of Zach Parham from JPMorgan. Please go ahead. Zach Parham: Yes, thanks for taking my question. First, just wanted to ask in the Permian—Waha spot today is around negative $4. Futures indicate that it gets quite a bit better later this year with new pipes coming online. I think Vital had quite a bit of Waha exposure, so I am assuming that is still the case with your Permian asset. How do you factor that into your operations? Do you think about holding back the timing of some turn-in-lines or shutting in some higher GOR wells in the basin with where Waha is today? Brandi Kendall: Hey, Zach. I would say as we sit here today, we are very well hedged from a Waha standpoint over the next 24 months in the mid $2s. I feel like we have a lot of protection there. Zach Parham: Okay. Thanks. And then, David, maybe just following up on one thing you said in your prepared remarks, talking about the delineation of broader resource opportunity in the Uinta. Could you just unpack that a little bit more? What other zones do you plan to test in the near term? What is the timeline there? Just curious for some more color there. John Clayton Rynd: Hey. It is Clay. As we mentioned in the remarks, early in the year we have been focused on the Butte. As we get into the back half of the year, you will see us continue to drill with confidence but take passive delineation opportunities. We mentioned a JV we had on the northeastern side of our acreage that we felt really good about and continue to lean into that. If you think about where we are focused, you can see more of the same as you think about the upper cube. You see activity in the upper cube across the play and then the results we have seen early on our asset that we are really excited about. More to come about the opportunity set for us. Operator: We take the next question from the line of John Freeman from Raymond James. Please go ahead. John Christopher Freeman: Good morning. Thanks. When I look at the nice first-quarter beat, even though you have not officially changed your full-year production guidance, given the strong first-quarter beat and the extra footage that you all are adding, it seems likely that you are going to do better than that original guide. But when I break down the drivers of this outperformance between the faster cycle times that you all are mentioning in the Permian and then the base outperformance, which I assume is your waves of this optimized workover program, is there any way you can flush that out between how much of this—at least of the first-quarter upside—was driven by the base outperformance relative to the improved cycle times? Brandi Kendall: Hi, John. I would say it is roughly 50/50—better cycle times in the Permian and then optimizing the base. John Christopher Freeman: Perfect. And then just the follow-up for me: as you have continued to provide more details about Crescent Royalties the last few quarters and continue to build out that business, when you look at the leverage on Crescent Royalties—obviously with Crescent E&P you have stated leverage targets and things like that—I know Royalties right now is about 1.9 times. Is that sort of the right zip code for that type of business? Is there any sort of targets that we should be thinking about with that business, similar to how we think about the E&P? Brandi Kendall: I will take this. We would expect to be 1.5 times or below on the minerals business as we exit the year. The asset base, as we flag in the materials at today’s commodity prices, is generating close to $200 million of free cash flow. So that free cash flow will go to the balance sheet there. But I think similar zip code as we think about the working interest business from a leverage perspective. Operator: We take the next question from the line of Michael Furrow from Pickering Energy Partners. Please go ahead. Michael Webb Furrow: Hey, good morning. Thanks for taking our questions. Wanted to touch on the improved cycle times again and what they could mean for the overall broader business. The efficiency gains are clearly positive, especially at current oil prices. But one caveat is that accelerated activity could put some pressure on the corporate decline rate. That said, it looks like the base production appears to be performing well. Can you walk us through some of the key drivers behind the base business outperformance and how you are thinking about further optimizing that decline rate from here? David Rockecharlie: Yes. Hey, it is David. I will just start with better performance is better performance, so we feel great about how things are going. And to your point, getting some barrels sooner is not going to fundamentally change decline rate. We really focus on that as a business, as you know, and so I think we feel very comfortable with what I will call the capital discipline and our ability to maintain the production base where we want it. I will turn it to Joey to give some perspective on further outlook there, but the punch line for me is that we have been able to integrate the business faster and make change sooner, and that is just getting us more value, quite simply, sooner. Joey: Michael, I get your question that whenever you get faster cycle times, you have the opportunity to bring more activity in and how does that impact capital. The other thing I would point to is the significant reduction that we are demonstrating on our well costs. So a lot of this increased activity we are paying for—we have indicated even on the West Texas asset a $500 thousand per well reduction in well cost. That will go a long way toward adding a little bit of activity. The other things we have talked about through acreage trades—adding 100 thousand extra feet, not leaving stranded resource—all those things. At the end of the day, I like the way David said it. Efficiency gains are definitely a positive, and then we just balance how the rest of the year plays out by doing everything we can to keep our well costs down. Michael Webb Furrow: Thanks for that. David, I agree with your statement about performance, and it looks like the market is agreeing with that as well. As a follow-up, building off the same subject—the improved cycle times and efficiency gains—you previously mentioned that maximizing cash flows is the objective. Looking later in the year, in the event that operations continue at this pace and the company is faced with a decision on whether to reach or extend the planned number of wells or capital for the year, do you think you will maintain this operational cadence and efficiencies by seeing both production and CapEx higher, or will activity and spending be the governor here? David Rockecharlie: Short answer is that our focus on the corporate targets of decline rate, reinvestment rate, and returns are always going to drive everything there. As you also know, given the new assets we brought in, we have guided to the ability to move up or down one rig throughout the year across the whole portfolio. So the long story short: the activity levels and the business plan are generally already baked in, and a higher price environment just means more cash flow. I do not think you will see us change fundamentally anything as it relates to that, given the flexibility we have already got at the margin. Brandi Kendall: And, Michael, maybe what I would add: no formal change to production or capital guidance for the full year. But given performance to date and, to David’s point, given where commodity prices are, we would expect to be between the mid and the high point on both production and capital. Operator: We take the next question from the line of Oliver Huang from TPH. Please go ahead. Oliver Huang: Good morning, all, and thanks for taking our questions. Just wanted to start out on the synergy side. Great to see you all exceeding the initial target already. But as we look forward, could you provide a composition of what remains to be achieved to hit the updated target from last quarter—just trying to get some better insight to the line of sight there? Brandi Kendall: Hey, Oliver. What we have captured to date is largely overhead, cost of capital, and starting to bring forward the operational synergies. I would say what is left for us: I think there is additional room for us to improve cost of capital. I will let Joey talk about what we are focused on from an ops standpoint, but I think there are also opportunities to further optimize our marketing efforts—not just in the Permian, but across our portfolio. John Clayton Rynd: Good morning, Oliver. We have already talked about some of the capital opportunities that we have identified, particularly with DGB fleets and reducing our diesel usage. Same points on larger pads, longer laterals, increasing our capital efficiency. Maybe a specific example of the way that we are looking at things differently—focusing on value versus chasing volumes. Artificial lift is a perfect example where, different to prior operators, rather than put in the largest ESP that we can to chase a high volume, we would have deference to putting in an appropriately sized ESP that will last longer, maybe all the way up until its next conversion, so you eliminate a workover and a changeout of an ESP that could cost as much as $250 thousand. And then you are just not chasing those peak volumes. The other thing that allows you to do, because you are not chasing those peak volumes, is reduce your facility size—again reducing CapEx. Some of the other things that we have identified are the number of failures that we can eliminate that reduces our workover activity significantly because we had seen a tendency to work over some of the wells multiple times, and we are focused on how we can get rid of those capital workovers. And then doing everything we can to attack LOE as well, and the opportunities there are pretty plentiful. We are looking forward to continuing the pace that we started at the beginning and continuing that through the year. Oliver Huang: Okay, awesome. That is helpful color. Maybe just for a second question, to stick with the Permian: could you please remind us when we might expect to see the first start-to-finish Crescent-designed well, given all the progress on the integration front? And just trying to get a sense for how much of all this that you have talked through is being reflected in the well cost slides with respect to larger pad sizes, longer laterals, simul-frac usage? John Clayton Rynd: I would say it is going to be a little bit of a journey. Obviously, we inherited a drill schedule. We have had the opportunity to make some modifications. But on the front end of this, it has been primarily just what can we do operationally to reduce the cost of what we have. The increased pad size and longer laterals—those are things that are going to start to play out in the latter part of the year and into early next year. What is encouraging is we have had so much success early term on just hitting our operational efficiencies and reducing costs through some pretty simple changes, which keeps me optimistic that some of these other things that are going to be coming with time are going to keep the journey going. But it is going to take a little bit of time for us to have our development plan fully implemented toward the end of the year into next year. Brandi Kendall: And maybe just to add, we think there is outperformance to the $500 thousand reduction in well cost that we have captured. Operator: We take the next question from the line of Phil Jungwirth from BMO Capital Markets. Please go ahead. Ajay Bhukshani: Hey, this is Ajay Bhukshani on for Phil. Great quarter, and thanks for taking our question. I know it is early with the integration, and although you have already achieved quite a bit, can you talk about your initial assessment around Vital inventory in terms of low risk versus total locations? How close are you to having a Crescent view of total inventory, and how are you viewing upside to Permian low-risk locations and moving more wells to this category? John Clayton Rynd: It is Clay. As you just heard from Joey, we are really excited about where we are today. The focus on operational execution and the ability to put points on the board there is real—what you have heard from us. We continue to be excited about the overall inventory opportunity. You heard in David’s prepared remarks our excitement about the acquisition overall and where we sit today, but we have got a lot ahead of us there. I think it will be an ongoing evolution, but if you look at where we sat when we announced the acquisition, we are more encouraged on all fronts, including the inventory side. Ajay Bhukshani: Great, thanks. And for my next one, just wondering, how has the stronger commodity environment changed, if at all, how you approach the A&D market with Crescent Royalties? I bet you guys got those two deals off before the run-up. If you could also just touch on how you are viewing A&D for Crescent E&P in this market as well, that would be great. Thanks. John Clayton Rynd: You mentioned it. We are really excited about what we accomplished across the business. If you look at it over the last couple of years into a very different macro environment, we were able to meaningfully scale the business accretively and expand the opportunity set—obviously with the royalties business and with the scale Permian entry, but also meaningfully scaling our Eagle Ford business where we are the third-largest producer today. When we think about going forward, you have heard from us that the opportunity set we see internally for the business has never been greater. So we have a ton of value-creation opportunity under our control. When we look at the A&D market—obviously a lot of volatility on the commodity side—you have not seen an oil-weighted transaction get announced since the start of the conflict in mid to late February. We continue to be disciplined evaluators of assets, and you would expect us to continue that in this market environment. That includes both across the base E&P business, but also the royalty asset. Clearly, with the portfolio we have built, we have never been in a better position of strength, but we will be disciplined acquirers, disciplined evaluators, and we are really excited about the opportunities that we control today. Operator: We take the next question from the line of John Abbott from Wolfe Research. Please go ahead. John Holliday Abbott: Hey, good morning, and thank you for taking our questions. Question is really early thoughts on 2027. Brandi has already mentioned that for 2026 you will be likely up in the upper half—mid to upper half—of CapEx and production guidance. If we continue to have strong commodity prices, looking to 2027, what are the early puts and takes as we think about the next year? Do you get to the 25% decline rate? Do you change potentially the reduction in the number of Permian rigs? Joey just talked about 50% simul-frac this year in the Permian—maybe that could go higher. What are the early puts and takes as we think about 2027? David Rockecharlie: Hey, John. Great question. Without getting into too much detail too early, I think you know us well enough to know that we are going to continue to just do more of the same and do it better. Very steady focus on production levels—we talk about maintaining flat to very modest growth through the drill bit. We expect to continue to drive performance both on the production and D&C side, but also on the cost side. We would love to continue to generate significant free cash flow following all the core principles—decline rate, reinvestment rate, return on our capital—and strong free cash flow benefiting investors. So call it more of the same in 2027 and, hopefully, a very stable and continually improving business. John Holliday Abbott: And the next question is for Brandi. Brandi, the $140 million working capital draw during the quarter—Is it correct to assume that sort of reverses over the course of the year? And additionally, how are you thinking about or how would you fine-tune cash taxes if higher commodity prices persist? Brandi Kendall: Great questions, John. Working capital—I would expect that to unwind next quarter, and I would say largely related to the A&D transaction that we closed at the end of the fourth quarter. From a cash tax standpoint, specifically with respect to 2026, we have significant tax assets to offset any expected taxable income. Over the longer term, we would expect to become a cash taxpayer in an $80-plus WTI environment. Operator: We take the next question from the line of Hanwen Chang from Wells Fargo. Please go ahead. Hanwen Chang: Could you walk through your current oil marketing exposure—specifically the split between MEH-linked barrels versus WTI-based pricing—and how much of the oil volumes are exposed to spot pricing? Brandi Kendall: Hey, Hanwen. I think your question is coming from just our strong oil realizations this quarter. We printed 99% of WTI. That is a function of the fact that we sell a lot of our South Texas crude based off MEH, which is technically a waterborne crude. Given what is happening in the Middle East, that is pricing at an incremental premium to how MEH has normally traded. I would say roughly 70% to 75% of our crude across the business prices off of MEH. Hanwen Chang: Thanks. And given your MEH exposure, how should we think about the second quarter versus the first quarter? Are you seeing potential for further upside, or is first quarter closer to a high point? Brandi Kendall: With respect to second-quarter oil realizations, I think it is probably in the zip code where first quarter printed. Operator: We take the next question from the line of Charles Meade from Johnson Rice & Company. Please go ahead. Charles Arthur Meade: Yes, good morning, David, to you and the whole Crescent team there. I wanted to ask a question about your CapEx flexibility—specifically about reallocating CapEx within the current capital budget to more oily assets. It seems like the obvious place that you could do that would be by moving updip in the Eagle Ford, but I think there is probably also an opportunity out in the Permian once we get some of these big pipelines online and gas is not so negative anymore. For example, some of the stuff you have further west in Pecos would be—once gas goes positive—maybe there is an opportunity to bring on some oil volumes out there. Could you talk about where you see those opportunities and how likely you are to act on them? David Rockecharlie: Great question. I will start with a really simple answer of yes, and your commentary is music to our ears. We pride ourselves on having flexibility within the portfolio. I think it is one of the really valuable, distinctive things about Crescent’s assets that we have put together. Long story short, we have been able to manage that over the last few years, and this year is much the same—meaning we are today about 90% plus allocated to liquids-oriented drilling, and we will continue to monitor opportunities for the best returns across the portfolio. As you said, we have multiple places in the portfolio where we can allocate more or less capital to liquids and to gas. We are really just looking for the best returns and the best efficiency. We feel great about the program we have today, but we do continue to have flexibility to do exactly what you outlined, and we will stay focused on that. Operator: Ladies and gentlemen, as there are no further questions from the participants, I will now hand the conference over to David Rockecharlie for his closing comments. David Rockecharlie: Great. As I said at the beginning of the call, I would like to thank again all the investors who have trusted us, all the colleagues here at Crescent Energy Company who have helped build this company into what it is today and are going to help us take it forward, continue to improve every day, and everyone else who has been along the ride with us. We do think the best days are ahead for us. We have got a lot of work to do. We appreciate all the questions on this morning’s call, and we are going to get back to work and look forward to having a very strong series of updates, as I said in the beginning, over the coming months and years as we continue to build Crescent Energy Company into an outstanding business. Operator: Ladies and gentlemen, the conference of Crescent Energy Company has now concluded. Thank you for your participation. You may now disconnect your lines.
Christian Gjerde: Good morning, and welcome, everybody, to this first quarter results presentation for Elopak. My name is Christian Gjerde, and I'm the Head of Treasury and Investor Relations. Today's presentation will be held by our CEO, Thomas Kormendi; and our CFO, Bent Axelsen, and will last for around 30 minutes, followed by a Q&A session, where we will take questions from the people here in the audience as well as the people joining us online. So with that short introduction, over to you, Thomas. Thomas Kormendi: Thank you, Christian, and a warm welcome to all of you here on the beautiful, beautiful spring day in Oslo. It's really great to see so many of you here in person. So Q1 let's get started. As you know, some of you will know, just 2 words on who we are. We are actually in the business of sustainable packaging. All we do, the only thing we do is fiber-based packaging. We do that with protecting essential commodities, not the least dairy products, but also other products such as juices, soups. And in all of this work, we are committed to reducing the use of plastics. So Q1, what -- let's look at the performance here. Well, first of all, we report a revenue pretty much stable in terms of -- stable when you look at the constant currency. We're reporting a 3.9% decline. But on constant currency, given the exchange rate primarily in U.S., we're looking at a stable development. Secondly, as you know, and some of you who have followed us, we've had a strong -- very, very strong development in Americas. And actually, our development in the U.S., in the Americas continues with 6% growth on a constant currency basis and also another strong quarter for Little Rock. Little Rock as you recall, that we started up last year in April, and that has now onboarded more and more customers in Line 1. So although we have seen and we have reported earlier, somewhat slower onboarding of our customers. And when I say onboarding, it's not about acquiring customers, but it's about onboarding their designs, onboarding their materials. That has been somewhat slower. We still remain absolutely confident in the midterm targets related to Americas. Second -- thirdly, the EBITDA. We came in at EUR 41 million, which corresponds to around just short of 14%. And we also came in at an earnings per share slightly above the previous -- the year-on-year quarter last time. What we also see, even though we have also during this last quarter, invested quite heavily in the expansion in Americas, we still come in at a very solid 2.2 leverage ratio, which is actually slightly impacted as well by the currency impact of Americas. Very importantly, of course, and I'm coming back to that in a little bit broader sense. But as everyone around us know, we have a turbulent world around us, particularly in the Middle East. It does impact a lot of the raw materials, including our raw materials. And it does have a cost impact on our side as well. I will come back to some of the mitigating effects that we are addressing this with in the coming slides. Now on the revenue. As I said, revenue overall stable, although we report a EUR 12 million lower revenue. This is primarily related to the commissioning of filling machines. And as you may remember from Q4, where we reported a very strong filling machine commissioning, the commissioning of filling machines is not a linear curve. It will vary a little bit between the quarters. If you look at the EBITDA, you could -- there is a decline of EUR 3.6 million versus same period last year. However, EUR 2.5 million of this relates entirely to currency impact from the U.S. dollar. And the remainder as well as the impact that we've had in this period relates to some one-off effects that we've had. We've also seen a tough margin pressure in India, including pressure on margin, pressure on volume. And we have also front-loaded some of the strategic initiatives that we have taken already in Q1. So all of that impacts the EBITDA for this period. Now we have also initiated a program and some of those initiatives have already taken place. During this quarter, we have had restructuring effects in the likes of EUR 1.3 million, which is part of the program of reducing our -- addressing our costs, and these will have been adjusted in the EBITDA from Q1. Back to the Middle East and the extraordinary cost impact. Now everybody in the world now knows where Hormuz Strait is, very exactly where it is. Everybody knows what the impact is beyond just the surrounding countries. What you see in our world is a very significant increase in LDPE. On the slide, you will see that the LDPE increase is around 160%, which is, by the way, a picture we -- some of us will recognize from '22, where we saw raw materials explode as well, not the least on the plastic side, but also aluminum foil and other raw materials in general. We are now seeing the increase, right? And what we have done is that we have, of course, addressed these increases by implementing and introducing extraordinary surcharges on the pricing side towards our customers, given the price -- the cost pressure that we are seeing. These have been introduced. They are being implemented as we speak. And they are, of course, related to an existing price level on LDPE, on polyethylene, on naphtha, but also an expected development. So this carries a certain uncertainty because none of us know exactly how this develops. So what we have introduced is a mechanism that will allow for this kind of uncertainty. And it also brings me to the strategy of Elopak. And we remain absolutely committed and confident in our strategy that consists of these 3 pillars. The global growth, as we know, is not the least related to America, which is the big growth driver we have. We have Little Rock up and running. Little Rock is accretive. Little Rock is producing in high volumes. Little Rock is producing in multiple shifts in Line 1. We are establishing Line 2 as we speak, and we have already agreed and announced that we will do Line 3 as well. Little Rock is the foundation or rather Americas is the foundation of the realizing global growth. But beyond that, it's also India, and it's also MENA, where we are now working as well as we have announced earlier on expanding our portfolio, getting more aseptic products in, getting more ESL long extended shelf-life products in. The second one is the leadership in the core. And as we have talked about earlier, we have a strong position in chilled fresh business in Europe, and we continue to build that with a number of initiatives related around sustainability, related around the PPWR, et cetera. But the third one is the one that I'd like just to spend a little bit of time on because the third one relates to the plastic to carton conversion. And of course, in times that we see now, right, LDPE increasing off the roof, we see that competitive solutions such as PET will have increased by 60% for a PET bottle with the impact of LDPE. So while -- actually, while clearly, it impacts everyone in packaging with rising raw materials, the situation we see now is that primarily the impact will relate to the plastics products, which will, at some point, potentially improve the understanding among customers, among retailers that the carton packaging in a much, much wider sense than what we have now creates stability in cost, creates a much better transparency in cost and is a an alternative not only for sustainability reasons, but also for cost reasons when it comes to packaging other products than just milk and juice. And that is what we do in the third box, leveraging the plastic replacement because this is the area where we work with the nonfood products. This is the area where we work with alternatives to plastics, which can be very closely related to our business or a little bit further related, where we can utilize our strong know-how in liquid products, in filling of liquid and semi-liquid products. So in short, the current development poses a certain amount of challenges for anyone in any industry, primarily because it's uncertain what comes out of the ongoing conflict, but particularly for the carton industry and for packaging in our case, it does also provide the understanding, the certainty among customers that carton actually provides a whole range of advantages in their cost portfolio and their product portfolio beyond the fact that it is the most sustainable solution. And with that, I think I will hand over to you, Bent. Bent K. Axelsen: Thank you, Thomas. Before we dive into the numbers, I would like to address 2 changes that we have done to how we report our figures. The first thing that we are doing is that we are moving the R&D activities and associated corporate activities from the EMEA segment to what we call other and elimination, simply because this unit is serving both segments, not only EMEA. So this will improve the comparability and clarity when we are reviewing the relative performance between EMEA and America. The second change that we are doing is reflecting an adjustment to our operating model where the aftermarket services and spares part are now run by the local regions together with the blanks, together with the closures. Today, or in the previous reporting regime, all these financials were reported in EMEA. Now the America part of these financials will now be reported in the Americas segment because these are services and spare parts sold to the American market. So we think this is a logical change. The 2025 figures are reclassified in this report, and there is more information in this presentation file and in the report. So let's start with the EMEA segment. In EMEA, we are reporting stable volumes with results impacted by one-off effects and timing effects related to filling machines. The revenues are EUR 208 million, down 7% from last year. If we look into this reduction of EUR 16.5 million, EUR 6 million is related to timing of filling machines sold by EMEA to external customers, while EUR 9 million is related to reduced sales from EMEA to Americas internal sales. So altogether, EUR 15 million is basically timing related to filling machines. If we go then to the carton and closure revenues, they are moderately down compared to last year, and that is a result of a negative mix impact, which I will dive into. The Pure-Pak volumes, they are stable in the EMEA segment. What you see here is that there is a decline in the aseptic juice segment. This is what we have reported before. It's a result of the consumer preferences combined with the very high citrus prices that we have observed for the last year. These products are -- we have attractive margins. We have growth in other segments in UHT milk, but they are sold at a lower price point compared to aseptic juice. We see year-over-year growth in MENA, driven by growth in North African markets and we also see growth of closures as we are growing with customers that both buy our blanks and our closures together. If we look at Roll Fed, we are happy to report that we are growing the Roll Fed volumes again after several quarters with decline. This comes from onboarding of customers in Poland. But as you know, the pricing points on the margin for Roll Fed is lower compared to Pure-Pak. So it's not enough to compensate fully. In contrast, in India, we are reporting a volume decline in Roll Fed year-over-year. And we are also having, as we reported before, a pressure on margin. The revenue decline is around 13% on a constant currency basis, 26% reported. So that is related to the weakening of the rupee. So as we have reported before, the supply-demand balance is pressured in India. And in this quarter, we saw, particularly in January, February, this also impacting our volume development. If we move to EBITDA, we are reporting EUR 36 million, down from EUR 40.7 million. The margin is 17.4%. This contains EUR 1.8 million one-off related to an operational matter. It also is a result of the mix effect that I talked about for Pure-Pak versus Roll Fed, but also the fact that India remains margin dilutive, and we also see the absolute impact as the results are down in India year-over-year. If we move to America, we are reporting around EUR 95 million. As Thomas explained, it's a 6% growth on a constant currency basis, but a decline of 4% because of the weakening of the U.S. dollar. The revenue growth is below our earlier expectations due to the weaker demand for plant-based which is important for our growth in America. We are seeing consumption patterns changing into lactose-free milk, other dairy products, and there's also concern related to cost inflation. We are working very actively to fill that shortfall with other types of business in the quarters to come. In addition, the quarter was impacted by destocking among our customers. In Q4, some of our customers were building inventory in Q4, and they're now taking the stock down to normal level, and that also impacted the top line in the first quarter. Finally, on the revenue side, we also have a timing effect of filling machines in America with a decline of EUR 5 million for the quarter. If we look at profitability, the EBITDA was EUR 21 million, up from EUR 19.7 million, and the margin is improving to 22%, as you can see. And this comes from the improved production output of Little Rock and with the operational leverage that we get from that ramp-up. And we also would like to remind that 1 year ago, we had negative results of Little Rock because we have pre-start-up costs in that quarter. The share on net income is EUR 2 million compared to EUR 2.5 million last year, and that is solely driven by the weakening of the Dominican peso against the dollar, while the underlying performance remained stable. And as Thomas explained, we have -- the U.S. dollar has significantly weakened year-over-year and in America results that is measured in euro, that is EUR 2.4 million down. That wraps up America. So let's look at the bridge from EUR 44.6 million to EUR 41 million. Here, the American development and the margin accretive development in America continues to be the most important growth driver for the company. We see -- in Europe, we see the negative effect because of the negative mix effect with less juice cartons and more Roll Fed, but also the impact from the result decline in India. Raw materials are largely stable. Behind that number, we have higher board cost as per our contracts. We see higher other prices, but lower PE prices giving this number. In this quarter, our raw materials are not significantly affected by the conflict in Iran. But as Thomas explained, we expect these costs to affect the Q2 cost base and also onwards. On the operational costs, we have the EUR 1.8 million one-off effects and the rest is related to the wanted increase in R&D is related to inflation is related to the onboarding -- sorry, the frontloading of strategic initiatives in the quarter. The JV results, we have addressed and it comes to the FX combined for the group, that's EUR 2.5 million. And I just want to reiterate the fact that in Americas, we are running this as a U.S. dollar business with dollar revenues and dollar raw material base. If we look at the underlying result, if it adjusts for the one-off, the margin is -- would then have been around 14.4% for the quarter, so in line with the same quarter last year. Let's move to the cash flow. So the -- if we look just starting at the net debt, that is increasing by EUR 21.6 million. The main contributor to that is actually the strengthening of the NOK against the euro that gives a loss on our green bonds. What is important to remember is that this is mitigated by our cross-currency swaps, but we don't report the positive gains, the gains from the currency swaps in our net debt. So that is EUR 16 million. If you start to continue with the cash flow from operations, we are reporting around EUR 20 million based on an EBITDA of EUR 41 million. We have taxes paid of EUR 4 million, and we are also reversing the accounting results from the joint ventures to get to the EUR 20 million. When it comes to cash flow from investing activities, that is around EUR 12 million. This is based on the continued expansion in Little Rock and also the normal maintenance programs, also the replacement of equipment in Europe. Maybe one more thing before I move on to the next element is to come back to working capital because I jumped that, that is EUR 14 million negative effect, and that can be split into 2 factors. It's the timing. EUR 17 million worsening is related to settlement of account payables for our filling machines. So that is really a one-off because we are settling machines that we have commissioned some time ago. Structurally, we see a reduction of inventory around EUR 5 million. This is a result of the structural work that we are doing to improve the inventory turnover. Now what we would like to say is that this reduction is a little bit more than what we think is sustainable. So we expect some moderate increase of the inventory to get back to normal levels. Filling machine inventories also went down following the sales in the quarter. Now we are ready to go to the cash flow from financing and loan payments, which is minus EUR 14 million. That is included in the lease payments, the interest payments and also purchase of treasury shares. This brings us then, including the FX effect to EUR 286 million net debt. The leverage ratio is 2.2 compared to 2 at the end of the previous quarter. This is following this, I would say, the technical increase of the net debt bringing by the FX effects, but also the continued investment in the U.S. plant. The ROCE declined by 0.6, and that is a result of a lower last 12 months adjusted EBIT. And the capital employed actually is now stabilized since year-end. The accumulated investment in the U.S. plant is $106 million, and we have around $22 million to go to get -- that will take us to the full 3 lines in Little Rock. Let's -- before I give the word back to Thomas, let's just address how we think about the -- where the quarter is ending to compared to what you would have expected. So as you know, we are not guiding individual quarters in Elopak. But if you go to our Q4 earnings release, we said that we would deliver on our midterm targets. So if you convert that into implied Q1 guiding, that could be an expectation of EUR 50 million and versus a reported adjusted EBITDA of EUR 41 million. This gap is 50-50 between structural market implications, market effects and one-offs. Within the 50% market effects, 30% is Americas, 10% is Europe and MENA and 10% is India approximately. And the remaining 50% is related to the phasing of filling machines and phasing of fixed costs and also one-offs. In addition to the price increases that Thomas was talking about, we are obviously working with our cost base to delay and reduce spend where it makes sense without jeopardizing our long-term value creation. With that, this concludes the financial section. So back to you, Thomas. Thomas Kormendi: Thank you, Bent. And so overall, I think it's fair to say that we have seen somewhat softer market conditions generally in Q1 than what we've seen earlier. And one of the impacts that Bent just mentioned was, of course, the plant-based, which is a significant business in U.S. and part of the growth that we are looking for in U.S. What we also see, and that is very important for us is to say the ongoing crisis, ongoing situation in the Middle East causes extraordinary cost increases in all industries, including ours, and we are now mitigating this with price increases, in fact. We call it surcharges, but it is higher prices to compensate for this. We are seeing that, but we are also doing, as Bent explained, the other side of the -- whatever it's called, but we're also looking at our own cost base and at the same time, taking some steps to ensure that we are adapting and keeping our costs at bay in times like these. I think also, though, it's very, very important to remember, and for those of you who were with us from the IPO, where we had a year of '22 with increasing costs, with increasing a lot of turmoil, this is a resilient business. This is a business of basic food, basic food stuff that people need. So even if we have ups and downs as we do have, like any other industry, we are in a very resilient world. And the demand for our kind of products will continue even when economies around the world and including the -- our part of the world will be more or less constrained through consumer spending. So what we are saying is despite this volatile political -- geopolitical situation that we're in and with all the potential impact, we expect to continuously also improve from Q2 and onwards, our results in a moderate and gradual way. That is how we look at the year and that is how we are going to address the year and the cost situation that we experienced thing. So with this, I'd like to thank from my side and hand over to you, Christian, please. Christian Gjerde: Thank you, Thomas. Thank you, Bent. So with that, we will move to Q&A, starting with the people here in the audience first. So if you raise your hand, I will come out with a mic. Please state your full name, the company that you represent and make sure to speak into the microphone. Elliott Geoffrey Jones: Elliott Jones from Danske Bank. Just firstly, you mentioned some plastics prices up 60%. Obviously, it's a near-term headwind to you guys. But I'm just wondering your -- some of your plastic competition. Is this something that customers have started talking about that you're hearing? And is that something you can capitalize on kind of longer term? Thomas Kormendi: So what I did say is that PET in specifics, you would look at the cost of a PET bottle will have increased about 60%. If you look at the LDPE that is being used in our carton as well, we're looking at, as you saw on the slide, somewhere around 160% cost increase, really, really, really significant. So what you typically see in the industry and many of our customers will have a mix of plastics and cartons, right? So what -- and they will, depending on where they are, provide private label and/or their own brands. The decision they make then is what kind of format am I using? If it's a brand, you don't easily change from one format to the next for all the obvious reasons. But what does happen in times like this is that the consideration is what is the right format moving forward is much more relevant when it comes to costs as well as sustainability. We have been very clear that from a sustainability point of view, the carton solution is the absolute superior solution versus plastics, both from a renewability point of view, from a CO2 point of view and also eventually, as we move on, you'll see it from a recycling point of view. Now what we are seeing then here is that with the insecurity that is created in PE pricing, when you are a customer, when you are a retailer, you're going to look -- you are looking now at carton saying, this creates a stability, it creates transparency. It creates a predictability in cost that plastics cannot guarantee because it's all about the oil price. It doesn't mean, though, short term that everyone changes into carton sadly. But that's not going to happen because of equipment, because of industrial production, et cetera. So these take time, but it's very, very important in the longer perspective and very important for the new areas that we're discussing where the consideration should we -- should we not suddenly tilt hopefully more towards, yes, we should go carton. Elliott Geoffrey Jones: And then just 2 more quick ones. Just on the Americas segment, you talked about this being affected by developments in plant-based. Can you kind of provide more color as to how that could affect maybe your medium-term growth targets in the Americas? Would that kind of delay the pathway to 100% utilization rates in the lines that you've announced? Or do you see it easy to kind of replace those volumes near term? Thomas Kormendi: I would never use the word easy, right? But I think what is very important is we commit to our midterm targets for Americas. That is the simple story. And we are absolutely convinced with the plans we have in place that we are going to deliver on this midterm target. Remember, that's EUR 480 million calculated on the exchange rate --. Bent K. Axelsen: At that time... Thomas Kormendi: At that time, right? So we don't know what happens to exchange rate, obviously. But that plan stands, will be delivered accordingly. Elliott Geoffrey Jones: Got it. And then just on the EMEA mix effect. Am I right in thinking that it's not obviously an easy fix in terms of reversing that in Q2? Should we expect that kind of mix effect to continue maybe in the next few quarters? Bent K. Axelsen: So when it comes to the juice development, that is a trend that we have reported for quite a few quarters. So we expect that trend to continue. It depends a little bit on the citrus prices. So I think we need to distinguish between the consumer preferences and focusing on sugar versus the cost of juice because of the citrus prices and the diseases that have been worse in recent years, Yellow Dragon disease, I think it's the name, and that has reduced the supply of citrus. So that is not a quick fix at all. When it comes to the Roll Fed business in the Europe, we have then finally been able to grow that business after several quarters with decline. Some of that decline was related to the cap regime back in the days, I think it was 1st of July 2024, which is more of a one-off, and there also have been increased pricing competition. What's going to happen to the Roll Fed business where we are able to continue to grow that business? It depends on the whole raw material situation and the whole Iran conflict because it's -- Roll Fed is the most competitive product group that we have in Elopak. So yes, to juice on Roll Fed, we will wait and see before we can call it a positive trend. We need some more quarters in the bank. Ole-Petter Sjøvold: Ole-Petter Sjøvold, SpareBank 1 Markets. So first, a question on the contracts for Little Rock. I mean, as we understand it, it's no take-or-pay, but it's when the customers take materially lower volumes, the price could be up to negotiation. So could you give some insight into this? And could we potentially then see some sort of compensation later this year that should relate to Q1? Thomas Kormendi: It's a little bit difficult to answer, but if you take the mechanics in this, right, the way we normally do this, and we have, of course, some very, very big customers around the world, including U.S. These customers will say to us, look, we would like to -- we would like you, please, to produce X amount of volume, and we will then agree a price on that volume. When they make that commitment, which is a commitment, it doesn't necessarily mean that if you do something less, then there is a compensation. There are -- we also have those models, I have to say. But in the bigger context, it is much more of, I say, can you fill our needs. So what would typically happen is after a while, if that volume is not -- we're not seeing the volume coming for different reasons. Typically, one reason is they have more stock than what they thought, honestly. You would think they know, but it's actually, in some cases, many plants and there are -- so the volume will arrive later. That's one area. The other area is, of course, there can be -- they say, well, we're going to use more suppliers simply for contingency reasons and procurement reasons, et cetera, et cetera. Now in the latter case, right, so we say on a more continuous basis, we're going to see lower volume than what we have agreed. We will renegotiate price. Price and volume always correlates. So if you're not delivering the volume, we need to have a different discussion on price. If you're saying we are not delivering volume because of some stock reasons, typically would not happen. Ole-Petter Sjøvold: Got it. And a final question for me. On the price surcharges you're implementing right now, I mean, you guys typically hedge LDPE prices and aluminum prices in Q3, Q4 on the majority of your exposure. Are you able to increase prices for the full extent of what your price or cost should increase if you didn't hedge? Or is it only your open exposure able to push out to increase prices? Thomas Kormendi: That's a very good question. And the reality is, of course, that we, as well as our competitors, right, everybody hedges as you would do normally. So when we increase our price, we have to think about our competitors as well, and we keep that in mind. So typically, what you would see in extraordinary situations like this is that everyone tries to limit the cost increases that are needed to cover the cost, right? And we live in a competitive world, so we do the same. But it's also very clear that hedges are for this year, right? So what happens next year when you need new hedges, and we don't know where the raw materials will be at that time, that's another set of increases that would come on top of that. But we are not in a position that we can increase only based on our own costing. We have to look at market conditions as well, of course. Christian Gjerde: If there are no further questions from the audience, then we will move to the questions that we have received online. So starting with a question from Geir Olsen. More than 90% of your revenues comes from cartons and closures. Could you provide some color on the revenue mix across key end markets such as milk, juice, liquid detergents and other categories and highlight where you are currently seeing the most -- the strongest growth? Bent K. Axelsen: Yes. So with our disclosure principles, we do not report on end user segments. I would say when it comes to the biggest contributor of growth, that continues to be America for us. And America for us is milk. It's a combination of plant-based, in particular for the growth in Little Rock, but also dairy. Juice in America is limited. So milk, America is the biggest contributor. As far as what we call nonfood is concerned, it's still a very, very limited part of the business as of today, but we believe that to be an interesting and significant business opportunity in the long term. That really depends on the hunger for green alternatives and to which extent green is back on the agenda again because of the new energy crisis. And there's a lot of discussions in media, whether this is now a forced green agenda coming from the conflict. And I think this is probably where I should leave that comment, IR. Thomas Kormendi: I think you're right, Bent. Christian Gjerde: So thank you for that, Bent. And then moving to the next question or questions, I would say, coming from Hakon Fuglu. I'll do them one by one to make it easier for you. First question, have you been impacted in the quarter by raw material cost and/or logistical costs? Bent K. Axelsen: The implications of the Iran conflict is very limited. So we haven't commented on those in Q1. There could have been some freight increases in the region in the beginning or in the end of the quarter. But when it comes to the raw material impact, which is a big part that has not impacted Q1. And let me remind that we have an inventory turn of around 2 to 3 months, so which means a spot price increase end of March will take at least 2 months for that to impact the reported costs in our accounts. Christian Gjerde: Thank you, Bent. And moving to Hakon's second question. What's your hedge position on raw materials for EMEA? And should we expect similar price increases this time as we witnessed during 2022? Bent K. Axelsen: So when it comes to PE, we are hedged south of 80%. When it comes to ALU, which is a smaller part of the cost, we are hedged mid-50s. PE is around 11%, 12% of the material cost as reported in our P&L. Aluminum is around 5%, if I remember correctly. To your second question, I think the difference between '22 and 2026 is that in '22, it was PE, it was ALU, it was electricity, which was maybe the biggest relative increase we had, it was pallets, it was inflation on almost everything. The situation that we're looking at right now is a situation mainly related to PE. We saw the price increases on the chart and also the ALU. So the breadth of the inflation is not the same so far. So it's not the same as '22. I think the situation reminds me more of 2021 when we saw the raw material start to increase following the aftermath of the pandemic. And in 2021, this was not yet a broad inflation. So '26 reminds me more about '21, and I hope that '27 will not become '22. Christian Gjerde: Thank you, Bent. Then a couple of more questions from Hakon. How much of the phasing/one-off costs for the quarter is related to Americas? Bent K. Axelsen: So I have to think about that. When it comes to America, there are some one-offs related to the destocking effect, but we have not quantified that in the report, but it's part of the picture. And it's -- when you start to generate the results, you see the impact of that destocking effect. It's there, but it's not a major effect in our numbers. The main proportion of the one-off is related to EMEA. Christian Gjerde: Thank you, Bent. And then the last question from Hakon. Is production Line 2 at Little Rock ramping up according to plan? Thomas Kormendi: Well, it's actually too early to ramp up production in Little Rock on Line 2. So -- and the plan was not that it would ramp up yet. So you could say it's according to plan, if you like. We are not ramping up yet. We're installing. We're preparing, but we have not ramped up the production yet on Line 2. Christian Gjerde: Thank you, Thomas. Then we have a question from [ Cole Hopen ]. Focusing on surcharges and price increases. Firstly, can you give some color on how you approach these commercially with customers? Are the surcharges just for logistics or polymers as well? I'll take that part of it first and then --. Thomas Kormendi: Yes. So what we do is we sit down with our customers. We explain them the situation in all of the agreements we have. We have what is called sit-down clauses. Clearly, this is an extraordinary situation, extraordinary event hitting pretty much all industries, definitely also ours. So there is a wide understanding that's needed. The cost increases are -- the cost surcharge that we are introducing relates to both PE as well as logistics. Christian Gjerde: Thank you, Thomas. And then the second part of Cole's question, have our liquid packaging board suppliers also approached you for logistical surcharge costs? Thomas Kormendi: If our suppliers -- so -- and this is actually -- maybe I should have qualified my previous statement. When we deliver our material from our plants to our customers, there's a mix of Incoterms. Some will pick it up themselves, somewhere -- in some cases, we will arrange the transport, et cetera. And with our suppliers, it's the same thing. It depends on who it is and what the Incoterms are. So if -- and in some cases, it's very transparent, we simply pay whatever the transport is and in some cases, included in the price. So it's difficult to give one answer on that. Christian Gjerde: Thank you, Thomas. Then we have a question from Niclas Gehin in DNB. You write in the report that you are confident in reaching your midterm target for Americas in 2028. Can we also expect for you to reach your midterm targets for 2026? Thomas Kormendi: Well, you have to look at the -- you have to take the outlook statement for what it is. And I think the way we have phrased it is we think the underlying business is doing well. We also recognize the fact that there is a lot of uncertainty around us out of our control, one of which relates to, of course, as we keep saying, the Middle East, but also other impacts. So for that reason, we are not guiding on '26 beyond what we said in the outlook statement. Christian Gjerde: Thank you, Thomas. Then we have a question from Marcus Gavelli at Pareto. Assuming price hikes, price increases will not be fully passed on to customers before later this year, so some lags in the implementation of that. Should we expect near-term margin squeeze? And are the ongoing price increases sufficient to fully offset the cost increase that you are seeing today? Bent K. Axelsen: So should I take the first part of the answer. So --. Thomas Kormendi: I can think about the second. Bent K. Axelsen: Yes. So I will speak slowly. Thomas Kormendi: Exactly. Bent K. Axelsen: So when we are looking at this, we need to consider a couple of things. So one thing is the inventory speed. So when we have a price hike in the spot prices, how long time will it take before it will hit the cost base in our P&L. The second element is the timing that these surcharges becomes effective and we are in the process of working and implementing those price increases as we speak. So based on the information we have today, it's difficult to assess which force is stronger, but we stick to what we say in the outlook that we believe that second quarter overall will start a gradual improvement compared to Q1. Thomas Kormendi: And then the -- just repeat the second question, please, exactly. Christian Gjerde: Second question he is basically asking, are we passing all the full net of the open price increase to our customers. Thomas Kormendi: So I think when you think of the price surcharge, right, this is based on partly what we know, i.e., the existing price levels of PE. It's also based on what we think and we don't know how long these price impacts will last. So what we have passed on now is actually what we need to cover the cost of the significantly increased cost that we are experiencing. If these costs tend for whatever reason become even higher, then it's a different situation, right? And we need to reassess and we need -- and as I said before, we've put in a mechanism that will allow for some movement in this. But it's very important to understand for everyone, including our customers, by the way, that this is a volatile time. We have little to very, very limited visibility on how cost will develop. And we have various indexes when it comes to PE, et cetera, but they tend to be, let's just say, not very accurate historically. So we have to look at it, but we are implementing a plan. We're implementing a surcharge to cover for the costs. And it's important that we cover for cost. And it's just like in '22, when you cover -- if you look at it from a margin point of view, it does have an impact. There is no way around it. If you increase by the cost levels you have in price, there is a margin impact on that. Christian Gjerde: Thank you, Thomas. Then we have a final question from Martin Melbye at ABG. Could you please comment on the change in the competitive situation in Europe? Thomas Kormendi: I'm not entirely sure what the question means when it changed compared to what and compared to when. Christian Gjerde: Yes. I think he's referring to the update that we gave to the market in February where we talked about increased price competition in Europe. Thomas Kormendi: Right. So what we have seen during the end of last year is more intense competition in the core markets of Europe, in the chilled business, in our core business. And that, in a way, to be honest, is not surprising given that we have had good development and success in building our market share from a strong point to an even stronger point. And of course, at some point, you will expect that there will be reactions and competitors trying to win back lost territory. That has been the case that attempts have been made. But so far, knock on wood, we have been in a good position to defend our positions and defend our strongholds where we are now. Since then, nothing significant has changed in that respect. And -- but I think it's also absolutely normal and expected, whether it's in Europe or in America, that competition as we are growing, as we are building our business, competition will try to fight back. And we will try to do our very best to defend our positions and keep growing the business as we have done for the last many years. Christian Gjerde: Thank you, Thomas. I see that concludes our online questions for today. So thank you, everyone, for joining this fantastic morning in Oslo. I wish everyone a good day. Thomas Kormendi: Thank you, everyone, for listening to me so many times. Thank you and all the best.
Operator: Ladies and gentlemen, welcome to the Schaeffler AG Q1 2026 Earnings Call. I am Sargen, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's a pleasure to hand over to Heiko Eber, Head of Investor Relations. Please go ahead, sir. Heiko Eber: Thank you very much. Ladies and gentlemen, I'm very happy to welcome you to today's call on Schaeffler financial results Q1 2026. The press release, the following presentation and our interim statement has been published today at 8:00 a.m. CET on our Investor Relations home page. And as always, we will provide the recording and the transcript of the webcast after the call. I'm sure that you have all taken notice of our, by now, well-known disclaimer. As always, Klaus Rosenfeld, our CEO; and Christophe Hannequin, our CFO, has joined the conference call to guide you through the key information in our presentation. And afterwards, both gentlemen will be available for our Q&A session. And now let me hand over to our CEO, Rosenfeld. Klaus Rosenfeld: Thank you very much, ladies and gentlemen. Welcome to our Q1 earnings call. You all received the presentation that Christophe and myself will share in the next minutes. Please follow me on Page #3 with a quick overview. I think you saw the numbers. From our point of view, a good summary to say we started well into the year in an environment that is certainly challenging and in some areas, unpredictable. Sales growth FX adjusted 1% up. We'll share the details in a moment. The gross profit margin is at 21.6%, so more or less the same margin like Q1 2025, clearly driven by operational gains in E-Mobility, VLS and BIS with a slightly negative development in PTC, that should not come as a surprise. EBIT margin at 5%. Clearly, an improvement in E-Mobility, while PTC, VLS and BIS contributed strongly to the EBIT, also supported by lower R&D costs. Free cash flow seasonally negative with minus EUR 209 million. You know that in Q1, it was EUR 155 million, Christophe is going to give you more detail. This also includes higher restructuring cash out and some advanced customer payments in the prior year. And yes, EPS is slightly positive, also impacted by the financial result. Page 4 gives you the breakdown of where we grew, where we not grew. 6% growth in E-Mobility in the first quarter is certainly pointing in the right direction. Powertrain & Chassis, as I said before, slightly down and then moderate growth in VLS and BIS, certainly also driven by the environment. The strongest growth came out of region, Asia Pacific, However, that still has the impact that we explained several quarters now, are embedded with a switch from a bigger project from China to Korea. More important, Page 5, if you look at the auto powertrain OEM business, and that spans across E-Mobility and PTC, breakdown by powertrain type, quite interesting picture here. Schaeffler outperformed in all these 3 different powertrain types. 4% outperformance in BEV segment, 16% versus market growth of 12%; HEV, an outperformance of 1.5%; and even in ICE, where our sales drop was not as big as the market. That is exactly what I hope were that I can show you these pictures continuously for the next quarters, but that all points in the right direction. Order intake, again, by powertrain type, we'll come back to the numbers per division, also shows that in the important best sector, we are showing a book-to-bill of bigger than 1, while in the other sectors in this quarter, order intake was lower than relevant sales levels. Page 6, E-Mobility. As I said, order intake for the whole division is certainly bigger than just for BEV powertrain solutions, is EUR 1.2 billion, what leads to a book-to-bill of 1.0x. You may question, why that? We showed you in the last quarter that we have an order book by end of the year 2025 of more than EUR 40 billion. We are adjusting also volume assumptions constantly. And we are sure that with that order book we have at the moment, enough to do to deliver. So we are a little bit more selective on order intake. EUR 1.2 billion is a good result, and it's also driven by the right projects. Now let me go from BEV to Powertrain & Chassis. Also there, an order intake of EUR 1.4 billion was slightly below last year, was driven by phaseout and also by market development. And as I said before, the gross margin has suffered a bit. It is also impacted by one-off impacts that we can discuss in the Q&A. Vehicle Lifetime Solutions with a 1% growth that is less than before, but a further improved gross margin, that also leads to a superior EBIT margin. Here, we can say that, as you see in the highlights that our platform business, in particular, in China, is growing, serving an increasing number of retail partners, and we are also proud to say that we won the Sustainability Award for the E-Axle Repair Tool, what again demonstrates that, that is not just a PTC business but also very active in the new powertrain solutions. And then last but not least, Bearings & Industrial Solutions, a good development, 1.6%, good outperformance and also a growing book-to-bill ratio with certainly a different time horizon of the order book. There, just to mention one thing that also points to the new businesses, we are proud that we were part of the Artemis II launch, one of the most spectacular space activities in the last weeks, and were represented here with some high-performance turbo pump spinning bearings that have sort of highest-quality offers. So Bearings & Industrial Solutions, as you see from the rocket, is definitely moving in the right direction in its repositioning and performance drive. Then one page on new growth. We have selected here, again, the humanoid because that is what we -- from all the questions we get, obviously, the one that is most interesting to you, three points, just to put it in perspective and give you a little bit more data, how we look at this. This is a business that is in a situation where we are building the business. We are engaging today with [ 45 ] different customers and engaging means active conversations, of which 30 prototype orders have resulted. And from these 35 -- 30 prototype orders, 5 contracts have been secured. You will understand that I cannot mention here the names, but I can tell you that from the 5, these are prominent names, both from China and the U.S. and from Europe. And we are in ongoing negotiations to further build the order book. If I look at what we have today and put our more conservative assumptions of a million robots in 2030 behind it, our best estimate at the moment is that this order book in total order intake from the 5 customer contracts included has a value of somewhere in midsized 3-digit million range. For sure, that is further building and we'll give you -- as soon as these numbers are more solid, we will give you more information on how that develops. That's what I can say at the moment for Q1 customer side. Last point here, we will see first SOP from these customer contracts in Q2 '26 and then also have scheduled further SOPs for Q3 and Q4 2026. So you see the business is building, it is growing. We are part of the companies that is here at the forefront of the development. And the number of inquiries also from German OEMs is interestingly increasing. What helped us was also the recognition for our products. As some of you heard, we won the prestigious Hermes Award at the Hannover Fair. You see a small picture here that recognizes our rotary actuator platform in multiple sizes and multiple sort of nanometers and other functions. That's a positive thing. And as you all know, we will continue to expand our Automotive know-how into this area. Last point is on manufacturing. We are investing into that business, not only for building the business, but also for making sure that we can scale what we need to scale. I finish on Page 11 with my last page before I hand over to Christoph. Capital allocation continues to be driven by a very disciplined approach. Capital employed has been further reduced also through the project that we explained to you in the Q4 results. We had CapEx in Q1 of EUR 237 million, more or less in line with previous year. The investment grade stands at 0.5x and the capital employed at the end of the first quarter was EUR 12 billion. From an average point of view, Q1 over the last 12 months, this is a reduction of EUR 974 million. You see where we spent the money. And I can assure you again, we are disciplined, but also able to invest into the new growth businesses based on our strong cash conversion. With that, I hand over to Christophe. Christophe Hannequin: Thank you, Klaus. Good morning, everyone. As explained by Klaus, very solid first quarter for 2026. So taking a step back and walking you through a couple of slides on sales and gross profit and then EBIT. We see on Slide #12 the slight growth year-over-year, 1% of growth FX adjusted, demonstrates the confirmed scale-up of our E-Mobility activities. The slight erosion is planned from PTC, especially as we disposed of some activities at the end of last year. Slight slow start from VLS, but nothing to worry about on the year to go. This is mainly driven by some negotiations with some of our key customers that impacted a little bit the sales at the beginning of the year, we will catch up and no issues whatsoever on the year to go for VLS. Last but not least, BI&S also having an encouraging start beginning of the year for Q1. If you look at the makeup of our gross profit bridge going from 21.7 to 21.6, so more or less stable, you see a strong contribution from price. So a little bit of that is linked to compensating for the U.S.-related tariffs, but the rest is also the pricing policy that you see mainly for us within VLS and B&IS. The volume, slight decrease there, as I mentioned before, mostly related to PTC and as a result of decisions we took at the end of last year. The one that I would like to draw your attention to is the EUR 67 million of improved production cost year-over-year, a combination of structural improvements year-over-year as the restructuring programs pay off as we continue to drive efficiencies in our plants. And also happy to report, a significant part of it is related to our purchasing performance and the evolution of our raw material prices or our purchasing performance in general. On the other cost of sales, some impact from the U.S. tariff, there's about [ EUR 20 million ] in there. And then a not very helpful comparison to last year from an inventory revaluation standpoint, where we had a very strong quarter last year. We changed the method this year in order to smoothen this out a little bit and make it easier to understand and steer. But we took the hit there on the comparison. On a full year basis, this disappears. And hopefully also it will give us a more streamlined earnings and EBIT profile for 2026. I will finish on this slide by pointing out the FX impact on our gross profit line, still negative, mainly driven by the U.S. dollar, the RMB and the Indian rupee. And we could have listed as well the Ukraine war, which is impacting us quite a bit. On the next page, you see the EBIT walk, increasing by 0.3 points year-over-year. I already mentioned the gross profit evolution, which is very favorable for us. The other interesting news on there is the progress on R&D expenses, which is both increased efficiency in the way we conduct our development programs as well as some of the benefits of some of the restructuring that we've been doing in this field. Again, the SG&A suffering a little bit from the comparison with last year. There's some timing impacts in there. And there's also the impact of higher cost this year related to our S/4 HANA rollout and the fact that we are heavily investing in digitalization and AI deployment within the organization. That [ inflation ], mostly offset by our performance programs, which is what I'd like to see in the P&L. You see that at the EBIT level, FX switches back to a positive level. This is due to two main aspects. The first one is there is a natural hedge within the group between the different lines of our P&L, depending on where we sell and where we spend. And we also have in there the impact of some of the hedging instruments that are paying out favorably and protecting us against the [ evolution ]. So again, a solid 5% of EBIT, which puts us in a good shape for the full year guidance that we'll discuss a little bit later. I will go very quickly through the different slides. But E-Mobility, clearly, the scale-up paying off, both in terms of production efficiency as well as the R&D piece, driven the -- growth on the top line driven mostly this time for this quarter by the controls part of the business, but overall, unfolding as we had forecasted for 2026. On the PTC side, again, sales decline, which is known, planned and accounted for. The EBIT level remains very, very strong in the double-digit range. The 12.7% from Q1 2025 was a very, very, very high comp, but the 11.5% for Q1, again, clearly in line with what we were expecting when you think about, again, our guidance on the right -- on the good side of the guidance approaching the top end of it. On Vehicle Lifetime Solutions, 0.9% of growth year-over-year, not completely what we used to. VLS, nobody grows stronger, stronger than this and will grow stronger than this on a full year basis. This is just a slow start for Q1, but no warning, no alerts, no reason to worry on the year to go, the volume piece will catch up. Despite this, an extremely strong, almost 16% worth of EBIT driven, as I mentioned before, but also a strong pricing policy. The other encouraging point, I think already mentioned by Klaus is the expansion of our platform business on a global basis, which means that we are successfully diversifying out of Europe and out of the traditional repair and maintenance solution activities. On the Bearings & Industrial side, I'm not getting bored of saying this every time, but it's a very, very interesting combination of both growth and restructuring and operational performance, driving a very, very solid first quarter at 9% EBIT. The 10% last year, again, very hard to beat the comparison, which was mainly driven by the inventory valuation topic that I mentioned before and which was followed by a complicated or weaker Q2 in 2025. The change in method takes us away from that. And the 9%, again, very, very much on the progress path for B&IS, for Bearings & Industrial Solutions that we highlighted during the Capital Market Day, it is paying off, and they are executing properly. Free cash flow, seasonally impacted as usual within the group. Klaus already mentioned the slightly higher restructuring payments that you find in the Others category. Net working capital impacted by a conscious decision to raise our inventory levels and buffers in order to ensure that our customers are protected and safeguarded in a very volatile supply environment. This is something we will work down throughout the year as the situation stabilizes and hopefully resolves itself. But the decision was made there to invest a little bit in working capital to protect our customers. CapEx, as planned, in line with the investment plan for this year with quarter 1 that is where we expected it to be. From -- if I move on to the next page, you'll see, again, a not very surprising evolution or lack of evolution of our leverage ratio in the 2.1, 2.2, 2.2 range. Our maturity profile remains extremely well balanced with the upcoming maturities already prefunded, and we will continue to work on this as opportunities arise. Then that takes us back to the full year guidance, which I will hand back to Klaus. Klaus Rosenfeld: Yes. Thank you, Christophe. Very briefly, we confirm our guidance. We are, from our point of view, also with what we see in April on track here. Certainly, the impacts from the geopolitical and macroeconomic environment were not known when we approved this guidance. We have still said we will not change it and do what is necessary to stay within the range. The 5 percentage points, 5% EBIT margin is clearly at the -- pointing to the upper end here. We need to see what the second quarters bring. You know that our business is seasonable. But what I can say here is we confirm these main KPIs. Let me finish by a quick look at the financial calendar. The colleagues will go on roadshow, virtual, but also to the conferences. We see a lot of interest at the moment from U.S. investors, but also from Asia. So you see it on the schedule. We try to be as responsive as possible. And we thank you for your attention and interest in Schaeffler. With that, I hand back to Heiko. Heiko Eber: Thank you very much, Klaus. Thank you very much, Christophe. As already mentioned, if there are further needs -- if you see further need for discussion tomorrow, the virtual roadshow organized by JPMorgan. So if you have interest, please let us know. And with this, I would say that we directly jump into our Q&A session, and I would hand back to our operator. Operator: [Operator Instructions] And we have the first question coming from Christoph Laskawi from Deutsche Bank. Christoph Laskawi: The first one would be on the humanoid SOPs that you've highlighted. Now that you are moving into series production, I was wondering if you could comment in a bit more detail on the expected revenue contribution in '26 and '27. Is it fair to assume that in '26, it's probably closer to low double-digit euro million amounts and in '27, more towards the mid- to high double-digit range? That's the first question. And then you called out earlier that the environment is tricky currently and in some cases, unpredictable. Do you see any changes of customer behavior currently from the OEMs, any changes in call-offs also on the Industrial side? And with that in mind, should we expect Q2 to roughly trend in line with Q1? Any color that you could share there would be appreciated. Klaus Rosenfeld: Well, let me start with the second one. Again, we are -- we have 4 different businesses. And I start with BIS. I just came back from China, and we see that there, although the macroeconomic situation sounds a little bit subdued, there is a growing interest to work with us. We don't look at the Industrial business by call-offs. That's more an Automotive concept. And there, everything we saw, Christoph, in April doesn't look like a dramatic change. It's maybe a little softer than what we expected at the beginning of the year, but it seems to be quite resilient. When you see the news, when you see what's going on in the world, this is to some extent a surprise, but the numbers speak rather for a little bit of a softer development in the next months, but it's not a dramatic change in direction. So let's see how this is going to unfold and how the second quarter will look like. With what I've just said, we don't expect a dramatic change to our Q1. But certainly, Q2 is typically not as strong in terms of growth as the first quarter. The more important question is how will this unfold? Let me give you a little bit of a logic how we do this when we now estimate what's coming. You basically -- in these contracts that we have, and I said, 5 customer contracts where you will understand I cannot mention the names, I can also not mention what kind of products the customers order, but for sure, these are the ones that we have also communicated and shown at fairs. We typically look at the number of bots. We look at the pieces per bot, and we look at the price per piece. This is the simple logic that is behind this. Now SOPs will start in Q2. There's another customer that will then come in Q3 and another one in Q4. But this is the simple mix. So don't expect miracles in 2026. This is not a full year, that's the start of the year. Again, this is all estimated at the moment. We have no reason to believe that these SOPs are not happening because for sure, in particular, the bigger players want to get ready for their first generation. The real interesting question, how does it scale then? And how many more pieces are we going to expect then in 2027? Also there, what I see, and you just mentioned indicative numbers, going to 2030 revenues, I think you have a chance to go up above the 3-digit million mark. But the ramp-up curve as such, again, is premature. Again, 2026 will be also impacted by this timing aspect that I said. If everything works well, 2027 is more a 2-digit million number. And then it will -- however, the development in terms of the numbers is -- will go up to something in the 3-digit million at the latest in [ 2030 ]. From a revenue point of view, order book is certainly already bigger than a 1-year number. That's, again, my best estimate at the moment. We have told all of you also in the individual conversations that we will give indication today that you have a little bit of a sense what's going, but the regular reporting about order books, order intakes, revenues will need a little bit more time. Christophe and myself, we are 100% certain that we should only come out with numbers that are solid. And we are building this business. There's a lot going on here. I could spend most of my time on this, but I can't. So give us a little bit -- be a little bit more patient, give us a little bit more time. We'll come up certainly during this year with more figures here that you can also follow what we are doing. Operator: The next question comes from Jose Asumendi from JPMorgan. Jose Asumendi: A couple of questions, please. On the order backlog on humanoids, can you maybe just give some color maybe how broadly is split by region, maybe a little bit the geographical split, if possible? Second, do you foresee, as we think about a 1- or 2-year view, some expansion of plants, of maybe footprint either in the U.S. or in Asia to support the humanoid ramp-up? And can you talk a bit about also your -- I believe you call it -- it's like an R&D lab that you have next to Shanghai. When do you expect to open up that center for investors to visit it? And then second, on E-Mobility, can you talk a bit about how you reuse some of the capacity -- existing capacity you have to adapt the different powertrain trends we have globally, so we can make the best use of -- you can make the best use of fixed cost investments? Klaus Rosenfeld: So let me start with the first question. In what I told you again with the 5 customer contracts, I can say -- again, it's a development that still needs to be more solidified. It's more or less equally balanced between China, the U.S. and Europe. It depends a little bit how you define it, whether you define it by the humanoid builder or where the end demand is coming from. But if I just look at the big partner in the U.S. and the big partner in China, and that is together with the other ones, it is more evenly spread at the moment. So it's not China or the U.S., it's at the moment, both China and the U.S. plus a positive outlook on the humanoid players that have more a European base. You heard about Hexagon, that's the latest one where we entered into a cooperation. That's certainly a positive that this is not just one country or one region bet. The footprint -- sorry, the humanoid factory in China is open. So if someone is interested to visit it, you just need to organize it. We have seen significant interest there. Maybe we need to organize a little bit of a tour, but it's certainly something that we would open up and show you what's going on there. It's quite fascinating, also the speed how the Chinese colleagues build that up. Footprint to support the ramp-up. At the moment, we have not decided on any plans to change the footprint. What we have, in particular in Germany is, for the time being, sufficient, but we need to follow the development very carefully. It's a function of the ramp-up speed. If this goes very fast, we will react. If it goes more slowly, it's a different story. But we do this, as I normally say, with our eyes on the road and the hands upon the wheels. And we'll be very pragmatic to organize the necessary capacity. At the moment, it looks like that we can more or less handle what we have without bigger footprint investments. For sure, the cumulative total investment for the next year will be another interesting figure for you. And don't forget, we'll also spend money not only for plants or machines, but also for R&D and for people. If I may say this, my biggest challenge at the moment is to add the relevant people here to the team. This is a start-up. It's a very different environment. We have super engineers, super product developers, all of that. But if we want to build this as a global business, we also need to support David and his team, that is a global team with more talent, and that's where we're focusing on. So the next years will not only be looked at from a CapEx point of view, but also from the buildup of the right talent to drive this new market. Don't forget, there is a very important angle to physical AI and industrial AI. This whole ecosystem is not just mechanics, it's the interface between software and hardware. And if you really want to play there, you need to understand the AI angle very carefully. Also, Christophe said this, see it in a broader context. Then the last question was on E-Mob. Again, here, it's not so much capacity in the plant. It's more how do we optimize the fixed cost portion. We certainly have a way to go in terms of R&D. That's something that we certainly address under our existing performance program. Whether that's enough, we need to see. In general, I can say, with the improvement in Q1 2026, for, say, over Q1 2025, if you remember this little formula that we developed, is it possible to bring E-Mobility across the line in 2026, that delta of nearly 5.5 basis points -- but the delta from Q1 '26 to Q1 2025 is 5.5 to 6 basis points. If you consider that E-Mobility is a seasonal business with a stronger fourth quarter, that shift is -- if that we can maintain that shift over the next quarters, that really points in the right direction, even if revenues come in lower than what we expected when we had our Capital Markets Day. So let's see how Q2 goes and let's see that we are able to put the right measures in place. It's not a CapEx question so much. It's more a question of reallocating resources within the group and reducing also the R&D impact from headcount here in Germany. Operator: The next question comes from Ross MacDonald from Citi. Ross MacDonald: It's Ross MacDonald at Citi. I have three questions. I'll again ask on the humanoids, given there's so much client interest here. Klaus, just to help us back out, let's say, a potential content per vehicle to Schaeffler from these activities, I understand you're guiding around mid-3-digit million revenue potential on the current 5 contracts, assuming a global market of 1 million humanoids in 2030, would be good to just confirm that specific point. But then within that, what is the market share that you're assuming on that sort of revenue ambition, let's call it? I'm aware for 2035, you'd be comfortable or happy even with a 10% market share. So on that math, is that the 10% market share assumes that is driving a mid-3-digit million top line? That would be my first question. Klaus Rosenfeld: Well, Ross, again, we are working in a market that is emerging. And that certainly needs, to some extent, a scenario approach. Our sort of conservative scenario is 1 million humanoids to be produced globally by 2030. And I can also tell you, this is start-up territory. We here at Schaeffler, we don't like hypes, we don't want to see something where we are putting too much out. We want to be conservative. I think the 1 million humanoids, as it looks today, is a conservative number. It could increase, but we need to see. It's also a question where are they applied, and there are still very different views on this. So let's build on the 1 million and make sure that we make that and seize the upside if possible. The second cornerstone of our calculation is also nothing new to all of you. Andreas has said this also a year ago. When we look at the bill of material of an average humanoid build for different purposes, we're talking about a 50% addressable market for Schaeffler. And if I now say if we aspire to get 10% market share of that addressable market for us, then that's basically the logic that we have in mind. You all know that this is then a function of how costs are decreasing and how this is progressing and certainly, whether you can sell your products and your development competency to the right partners, that is, from my point of view, from a CEO perspective, the most important thing. It's the same like in the auto market. There are so many humanoid players around, so many people that claim that they can do this and this and this. For us, as one of the sort of leading suppliers in this space, we want to do business with the right partners. And I can say, you will hopefully understand that I cannot disclose names, but the names are prominent names. We want to be selective in the ones that we bet on. And that what I see at the moment gives me a good sort of positive feeling that we have the right contracts to start with. This is a start. It's not the situation where we can say we've already achieved everything we want to achieve. It will continue in 2026. And this concept of offering partnerships in terms of we can supply our parts and we offer people the ability to utilize their robots and learn together in a context where this is very much AI-driven, where the industrial metaverse plays a role, that is, from my point of view, the driver for success. Let's leave it here, but I leave you the rest of the calculation. At the end of the day, what counts is really what comes out in the bottom line. Ross MacDonald: That's helpful. And maybe I will fire two more quick questions for Christophe actually. Christophe, maybe on the second quarter trading, if I look at 2025, there was quite a large step down in margin from Q1 to Q2. So you went from 4.7% to 3.5%. How should we think about the seasonality within Schaeffler this year? Would you be hoping for a less extreme margin pullback in the second quarter? How would you think about Q2 within the current guidance range? And then a second question, just specifically on the other division, noting that was around about EUR 30 million loss per quarter on average last year, it has stepped up significantly to minus EUR 15 million loss in Q1. How should we think about modeling that specific division going forward? And maybe you can give us some color on what drove that EUR 20 million delta in Q1 versus Q4? Christophe Hannequin: So first question, and I touched on it during some of my comments, Q1 was overly impacted by inventory revaluations in 2025, some of it which resolved itself in Q2 and led to the performance that you saw. It's not really driven by the business itself, it was more of the way we essentially take our standard cost variances through inventory and the balance sheet. As I mentioned, we have switched some of our methodology on this one. So I expect a smoother quarter-over-quarter evolution in this one. The division that's primarily impacted by this one, especially last year, was BI&S, so Bearings & Industrial Solutions, first and foremost. And then PTC was probably the second strongest impact. So we'll see how Q2 unfolds. But if we did it right, we should have a much smoother quarter-over-quarter evolution. Now we do have a seasonal business where plant loading is important to us and efficiencies are driven by the loading of our plants. So you should not expect Q1 and Q4 to be directly comparable, if I put aside some of the R&D and the customer negotiations impact. But from a purely operational standpoint, Q1 and Q4, despite everything I've said before, will not be directly comparable. But again, smoother quarter-over-quarter is what we would like to see and what we're driving for in 2026. I'm also a big believer that a better load, better operational steering of our plants drives throughout the year drives higher efficiencies and higher performance overall. So let's see what Q2 gives us. But again, I'm on the optimistic side on this one. Division others, as you know, it's a mix for us of activities we're ramping up, ramping down. So the humanoid piece is in there, our defense efforts are in there, hydrogen is in there, so are some of the businesses that we are disposing off. So the comparison year-over-year is a little bit tricky. But if you use what you're seeing right now, you probably will not be off from what we should see in 2026. But that one is especially tricky, I guess, for you to model from the outside, unfortunately. Klaus Rosenfeld: And it's a task for us to think about maybe for next year, whether we guide something on this or how we best do this. But as you said, it's a mixed bag of things that are ramping up and ramping down. And we understand the point. But for the time being, I think you have the guidance that you saw, and it needs to add up to the group guidance. Operator: There are no more questions at this time. I would now like to turn the conference back over to Heiko Eber for any closing remarks. We have a last-minute registration from Klaus Ringel from ODDO BHF. Klaus Ringel: I wanted to ask on the Auto business. I mean it was quite nice to see the outperformance this quarter across different powertrains. And I would be interested in your view looking ahead, if we can expect to see such a nice outperformance or if you would expect also some seasonality in here? Klaus Rosenfeld: Klaus, it's a good question, but I don't have a crystal ball, to be honest. With this environment, it's really difficult to mention that. To answer that question, what is quite interesting from my point of view, if you follow what's at the moment happening on E-Mobility, not only in Europe, but also in the U.S., you see what comes a little bit as a surprise to us that in particular in the U.S., people are buying e-cars, although the production side is more going in the other direction. That may have to do with the fact that people look for fuel economy in a situation where [ ethylene ] becomes more important. We don't know yet. The trend is not stable. You also saw what happened here in Germany, what happened in France with more E-Mobility support. There are the obstacles with the loading infrastructure. For me, what is really most important is that we have this hedge across the three different types. and that we can play these corresponding cubes well. So I can't tell you what Q2 is going to look like. What I can tell you is that our focus on playing in this space from E-Mobility to PTC in a clever and smart way to utilize the opportunities that are there quarter-by-quarter. That's the game plan. And for sure, our biggest challenge is to deliver on our E-Mobility promise. And there, if outperformance helps there, I would expect that we probably see a continuation during the year. How this unfolds quarter-by-quarter remains to be seen. A critical element will be the China angle of this. And maybe I can leave you with the following information. My colleague or our colleague, Thomas Stierle, is spending more time in China than any other colleague that we have. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Heiko Eber for any closing remarks. Heiko Eber: Thank you very much. So first of all, thanks to our speakers. Thanks to my CEO, my CFO. Thanks to all of you for your continued interest. And as always, a big thank you to the team for the preparation. If there are more questions, please feel free to give us a call, happy to help. And with this, thank you very much. Have a good rest of the day and talk to you soon. Operator: Ladies and gentlemen, the conference is now over, and you may now disconnect your lines. Goodbye.