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Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Orthofix First Quarter 2026 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Julie Dewey. Julie Dewey: Thank you, and good morning, everyone. Welcome to Orthofix' First Quarter 2026 Earnings Call. I'm Julie Dewey, Orthofix' Chief IR and Communications Officer. Joining me today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews. Earlier today, Orthofix released its financial results for the first quarter ended March 31, 2026. A copy of the press release and supplemental presentation are available on our Investor Relations website, and a replay of this call will be posted shortly after we conclude. Before we begin, please note that our remarks include forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially. All statements other than those of historical facts are forward-looking statements. We do not undertake any obligation to revise or update such forward-looking statements. Factors that could cause actual results to differ materially are discussed in our most recent filings with the SEC and may be included in our future filings with the SEC. We will also reference various non-GAAP financial measures during today's call. Reconciliations to U.S. GAAP and additional details are in our press release and supplemental materials. Unless otherwise stated, net sales growth rates are on a pro forma constant currency basis and exclude the discounted M6 artificial disc product lines and all results of operations will be on a non-GAAP as adjusted basis. Here's today's agenda. Massimo will start with business performance and operational highlights. Julie Andrews will follow with her financial results and guidance, then we'll open up the call for Q&A. With that, I'll turn the call over to Massimo, who will discuss how our early year execution and recent operational actions are beginning to support improved performance as we move through the year. Massimo? Massimo Calafiore: Thank you, Julie. And good morning, everyone. I appreciate you joining us today. We delivered a good start to 2026. First quarter results reflect steady execution, improving stability and sharper strategic focus. As the quarter progressed, we began seeing the expected progress from our spine commercial channel actions, along with stronger operating discipline, supporting our confidence that performance will continue to build through the year. While these results reflect meaningful progress, they also crystallize where we could further raise the bar. That's why in April, we took deliberate steps to simplify our spine leadership structure, a proactive move as we continue to scale, enabling technologies like 7D and advance the launch of VIRATA later this year. By bringing decision-making closer to the field and increasing accountability through direct oversight, we're improving speed, consistency and commercial focus where it matters the most. Stepping back, Q1 reflects where we are as a company today, moving into the next phase of our journey, executing with greater consistency and strengthening our position to benefit from our innovation pipeline as the year unfolds. What we delivered this quarter supports our confidence in continued improvement. Our priorities are straightforward: execute consistently, convert opportunity into results, and demonstrate progress quarter-by-quarter. Let me turn to business performance highlights, starting with Spine. In Spine, Global Spine Fixation net sales grew 6% on a constant currency basis, with U.S. net sales growth of 4%. Results were supported by enhanced commercial focus, deeper procedural penetration and the ongoing benefits of our distributor transitions. Importantly, those transitions are now largely behind us. As alignment has improved, we are seeing positive momentum from more consistent field execution. In Q1, our top 30 distributor partners delivered net sales growth of 27% year-over-year and 24% on trailing 12-month basis, reflecting the success of our strategy to prioritize larger, more dedicated distributors and deeper relationship with our top partners. A key driver of that momentum is 7D, which remains a core differentiator in our surgical ecosystem, enhancing precision, workflow and surgeon engagement. Following our leadership realignment, we are intensifying our commercial focus on adoption of our 7D FLASH navigation system to deliver a more integrated spine offering. While Spine is benefiting from better alignment, we are applying the same discipline to Biologics. Performance improved sequentially during the quarter as we implemented targeted actions to strengthen execution, expand account penetration and increase utilization across the portfolio. We are refining our go-forward strategy, building clinical evidence and supporting advocacy. Collectively, these actions are designed to drive improvement through the year and position Biologics to exit 2026 with stronger momentum and a more durable growth profile. Beyond Spine and Biologics, our other growth platforms remained resilient. Our Therapeutic Solutions business, formerly Bone Growth Therapies, delivered 5% year-over-year net sales growth and continue to outperform the broader market. Demand remained stable, utilization is improving and prescribing activity is increasing across both spine fusion and fracture care. With its consistent performance and healthy margins, this business continues to be an important contributor to margin and cash generation. Global Limb Reconstruction posted 3% constant currency growth, reflecting steady demand across our core fixation and reconstruction systems. Over the past year, we sharpened our focus by prioritizing high-value categories, enhancing our mix with platform like TrueLok Elevate and Fitbone and deemphasizing lower return product. We believe this action positions limb reconstruction for acceleration as we move through 2026. A common thread across the business is the increasing impact of our innovation pipeline. We will have a full year contribution from TrueLok Elevate and Fitbone, and we remain on track for the full market launch of VIRATA in the second half of the year. Together with the continued inspection of our 7D FLASH ecosystem, this platform are designed to deliver differentiated clinical value and support durable multiyear growth. In closing, Q1 was a solid start of the year. We are carrying that momentum forward with disciplined execution and targeted investment. The quality and the commitment of our U.S. spine distributors is greater than ever and meaningfully contributing to our success. Our innovation pipeline is strong. Our operating model is more focused, and we believe we have the right team and the financial foundation in place. There is more work to do, and we are increasingly confident in our ability to execute, doing fewer things better, sharpening accountability, generating cash and delivering on what we said we would do. With that, I'll turn the call over to Julie Andrews to review our financial results and guidance. Julie Andrews: Thank you, Massimo, and good morning. All growth rates I'll reference today are pro forma constant currency, excluding the impact from discontinued M6 product lines. We delivered a disciplined start to 2026 reflecting an execution that is consistent with our plan. For the first quarter, total global net sales of $196.4 million increased 3% year-over-year. Results reflect steady execution following the Spine Commercial channel actions, and we expect further improvement as productivity continues to increase. Spine Fixation was in line with market growth, while Therapeutic Solutions delivered above-market growth largely offsetting the remaining impact of commercial channel transitions and softness in Biologics. While timing of certain international stocking orders benefited Q1 in results by approximately $2 million, the majority of performance reflected underlying execution across our core franchises. As a reminder, Q1 had 1 less selling day than last year, which reduced first quarter growth rates by roughly 1.6%. In addition, the CMS TEAM pilot program that began in January and includes bone growth stimulation had a onetime impact of less than 0.5% on our fourth quarter growth rate, slightly less than the 1% impact we had originally anticipated. Taking these factors into account, our Q1 growth rate was within the range implied by our full year guidance of 5% to 6%. From a segment perspective, global spinal implants, biologics and enabling technologies delivered $105.8 million in net sales for Q1. Our performance was supported by continued growth from our top 30 distributors in the U.S., partially offset by the timing of stocking orders from our Middle East distributors due to the impact of the war. Therapeutic Solutions, BGT, net sales were $57.8 million, up 5% as we continued to outperform the market. Fracture sales grew 6% in the quarter. We expect growth to remain above market rates of 2% to 3%, driven by disciplined execution, new surgeon additions and competitive conversions, especially in the fracture channel. Global Limb Reconstruction net sales were $32.8 million in the first quarter, up 3%. U.S. performance was flat, largely due to the timing of OSCAR Capital sales. We have recently restructured our capital sales team, which we believe positions us for future growth. Early indicators are encouraging with a strengthening capital pipeline. Additionally, we are seeing continued acceleration in the worldwide adoption of TrueLok Elevate and Fitbone. As we sharpen our focus on our core limb reconstruction pillars and benefit from ongoing portfolio and commercial enhancements, we expect to return to double-digit growth in the U.S. in the second half of 2026. Moving down the P&L. Pro forma non-GAAP adjusted gross margin was 70.7%, a 40 basis point improvement over prior year, reflecting the impact of freight and logistics productivity improvements, partially offset by unfavorable geography mix. First quarter pro forma non-GAAP adjusted EBITDA was $9.7 million, in line with our expectations, reflecting impacts from geography mix and commercial transitions. We ended the quarter with $120.9 million in total cash, including restricted cash, providing ample liquidity to support our operating needs and strategic priorities. The cash increase was a result of financing activities during the quarter, including our draw on the second tranche of our debt facility. As we move through the year, our focus remains on disciplined execution, strengthening our commercial foundation and supporting upcoming product launches that we expect to contribute to growth and margin improvement over time. Now let me turn to our full year 2026 guidance. Against the backdrop of our fourth quarter performance and current visibility, we are reaffirming our full year 2026 guidance. As Massimo noted, we expect performance to improve as we move through the year, driven by a steadier commercial cadence and increasing contributions from recent and planned product launches balanced against macro and operational considerations. Net sales are expected to range between $850 million and $860 million, representing approximately 5.5% pro forma constant currency growth at the midpoint. Net sales growth is anticipated to be approximately 5% in the first half of the year and about 6% in the second half of the year. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year. Non-GAAP adjusted EBITDA is expected to be between $95 million and $98 million, reflecting approximately 70 basis points of margin expansion at the midpoint. Free cash flow is expected to be positive for the full year, excluding potential legal settlements. In closing, while progress is evident, we are still early in the year and remain focused on converting improved activity levels into consistent above-market profitable growth. We remain grounded in operational rigor, disciplined capital deployment and prioritizing high-value opportunities across our Spine, Therapeutic Solutions and Limb Reconstruction portfolios with the objective of creating sustainable long-term shareholder value. Now let me turn it back to Massimo for closing remarks. Massimo? Massimo Calafiore: Thank you, Julie. I am pleased with the progress we made in the first quarter and our anticipated trajectory for the remainder of the year. As we move through 2026, our focus is clear: deliver quarter-by-quarter progress, expand margins, generate cash and translate our innovation and execution into durable shareholder value. Before we open the line for questions, I want to thank our global teams and commercial partners for their performance in Q1 and their continued focus and execution as we continue to build Orthofix into their unrivaled partner in medtech, delivering exceptional experience and life-changing solution. With that, let's go ahead and open the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Tom Stephan with Stifel. Thomas Stephan: Nice start to the year. First question on U.S. Spine. Massimo, you talked about the distributor transitions now largely behind you. U.S. Spine up 4%, probably a bit stronger adjusting for selling days. So Massimo, maybe talk about how we should think about growth in this business as we move through 2026 and beyond as well would be helpful. And then I have a follow-up. Massimo Calafiore: As we described 2026, you're going to see an acceleration of the business towards the year. I think that you have a couple of drivers. All of this, you're going to see a phase out of the annualization of the distributor termination that we made in order to optimize our distributor infrastructure, so a natural acceleration there. But also, as you know, we have a very focused and strong innovation pipeline that is coming. We are on time for the full market launch of the VIRATA open system and on time on the alpha launch of the VIRATA MIS. So we're going to see a very good strong contribution of these two foundational systems for us in the second half of the year. So the combination between innovation, annualization of the distributor transition and key capital investment that we're making, I'm very confident they're going to drive a very strong 2026. And as you know, we made -- we shortened, let's say, the distance between myself and the business. I think that the optimization on the leadership side has let me be very close to the field, very be present and keep nurturing the talent that we have. So I'm very excited about where we are with Spine. And we made bold decisions to create a strong foundation and now it's on us to execute. Thomas Stephan: Got it. That's great. Super helpful, Massimo. And then my follow-up just on sort of guidance and cadence for rest of the year. Julie, this may be for you. By reaffirming 1H constant currency growth of 5%, you did 3% in 1Q. I guess, do we think about 2Q as around 7% constant currency? I just want to make sure I'm contextualizing the 5% correctly for 1H. A, is that correct? And then B, for 2H, any comments on selling day dynamics, maybe other fundamental considerations sort of from a headwind perspective in the back half that we should be mindful of for top line? Julie Andrews: Yes, so Tom, we are reaffirming our guidance. Our comments were we do expect growth in the first half of the year to be around the 5% and then accelerating to 6% in the second half of the year. And if you look at Q1, when you adjust it for the selling day, 1 less selling day, and the TEAM's impact, we were right at kind of that 5% growth rate in Q1. In Q2, we would expect our growth rate, I think, to be in the 6-ish percent, 6% range would get you there for Q2. Operator: Your next question comes from the line of Caitlin Roberts with Canaccord Genuity. Caitlin Cronin: Maybe just a little bit more color on the geopolitical impact in the Q1. And then just any expectations that might be built into the guidance there? Julie Andrews: Caitlin, so built into our guidance, we expect very minimal impact for the full year related to the activities in the Middle East. Q1, there was a little bit of what we see as timing just in our Spine business primarily with orders, but kind of more than made up for with other stocking orders. So very limited impact that we have from that and not necessarily in our guidance for the year. Caitlin Cronin: Understood. And then maybe just talk a little bit about putting the Biologics business under the Limb recon leadership and where you would expect Biologics growth to end 2026? Massimo Calafiore: For Biologics, I think that we are expecting to go back to market growth. It's clear that we have still work to do. But since the realignment, the performance has improved sequentially during the quarter. So the targeted actions that we are putting in place are working. We have strengthened the execution. We expand account penetration. And also, we increased the utilization of the portfolio, as you hinted before, not just in spine, but also in the orthopedic side. So I'm very confident about the quality of our Biologics portfolio. I think that the optimization that we are putting forward in terms of sales channel and leadership is working. But let me highlight a specific comment that you made. It's not a realignment under orthopedics. It's more a realignment under a leader that is Patrick Fisher, who has a lot of experience in the space. So of course, as I said before, you're going to see a natural expansion in the orthopedic side, but the idea of the realignment was mostly driven by the talent and the experience that we have in the company around this specific space. Operator: Your next question comes from the line of Mathew Blackman with TD Cowen. Mathew Blackman: Can you hear me okay? Massimo Calafiore: Yes. Mathew Blackman: Two little housekeeping questions for Julie, and then one question for Massimo. Julie, you didn't call it out, so I'm assuming it wasn't a headwind, but any impact from weather in the quarter? And also there was a big hospital strike on the West Coast. Just any other headwinds to call out besides the ones you did mention already? And then can you give us just a sense of the size of the Biologics business, even the roughest sense, whether it's as a percent of the total business or a percent of Spine, just for some context there, and then a follow-up for Massimo. Julie Andrews: Okay. Matt, no, we didn't see any sustained impact from the weather, and we didn't have an impact from the hospital strike on the West Coast. So those did not impact our business. From a Biologics perspective, we don't break that out separately. So I can't give you a context in terms of the size. I think I'd point you to a couple of places, you can look at pre-merger results, and then also a portion of our Biologics revenue, you can see in our Q with our MTF service fee for that portion. Mathew Blackman: I'll remember that. And then Massimo, as you sort of look at the top 30 distributors, obviously, tremendous performance there. Is there anything that you can take from that playbook and pour it over to the rest of the distributor book, such that you can sort of bring along that rest of the business? I mean, obviously not sort of approaching 30% growth. But anything that you could do to sort of bring up the tail of the business now that you're seeing, obviously, really solid execution on a large part of the business there. Just curious how you can execute across the entire distributor network now. Massimo Calafiore: The plan that we put in place was divided in different phases. Phase number one is the one that we just accomplished. Now phase number two is really started to pick among the networks that we have, the next tier of distributors that we want to help to grow. And as you hinted, we're going to apply the same discipline and rigor that we apply for our top 30 distributors to the second tier to make sure that over time, they can grow and create the operational excellence we are expecting by our partner. But 2026 is going to be mostly for us working on the next 30, more than -- keep fueling the growth with our top 30 and laser-focused on the second tier. Operator: [Operator Instructions] And your next question comes from the line of Mike Petusky with Barrington Research. Michael Petusky: I'm juggling on a couple of conference calls, I may have missed this. Did you guys give any detail around 7D placements, any percentages or just any detail around that this morning? Julie Andrews: Mike, we're doing that more on a biannual or annual basis updating this. So our last update on those were in our Q4 call. And as a reminder, for 2025, our Voyager earnout placements increased 30%. And our purchase commitments on those placements exceeded their purchase -- the accounts exceeded their purchase commitments by more than 50%. Michael Petusky: Okay. And then I guess I just want to ask around U.S. Ortho or Limb Reconstruction. It feels like the momentum has slowed there last couple of quarters. Can you guys speak to that and maybe speak to actions that you may be taking to try to reaccelerate growth there? Julie Andrews: Mike, the momentum hasn't slowed. We've had some transient issues or things that we're dealing with. So we did sunset about 30 product lines last year. We really saw that start to impact in Q4. And then we talked -- and continue some into Q1 as well. And then really the timing of OSCAR sales, which is a capital sale, in Q1 impacted the overall growth rate. But very good results and adoption that we're seeing on Elevate and Fitbone. So again, we expect that business to return in the U.S. to double-digit growth in the back half of 2026. Operator: There are no further questions at this time. I will now turn the call back over to Julie Dewey for closing remarks. Julie Dewey: Thank you for your questions and for joining us today. We appreciate your time and interest in Orthofix. If you need any additional information, please reach out. We look forward to updating you next quarter. This concludes today's call. Operator: Ladies and gentlemen, thank you all for joining. You may now disconnect.
Mark Flynn: Good morning, everyone, and once again thanks for joining us. We'll cover a couple of things today with Nova Eye. Obviously the March quarter results. We'll cover the record April sales release that we've put out to the ASX and our guidance today as well. And also, we'll give you an update on how the U.S. business is scaling up at this present time. Quick reminder, this session may include some forward-looking statements. So please refer to the ASX release and the investor presentation for full details. As always, if you like to ask a question, please use the Q&A function in Zoom and we will try and get to as many as we can. I have received a number of questions ahead of the meeting. So thank you to those that have sent those through. But with no further ado, I hand you straight over to Tom. Thomas Spurling: Thanks, Mark. Thank you very much, everybody, for tuning in today. I'm always very pleased with the number of people that take the time to listen to our story. I think we've got a good story again for the quarter to 31 December -- 31 March 2026. As our disclaimer, just a reminder, it's about pressure. Glaucoma is about pressure and us intervening in the disease to open up blockages and reduce that pressure. Next slide. The messages from today, we address, Nova Eye products address a genuine and growing clinical need. So we're not trying to make people do something they haven't done before. The disease is real. The customer base is real. There is competition, but that just means that we have -- and we have an offering that participates very well. Our revenues are now up near $23 million annually and growing at 25% plus year-on-year. And they reflect that real market demand. This quarter showed that we can grow revenue while also improving profitability. I've been saying that too for a while. We were just $75,000 short, just 1% of revenue away from breakeven in Q3. We were EBITDA positive if you include our strong December in the 4 months to March, and we're forecasting EBITDA positive in Q4. So that's EBITDA positive in the second half in total. We are delivering the outcomes we committed to, and that's what I'm pleased about. We have a company with 20-plus percent growth and profit at the bottom or EBITDA. Record sales were achieved in April. We saw the need to upgrade our sales guidance as a result of that. And on the -- just a USA surgeon, I received this e-mail randomly, just general feedback about how good iTrack is, performs better with its canaloplasty than other devices. As such, it is not critical to perform a concomitant goniotomy, which is a tearing of the trabecular meshwork. There's less likelihood of postoperative blood. And for premium IOL patients, it's good. You don't want to have someone that's just had a cataract surgery, spend a lot of money on a premium IOL and come out of that surgery with blood in their eye. I hear that from a lot of surgeons, and this is just another example. Next one. A reminder about the interventional glaucoma market. It means the active surgical engagement to change the disease trajectory and remove the patient's reliance on drops. I encourage you to have a look at Glaukos. Glaukos made an investor presentation today or released it to the market. I looked at it, they give a very good definition of interventional glaucoma and how important it is. And we are part of that market. Nova Eye is part of that market. That cataract link, 1 in 5 patients also have glaucoma gives us a reason for patients going into the OR, let's fix your cataract and get you off those drops. Our stent-free tissue preserving repeatable product is what puts us in the game. We are a required part of the business, interventional glaucoma market globally and in particular in the United States. Next slide. Just a quick summary of our -- a number of you have seen this. We have an FDA-cleared product, of course. We have a good reimbursement, which is stable. That reimbursement gives economic value to all the participants in the surgery, the surgeon, the facility hosting the surgery and us. Why do doctors choose iTrack Advance, well, we're talking about restoring the natural systems of the eye. It's implant-free and tissue sparing with a single pass with now the beautiful Green Light passing around the Canal of Schlemm, gives us the advantage over other devices that call themselves MIGS devices or are MIGS devices giving that doctors can choose from. And there are many -- I have all sorts of -- we've had all sorts of slides in the past about that. But at the heart of the matter is the tissue sparing natural method of action. Next slide. Here's our sales quarter-on-quarter compared with the PCP, USD 5.8 million. There were 2 new additional sales reps in the U.S. to service the growing demand we have there. This is, that's okay. I prefer to look at the next slide, which is our trailing 12 months revenue. It's a better picture of trends. And you can see 26% globally, 27% sales excluding China. We only do that. We started doing that because of the difficulties with tariffs. Remembering we're selling from the U.S. to China. And we were -- at the commencement of this financial year, there was a lot of uncertainty associated with that. So we just measure ourselves on sales excluding China at the moment. That doesn't mean China isn't being worked on. It just means that for guidance, we go to sales excluding China. And the sales guidance was lifted $21.7 million. We had guided to $21 million minimum a week or 2 ago. We have now passed that. So we've upgraded our guidance as a result of the very strong sales in April in all markets. Very pleasing. The drivers of that sales growth, our brand and product awareness by doctors was on display at the recent Australian -- American ASCRSA (sic) [ ASCRS ], American Society of Cataract and Refractive Surgeons in Washington, D.C. We have great trade booth presence and great booth attendance by doctors. We have sales team productivity, which I challenge is up with any ophthalmology company in the U.S. The release during the quarter of our proprietary Green Light technology to provide a clearer view for better navigation of the catheter through the Canal of Schlemm. I guess it's kind of goes without saying that a Green Light with -- is better seen in the case of any blood in the operation. And the release also of our Shear Clear technology, iTrack advanced with Shear Clear technology. This is also our technology transforms the cohesive viscoelastic into a low viscosity fluid during canaloplasty. You'll recall that viscoelastic is really a biocompatible hydraulic fluid that we flush, that we push through the canal. By virtue of our delivery system, it is thin and that thin viscoelastic circulates more freely into the ocular structures, the Schlemm's canal and the outflow pathway. And after a period of latency, regains viscosity and therefore holds open those structures. We're very pleased with the Shear Clear, the outcome of -- the addition of Shear Clear to our technology. There are some surgeon videos on YouTube that are highlighting the impact of this technology on their surgical outcomes. That is why sales are going up. We have a great product. We've got a good team, and we've got a lot of awareness of our brand and, well, to be honest, a little company. Next slide. China remains -- we made our first sales in February to China of iTrack Advance. And in that regard, I draw your attention or we draw your attention to the opportunity in China compared to the U.S. The same dynamic, 1 in 5 cataract patients present with concurrent glaucoma, and the opportunity to grow our business in China is very strong. It is a big opportunity. It will take time. But we think it is very exciting. Next slide. This slide, we've had a question about dips in sales reps. Well, I also get questions about dips -- sorry, revenue per rep. So what we've got is sales growth in the United States by quarter. What I like about this slide is that I have not made any change to the scale on the left-hand side to exacerbate the growth rate. It is a commendable growth rate of 6% a quarter. What we take away from that is despite our sales, we were maintaining a very strong revenue per rep. I'm often asked, how long does it take for reps to get to $1.6 million a quarter, $1.8 million and $1.9 million. I consider our whole pool of reps as an asset. And on average, we have managed over time to keep that quite high. Sales growth, keep it quite high. And therefore, that -- the sales rep expense is quite high. So that is a driver of productivity. Sales in the quarter, on that graph, look flat quarter-on-quarter. That could be, say Nova Eye has flat sales in the United States. January and February were materially affected by winter storms and surgery. And quite possibly, those surgeries were caught up in April, quite possibly. So we have had a great April, as we said, which augers well for Q4. So we will continue to push when we find the right people because there are territories in the United States which are underserved. We will continue to look for reps that we believe can be added to our team and maintain at $1.6 million, $1.7 million, $1.8 million per rep and therefore drive the bottom line productivity as well as sales growth. Our operating result here, I call out our investment in clinical data because it doesn't actually impact the current operating leverage as they call it. You can see I'm not resiling from the fact that we're EBITDA negative. I am pointing out that we're EBITDA positive for 4 months, but not for 3 months because we had a good December. That's a small loss in a -- as a percentage of total revenue, and it's heading in the right direction. The leverage -- the gross margin is pleasing as we improve our production -- constantly improving production processes, but also pricing of our product increasing, particularly in outside the U.S. markets where we're still only transitioning in some cases, from iTrack 250A to the more expensive, for us being a more expensive -- higher price, sorry, iTrack Advance. So I think this highlights the trends in quarterly EBITDA. I draw your attention to the green arrows which show Q4 relative to Q3 for the last couple of years. So we think our outlook for Q4, if that trend continues, is very strong. A couple of periods of very close to breakeven performance, and we're forecasting an improvement that to continue during the month of -- during the April, May and June. Cash flow, we continue to invest in working capital. There was a lot of marketing expenditure upfront that we had to make. Our cash receipts will flow through. And as we said, our existing cash and debt facilities provide sufficient runway for the continued execution of our mission, which is a mission to cash to EBITDA positive, cash flow positive will follow. Next one. Recapping our guidance. There's an update from $21 million to $22 million to $22 million to $23 million. People may say that's not much, but I'm excited by it because we're proud of the work we're doing. We're only a little company, and we are delivering what we want, what we said we'd deliver. So there's some FX things there. I tend not to worry about Australian dollars, but I have to give the -- just a reminder, we have no Australian dollar revenue. We do not sell in Australia. So it's U.S. dollars for us. Next one. And that's the same, our guidance that continued targeting breakeven with a small positive in H2 FY '26 and positive EBITDA from operations that removing the effect of clinical data and ongoing improvements in cash flows. We are generating cash in the U.S. I don't want to say the U.S. is a business on its own, but because it's a very global integrated business. But all our cash is coming in euros in the U.S., which the appreciating Australian dollar doesn't help when you turn it into Australian dollars. Okay. So thank you for that. Mark Flynn: Thanks, Tom. A couple of questions coming through. One live is that the Green Light, which we've announced and is currently in use in the U.S., will that supersede the red light or will both lights remain available for surgeon choice? Thomas Spurling: It will stay the same. And that's actually our choice because doctors, we are not making it -- if someone has a red light and they ask for it and they're a good customer, well, we are not trying to build to, the better production planning thing is just to deliver green is the answer. Mark Flynn: A question from Nick Lau at Taylor Collison in regards to those U.S.A. sales. You did cover it there and also the revenue per rep, which sort of dipped a little bit. What are the factors the sales rep are seeing that may have contributed to this? And I know you mentioned the weather. Thomas Spurling: Yes. So I know the weather sounds a lot like the dog ate my homework. But in the end, the Northeast of the U.S. in January and February, which seems like an eternity ago, but to me it's not because we're still seeing the effects on our P&L account where there was -- our reps were shut down, surgeries were shut down and surgeries were canceled. That impacts. It impacts doctors bimonthly and so it impacts. The revenue per rep, it's a vexed issue. I get equally the number of times people say, put on more reps, why don't you put on more reps? Well, when we put on more reps, there must be a dip naturally because you can't get all those sales in the first month the person is there. We try and split the territories, give the person a lot of leads. But we put on reps because we know in that 2, 3, 4 months' time, we'll get back up to the [ $1.678910 ], $1.6789 million per rep, which we know drives our bottom line result. And as I said, 20% growth, 20% plus top line growth and EBITDA. That seems to me like an achievable target for our business. Mark Flynn: The sales adoption by new or established surgeons, are you able to comment on the sales pattern? Thomas Spurling: Well, you can -- that requires a lot of analysis. We are a small business, but it also -- we'd like to think that our competitors don't need to tell -- we don't need to tell our competitors about new accounts. We just deliver our sales information. I know so many people have how many facilities, what's new, what are new accounts, what are old accounts, why are the old -- why are facilities dropping off? Why are new facilities not buying if they just bought a -- in month 1, they're not buying in month 2. There are so many combinations of analysis that we could do. And they are compromised by doctors moving around between facilities, by -- in particular that and the idea that some accounts have more than one facility and more than doctor doing it versus some accounts just having one doctor. So we believe that our EBITDA, operating revenue per rep. Increasing top line sales is our goal, and we have our internal guidance as to how we're doing at each account. Mark Flynn: You mentioned Glaukos and a bit of a comparison. So I know Glaukos leads in stents and drug delivery, but where do they sit with in competition against us? Thomas Spurling: Well, it's interesting, I refer you to some of the videos that have been posted by surgeons where there is a combination going on now where there seems to be doctors are deciding to team iTrack with Glaukos products, which is interesting. And we think that we don't have any clinical evidence around why that would do it, but that's up to doctors to do what doctors do. Glaukos' investor webinar today gives a very rosy outlook for interventional glaucoma. And I know it's to service their own needs, but it does describe very well the trends. And we think that we are -- if you like, we could be on the coattails of some of those trends. I mean the trends are real. I think that's what -- a review of the Glaukos investor presentation will show you, that we have -- that Nova Eye Medical is in a real market with a real growth thing. Mark Flynn: China, I know we do exclude China, but when do you believe or when do you think that sales there will become material? Thomas Spurling: I'm just starting. We've decided corporately to just be cool on that decision and let them flow through. So we're not giving any more guidance than what we have. Operator: Thank you. We've got one here. In regards -- we haven't mentioned the manufacturing facility or clean room in Adelaide. Just a short update on that. Thomas Spurling: Yes. So we have quietly and with conviction to lower our production costs, insourced some parts into, establish Nova Eye cleanroom facility and insource some parts to lower production costs ultimately. And it also provides a test bed for new manufacturing techniques and new product testing. The Shear Clear and the Green Light are as a result of that. So it's a good capability we have here in Adelaide. And compared with other parts of the world, Adelaide is a low-cost domain. So it's good. Mark Flynn: Always a reminder that there's new people joining our webinars and asking why don't we sell this product in Australia. Thomas Spurling: So simply put, we have presented data to the U.S. Medicare and it has accepted that data as meaningful in saying that, yes, canaloplasty does work, and therefore we will reimburse patients who need it or reimburse, yes, patients effectively. In Australia, the data, they have a different level -- different standard. They don't -- they believe more data is required. The size of the Australian market does not warrant our investment in getting that clinical data, just a standalone. We do have some clinical data in the pipe, which may help, but we see the investment in an additional rep in the U.S. helps us get to our 20% plus growth, EBITDA positive down the bottom, far better than just selling in Australia, unfortunately. Mark Flynn: Thanks, Tom. I think that covers all the questions. Any final questions come through now or as always, Tom and my details are on the screen. Please send through any questions. Happy to have a phone call as well. Look forward to staying in touch. But great news from Nova Eye today, and welcome any further questions. So thanks very much for joining. Thank you, everyone.
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.
Operator: Hello, and thank you for standing by. My name is Mel, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Tidewater Inc. First Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to West Gotcher. Go ahead. West Gotcher: Thank you, Mel. Good morning, everyone, and welcome to Tidewater Inc.’s First Quarter 2026 Earnings Conference Call. I am joined on the call this morning by our President and CEO, Quintin V. Kneen; our Chief Financial Officer, Samuel R. Rubio; and our Chief Operating Officer, Piers Middleton. During today’s call, we will make certain statements that are forward-looking and refer to our plans and expectations. There are risks, uncertainties, and other factors that may cause the company’s actual performance to be materially different from that stated or implied by any comments that we are making during today’s conference call. Please refer to our most recent Form 10-Ks and Form 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov. Information presented on this call speaks only as of today, 05/05/2026. Therefore, you are advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we will present both GAAP and non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures can be found in our earnings release, located on our website at tdw.com. I will now turn the call over to Quintin. Quintin V. Kneen: Thank you, West. Good morning, and welcome to Tidewater Inc.’s First Quarter 2026 Earnings Conference Call. I will start the call today with the quarter’s highlights and then talk about capital allocation and what we are seeing on vessel supply and demand. West will walk through our financial outlook and what we are thinking about for 2026 guidance. Piers will cover the global market and operations, and Sam will close with the consolidated financial results. Each of us will touch on the impact from Operation Epic Fury. Starting with the first quarter, revenue and gross margin were both ahead of what we expected. Revenue was $326.2 million, driven mainly by higher utilization and stronger day rates. Gross margin was just under 49%, up slightly quarter over quarter and over three percentage points above our internal plan. Utilization benefited from strong uptime with less downtime for repairs and fewer dry-dock days than we expected. Overall, I am really pleased with the operational execution and with the returns we are seeing from the fleet investments we have made over the past few years. Before I get into more detail on the financials, I want to touch on Operation Epic Fury, what it meant for the quarter, and what we are watching going forward. As I said on last quarter’s call, we had not seen any disruption to our business at the outset, and we expected that any cost impact—especially insurance and fuel—would be immaterial. Quintin V. Kneen: And so far that has held to be true. Our vessels in the Middle East continue to operate normally, and utilization and revenue in the first quarter—specifically March, the first full month after the operation began—came in above our forecast. We did see some higher costs, mainly in crew along with insurance and fuel. The biggest item has been the incremental hazard pay for our crews. Insurance and fuel have been a smaller piece. Sam will share more detail in his remarks. Looking ahead, we are seeing pent-up demand in the region, and we believe activity could rebound above what we expected just a quarter ago once the conflict is resolved. In the first quarter, we generated $34 million of free cash flow. The step down sequentially was related to less cash flow from working capital and relatively higher dry-dock spend. Just as a reminder, in the fourth quarter we collected a sizable past-due receivable from PEMEX, which drove the working capital change, and Q4 is typically our lightest dry-dock quarter, whereas Q1 is usually our heaviest as we get vessels ready for a busier working season as the weather improves. That drove the dry-dock change. Importantly, nothing has changed in how we are thinking about free cash flow for the year, and the first quarter is tracking with our expectations for 2026. As we discussed previously, during the first quarter we announced our agreement to acquire Wilson Sons Ultratug Offshore—22 PSVs focused exclusively on the offshore market in Brazil—for $500 million. We have already started the pre-integration work using the playbook we built through prior acquisitions. The Wilson team has been well organized and is highly capable, and we are making good progress getting ready to bring the business onto the Tidewater Inc. platform. On approvals, things are moving as expected and we still anticipate closing by the end of the second quarter. We did not repurchase any shares in the first quarter because we plan to fund the equity portion of the Wilson transaction with cash on hand, and we are still waiting for consents to transfer the existing Wilson debt. We still have $500 million authorized under the program, which represents about 12% of the shares outstanding as of yesterday’s close. Even as we work towards closing and integrating Wilson, we are still in a good position to look at additional M&A opportunities. Our balance sheet remains strong and we continue to expect net leverage to be less than one times at closing. Liquidity is solid, and after issuing our unsecured notes last summer we have good visibility into the cost of debt capital should we decide to use it for an acquisition. Our preference is still to use cash, but we will consider using stock if the right fleet is available at the right value. With the GulfMark, Swire SOF segment, and now Wilson acquisitions, we have built a meaningful presence in essentially every major offshore basin. These have largely been newer, higher-specification fleets, and they have helped reestablish Tidewater Inc. as the leading OSV provider globally. We have also successfully reentered Brazil, which we have talked about as a priority market. From here, we will stay focused on fleets and geographies where our platform gives us an edge and where bringing additional vessels onboard can create outsized value. We continue to benefit from our scale and high-specification PSVs and anchor handlers, two of the most in-demand vessel classes in the global OSV fleet. When we look out over the next couple of years, we see the market tightening in late 2026 and into 2027 and 2028. That should set up for meaningful day-rate improvements over that time. If day rates move up the way we expect over the coming years, that will flow through to higher earnings and cash flow generation. If we do not see value-accretive acquisitions, we will look for other ways to put that excess cash to work. Our share repurchase philosophy has not changed. We will be opportunistic and disciplined, and more broadly, we do not think it makes sense to build and sit on a large cash balance for an extended period. As we move through to the Wilson closing and into a period of higher free cash flow, we will stick with the same capital allocation framework that is core to how we run the business. In practice, this means we will continue to weigh the relative merits of M&A versus share repurchase. We continue to view buybacks as an attractive way to return capital to shareholders. Turning to the outlook, while the Middle East conflict is still ongoing, what we have seen so far could be a positive for the offshore vessel market over time. Energy security became a key theme since the conflict in Ukraine, and the Middle East conflict has added another layer—an increased focus on sovereign energy independence, particularly in the Eastern Hemisphere. So far, at least 500 million barrels of oil have been lost, and there is still no clear sign when recent production losses will be reversed. The longer that goes on, the bigger the need becomes to replace those inventories, and historically, crude prices have had a strong relationship with inventory levels. Continued depletion should provide longer-term price support. Put together, the inventory drawdown and the heightened awareness of geopolitical risks suggest oil prices may have a higher floor than before the Middle East conflict began, which supports additional offshore projects. Stepping back, we think the trend towards offshore development supports a structural improvement in demand for offshore activity and for offshore vessels. We see this as a long-term dynamic, and it is additive to the demand we have been seeing already. Recent comments from offshore drillers point to a meaningful increase in fixtures and a high level of drilling unit utilization. We view the expected pickup in offshore drilling as a strong positive for our business. We support a range of offshore applications, but drilling activity typically has the biggest impact on vessel demand. Offshore vessel activity has been building year to date, and as it continues to pick up, the pressure on available supply creates an opportunity for higher utilization and higher day rates. On the supply side, the global fleet has stayed essentially flat over the past few years. A handful of vessels are expected to deliver late in this year and into early 2027, but we view those additions as relatively small in the context of the overall market. As supply tightens further, we can see a path to day-rate increases of roughly $3,000 to $4,000 per day per year for the entire fleet, moving the fleet back towards earning its cost of capital. We are excited about the drilling outlook, but we also expect other drivers of vessel demand—especially production and EPCI-related support—to remain strong. Production work has stayed robust and helped offset some of the relative drilling softness early in 2026. Looking ahead, we continue to like the outlook for both, given the strength we are seeing in both subsea and EPCI backlog, as well as continued momentum in FPSO orders. Over the longer term, more drilling in less developed regions should drive additional infrastructure work, which supports sustained demand across these categories. We are pleased with how the first quarter came together. While we still have some uncertainty in the Middle East until the conflict is resolved, we are increasingly optimistic about the outlook for the business. We will stay disciplined on capital and continue to look for value-accretive ways to deploy it, and we expect the opportunity set and our ability to capitalize on it to improve over the next 18 months. With that, let me turn it back over to West. West Gotcher: As Quintin mentioned, we did not repurchase any shares during the first quarter due to the pending Wilson acquisition. At the end of the first quarter, we retained our $500 million share repurchase authorization. As a reminder, under our outstanding bonds, we are unlimited in our ability to return capital to shareholders provided our net debt to EBITDA is less than 1.25x, pro forma for any share repurchase. Under our revolving credit facility, we are also unlimited in our ability to repurchase shares provided the net debt to EBITDA does not exceed one times. However, to the extent that we exceed one times net leverage, we still retain the flexibility to continue returns to shareholders, provided that free cash flow generation is in excess of cumulative returns to shareholders. We still anticipate being below one times net leverage, assuming a June 30 close of the Wilson acquisition. From a capital allocation perspective, we look to execute share repurchase transactions when suitable M&A targets are not available. We retain the option of evaluating M&A and share repurchases concurrently, but our financial policies and philosophies dictate our relative appetite to pursue both concurrently. Given that the offshore vessel market has stabilized at a healthy level, along with the constructive outlook for offshore vessel activity more broadly, the M&A landscape remains favorable and we will continue to evaluate additional inorganic opportunities to add to our platform. Turning to our leading-edge day rates, I will reference the data that was posted in our investor materials yesterday. Across the fleet, our weighted-average leading-edge day rate increased modestly in the first quarter compared to 2025. This is the first time since 2025 that our weighted-average term contract measure for new contracts has increased. Our largest class of PSVs saw average day rates increase sequentially, which we find encouraging given the relatively large number of contracts for these vessels and the geographic dispersion of the contracts. During the quarter, we entered into 18 term contracts with an average duration of 13 months, with two specific long-term contracts skewing the average. Excluding these contracts, the average duration of our new contracts during the quarter was seven months. Turning to our financial outlook, we are maintaining our full-year 2026 revenue guidance of $1.43 billion to $1.48 billion and a full-year gross margin range of 49% to 51%. Our guidance assumes that we close the Wilson acquisition at the end of the second quarter. Our view of the legacy Tidewater Inc. annual revenue and gross margin guidance has not changed from our initiation of guidance in November 2025. Our second-half expectation for the Wilson business remains unchanged. We expect our second-quarter revenue to be roughly flat with the first quarter, consistent with prior expectations, but expect our gross margin to decline by about 5 percentage points sequentially due to cost increases associated with Operation Epic Fury. However, we are in a position to seek rebills for about half of the conflict-related cost increases from our customers related to direct cost increases associated with crew wages, insurance costs, and G&A support, but we have not contemplated the recoupment of these costs in our guidance. Our forecast assumes a normalization of costs associated with the conflict in the Middle East by the end of 2026. To the extent the conflict-related cost pressure continues beyond the second quarter, we are similarly privileged to seek rebills from our customers on realized direct cost increases. Second-quarter guidance does not assume any impact from the Wilson acquisition. In summary, we are pleased to be able to maintain our full-year guidance given the impact from the conflict in the Middle East, with the possibility of recouping a good portion of the cost increase that we are absorbing in our current Q2 guidance. Our expectation remains that there is the potential for uplift to our full-year guidance depending on the strength of drilling activity picking up towards the end of the year. Looking to the remainder of 2026, first-quarter 2026 revenue plus firm backlog and options for the legacy Tidewater Inc. fleet represents $1.1 billion of revenue for the full year, representing approximately 84% of the midpoint of our legacy Tidewater Inc. 2026 revenue guidance. Approximately 69% of remaining available days for 2026 are captured in firm backlog and options. Our full-year revenue guidance assumes utilization of approximately 80% for the legacy Tidewater Inc. fleet, leaving us with 11% of capacity to be chartered if the market tightens quicker than we are anticipating. Our midsized anchor handlers and largest class of PSVs retain the most opportunity for incremental work, followed by our smaller and largest class of anchor handlers and midsized PSVs. Contract cover is higher in the earlier part of the year, with more opportunity available later in the year. The bigger risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and incremental time spent on dry docks. With that, I will turn the call over to Piers for an overview of the commercial landscape. Piers Middleton: Thank you, West, and good morning, everyone. This quarter, I will talk a little about what we are seeing in each of our regions as we look out through the rest of the year and into 2026. Overall, the OSV market showed continued signs of improvement throughout the quarter, with sentiment starting to pick up in all regions where we operate, even those which could face some short-term challenges through 2025. Amid rising rig demand and offshore E&P activity, the long-term outlook for the OSV market remains strong, with the ongoing upturn in project investment expected to continue to drive additional incremental demand out to 2030, while the continued limitations in the supply of any significant growth in the global OSV fleet will further exacerbate the expected tightness in our market. Working through our various regions and starting with Europe, the North Sea OSV spot market strengthened throughout the quarter. In the PSV sector, spot rates strengthened significantly as the quarter progressed, with fixing activity remaining strong, helped by several PSVs leaving the region for warmer climates, a trend we do not see stopping in the short term. In the AHTS sector, supply constraints continued to drive rates higher, with spot rates in the largest classes of AHTS reaching record highs above $350,000 per day in Norway. In the Mediterranean, we continue to see strong activity, and with our global operating platform we were able to move two further vessels into the region to meet the increased demand that we mentioned on our last earnings call. Overall, we expect the Mediterranean region to be a strong market longer term, with several drilling campaigns and EPCI projects commencing in 2026. In Africa, even with the busier dry-dock schedule in the region, we had a good Q1 with a large increase in utilization across our West African and Angolan fleets, predominantly due to some overruns in drilling campaigns in both Namibia and Congo, as well as an uptick in EPCI work in Angola and Mozambique. Looking ahead, we do expect some slowdown in activity across the region in Q2, but are on track for a big pickup in activity from Q3 onwards, led by renewed drilling and EPCI activity in Nigeria, Namibia, Angola, Congo, and Mozambique. In the Middle East, as Quintin mentioned, we saw little disruption to our vessel activity in the region, with all our vessels remaining on hire throughout the quarter. However, we have seen a slowdown in new tendering activity as our customers assess the short-term impact of Operation Epic Fury on their plans. Looking ahead, low tendering activity is expected to persist in the near term due to the elevated risk, and while it is probably too early to predict with any accuracy long-term rate movements in the region, we do expect day rates in the shorter term to be impacted positively on the upside due to the lack of any new supply being able to enter the region. While the duration and trajectory of the conflict are still unclear, as Quintin mentioned, the ramifications of the conflict will likely have longer-term positive benefits to the OSV industry both in the Middle East and globally. In the Americas, as mentioned on our last call, we remain excited with the long-term outlook in Brazil, with the recent announcement that SBM agreed contracting terms with Petrobras for construction of two more FPSOs to be deployed offshore Brazil, with first production targeted for 2030. While there has been some short-term slowdown in OSV tendering activity in 2026, this is expected to pick back up again after elections are completed in Q4 of this year. In Mexico, PEMEX’s underlying financial pressures continue to weigh down sentiment; however, we are seeing some uptick in tendering activity from other oil companies in the country, which bodes well for 2027 and 2028. Lastly, in Asia Pacific, Taiwan, Indonesia, and Australia were the key drivers of demand in the current quarter, with several new contracts signed to support both drilling and EPCI activity that will kick off in Q2 and should go all the way through into 2027. Looking further out into 2027, we are also starting to see several of the other NOCs and IOCs in the broader region getting organized to increase drilling activities starting in 2026 all the way out to 2028, which bodes well for the region going forward. Overall, we are very pleased with how the market has continued to move in the right direction in Q1, and we fully expect that positive momentum to continue into the second half of the year. With that, I will hand it over to Sam. Samuel R. Rubio: Thank you, Piers, and good morning, everyone. I would now like to take you through our financial results, where my discussion will focus on the sequential quarterly comparisons of 2026 compared to 2025. In the first quarter, we reported net income of $6.1 million, or $0.02 per share. We generated $326.2 million in revenue compared to $336.8 million in the fourth quarter. We saw average day rates increase about 1% versus the fourth quarter but saw a slight decline in active utilization to 80.6% from 81.7% in Q4. The revenue decline was primarily due to a decrease in operating days, as there were two fewer days in the quarter, coupled with the lower utilization due to higher dry-dock days. Gross margin in the first quarter was $159.3 million compared to $164 million in the fourth quarter. Gross margin percentage in the first quarter was 48.8%, nicely above our Q1 expectation and slightly ahead of our Q4 margin of 48.7%. The increase in margin versus Q4 was primarily due to the decrease in operating costs. Operating costs for the first quarter were $166.9 million compared to $1.727 billion in Q4. The decrease in operating costs was due mainly to lower R&M costs and lower other operating expenses in addition to two fewer days in the quarter. While overall cost was lower, we did incur about $2.3 million of cost due to the Iran conflict, the majority of which was incurred in the Middle East. Costs directly impacted were higher insurance costs and higher crew wages in the form of hazard pay. Indirectly, we also saw fuel and travel costs increase due to the increase in the commodity price. Our EBITDA was $129.3 million in the first quarter compared to $143.1 million in the fourth quarter. For the first quarter, total G&A cost was $33.6 million, which is $5.4 million lower than Q4. The decrease was mostly due to lower professional fees due to a decrease in M&A transaction costs as well as costs associated with our Q4 internal vessel realignment. In addition, we saw a decrease in salaries and benefits due to adjustments made to our compensation expense. For 2026, exclusive of additional M&A costs, we expect Tidewater Inc. standalone G&A costs to be about $125 million. This includes an estimated $14 million of noncash stock compensation. Moreover, we expect to incur approximately $7 million in additional G&A costs in the second half of this year related to the Wilson acquisition. In the first quarter, we incurred $36.4 million in deferred dry-dock costs compared to $13.9 million in the fourth quarter. Q1 is typically a heavy dry-dock quarter, and this quarter was no exception, as we had 949 dry-dock days that affected utilization by about five percentage points. Dry-dock costs for 2026 are expected to be approximately $122 million. Additionally, we expect to incur approximately $16 million in dry-dock costs in the second half of the year related to the Wilson acquisition. In Q1, we incurred $14.9 million in capital expenditures related to vessel modifications and upgrades. For the full year 2026, we expect to incur approximately $51 million in capital expenditures. This amount includes a planned major upgrade to one of our Norwegian vessels. Absent this upgrade, our maintenance CapEx is expected to be approximately $36 million for 2026. In Q1, we spent $24.4 million related to two purchase options we have exercised for vessels we have been leasing. This amount is not reflected as CapEx spend, but is instead reflected in the financing section of our cash flow statement in Q1 as payments on finance leases. In addition, we expect to incur about $1 million in CapEx spend in the second half of the year related to the Wilson acquisition. We generated $34.4 million of free cash flow in Q1 compared to $151.2 million in Q4. The free cash flow decrease quarter over quarter was mainly attributable to higher deferred dry-dock and CapEx spend in Q1 and a large working capital benefit achieved in Q4 due to a significant increase in cash collections that did not repeat in Q1. In Q1, we sold two vessels for proceeds of $3.3 million, which is also lower than the Q4 sale proceeds of $5.3 million. Though the Q1 free cash flow amount was lower than Q4, it was higher than our internal estimate. As a reminder, following our debt refinancing, which was completed in Q3 2025, we only have small debt repayments that are related to the financing of recently constructed smaller crew transport vessels. We have no payments until 2030 on our new unsecured notes. Following the anticipated close of the Wilson acquisition, our debt maturity and repayment profile will change to accommodate the newly assumed Wilson debt. We conduct our business through five operating segments. In the first quarter, consolidated average day rates were 1% higher versus Q4, led by our Europe and Mediterranean day rates improving by 9% and our APAC segment increasing by 7%, partially offset by relatively small declines in each of our other regions. Total revenues were 3% lower compared to the fourth quarter, with decreases in the Americas, Africa, and Middle East, partially offset by increases in our APAC and Europe and Mediterranean regions. Regionally, gross margin increased by four percentage points in Africa, three percentage points in our APAC region, and one percentage point in the Middle East despite the conflict in Iran. Our Europe and Mediterranean region saw a decrease of two percentage points, and the Americas declined by four percentage points. The gross margin increase in our African region was primarily due to a five percentage point increase in utilization due to fewer idle days, offset by slightly higher repair and dry-dock days. This was offset somewhat by a decline in average day rates of 4%. Operating costs decreased by 15% due mainly to a decrease of four vessels operating in the area and two fewer operating days in the quarter. The gross margin increase in the APAC region was due to an increase in utilization due to fewer repair days and a 7% day-rate increase, partially offset by a small increase in operating costs as we had two vessels transferred into the area. The increase in Middle East gross margin was primarily due to a 5% decrease in operating costs. The decrease was primarily due to fewer operating days and lower R&M expense due to fewer DFR days, partially offset by higher costs related to the conflict. In the quarter, we did see a small drop in day rates and utilization. Utilization was down slightly quarter over quarter primarily due to higher idle days, partially offset by fewer dry-dock and repair days. Our Europe and Mediterranean region gross margin was two percentage points lower versus the prior quarter, but three percentage points higher than our expectation. Revenue was up 5.5% due to a 9% increase in day rates, partially offset by a seven percentage point decrease in utilization. We had a heavy dry-dock schedule in the quarter, and we mobilized vessels into the region, which contributed to the decrease in utilization. Dry docks represented a five percentage point decrease in utilization in Q1 compared to less than one percentage point in Q4. The increased revenue was partially offset by higher operating expenses related to higher salaries and travel and supplies and R&M due primarily to an average of four additional vessels operating in the region. Gross margin in our Americas segment decreased by four percentage points due mainly to a $12 million decrease in revenue caused by a four percentage point decline in utilization as well as a 3% decrease in average day rates. Utilization was affected by higher dry-dock and repair days. The revenue decrease was partially offset by a 10% decrease in operating cost versus Q4. The decrease was primarily due to transferring two vessels out of the region during Q1. As noted in our press release and as Quintin mentioned earlier on the call, we experienced additional operating costs in Q1 related to the impacts from Operation Epic Fury. We estimate ongoing additional crew wages in the form of hazard pay and insurance costs of about $1.6 million per month. In addition, we expect approximately $1.8 million of additional monthly costs related to fuel and travel expenses due to the higher global commodity prices. The fuel and travel expenses are estimates based on our forecasted activity and current commodity prices. These elevated costs related to the conflict will likely continue into the near future, though it is uncertain how long this geopolitical disruption may last. It is also widely expected that commodities markets will remain elevated beyond the immediate resolution of the conflict. In a scenario where the conflict extends and remains similar in nature to its current state, we estimate total operating cost increases of between $10 million and $11 million per quarter. We are currently working with our customers for reimbursement of wages and insurance costs that are provided for under our contracts, but as of now we have not included this in our guidance. When we look at our Q1 revenue, I am glad to announce that we did not experience any material reduction due to contract cancellations because of this conflict. As it relates to the Wilson acquisition, integration meetings are progressing as expected, and we expect the transaction to close by the end of the second quarter. We strongly believe that our increased presence in the Brazilian market is an important piece to our global strategy and are excited about our growth there. In summary, Q1 was another strong quarter from an operations and execution standpoint. We exceeded internal expectations for free cash flow, day rate, and utilization in what is typically a seasonally slow quarter, and industry fundamentals remain strong. Our balance sheet is in excellent condition, and we continue to be optimistic about the opportunities that lie ahead for Tidewater Inc. With that, I will turn it back over to Quintin. Quintin V. Kneen: Sam, thank you. We will now open the call for questions. Operator: If you have dialed in and would like to ask a question, please press star then 1 on your telephone keypad to raise your hand and join the queue. Your first question comes from the line of Ben Summers of BTIG. Your line is open. Analyst: Hey, good morning, and thank you for taking my questions. You called out the anchor handler market being particularly tight in Q1, especially in the North Sea. Is this more of a regional development, or is this something you are seeing across the global fleet? Piers Middleton: Yes. Hi, Ben. Thanks for the question. It is basically something that is happening in the North Sea where there tends to be a bit more of a spot market, but we are certainly seeing on the larger anchor-handling sizes that there has been some consolidation in that market, and that has driven some of that tightness. That has allowed some of our competitors to push day rates, which helps us as well. So long as we are all moving in the right direction, that is a positive thing. Generally, what we see is that the spot market in the North Sea tends to drive a lot of the noise elsewhere as well, so we expect that to have a trickle-down effect through the rest of the globe over the next few quarters. It is a positive sign on the largest classes of anchor handlers. If you see that in Norway, it tends to push through to other regions as well, and that is driven by increased towing of rigs but also on the subsea construction side—the big anchors needed for trenching and subsea support work as well. It plays into what we have been saying about the increase in EPCI work and also exploration starting to pick up again. Analyst: Awesome, thank you. Super helpful. On the broader picture, you talked about the long-term increased focus on energy security. Are there any specific basins you would call out as being specifically emphasized? Anything across the global fleet that could be specifically impacted by this longer-term trend? Quintin V. Kneen: Principally the smaller markets in Asia, I believe. I think you are going to see real strength growing over the next few years in Indonesia and Malaysia. Piers may have some other anecdotal information as well. I mean, I think it is across all, but it is primarily going to be in Asia. Piers Middleton: We see a huge amount of demand coming out of that region, and we are already seeing it a little bit in Indonesia as well. It is going to have a kick into Africa as well in terms of more drilling and pulling more supply. I would not be surprised if we see it on the East Coast of Africa, and of course we have already seen some of the Western Mediterranean pick up in Libya and so forth. Quintin V. Kneen: So, yes, you are starting to see players that have not been in the market over the past five or six years really reaching out and trying to develop their resources. Analyst: Thank you for taking my questions, and congrats on all the progress. Operator: Thank you. Your next question comes from the line of Josh Jain of Daniel Energy Partners. Your line is open. Analyst: Thanks for taking my questions. Offshore rig companies have outlined pretty constructive outlooks for activity over the next 12 months. I know you are not going to guide 2027 dry docks, but is there any thought in bringing forward any of those when you can? Or is it reasonable to think the dry-dock schedule is going to be more friendly as we exit this year into 2027, and how are you positioning the company given the expected growth in the deepwater side? Piers Middleton: We are not trying to bring any dry docks forward. We tend to plan out over a five-year period to help supply chain and procurement as well. We have a pretty well-set operation on that side and how we look at things. We might move one or two depending on how projects pan out, but at the moment we have a pretty good sightline in terms of where projects are rolling out over the next few years, both for our own technical team and for our commercial team in terms of what projects we are seeing and in which areas, and we try to line up our vessels and dry docks accordingly to that. Analyst: And then on the other one, with the Helix–Hornbeck merger, does this frame at all how you think about growing your business moving forward with respect to different service offerings? Or does additional M&A look more like Wilson and some of the other things that you have done over the last couple of years? Quintin V. Kneen: It does not change our view, because we have always had that expansive view of other service lines. It is certainly a lot easier for us to do that in our existing market. To the extent that we do reach out, it would be with a franchise that we feel is already well performing in that particular vertical. But no, it does not change anything. Glad to see it. More consolidation is better. I certainly cannot consolidate this industry by myself, so the more the merrier. Analyst: If I could sneak in one more. Given the number of rigs that were given multiyear extensions with Petrobras in the last 90 days, how does that frame your discussion for the Wilson acquisition? At the time of the deal, you talked about a number of assets that were in the process of being extended. Can you update us on those and how much more confident you are today than when you did the deal about that market? Piers Middleton: Josh, overall positive. We went into this year with an election going on in Brazil, so we have seen a couple of tenders being pushed to the right. The understanding from the market is that Petrobras wants to make some decisions on longer-term commitments. Overall, Petrobras is positive. There are also the IOCs coming out as well in that region, even moving up the tender margin as well. We do not see any concerns in terms of future tendering—maybe there is a bit of movement to the right on some of them—but overall, nothing that concerns us at the moment. It is very positive in terms of what we are seeing on the rig side, and then the additional FPSOs are coming as well. There is a really good long-term story in Brazil that we think we are well placed to take advantage of once we get the Wilson acquisition into the business. Operator: Thank you. Your next question comes from the line of Jim Rollison of Raymond James. Your line is open. Analyst: Hey, good morning, and thanks for all the detail again this quarter. Quintin, last quarter you were pretty optimistic about how things were shaping up as we head into late this year, really into next year and beyond, and that has only gotten better with the oil macro situation that has come out of this Middle East conflict. It sounds like you are having some customer conversations that have picked up. Are they already trying to mobilize incremental activity at this stage, and how do you think that translates into the timing of your ability to start pushing day rates up? Quintin V. Kneen: It is always a bit of a guess, but the building activity that we are seeing from the rig companies, EPCI, and subsea contractors gives us a lot of confidence in our ability to push day rates up once the market tightens. We are a little bit later in the chartering process for those customers, so I think we are not going to be able to demonstrate that until later into 2026 and into 2027. Analyst: Got it. And then back to M&A. You have the Wilson deal closing, and there have been a couple of other chess pieces moved off the board since you announced that deal. Has the shift in the oil macro and the better environment outlook changed any of the dynamics of opportunities in terms of target acquisition pricing expectations at this point? Quintin V. Kneen: I think people are definitely getting more confident in the longer-term view of the industry, and that is helping. People are also beginning to appreciate the importance of consolidation—they see the benefits from the drillers and other subsectors. I have not seen any real price movements at this point, but if the industry continues to improve at a steady rate, we will certainly see that too. Operator: Your next question comes from the line of Don Crist of Johnson Rice. Your line is open. Analyst: Sorry if this has already been addressed—I got on the call a little late. It is a busy morning. I just wanted to ask about the Far East. We are hearing some news reports of energy shortages and things like that. I know you had a bunch of boats working in Malaysia and Indonesia in the past that got sidelined for other reasons. What is the state of the Indonesian and Malaysia markets right now and your ability to put those big boats back to work? Is that coming sooner rather than later? Any thoughts around that? Piers Middleton: Hi, Don. The market is pretty positive. We do not have a huge number of our biggest market-age-specific vessels there, but we do have a lot of big boats in the region, which will be working in Malaysia, Indonesia, and Australia, and then up in Taiwan. We are very positive. As we said earlier, with the energy security story, we are going to continue to see more investment in those countries. I think the governments have been shocked a little bit by what has happened with Operation Epic Fury. Longer term, we were already seeing it, but we expect to see the governments really doubling down in terms of pushing their NOCs and also the IOCs that operate in those countries to do more investment—more drilling, exploration, and getting production. We are busy down there at the moment, and we expect to continue to be busy as well. We have moved one or two ships already into the region this year. With our operating platform, we are able to do that. It is a positive story in Asia Pacific for us. Analyst: And M&A has been a big topic in Q4 and Q1, so you have not really done any stock buybacks. Quintin, are you leaning more towards stock buybacks as the M&A story goes to the background and you are able to buy some stock back here, or are you going to keep that optionality for the future? Quintin V. Kneen: I do not believe that the M&A opportunities are winding down. We have no issue returning money to shareholders, and share repurchases are our way to do it. But to the extent that we see more value in acquisitions by getting the right boats at the right price, then I would lean toward that. Operator: That concludes our Q&A session. I will now turn the call back over to Quintin V. Kneen for closing remarks. Quintin V. Kneen: Thank you again for joining us today. We look forward to updating you again in August. Goodbye. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Good morning, and welcome to HealthStream, Inc.'s first quarter 2026 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers after the presentation. I will now turn the conference over to Mollie Condra, Head of Investor Relations and Corporate Communications. Please go ahead, Ms. Condra. Mollie Condra: Thank you, and good morning. Thank you for joining us today to discuss our first quarter 2026 results. Also on the conference call with me is Robert A. Frist, CEO and Chairman of HealthStream, Inc., and Scott Alexander Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream, Inc. that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-Ks, 10-Q, and our earnings release. Additionally, we may reference certain non-GAAP financial measures relating to the company's past and future expected performance on this call. The most directly comparable GAAP financial metrics and reconciliations are included in the earnings release that we issued yesterday. I will now turn the call over to CEO, Robert A. Frist. Robert A. Frist: Good morning, everyone. We do have a lot to cover this morning, and I will ask Scotty and Mollie to be on guard in case I have a cough. I am still working off a bit of a cold. That is my issue. I am going to get through it, though. Just in case, Mollie, be ready. Alright. Well, good morning, everyone. It is our first quarter 2026 earnings call. We have a lot to go over, starting with the strong financial growth we delivered in the quarter, which included record-setting revenues of $81.2 million, up 10.5% year-over-year, and record-setting adjusted EBITDA, which just pushed through $20 million to $20.1 million, up 24.1% year-over-year. Operating income grew 71% year-over-year. The strong performance in Q1 is allowing us to increase investment beyond our original plan, including in growth initiatives related to our current products, new products on the horizon, and accelerated use of AI. I am going to talk about some of those investments towards the end of my section. We are reaffirming our 2026 full-year guidance and continue to anticipate revenue between $323 million and $330 million, net income between $20.4 million and $22.8 million, and adjusted EBITDA between $73 million and $77 million. Our strong cash balance of $66.5 million and untapped line of credit and no long-term debt continue to position us well to take advantage of M&A opportunities as they arise, as well as other capital deployment strategies that we believe will benefit our shareholders. As a reminder, last quarter I described four reasons why HealthStream, Inc. sees real opportunity in today’s rapidly expanding AI environment. As AI continues to develop, I am pleased to reaffirm our increasing belief in each of those four reasons today. First, our healthcare user base continues to expand. Unlike companies facing seat compression from AI agents, healthcare keeps hiring and keeps growing. Roughly one quarter of all new U.S. jobs over the next decade is projected to come from the healthcare industry, and nurses, our largest user base, are leading that growth. AI is not expected to reduce demand for nurses. If anything, it should free them to spend more time with patients and less time documenting. Second, our data profile remains a meaningful differentiator. Our customers utilize our enterprise applications as a system of record for managing their learning, credentialing, and scheduling programs. The data in these applications serves as a source of truth for our customers as they carry out their operations. I believe they will use that source of truth in training their own AI. Third, in addition to the data profile, our career networks, which is going to be an area of investment, generate proprietary individual-level data that we believe is valuable for finding, developing, retaining, and engaging the healthcare workforce. NurseGrid alone, for example, now reaches roughly one in five U.S. nurses, telling us where, when, and for whom they want to work. Fourth, our hStream platform is built to incorporate AI as a core element rather than bolting it on. Platform elements like the hStream ID, which we have talked about extensively in the past, and our growing API footprint serve as essential infrastructure to help enable AI-driven innovation in healthcare workforce technology. Our ecosystem ties it all together. Millions of caregivers, thousands of healthcare organizations, and dozens of industry partners combined with more than 30 years of domain experience, and the hStream technology platform creates something difficult to replicate. AI cannot manufacture an ecosystem like HealthStream, Inc.’s, but it can enhance it, and our ecosystem can enhance AI in what we believe will be a virtuous loop of value creation for our customers and investors alike. Building on that foundation, I am pleased to share that we have meaningfully expanded our internal role of AI across the company and are making great progress. Adoption is broadening across teams. Our employees are putting these tools to work in their day-to-day, and we are encouraged by the early productivity and quality benefits we are already seeing. It is still early days in terms of realizing the benefits of AI, and with driving innovation as one of our company’s six constitutional values, I believe our employees are on the front foot of ensuring that HealthStream, Inc. is an innovator in this promising area. Before we go further in our call, I want to briefly summarize our business for the benefit of anyone who is new to the HealthStream, Inc. story, and I hope there are lots of you on the call today. First and foremost, HealthStream, Inc. is a healthcare technology company dedicated to developing, credentialing, and scheduling the healthcare workforce through technology solutions, each of which is becoming more valuable because of the interoperability they are achieving through our hStream technology platform. We have also started to open our sales channels directly to healthcare professionals and nursing students through our three career networks. These help nurses, CNAs, and students throughout their career journey. The company holds 20 patents for its innovative products, which have been awarded over 40 Brandon Hall awards. Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which makes our revenues recurring and predictable. In fact, 97% of our revenues are subscription-based. We are profitable, have no interest-bearing debt, and reported a strong cash balance of $66.5 million at the end of the first quarter of 2026. This strong cash balance allows us to allocate capital to product development, M&A, share repurchases, and dividends. We are solely focused on healthcare and, more specifically, the healthcare workforce and those preparing to enter it. The 12 million to 12.5 million healthcare professionals and nursing students in the United States comprise the core total addressable market for our solutions. At this time, I will turn it over to Scott Alexander Roberts. We will turn our attention to our financials and hear a report from Scott. Scott, take a look at the first quarter of 2026 and give us your financial outlook. Scott Alexander Roberts: Alright. Thanks, Bobby, and good morning, everyone. I will be happy to cover our financial results for the first quarter with you this morning. For the first quarter, our revenues were a record $81.2 million, which was up 10.5%. Operating income was $7.5 million and was up 71.6%. Net income was $5.9 million, up 36.4%. Earnings per share came in at $0.20 per share, which is up from $0.14 per share, and adjusted EBITDA was also a new record of $20.1 million, which was up 24.1%. Our revenues increased by $7.7 million, or 10.5%, to $81.2 million compared to $73.5 million in the prior year. Revenues from subscription products were up $7.6 million, or 10.7%, while professional services revenues were up $0.1 million, or 4.3%. Our organic revenue growth rate was 5.8%, and the inorganic growth rate was 4.7% in the first quarter. Inorganic revenues are associated with the Verisys (Versus)12 and MissionCare Collective acquisitions that we completed in 2025. The first quarter of 2026 is the first full quarter with both operating as part of HealthStream, Inc. I am pleased to report that both post-acquisition integrations are progressing well. Verisys (Versus)12 is extending our reach into payer credentialing, a meaningful expansion of our addressable market, and MyCNAjobs is building momentum connecting CNAs and home care providers with the organizations that need them. Together, these two acquisitions contributed $3.4 million in revenue in the first quarter, and we continue to see compelling opportunities to cross-sell and integrate capabilities into the broader HealthStream, Inc. platform. In addition to the revenue contributions from these two recent acquisitions, our core business was supported by strong subscription growth performance from CredentialStream, which grew by 19%, and ShiftWizard, which grew by 29%. Revenues from our legacy credentialing and legacy scheduling products approximated $7.6 million of our first quarter revenues and declined by 16% compared to the first quarter of last year, as we continue our efforts to migrate customers from those solutions. Our remaining performance obligations were $687 million as of the end of the first quarter compared to $613 million for the same period of last year. We expect approximately 39% of the remaining performance obligations will be converted to revenue over the next 12 months and that 67% will be converted over the next 24 months. Gross margin was 65.8% compared to 65.3% in the prior-year quarter, and this improvement was primarily related to the growth in revenues, including contributions from the recent acquisitions. Operating expenses, excluding cost of revenues, increased by 5.3%, or $2.3 million. Product development increased by $1.6 million, or 12.9%. Sales and marketing increased by $0.8 million, or 6.7%. Depreciation and amortization increased by $0.6 million, or 5.7%, while G&A expenses declined by $0.7 million, or 7.7%. These operating expense increases were partially impacted by the recent acquisitions, while the G&A expense decline resulted from our office sublease. To wrap up, our net income was $5.9 million and was up 36.4% over the prior year, and adjusted EBITDA improved to a record high of $20.1 million and was up 24.1%, and the adjusted EBITDA margin was 24.8% compared to 22% last year. We ended the quarter with cash and investment balances of $66.5 million compared to $57 million last quarter. During the first quarter, we paid $7.5 million for capital expenditures, returned $1 million to shareholders through our dividend program, and repurchased $7.5 million of our common stock under the share repurchase programs that we announced in November 2025 and March 2026. In addition, we made $1.8 million of minority investments in companies that we expect to leverage our ecosystem and our platform. Our days sales outstanding were 39 days for the first quarter compared to 37 days in the prior-year first quarter. Our objective is to maintain our DSO in the 40–45 day range or better, and I am pleased with our continued progress in this area. Cash flows from operations came in at $27.1 million for both the current year and the prior-year first quarter. Cash flows were partially impacted by the minor increase in DSO that I just mentioned, as well as higher payments for sales commissions following the strong bookings that we achieved in the fourth quarter of last year. Our free cash flow was $19.7 million, which is up from $18.2 million from last year, an increase of 7.9%. Our capital expenditures came in at $7.5 million compared to $8.8 million last year. Ending the quarter with $66.5 million of cash and investments, strong free cash flows, and no debt, we are well positioned to deploy capital to improve our shareholder value. As a reminder, we maintain a disciplined approach to capital allocation and how we prioritize our use of capital. Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of profits back to shareholders in the form of cash dividends, and our fourth priority is that our Board may authorize share repurchase programs. Yesterday, as announced in our earnings release, our Board of Directors declared a quarterly cash dividend of $0.035 per share to be paid on May 29, 2026, to holders of record on May 18, 2026. During the first quarter, we made share repurchases of $7.5 million under two Board-authorized share repurchase programs. We repurchased the remaining $5 million under a $10 million share repurchase program that was authorized by the Board of Directors in November 2025, and in March 2026, the Board authorized a new $10 million repurchase program. We made $2.5 million of repurchases under this plan during the first quarter, and we have continued to make repurchases during the second quarter. This program will terminate on the earlier of September 12, 2026, or when the maximum dollar amount under the program has been expended. We may suspend or discontinue making purchases under the program at any time. I will finish up this morning by just recapping our financial outlook for 2026, which we are reiterating as previously announced in February. We continue to expect our consolidated revenues to range between $323 million and $330 million, net income to range between $20.4 million and $22.8 million, adjusted EBITDA to range between $73 million and $77 million, and capital expenditures to range between $31 million and $34 million. For the second quarter, we expect our revenue growth rate will approximate 9.5% and adjusted EBITDA margin will approximate 23%. Consistent with our operating budget for the year, we have several planned operating expenses that will begin in the second quarter, including higher labor costs, higher marketing costs from trade shows, sponsorship, and attendance, and new technology investments to support our infrastructure, among others. In addition, our strong performance in the first quarter provides us with additional capacity to accelerate investments towards several initiatives such as our career networks. These guidance expectations do not include the impact of any acquisitions or dispositions that we may complete during the year, gains or losses from changes in the fair value of non-marketable equity investments or contingent consideration, or impairment of long-lived assets that we may complete during the year. That is all I have for today. Thanks for your time this morning. Bobby, I will go ahead and turn the call back over to you for some more updates. Robert A. Frist: Thank you, Scotty. I am going to start this section of the call as I usually do with some business updates that highlight successes we have achieved in the learning, credentialing, and scheduling areas, along with updates on our career networks. Starting with the learning product family, which includes the Competency Suite, many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular workforce applications and content libraries, which we call the Competency Suite. Customers purchase a subscription to the Competency Suite for all of their applicable employees, particularly the clinical staff, which comes with unlimited use. We saw strong momentum of this product in the first quarter with a 17.3% increase in revenues achieved. Our American Red Cross Resuscitation Suite continues to be in demand by customers. In the first quarter, we provided the marketplace with 18 updated courses, which included education content in our BLS, ALS, and PALS programs. The updated content was deployed simultaneously across the entire customer network in a single day, all aligned to the new ILCOR science guidelines. Among the sales successes we had in Q1 with the Resuscitation Suite was a decision by Cedars-Sinai Medical Center to renew and expand their number of users by 50%. They also informed us that the expansion will be beneficial as they have been named the official medical provider to the 2028 LA Olympic and Paralympic Games. That is super exciting for our teams as well. Now let us move to credentialing, where our flagship product CredentialStream continued its strong momentum in the first quarter. Revenues from sales of CredentialStream in the first quarter were up approximately 19% over the same quarter last year. One thing we love to see is our customers growing along with us, and some of our customers meaningfully expanded through M&A last year. In fact, two of our largest CredentialStream sales in the quarter were significant expansions due to M&A and enterprise-wide standardization on CredentialStream. We take it as a strong vote of confidence when our customers trust and rely on CredentialStream so much as the system of record that they choose to stop using solutions from our competitors and standardize on CredentialStream when they expand their operations. We are dedicated to repaying that vote of confidence by helping these customers improve their operating results by reducing the time it takes to onboard, enroll, credential, and privilege their physicians. There is a significant economic benefit when a health system can show demonstrable improvement in the time to revenue on these physicians. We believe our software plays an essential role in getting that outcome. Verisys (Versus)12, which we recently acquired in order to expand our market share and product offering and expertise in the payer credentialing space, also delivered one of our top three credentialing wins in the quarter. We are still in the earlier phases of our expansion to the payer market, and we are pleased to see Verisys (Versus)12 already contributing to that effort. Let us move to scheduling, where our core product ShiftWizard continues to deliver strong revenue growth, with first-quarter revenues up approximately 29% versus the first quarter of the previous year. It continues to be our top-performing product in our scheduling application suite. Our top two ShiftWizard deals in the quarter were once again takeouts of a competitor that is horizontally focused instead of solely focused on healthcare. Our sales leaders attribute these wins to the fact that our growing ShiftWizard customer base is increasingly touting the value of the healthcare-specific solution that ShiftWizard provides. When the rubber hits the road, scheduling and staffing clinicians is simply different than scheduling a labor pool for retail or factory shifts, and the market is taking note of that. Now let us turn to our career networks. They include My Clinical Exchange, NurseGrid, and MyCNAjobs. Importantly, career networks directly benefit both individual healthcare professionals as well as the health organizations seeking to employ and engage them. For individuals, HealthStream, Inc. Career Networks serve as a career catalyst through every stage of their pre-professional and professional journey. Last year alone, My Clinical Exchange connected over 364 thousand nursing and allied health students to clinical placements. NurseGrid, the number one app for nurses in the Apple App Store, engaged over 683 thousand monthly active users. MyCNAjobs connected approximately 70% of America’s direct care workforce in the home caregiver space. In doing so, these solutions guided caregivers through every stage of their career journey, helping them discover their path, build meaningful professional relationships, access focused learning, and advance to what is next in their career. For healthcare organizations, our career networks provide employers with direct access to the largest, most engaged audience of nurses and caregivers through targeted recruitment, development pathways, and in-app promotion. My Clinical Exchange served as the first touch point for helping over 715 health organizations and over 1.9 thousand schools seeking to place nurses and allied health students into clinical rotations. NurseGrid was utilized by nurses in approximately 37 thousand unique clinical sites as NurseGrid users manage their professional calendars and engagement across those sites. Finally, MyCNAjobs helped over 8 thousand healthcare organizations access our home caregiver and CNA community to promote work and learning opportunities. Today, the usage of our Career Networks has created over 450 thousand hStream IDs, and counting, among students, nurses, and allied health workers. In aggregate, Career Networks contributed approximately $3.78 million in the quarter. While this is modest compared to the company’s total revenue, we believe that the growth potential, differentiation, and diversification of Career Networks make them an important area for incremental investment. We are already rolling some of the profits from the quarter’s outperformance into new sales hires for this area, the Career Networks, to scale the three solutions. I am pleased to announce the promotion of Michael Collier to Chief Operating Officer and Executive Vice President. In this expanded role, Michael will lead enterprise operations across HealthStream, Inc., including customer experience, corporate development and M&A, implementations, legal, human resources, and other critical areas. He also serves as executive sponsor of the company’s AI transformation, driving AI readiness across operational teams. Since joining HealthStream, Inc. in 2011, Michael has been instrumental in our growth, including leading more than two dozen successful acquisitions. We look forward to his continued leadership in this expanded capacity. Before we move on, I want to remind our shareholders and investors that our annual shareholders meeting is scheduled to take place virtually on Thursday, May 28, 2026, at 2:00 PM Central. Notifications of the meeting and access to the proxy statement, 10-K, and shareholder letter were sent out on April 13, 2026. We encourage you to vote your shares and participate in the future of our company. I will close with the same reminder I share with you every quarter. If you are interested in a recurring-revenue, profitable, healthcare technology company that expects to deliver growth, then HealthStream, Inc. may be the right investment for you. If you are interested in a company whose core user base, the clinical health workforce, is expanding faster than any other sector in the job market, then maybe HealthStream, Inc. is the right investment for you. If you like a company whose software serves as a system of record on behalf of healthcare customers, then HealthStream, Inc. may be a company for you. If you favor ecosystems over point solutions, then maybe HealthStream, Inc. is the right investment for you. For all these reasons, HealthStream, Inc. is positioned for another exciting year helping the nation’s top health systems find, develop, credential, schedule, onboard, and retain the growing healthcare workforce. Maybe HealthStream, Inc. is the right investment for you. I will turn it over to the operator to begin the Q&A session. Thank you. Operator: We will now open the call for questions. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by. Our first question today is from Matthew Gregory Hewitt with Craig-Hallum Capital Group. Your line is open. Matthew Gregory Hewitt: Good morning, team, and congratulations on the strong start to the year. Maybe first up, obviously a nice pop in gross margin. It sounds like the acquisitions were aiding in that. Should we anticipate a little bit more lift here in Q2? And longer term, how could that play out? Are you anticipating annual improvement in gross margins or is it more about driving operating leverage as you go forward? Robert A. Frist: Scotty, I will let you take that one to start us. Scott Alexander Roberts: Yes. Really, Matt, no significant expectation of improvement in gross margin. I think the 65.8% we delivered in Q1 was a little bit ahead of where we expected to be in the quarter, and it is just revenue mix. We got a little bit of improvement in revenue in the first quarter from a variety of things. Some of it is timing that we anticipated to come in, in, say, Q2 or Q3, that kind of moved forward in the year. Some of that is early activations from customers that we had sold in, say, Q4, and some consumption-based revenue, things like that that we pulled forward. So we got a little bit of improvement in margin because of that. Some of our ambitions for moving to the cloud could compress margins a little bit over time as we make some of those transitions, but that is still a good ways in front of us to see how that plays out. That is just something that is on our to-do list for this year, to begin this year anyway. Matthew Gregory Hewitt: Got it. And then maybe a question for you, Bobby, since you addressed it in your prepared remarks. You spoke to how AI is expected to drive increasing efficiencies with nurses. What do you think will be the downstream effect of that? Will that allow them more time to care for patients? Will that allow more time for them to work on their training and education? From a hospital’s perspective, if nurses are becoming more efficient, maybe they do not need to hire as many. I am just trying to think what the downstream effects of AI adoption by the nursing group would be. Thank you. Robert A. Frist: Overall, we see a shortage of nurses, and we see the early successes of the deployment of AI in our customer base around ambient listening, and ambient listening definitely frees up more time for the nurses and caregivers to spend with patients, which I think is greatly appreciated by all patients, and helps the health systems put a more friendly face on their adoption of technology. I think the early use and adoption is in areas that will directly impact the patient experience in a positive way. As far as demand for nurses goes, every report that I read seems to indicate that there is far more demand than there will be supply for the next five years plus. I do not see fewer caregivers. I see more, and a better opportunity to be more in the care delivery. We view that as an opportunity to be a close ally to all those health systems. We continue to expand the value that we provide with these career networks, helping health systems not just develop and retain the ones they have through our learning capabilities, but now helping find, identify, and match new talent for them to employ. We are servicing more of the continuum of the workforce need at a time of great need for more workforce. We think we are well positioned with the mixture of our product sets to be a great ally to these health systems. Matthew Gregory Hewitt: That is great. Thank you. Operator: Thanks for your questions. Our next question is from Richard Collamer Close with Canaccord Genuity. Your line is open. Richard Collamer Close: Hi. Just, Scotty, maybe a question on the revenue dollars, $3.4 million acquired revenue. Is it okay to annualize that to get the $13.6 million expected contribution from the acquisitions this year? I am just trying to get a sense of the organic growth that is embedded in the annual guidance. Scott Alexander Roberts: I believe our expectation, we mentioned this on last quarter’s call, was for the two acquisitions. We were targeting around $13 million for the full year. So maybe the annualization of Q1 might be slightly ahead of that $13 million, but I think $13 million is where we would still forecast it to. Richard Collamer Close: Okay. Great. That is helpful. Thanks for the reminder there. And you have been providing some commentary on the legacy license drag in the past. I am just curious if there is any update in terms of what the impact there was in the first quarter? Scott Alexander Roberts: One thing we did disclose this quarter was the amount of revenue from those legacy applications in the quarter. It was around $7.6 million. The decrease was around 16%–17% versus the first quarter of last year. We tried to give a little more color on the magnitude of that bucket of revenue relative to our consolidated revenue and also this continued rate of decline. We continue to look for opportunities to migrate those customers to the new applications. We do see some trade-offs there in that decline. Some of that is moving into CredentialStream and ShiftWizard, but there is still some attrition going on as well. Richard Collamer Close: Okay. And then I guess my final question: clearly, if you annualize the first quarter EBITDA, it gets you above the high end of the annual range. I appreciate you calling out investments. Maybe a little bit more detail on those investments and the timing of them. Is it spread out throughout the year? I am trying to better understand what the cadence of EBITDA will be from Q2 through Q4. Robert A. Frist: Let me start, and then Scotty can add some color. First, the first area of investment we looked at was the sales organization. We had a budgeted plan as we ended the year to hire the sales organization, and specifically, we have decided after this Q1 performance that we are going to add to that original plan. Even more specifically, in the Career Networks area, we think the products warrant a stronger and bigger sales organization, so we are going to go ahead and start building that in the first half of the year, particularly in Q2. From a timing standpoint, we are going to post some new positions in the sales area around our Career Networks and try to hire them. Second, the area is a high-growth area for us, and to keep it current, we are going to increase our planned investments in the technology infrastructure specifically around My Clinical Exchange. We have some work to do there. That was an acquired product originally. We have continued to enhance it. This will give us a chance to enhance it even faster and expand it. The constituent base for that is growing rapidly, and we want to make sure that it meets the needs of that expanding market. We have had some unique opportunities present in the market where we think we are well positioned against some competitors there, and now is the time to invest in both the sales organization and the technical infrastructure for that category of product. More specifically within Career Networks, for My Clinical Exchange we are putting more into the tech stack as well. Remember, that software has three constituent audiences: the students are a user, the nursing schools are a user, and the healthcare organizations are a user. It is a network-effect piece of software that has a market effect as the school adopts it, the hospitals in the region adopt it, and that gets the students to use it as well. There is a lot to do technologically, and we are going to increase our rate of investment in that tech stack. Richard Collamer Close: Is that front-loaded into the second quarter, or is all that spread out? Robert A. Frist: Part will be spread out and will include a mixture of CapEx and OpEx to enhance the platform and the application suite. The sales team will be as fast as we can hire and onboard them. We already have several open positions in the sales team we are trying to fill, so we are using some outside recruitment to go faster there, as well as our incredible internal teams to find the talent we need to staff it up. I would like to see that be front-half loaded on the sales organization so that we might get some back-half benefits. Certainly, we will get benefit early next year, but salespeople take a little bit of time to ramp up and get productive in closing deals. Richard Collamer Close: Alright. Thank you. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our next question comes from Vincent Alexander Colicchio from Barrington Research. Your line is open. Vincent Alexander Colicchio: Hey, Bobby. What differentiated ShiftWizard in the competitive takeout wins? Were any of the wins involving large enterprises with ShiftWizard in the quarter? Robert A. Frist: We did have some larger wins on a relative basis. They are not massive systems, but a 10 thousand-employee system went with ShiftWizard in the quarter. That was a huge win. We are seeing more of the larger to medium-sized—call them medium-large, not the supersized—health systems make that decision. That was nice to see a couple of wins there. In general, as I mentioned on the call, the vertical-specific nature of the software is more appropriate for this environment. We have a great long-term vision for the software as well. We are starting to outline a little bit more of that in some of the work we are doing to integrate our Career Networks with our scheduling systems, which is not done yet, but I think we are getting some excitement around the future direction of where we are going with this platform—integrating both our applications and, hopefully, also our Career Networks. Vincent Alexander Colicchio: Can you give us an update on your bundling effort in the small hospital market, and somewhat related, how is the Competency Suite doing in that part of the market? Robert A. Frist: In the smallest market, we are seeing a little bit of uptake. We created several market bundles specific to the skilled nursing space, the long-term care space, and the small hospital spaces, often called critical access hospitals. We are seeing some uptake. We are investing in the sales team there and getting some good bundle selling. We are pleased. The bigger bundles, as you pointed out, the Competency Suite, are really helping drive growth. I like adding the users of those smaller clinics because we are an ecosystem. We want all these healthcare professionals, because they may change jobs over time. We want them in our network, even at the small hospitals. But the revenue growth is coming from the bundling of the Competency Suite to the mid-market and bigger health systems. We are seeing uptake in the Resuscitation Suite when we see a medium to large health system switch to the Red Cross solution. The revenue growth contributions are coming from the mid-market and above. The small markets are very important to us. We are getting much better at both having the appropriate mix of products for them, and we view the market holistically. A clinician in an urban or rural market is important to have in our network, as well as the nurses in these rural centers, because they are mobile over their careers. We think of it as servicing the totality of the healthcare workforce, not just the urban centers. Vincent Alexander Colicchio: Thanks for all the color. Nice quarter. Robert A. Frist: Thank you. Operator: I am showing no further questions at this time. I would now like to turn it back to CEO, Robert A. Frist, for closing remarks. Robert A. Frist: Thank you, everyone, and especially to our little over 1.1 thousand employees who are delivering these great results. We have an exciting year in front of us and look forward to reporting the next earnings report here in another 90 days or so. We will see you throughout the quarter. Operator: Thank you for your participation in today’s conference. This does conclude the program, and you may now disconnect.
Operator: Good morning, and welcome to the Sotera Health Company First Quarter 2026 Earnings Call. All participants will be in listen-only mode. To ask a question, you may press star then 1 on a touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead. Jason Peterson: Good morning, and thank you. Welcome to Sotera Health Company’s first quarter earnings call. Today’s press release and supplemental slides are available on the Investors section of our website at soterahealth.com. This webcast is being recorded and a replay also will be available on the Investors section of the Sotera Health Company website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael B. Petras, and Chief Financial Officer, Jonathan M. Lyons. During today’s call, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health Company’s SEC filings and the forward-looking statements slide at the beginning of the presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to adjusted net income, adjusted net income, adjusted EPS, adjusted free cash flow, net debt and net leverage ratio, as well as constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company’s press release and in the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up. For further questions, feel free to reach out to the Investor Relations team. With that, I will now turn the call over to Sotera Health Company Chairman and CEO, Michael B. Petras. Michael B. Petras: Good morning, everyone, and thank you for joining us today. This morning, we announced a strong start to the year with 6.5% constant currency revenue growth and 6.9% constant currency adjusted EBITDA growth, driving over 20 basis points of margin expansion compared to the first quarter of last year. Sterigenics delivered 6.1% constant currency revenue growth in the quarter, while Nordion grew constant currency revenue 25.8% and expanded margins by over 290 basis points. Nelson Labs results were in line with the expectations we outlined on our last earnings call. Today, we are reaffirming our 2026 outlook provided during our February earnings call. As a reminder, we expect total company revenue to increase to a range of $1.23 billion to $1.25 billion, representing constant currency growth of 5% to 6.5% versus 2025, and adjusted EBITDA to grow to a range of $632 million to $641 million, or 5.5% to 7% constant currency growth. As we reaffirm our full-year outlook, I want to reiterate the strength and resiliency of our business model. We provide mission-critical regulated services that are deeply embedded in our customer supply chains. More than 70% of our revenue is supported by multiyear contracts servicing long-tenured customer relationships through a global network of facilities. Our commitment to customers is a core company value, and in 2025, we delivered substantial improvements in our customer satisfaction scores across both Sterigenics and Nelson Labs. Our business model has demonstrated its resilience over time, delivering consistent revenue growth for the past two decades across multiple economic cycles. We sit in a unique position in the healthcare supply chain and take our mission of safeguarding global health very seriously. Jonathan will get into the financial details in a moment, but first, I want to take the time to highlight some events that took place during the quarter. On the governance front, in addition to adding Rich Kyle to our board of directors in February, we are excited to welcome Ken Krausz, who joined our board in March. Ken’s leadership and proven track record of creating shareholder value as a public company chief financial officer for over ten years, combined with his extensive experience in strategy, finance, and governance, will be tremendous assets as we continue to grow. I would also like to thank Dean Meehos and Robert Canals, two of our private equity board members, for their service and contributions to Sotera Health Company. Dean recently completed his board service and Rob will transition off the board later this month. Both have provided valuable perspective and guidance, and we sincerely appreciate their impact over the years. In March, the private equity shareholders completed another secondary sale of existing shares, bringing our public float to approximately 90% of outstanding shares. Lastly, I want to briefly comment on some positive legal developments in Georgia. As a reminder, eight bellwether personal injury cases were selected into Phase 1 and Phase 2 causation proceedings where the court focused on the science. On 03/30/2026, the Georgia State Court dismissed the remaining five bellwether cases, as the plaintiffs could not prove general causation in the Phase 1 proceedings. As a reminder, the court dismissed the other three bellwether cases in October in the Phase 2 specific causation proceedings. All eight bellwether cases have now been dismissed and are subject to appeal. Although the March 30 order applies directly to the five Phase 1 pool cases, the court’s rejection of plaintiffs’ general causation theories is a critical issue common to all other personal injury cases. We believe this order underscores the lack of reliable scientific support for those remaining claims and should inform how the remaining cases are evaluated. We will continue to put sound science at the center of our defense as we stand behind the safety and importance of Sterigenics operations. As a reminder, developments related to EO can be found on our investors website. Now Jonathan will take us through the financials in more detail. Jonathan M. Lyons: Thank you, Michael. I will begin by covering the first quarter 2026 highlights on a consolidated basis and then provide some details on each of the business segments. I will then wrap up with additional details on our 2026 outlook. For the first quarter on a consolidated total company basis, revenues increased by 10% to $280 million, or 6.5% on a constant currency basis compared to the first quarter 2025. Net income on a GAAP basis for the quarter was $27 million, or $0.9 per diluted share. Adjusted EBITDA grew 10.5% to $135 million, or 6.9% on a constant currency basis, while adjusted EBITDA margins expanded over 20 basis points. Interest expense for Q1 2026 improved by $6 million to $35 million compared to the prior-year quarter. Approximately half of the improvement was driven by the term loan repricing and debt paydown completed late in 2025, with the remainder driven by lower interest rates. Adjusted EPS increased to $0.18 per share, an improvement of approximately 29% from the prior year. It was a strong first quarter overall, with results largely in line with our expectations, aside from some favorable timing in Nordion. Now let us go through the segment results. Sterigenics delivered 9.7% revenue growth to $186 million, or 6.1% on a constant currency basis. Favorable pricing of 4.5%, a foreign currency benefit of 3.6%, and improved volume/mix of 1.6% drove revenue growth for the quarter. Localized weather impacts in the U.S. during Q1 resulted in a 1.7% headwind to Sterigenics volumes versus the prior-year quarter. Segment income grew 9.6% to $96 million, or 6% on a constant currency basis, driven by favorable pricing, a foreign currency tailwind, and improved volume/mix, partially offset by higher costs. Nordion’s first quarter revenue increased 29% to $42 million, or 25.8% on a constant currency basis compared to the same period last year, driven primarily by increased volume/mix of 23.7% due to the timing of Cobalt-60 harvest schedules, along with foreign currency tailwinds of 3.2% and a pricing benefit of 2.1%. Nordion segment income increased approximately 36% to $24 million, or 33.1% on a constant currency basis, with segment income margins expanding more than 290 basis points to 56.4%, driven by higher volume/mix, foreign currency benefits, and favorable pricing, partially offset by inflation. Nelson Labs revenue declined 0.7% to $52 million, or 3.8% on a constant currency basis. Pricing benefits of 2.8% and a foreign currency benefit of 3.1% were more than offset by the change in volume/mix. Segment income decreased by 11.5% to $15 million, or 15.1% on a constant currency basis, with margins of 28%, reflecting lower volume/mix partially offset by favorable pricing and a foreign currency tailwind. Now I will touch on the balance sheet, cash generation, and capital deployment. In the first quarter, we generated $29 million in positive operating cash flow, inclusive of a $34 million payment for a previously disclosed legal settlement. We had positive adjusted free cash flow, which will accelerate throughout the year. Capital expenditures for the quarter totaled $46 million as we continue to make progress on our Sterigenics greenfield expansions, EO facility upgrades, and Cobalt-60 development projects. The company’s liquidity position remains strong; as of Q1 2026, we had over $900 million of available liquidity. Finally, we finished the quarter with a net leverage ratio of 3.2x, nearing our long-term target range of 2x to 3x. As Michael mentioned, we are reaffirming our 2026 outlook. To recap, we expect the following as compared to 2025: total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit. We expect adjusted EBITDA to improve to a range of $632 million to $641 million, representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be fully realized in the first half of 2026, with the second half impact expected to be approximately neutral versus the prior year. Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid- to high-single-digit constant currency revenue growth year over year, with the second quarter year-over-year growth similar to the first quarter of 2026. As a reminder, Q2 was our strongest quarter of growth in 2025. We expect Nordion to grow constant currency revenue in the low- to mid-single digits in 2026. Nordion’s first-half revenue is expected to represent approximately 40% to 45% of full-year 2026 revenue. For Nelson Labs, we expect full-year 2026 constant currency revenue growth to be in the low single digits, with a slight return to growth in Q2. Segment income margins at Nelson Labs are expected to improve throughout the year, resulting in full-year margins in the low- to mid-30s. Based on the current forward rate curve, we expect interest expense between $135 million and $145 million. We are projecting an effective tax rate applicable to adjusted net income in the range of 27% to 29%. We expect adjusted EPS in the range of $0.93 to $1.01. We continue to expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. On a weighted average basis, we expect a fully diluted share count in the range of 289 million to 291 million shares. Capital expenditures are expected to be in the range of $175 million to $225 million. We anticipate further net leverage ratio improvement in 2026. Finally, as usual, our guidance does not assume any M&A activity. Now I will turn the call back over to Michael. Michael B. Petras: Thank you, Jonathan. It has been my privilege to serve Sotera Health Company as CEO and Chair since 2016. With the company on strong footing after a decade of progress, I believe the time is right for a leadership transition that supports Sotera Health Company’s continued evolution. Following a thoroughly planned, board-led succession process, the board has appointed Alton Shader as Sotera Health Company’s new Chief Executive Officer, effective May 2026. Alton is a seasoned healthcare executive with significant experience leading and growing global healthcare organizations, including Viant Medical, Hillrom, and Baxter. In my new role as Executive Chair and as a meaningful investor in this company, I look forward to working closely with Alton to ensure a smooth and deliberate leadership transition. We have already started discussing priorities and the path forward for Sotera Health Company. I also will continue to be actively involved in investor relations and commercial and litigation strategies. As I transition to my new role, I want to thank our board for its guidance and support over the past decade. I want to thank our 3,100 employees for working with me and our leaders in continuing to make this company really special and a great place to work. I also want to thank our investors for your support since we took the company public in 2020. Rest assured, I continue to believe in and will remain engaged and committed to the long-term success of our company. With that, Operator, I would like to open it up for questions, please. Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on a touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Sean Dodge with BMO Capital Markets. Please go ahead. Sean Dodge: Hey, good morning. This is Thomas Keller on for Sean. First off, congratulations on the ten years, Michael. Thank you for taking the questions. I wanted to start off on Sterigenics and the realignment of the business around higher-growth end markets. Where are you all in that strategy? I imagine it takes some time to get the pieces in place internally for that, and then to win and onboard new business. Was there any benefit here from a volume or mix shift standpoint in Q1? Or is there anything contemplated in the full-year guide? Thanks. Michael B. Petras: Yes, thanks, Tom. That is something that we are focused on as an organization. As we look at our cross-business unit activity and our strategic selling activity, we are focused on those key segments. In the quarter, Sterigenics put up 1.6% volume and mix growth, and remember, we also had an impact from weather. We are happy with the first quarter. The beginning of the quarter started off slow with the weather, which we signaled when we talked last time, but it finished strong, and we are optimistic on the outlook as we go forward based on how March finished out and how we are starting out the second quarter. Sean Dodge: Okay, that is great. And then, from a capacity standpoint, where is the business in terms of utilization across different modalities, maybe versus historical averages? And with remaining expansions, do you have what you need to support potentially higher levels of growth for the next several years? Thanks. Michael B. Petras: Yes, thank you. We are in a good spot on capacity. By modality and by geography you will have some pinch points at a given point in time, but we target approximately 80% utilization and we are in a good spot. The teams have done a nice job operationally trying to get more out of our existing capacity. We have a facility that we will start to bring online later this year in the X-ray modality, and then we have another one scheduled for late 2027, early 2028, that we feel good about. Overall, our capacity situation is in a good spot. We are well situated and have been servicing our customers very well. I also referenced on the call that we continue to see good satisfaction scores. We just got the results for 2025, and we saw significant improvement year over year in both Sterigenics and Nelson Labs. We are going in the right direction and are encouraged by what we see going forward. Operator: The next question comes from Brett Fishbin with KeyBanc Capital Markets. Please go ahead. Brett Adam Fishbin: Hey, good morning, everyone. Just a quick question on Sterigenics. Q1 was generally expected to be the lightest quarter for that segment, and you somewhat exceeded expectations. Do you still see Q1 as being the lightest quarter of the year? And then as a follow-up, can you speak a little bit to what you are seeing within core med devices and bioprocessing volumes, specific to Sterigenics? Michael B. Petras: Yes, we saw a nice quarter out of Sterigenics. We would like to have seen it a little bit better, but we cannot control the weather. Last year we had a significant second quarter, as we have talked about in the past. We will see a good quarter here in the second quarter and consistent with the guide that we just provided. We are expecting similar constant currency growth to the first quarter. Med device had a solid quarter, and across all the end markets we serve, med device was solid. Bioprocessing was up significantly year over year again, but remember, it is a small portion of our total business, though it was significant growth over the prior year. Brett Adam Fishbin: Alright, thank you very much. That is helpful. Operator: The next question comes from Patrick Donnelly with Citi. Please go ahead. Patrick Bernard Donnelly: Hey, guys, thanks for the question. Michael, congrats on the move and the transition. On Sterigenics, can you talk about what you saw as the quarter progressed on the volume side and the visibility there? It feels like you are in a pretty good spot, but talk through the different markets and what you saw as the quarter progressed, and the expectations here going forward? Michael B. Petras: Yes, Patrick, January and February were a little softer, particularly weather related, but as the quarter progressed, March was the best month on volume we have had in the last three or four years. One month does not make a year, but we are optimistic about that, and April started out strong. We feel very comfortable in the guide we have given, and we are seeing nice growth. We expect that to continue as the year progresses with some of the things we have coming online. We have that X-ray facility coming online, we will see some growth from that, and we have a customer conversion that we have talked about previously that will start to impact late in the year. Overall, the level of engagement with our customers and some of the commitments that we see coming forth from them make us feel good about how Sterigenics is positioned coming out of the first quarter. Patrick Bernard Donnelly: Okay, that is helpful. And then on the margin side, can you talk through the moving pieces? Pricing is always a good lever for you. Any changes on that front? And how should we think about margins as we work our way through the year? Jonathan M. Lyons: Thanks for the question, Patrick. We feel good about the margins, as the guide implies. We saw margin improvement in the quarter, and we expect margin improvement for the year. That is really going to be driven by Sterigenics, where we expect to get some good operating leverage in the business, and really stable margins in the other segments. We are optimistic about the opportunity to see another year of margin improvement on the heels of our strong margin improvement last year. Operator: The next question comes from William Blair. Please go ahead. Analyst: Hi, good morning, and thanks for taking our questions. I will try to hit on the Sterigenics question another way. Excluding the weather impact, you did about 8% constant currency in Q1. You said you expect similar constant currency growth in Q2, even though April is off to a strong start and you do not have that weather piece. Is that slowdown relative to the 8% ex-weather just a comp issue? Is it conservatism? Or are there other factors we should be thinking about for Sterigenics in the second quarter? Thank you. Michael B. Petras: Thanks. The big thing, and I alluded to it in my prepared remarks, is that Q2 of last year was our strongest quarter of growth, so it is really a comp issue versus anything else. Analyst: That is helpful, thanks. And then one on Nelson Labs. You said it was in line with your expectations for the quarter. Can you help us think through testing growth versus Expert Advisory Services and, in particular, how much of a headwind the latter represented in Q1? And then on margins, they stepped down pretty significantly year over year, so help us understand the drivers behind that and the outlook for margins for that segment over the balance of the year. Michael B. Petras: As we communicated, Nelson Labs came in as we expected. Expert Advisory Services is the last quarter we had that headwind that we are lapping over. Testing volumes were down a little bit over prior year, but routine volumes are coming back, and our service has been outstanding in that area. As sterilization volumes go up, we will continue to see that correlation and strength on the routine testing side. It is not always one-for-one, but there is a correlation. On the validation side, we are starting to see some pipeline in some of the longer-term projects start to build as we go into the latter parts of 2026. We signaled that we see the margins coming to the low to mid-30s, which is consistent with what we have been talking about for the last many quarters around this topic. Analyst: Got it. Thanks again for taking our questions. Operator: The next question comes from Piper Sandler. Please go ahead. Analyst: Hey, everyone, and congrats on the announcement, Michael. I am going to attack Sterigenics from a slightly different lens. Growth and margins in Q1 were impressive, even in spite of the weather-related headwinds. As we look at the broader inflationary backdrop, can you help us think about the durability of Sterigenics margins through the year, and whether sustained cost inflation actually creates an opportunity to take incremental price throughout the year? Michael B. Petras: Thanks. We are not seeing significant inflation in that business. We continue to manage that well. Our key inputs are really around labor and then gas and cobalt, and we are in a good spot there. We have set pricing in such a way that we make sure our value get is positive. In the quarter, Sterigenics had about 4.5% price, which is slightly above the 4% that we have guided toward. We continue to see that business in a good spot and being rewarded for the value it brings to our customers, and we are not concerned about anything material on the inflation side as we sit here today. Analyst: Got it, thanks. And on that large customer onboarding that should come on this year, is there any more detail you can provide about sizing or how to think about the ramp through the rest of the year, and is that part of the guide? Michael B. Petras: Yes, that is assumed in our guide. It will come late in the year. It is a meaningful customer, but it is not outsized. We are not building a facility for that business. It is a significant win for us from both a morale standpoint and reinforcing the company’s value proposition. We have that built into our outlook for the rest of this year, and you will see it late in the year. Operator: The next question comes from Barclays. Please go ahead. Analyst: This is Sam on for Luke. Thanks for taking the question. Michael, congrats on the ten years with the company and best of luck as Executive Chair. I wanted to talk about the administration’s announcement to potentially scale back some of the ethylene oxide emissions regulations. Can you talk about the different scenarios that might come out of that and what the implications might be from a top-line perspective? That has been talked about as a potential opportunity with higher regulations on some smaller players in the industry. How might that affect CapEx spend in the near term and the long term? Michael B. Petras: Thanks, Sam, for your comments and questions. We are executing. We have spent approximately $200 million in Sterigenics over the duration on general facility enhancements for EO activity. The team is doing a very good job executing on that, and we should have the vast majority complete in 2026. There is a rule out there today that has another couple of years before requirements must be met, and now there is a new proposed rule out there. We are proceeding as if the rule that is in place is going to be the requirement, and our engineering teams are executing along those plans. I am not exactly sure how the administration will rule on this. Our job is to make sure we are operating in a safe and compliant manner and taking all actions to put the facility in the best place possible. We will provide comments, as many others in the industry will, on the new proposed rule. Based on what we saw in the proposed rule, they are still going to be tough restrictions. They are a little easier than the rule that was recently put out, but still tough and challenging. We feel very well positioned to meet those requirements. As far as creating opportunities for us, depending on the final rule and timing, that will determine how much opportunity. We have a couple of opportunities: one customer we referenced who is converting over to us, and some other smaller ones where we continue to have dialogue and see opportunity. That activity slowed a little over the last several quarters with uncertainty on the timing of the new rule requirements, but we feel very well positioned for whatever the rule may be, and we will continue to operate in a safe and compliant manner for all our stakeholders, employees, and communities. Analyst: Thank you. Maybe an unrelated follow-up on Nordion pricing. I think that came in slightly below the usual at about 2.1%. Anything significant to call out there? Michael B. Petras: No. We have a long-range guide for the company of 3% to 4%. We said Nordion would be on the low end of that, around 3%. It is just a matter of timing and customer mix on which customers got shipments within the quarter. We are fine on price execution in Nordion and across the business. Operator: The next question comes from J.P. Morgan. Please go ahead. Analyst: Hi, this is Jayden on for Casey. Could you walk us through your pricing assumption for 2026 and highlight if anything has changed by segment? I know you just mentioned Nordion, but anything else would be helpful. Thank you. Michael B. Petras: Nothing has changed from what we communicated previously. Price would be in the 3% to 4% range overall. Nordion will be on the low end of that range, Nelson will be on the low end of that range, and Sterigenics will be on the high end of that range. We do not see anything changing in our outlook on that. Analyst: Alright. Thank you. Operator: The next question comes from RBC Capital Markets. Please go ahead. Analyst: Hey, this is Kevin on for Ryan. Two quick ones for us. Was there any extra selling-day benefit in Q1 2026? If so, how much did that impact your growth rates? Michael B. Petras: No, very minimally. Analyst: Awesome, thanks. In 2025, you talked about your XBU customers growing ahead of total company growth. Can you comment on how XBU is performing in 2026 at this point and any opportunities you have to further accelerate that XBU penetration? Michael B. Petras: Thanks for the question. We had a good first quarter in that area and saw growth again. As I mentioned earlier, our customer satisfaction scores were very positive with significant improvement as well. Overall, the work is going very well in the XBU. Remember, there is a lot of strength around the embedded labs within Sterigenics, the Nelson Labs that coexist there. We continue to execute well in that area, so XBU is well situated. Analyst: Gotcha. Thank you. Operator: The next question comes from Wolfe Research. Please go ahead. Michael K. Polark: Good morning. Hey, Michael, congrats and good luck. I would have thought if you were making a transition you would have shed the investor relations hat so you did not have to deal with folks like me and my clients, but I was surprised to see that is still part of your ongoing commitment. Michael B. Petras: Trust me, I was trying to shed the litigation, but the board would not let me on that. You can imagine more fun things than defending multistate toxic tort cases. But yes, thank you, and please go ahead. Michael K. Polark: Two for me. In the quarter, appreciate the weather callout for Sterigenics. If I recall, part of the Q1 guidance also considered excess EO maintenance downtime. Would you flag that as a significant item in the quarter on Sterigenics volumes? And then for the rest of the year, what is the maintenance schedule across the network? Anything unusual we should think about for Q2, Q3, Q4? Michael B. Petras: One point to add is that the number of downtime days in the second half will be lower. Jonathan M. Lyons: I would not add anything other than to reiterate that point. Downtime days are a headwind year over year in the first half and a tailwind in the second half. Michael K. Polark: Helpful. And the second one: for Nelson Labs in the second quarter, you said “slight” return to growth. Is that about 1%, or something better? Michael B. Petras: I would think in that range or below. Michael K. Polark: Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference over to Michael B. Petras for any closing remarks. Michael B. Petras: Thank you. As we move through 2026, we are encouraged by our momentum and strengthened financial position. We remain confident in our ability to drive long-term growth, strong cash flow, and shareholder value. Our leadership in a large and growing market, global scale, regulatory expertise, accelerating free cash flows, and disciplined capital allocation position us well for sustainable growth. We look forward to seeing many of you at the conferences coming up this spring and early summer. Thank you for your continued support, and have a good day. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Jennifer K. Beeman: Good morning and welcome to Metallus Inc.'s first quarter 2026 conference call. I am Jennifer K. Beeman, Director of Communications and Investor Relations for Metallus Inc. Joining me today are Michael S. Williams, chief executive officer; Kristopher R. Westbrooks, president and chief operating officer; John M. Zaranec, executive vice president and chief financial officer; and Kevin Rakovich, executive vice president and chief commercial officer. You should have received a copy of our press release, which was issued last night. During today's conference call, we may make forward-looking statements as defined by the SEC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we described in greater detail in yesterday's release. Please refer to our SEC filings, including our most recent Form 10-Q which will be filed later today, as well as the risk factors included in our earnings release, all of which are available on the Metallus Inc. website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are included in the earnings release and the earnings presentation available on the Investor page at metallus.com. With that, I would like to turn the call over to Mike. Mike? Michael S. Williams: Good morning, and thank you for joining us today. I am encouraged by our team's continued focus on operational priorities, which strengthened our performance in the first quarter. Demand continues to improve across our end markets and our order book grew year over year supported by overall industrial and defense demand, decreasing distribution inventory levels, and onshoring. Section 232 tariffs continue to support our competitive position in the markets we serve. The April 2026 updates to these tariffs applied only to downstream steel-containing derivative products and do not affect our products, which are classified as primary steel. Most importantly, the 50% tariff on imported primary steel, including all long bar and tube products, remains in place, reinforcing the long-term competitiveness of U.S.-produced steel. The capital investments and operational system improvements we implemented during the planned shutdown period in the fourth quarter contributed to higher melt utilization on both a sequential and year-over-year basis. Our strategic operational advancements achieved critical milestones during the quarter, highlighted by the safe and successful reheating and rolling of the first blooms from our new bloom reheating furnace. This achievement reflects the dedicated efforts of our internal teams and the support of the Department of War. As a reminder, the new bloom reheat and roller furnaces facilitate more consistent reheating, improve product quality, and more efficient throughput. In fact, the bloom reheat furnace has recently demonstrated a run rate of approximately 150 tons per hour compared with approximately 100 tons per hour using our legacy assets, along with significant improvements in temperature uniformity. These modern and efficient assets position us to better serve growing customer demand across all end markets, and we anticipate they will also improve our operating leverage over time. We expect the bloom reheat furnace to be fully operational in early to mid-third quarter and the roller furnace to be fully operational in late third quarter. We also continue to make meaningful progress in strengthening our operating systems, reinforcing consistent, efficient execution across the organization. These institutionalized systems help our teams identify issues faster and drive greater accountability. During the quarter, we expanded this framework into additional areas focused on reliability and throughput. Safety remains a foundational priority for us and a critical factor in our long-term success. As always, we focus on eliminating serious injuries through stronger controls, training, and leadership accountability. Our health and safety management system continues to mature with stronger proactive reporting, increased near-miss identification, and targeted capability building in higher risk activities such as cranes, rigging, lockout/tagout, and machine guarding. This shift towards leading indicators and disciplined risk management reduces variability, lowers long-term cost, and protects our most important asset, our people. Turning to our first quarter performance, shipments increased by 11% sequentially. Adjusted EBITDA for the quarter totaled $24.6 million, reflecting a 39% increase compared to the prior year's first quarter. Again, this strong improvement underscores our disciplined execution against key priorities and operational improvements. Lead times continue to expand, now reaching into the late third quarter for both VARs and seamless mechanical tubing. This reflects strengthening demand for domestic steel and provides a clear signal of the momentum we expect to carry throughout 2026. Turning to performance across our key end markets, we are seeing industrial customers take a more deliberate look at how and where they source steel as they navigate a challenging macro environment. Shifts in trade policy and the reassessing of supply chains are driving increased demand with domestic suppliers. With inventories low across the distribution channels and select products returning from offshore sourcing, we are seeing increased opportunities. We believe these dynamics position us well to strengthen new and existing customer relationships and continue gaining share as industrial markets stabilize. Automotive demand remains steady, with volumes up slightly compared to the prior year. Our automotive order book and key customer relationships remain strong, supported by our continued focus on light truck and SUV transmission programs and our success in winning new and emerging platforms. For example, during the quarter, we won two additional programs with existing customers, reinforcing our confidence in the strength of the automotive markets we serve and the importance of our automotive customers to our base business. The energy markets we serve remain cautious, as producers continue to seek greater confidence in long-term oil prices before materially increasing investment. Ongoing global conflicts and geopolitical uncertainty are contributing to volatility in energy markets. But favorable trade-related tailwinds, reduced imports, and a gradual increase in domestic oil and gas activity are creating incremental opportunities for Metallus Inc. Turning to aerospace and defense, this market continued to be a key source of strength during the quarter. Due to confidentiality, it is always difficult for us to call out new defense programs by name, but what I can say is that we were recently awarded an exciting contract with a new entrant in the defense supply chain to begin producing tubing for new rocket motors related to advanced weapon systems. Demand across defense programs continues to grow, supporting our near-term $250 million run-rate revenue expectation and the longer-term strategic expansion in the market, allowing us to provide our expertise to existing and new customers in these critical applications. While defense shipment timing can vary quarter to quarter based on program needs and downstream supply chains outside of our control, the underlying fundamentals remain strong in the foreseeable future. We continue to advance targeted investments and operational improvements to support higher defense volumes. Metallus Inc. is well positioned to benefit from growing defense spending and the continued focus on developing secure domestic supply chains. Overall, we remain focused on disciplined execution in 2026. During the quarter, we improved operational performance, strengthened our internal systems, and safely advanced strategic investments that support our long-term objectives. Our growing order book, improving operational execution, and U.S.-based manufacturing footprint provide a solid foundation as we move forward. We will continue to prioritize safety, operational discipline, and prudent capital allocation as we work to deliver consistent performance and long-term value for shareholders. With that, I will turn the call over to John to walk through our financial results in more detail. John M. Zaranec: Thanks, Mike. Good morning, and thank you for joining our first quarter 2026 earnings call. During the quarter, our team delivered improvements in shipments, net sales, and profitability on both a sequential and year-over-year basis, consistent with our expectations. As Mike noted, we also safely advanced operational and strategic investments to support near- and long-term business growth while maintaining a strong balance sheet. From a top-line revenue perspective, first quarter net sales totaled $308.3 million, a year-over-year increase of $27.8 million or 10%, primarily driven by higher shipments across most end markets. Net income was $5.4 million in the first quarter, or $0.13 per diluted share. On an adjusted basis, net income was $7.7 million, or $0.18 per diluted share in the quarter. Adjusted EBITDA was $24.6 million in the first quarter, a year-over-year increase of $6.9 million or 39%. The increased profitability was primarily driven by higher shipments across most end markets, better price/mix, higher raw material spread, and better fixed cost leverage on higher production volume, slightly offset by an increase in utility cost and a partial quarter of the cost increase related to the ratified union contract. As a reminder, our previous favorable electricity contract expired in May 2025, so the first quarter of 2025 included a full quarter of lower energy costs. As we noted in February, we expected a usage of free cash flow during the first quarter, which is consistent with historical seasonality as the first quarter normally requires a larger amount of pension funding and working capital build. Additionally, this year, our CapEx spend to complete the government projects is the highest in Q1 and is expected to ramp down throughout 2026. In the first quarter, capital expenditures totaled $24.7 million, including approximately $18.3 million of first quarter CapEx partially funded by the U.S. government. Planned capital expenditures for the full year 2026 are expected to be approximately $70 million, inclusive of approximately $35 million of capital expenditures primarily funded by the U.S. government. At the end of the first quarter, the company's cash and cash equivalents balance was $104 million. As it relates to government funding, during the first quarter the company received $5.9 million of cash funding from the government, with an additional $9.5 million received during the month of April based on our successful completion of key milestones. As a reminder, these funds are part of the previously announced nearly $100 million funding agreement in support of the U.S. Army's mission of increasing munitions production. Additional government funding of approximately $2 million is expected to be received in 2026 to complete the government funding arrangements, contingent on the achievement of the final mutually agreed-upon milestone. As a reminder, this funding substantially paid for both the new bloom reheat furnace at the company's Faircrest facility as well as the new roller furnace at the Gambrinus facility. Now switching to pensions, in the first quarter the company made $19.8 million of required pension contributions, of which the majority related to the U.S. bargaining plan and reflects roughly two-thirds of the expected full year 2026 pension contributions. Subsequent to the first quarter, the company made a required pension contribution of approximately $5 million in April, with an estimated $5 million of required pension contributions expected for the remainder of 2026. Consistent with our expectations in February, total 2026 required pension contributions are expected to decrease by nearly 60% compared to 2025. As part of the USW contract ratified during the first quarter, employees who are currently accruing a pension benefit will have a one-time opportunity between March 30 and May 30 to freeze their pension accrual and begin receiving a market competitive benefit under the 401(k) plan. These actions will allow employees access to their retirement funds earlier while also providing competitive defined contribution benefits and derisking the long-term pension obligation. As we continue to actively manage the pension, we will provide further updates as available. In terms of shareholder return activities, in the first quarter the company repurchased approximately 277 thousand shares of common stock at a cost of $4.3 million. At the end of March, a balance of $85.4 million remained under our existing share repurchase authorization. Since the inception of common share repurchases in early 2022, combined with the convertible note repurchase activities, we have reduced diluted shares outstanding by a significant 26%, or 13.8 million shares. These actions reflect the strength of the company's balance sheet and confidence in through-cycle cash flow generation. As it relates to liquidity, total liquidity remains strong at $375 million as of 03/31/2026. Additionally, as of 03/31/2026, the company had no outstanding borrowings. Moving now to near-term business outlook, commercially, second quarter shipments are sequentially expected to increase modestly in the low single digits on a percentage basis, supported by continued strength in the order book and normal seasonality. Through the first four months of 2026, we announced a series of targeted price actions across our bar and tube portfolios. In bar, we implemented two actions totaling $120 per ton, phased in based on customer promise dates. In tube, pricing actions were differentiated by size and product types, averaging about $100 per ton across the product mix. As a reminder, these pricing actions apply only to business not sold under annual price agreements and to new business, which historically represents approximately 30% of our total annual volume. We expect price realization to be gradual, with greater impact toward the second half of the year, based on lead times and product mix dependent. Second quarter price and mix are expected to be similar to the first quarter, with improvement anticipated in the second half of 2026. From an operational perspective, the company anticipates a sequential increase in its second quarter average melt utilization rate, supported by a strong order book. Manufacturing costs are expected to improve sequentially by approximately $2 million in the second quarter, as a result of higher melt utilization resulting in improved cost absorption, and net of the full-quarter run-rate cost increase related to the ratified union contract. And finally, an adjusted effective income tax rate between 27–30% is expected for the full year 2026. Given these elements, the company expects second quarter 2026 adjusted EBITDA to be modestly higher sequentially and year over year. To wrap up, thank you to all of our employees, customers, and suppliers for their support. We are well positioned as a high-quality, U.S.-based specialty metals producer supporting critical markets. As we continue to move forward in 2026, our focus is on safe execution to meet continued rising customer demand. We remain committed to delivering shareholder value through disciplined capital allocation and sustained profitable growth. As always, thank you for your interest in Metallus Inc. We will now open the call for questions. Operator: To ask a question, simply press 1 on your telephone keypad. Again, that is 1 to ask. Our first question is from the line of John Edward Franzreb with Sidoti. Please go ahead. John Edward Franzreb: Good morning, everyone, and thanks for taking the questions. I would actually like to start with the recent results reported. You touched on it in your prepared remarks about it typically being a working capital outflow quarter, but I was just curious about the sizable rise in inventory. Is that illustrative of any particular end market demand, or are you building inventory for any particular reason? I am just curious about that. Got it. That is good to hear. Sequentially, you are suggesting that revenue is going to be up in the low single-digit range. I am kind of curious, does that suggest maybe one of your key end markets is a little bit slower than you would have thought, say, three months ago, especially considering the visibility you have in A&D? And one last question and I will get back into queue. Regarding the operational improvement of $2 million, I just want to make sure I understand that properly. Is that improvement above the increased cost from the new union contract, or does it net out the increased cost? So it is a net positive of $2 million off the wages. I just want to make sure I understand. Great. Alright. Thank you. I will get back into queue. Michael S. Williams: Yeah, so hey, John, how are you doing? Pretty much, you know, we build inventory in Q1 based on the order book demand going into Q2, and with our lead times out to mid- depending on product, to late Q3, we can see. So we are positioning inventory to service our customers. And we continue to see higher demands. As we mentioned, year over year the order book is over 40% greater, which, if you did a year-over-year comparison, is about 90 thousand more tons in our order book than we had this time last year. So we are positioning the inventory to meet the order demand that we have. I mean, I do not see anything slower. It is just the timing of when the orders are requested and when we need to ship them on time, aligned with our throughput capability. Yeah, it is net of the increased labor cost with the new labor agreement. John M. Zaranec: Yes, that is an all-in increase that is offset, yeah, that is offsetting the wages. Correct. Correct. Operator: Your next question is from Samuel McKinney with KeyBanc Capital Markets. Please go ahead. Samuel McKinney: Hey, good morning. Your first quarter auto shipments were up slightly year on year despite the negative SAR comp. Could you just give us a little more color on your ability to outpace that figure and what you are hearing from the SUV and heavy truck customers moving into the summer? And I just want to turn to A&D and the Army investment. Given other commentary during this earnings cycle, it appears that the Army's munitions partner does not plan to begin production at the facility until sometime during 2027. How does that impact the timing for you to hit your previously stated goal of $250 million in annualized A&D sales this year? Okay. So is there any change to the outlook of hitting $250 million in A&D sales this year? Right. Sure. Alright. Thanks, Mike and John. Michael S. Williams: Yeah, I mean, those are predominantly the platforms that we are on, and those are the platforms that are driving the demand where we have seen year-over-year order increases. So we expect that to be fairly stable at this point throughout the year, with some typical seasonality towards the end of the year. It is all about the platforms that we are on and the pull rate that they are requesting for their build rates of the powertrain and transmission programs that we are on. I mean, it definitely has an overall impact of them getting to the 100 thousand shells per month production, which then, of course, affects us. But what we are seeing is we have seen them ramp up their other facilities, as well as we have seen some non-U.S. demand—most of it is still in North America, just not in the U.S.—and then the offshore inquiries and orders that we are getting. So it affects it, but then we are working diligently to offset that with other weapon system applications. We mentioned the one new program we just got; it will most likely ramp up to its full demand in 2027, but it will ramp up throughout the year this year, and really hit the peak cycles in 2027 and 2028. But we continue to work hard to get other programs to kind of offset the original planning process with the new facility coming online for the particular 155 millimeter munitions. As I said earlier, we are seeing increased demand from existing facilities because they are really trying to ramp it up. If you look at the math, and we kind of calculate it based on what we sell in those particular grades, they are operating around 70 thousand shells a month right now toward their 100 thousand target, but that is up from 50 thousand six months ago. So we do anticipate, as they continue to push these other facilities to improve their throughput capacity, that that will continue to modestly increase throughout the year. And then, depending on timing when that other facility gets up and running, it is a win-win for us. No, we still have that expectation, as we said in our comments. There is some variability that we are working towards in the second half to fill some gaps, because we were anticipating some type of ramp-up out of the one facility that still is being worked on to get it up and operational. But we are still confident that we are going to hit that expectation. At least that we strive for higher, as you can imagine, internally. But right now, we are confident that we will meet that expectation. John M. Zaranec: That is a run-rate expectation. I mean, some of this is a little bit lumpy due to supply chain and order timing, but as we talked about last year, that $250 million is a run rate that we expect to achieve in the year. Operator: Your next question comes from the line of David Joseph Storms with Stonegate. Please go ahead. Dave, your line is open. David Joseph Storms: Is that better? Just wanted to start with getting your thoughts around lead times. I know you mentioned they go to the third quarter. With the ramping of the bloom reheat furnace, could this maybe be the high watermark and maybe lead times might start to come down throughout the year, or does the order book indicate that they might continue to increase? Understood. Appreciate that. And then just also looking at the order book, a lot of strength there. Are you seeing more of the growth coming from price or maybe more from mix, or is it volume that is expected to drive that? Just any commentary on maybe some of the profile of the order book. Understood. Thank you for taking my questions. Michael S. Williams: Right now, everything we can see—here we sit in early May—is the fact that we expect demand to continue to be really good. Now, we do expect that the seasonality that occurs in the fourth quarter is going to be there—our maintenance outage, etc. But right now, what we see, we are halfway through the third quarter, so orders continue to come in at a pretty good rate per week, and we expect that to continue. We just have to focus on our execution and serve our customers. I mean, overall, it is volume, okay? But our team does a pretty good job trying to manage and maximize the highest return value creation in mix as we can. The area we see—automotive continues to be steady. We continue to expect growth in A&D. And we expect energy—we have seen positive improvement in energy because of the trade environment and what we would call reshoring, but it is really domestic sourcing of supply. So we expect that to potentially continue to modestly grow. As you can imagine, there is a lot of volatility with all the uncertainty, the global conflict, etc., affecting the energy market, so we have to watch that very closely and align with our customers the best way we can. I think the biggest area of opportunity we see the remainder of this year is really steady growth in the industrial end markets. Operator: Our next question is from the line of Analyst with Northcoast Research. Please go ahead. Analyst: Thanks for taking my question here. One of the questions I really have is, you mentioned that your old energy contract was expiring and you have a new one. I was wondering if you could give us any more insights into the terms around that, and is that something that is typically paid on spot, or are those longer-term contracts? That is helpful. Thank you. And the other question I had is about the new tariffs that went into place on May 1 for automotive. Do you expect that to have a meaningful impact on automotive demand? I know it is typically not what we are importing from Europe. Is it a real lot of overlap with what you are applying to? I just was not sure in the past how that impacted you, and does that give any insights on what the market might look like here going forward? Super helpful. Thank you. I will turn it back over. Michael S. Williams: Okay. So we did have a long-term contract that expired at the end of last May. The contracts that we currently operate on: 70% of our electrical demand is fixed under a two-year agreement—we actually just began the second six months of year one—that will exist for two years. The other 30% is spot purchased. Well, we are heavily influenced based on build rates and platforms. Predominantly, most of our steel applications go into powertrains, particularly transmissions. Kristopher R. Westbrooks: Crankshafts, etcetera. Michael S. Williams: And we have heavily focused on SUVs and trucks, and those are the vehicles that are selling. That is why we are seeing good steady demand all last year throughout the volatility of the market, regardless of imports. And this year, we see the same thing with incremental improvement. What we are seeing is the move away from the high expected volume of EVs and more hybrid demand, which is good for us because it has a combustion engine and has a transmission, as well as electric motors. So that is the move we have seen. And I think it still plays well for us because we can play in all three of those platforms—ICE, hybrid, or EV. So I think we are in a good spot. Our team has done a pretty decent job of going after the right applications where, typically, the consumer price effect is not as influenced based on price movements, because these tend to all be high-end vehicles. Operator: I will now hand the call back over to Metallus Inc. as we have no further questions in queue. Great. Thank you so much, and that concludes our call for today. Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Greetings and welcome to Donnelley Financial Solutions, Inc. First Quarter Earnings Conference Call. 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. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Michael Zhao, of investor relations. Thank you. Michael Zhao: Morning, everyone, and thank you for joining Donnelley Financial Solutions, Inc. First Quarter 2026 Results Conference Call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results, copies of which can be found in the investors section of our website at dfinsolutions.com. During this call, we will refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further detailed in our most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company’s ongoing operations and is an appropriate way for you to evaluate the company’s performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I am joined this morning by Daniel N. Leib, David A. Gardella, and other members of management. I will now turn the call over to Daniel. Thank you, Mike. Daniel N. Leib: And good morning, everyone. We started 2026 by building on the positive momentum in our performance from the fourth quarter of last year, delivering consolidated net sales growth, year-over-year growth in adjusted EBITDA, adjusted EBITDA margin expansion, and improvements in both operating cash flow and free cash flow. We delivered first quarter net sales of $205.5 million, which increased 2.2% compared to 2025. The combination of consolidated net sales growth and cost management yielded first quarter adjusted EBITDA of $70.6 million and adjusted EBITDA margin of 34.4%, both of which are significantly stronger than historical periods with similar revenue profiles. Importantly, our strong operating performance was in the context of a volatile market environment during the first quarter, shaped by increased macroeconomic uncertainty and escalating geopolitical conflicts. Our first quarter results are further proof points to the progress of our transformation and demonstrate the resiliency of our operating model across various market conditions as our business mix continues to transform. I am encouraged by the continued growth in our software solutions offerings, where we delivered year-over-year net sales growth of 8.4%. Software Solutions net sales represented 44.6% of total net sales in the first quarter, an increase of approximately 250 basis points from last year’s Software Solutions net sales mix, despite a moderate increase in print and distribution net sales in the first quarter related to a large special proxy project. Despite this deal-related increase in print and distribution sales in the first quarter, our view on the long-term secular decline in the demand for printed products remains consistent, which we expect to be in the range of 5% to 6% annually, with fluctuations based on transactional volumes. On a trailing four-quarter basis, Software Solutions net sales made up 47.4% of total net sales, an increase of approximately 460 basis points from the first quarter 2025 trailing four-quarter period. This continued positive mix shift positions us well to achieve our long-term target of deriving approximately 60% of total net sales from Software Solutions by 2028. A major driver of the first quarter Software Solutions net sales growth was the performance of our recurring compliance software product ActiveDisclosure, which posted approximately 21% sales growth, marking the sixth consecutive quarter of double-digit sales growth. This sustained momentum reflects the continued growth in net client count and increases in average value per client, both of which are positive outcomes of our transition from a legacy ActiveDisclosure platform to New AD as well as improved sales execution. In addition, we continued to experience the migration of certain traditional activities to ActiveDisclosure, including an increase in the number of transactional documents and proxy statements being completed on the platform compared to last year’s first quarter, a trend we expect to continue going forward. Further, ActiveIntelligence, a suite of artificial intelligence capabilities we introduced to select ActiveDisclosure clients in the fourth quarter of last year, became available to all clients in April, representing a step forward in our mission to responsibly deploy AI to increase productivity and efficiency for our clients. ActiveDisclosure’s intelligent, fit-for-purpose capabilities, combined with the domain expertise and 24/7 support of our services organization, remains a strategic differentiator for Donnelley Financial Solutions, Inc. Venue delivered solid year-over-year sales growth of approximately 7% in the first quarter, driven by a resilient demand for data rooms. I am encouraged by the momentum in the commercial adoption of our new Venue product, which was introduced in the third quarter of last year, as the upgraded product continues to resonate with both current and prospective clients for its speed and simplicity. The rebuilt product redefines efficiency in data room initiation and management, is easier to govern access and permissions, and is more intuitive for deal teams to use. The improvements we have delivered in new Venue, combined with our strong go-to-market execution, have allowed us to access a broader range of clients and increase the size of our serviceable market. As the adoption of new Venue continues to ramp up, we expect the upgraded product to contribute to Venue’s growth in 2026. In addition, we remain excited by opportunities for ArcFlex, the newest module within ArcSuite, which was also launched in 2025. As momentum toward private investments increases and, with it, more robust reporting and disclosure management needs, we are seeing increased interest from private investment institutions, including hedge funds, private equity, and business development companies. As a financial and regulatory reporting solution purpose-built for private investment institutions, ArcFlex positions Donnelley Financial Solutions, Inc. well to capture incremental market demand in the private investment space. In a demonstration of our progress in this area, during the first quarter, we signed our first ArcFlex contract with an alternative asset manager utilizing ArcFlex to modernize its financial and regulatory reporting workflows. We expect the commercial activities around ArcFlex to continue to scale through 2026, resulting in more meaningful incremental revenues starting in 2027. Before I turn the call over to Dave, I would like to provide some perspective on Donnelley Financial Solutions, Inc.’s operating characteristics as we navigate an evolving external environment. Over the past several months, global markets have been impacted by elevated volatility driven by a combination of AI-driven uncertainty and geopolitical tensions. In that context, Donnelley Financial Solutions, Inc.’s operating model continues to be a point of strength and a source of differentiation. Let me highlight a few items behind our relatively stable performance amid the turmoil. First, we serve markets where demand is regulatory-driven and nondiscretionary, centered on mission-critical compliance and deal-related workflows for corporations and investment companies. As a result, more than 75% of our revenue is based on recurring and reoccurring sources, the majority of which is related to ongoing SEC compliance for corporations and investment companies, with the remainder, specifically Venue, serving a wide market that encompasses both announced and unannounced deals across public and private companies, which is inherently more stable than the market for completed M&A transactions. Our strong mix of recurring and reoccurring offerings provides stability during times of market volatility. Next, our unique hybrid model features a combination of software solutions, tech-enabled services, and print-related output, underpinned by Donnelley Financial Solutions, Inc.’s deep regulatory knowledge and domain and service expertise. The hybrid model differentiates from seat-based pricing models and domain expertise and execution, which contrasts with more narrowly focused point-solution and pure-play software providers. While we continue to invest in the growth of our software products, our traditional services and output-related offerings supplement Donnelley Financial Solutions, Inc.’s ability to work in ways our clients prefer, whether through software-led, service-enabled, or hybrid workflows backed by capabilities to produce outputs where needed, providing multiple ways to serve their needs as the regulatory landscape evolves. Finally, amid the AI-induced market volatility, Donnelley Financial Solutions, Inc.’s strong position as a leading regulatory and compliance provider and our hybrid offerings are important differentiators in the marketplace. During times of market volatility and technological disruption, our clients increasingly recognize AI as a productivity enhancer within Donnelley Financial Solutions, Inc.’s workflows, not a substitute for the platform itself or the expertise behind it. Compliance and disclosure remain mission-critical, highly regulated activities that require accuracy and accountability, and AI is most effective when deployed within that framework. As we responsibly integrate AI across both our products and internal operations, our focus remains on improving efficiency, reducing risk, and enhancing productivity while maintaining rigorous standards around security, privacy, and data governance. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our first quarter results and our outlook for the second quarter. Dave? David A. Gardella: Thanks, Dan, and good morning, everyone. As Dan noted, we continued to demonstrate positive momentum in our performance during the first quarter, highlighted by year-over-year net sales growth, an increase in adjusted EBITDA, and adjusted EBITDA margin expansion. We posted 8.4% growth in our Software Solutions net sales, including approximately 21% growth in our recurring compliance product, ActiveDisclosure. By continuing to execute our software-centric strategy, while also driving operating efficiencies, we expanded our first quarter adjusted EBITDA margin by approximately 50 basis points to 34.4%. On a consolidated basis, total net sales for 2026 were $205.5 million, an increase of $4.4 million, or 2.2%, from 2025. The growth in Software Solutions net sales, which increased $7.1 million, or 8.4%, compared to the first quarter of last year, combined with higher event-driven transaction revenue within Capital Markets, part of which was realized through an increase in print and distribution revenue related to a special proxy, more than offset the decline in Capital Markets and Investment Companies compliance revenue, the majority of which was related to a reduction in the demand for printed products consistent with recent trends. First quarter adjusted non-GAAP gross margin was 64%, approximately 30 basis points higher than 2025, driven by the growth in Software Solutions net sales, the impact of cost control initiatives, and price uplifts, partially offset by higher print and distribution volume. Adjusted non-GAAP SG&A expense in the quarter was $61 million, a $1.1 million increase from 2025. As a percentage of net sales, adjusted non-GAAP SG&A was 29.7%, a decrease of approximately 10 basis points from 2025. The increase in adjusted non-GAAP SG&A was primarily driven by an increase in selling expense related to higher sales volume, partially offset by the impact of ongoing cost control initiatives. Our first quarter adjusted EBITDA was $70.6 million, an increase of $2.4 million, or 3.5%, from 2025. First quarter adjusted EBITDA margin was 34.4%, an increase of approximately 50 basis points from 2025, primarily driven by higher Software Solutions net sales and cost control initiatives, partially offset by higher Capital Markets transactional print volume. Turning now to our first quarter segment results, net sales in our Capital Markets Software Solutions segment were $58.6 million, an increase of $6.7 million, or 12.9%, from the first quarter of last year, primarily driven by growth in ActiveDisclosure, which grew approximately 21%. Total subscription revenue increased by approximately 17%, primarily driven by the continued growth in client count and the ongoing adoption of ActiveDisclosure services subscription packages, while service and support revenue increased approximately 36% as we benefit from the continued migration of certain traditional activities to ActiveDisclosure, including the use case for corporate proxy and transactional filings. During the first quarter, we experienced a higher volume of corporate proxy documents and S-1 filings related to IPO transactions completed on ActiveDisclosure compared to last year’s first quarter. We expect this trend to continue in the future, driven by the capabilities of our software platform combined with the evolving client preference to work in a hybrid environment leveraging both our software and unmatched service and domain expertise. We remain encouraged by ActiveDisclosure’s solid foundation for future revenue growth, part of which will be influenced by the pace of traditional activities transitioning onto the platform. Net sales of Venue increased approximately $2 million, or 7%, compared to the first quarter of last year. On a sequential basis, the impact from large projects which aided Venue’s growth during the fourth quarter of last year was less significant during the first quarter. A resilient level of underlying activity taking place on the platform, coupled with our recent launch of new Venue, creates a strong foundation for future sales growth. Adjusted EBITDA margin for the segment was 32.8%, an increase of approximately 600 basis points from 2025, primarily due to higher net sales and cost control initiatives, partially offset by higher bad debt expense. Net sales in our Capital Markets Compliance and Communications segment were $82.8 million, a decrease of $1.1 million, or 1.3%, from 2025, driven by lower compliance volume, partially offset by higher transactional revenue. In the first quarter, we recorded $50.8 million of Capital Markets transactional revenue, which exceeded the high end of our expectations and was up approximately $2 million, or 5%, from 2025. The positive momentum in the equity deal environment, which had been building throughout 2025, continued to start the year, resulting in increases in the number of regular-way IPO transactions that raised over $100 million and completed public company M&A deals in the U.S. during January 2026 compared to 2025. However, as the quarter progressed, increased market volatility and escalating geopolitical tensions dampened deal activity in March, resulting in a slowdown in the number of deal completions, especially large IPOs. In short, the global deal environment in the first quarter remained soft compared to historical averages. For transactions that were completed in the first quarter, we maintained our historical market share, reflective of Donnelley Financial Solutions, Inc.’s strong market position. Specific to M&A activity during the quarter, we benefited from a large merger-related special proxy that included an outsized print and distribution component—specifically, the printing and delivery of shareholder communication documents. Capital Markets compliance revenue was down $3.3 million, primarily due to our continued exit of certain low-margin activity and the related print and distribution. In addition, we continue to experience lower market demand for certain event-driven filings such as 8-Ks, given the softness in that market. Finally, as I commented earlier, certain activities which were historically performed on our traditional services platform shifted to ActiveDisclosure. Adjusted EBITDA margin for the segment was 40.7%, a decrease of approximately 300 basis points from 2025. The decrease in adjusted EBITDA margin was primarily due to the higher mix of print and distribution sales, partially offset by cost control initiatives and lower bad debt expense. Net sales in our Investment Company Software segment were $33.1 million, an increase of $0.4 million, or 1.2%, versus 2025, driven by an increase in services revenue while subscription revenue was flat. As expected, ArcSuite’s first quarter growth remained more modest compared to the growth rate from last year’s first quarter, during which net sales increased approximately 20% year-over-year driven by the uplift from the tailored shareholder report solution. We expect a similar dynamic to play out in the second quarter of this year. As Dan noted earlier, we are encouraged by the early positive market reception of ArcFlex and expect meaningful incremental revenue starting in 2027. Adjusted EBITDA margin for the segment was 39.6%, an increase of approximately 50 basis points from 2025. The increase in adjusted EBITDA margin was primarily due to price uplifts and cost control initiatives, partially offset by higher service-related costs. Net sales in our Investment Companies Compliance and Communications Management segment were $31 million, a decrease of $1.6 million, or 4.9%, from 2025, driven by lower print and distribution revenue, which accounted for more than all of the year-over-year decline. Adjusted EBITDA margin for the segment was 39%, approximately 160 basis points higher than 2025. The increase in adjusted EBITDA margin was primarily due to favorable sales mix and cost control initiatives, partially offset by the impact of lower sales volume. Non-GAAP unallocated corporate expenses were $7.5 million in the quarter, approximately flat to 2025. Free cash flow in the quarter was negative $16 million, an improvement of $35 million compared to 2025. The year-over-year improvement in free cash flow was primarily driven by favorable working capital, part of which was a result of lower incentive-based payments related to 2025 incentive targets and lower capital expenditures. While our first quarter capital expenditures were lower on a run-rate basis compared to our annual guidance of $55 million to $60 million, we expect our spending to ramp up throughout the year, reaching the range stated in our 2026 guidance. We ended the quarter with $229.9 million of total debt and $203.8 million of non-GAAP net debt, including $121 million drawn on our revolver. As of 03/31/2026, our non-GAAP net leverage ratio was 0.8x. As a reminder, our cash flow is historically seasonal, though over time that seasonality has become less pronounced as our sales mix has evolved towards software subscriptions. Regarding capital deployment, we repurchased approximately 595 thousand shares of common stock during the first quarter for $28.3 million at an average price of $47.58 per share. During the second quarter, the Board of Directors authorized a new share repurchase program of up to $150 million with an expiration date of 12/31/2027. This repurchase authorization, which commenced on 04/17/2026, replaced the prior authorization which had $25.5 million remaining as of 03/31/2026. We continue to view share repurchases as an important component to drive value for shareholders and as part of our balanced capital deployment plan, which also features organic investments to drive future growth and net debt reduction. As it relates to our outlook for 2026, we expect the unsettled operating environment we experienced during the first quarter to continue, driven by market volatility and ongoing geopolitical uncertainty. Further, we expect the reduction in print and distribution revenue associated with our traditional compliance offerings we highlighted earlier to continue in the second quarter, which historically is comprised of a heavy mix of print and distribution sales driven by the annual proxy season. This component of our sales profile becoming less significant over time continues to improve our overall sales mix and facilitates our long-term margin expansion. With those factors as the backdrop, we expect consolidated second quarter net sales in the range of $215 million to $225 million and adjusted EBITDA margin in the range of 34% to 36%. Compared to the second quarter of last year, the midpoint of our consolidated revenue guidance, $220 million, implies a modest increase of approximately $2 million, or 1% year-over-year, as growth in Software Solutions net sales—predominantly ActiveDisclosure and Venue—and higher Capital Markets transactional revenue are expected to more than offset a continued decline in print and distribution net sales. Further, our estimates assume Capital Markets transactional revenue in the range of $40 million to $45 million, which at the midpoint is up approximately $8 million from last year’s second quarter. As a reminder, last year’s second quarter transactional revenue of $34.8 million represented an all-time low in quarterly transactional revenue. In addition, and related to my earlier comments regarding the impact of the transactional environment on certain compliance filings, most notably 8-Ks, our second quarter estimate assumes a modest year-over-year decline in our compliance-based sales within this segment, part of which is related to print and distribution. With that, I will now pass it back to Dan. Daniel N. Leib: Thanks, Dave. Our strong performance in the first quarter was the result of the historical and current disciplined execution of our strategy, which again demonstrated Donnelley Financial Solutions, Inc.’s ability to perform across varying market conditions. Our focus remains on accelerating our business mix shift by continuing to grow our SaaS revenue base while maintaining share in our core traditional businesses. We will continue to invest to drive growth and support clients. In addition, we will continue to aggressively manage our costs and drive operational efficiencies while maintaining our historical discipline in the allocation of capital. While uncertainty continues to exist within our broader operating environment, the combination of our strong market position, portfolio of mission-critical regulatory and compliance offerings backed by our deep domain expertise, and financial flexibility position us well. Before we open it up for Q&A, I would like to thank the Donnelley Financial Solutions, Inc. employees around the world. Now with that, we are ready for questions. Operator: We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Charles S. Strauzer with CJS Securities. Your line is open. Please go ahead. Charles S. Strauzer: Hi. Good morning. Thanks for taking my questions. A couple of questions. First, on guidance—if you could maybe expand a little more on the underlying assumptions for Q2, and what you are seeing in the external markets? David A. Gardella: Yeah. Charlie, it is Dave. Thanks for the question. So, look, I think from a transactional perspective, we said the guidance includes somewhere in the range of $40 million to $45 million, up significantly from last year’s second quarter. I think when you look at what we saw in the first quarter this year—just over $50 million—that started to soften, as we mentioned in the prepared remarks. January and February started out pretty nicely, and then March was much softer with some of the broader geopolitical uncertainty. So far, we have seen that continue throughout April and into May here. And so I think we are just taking a cautious approach on when that might come back. I do not know. Craig, do you have anything to add to that? Craig D. Clay: Yeah, Dave, maybe just to put an exclamation point on March: It was a real turning point. Only two times in history have filings declined sequentially from February. The first time was COVID 2020, and now the second is March 2026. So it just underscores how quickly volatility can change issuer behavior. As you turn to April and May, as Dave said, we are cautiously optimistic. It is building back. There have been 12 large IPOs that have priced in April, which is a nice number of $100 million-plus IPOs. Our share of that was 67%, so it highlights both the market share gain as well as the improved conversion as these issuances are accelerating again. I think another important note: Most of those issuers have adopted ActiveDisclosure as their platform post-IPO, so it reinforces the durability of these relationships beyond the transaction itself and the contracted recurring revenue. There are two IPOs in April that I think are giving the market some foundation. Madison Air, the largest IPO of the year, used ActiveDisclosure for their IPO, as Dave and Dan mentioned in their remarks. This transaction has really anchored April and hopefully gives the market some confidence. The next one is ArcSys, a defense contractor—an approximately $1.1 billion IPO in April—again furthering the investor appetite. Donnelley Financial Solutions, Inc. is proud to have supported three of the four $1 billion-plus IPOs this year: Madison, Forgem, and ARC. And their aftermarket performance has been pretty good. This week’s and next week’s calendar of IPOs that have said they expect to price is continuing to build. If all of this moves forward, it will equal Q1 for deals over $100 million. Donnelley Financial Solutions, Inc. has a robust pipeline of companies that have confidentially filed that are working through the process. We have a nice pipeline of IPO RFPs, so it suggests a normalized calendar as we move into likely the back half of 2026. Charles S. Strauzer: Great. And then just on the M&A side—clearly seeing some pickup there. With a kind of benign DOJ/FTC eye on things, are you seeing things percolating behind the scenes on that front as well? Craig D. Clay: Yes. Donnelley Financial Solutions, Inc.’s M&A business is a great opportunity. We deliver end-to-end support from deal ideation through announced public or private disclosure. Our virtual data room and M&A offering highlight how we support our clients from that early diligence through execution. Q1 was certainly dominated by a few mega deals—same issues with March that we talked about with IPOs. As you look at April and May, M&A momentum remains real, but I think narrow. We are seeing pitch activity and opportunity creation trending positively. So some of the same things you mentioned—we are excited about the future impact of that. Buyers are certainly prioritizing certainty right now, and the Venue forecast is to grow modestly. We had a large deal in 2025, and as Dan noted earlier, we are encouraged by the end-market performance of our new Venue. We believe we are positioned to capture this incremental demand going forward. When we say we have the newest Venue, it means we are acting as the disruptor. It has been built from the ground up. We are a strong number three in that marketplace, and we are positioned to take share as clients modernize their disclosure. So we are cautiously optimistic in the same way about M&A building throughout 2026. Charles S. Strauzer: Great. Thank you very much. Operator: Your next question comes from the line of Kyle David Peterson with Needham. Your line is open. Please go ahead. Kyle David Peterson: Great. Thank you, and good morning. I wanted to ask a little bit specifically on some of the SEC proposals on annual reporting. I know there are a lot of different puts and takes, and it seems like you have some insulation there. But any color you could give or thoughts on the impact if this does go through and gains a fair amount of adoption with U.S. issuers would be really helpful. Craig D. Clay: Yeah. This is Craig. We are closely monitoring, obviously, that development—moving from quarterly to semiannual. The SEC proposal is sitting with the Office of Management and Budget. That will be returned to the SEC. We expect that any day now, and soon after that, the proposed rule is expected to be posted for public comment. The Chair has commented several times on semiannual reporting—considering doing this for smaller companies, where perhaps semiannual might be more appropriate for them. So it is unknown what the proposed rule will be. At this stage, whether it is semiannual or not, we likely will see as much or equal or more disclosure. Whether the SEC continues to require quarterly earnings 8-Ks for large accelerated filers remains to be seen. You also have to weigh how the public debt obligation will factor into this. If a company has public debt, they have to report quarterly. Likely it is just easier to continue that process. You can look to Europe—companies there are given a choice. Half are doing semiannual. If they do that, they often are doing quarterly calls and quarterly disclosures that are as large or comprehensive as before. So what the actual adoption is going to be and what the proposal is—we do not know. But what is important is the vast majority of our 10-Qs are prepared in ActiveDisclosure, which operates on a subscription model, long-term contracts, and that subscription model helps insulate us from changes in filing frequency. So, again, closely monitoring it. We think any regulatory change is a positive for us. Kyle David Peterson: Okay. Appreciate all the color there. That is really helpful. And then maybe I wanted to switch over into the softness that you talked about on the 8-K filings. I apologize if I missed this, but could you give any more color on what is driving the softness? Is there actually less activity, or is there more competition? What is the delta there? David A. Gardella: Yeah, Kyle, I was just going to say it is really tied to the 8-Ks associated with Capital Markets transactions—so the ancillary filings as the transactions progress. We characterize the 8-K as a compliance filing, separate from the transactional activity, but there is some carry-on effect of the lower transactional activity in the market down to some of these 8-Ks and the like. Kyle David Peterson: Okay. Thank you for the color. And then just last one for me. The SG&A did run a little high this quarter. I know it sounds like there was some additional selling expense. Looking at the implied expense guide for the second quarter, it looks like you get some efficiency back. I know you mentioned some other cost savings. Was there any timing effect on that extra selling expense, or is that the benefit of the cost savings that are already starting to kick in? Any more insight or context into what is driving the operating leverage would be very helpful. David A. Gardella: Yeah, I will take that one, Kyle. When you look at SG&A, certainly, like you said, up modestly year-over-year. When you look at it as a percent of sales—down modestly. So it is a lot driven by the mix of revenue coming through. With the higher software sales, you tend to have higher gross margin, which we saw in the quarter—up about 40 basis points. Then when you look at the SG&A line, some additional SG&A comes in, but all in, the 50 basis points of EBITDA margin expansion obviously contemplates all that and is really driven by the mix. From a timing perspective, I would say nothing abnormal. There are always some small puts and takes, but nothing outsized in the quarter. Based on the guidance that we gave for Q2, probably a fairly similar trend in terms of SG&A dollars—year-over-year, a modest increase—and SG&A as a percent of sales pretty close to the comps since last year. Kyle David Peterson: Okay. Great. Thank you very much. Operator: Your next question comes from the line of Charles S. Strauzer with CJS Securities. Your line is open. Please go ahead. Charles S. Strauzer: Hi. Just a quick follow-up. On the conversation you were having about AI earlier, what is the general appetite from your client base in terms of inquiries about AI offerings that you may have or are planning to have? It seems that AI tools could be a highly complementary fit for the underlying software programs that you have as well as the transactional side. Any thoughts there? Daniel N. Leib: Yeah, Charlie, I can start off. I think it is multifaceted, and it is something we are experimenting with. Specific to the question on client interest, I would say the interest is really high—as it is across all industries. As we have rolled out ActiveIntelligence and been able to get insights from our clients as well, clients want to be absolutely sure from a security, governance, and data perspective that everything is secured. There will be no leakage. Obviously, the work we do from a compliance standpoint needs to be 100% correct. That is also a consideration. But like elsewhere in corporate America, the interest is extremely high. We are looking at it both on the internal side and breaking it into three buckets. On the internal side, we rely a lot on our vendors who have incorporated artificial intelligence within their offerings. For things that are proprietary for Donnelley Financial Solutions, Inc. on the internal side, we are looking at our own opportunities to build and drive efficiencies and serve clients better. On the product side, we view it as not a feature, but a core part of the offerings—again, with all my comments around the needs for governance, security, etc. It is certainly not going away. We think there will continue to be advancements that will be helpful to us. We have talked about vertical software and the service that wraps around it that is helpful and can thrive in an artificial intelligence environment. I will see if anyone else on the team wants to weigh in further. Craig D. Clay: Dan, I will add some context on ActiveIntelligence. ActiveIntelligence is in the market. Clients are not relying on Donnelley Financial Solutions, Inc. simply for a tool, but for an outcome. We really see that playing out with ActiveIntelligence—our AI capability embedded in ActiveDisclosure. It is streamlining client research, comparison, and analysis of SEC filings. A client recently said to us that they used ActiveIntelligence for their 10-K and quickly proved its value. The peer analysis surfaced disclosure that the client had not traditionally included, and having this visibility across peers built confidence in their decision to trust in that disclosure. So artificial intelligence at Donnelley Financial Solutions, Inc. and in ActiveDisclosure is really a force multiplier. Embedding it into our mission-critical compliance workflows is strengthening client trust, increasing switching costs, and reinforcing our position at the center of that. ActiveDisclosure is a system of record embedded in this high-consequence workflow. It is an excellent opportunity for us to be at the center of this, where accuracy and trust are nonnegotiable, and we think that we are positioned to become even more essential. Charles S. Strauzer: Great. That is helpful. Thank you. Operator: There are no further questions at this time. I will now turn the call back to Daniel N. Leib for closing remarks. Operator: Dan, over to you. Daniel N. Leib: Thank you, Kara, and thanks everyone for joining. We look forward to connecting in the near term. I will pass it back to Kara to close it out. Operator: Thank you. This concludes today’s call. Thank you for attending, and you may now disconnect. Unknown Speaker: Thank you.
Operator: Hello, everyone. Operator: Thank you for joining us and welcome to the Equitable Holdings, Inc. Q1 2026 Earnings and Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Erik James Bass, Chief Strategy Officer and Head of Investor Relations. Erik, please go ahead. Erik James Bass: Thank you. Good morning, and welcome to Equitable Holdings’ first quarter 2026 earnings call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the Safe Harbor language on Slide 2 of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings, Inc.; Robin Matthew Raju, our Chief Financial Officer; Nicholas Burritt Lane, President of Equitable Financial; Onur Erzan, President of AllianceBernstein; and Tom Simioni, Chief Financial Officer of AllianceBernstein. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found on the Investor Relations portion of our website and in our earnings release, slide presentation, and financial supplement. We will also refer to the pending transaction with CoreBridge. Any statements about the transaction made during this call are not an offer of securities. A registration statement containing a prospectus will be filed with the SEC in connection with the transaction. I will now turn the call over to Mark. Mark Pearson: Good morning, and thank you for joining today's call. The first quarter marked an extraordinary moment in Equitable Holdings, Inc.'s 166-year history with the announcement of our planned merger with CoreBridge, which will create a world-class platform to help our customers plan, save for, and achieve secure financial futures. This morning, I will spend some time discussing why we believe that by leveraging the complementary strengths of Equitable Holdings, Inc. and CoreBridge, the combined company will deliver tremendous value for both our customers and shareholders. On Slide 4, I will start by providing a few highlights from our first quarter results. We reported non-GAAP operating earnings of $1.62 per share, or $1.68 per share after adjusting for notable items. This increased 25% versus 2025, driven by healthy organic growth momentum, improved mortality experience, and a lower share count. We continue to expect earnings per share growth to exceed the high end of our 12% to 15% target range in 2026. Assets under management ended the quarter at $1.1 trillion, up 9% year over year. While equity markets declined modestly in the first quarter, they have since recovered, and higher average AUM versus 2025 levels should continue to provide a near-term tailwind for earnings. Our balance sheet remains a core strength with a combined NAIC RBC ratio of approximately 475% and $1.2 billion of holding company liquidity. Our credit portfolio continues to perform well, and as Robin will walk through, we are positioned to handle even a severe stress scenario. We remain committed to being a consistent returner of capital and executing the share buybacks assumed in our 2026 financial plan. Turning to organic growth, we see good momentum in retirement sales and flows even as the level of competition has increased. Total sales increased 10% year over year, driven by strength in RILAs, and we had $1.3 billion of net inflows. Wealth Management delivered another strong growth quarter with $2 billion of advisory net inflows. Over the last 12 months, the business produced a 13% organic growth rate. During the quarter, we also closed on the acquisition of Stifel Independent Advisors, which is a good example of how we can use bolt-on M&A to help scale our wealth management business. Asset Management earnings grew 11% year over year, driven by higher AUM and increased ownership. AB had net outflows of $7.1 billion in the first quarter, driven primarily by active equities and taxable fixed income. Private Wealth and private markets remain bright spots, as both had positive flows in the period. Total private markets AUM increased 13% year over year to $85 billion, and AB remains on track to meet or exceed its target of $90 billion to $100 billion in AUM by 2027. While near-term flows may remain volatile, AB has a record institutional pipeline of nearly $28 billion, which includes several large insurance mandates that will fund over the next few quarters. AB will also be a meaningful beneficiary of the CoreBridge merger as we expect it to receive at least $100 billion of incremental assets over the next few years. As I will walk through over the next few slides, the motivating factor behind the CoreBridge merger is our belief that it will accelerate our growth strategy and position us to be a long-term winner across all the markets we compete in. The companies have complementary strengths with limited overlap across products. We have already begun the integration planning process and have high confidence in achieving at least $500 million of expense synergies. As a result, the merger will be immediately accretive to earnings per share, and we expect to deliver 10% plus accretion on a run-rate basis by 2028 with potential upside from revenue synergies. Moving to Slide 5, before talking about the merger, I want to highlight five attributes we believe are critical for long-term success and which we use when evaluating any strategic option, including this merger. Underlying everything, of course, is providing an exceptional customer experience. Companies that are easy to do business with and offer the products and advice needed to transform complex financial risks into simple, reliable outcomes will attract clients and distributors. Developing deep brand loyalty will help create predictable and growing value for shareholders. Second, in intermediated markets like financial services, having strong distribution is critical as clients want local access to expert, personalized advice. Privileged shelf space, particularly in channels with high barriers to entry, provides a meaningful competitive advantage in acquiring new customers while also managing the cost of funds. Third is the imperative of competitive scale. Size matters. Being able to invest in technology and automation will improve efficiency and result in lower unit costs and a lower expense ratio. This provides capacity to reinvest in growth while simultaneously delivering higher profit margins. Fourth, we know that shareholders value consistent growth in earnings and cash flow across different market cycles, and having diversified sources of earnings and capital enhances the ability to deliver this. Disciplined risk management is also critical to give clients and investors confidence in the resilience of the balance sheet, especially during periods of macro uncertainty and market stress. Finally, we see significant value in owning insurance, asset management, and wealth management businesses to participate in the full value chain and benefit from the significant demographic tailwinds driving growth across each of these markets. It also means that shareholders capture the high multiple fee earnings generated by distributing and managing the assets associated with insurance and retirement solutions that are manufactured. By attracting the very best talent, and aligning to these five convictions, we ensure that when our clients win, our shareholders win. Turning to Slide 6, I will highlight why the merger with CoreBridge aligns to these convictions and will drive growth and shareholder value. The merger brings together three outstanding franchises to create a diversified financial services company with over 12 million customers, $1.5 trillion in AUMA, and leading positions across retirement, life insurance, asset management, and wealth management. Equitable Holdings, Inc. and CoreBridge complement each other well with different strengths and limited overlap. We intend to capitalize on our scale advantages to reduce unit costs and achieve a lower cost of capital. We expect to have a top-quartile expense ratio and will be able to combine our resources when making growth investments. This will make us more profitable, drive more cash generation, and increase our return on capital. We will have formidable distribution capabilities and leading positions across the retail, institutional, and worksite channels. The depth and breadth of our distribution should enable us to expand our offerings while achieving a lower average cost of funds, resulting in more profitable new business. We will also have flexibility to allocate capital where we see the best risk-adjusted returns and customer demand. In addition, our integrated business model allows us to capture the full value chain by acting as a product manufacturer, distributor, and asset manager. This differentiates us from our competitors, most of whom only participate in one or two of these verticals. While the merger will shift our mix more towards retirement, it also helps scale AB and Wealth Management, enhancing the value of these high-multiple businesses. We remain focused on maximizing the flywheel benefits inherent in our model. Finally, the new Equitable Holdings, Inc. will have a robust balance sheet and is expected to generate over $4 billion of cash flow annually. We are aligned in having strong financial principles that govern how we operate, starting with economic management of the balance sheet and a focus on cash generation. Ultimately, we want to produce consistent results and cash flow across market cycles so that we can provide attractive returns to shareholders while also investing for growth. I will conclude on Slide 7 by providing some clear examples of how the merger will help accelerate growth across all our businesses. Starting with Retirement and Institutional, the combined firm will have approximately $540 billion of AUM and unmatched breadth across products and distribution. We knew that Equitable Holdings, Inc. would need to become more diversified over time in order to fully participate in the growing U.S. retirement market, and combining with CoreBridge makes us a top-three provider of fixed and indexed annuities and expands our institutional capabilities, notably in pension risk transfer. It also adds a strong life business that provides earnings and capital diversification and should benefit from selling through Equitable Advisors. In addition, the merger doubles our third-party distribution network to approximately 900 firms, expanding our ability to reach new customers. The combined firm will originate $70 billion to $80 billion of liabilities annually, highlighting the size and scale of our platform. We will have a more balanced business mix that provides liquidity benefits and positions us well to generate consistent growth across market cycles while deploying capital where we can earn the most attractive returns. Moving to Asset Management, AB will also benefit from the merger in multiple ways. We expect AB to add at least $100 billion of CoreBridge general and separate account assets over the next couple of years, resulting in total AUM of nearly $1 trillion. AB will also benefit from the combined firm's increased liability generation, which should drive higher ongoing net inflows. We also see an opportunity to commercialize some of CoreBridge's internal asset origination capabilities, particularly for real estate and commercial mortgage loans, by leveraging AB's global distribution. Over time, we expect to find additional sources of incremental revenues and net flows, including the potential to develop new commercial partnerships. Lastly, the addition of CoreBridge Advisors accelerates the path to scaling our Wealth Management business and adds approximately $20 billion of AUA. The merger will expand our proprietary product offering to include fixed and indexed annuities and indexed universal life, which will be a win for advisors, particularly our emerging sales force. We will have a more attractive platform and more financial resources, which should enhance our ability to recruit and develop new and experienced financial advisors. Overall, the key message I want to leave you with is that having increased scale will provide competitive advantages that translate into stronger and more consistent growth and enhance our profitability. I will now turn the call over to Robin to highlight the financial benefits from the merger and discuss our first quarter results in more detail. Robin Matthew Raju: Thanks, Mark. I want to echo my excitement about the merger and the ways in which we will accelerate our growth strategy and deliver attractive financial outcomes for our shareholders. On Slide 8, we highlight some of the key financial benefits. First, the combined company will have a robust balance sheet with significant capital. As of year-end 2025, pro forma GAAP book value exceeded $30 billion, and the companies had over $25 billion of statutory capital. The pro forma leverage ratio is approximately 26%, which provides financial flexibility. Second, we will have a more diversified business mix with equal contribution from fee and spread-based earnings. This should help us generate more consistent earnings in different market environments. Third, we project at least 10% accretion to EPS and cash generation on a run-rate basis by year-end 2028, driven by expense, capital, and tax synergies. We also expect to have a 15% plus return on equity. These projections do not include any benefit from the anticipated revenue synergies. Finally, we forecast over $5 billion of annual earnings power and over $4 billion of cash flows to the holding company, which will make us the most profitable company in the sector based on U.S. earnings. Turning to Slide 9, I will provide some more detail on first quarter results. On a consolidated basis, non-GAAP operating earnings were $472 million, or $1.62 per share, and we reported net income of $621 million, or $2.14 per share. Notable items in the quarter included $32 million of below-plan alternatives and a $13 million benefit from the purchase of tax credits. Adjusting for these items, non-GAAP operating earnings per share was $1.68, up 25% year over year. This is consistent with our earnings per share growth guidance of above 12% to 15% for 2026. The 25% increase in earnings per share was driven by a 9% year-over-year increase in total AUM/AUA, lower mortality claims, the benefit of our increased ownership stake in AllianceBernstein, and a lower share count, which reflects the incremental buyback executed following the RGA transaction. In 2026, our alternatives portfolio, which is 2% of our general account, produced an annualized return of 3.5%, with results pressured by lower CLO equity returns. Given weaker market conditions in the first quarter, we currently project our portfolio to have a return of 2% to 3% in the second quarter. While it is premature to predict what will happen in 2026, based on the lower returns for the first half of the year, we now expect a full-year return to be below our prior 8% to 9% guidance. Adjusted book value per share ex-AOCI with AB at market value was $34.70. We view this as a more meaningful number than reported book value per share, which significantly understates the fair value of our AB stake. On this basis, our adjusted debt-to-capital ratio was 24.5%, down 40 basis points sequentially. On Slide 10, I will provide some more details on segment-level earnings drivers. In Retirement, first quarter earnings, excluding notable items, were $394 million. Net interest margin, or NIM, increased 3% sequentially, as lower alternative investment income was offset by growth in general account assets. Excluding alternatives, our NIM spread improved by 5 basis points sequentially, helped by a 4 basis point benefit from a modest recovery in MVAs. This reverses the downward trend in spreads we experienced over the past year and supports our view that spreads are beginning to stabilize. On a sequential basis, the growth in NIM was partially offset by lower fee-based revenues as market declines pressured average separate account AUM. Turning to Asset Management, AB reported earnings of $140 million, up 11% year over year, as a result of higher base fees and our increased ownership percentage. While base fees benefited from a 7% year-over-year increase in AUM, this was partially offset by a lower fee rate due to a shift in asset mix. As expected, performance fees were relatively modest in this quarter, but we raised our full-year forecast from $95 million to $115 million. Moving to Wealth Management, we experienced strong year-over-year growth in advisory fees and transaction revenues, driving a 22% increase in earnings. As a reminder, fourth quarter 2025 results benefited from favorable one-time items, and this quarter we had seasonally higher expenses and a couple of million of costs related to the Stifel acquisition. We still expect double-digit earnings growth in 2026. Finally, Corporate and Other reported a loss of $98 million in the quarter, after adjusting for notable items, which is consistent with our 2026 guidance. Mortality was slightly favorable in the quarter and improved versus previous periods. On Slide 11, I will highlight Equitable Holdings, Inc.'s strong balance sheet and cash flows, which enable us to be a consistent returner of capital to shareholders. We know there has been a lot of focus on credit risk, so we have updated our investment portfolio stress test to reflect our holdings as of year-end 2025. This assumes a hypothetical severe credit stress scenario at least as bad as the global financial crisis and a decline of 40% in equity markets. We estimate slightly less than a 50% decline in RBC ratio, which from a starting point of 475% still leaves us comfortably above our 400% target. As a result, we are well positioned to handle a potential downturn in credit markets. That being said, today, we do not see any signs of weakness in our portfolio. In the appendix, we provided updated disclosures on our private credit portfolio, which represents 18% of our general account and is 95% investment grade assets that match well against our liabilities. Let me now turn to cash. We ended the first quarter with $1.2 billion of cash at the holding company, above our $500 million target, and we remain on track to achieve our target of 2026 cash generation of $1.8 billion. During the first quarter, we returned $223 million to shareholders, including $147 million of share repurchases. We were blacked out from buying back shares for the second half of the quarter due to the merger with CoreBridge, which depressed our payout ratio for the period. We remain committed to delivering our 60% to 70% payout ratio target for 2026 and recognize that share buybacks look extremely compelling at the current valuation. We plan to be in the market purchasing shares during the open windows between now and the closing of the transaction. On Slide 12, we show a timeline with key dates related to the merger and a specific time period of when we will be able to repurchase stock. Both Equitable Holdings, Inc. and CoreBridge trade at a significant discount relative to where we believe they should be valued, making buybacks meaningfully accretive to shareholders. As a result, you can expect that we will be active in the market during the windows that are available to us. We expect to file the initial merger proxy statement today after market close, and we can repurchase shares from that point until we mail the final proxy. There is not a set date for that mailing, but we do not expect it to occur until at least early June. We would then be able to repurchase shares again after the shareholder vote. If any repurchases from our 2026 capital plan are not completed prior to the merger close, we plan to execute them as part of an ASR shortly after the closing. As a reminder, the exchange ratio for the merger is fixed and will not be affected by any share repurchases executed by either company. I will now turn the call back over to Mark for some closing comments. Mark? Mark Pearson: Thanks, Robin. Equitable Holdings, Inc. delivered solid first quarter results, and we remain confident in achieving our EPS growth and cash generation guidance for 2026, even with the volatile market backdrop. Looking forward, I am incredibly excited about the powerhouse franchise we are creating through the merger with CoreBridge. As we have talked about this morning, the combined company will have the scale, distribution strength, and product breadth to deliver differentiated growth and returns. I am confident that this merger positions us to win with customers and deliver superior value to shareholders over time. We will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Wesley Carmichael with Wells Fargo. Your line is open. Please go ahead. Wesley Carmichael: Hey, good morning. Thank you. My first question was on the Retirement segment, and you had a pretty good earnings result in the quarter. Previously, I think you talked about spread compression abating in 2026, at least on a percentage basis. Do you still think that is the case given the mix of the book here, and could you talk a little bit about what you are seeing on the cost-of-funds side from a competitive dynamic? Robin Matthew Raju: Sure, Wes. Thank you for your question. We were happy to see spreads stabilize here in the first quarter. If you look quarter over quarter, spread income/NIM was up $11 million quarter over quarter. If you exclude alts, it was up even more, and excluding some of the MVA benefit, it was up about 1 basis point net. So if you look at it, it was about 1.69%, and I think that is the level you can probably expect at this point, and you can expect spread income to grow as the general account, excluding embedded derivatives, grows. The two primary factors that you see are, yes, with the abatement of some of the higher-margin in-force that has run off, that is a smaller part of the business mix, but also the discipline in the new business underwriting that we are seeing. Despite what you hear on the competition, RILA sales were up 14% year over year, and the pricing discipline has been maintained and the margins have been good. So the combination of that with the runoff of the in-force should lead to stabilization of spreads going forward. Wesley Carmichael: Got it. Thanks, Robin. And then maybe just a more broad one on the Equitable Holdings, Inc.–CoreBridge merger. I know you reiterated EPS guidance with materials. Just wondering if you have done a bit more work, in earnest, on progress toward the merger. Have any of your expectations changed in terms of the financial impact, and maybe where you are seeing more or less opportunity relative to a little bit more than a month ago when the deal was announced? Mark Pearson: Thanks, Wes. It is Mark Pearson. The things we would say are the integration planning process is well underway now with the top 50 or so leaders from each of the organizations. We really are confirming through that the complementarity of the two businesses. We are stronger together in terms of our product breadth, in terms of our distribution, and in terms of scale. So that is confirming everything we have told you in terms of the synergy opportunities and the look forward. We are also pretty excited on the revenue synergy side, but we are going to save telling you that until 2027 when we have done the work, and we can start to quantify it for you. We are confirming the expense synergies now and also starting to work on the revenue side as well. Wesley Carmichael: Got it. Thank you. Operator: Your next question comes from the line of Suneet Kamath with Jefferies. Your line is open. Please go ahead. Suneet Kamath: Great. Thanks. I just wanted to start on the buyback. With the window opening later tonight, how should we think about the pace of buybacks over the next month? And is there any sort of restriction or coordination required with CoreBridge, or are you operating on your own, so to speak? Robin Matthew Raju: Sure. Thanks, Suneet. As we laid out in the presentation, we are excited to say we are going to be back in the market with share buybacks. We expect to file the proxy this evening, and that enables us to open up the window again until the final mailing that will happen in June. Within that time period, expect us to be active in the market. The returns on a share buyback are very attractive at this point in time, so that is one of the reasons why we wanted to be back in. Both we and CoreBridge will coordinate together to make sure that share buybacks maintain accretion for shareholders throughout the period. Then, as I laid out in the presentation, after the shareholder vote that will open up the next window for share buybacks. Anything that is not completed by the closing will be completed as an ASR if needed. Shareholders should expect the same level of capital return from both companies that they would have otherwise received. We are happy to say we are going to be back in the market because buybacks are accretive given that both stocks look cheap right now. Suneet Kamath: Okay. That is helpful. And then on the $70 billion to $80 billion of originated liabilities that you are talking about, is there a practical limit in terms of how much assets AB can originate in order to back those liabilities? Mark Pearson: No. We are fortunate. Robin Matthew Raju: With $70 billion to $80 billion of liabilities, we are going to have four asset managers that we will leverage. Obviously, AllianceBernstein, our in-house; also we get to benefit from some of the capabilities that CoreBridge brings to the merger—so Blackstone, BlackRock, and their internal capabilities as well. $70 billion to $80 billion provides lots of assets to put to work, and allows us to be disciplined on the general account and get the best risk-adjusted returns on those assets across the board. We would expect everybody to benefit. Obviously, AB will from the broader revenue synergies as well. That does not take into account the future growth. That is the $100 billion in separate account and general account assets that will move over to AB as a starting point, and then there will be upside from there with the future growth of the $70 billion to $80 billion benefiting AB and our other asset managers as well. Suneet Kamath: Okay. Thanks. Operator: Your next question comes from the line of Ryan Krueger with KBW. Your line is open. Please go ahead. Ryan Krueger: Hey. Thanks. Good morning. In the merger call, you talked about 2% to 4% synergies from capital and taxes that were part of the 10% plus overall synergies. I wanted to ask if that is a true best estimate, or did you embed some conservatism there, and could you possibly, as you do more work, see some upside to capital benefits of the merger? Robin Matthew Raju: Thanks, Ryan. It is important to repeat a few benefits we spoke about. It is going to be day-one accretive and 10% plus on a run-rate basis going forward. In addition, the diversification of both businesses together means we will have more stability in earnings and cash flows, which I think will lead to a lower cost of capital and a better profile for us going forward. To your question on the 10% plus synergies, we referenced 6% to 8% coming from expense synergies. There, we said we expect to at least get $500 million; there should be upside to that. The remainder will be from tax and capital, which I would say is our best estimate at this point in time. We will always do more work going forward. You can see both companies, Equitable Holdings, Inc. and CoreBridge, very active in terms of capital management since the IPO, so you can expect that to continue going forward. Most importantly, as Mark mentioned earlier, these numbers do not include the benefit of revenue synergies. I think that is what will differentiate this transaction on a go-forward basis: more assets and revenues going to AllianceBernstein, leveraging CoreBridge’s indexed IUL and fixed annuity products with Equitable Advisors, and leveraging our B/D with their third-party distribution. If we can be successful in capturing more revenue with the two companies together, we will be a stronger franchise that deserves a higher multiple going forward. Ryan Krueger: Thank you. And then just one question on the PGAAP impacts. I understand that it is contingent on where interest rates are, and there is probably a lot of work to be done on this. But maybe directionally, can you give any sense of whether, if the merger closed now, this would be more likely to be a positive or negative potential impact to your GAAP earnings? Robin Matthew Raju: I think it is too early to say at this point in time. As we put together the PGAAP, we will finalize that prior to close, and we will certainly give you that guidance. I think there will be moving parts in the PGAAP on the balance sheet. Obviously, the book value of the combined companies will be bigger, and that will be reflective of wherever the market cap of Equitable Holdings, Inc. is at that standpoint. On the income side, there will be moving parts between VOBA, DAC, and fair value of some of the assets. We will do that work, and as we do that work, we will disclose it as we get closer to the close of the transaction. Operator: Your next question comes from the line of Thomas George Gallagher with Evercore ISI. Your line is open. Please go ahead. Thomas George Gallagher: Good morning. One question about the quarter and then one about the merger. On the quarter, the MVA gains that you had in Retirement—Robin, can you comment on absolute dollars of earnings that that represented this quarter? And would you expect there to be any sustainability there? Was there something unusual about why they were higher? Robin Matthew Raju: Sure. Thanks. The key point for me is that spreads stabilized ex-alts and ex-the MVA, so about a 1 basis point improvement. The MVA was approximately $10 million in the quarter. We do not expect benefits on a go-forward basis; that is not something we include in our forecast or budgeting. As you have seen, that has been positive or negative through different periods over time. But excluding the MVA and excluding the impact of alts, spreads improved by 1 basis point quarter over quarter. Thomas George Gallagher: Gotcha. So $10 million was the earnings contribution? Robin Matthew Raju: Yes, approximately. Thomas George Gallagher: Gotcha. And my question on the merger—I listened closely to what you have been saying about the revenue synergies. I have not heard much of an emphasis on your institutional spread business, which I know is small for you; it is bigger for CoreBridge. But is that an opportunity? Because when I look at you and CoreBridge on a standalone basis, you are probably half the size, or maybe 30% or 40% of the size of that business compared to the Met’s and the Pru’s of the world. So I am just wondering, is that a business that we should expect you to really scale up? Robin Matthew Raju: Sure. For CoreBridge and Equitable Holdings, Inc., the FABN market has been attractive. It has generated good returns for us. It is obviously spread dependent, so depending on where our spreads trade at different time periods, that allows us to go in and out. With the balance sheet being much bigger, it gives us more capacity to lean in to that market, given the spreads are there and pricing is there. So it is certainly an opportunity for us with the larger balance sheet going forward. Thomas George Gallagher: Okay. Thanks. Operator: Your next question comes from the line of Joel Hurwitz with Dowling & Partners. Your line is open. Please go ahead. Joel Hurwitz: Hey. Good morning. Robin, first, can you just talk about mortality perspective in the quarter? It looked pretty good with reported benefit ratio at 83.1%. Robin Matthew Raju: Yes. It was nice to have a good quarter on mortality. Our benefit ratio is 83%; that is the lowest it has been in any quarter over the last year, which is good. Overall, we saw lower claims and fewer high face-amount claims specifically, which benefited us this quarter. Going forward, we think the guidance that we have given to the market appropriately captures what we would expect to see in mortality, and we look forward to speaking more about good mortality and focusing on the growth in the other businesses as well going forward. Joel Hurwitz: Got it. And then in Retirement, it looks like you are starting to utilize flow reinsurance for some of your spread business. Can you talk about what products that is on, how much you plan to do, and the economics for Equitable Holdings, Inc.? Robin Matthew Raju: Sure. Yes. In the fourth quarter, we started to do some flow reinsurance on our RILA product. Flow reinsurance is a tool that we think is helpful for us when making a product accretive going forward, so it is an important tool in the toolkit. We could look at flow reinsurance in other products as well, and even post-merger, CoreBridge does some flow reinsurance as well. As long as it is accretive for us versus not doing it, it is something that we will look at selectively in different products. It is important to have a good counterparty, which we have, and we try to make sure AB continues to manage a portion of the assets for us going forward. We also have Bermuda as a tool in our toolkit as well. We will look at that for flow reinsurance for selective products for our internal products, and potentially for third-party opportunities going forward as well. Flow reinsurance is something that we will always look at across our businesses. Joel Hurwitz: Got it. Thank you. Operator: Your next question comes from the line of Alex Scott with Barclays. Your line is open. Please go ahead. Alex Scott: Hi. Good morning. Thanks. One I have is on cash flow. I wanted to see if you could talk a bit about the cash generation of the business and how that will trend through the integration process, with some higher expenses related to the integration itself and probably some sort of hockey stick dynamic. Could you help us think through the way that will progress over the next few years? Robin Matthew Raju: It is probably a little bit too early to give you too many specifics. Both companies obviously have strong cash flow generation. On the Equitable Holdings, Inc. side, we continue to feel comfortable with our $1.8 billion guidance that we provided this year and the $2 billion for 2027. Expect that to be in addition to the investments that we have in growth to help grow our new business franchises across the board. As part of the integration, we will target $500 million plus in expense synergies and expect that will be a 1.5 times investment with a very good payback associated with it. That investment is split between cash and non-cash, and on the timing we will provide further updates as we get closer to the close of the transaction and the integration planning is more complete. Alex Scott: Got it. That is helpful. And then a related topic is just the excess capital level that you have right now, particularly at the opco level—pretty significant. CoreBridge has a pretty significant MedEx of capital as well. How will this transaction change the way you approach the amount of excess capital you hold over time? It has been a while now that you have sat on a pretty high level, and you mentioned the stress test does not even take you down that close to your buffer at this point, and that was a pretty extreme stress test. Are you thinking about that differently with the transaction coming on? Robin Matthew Raju: We will have an Investor Day in 2027 where we will give further guidance on all those metrics. Stepping back, as we mentioned, the two companies are stronger together. The balance sheets are more resilient; they are more diversified across each other. There will be a lower cost of equity across the company, and we will be well positioned to maintain through different cycles in the market, whether that be credit or equity, because of the diversification of the businesses. What does that do? It allows us to leverage excess capital for best use for shareholders. Obviously, buybacks are a very attractive use given the valuations of both companies, but it also allows us to invest in growth. We see very good returns across the RILA market and the other markets across both companies. The more we can invest in growth and grow earnings going forward, which will translate into growth in cash, that will benefit shareholders over the long term. We will evaluate investments in growth and share buybacks for uses of excess capital as the two companies come together. Alex Scott: Got it. Thank you. Operator: Your next question comes from the line of Yaron Kinar with Mizuho. Your line is open. Please go ahead. Yaron Kinar: Just a couple on capital deployment. If the windows end up being a bit narrower than expected or liked, and ultimately you have to complete the buyback through an ASR at the end of the year, is that 15% plus EPS growth target still achievable? Robin Matthew Raju: Yes. I think we are pretty comfortable. If you look at where we stand this quarter, we are at plus 25% on an EPS basis overall. That was with a lower share buyback in the first quarter. If you look at the windows that we have available to us, we believe we can deploy a lot of capital in the markets to buy back stock at these levels, keeping within our 60% to 70% payout ratio by year-end. The windows that we have are pretty broad and give us the availability and timing needed to deploy our capital plan. Anything that is left, we will complete in an ASR, so we feel comfortable with the guidance. Remember, the guidance for this year is that we would be above our 12% to 15%, and we still expect to be above our 12% to 15% as we progress during the year. Yaron Kinar: Great. And then the second one also on capital deployment. With the Stifel deal done, I think you had expressed interest in continuing to grow the Wealth business both organically and inorganically. Assuming, though, that given where the share price is today, buybacks would be a far more attractive capital deployment avenue than doing a deal in Wealth? Robin Matthew Raju: It is deal specific. Ultimately, we are in a fortunate position where the company can execute on its capital return program for shareholders and invest for growth. That is a position of strength that we are in right now. We want the Stifel transaction to complete its closure to advisors who will transition to our platform later this year. We can also look for opportunities at AllianceBernstein to grow on the asset management side as well. Obviously, where the share price is now, any deal needs to be accretive to shareholders, as you see this merger is as well. Ultimately, we are well positioned because we can buy back stock at this price and deploy excess capital to fuel future growth and make us a stronger company going forward. Yaron Kinar: Thank you. Operator: Your next question comes from the line of Wilma Burdis with Raymond James. Your line is open. Please go ahead. Wilma Burdis: Hey. Good morning. Given that one of your buyback windows will be May 6 through sometime in June, maybe we could drill down a little bit. Is there any limit to the amount Equitable Holdings, Inc. could buy given limitations on the percentage of daily trading volume? Could you help us a little bit with the math there? Robin Matthew Raju: We obviously have some limitations on average daily trading volume that we have to keep, but we feel—and I think CoreBridge would say the same—that the windows available to us provide the flexibility we need to be in the market to buy back stock. We will have this time period between when we file the proxy tonight and the final proxy in June to complete a decent amount of share buyback, and we will also have the ability again post the shareholder vote. We feel pretty comfortable to execute within a reasonable average daily trading volume our capital plans this year. We would expect to end with an ASR at our 60% to 70% payout ratio and no change in the amount of capital returned to shareholders for this year. Wilma Burdis: Okay. If there is any way you can give a little bit more detail just on that there, just as a quick follow-up. And then second question: I think the commentary that you have implied on the capital and tax benefits, I back-calculated it to around $500 million to $1.5 billion of capital that would be freed up by the deal. Any way to tell us if that estimate is somewhere in the ballpark? Robin Matthew Raju: I do not have more color on the share buyback at this time. On the capital and tax benefits of the deal, as we mentioned, the EPS accretion will be 6% to 8% from the expenses—hopefully more than that. We would expect it to be more, given the size of synergy potential we have between both organizations. Then we will have capital and tax benefits as well. We are not going to give nominal amounts at this time. Going forward, as we get into the Investor Day next year, you can expect more information on those numbers and also the revenue synergy. Do not forget that is the big part that we get excited about internally—what this brings to AllianceBernstein, what this brings to our Wealth Management business, and what this does for broader product distribution across both companies that will lead to a higher multiple over time. Wilma Burdis: Absolutely. Love the distribution. Thank you. Operator: Your next question comes from the line of Pablo Sing Son with JPMorgan. Your line is open. Please go ahead. Pablo Sing Son: Hi. Good morning. Just a follow-up on the mortality. So 1Q and 4Q tend to be the highest mortality quarters for you. Given this, should we expect Corporate & Other loss to be there sequentially, or was 1Q just too favorable? Robin Matthew Raju: In the quarter, we did have some favorability in mortality. As we mentioned, the benefit ratio was 83%; that is lower than it was last quarter, as you can see in the supplement, and also lower than it was over the last year. The Corporate & Other guidance that we gave for the full year was a $350 million to $400 million loss. We expect to be within that guidance if you look on a normalized basis this quarter. Also keep in mind, going forward, the benefit of the RGA transaction really limits the volatility related to mortality for us. I think you are starting to see those benefits come through, and we do expect that to continue. Pablo Sing Son: Thanks, Robin. And then second question is the implementation of VM-22. Do you see that having any material impact, whether from a price or capital standpoint, on the fixed annuity block you are getting from CoreBridge? Robin Matthew Raju: I would like CoreBridge to answer that on the VM-22 side. We have done diligence on each other—on the asset side, on the liability side, and potential regulation—and we feel comfortable with where both companies combined are positioned ahead of any regulation or asset changes. Pablo Sing Son: Thank you. Operator: Your next question comes from the line of Tracy Benguigui with Wolfe Research. Your line is open. Please go ahead. Tracy Benguigui: Thank you. Good morning. Going back to the PGAAP changes, you mentioned some of the moving parts, but I want to touch on AB. It seems like a big thing that folks misunderstand about Equitable Holdings, Inc. is your asset leverage—they are not looking at the right denominator. My personal view is statutory capital matters more. Now with this merger coming up, I understand that your PGAAP could mark up AB. Should we expect a large goodwill asset? And I am also curious, is doing the deal the only way to mechanically recognize AB's equity value? Robin Matthew Raju: Thanks, Tracy. I think you are right. The way to look at it is not GAAP leverage—stat is a bigger piece and something that a lot of people do not look at. On the GAAP side, it does not capture the full market value of AllianceBernstein outside of a transaction like this. Since we own AllianceBernstein, we cannot write up the asset as it exists today. That is one of the benefits of the transaction. It will lead to some additional goodwill, but there are a lot of moving parts related to the PGAAP, so it is too early to give you precise numbers on how the PGAAP works. Ultimately, both companies—if you look—on a statutory basis are going to be at $25 billion of pro forma capital. The GAAP equity is going to be above $30 billion. We feel very well positioned in terms of the size of both balance sheets and especially well positioned having AB, a Wealth Management franchise, and a broader Retirement platform to grow sales. Tracy Benguigui: Staying with a 68% stake? Robin Matthew Raju: Currently, we are quite happy with our ownership of AllianceBernstein at approximately 68% to 69%. AB is a key part of the flywheel and expected to grow. The synergy potential of AB is pretty significant. Maybe I will ask Onur to talk about the revenue synergies potential with the AllianceBernstein team, but I think that is a big part of this deal—the benefits to AllianceBernstein and getting the $100 billion of general and separate account assets. Onur Erzan: Thanks, Robin. We are very excited about the $100 billion plus that Mark and Robin mentioned. It is going to come from both the general account and the separate account businesses, as well as funds and retirement plans. We have multiple opportunities to do work over the next seven to eight months before the merger closes. We have a very bankable bottom-up plan, and that comes on top of a record pipeline we had before the CoreBridge–Equitable Holdings, Inc. merger, so it builds on a very sizable pipeline that already exists. We are very excited about that, and also like the fact that it is a diverse set of asset classes, ranging from public to private, fixed income, multi-asset, and equities, that will allow us to scale multiple platforms all at the same time. Tracy Benguigui: So would you want to take that stake up if you like the business? Robin Matthew Raju: No change right now in our stake of AllianceBernstein. After we purchased the increase last year, we went from 62% to approximately 68% to 69%. We have no other plans at this time. We are really focused on the combined firms and execution of this merger. As Mark mentioned on the call, we established the integration office, we got our teams together, and everybody is focused on planning to execute the expense and revenue synergies and making sure we have the right people in the right seats. That is our focus at this time. Tracy Benguigui: Thank you. Operator: Your next question comes from the line of Mark Douglas Hughes with Truist. Your line is open. Please go ahead. Mark Douglas Hughes: Thank you very much. Good morning. In the RILA business, sales are pretty strong. I wonder if you could discuss the competitive environment and then maybe touch on the biggest impact, biggest benefit from the merger on distribution? Nicholas Burritt Lane: Great. As you mentioned, overall we had a strong quarter in sales and volume, with RILAs up 14% and $1.3 billion of net flows, translating to a 6% trailing 12-month organic growth rate. We are very mindful of competitive trends. As we mentioned last quarter, we saw new entrants in 2025 revert back to more rational pricing in the fourth quarter, and we do not see any material change in competitive activity this quarter. Looking forward, we continue to see strong demand for RILAs driven by favorable demographics and macro uncertainty. I would highlight consumer sentiment is at an all-time low, so people are looking for protected equity stories, and we believe we have a durable edge to capture it—generating attractive yields through AB, our differentiated distribution with Equitable Advisors and our third-party networks. As Robin and Mark alluded to, the merger will expand our reach in that area. Finally, we have deep relationships and scale. As the pie has grown, we have nearly doubled our sales over the last four years, and this was another first quarter in record sales and volume. On the benefits on distribution: better reach, deeper relationships, and as Mark mentioned, we see scale becoming increasingly important to generate profitable growth and protect margins. CoreBridge will give us both of these immediately, so we think we are in a privileged position to capture a disproportionate share of value in the growing retirement market. Mark Douglas Hughes: Understood. Then of the $70 billion to $80 billion in liability origination capacity, how much of that is third party versus owned distribution? Nicholas Burritt Lane: Yes. The way to look at it is the $70 billion to $80 billion is for the combined companies post-merger. Today, for Equitable Holdings, Inc., about 35% of our sales in the Retirement business come through Equitable Advisors. That is the way to look at it. Operator: We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to CPI Card Group Inc.'s First Quarter 2026 Earnings Call. My name is Carrie, and I will be your conference operator today. If you are viewing on the webcast, you may advance your slides by pressing the arrow button. The call will be open for questions after the company's remarks. If you would like to enter the queue for questions, please press star then 1. If you would like to withdraw your question, press star 1 again. Now I would like to turn the call over to Mike Phillips. Please go ahead. Michael A. Salop: Thanks, operator. Welcome to CPI Card Group Inc.'s first quarter 2026 earnings webcast and conference call. Today's date is 05/05/2026, and on the call today from CPI Card Group Inc. are John D. Lowe, president and chief executive officer, and Tara Grantham, interim chief financial officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see CPI Card Group Inc.'s most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only. We undertake no obligation to update any statements to reflect events that occur after this call. Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including, but not limited to, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning. Copies of today's press release as well as the presentation that accompanies this conference call and the Form 10-Q are accessible on CPI Card Group Inc.'s Investor Relations website, investor.cpicardgroup.com. On today's call, all growth rates refer to comparisons with the prior-year period unless otherwise noted. The agenda for today's call can be found on slide three. We will open the call for questions after our remarks. I will now turn the call over to John. John D. Lowe: Good morning, everyone. Overall, we are off to a solid start in 2026 and are on track to achieve our full-year outlook. We are executing on our initiatives to deliver on our strategy of growing and diversifying the business by helping our customers win as we expand our proprietary technology platform, grow our marketable base of relationships, and evolve our payment solutions to meet market needs. We exceeded our expectations in the first quarter, delivering 20% revenue growth, which reflected another strong contribution from AOI, as well as good growth across our other Secure Card Solutions businesses. This included strong performance from our contactless solutions, led by continued strength of contactless metal as we emphasize our offerings of value-driven metal solutions, and increased sales of personalization services. As expected, our Prepaid Solutions segment had a slow start to the year, but we continue to anticipate growth for the full year. Integrated Paytech grew only slightly due to comparisons with a strong prior-year quarter, and we continue to expect the segment to grow more than 15% for the full year. Adjusted EBITDA increased 9% in the quarter, and we generated strong cash flow with more than $10 million of free cash flow in the quarter. We also improved our financial position, ending the quarter with a net leverage ratio just below three times. Based on first quarter results and our current forecast, we are affirming the full-year financial outlook we provided in March. Tara will give you more details on first quarter results in a few minutes, but first, I would like to provide a brief strategic update on slide five. As I said before, we are executing on our strategy as we start 2026 and are fortunate to operate in multiple growing markets. In addition to ongoing increases in cards in circulation in the U.S. payments market, our business is supported by increased demand for digital solutions by financial institutions and an increased focus on security for prepaid cards and packages. As we discussed last quarter, our strategy is to continue providing payment technology solutions that help our customers win, driven by three primary growth pillars that underpin our value proposition. First, our proprietary technology platform with a vast reach into the U.S. payments ecosystem. Second, our marketable base of thousands of deep and broad relationships across the U.S. payments market. And third, our proven track record of delivering evolving payment solutions that reflect changing market needs. We continue to make progress on driving our strategy forward, laying more pipes to further expand our platform, expanding our marketable base of relationships, and introducing new solutions for the market. We mentioned at year-end that we had locked in a new referral agreement giving us the opportunity to significantly advance our marketable base for our Integrated Paytech segment. We are excited to share that we are actively marketing our solutions with the help of Fiserv and are seeing positive customer interest. And we continue to expand our pipes on our technology platform, creating further integrations and customer connections for our digital solutions. We have also expanded our solution set by delivering for the closed loop prepaid market, seeing strong closed loop revenue growth from Q4 2025 in the first quarter. And we continue to explore the viability of chip-embedded cards in the U.S. prepaid market, advancing our extensive pilot with a large national retailer testing Card Safe-to-Buy technology. We believe our strategic efforts and investments will continue to drive long-term growth, expanding our addressable markets and providing the solutions needed by the market as it continues to evolve, creating value for our company and our shareholders. We will continue to update you on progress throughout the year, but now I would like to turn the call over to Tara to take you through the first quarter results in more detail. Tara? Tara Grantham: Thanks, John. I will begin with the segment results on slide seven. Overall, as John said, we are pleased with our first quarter performance. First quarter revenue increased 20% to $147 million, led by our Secure Card Solutions segment. Secure Card Solutions revenue increased 35%, which included a $16 million contribution from ArrowEye. As John mentioned, we experienced strength across this segment in the first quarter with good growth from our contactless solutions and personalization services. Our Prepaid Solutions segment declined 17% in the first quarter, reflecting timing of orders from key customers, with the first quarter decline partially offset by better-than-expected incremental sales of closed loop cards. Integrated Paytech increased 1% in the quarter due to comparisons with a strong prior year while we maintained strong gross margins at over 55%. As John said, we still expect to grow revenue in this segment by more than 15% in 2026. Turning to profitability on slide eight, first quarter net income declined by 57% to $2.1 million, primarily affected by $3 million of pretax integration costs, while adjusted EBITDA increased 9%, driven by sales growth including the addition of AOI. Integration costs were high in Q1, and we expect them to remain at similar levels in Q2 but drop significantly in the second half of the year. Our 2026 integration costs are meant to drive revenue synergies and lower operating costs and primarily result from go-to-market spending, technology investments, and certain vendor termination fees as we drive operating synergies. As a reminder, integration costs are not included in adjusted EBITDA but do impact net income. Gross profit margin declined from 33.2% to 30%, affected by lower sales and margins in our Prepaid segment and increased production costs including tariffs and depreciation, partially offset by benefits from increased sales from Secure Card Solutions. Production costs in the quarter compared to prior year included $2 million of increased depreciation primarily related to ArrowEye and the new Secure Card production facility and $1.2 million of tariff expenses. We expect Prepaid margins to improve in the second quarter with higher revenue levels, and we also expect overall company gross margins to be much stronger in the second half of the year. Margin comparisons with prior year should also improve going forward as ArrowEye depreciation and tariff primarily began impacting results in 2025. Overall, we anticipate full-year gross margins to be relatively consistent with prior-year levels. We have multiple initiatives in place to drive margin improvement over time, including targeted supplier negotiations, automation investments, production optimization across our sites, driving more favorable product mix, and achievement of ArrowEye synergies. We are also managing discretionary spending and driving operational efficiencies as volume increases, including in our new Indiana production facility, where we expect volumes this year to be 30% higher than 2024 levels in our old production facility. First quarter SG&A expenses increased $6.5 million from the prior year, primarily due to ArrowEye integration costs, the inclusion of ArrowEye operating expenses, increased employee performance-based incentive compensation, increased severance, and higher technology spending. Investment spending was less than anticipated in the first quarter, and we expect that to ramp over the remainder of the year beginning in the second quarter. Turning to slide nine, we had strong cash flow generation in the first quarter. Our cash flow generated from operating activities for the quarter increased from $5.6 million last year to $13.6 million, driven by strong working capital management. Free cash flow increased from $300,000 in the prior year to $10.1 million in 2026. We spent $3.5 million on CapEx in the quarter compared to $5.3 million in the prior year, although we still anticipate full-year capital spending to be similar to 2025 levels, with increased focus on technology spending. On the balance sheet, at quarter-end, we had $19 million of cash, $15 million of borrowings on our ABL revolver, and $265 million of senior notes outstanding. Turning to our 2026 financial outlook on slide 10, we are affirming the full-year outlook provided in March. This includes high single-digit revenue growth, low- to mid-single-digit adjusted EBITDA growth, free cash flow conversion at similar levels to 2025, and a year-end net leverage ratio between 2.5x and 3.0x. We expect Q2 revenue to be similar to Q1 levels, with adjusted EBITDA expected to be slightly lower than the prior year due to timing of investment spending, including some spending that was delayed from the first quarter. I will now turn the call back to John for some closing remarks. John D. Lowe: Thanks, Sarah. Turning to slide 11 to summarize before we open the call for Q&A. We are executing on our strategy with a better-than-expected start of the year. The segment trends are largely as we anticipated, and we are on track to achieve our full-year outlook. We also generated strong cash flow and brought net leverage back down to just below three times after the temporary increases following last year's ROI acquisition. We intend to continue growing and diversifying our business, leveraging our expanding proprietary technology platform, our extensive marketable base, and our evolving portfolio of payment solutions to meet market needs, drive growth, and enable our customers to win. Operator? We will now open the call for questions. Operator: Thank you. We will now open the call for any questions. If you would like to ask a question, please press star then 1. If you would like to withdraw your question, press star 1 again. Your first question will come from Peter James Heckmann with D.A. Davidson. Peter James Heckmann: Hey, good morning. Thanks for taking my question. In terms of thinking about Instant Issuance, Card@Once solutions, you did not mention it in the prepared remarks, but what are you thinking for this year in terms of base business as well as some of the tangential areas that you have expanded into over the last fifteen months? John D. Lowe: Yeah. Pete, good morning. We are excited about Instant Issuance. It is a great platform for us. Just as a reminder, it is a software-as-a-service platform. We built it from the ground up. It took us, you know, ten-plus years to build it, especially all the integrations into what we refer to as the payments ecosystem that we service. So we have thousands of customers across the U.S., and we expect that to be a large chunk of the growth out of our Integrated Paytech segment for 2026, growing that segment from an outlook perspective greater than 15%. I think the Fiserv deal we announced helps us grow. And just on the breakout between Instant Issuance and everything digital — I will say digital — we are essentially building the business there. It is small in relation to the rest of the business, but we are seeing strong customer demand, a good pipeline, and we continue to build out the pipes and integrations, if you will, to continue to service multiple areas of the market. So we are excited about what we are doing in Instant Issuance, but broadly in digital too. Peter James Heckmann: Okay. Great. And then just in terms of contactless, where do you think we are in terms of contactless cards? I have not seen recently any information that would suggest what percentage of cards out today have a contactless chip embedded. John D. Lowe: Good question. What we produce today is 90% plus contactless. So, you know, we used to use the baseball analogy. I would say we are in the very late innings of the transition. That is on the debit and credit side. I would say on the prepaid side of our business, there is a lot of opportunity. The volumes within prepaid broadly, when including open loop and closed loop, are somewhat greater on an annual basis than even the debit and credit side in terms of what is produced. So to the extent that that market starts to move more towards chip, it starts to move specifically towards contactless — which is what we are doing with Carta and what we are doing with a large national retailer, where we have a pilot underway, which we are having positive kind of movement on, if you will. If that market continues to move towards chip and grows, we will see a long transition there. It is what we would expect, and we would be in a unique position to capitalize on that transition. So on the debit and credit side of your question, I think we are late innings; we are pretty much fully penetrated, but I think there is a lot of opportunity on the prepaid side. Peter James Heckmann: Got it. I appreciate it. I will get back in the queue. John D. Lowe: Yep. Thanks, Pete. Operator: Your next question comes from Jacob Michael Stephan with Lake Street Capital Markets. Jacob Michael Stephan: Hey, guys. Good morning. Nice quarter. I just wanted to ask on the Fiserv relationship. It seems like that was expanded a little bit. Maybe you could touch on some of the things and ways that it was different from the past contract with them, or agreement. And then maybe touching on the supply chain a little bit — last year about this time we were talking a lot about tariffs. From a supply chain perspective and chip tightness, what are you seeing out there in the market today? And lastly, you are kind of expecting a bigger ramp in the second half from the Integrated Paytech segment. What are going to be the main drivers of that growth in Paytech? John D. Lowe: Yeah. No. Jacob, I think the main difference is we call out their name. We had entered into this agreement around year-end, so we mentioned an agreement at year-end, but we just did not call out Fiserv's name. I would say getting marketing teams together to finalize documents takes a long time, but the agreement is in place. We are excited about it. We are seeing positive customer interest in Q1, kind of ramping up, if you will, and Fiserv is a great partner. We love working with them. They have thousands of customers across the United States that we have worked with them to build good relationships with and make sure we are helping our customers win and helping their customers win at the same time. On supply chain, broadly I would say it has normalized, and I think that is credit to not only the teams that we put in place to manage it that continue to focus on how to manage things well, especially today in light of the Iran war. That is another kind of thing to tackle from a cost perspective, although that is not significant, I would say. But tariffs are something we had to work through from a supply chain perspective. I would say tariffs have somewhat normalized as well. But we are — just to get ahead of your probably next question — we are expecting refunds on tariffs. But we do not necessarily have a timing aspect to that. We hope to see them at one point, but as I tell my team, I will believe it when I see it. Put it that way. On the second-half ramp in Integrated Paytech, a lot of it is in relation to the deal that we signed with Fiserv. That is a chunk of it. Another chunk is just the growth in the business as it stands. Last year, it grew roughly at a 20% rate. If we look back over time, it has been growing at a faster pace generally than the rest of the business, and that is because we have a unique value proposition in the market. I am talking about our Instant Issuance solution specifically. On the digital side of the house, that is an area that is growing even faster. Now you are talking about smaller dollars — so it is smaller dollars growing — but at the same time, that is an area we continue to see just a large amount of interest in, and we are trying to build out that business as quickly as we can to support that large customer interest. So it is our Instant Issuance solution growth, which we have seen historically be pretty strong — we are confident in that, especially in light of the new deal — and digital growing just given what we are seeing in the market and the customer demand. Jacob Michael Stephan: Got it. Very helpful. Appreciate it. Thank you. John D. Lowe: Yep. Thank you. Operator: Your final question will come from Craig Irwin with ROTH Capital Partners. John D. Lowe: Hey, Craig. We cannot hear you. Craig Irwin: Thank you. Sorry about that. Can you hear me now? John D. Lowe: Yes, we can. Okay. Perfect. Good morning. Craig Irwin: Good morning. So can you help us unpack the comments around Indiana, the 30% increase in volume? Is this something novel in the last quarter? Did something materially change there? And then with 30% higher volumes, this clearly is not translating to the top line. Is there a mix issue or price erosion or something like that impacting the contribution to revenue growth and, obviously, profit growth if the revenue is not following? Any color there would be helpful. John D. Lowe: Yeah. Craig, good question. The reason that we shared that number specifically is it is an indicator as we have kind of come to the end of building out Indiana. You know, just a step back, it took about a year plus to build. The team in Indiana has done a great job. We essentially had nearly zero customer complaints as we were transitioning. And the reason for the growth in volume disclosure is really the fact that we could not have done what we were doing in our old facility. We were at capacity. If you go back two, three years — in 2022, as an example, when the market was insatiable in a sense — we were busting the team. So there were multiple reasons to move, but I think moving has been a large success for us. And I think your question about margins — there is depreciation on ROI. There are tariffs that have come up. Those types of things have affected our margins. There is always a competitive pricing market, but I would not say the pricing is irrational. I would say that overall, from a margin perspective, we have definitely had some impacts, but nothing that has created an irrational pricing market. I do not know. Derek, you would provide any other comments. Tara Grantham: Yes. So I would just say that we did grow pretty strongly in our overall Secure Card Solutions space, up 35% overall, and then from an organic basis, we did grow 15%, so we did get strong top line growth in that solution, and that was in part driven by contactless growth across our Secure Card Solutions. So, related to that, as John said, we did get operating leverage based on that growth. It was offset by things like tariffs as well as the higher depreciation across the business related to our new Indiana facility as well as related to the acquisition of ARY. John D. Lowe: Craig, one thing I would add, though, we do expect our overall gross margins — they are somewhat stabilized. Right? So we would expect them to be somewhat stable over the course of the year, if not increasing. Tara and team are doing a good job driving a lot of margin improvement goals. So between that and the growth of the business and the leverage we expect to get, I know we have had a lot of impacts over the last year and a half, two years, but we do expect margins — not only on a gross margin basis, but on an EBITDA basis — to improve over the course of the year. We expect this year, similar to last year, fourth quarter to be our biggest quarter. And so think of Q1 as kind of a starting point for the year, if you will. Craig Irwin: Understood. That makes sense. So then, ROI — I will admit, I was a little surprised to see the increased integration expenses this quarter. I thought that you were a long way down the path of already integrating that. Can you maybe give us some detail around the actions that are being completed right now? What did you complete over the last couple of months? Strategically, I thought that you might be actually adding a little bit more CapEx for ROI and focusing on the growth of that platform, given that personalization really is such an exciting opportunity. John D. Lowe: Yeah. I mean, I would say the integration costs we are spending now are really in two big areas. One is technology, and one is go to market. And when we look at ROI and its position in the market specifically, when we look at our broader solutions that we provide outside of Airline, we see a lot of revenue synergies. Airline signed, even in their first deal — I mean, 10 plus deals — and we have not owned them, I mean, since essentially one year ago from now. So we have seen really strong progress in terms of AirWise performance on a revenue basis. And the other side that we are spending on is operating synergies, trying to make sure that the way that we operate on the floor is — I would not call fully integrated, but essentially aligned with everything we are doing on a broader basis, which ultimately means we get purchasing power, things of that nature. So there were some termination fees from a vendor perspective as we transition vendors. Things of that nature pop up, and unfortunately they are not small. But we do expect integration to drop off in the second half of the year. We expect a little bit in Q2 — that will continue — but in the second half of the year, you should see that drop off dramatically. Craig Irwin: Thank you for that. I will take the rest of my questions offline. John D. Lowe: Thanks, Greg. Operator: Your next question will come from Harold Lee Goetsch with B. Riley Securities. Harold Lee Goetsch: Hey. Thanks for taking my question. On the Prepaid statement, it was said it was down 17% in the quarter. Can you give us some of the friction points? And again, were there some maybe significant nonrecurring customer revenues that came in 2025 and before that that are at least driving these declines? Or is the channel rather full right now and we are working through channel inventories? And is organic growth through the channel slower than expected? Thanks. John D. Lowe: Yeah. Hal, on the Prepaid side, just as a reminder, the whole business and the market in general — think of on the open loop side — we have leading market share. We are positioned really well, especially if that market starts moving towards chip. And so if you think about the broader market and our customers, they are trying to determine, based upon not only regulatory demands, but just customer demands, how do you increase security around the package itself? You can do that in two ways. You can increase the actual security around the package itself, or you can put a chip in the prepaid card itself. And that is why we are working with Carta. That is the pilot we are working with the large national retailer on. And because of that kind of testing and transition that we ultimately do expect to occur over a long period of time, we are seeing the normal-course open loop market be weaker. And we knew coming into the year this would be a slow start to the year. We are hearing that from our customers on the Prepaid side. That is because we believe from a longer-term transition perspective the value of the market is going to grow, and we are well positioned to capitalize on that. The other side on Prepaid is the closed loop side of the business, and that actually has performed very well for us. It is fairly small today, but we had pretty strong growth over Q4 of last year in Q1. And so we are excited about where the Prepaid business is going, but it is definitely a weaker quarter for us. And you can see this in the Prepaid financials. That business gains a significant amount of operating leverage as it grows, and you saw the opposite in Q1, and that brought down broader margins. Tara Grantham: Yeah. Just a reminder that we do expect good growth across our segments this year, including in Prepaid. So even though it was down in Q1, we do expect better growth throughout the year. And just looking back, still very confident in that business. Look back to 2024, we did grow that business 26%. And even though we were down last year, we were only down 3% once you adjusted for the accounting change that we made in Q2. So I do expect that return to growth as well as the increase in gross margins throughout the year. John D. Lowe: Okay. Thank you very much. Thanks, Hal. Operator: And there are no questions in the queue. I would like to turn the call back over to John D. Lowe for any closing remarks. John D. Lowe: Thank you to all of our CPI Card Group Inc. employees for their dedication and for continuing to deliver for CPI Card Group Inc. and our customers. Tara Grantham: Thank you all for joining our call this morning, and we hope you have a great day. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Operator: Hello, and thank you for standing by. At this time, I would like to welcome everyone to the Q1 2026 Pediatrix Medical Group, Inc. Earnings Conference Call. Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Mary Ann Moore, General Counsel. You may begin. Mary Ann Moore: Thank you, Operator, and good morning. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by Pediatrix Medical Group, Inc. management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and Pediatrix Medical Group, Inc. undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's filings with the SEC, including the sections entitled “Risk.” In today's remarks by management, we will be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's press release, our quarterly and annual report, and on our website at pediatrics.com. With that, I will turn the call over to Mark Ordan, our Chief Executive Officer. Mark Ordan: Thank you, Mary Ann, and good morning, everyone. Also with me today is Kasandra Rossi, our Chief Financial Officer. We were pleased with our strong first quarter results driven by top-line growth with adjusted EBITDA coming in at $58 million. We saw strong pricing that outpaced a modest decline in same-unit volumes across our service lines. Although recent volume results do not show a trend, our payer mix continues to be strong, and we are comfortable with our decision to not have a headwind estimate for the potential effect of the tax subsidy lapse. We know that major hospital systems have seen a decline in patient volume and revenue, and we may see that in the future. For now, this area is strong for us, and we will continue to report on it as the year continues. Given the uncertainty of whether we will experience this headwind, and since it is still early in the year, we are reaffirming our full 2026 outlook of $280 million to $300 million in adjusted EBITDA. Kasandra Rossi will now provide some additional details, and I will be back shortly. Kasandra Rossi: Thanks, Mark, and good morning, everyone. Our consolidated revenue increase was driven by same-unit growth of just under 3% and net non-same-unit activity of about $6 million, including growth from recent acquisitions and organic growth, which was partially offset by decreases in revenue from our portfolio restructuring. Pricing growth of 4% was driven by solid RCM cash collection, increases in contract administrative fees, favorable payer mix, and increased patient acuity in neonatology. While we saw volume declines across our service lines during the quarter, including NICU days that were down about 1%, practice-level S, W, and B expenses increased by $9 million year over year, primarily reflecting same-unit increases in clinical salary expense. Net salary growth for the first quarter was in line with the ranges we have seen over the past 18 months that have averaged around 3%. Our G&A expense increased slightly year over year, driven by a modest increase in salary and incentive compensation expense, partially offset by decreases in professional services and IT expenses. D&A expense increased slightly year over year, resulting from higher same-unit amortization expense and D&A related to our recent acquisitions. Other nonoperating expense decreased year over year, driven by a decrease in interest expense on modestly lower average borrowings at slightly lower rates. Moving on to cash flow. As a reminder, we are a user of cash in the first quarter of each year as we pay out incentive compensation and other benefits, namely 401(k) matching contributions. We used $130 million in operating cash flow in the first quarter compared to $116 million in the prior year, with the differential related to decreases in cash flow from AP and accrued expenses primarily related to incentive compensation payments, and decreases in cash flow from AR, partially offset by higher earnings. We also deployed $21 million of capital during the quarter to buy 1 million shares of our stock, leaving us with 82 million shares outstanding. We ended the quarter with cash of just over $200 million and net debt of just over $385 million. This reflects net leverage of just over 1.3 times using the midpoint of our updated adjusted EBITDA outlook for 2026. Our accounts receivable DSO at March 31 of 42.5 days was down slightly from December 31, but was down over five days year over year, driven by improved cash collections at our existing units. We are maintaining our previously issued outlook range for the full year of $280 million to $300 million in adjusted EBITDA, and while our first quarter results represented about 20% of that annual expected range, we do expect that adjusted EBITDA for the remaining three quarters will be fairly ratable. I will now turn the call back over to Mark. Mark Ordan: Thank you, Kasandra. I have pounded the drum over the last few quarters that investments in care quality are always wise. Hospital systems want a partner who will outperform, and our patients, of course, deserve nothing less. In the first quarter, we announced that two extraordinary physician leaders from the top of academic medicine are joining Pediatrix Medical Group, Inc.: Dr. Jim Barry, the Chief Clinical Quality and Transformation Officer, and Dr. Jochen Proffitt as Chief Quality Advisor. Jim is nationally recognized for his contributions in neonatal critical care, artificial intelligence in medicine, patient safety, and health care leadership. He has co-founded two national organizations: one is a learning collaborative of neonatologists, data scientists, and clinical information scientists to study the application of artificial intelligence in neonatal critical care and pediatric medicine; and the other is the Clinical Leaders Group of the American Academy of Pediatrics, which is a training, education, and collaboration resource for medical and quality directors of NICUs in the United States. Dr. Barry joined Pediatrix Medical Group, Inc. from the University of Colorado Health System, where he was chair of newborn governance as well as a professor of pediatrics and neonatology at the University of Colorado School of Medicine. Obviously, Jim, who is an MD and an MBA, brings a full package of quality, data, AI, and business acumen. Jochen Proffitt brings nearly two decades of leadership in perinatal quality improvement as chair and principal investigator of the California Perinatal and Maternal Quality Care Collaboratives. He is a professor of pediatrics at Stanford Medicine. These individuals will respectively help lead and advise a team of extraordinary clinicians to continue to raise the bar on quality through analyzing clinical data, reducing care variation, and improving patient outcomes using evidence-based strategies. Beyond the benefit to our core that our quality focus brings, our team is actively engaged in many opportunities to expand what we do. We have more hospital partnerships than any other organization in our core fields, which provides great opportunities in neonatology, maternal-fetal medicine, OB hospitalist, and pediatric intensive care. In addition to our leading in-house presence, we see a major opportunity to expand our teleservices and obstetrics presence nationwide. We believe that an organization like ours will continue to outperform if we stay laser focused on care quality that is data-based. We see great opportunity to leverage our leading footprint both through our data and through tele and remote services. It is that insistence on quality that binds us to our patients and hospital partners. We have the ability to use our strong balance sheet where there are opportunities to expand our core and emerging areas. On our last call, I spoke about a new program to integrate share price-based awards as part of our compensation program. We successfully rolled this out in last year's fourth quarter and in Q1 of this year. Included in this was welcoming 45 clinician leaders to our inaugural class of Pediatrix partners. This group is already actively helping us expand on the work we are known for by combining this superb clinical acumen with the spirit of ownership and alignment. We believe this is unique in our field—but so is Pediatrix Medical Group, Inc.—and we can already see the tangible positives of this new initiative. As a matter of fact, Drs. Proffitt and Barry are joining us because of the really hard work that some of our doctors did to look for the two top people in the field to join us, and I thank them for that. I will close by speaking about our General Counsel and CIO, Mary Ann Moore. In our filing this morning, we announced that Mary Ann will be leaving her role and retiring before the end of the year. In 20 years with Pediatrix Medical Group, Inc., Mary Ann has, and continues to, play a very important role in many areas of our operations, from legal and administrative to overall supervision and guidance. Mary Ann is a trusted colleague and adviser to the whole company and certainly to me and our Board of Directors. We will promptly begin a new search for a new General Counsel. We will now open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star 1 again. Our first question comes from the line of Ryan Daniels with William Blair. Ryan, please go ahead. Matthew Mardula: Hello. This is actually Matthew Mardula on for Ryan. Thank you for taking the questions. When I look at pricing above 4%, are there any potential headwinds or impacts that we should be aware of, or that you see internally, that could reduce the trajectory of this growth going forward? I know you touched on the tax subsidy, but any other details there? Then are you still expecting pricing to be flat for the rest of the year, given the Q1 results? If not, how are you thinking about pricing for the rest of the year? Kasandra Rossi: Sure. On the pricing components, we have talked about the same four factors that have driven pricing over the past several quarters. The first is our RCM cash collections, and we mentioned in 2025 that we had almost a hockey-stick effect for those RCM cash collection impacts coming through pricing. We would expect the first half of the year to still be strong, and then I think it will start to lap as we move into the second half. The other three components that have driven positive pricing are contract revenue—those have continued to be strong. We do not know that will continue at this pace, but right now we know hospitals are facing pressures in that area, and it continues to be strong for us. The third item is payer mix. I know you touched on the tax subsidies. That is an unknown for us, but that has continued to be an area of strength for us that has flowed through pricing. The final one is acuity. We have seen really strong acuity, primarily in neonatology. These four factors have contributed to the last several quarters. Coming in strong at over 4%, we would expect that to tick down a bit as we move through the year, but I do not know of any other headwinds. Matthew Mardula: Great. Thank you for that. Over the last two and a half quarters we have seen declining volume trends, and I know last quarter was more because of the strong top line, but any thoughts on the continued decrease in volume in NICU days? I know it is difficult to pinpoint a reason for this, but how are you thinking about volume going forward and the potential for improvement? Mark Ordan: As I said in my comments, while we saw that in those two quarters, in recent results we have not seen a continuation of that trend. We do not have any different forecast there. Matthew Mardula: Great. Thank you for that. Operator: Our next question comes from the line of Jack Slevin with Jefferies. Jack, please go ahead. Jack Slevin: Hey, good morning. Appreciate the color so far. I want to double click a bit on the pricing side to understand two things. The rev cycle piece is very clear. From a visibility perspective—and I appreciate all the comments around HIX or the subsidies going away—is there anything you can share on what you are seeing on the ground right now as it relates to that continued strength in payer mix, or things you are hearing out of your MFM practices that might tell you how things might be shifting around? We have started to get some data points from payers and from hospitals on what they have seen from volumes or enrollments in HIX, but curious if there is anything additional you can share on that front. Then on the admin fee side, I understand that can move around a little; any visibility to that for the rest of the year would be really helpful. Thank you. Mark Ordan: On the first part, we do not see any signs of weakness. We have looked carefully by geography and by type of line of service, and we do not. I would not say we are surprised; we are pleased. We have speculated that perhaps people are making a cost-benefit calculation when it comes to pregnancy that keeps them in the exchanges. We do not really know, but we have not seen any negative. We expected, as I said on the last call, that there would be some negative around it, and as I said earlier, we know that hospital systems broadly have experienced it. But in no line of our business have we seen any weakness or any trend that would suggest any difference. It could be that there will be a delayed effect, or it could be that we can get through this as we have been. I am sorry, Jack—you also had a question on contract revenue. Kasandra Rossi, do you want to take that? Kasandra Rossi: Sure. On that line, one of the things we have talked about is there are sometimes salary increases in S, W, and B that we will only effect if we do get support from a hospital, so there is some net effect there. Even though you are seeing a bit of growth on that top line, some of that is really going to pay for some of the salary increase on the S, W, and B line. We do anticipate continuing to have those conversations. They are getting tougher, so we hope that it continues to stay strong. It has been anywhere from 10% to 20% of our pricing increase for the last few quarters, and we expect that as we move through the year. If anything changes, of course, we will let you know. Mark Ordan: Do not misunderstand. When it may sound like we are a one-trick pony talking about quality, the whole thesis of Pediatrix Medical Group, Inc.’s business is to be an irreplaceable partner to our hospital partners. If we are providing superior quality and really being a leader in our field, we think it justifies the kind of payments that we get. Kasandra is right that the environment for hospitals is tougher than it has been, which just makes us make sure that we are offering services that hospitals find very valuable and irreplaceable. Jack Slevin: Got it. Appreciate that. Maybe I will sneak two into one to wrap on my end. The couple of deals you have done—obviously not massive in terms of dollar amounts—but sizable enough that they could have a little bit of impact. Anything you can share in terms of what you are seeing on that front? Then, Kasandra, as it relates to the second quarter, are there any one-timers or things we should think about as we are looking at that for modeling purposes? Thanks. Mark Ordan: Because they are not material, we do not disclose the results. I will say that the recent acquisitions we have made have done better than our initial projections, so we are very happy about that. As I said in my remarks, we are actively working on opportunities that we think could bear fruit and be great additions to Pediatrix Medical Group, Inc. Kasandra Rossi: No one-timers to call out for the quarter, Jack. Jack Slevin: Awesome. Thank you both. Appreciate it. Mark Ordan: Thank you. Operator: Again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Pito Chickering with Deutsche Bank. Pito, please go ahead. Philip Chickering: Hey, good morning. Thanks for taking my questions. One more pricing question, and I apologize—it was so much stronger than expectations and obviously had a positive impact on EBITDA. Can you quantify how much of the pricing in the first quarter came from cash collections, just as you think about it fading or comping out in the back half of the year? And then, as you said on the admin fees, that is about 10% to 20%—I assume that was the same for this quarter. What percent of the book has admin fees at this point, and how has that changed year over year? Once you have an admin fee, is that a one-time step-up and then it stops increasing, or does that increase at inflation levels once it is implemented? Kasandra Rossi: About 25% from cash collections. On admin fees, that was around 20%—on the higher end—for the quarter. As to the prevalence and how they change, it depends on the contract. They vary. We have a couple thousand of those contracts. Philip Chickering: Okay, fair enough. Is there any ballpark on how many increase at inflation versus remain flat, just to help with modeling? Mark Ordan: No. I know where you are going with that, but as Kasandra said, we have thousands of contracts and they are all very different. If there were a trend in any way, we would call it out. Philip Chickering: Okay, fair enough. Last question—and maybe I missed this—but I think the previous question asked if you are going to maintain pricing being flat for the year. Are you still maintaining that? Looking at the first quarter with a strong comp, if this is stable, it could lead to pricing of a couple percent this year versus guidance. Are you still maintaining flat pricing guidance for the year? Kasandra Rossi: Yes, we are. We do expect that RCM cash collections, which have been really strong for us, will tail off as we move through the year, and so we are maintaining our flat outlook. It is early; if that does change as we move into the next quarter, we will update you on that. But right now, we are maintaining flat. Mark Ordan: After the last quarter, when we forecast the year on our last call, people asked why we did not put in some kind of hedge. I would say everything indicates that things continue to be strong, so it is hard to forecast something based on a fear or a possibility if there is no data behind it. That is why we are where we are. Philip Chickering: Fair enough. That is it for me. Thanks for the questions, and nice job in the quarter. Kasandra Rossi: Thank you. Operator: There are no further questions at this time. I will now turn the call back over to Mark Ordan for any closing remarks. Mark? Mark Ordan: Thank you all very much for your support, and we look forward to keeping you updated as the year unfolds. Have a great day. Operator: That concludes today’s call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the James River Group Holdings, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the conference over to Bob Zimardo, Senior Vice President of Investor Relations. You may begin. Bob Zimardo: Good morning, everyone, and welcome to James River Group's First Quarter 2026 Earnings Conference Call. A quick reminder that during the call, we will be making forward-looking statements that are based on current beliefs, intentions, expectations and assumptions that are subject to various risks and uncertainties, which may cause actual results to differ materially. Such risks and uncertainties are detailed in the cautionary language regarding forward-looking statements in yesterday's earnings release and the risk factors of our most recent Form 10-K and other reports and filings we have made with the SEC. We do not undertake any duty to update any forward-looking statements. In addition, during this presentation, we may reference non-GAAP financial measures. Please refer to our earnings press release for a reconciliation of these numbers to GAAP, a copy of which can be found on our website. And lastly, unless otherwise specified for the reasons described in our earnings press release, all underwriting performance ratios referred to are for our continuing operations and business that is not subject to retroactive reinsurance accounting for loss portfolio transfers. I will now turn the call over to Frank D'Orazio, Chief Executive Officer of James River Group. Frank D'Orazio: Thank you for the introduction, Bob. Good morning, everyone, and thank you for joining us today. As we do each quarter, we look forward to discussing notable highlights of our performance, updates on the execution of key corporate objectives and the progress that James River continues to make in becoming a best-in-class E&S carrier. This quarter, our E&S results were negatively impacted by a sizable reinsurance reinstatement charge on a 2022 casualty treaty triggered by an individual claim, a disappointing development on an otherwise solid quarter. As we've discussed in the past, the organization restructured its E&S treaty placements in July of 2023 to prevent these types of outsized adjustments from impacting future results. In a few moments, Sarah will provide additional details on the specifics of this reinsurance charge. But before she does, I'd like to spend a few minutes discussing our current view of the market opportunity for James River as well as our progress across a number of prioritized corporate initiatives. First and foremost, relative to market opportunities, we continue to believe that heightened discipline is essential in a transitioning marketplace, and James River has been well served by the refinement of our underwriting appetite, focus on smaller insureds, investment in underwriting governance and performance monitoring and prioritization on underwriting margin, particularly over the last several years. For 2026, we feel our greatest opportunity to push rate remains in our Excess Casualty division and the greatest opportunities for overall growth reside in our specialty lines division as well as our small business unit, underwriting areas that we feel hold the most attractive margin in today's marketplace. At the segment level, casualty rates were positive at 7.7% for the quarter and were consistent with our expectations. While pressure on rates has been most pronounced in our excess property division for several quarters now, we've also recently seen increasing competitive pressure in our primary general casualty department. And as a result, our underwriters are navigating opportunities in those lines with appropriate prudence. For the segment, submission growth was strong at 4%. And for the first time in several quarters, we modestly grew gross written premiums across our E&S Casualty and Specialty portfolios with 7 of our 14 underwriting divisions reporting positive growth. Excluding our manufacturers and contractors business, where we made refinements and appetite last year and our small delegated contract binding portfolio, which is currently in runoff, our casualty portfolio was up over 6% when compared to the prior year. Looking more closely at production, targeted growth during the quarter was driven by several areas I have highlighted this morning. In the aggregate, specialty lines were up 6%, driven by professional liability, energy and health care and excess casualty premiums increased 15%, largely driven by our underwriters' ability to continue to drive rate. As mentioned earlier, during 2026, the company has prioritized a number of initiatives aimed largely at making James River a more efficient organization while also significantly improving our business development acumen and expanding our presence with our distribution partners. Continuing the same discipline that we exhibited during 2025, we also reduced G&A expenses across the group during the quarter by 11%. Finally, as we discussed during last quarter's call, we are excited about the significant investments in technology that we believe will increase underwriting efficiency while improving the underwriting tools and resources available to our E&S underwriting staff. The rollout of AI-enabled underwriting workbench technology is already underway with our first 2 underwriting departments being rolled out this quarter, and we expect to report on the progress of the initiative in future quarters. We are confident that the combination of underwriting improvements and appetite changes we have made over the last several years in concert with continued expense vigilance and technology adoption will allow us to optimize our SME platform and further differentiate our very special wholesale-only distribution model. As we manage the market cycle, I'm encouraged by the uptick in focus production in areas we are hoping to scale and by our ability to continue to push rate where necessary as we navigate through 2026. It continues to be a dynamic and competitive marketplace, but we are well positioned to succeed, strongly supported by our underwriters and wholesale distribution partners. With that, I'll turn it over to Sarah to walk through the financial results in more detail. Sarah Doran: Thank you, Frank, and good morning, everyone. This quarter, we reported a net loss to common shareholders of $10.9 million, which compares to net income of $7.6 million for the first quarter of 2025. Operating earnings were $5.8 million or $0.12 per diluted share as compared to $9.1 million or $0.19 per share. As Frank mentioned, our results this quarter were negatively impacted by $6.7 million of reinsurance reinstatement premiums, largely related to a single E&S claim from 2022 that was booked and settled in the first quarter and subject to our prior $9 million excess of $2 million casualty reinsurance treaty. The runoff structure of that treaty includes specific amounts of reinstatement premium potential for each accident year, leaving reinstatement premium aggregate exposure of about $9 million across accident years 2022 and prior. The structural changes that we made to that treaty should mitigate the forward impact of earnings volatility for accident years 2023 and on as we now pay a higher rate on such a premium upfront rather than pay meaningfully for these reinstatement premiums. Absent the reinsurance reinstatement impact, operating earnings would have been $0.22 per diluted share. This impact reduced net written premium, net earned premium and underwriting income for the quarter. It added approximately 5 points to the group combined ratio of 104.6%, including almost 2 points to our expense ratio, which was 35.4%. Absent this impact, the consolidated combined ratio would have been 99.7%, comprised of an adjusted loss ratio of 66% and expense ratio of 33.7%. For E&S specifically, the combined ratio of 96.5% was driven by a 68% loss ratio and a 28.5% expense ratio. And again, when adjusted for the impact of reinstatement premiums, the E&S combined ratio would be 91.8%, which is right in line with that of the prior quarter. Moving quickly to expenses. As Frank mentioned, expense efficiency continues to be a priority and G&A expenses declined 11% compared to the prior year quarter, driven by reductions within Specialty Admitted, where they were down 46% in the Corporate segment, where they were down 15%. Underlying loss trends remain stable, and the reserves continue to reflect improved risk selection in the more recent accident years. We recorded de minimis favorable reserve development of $165,000 split between E&S and Specialty Admitted. Consistent with the prior year period, and we continue to observe lower frequency and incurred losses in recent accident years, while remaining appropriately cautious in recognizing those trends as the business seasons. During the quarter, we ceded $16.2 million of development to the E&S top-up adverse development cover, which covers accident years 2010 through 2023. There is $7.5 million remaining on that cover. Finally, moving on to investments. Net investment income was $21.3 million for the quarter, an increase of 6.6% year-over-year. These results were driven by improved private investment income due to our move over the last 18 months to invest capital efficiently in private credit rated note vehicles as well as the deployment of cash into our high-grade portfolio. While we did have strong income from our diversified bank loan portfolio, which represents about 8% of our total cash and invested assets, we also saw some volatility there as the largest driver of net realized and unrealized investment losses. Overall, though, the portfolio remains positioned fairly conservatively with about 73% of it invested in high-grade fixed income at an average duration of 3.5 years and an A+ average credit rating. Tangible common equity per share declined modestly to $8.77, reflecting the combination of investment market movements and the impact of the legacy reinsurance structures. With that, I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Mark Hughes with Truist. Mark Hughes: Frank, you had mentioned a little more competition in the primary general casualty. Where do you see that coming from? How significant do you think that is? Frank D'Orazio: So in casualty lines, first of all, thanks for the question, Mark. In casualty lines, we've seen fairly aggressive MGAs and just an overall increase in capacity from carriers interested in the E&S sector as others, I think, have reported. We've also seen some of the newer competition not only competing on price, but in terms and conditions that at this point, seem unwise, particularly in the GC space. I mean fortunately, for James River, we've been in the sector for greater than 20 years with an existing portfolio and long-standing relationships with distribution partners and insurers. But we definitely see a break between underwriters being able to push rate in the excess lines versus the primary lines, much more significant. There seems to be more respect for loss trend from excess casualty underwriters at this point. Mark Hughes: Understood. And then, Sarah, on the adverse development cover, the top-up cover, what through the total reserves that are covered by that? And then if you've got it in front of you, how much has been paid on those expected losses? Just trying to figure out what the paid versus unpaid is at this point on the relevant reserves. Sarah Doran: Yes. Thanks, Mark, for the question. I don't have the page right in front of me, but very little of the reserves subject to those -- both of those structures would have been paid by now. I can certainly follow up with that. But order of magnitude, I would expect that number to be fairly low. And then the top-up adverse development cover and the other E&S ADC, LPT cover all E&S accident years 2010 through 2023 with the exception of the excess property book and the exception of the runoff Uber portfolio, which is covered by a legacy structure as well. Mark Hughes: Understood. If I could slip a third one in. Frank, you talked about the AI-enabled technology on the underwriters work bench, I think. Could you expand a little bit more on that, kind of what are the kind of practical implications of their day-to-day underwriting activity? And what do you think it could mean in terms of either efficiency, underwriting effectiveness? Just curious. Frank D'Orazio: Sure, Mark. So we spent the first -- really the last few years, I would say, kind of updating and upgrading our core systems, which has enabled us to now explore and invest in these AI-enabled work benches. And we see it as a competitive enabler just allowing us to optimize operational efficiency. But it really runs a gamut of clearance through risk prioritization against our appetite and production source relationships, data ingestion from third parties and ultimately, we will facilitate quote and buying processes. So we see it as a major efficiency play relative to being able to turn around quotes quicker and in a more targeted fashion. Operator: Your next question comes from the line of Brian Meredith with UBS. Brian Meredith: Frank, just following up on the market conditions. Perhaps you can kind of give us a little color on what's going on as far as movements between E&S and the admitted markets. We've heard that we're starting to see some business move back to the admitted market. Frank D'Orazio: We've definitely seen that as well, particularly in property. We've definitely seen that. But we've now started to see it in some of the more standard lines like primary casualty as well. So from a primary basis, some lines that have historically been in the E&S marketplace now starting to attract some attention from standard markets as well. But I would say, to date, it's been most broadly observed in the property area for us specifically. Brian Meredith: So would you like characterize as like a typical cycle here where business starts to move back a little bit? The market has been transitioning... Frank D'Orazio: I'm sorry, Brian, did I catch that? Brian Meredith: You think it will continue? Frank D'Orazio: Yes. So listen, I think we're several quarters now into a transitioning market, and this is kind of an old story, right? So we start to see some of this business now get the attention of the admitted market. But I think it's going to be more specific to certain classes of business. And anybody who hangs a shingle, writes a primary general casualty capability or has a primary casualty capability. So that's an obvious choice as is property as well. We're seeing, I think, a little bit more resilience in some of the specialty lines. Brian Meredith: Appreciate that. That's great. And then, Sarah, just one other just quick question on this reinstatement. Just trying to get my hands around it. So I think what's going on here, right, is that because there was perhaps some development on this claim is why you had the reinstatement premium come through. Is that true? So like if the treaty wasn't in effect, would there have been adverse development booked this quarter on this claim? Sarah Doran: Well, that -- let me just be clear. The 9X 2, there's an awful that covers the majority of our E&S book. That's obviously a prospective treaty. So I want to differentiate that from the retrospective treaties. And we have reinstatement premiums pretty frequently. I think what stood out this quarter, Brian, was that it was more sizable. So it was a larger claim that settled. But there is a fair amount in that book that, that treaty protects us from on an ongoing basis. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back over to Frank D'Orazio, CEO, for any closing comments. Frank D'Orazio: Thank you, moderator. I also want to thank everyone who listened to our call for their time and thoughtful questions this morning. While the quarter did have its headwinds, a very positive takeaway that remains is the underlying strength of the improved business model that we continue to build and most notably, the very targeted growth in Specialty and Casualty lines, the expense discipline and a team that is executing in today's market. We are well positioned for 2026 and look forward to keeping you updated on our progress in just a few months. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Welcome to GlobalFoundries First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Eric Chow, Head of Investor Relations. Please go ahead, sir. Eric Chow: Thank you, operator. Good morning, everyone, and welcome to GlobalFoundries' First Quarter 2026 Earnings Call. On the call with me today are Tim Breen, CEO; and Sam Franklin, CFO. A short while ago, we released GF's first quarter 2026 financial results which are available on our website at investors.gf.com, along with today's accompanying slide presentation. This call is being recorded, and a replay will be made available on our Investor Relations web page. During this call, we will present both IFRS and non-IFRS financial measures. The most directly comparable IFRS measures and reconciliations for non-IFRS measures are made available in today's press release and accompanying slides. Please note that these financial results are unaudited and subject to change. Certain statements on today's call may be deemed to be forward-looking statements. Such statements can be identified by the terms such as believe, expect, intend, anticipate and may or by the use of the future dense. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks and uncertainties described in our SEC filings, including in sections under the caption Risk Factors in our annual report on Form 20-F and in any current reports on Form 6-K furnished with the SEC. In terms of upcoming events, we look forward to hosting our Investor Day this Thursday, May 7, with live public webcast beginning at 9:00 a.m. Eastern Time. During the event, our leadership team will provide updates on GF's strategy, growth initiatives and long-term outlook, followed by a Q&A session. We will also be participating in fireside chats at the JPMorgan Global Technology, Media and Communications Conference in Boston on May 19 and the TD Cowen Technology, Media and Telecom Conference in New York City on May 27. We will begin today's call with Tim providing a summary update on the business environment, technologies and end markets. Followed by Sam, who will provide details on our first quarter results and second quarter guidance. We will then open the call for questions with Tim and Sam. We request that you please limit your question to one with one follow-up. I'll now turn the call over to Tim. Timothy Breen: Thank you, Eric, and welcome, everyone, to our first quarter 2026 earnings call. GF delivered a strong first quarter with all of our non-IFRS profitability metrics at or above the high end of their respective guidance ranges. This was the result of excellent execution by the team with a focus on delivering for our customers. These results demonstrate a strong step forward in our multiyear journey to enhance the quality of our revenue composition, improve our structural cost position and achieve efficient scale across our world-class fabs. We have made meaningful traction in secular growth end markets, where our differentiated technology drives share growth and [indiscernible] value creation. The first quarter continued to demonstrate proof points of this transformation. We delivered strong double-digit percentage growth in both automotive and comms infrastructure and data center. I'm proud of our team's accomplishments this quarter. We continue to execute to our proven 3-pillar strategy: to innovate and deliver a unique technology road map; to deepen our engagement throughout our customers' design cycles and to scale our diverse and fungible global footprint. Let me now update you on our progress on each. First, our unique and innovative technology road map. There is no better proof of our technology innovation that with our industry leadership in optical networking, which includes both our silicon sonics and silicon germanium capabilities. With the advent of optical for scale across scale out and scale up networks, the market is moving to adopt our solutions for pluggable, near and co-packaged optics. With process technology leadership, in-house design, assembly, test and packaging ecosystems, all supported with high-volume manufacturing in our advanced 300-millimeter fab footprint, including here in the U.S., we believe no other company has our suite photonics offerings at scale. Beyond silicon photonics, we also believe we have robust growth and opportunity within our silicon germanium solutions in the AI data center. SiGe by CMOS, or just SiGe, is another great example of GF's preparation and foresight meeting a strong positive inflection point in the market. Our SiGe technology is a critical enabler for data center networks where [indiscernible] amplifiers, TIAs and drivers using GF's solutions support the conversion between high-speed electrical and optical signals. GF SiGe has industry-leading FT and S-MAX performance. This means faster, cleaner signal amplification, more headroom and lower data loss across the system. TIAs and drivers are required on virtually every data center connection, and industry forecasts are anticipating significant unit growth in the coming years. Correspondingly, we are seeing very strong customer demand for our SiGe solutions with capacity at our Vermont fab oversubscribed through well into 2027. As these city offerings are meaningfully margin accretive to our overall business, we are expanding SiGe capacity to meet accelerating customer demand. We expect GF SiGe opportunity to be a substantial driver of high-quality long-term revenue growth that complements [indiscernible] to form a comprehensive optical networking portfolio. Another notable proof point of GF leadership was announced at the Optical Fiber Communications conference, OFC, in March. At OFC, [indiscernible] members of the Optical Compute Interconnect Multi-Source Agreement, or OCI MSA, including AMD, Broadcom, NVIDIA, Meta, Microsoft and OpenAI, established the CPO industry standard for scale-up networks that perfectly aligns with the capabilities GF has spent years developing. This was no accident. Thanks to our proven development and leadership in Dense Wavelength Division Multiplexing, or DWDM, GFNR partners provided industry proof points, laying confidence to the OCI founders to define this high standard. As a result, just a month after the OCI standard was announced, year-to-date, GF announced its complete optical module solution for NPO and CPO, known as scale or silicon photonics co-packaged advanced light engine. This is not just the industry's first OCI MSA capable platform, the technical specs exceed the MSA requirements, supporting our customers' road maps for multiple generations. For example, scale fiber coupling is natively broadband, which enables it to excel at minimizing insertion loss, a key differentiator for CPO. Our years of development, including partnering with our customers to design scale from the ground up, feedback so far has been excellent. In the first quarter, we saw new tape-outs in Multi New York for a pair of CPO design wins that support the new optical compute interconnect OCI standard for scaled networks. We are excited to share more details on scale and other developments at our Investor Day on May 7. also, at OFC in March, GF made several announcements in conjunction with partners that showcased our robust silicon photonics offerings. Notable highlights included the following: Senco and GF demonstrated a wafer-level detachable fiber interface solution for CPO, a critical breakthrough that enables [indiscernible] connectivity to be attached and detached through the entire [indiscernible] development process for precise and repeatable testing. Together with Corning and EXFO, GF showcased a complete ecosystem of CPO technology, which combined attachable fiber connectivity and automated die-level testing with high-volume silicon photonics manufacturing. Finally, we announced a strategic partnership with Siltech to mass produce 200 gig per lane receiver photonic ICs for pluggable optical transceivers using our process technology. All of these recent developments represent a growing body of proof points for the value our innovative technology road map provides. Let me now discuss our second key strategic pillar and provide an update on our customer partnerships and commercial engagements. Thanks to our robust product portfolio and deep partnerships with customers, we continue to accelerate our design win momentum. In the first quarter, we saw a 50% increase in design wins compared to the same period a year ago, with excellent representation across all 4 major end markets. Not only does this build on the record design win year in 2025, it is another leading indicator of our tape-out for revenue momentum in the years to come. Notable commercial engagements in the quarter included the following highlights. GF and Renesas announced a multibillion-dollar strategic partnership that expands [indiscernible] to GF technologies, including FDX, BCD and feature is CMOS with integrated nonvolatile memory. These platforms will support SoCs, power devices and MCUs for applications such as data center power, advanced driver assistance systems and secure industrial IoT connectivity. Tape-outs under the broadened collaboration are already underway, and we believe this partnership will contribute meaningfully to continued outperformance and ramp of our data center business over time. In automotive, we are particularly encouraged by the strong customer momentum around our new Auto Grade 1 embedded MRAM capability on FDX. This technology offers industry-leading 100 megahertz class access times for code execution directly from MRAM, combined with ultra-low power operation and proven insurance and reliability up to 150 degrees C. Our lead customers have taped-out with this feature. And as highlighted in our recent announcement, we are seeing growing engagement and traction with Tier 1, such as Bosch, as this technology moves towards production. This underscores the differentiated value of our SDX platform as automotive customers transition to a next generation of software-defined real-time systems. In our smart mobile devices end market, we continue to secure additional design wins in the quarter that expand our reach into new applications and emerging form factors that benefit from the features we offer such as low power, rate of reliability and superior RF performance. For example, in the first quarter, we secured 2 new design wins on our SDX platform for micro LED back planes used in smart glasses, a fast-growing market is starting to gain adoption. In the realm of robotics and typical AI, in March, GF announced a partnership with Inova Semiconductors to deliver our robotics control reference platform that combines MIPS open risk 5 compute and mixed-signal technologies with Inova's high-speed communication links. This physical AI reference platform will simplify robot design, reduce bond costs and accelerate time to market, enabling next-gen humanoid and advanced robotics. Finally, for optical networking reported within our comms infrastructure and data center end market, we have substantial forward momentum in both customer wins and pipeline. In the first quarter, we executed additional tape-outs for silicon photonics that reinforce our confidence that we are on track to roughly double our silicon photonics revenue in '26 and to achieve greater than $1 billion silicon photonics revenue run rate exiting 2028. GF is now designed in at 3 of the top 4 pluggable optical transceiver companies. Customers continue to provide excellent feedback on our suite of pluggable offerings that enable 1.60 solutions as well as a road map to 3.2T and beyond. With our proven record of high body manufacturing at scale, we believe we can sustain a strong growth trajectory in this area for years to come. Now let me address our third strategic pillar, the value and importance of GF's unique diversified manufacturing footprint. Recent world events have only reinforced the reality that faces business and government leaders around the globe. Concentrated supply chains are now subject to previously unimagined risks. The [indiscernible] lies in diversification flexibility and security. All 3 areas that GF is uniquely positioned to provide our customers. In a fragmented geopolitical environment, our 3 continent manufacturing footprint across the U.S., Germany and Singapore is a tremendously valuable asset for our customers. In particular, we have invested for years to cross-qualify fungible capacity across our fab network, meaning a customer who only design with GF once and gain the flexibility to manufacture out of 3 continents. Our one-of-a-kind footprint provides supply chain resilience, closer proximity to end demand and greater nimbleness to shift supply quickly as market demand changes. For many of our customers, geographic flexibility is no longer a nice to have, it is a requirement. As a result, we continue to see a meaningful increase in customer engagements and design win activity specifically linked to onshoring. For example, last month, Apple announced a joint collaboration with [indiscernible] Logic and GF to bring new process technologies to our Multi New York fab. This marks the first U.S. availability of the silicon platform that supports clinical functions in upcoming Apple devices, including next-generation components used in face ID systems. GF is proud to be a founding partner in Apple's American manufacturing program. We see this as another step in a growing partnership and just one notable example of our onshoring value proposition. We are not just partnering with customers to onshore semiconductor supply. We are also working closely with the governments of the U.S., Germany and Singapore. In the U.S. in particular, support frameworks such as chips grants and investment tax credits are an important element to our long-term strategic road map, and we continue to deepen our partnership with the U.S. government both for capacity growth as well as innovation and technology onshoring. In summary, I'm deeply proud of our team's execution in this quarter, which advanced GF across all 3 strategic pillars. With our deep and differentiated technology portfolio, we are reaping the benefits of years of innovation. With our customer-first approach and design enablement capabilities, we remain the partner of choice. With our unique and diversified scaled manufacturing footprint, we are empowering the global onshoring megatrend. All of these place GF at the heart of the industry transformations to come. I'll now pass the call over to Sam for a deeper dive on first quarter 2026 financials. Sam Franklin: Thank you, Tim. For the remainder of the call, including guidance other than revenue cash flow and net interest income, I will reference non-IFRS metrics. GF delivered strong results in the first quarter, with revenue in the high end of the guidance range and gross margin and operating margin well above the high end of the ranges. In particular, our gross margin achieved the first quarter record and grew over 500 basis points year-over-year, representing the biggest expansion in 3 years. This is testament to our team's execution and relentless focus on the structural levers driving GF sustained improvement in profitability, and we believe we're only in the early stages of this margin expansion opportunity. Before I go deeper into the financials, I'd like to take a moment to update you on some terminology changes to our revenue categorization. The acquisition of MIPS, closed in August 2025, as well as the announced acquisition of the Synopsys ARC, our key business, which we expect to close towards the end of the first half of 2026, are both helping to transform GF into a holistic technology solutions provider. As a result, we believe that non-wafer revenue no longer captures the broader reach of our customer offerings, which we expect to include an increasing proportion of revenue from IP, licensing and software over time. Similarly, wafer revenue is evolving to capture our expanding manufacturing capabilities in custom silicon and advanced packaging, which we look forward to covering in more detail at our Investor Day on May 7. As a result, revenue previously referred to as wafer revenue will now be categorized as revenue from manufacturing services, and non-wafer revenue will now be categorized as revenue from technology services. We believe these categories better reflect the depth and breadth of our business model today and going forward. Now on to the results. We delivered first quarter revenue of $1.634 billion, down 11% sequentially and up 3.1% year-over-year. We shipped approximately 579 300-millimeter equivalent wafers in the quarter, down 6% sequentially and up 7% from the prior year period. Revenue from manufacturing services accounted for approximately 87% of total revenue. Revenue from Technology Services, which includes revenue from IP, licensing, software, reticles, nonrecurring engineering, expedite fees and other items, accounted for approximately 13% of total revenue for the first quarter. Revenue upside in the quarter for Technology Services was driven by increased mask and reticles as we ramp customer tape-outs as well as consistent momentum from within IP licensing and software as we integrate the acquisition of MIPS. As the momentum and engagements with customers grow, we expect MIPS to contribute a greater proportion of our technology services revenue going forward at an accretive gross margin to our corporate objectives. All of these factors considered, we expect revenue from Technology Services to comprise a greater proportion of our total 2026 revenue, closer to the high end of our original 10% to 12% range. Our early traction here adds to our belief that the Technology Services portion of our business will be an important long-term driver of durable, high-quality, high-margin growth. Let me now provide an update on our revenue and outlook by end markets. Communications infrastructure and data center represented approximately 14% of first quarter total revenue and increased 2% sequentially and 32% year-over-year. This marked the sixth consecutive quarter of double-digit percentage year-over-year growth for communications infrastructure and data center. Within this end market, silicon photonics drove robust growth in the first quarter and remains on track to roughly double in 2026 compared to 2025. In line with our expectations, we saw a healthy revenue contribution from Advanced Micro Foundry, which GF acquired in November of last year. The integration is progressing well as we expand our photonics capabilities at the Jeff Science Park. Combining GF's significant scale in Singapore with AMF's complementary customer base and pluggable photonics solutions for scale across networks has expanded our customer momentum in this rapidly growing market. This acquisition is already gross margin accretive to GF, and we expect to realize even greater growth and profitability tailwinds in the coming years. For these reasons, we now expect to achieve high 30s percent year-over-year revenue growth in our communications infrastructure and data center end market in 2026, up from our expectations a quarter ago of approximately 30% year-over-year growth. Automotive represented approximately 23% of first quarter total revenue. Automotive revenue decreased 11% sequentially off a strong fourth quarter and increased 24% year-over-year. In addition to our strong customer share in automotive microcontrollers, we are in the early stage of revenue ramps as a result of our accumulated design wins in smart sensors and networking as well as vehicle infrastructure. We are continuing to diversify our offerings to the automotive end market by ramping newly secured sockets in applications such as camera, ethernet, radar and power. It is our differentiated technology and disciplined execution that we believe is enabling GF to capture the growing automotive semiconductor content opportunity and outperform peers in this end market. As a result, we expect Automotive revenue to deliver low double-digit growth in 2026. Its sixth consecutive year of double-digit percentage growth. Smart mobile devices represented approximately 34% of first quarter total revenue and declined 15% sequentially and 5% from the prior year period. Current industry forecasts for overall smartphone units in 2026 indicate a low double-digit percentage year-over-year decline. With approximately 2/3 of our revenue in this end market driven by premium handsets, we expect to see a more contained impact from memory pricing dynamics compared to the broader industry. As such, we expect revenue from smart mobile devices in 2026 to slightly outperform the overall smartphone market, with an expected decline in the high single-digits percentage. Beyond the near-term dynamics, we expect smart mobile devices to gradually benefit from the growth of new AI-powered form factors, such as smart glasses, hearables and wearables where we have nascent growing traction and design wins with our customers. Finally, home and industrial IoT represented approximately 16% of first quarter total revenue and decreased 16% sequentially and 22% year-over-year. The decline in revenue from this end market in the first quarter was principally driven by the timing of certain customer shipments, a temporary impact, which we expect to reverse in the second quarter. Importantly, we continue to expect 2026 to be a growth year for IoT, driven by the normalization of core industrial customer inventory as well as the production ramp of new applications in the second half of 2026, which we believe should contribute to a healthy growth of mid-single-digit percentage year-over-year. Beyond 2026, we expect this end market to be one of the primary beneficiaries of the burgeoning physical AI revolution and serviceable addressable market expansion, where our technology platforms and solutions are well suited to enable devices to sense, think, act and communicate. In summary, we believe GF's strong secular growth drivers, including meaningful upside from our recent acquisitions will help offset smart mobile devices in 2026. As continued growth across the other end markets we serve, expand as a percentage of revenue. These strategic actions are also intended to accelerate our targeted mix shift towards margin accretive high-value growth markets and applications. We believe the result over time will be a more durable, more resilient, more profitable business. In the first quarter, we delivered gross profit of $474 million, which translates into approximately 29% gross margin, above the high end of the guidance range and up 510 basis points year-over-year. First quarter saw the largest year-over-year expansion of gross margin in over 3 years. R&D for the quarter was $114 million, and SG&A was $89 million. Total operating expenses of $203 million, were up 4% quarter-over-quarter and represented approximately 12% of total revenue. We delivered operating profit of $271 million for the quarter and an operating margin of 16.6%, above the high end of our guided range and up 320 basis points from the prior year period. First quarter net interest income, net of other expenses, was $5 million, and we incurred tax expense of $49 million in the quarter. We delivered first quarter net income of approximately $227 million, an increase of approximately $38 million from the prior year period. Diluted earnings of $0.40 per share was at the high end of the guidance range based on a free diluted share count of approximately 561 million shares. Let me now provide some key cash flow and balance sheet metrics. Cash flow from operations for the first quarter was $542 million. First quarter CapEx net of proceeds from government grants was $309 million, or roughly 19% of revenue. Adjusted free cash flow for the quarter was $233 million, which represented an adjusted free cash flow margin of approximately 14% in the quarter. This outcome was principally driven by favorable working capital movements in the first quarter, which we expect to reverse in the second quarter. At the end of the first quarter, our combined total of cash, cash equivalents and marketable securities, stood at approximately $3.8 billion. Our total debt was $1.1 billion, and we also have a $1 billion revolving credit facility, which remains undrawn. In the first quarter of 2026, we repurchased $400 million of shares of the $500 million share repurchase authorization approved by our Board of Directors, approximately $100 million remains, and we remain flexible with the deployment of the remaining authorized amount. Capital allocation, planning and decisions remain tightly linked to visibility, returns and balance sheet resilience. As we move through 2026, our focus remains consistent, disciplined capacity investments structurally improving margins and cash generation aligned with returns. We will continue to drive momentum in areas that we can control and deliberate in how we allocate capital. Next, let me provide you with our outlook for the second quarter of 2026. We expect total GF revenue to be $1.76 billion, plus or minus $25 million. We expect gross margin to be approximately 28.5%, plus or minus 100 basis points, which at the midpoint reflects over 300 basis points of year-over-year gross margin expansion. Excluding share-based compensation, we expect total operating expenses to be $225 million, plus or minus $10 million. We are ramping R&D programs in the second half of 2026 to strengthen our technology differentiation and accelerate our road map in secular growth areas, such as custom silicon, silicon photonics and advanced packaging. Taking into account these investments into R&D and the expected close of the Synopsys ARC IP business acquisition towards the end of the first half of 2026, we expect to maintain a similar quarterly operating expense run rate in the second half of 2026, as indicated in our second quarter guidance. We expect operating margin to be in the range of 15.7%, plus or minus 180 basis points. At the midpoint of our guidance, we expect share-based compensation to be approximately $71 million, of which roughly $19 million is related to cost of goods sold. We expect net interest and other for the quarter to be between negative $6 million and $2 million and income tax expense to be between $28 million and $48 million. Based on the tax environments across the jurisdictions we operate in, we continue to expect an effective tax rate in the high teens percentage range for the full year of 2026. Based on a fully diluted share count of approximately 555 million shares, we expect diluted earnings per share for the first quarter to be $0.43, plus or minus $0.05. Given the timing of tool delivery windows in order to meet forecast customer demand in critical growth corridors as well as the timing of government grants, we expect net CapEx to increase in the second quarter. For the full year 2026, we continue to expect non-IFRS net CapEx to be in the range of 15% to 20% of revenue. Our CapEx strategy continues to align the sizing and timing of our investments with customer demand while scaling our footprint efficiently. Over the last few years, we have seen notable increases in customer demand for incremental capacity in high-growth technology corridors such as silicon photonics, FDX and high-performance SiGe. In order to unlock sustainable accretive revenue growth, we are expanding capacity in these areas to support the strong demand signals from our customers. Critically, these targeted CapEx investments are supported by robust partnerships with both customers and governments. As a result, we expect that the next wave of capacity investments will be accompanied by customer prepayments in addition to meaningful government grant and tax incentive frameworks in all of the geographies we serve. Even with greater investment in enabling capacity in these key growth technology corridors, we continue to expect adjusted free cash flow margin of approximately 10% for the full year 2026 with a skew towards the second half. In summary, I'm grateful for our team's excellent execution this quarter and the strong progress we are making towards our long-term strategic objectives, which are reflected in our financial performance. We believe GF is at a definitive inflection point where years of preparation have positioned us well to capitalize on the secular megatrends defining our industry, and we very much look forward to sharing more details with you all at our Investor Day on May 7. With that, let's open the call to Q&A. Operator? Operator: [Operator Instructions] Our first question comes from the line of Harlan Sur from JPMorgan. Harlan Sur: Congrats on the solid quarterly execution. Industry demand trends, even over the past 90 days, have accelerated, especially in areas like AI and data center where cloud and hyperscale spending continues strong. In non-AI segments, we're seeing this broad cyclical recovery profile. And then on the supply side, advanced all manufacturers are actually cutting their specialty mature capacity. And your competitors in specialty and differentiated are signaling wafer pricing increases starting in the second half of this year. I know the team had previously talked about a stable pricing environment this year. But just given the tight supply outlook, continued focus on supply chain resiliency, as you guys had outlined, how should we think about your pricing profile as you move to the second half and for the full year? . Timothy Breen: Yes. Thank you for the question, Harlan. I think the way you can think about it is differently for different parts of the portfolio. Obviously, there's a part of our portfolio that prices on a very long-term basis. That's been stable for several years now and continues to be stable going forward. There is a component, a smaller component of the portfolio, the prices over a more short-term dynamic. And exactly, as you said, both the supply and demand dynamics there are more favorable from a pricing perspective. And consistent with peers, consistent with even many of our customers, we will implement price adjustments on that part of the portfolio. You can imagine those kicking in towards the back end of 2026 and obviously flowing into 2027. I'll also add that for part of our portfolio where we are, capacity constrained, where demand is stronger, we're also having conversations with customers, not just about pricing but also about advanced payments to secure capacity as we accelerate our CapEx investments in those tight corridors such as FDX, silicon photonics, high-performance silicon germanium. Those customer discussions are very constructive. Harlan Sur: Appreciate that. And gross margins came in 200 basis points better than guidance. MIPS was such a factor, right, your higher gross margin segments like CID, auto, technology services did better on a sequential basis. And for the last question, on industry supply tightness, it looks like the team potentially also benefited from sustained or increasing utilization. But maybe you could just help us understand puts and takes around gross margins Q1, during Q2? And then given the better demand mix, pricing outlook, how should we think about gross margin trajectory as you move through the second half of the year? Could we see the team, as we end the year, closer to the 33%, 35% range? Sam Franklin: Harlan, it's Sam here. I'll provide you a little bit of color there. Obviously, we're very encouraged by where we're seeing the structural improvements within our gross margin profile, and this has been a trend which has been continuing for last couple of quarters now. Obviously, if you look at things from a year-over-year basis, roughly 3% of revenue growth but 510 basis points of gross margin. And so this is something we've been positioning for several years. These types of structural levers don't happen overnight, and they really focus across several areas in the business, namely productivity cost continuing, as Tim said, to optimize our footprint from a technology point of view. And mix obviously really matters as well. If I touch specifically on the first quarter and bridge you a little bit from last year. The single biggest driver there was mix and mix falls into 2 categories. It's the mix as it relates to our manufacturing services, and it's the mix as it relates to our technology services. And you called it out in part of your question, which is the relative strength of the growth that we've seen within those rich mix environments from, say, for example, a communications infrastructure and data center point of view, which generally falls through at a very high margin relative to our corporate objectives. And the same is true for the likes of automotive. So that's a contribution from manufacturing services, high rich mix has been important. And I'd say as well, from a revenue from technology services perspective, that's continued to trend actually in the first quarter, above the high end of the range, that we indicated. We expect it to be at around 12%. We ended up coming in at 13% of revenue. And part of that is related to the increased contribution we're seeing from the likes of mix and our capabilities in that arena. But I'd say that was factored into our guidance. We did see some stronger mask and [indiscernible] related revenue within technology services in the first quarter as well. And particularly in the aerospace and defense sector as well, and that falls through at a relatively attractive margin as well. So we're quite encouraged from that perspective. I'd say the other dynamic outside of mix is really from a cost perspective. And the teams have been focusing maniacally on driving cost and productivity improvements. actually, as it relates to the 200 basis points that you referenced in the quarter, about 1 point of that came through cost synergies that we've been driving from our acquisition of Advanced Micro Foundry in Singapore. So that came in certainly more favorable from the perspective of where we were at about 90 days ago. So you take that combination of richer mix, technology services, favorability from the acquisition when we made [indiscernible], that kind of bridges you to that 200 basis points of outperformance we had relative to the midpoint of our guidance. I think if I fast forward a little bit to take you into where we're looking at the guidance from the second quarter perspective and how we think about things for the remainder of the year, look, I'd like to focus a little bit on the year-over-year story here because I think it really matters in terms of that structural evolution that we're seeing. At the midpoint of our guidance range, that implies about 330 basis points of year-over-year margin growth. But if you take the revenue we delivered in the second quarter of last year, $1.688 billion, we delivered gross profit of about $425 million in the second quarter of last year. And then you compare that through to midpoint of our revenue guide for the second quarter at $1.76 billion and you take that 28.5% midpoint of the range, that implies about $500 million of gross profit delta, which actually corresponds almost fully to the revenue delta. So what you're seeing is a very meaningful pull-through from that increase in revenue relative to the year-over-year margin story there as well. Now just on a couple of the -- if you like, the pace as it relates to second quarter and how we're thinking about some of the rest of the year. Look, it would be remiss of us not to be thinking around how the conflict in the Middle East impact supply chain and how we proactively drive our supply chain planning decisions around that. And we've taken some very proactive steps in the first quarter to make sure that we're shoring up our supplies of key gas and cans like helium, hydrogen, sulfur. So making sure we have that supply chain security is key. Obviously, that comes with some incremental costs that we forecasted at the beginning of the year prior to this conflict. So expectation is that, that probably has about a 0.5 point of margin impact for each quarter as we go through the rest of 2026. But all said and done, we're quite pleased with the continued year-over-year margin trajectory that we're seeing. Operator: And our next question comes from the line of Vivek Arya from Bank of America. Vivek Arya: For the first one, I'm curious, how are you benchmarking your growth in comms infrastructure and data center? Because when I look at a lot of your analog peers or some of the optical customers or AI in general, they're all growing anywhere between 50% to 100%. So high 30% growth is impressive, but how do you know whether you are gaining or losing share relative to the growth rate? Like, are those growth rates representative of what the industry is growing? Or am I comparing Apples store in this year? . Timothy Breen: Yes. Thanks for the question, Vivek. I'd say the following. Remember, our CID market considered 3 kind of big drivers. Silicon photonics, we've talked about already approximately doubling year-on-year. We think that is definitely growing in line with the industry. Trends and the rollouts, and we even see further acceleration to follow as we launch new products like Gale that we announced earlier this week. Our high-performance silicon germanium equally exhibiting very, very strong year-on-year growth [indiscernible] networking we're seeing a very good story. Also in the CID mix, and that continues to grow very sort of solidly as we see rollout of more [indiscernible] capacity and the scale of terminals. So we look at it on a kind of end market, submarket basis. And in those cases, we don't see share loss. In fact, we see a share gain in many of those cases. Sam Franklin: Do you have a follow-up, Vivek?. Vivek Arya: Yes. Second question is kind of another follow-up on pricing and revenue per wafer. So when the year started, what did you assume for the pricing environment? And what is it now? And then I know I'm focusing on just one metric, but revenue per wafer that continues to decline. And I imagine that's probably because of mix or other factors. But I would just appreciate your perspective on how are you thinking about industry pricing now versus before? And is your revenue per wafer, what does it -- what should it indicate to us because it has continued to decline. Sam Franklin: Sure, Vivek, I'll take that. And obviously, Tim gave a little bit of color as part of the last question in terms of how we see the broader pricing environment, particularly in the context of some of those supply/demand constraints that we've seen. Look, I'd say one important point to remember around how we think about pricing is that within wafer pricing, we also have what used to be the underutilization payments that flowed through associated with some of those long-term agreements. That is largely in the rearview mirror. And in fact, we were still getting some of those in the first quarter of 2025. And so when you think about it from a year-over-year comparison basis, there is a little bit of fallout from that ASP perspective. The important point, and you touched on mix, which is the right way to think about it, but the way we think about pricing is really the contribution from a margin perspective. And at the start of the year, we viewed the broader pricing environment is certainly more constructive than it was in 2025. And actually, as we've gone through first quarter, particularly where we see space constraints on some of our core technology corridors, we remain [indiscernible] view that it is not only constructive in some of those, but favorable tailwinds in some of those technology corridors. So from a year-over-year comparison basis and going forward, I would say that the key focus is really around the margin structure that we're seeing pull through rather than just the stand-alone pricing. I hope that helps. Operator: Our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Christopher Muse: I guess first question was to focus on technology services. Obviously, you're rebranding changes in mix. Would love to hear how we should think about the growth trajectory here beyond calendar '26. Is there a framework that we should be thinking about, particularly as Synopsys ARC closes at the end of Q in the first half of 2026 and your expectations around MIPS and other contributors? Timothy Breen: Yes. Thank you, C.J. Maybe I'll start with just kind of winding back on why we've made this [indiscernible] change, and it really reflects the evolution of our strategy. So we renamed wafer revenue to manufacturing services, and that's because more and more of our end products we delivered in different form factors. And if you take our announcement earlier this week on the optical engine, that's much more than wafer. That's an integrated module. And we'll see more and more of that across our portfolio. So it felt more appropriate to describe that as manufacturing services. In the technology services bucket, which you asked about, that's also growing. What that used to represent is really just a complement to the wafer revenue, the mass, the reticles, the NRE that went along with it. But with some of the acquisitions we've made, we increasingly see areas like IP, software in some of that customization and value-add services that really enable us to work more deeply with our customers. I'll let Sam talk about how that range will trend over time. Obviously, we see increased growth based on the acquisitions that we've made. Sam Franklin: Sure. Thanks, Tim. And C.J., we're definitely going to dive more into this as part of the day when we get together on Thursday. So I won't review too much. But to Tim's point, putting all of that together in terms of the composition of revenue from technology services, you'll recall that we used to guide that to the neighborhood of sort of 8% to 10%, we were typically around that 10% midpoint. And as we've seen this evolution and the increase in complementary services within our technology service, our expectation is that our trends will go to the high end of the 10% to 12% range that we indicated at the start of this year. And obviously, we're in the early innings of integrating MIPS, and we haven't yet reach close on the Synopsys ARC IP business. But again, as we ramp those over time and as we create more offerings for our customers, in the IP, the software, the custom silicon solutions, we'd expect that to drive incremental growth over time. Christopher Muse: Very helpful. And I guess as a follow-up, I wanted to focus on silicon photonics. You announced a new platform. You gave a pretty robust outlook exiting calendar, expected, I think revenues to double to $400 million here in calendar '26. Would love to get a sense of how you see kind of the product mix evolving over time. My sense is the lion's share of the revenues today are pluggables, but we'd love to get an understanding of how you see that pattern of changing as we go into '27 and '28. Timothy Breen: Yes. Thank you, C.J. No. I mean I think the broader picture is you're seeing extremely strong adoption of optical across the industry. We hear stats like by 2030, 70% of networking ports in the data center will be optical, and that reflects the complexity of compute and the sheer amount of data that AI workloads require. So I think the optical momentum is clearly building. I think there will continue to be a good discussion about the form factors. Pluggables are in high demand today, growing fast and also evolving with new features and new data rates with 1.6T going into the market today and 3.2 and others on the road map, including for us. I think the evolution to near and co-packaged optics is still very much, if anything, accelerating, and we've heard at OFC this year, many companies come out with their plans, and also this adoption of industry standards indicates ways that the industry can coalesce around a number of kind of more typical approaches to make those products consistent and accelerate the adoption. We've always been of a view that sort of co-package [indiscernible] story. I think that remains the case. What we have said is that we are already seeing tape-outs of products that are intended for co-package and near package optic use, and that's already happening today. So I think that confidence level on that rollout is definitely increasing. Operator: And our next question comes from the line of Krish Sankar from TD Cowen. Sreekrishnan Sankarnarayanan: Congrats on the strong results. Tim, just to stay on the topic of silicon photonics, is there a way you can compare and contrast your scale optical solution with TSMC scoop or [indiscernible] semis offerings? Any color on the nanometer nodes of the logic or optical photonics advanced packaging, et cetera, it would be helpful. Timothy Breen: Thanks for the question, Krish. And we're going to go into a lot more detail on this week on Thursday at our Investor Day. I think it merits not just a longer discussion, but also some slides to make it a bit more visual as well. I mean we've been working on co-packaged optics for more than 10 years. And a lot of what we announced this week is based on technologies that we've developed at the wafer level, but also around advanced packaging, things like hybrid bonding, TSVs, also some of the announcements we made about the ability to have fiber attached that is able to deliver low insertion loss light into the chip, while still maintaining maintainability of those devices so you can service them. All of these are some of the innovations we've worked on, and you'll find a lot of them written about in that OCI MSA. So we think we have an industry-leading solution. It benchmarks very well to competition. But more broadly, this is a fast-growing market and destined to be very large. And so of course, there will be multiple solutions in the market. I think we're very confident in our ability to be amongst those leaders for the foreseeable future. Sreekrishnan Sankarnarayanan: Very helpful, Tim. And then just a quick follow-up. Maybe you'll talk about this more on Thursday as well. On the MIPS IP strategy, how to think about it, given the risk [indiscernible] processor IP, custom silicon software angles. And I remember in the past, you mentioned that MIPS's technology service revenue could be a $100 million plus business this year. Is that still the [indiscernible] to think about? . Timothy Breen: Yes. So look, we've mentioned this before a little bit, but just to comment on it. We're seeing very, very good customer feedback to MIPS and even more positive feedback when we announced Synopsys ARC transaction, which, as Sam mentioned, is set to close within the first half. I think the reason is that customers love the idea of a company with GF scale, with GF, kind of, reliability through the cycle, providing that IP. And I think with the increased adoption of risk 5, especially in those real-world workloads, right, think automotive, think AI at the edge, think about things like radar that require different kind of process technologies. There's a real market need for risk file. I think what also customers are appreciating is the ability for us to engage earlier in that design cycle. And so we can talk about their optimization of their products. We can give them software tools to simulate those early on well before we're talking about manufacturing decisions. But obviously, it's also enabling us to have a deeper conversation and increase our chances of being that partner of choice when we get to the manufacturing. So that's highly synergetic, and it's changing the nature of the conversations with customers. And I think the last piece that's worth calling out is having internally these capabilities also gives us a chance to, if you like, taste our own cooking, and push our process technologies further, not just today but also a longer-term road map because we're able to -- with short learning loops, basically push the limits of what we can do in our process technologies for those key applications. So I'm very, very bullish, not just about the financial trajectory of these acquisitions but also on the strategic back. I'll let Sam comment about where we are for the year. Sam Franklin: Sure. Thanks, Tim. And Krish, to the second part of your question in terms of how we think about the revenue contribution from MIPS in 2026, but we provided some guidance actually at the start of this year and also at the end of last year when we did our Physical AI webinar, that we expected about $50 million to $100 million revenue contribution associated with MIPS in 2026. That range still holds. But what I would say is that we feel like the momentum with customers, as Tim said, is progressing very well. The bookings are progressing very well. We're sort of trending towards above the midpoint of that range that we indicated at the start of this year. And obviously, that's before we factor in the timing of the close associated with the Synopsys ARC IP business. That will come later, and we'll probably be able to give a bit more color on the contribution from that perspective when we get to our next earnings call. Operator: And our next question comes from the line of Matthew Bryson from Wedbush Securities. Matthew Bryson: For the comms and data center side of things, you've highlighted solid opportunities in silicon photonic, but can you talk a bit more specifically around whether there were any specific factors that drove the upside versus your prior guide? Timothy Breen: Yes. Thanks, Matt. Look, I think it's incremental across the board. We're seeing, for sure, the [indiscernible] optical networking picking up. I think there's a lot of momentum behind that adoption. As we mentioned earlier, pulling through to pluggable optical transceivers. If I could show you an X-ray of pluggable optical transceiver, you'd find in it. High-performance silicon tonics, you'd also find some of that high-performance SiGe content that we talked about. So those 2, I think, are the contributors to the increased confidence in the revenue trajectory within that end market. The other parts remain solid and growing well like SATCOM, but I think the optical piece is the one that we'd call out. Matthew Bryson: Awesome. And just a follow-up on that. Higher growth in the segment, I mean, it seems to be favorable for margins, but beyond the higher costs you've outlined tied to the geopolitical events, are there any potential offsets we should maybe think about, like additional CapEx to support the quarters that are tight, or is the shift to mix largely just an unmitigated positive for gross margins? Sam Franklin: Yes. Look, I'd probably break that down, Matt, into sort of the near-term horizon and longer term, and we'll obviously get to some of the longer term when we get together on Thursday. But the expectation from a CapEx point of view at the beginning of this year was that we'd be in the ZIP code of 15% to 20% net CapEx to revenue. That already contemplated some of the increasing demand that we've been seeing come through on the likes of high performant SiGe, photonis, FDX. And so we'd already sized our overall CapEx envelope at the start of this year to really factor some of that in. Now I would say one other point, which I mentioned earlier from a margin point of view, we have seen strong cost synergies come through with the acquisition and continued integration of AMS, that is proving to be a good business, not just accretive from a margin point of view, but growing our offering to customers within the photonics space. And so you're right to call out some of that cost headwind, but we've generally felt that we can see some offsets from that associated with the mix dynamics. And look, our target for the full year is still to exit 2026 at or above a 30% gross margin. Matthew Bryson: Congrats on the strong results. Timothy Breen: Thank you, Matt. Give me a second. I'll can add on the CapEx side. I think as you're seeing, our principles of where we think our CapEx are very much linked to where we see strong conviction in customer demand in those corridors that are oversubscribed today. But you should think about that CapEx, the ROI is very strong because we're adding tools to existing footprints and able to bring capacity on very quickly. And by the way, we do that in sites where we have in place strong government support frameworks and especially for these technologies, there's a lot of government support to build out capacity in the U.S. and around the world. And so even though that CapEx comes through at a significantly lower kind of net fall through once you consider those government partnerships as well. Operator: And our final question for today comes from the line of Ross Seymore from Deutsche Bank. Ross Seymore: One near-term one then one longer term. On the near-term side of things, you guys were helpful for the full year on the revenues by segment. And I think you mentioned that the home IoT is likely to rebound in the second quarter. Any other kind of even directional guidance for the subsegments between the manufacturing and the technology services by end market for 2Q? Sam Franklin: Yes. Look, I'd probably, Ross, draw your attention to start with in terms of how we're seeing this evolution from revenue composition and a diversification point of view because that kind of becomes a little bit of the layup as to how we see the opportunities, not just in the second quarter, but as we go through the year, from an end market point of view. And look, it's an important point to note that in the first quarter, the contribution of revenue from all of the end markets and technology services outside of smart mobile devices that came in at the highest level that we've had as a company, roughly 2/3 of our total revenue. So that gradual mix shift just from a technology point of view, but from an end market point of view has been several years in the making, and we're really seeing that come through in the first quarter, and our expectation is that continues through the rest of this year. So as it relates to the specific quarter-on-quarter dynamics, I'd say that we do continue to expect good year-over-year momentum as it relates to comms infra data center, automotive. As I said, IoT should reverse some of those dynamics we saw in Q1. And then the general offset that, which we touched on in the prepared remarks in the Q&A is really around smart mobile devices, where -- from 90 days ago, we're seeing more kind of high single-digit decline year-over-year. But putting it all together, we think that those declines are offset by the momentum we're seeing in the other end markets. Ross Seymore: Perfect. And I guess my one longer-term question is a perfect segue from what you just said on smart mobile devices. I realize what that end market is doing, and it's nice to see you guys outperforming it relatively speaking. How do you see the performance of GlobalFoundries in that business relative to the market over time? Can you increase that delta so you outperformed by more? Or is it just is what it is, and that might be a kind of year-over-year headwind more structurally going forward as an overall segment? Timothy Breen: Yes. And Ross, we'll share significantly more on that this firstly because obviously, the objective is that is to go a bit further out in time. I think you're seeing some tailwinds when it comes to content growth within the handset. You're also seeing new form factors that bring content. Let me give an example, like smart glasses. I'm a personal strong believer that, that form factor we'll see the light of day and will grow and will become a common place. And that requires new technologies, things like back lane for display micro LEDs things that we've been working on with partners for some time. So I think there are some tailwinds. We'll say more about the overall end market on Thursday. But I think it's too early to count out that category as a drive for the future. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Eric Chow for any further remarks. Eric Chow: Great. Thank you, Jonathan. Thanks, everyone, for joining today. We're very excited to see you at our Investor Day on May 7. We will also be at JPMorgan Conference on May 19 and the Cowen conference on May 27. Thanks, everyone, for joining. I appreciate your interest in the company. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Lluc Sas: Welcome to Sabadell's results presentation for the first quarter of 2026. Joining us today are our CEO, Cesar Gonzalez-Bueno; and our CFO, Sergio Palavecino. The presentation will follow the same structure as in previous quarters. Our CEO will begin by highlighting the key developments of the quarter and discussing the most relevant topics. Then our CFO will review financial results and the evolution of the balance sheet. The presentation will conclude with closing remarks from our CEO, after which we will open the floor for a live Q&A session. So Cesar, over to you. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Lluc. Good morning, everyone. I will begin by outlining the 4 highlights of the quarter, which we will discuss in more detail during today's presentation. First, the sale of TSB is now complete. Therefore, we will pay the extraordinary cash dividend of EUR 0.50 per share at the end of May. Second, as we already anticipated, Q1 will mark the bottom of our core revenues. We expect these items to increase in each quarter over the course of the year. Third, we have launched an early retirement plan, which would improve efficiency in '26, but mainly in 2027. Fourth, we commit our full year guidance. Indeed, beyond the ups and downs of any given quarter, we have a sound, secure and proven growth strategy to deliver a 16% return on tangible equity in 2027. Slide 5 shows the key financial messages for the quarter. Just to remind everyone, all figures and results presented now exclude TSB. Supported by strong commercial momentum, performing loans and customer funds recorded year-on-year growth in the mid-single digits. In this context, core revenues are expected to have reached in this quarter their lowest point of the year. We see core revenues improving going forward as repricing pressures on NII ease and fee performance normalizes. Recurrent costs performed well in the quarter and reached EUR 569 million. We recorded one-off costs in the quarter of EUR 55 million related to the early retirement program underway. Our fundamentals remain solid. Our recurring return on tangible equity stood at 14.1%, and our capital position remains strong with a core Tier 1 at 13.2%. This performance is underpinned by strong asset quality that keeps on improving. Cost of risk and total NPAs both showed a reduction year-on-year. We continue to build up our Stage 3 coverage, which now stands above 70%. Finally, as I said before, we will distribute EUR 0.50 per share as an extraordinary dividend by the end of May. In parallel to this cash dividend, we keep executing our share buyback programs. We have already completed EUR 267 million out of the approved EUR 800 million. On Slide 6, financial implications of the now completed TSB transaction. Let me start with the sale proceeds. The initial agreed price was GBP 2.65 billion. This figure was agreed to be increased by the tangible net asset value generated since April 25. Taken together, this results in a final sale price of GBP 2.9 billion. Now let me emphasize the strategic and financial merits of the transaction. Firstly, the sale has generated significant value for shareholders. Transaction multiples are above both peer transactions and Sabadell's own trading multiples. In addition, the transaction is expected to generate more than 400 basis points of capital. This is driven by capital gains of more than EUR 300 million and the deconsolidation of risk-weighted assets. As approved at the Extraordinary General Meeting held last August, we will return this capital to shareholders. Accordingly, we will pay an extraordinary dividend of EUR 0.50 per share on the 29th of May. To conclude, following the sale of TSB, Sabadell now represents a more focused and simplified equity story with a clear strategic profile centered in Spain. In Slide 7, we see the details of the early retirement plan. We executed our last efficiency program as you remember, back in 2022, which included an early retirement plan. Since then, circumstances such as the demographics of our workforce prevented us from executing additional early retirement plans. Circumstances have changed and a structured early retirement plan is already being implemented in 2026. Importantly, this approach supports workforce optimization in line with the evolving business models and digital transformation. In terms of financial impact, we will incur in one-off costs in 2026 of approximately EUR 90 million. Meanwhile, we will generate gross annual savings of approximately EUR 40 million. Approximately 1/3 of these savings are expected to materialize in 2026 as the program is rolled out with a full run rate savings achieved in 2027. On Slide 8, we talk about new lending. Starting with mortgages, new lending decreased by 24% year-on-year. We remain focused on managing new lending through risk-adjusted return on capital, ensuring that growth is delivered in a profitable manner. As a result, we have continued to reduce our market share in new mortgage lending over the past months as front book yields have compressed. Origination of consumer loans decreased both year-on-year and quarter-on-quarter. We introduced changes to the application process this quarter, which temporarily impacted on conversion rates. We have already improved the process again and conversion rates and origination volumes are picking up again. Quarterly new loans and credit facilities granted to SMEs and corporates increased by 1% year-on-year and by 5% quarter-on-quarter, while working capital performance was more subdued. Overall, as we share on the next slide, these volumes of new lending allow us to continue growing our loan book. On slide 9, we see the loan book and starting with Spain on the left-hand side of the slide. Performing loans increased by 0.8% on the quarter with positive growth across all segments. Performing loans in Spain increased by 4.3% year-on-year. Our international operations are experiencing good momentum as well with performing loans rising by more than 7% quarter-on-quarter and by double-digit figures year-on-year. Overall, our total loan book showed a positive trend during the quarter, growing by 1.6%. Annual growth rate reached 5.6%. Moving on to customer funds on Slide 10. First, on balance sheet, customer funds ex-TSB remained broadly stable quarter-on-quarter and increased by 4.3% year-on-year. The Spanish perimeter showed an increase of 4.7%. Second, our balance sheet funds also remained broadly stable in the quarter, as market volatility has had a dampening effect on net subscriptions. We posted an increase over 10% on a year-on-year basis. All in all, total customer funds grew by 5.9% year-on-year. Looking at on-balance sheet funds breakdown on the right-hand side of the slide, non-remunerated deposits reached EUR 83.9 billion. Those non-remunerated deposits are almost completely located in Spain. This highlights the high proportion of low-cost funding within our deposit base. The cost of customer funds stood at 78 basis points in the quarter in the ex-TSB perimeter. Let me note that this includes higher yields in U.S. dollars and Mexican pesos. Therefore, the cost of customer funds in Spain was significantly lower and stood at 59 basis points. On Slide 11, we make a summary of our quarterly results. We recorded a net profit of EUR 284 million or EUR 347 million, including the contribution from TSB. Let me emphasize two points. Firstly, as I had previously explained, revenues have bottomed out with improvements expected in the coming quarters. Secondly, Quarterly results include EUR 70 million pretax in one-off charges, nonrecurring costs related to efficiency initiatives and FX hedge on the proceeds from the sale of TSB. Underlying profitability remains solid and recurring return on tangible equity stood at 14.1%. This keeps us on track to reach our full year guidance of 14.5%. And with that, let me turn it over to Sergio. Sergio Palavecino: Thank you, Cesar. And good morning, everyone. Let's move on to the financial results on Slide 13. Before going through the different lines of the P&L, I would like to explain the extraordinary items that Cesar has just mentioned. First, within the trading income line, we recorded an expense of EUR 14 million related to the foreign exchange rate hedging of the full proceeds from the sale of TSB. Once the sale has been completed, next quarter, we will record only EUR 5 million corresponding to the month of April. Second, we recognized EUR 55 million of nonrecurring costs related to the early retirement program in Spain. Overall, recurring ROTE stands at 14.1%, which is in line with our expectations and our year-end target of 14.5%. We will now review the main P&L items in more detail, focusing on Sabadell's performance, excluding TSB. Starting with NII on Slide 14. NII bottom out this quarter as expected, decreasing by 2.5% quarter-on-quarter and by 3.5% year-on-year, which is mainly explained by the final headwind of lower interest rates repricing as well as the seasonality of Q1. On the top right-hand side of the page, you can see the drivers that explain the quarterly evolution. Moving from left to right, customer NII had a negative contribution of EUR 8 million due to lower customer margin. This was driven by loan book repricing at lower rates and a slightly higher cost of deposits following the success of the last digital current account campaign. Then the day count effect on customer NII resulted in a EUR 6 million negative impact. Regarding ALCO liquidity and wholesale funding, we have seen a net impact of also minus EUR 6 million, mainly attributed to liquidity, reflected increase in borrowing in dollars and Mexican pesos, which carry higher interest rates. Going forward, this will no longer be a headwind and we are expecting tailwinds from customer NII as explained in the next slide. Indeed, looking ahead on the left-hand side of the Page 15, the expected quality evolution throughout 2026 is shown. As anticipated, after reaching a low point this quarter, we now expect NII to grow at a low single-digit rate quarter-on-quarter. From there, NII should increase steadily over the year, ending the fourth quarter of 2026 with a mid-single-digit increase compared with the fourth quarter of last year. This outlook is based on the current macroeconomic environment where we are assuming interest rates will stay at higher levels than we had previously expected. The slightly higher rate environment, together with ongoing uncertainty and volatility may affect loan volumes. We now expect growth to be slightly below our initial plans, but still at mid-single digits. At the same time, on balance sheet customer funds are expected to grow between 3% to 4%. Higher interest rates should support loan yields with a steady quarter-on-quarter improvement starting from the beginning of the second quarter already. Regarding deposit costs, we now expect a lower pass-through compared with our existing book, which should support customer spread. Overall, customer spread is expected to improve quarter-by-quarter and reached levels above 290 basis points by year-end, slightly better than initially forecasted. Finally, noncustomer NII, which includes ALCO, wholesale funding costs and the liquidity contribution is expected to remain broadly stable around current levels. Taking all of this together, we are maintaining our NII guidance and continue to expect more than 1% year-on-year growth in 2026. Moving on to fees. posted a quarter-on-quarter decrease, mainly driven by the absence of success fees recorded in the previous quarter by seasonality and by a one-off cost in the payment service business. Looking ahead, we expect this line to improve, supported by increasing activity, particularly in the Payment Service business and in Corporate and Investment Banking, which has already been seen in March. In Asset Management, we also expect a continued positive trend in net inflows. To sum up, while we acknowledge a lower quarter than expected, we believe this marks a trough that will serve as an inflection point. Looking ahead, we expect fees to increase and land at the lower end of the mid-single-digit growth range. Moving on to cost. The key developments this quarter is the launch of the new efficiency initiatives in Spain. However, let me first focus on the underlying evolution of recurring costs. Total recurring costs decreased by 3% quarter-on-quarter when excluding EUR 55 million of nonrecurring costs and for comparability purposes, also excluding the reclassification related to the end of the agreement to sell the merchant acquiring business at the end of last year. On a year-on-year basis, total recurring cost increased by 3.4% mainly driven by inflationary pressures on personnel expenses as well as higher amortization and depreciation costs, which already reflect the current quarterly run rate. Looking ahead, as Cesar mentioned earlier, we expect that circa 1/3 of the total savings from the efficiency initiatives will fit through in 2026. Overall, this evolution is fully aligned with achieving our year-end targets. On the next slide, we covered the cost of risk, which remains at contained levels supported by solid underlying asset quality despite the increased uncertainty. Total cost of risk for the quarter was 38 basis points which includes all provisions and impairments across all categories. Looking specifically on loan provisions, the credit cost of risk was 27 basis points. Turning now to the bridge of the different components of total provisions for the quarter shown on the top right-hand side. We booked EUR 94 million of loan loss provisions after reviewing carefully the macroeconomic scenarios. Then we had EUR 4 million of provision reversals driven by the real estate asset disposals at a premium. In addition, we recorded EUR 23 million in NPA management costs and EUR 19 million in other provisions mainly related to litigation. Overall, the quarterly evolution of total cost of risk is fully aligned with our year-end target of around 40 basis points despite the increased uncertainty. Moving on in the next section, I will walk you through asset quality, liquidity and solvency. On Slide 20, we see a continued improvement in both the NPL ratio and coverage levels. The NPL ratio reached 2.55% representing a reduction of 10 basis points compared to the previous quarter. We can also see that Stage 2 exposure declined by more than EUR 1.2 billion year-on-year. Finally, the coverage ratio calculated as total provisions of Stage 3 exposures continued to improve and reached 71%, rising by more than 1 percentage point during the quarter. In terms of total NPAs in Slide 21, you can see the continued reduction of foreclosed assets. We have sold 24% of the stock of foreclosed assets in the last 12 months at an average premium of 8%. At the right-hand side of the slide, we can see that the ratio of NPAs as a percentage of total assets declined to just 0.7% which is a record low. Turning now to Slide 22. All liquidity ratios remain comfortably above requirements with a net stable funding ratio at 135% and the liquidity coverage ratio at a strong 186%. Credit ratings remained stable during the quarter. All rating agencies have assigned a stable outlook, except for S&P, which maintains a positive outlook, reflecting the possibility to achieve further uplift based on ALAC. I will also highlight that Moody's upgraded our deposit rating in April, and it has reconfirmed our Baa1 long-term rating following the application of the new EU depositor preference regulation. Finally, year-to-date, we have issued EUR 500 million in covered bonds. Given the sale of TSB, this 2026 will be a year with lower MREL funding needs. And therefore, less affected by potential market volatility. To conclude this part of the presentation, let me walk you through the evolution of our capital ratios during the quarter. This time around, this slide includes both the quarter-on-quarter variation and the expected impact of the TSB sale and the extraordinary dividend on the CET1 ratio. We will start by reviewing the quarterly evolution. This quarter, the CET1 ratio increased by 7 basis points, while generating 32 basis points before accounting for the dividend accrued. This includes 42 basis points from organic generation after deducting 81 coupons, minus 4 bps from fair value reserves adjustment in the fixed income portfolio due to higher interest rates at the end of the quarter and minus 6 basis points from higher risk-weighted assets, mainly driven by volume growth in our international businesses, where loans carry higher density. The accrual of a 60% dividend payout ratio had a negative impact of 26 basis points, bringing the CET1 ratio to 13.18%. Now looking at the capital effect of the sale of TSB. The transaction will unlock more than 400 basis points of capital for shareholders, as already anticipated when we announced the transaction. The sale generates a positive capital impact of 369 basis points this year driven by the release of risk-weighted assets, a net capital gain of more than EUR 300 million and the reduction of intangibles. This will be offset by the extraordinary cash dividend distributed to shareholders which represent a reduction of 378 basis points, bringing the pro forma CET1 ratio to 13.09%. Finally, the release of operational risk-weighted assets over the next 2 years will add a further 36 basis points, lifting the pro forma fully loaded CET1 ratio to 13.45%. With that, I will hand over to Cesar, who will conclude today's presentation and probably say goodbye after 5 very successful years leading Banco Sabadell. Cesar Gonzalez-Bueno Wittgenstein: Thank you, Sergio. Continuing after that phenomenal waterfall is very interesting. So to conclude this presentation, I would like to briefly review the bank's transformation journey over the last few years. Our growth strategy has proven to be successful and has structurally transformed the bank. First, we are delivering lending growth while reducing the cost of risk. Performing loans have increased by more than EUR 11 billion since 2021, while the cost of risk has declined by more than half. This improvement reflects stronger underwriting standards and a higher quality loan portfolio. Second, the bank is showing a consistent increase in capital generation. Indeed, we are delivering high and sustainable profitability, along with strong capacity to remunerate shareholders. In this context, we have committed to distribute EUR 2.5 billion of ordinary remuneration over the next 2 years, representing an average yield of more than 9% when adjusted for the upcoming extraordinary dividend. In short, a solid performance supported by 2 key levers. We have gradually shifted the organization towards profitability-focused metrics, and we have significantly transformed our risk processes and models. The benefits of these 2 elements will continue to gradually improve the quality of our loan book over time. Finally, let me emphasize our full commitment to delivering the full value of this plan through 2027 as we enter a new phase under a new leadership. We are well positioned to create long-term shareholder value. To conclude my last quarterly results presentation at Sabadell, I would like to share some words on a more personal note. Looking back at the last 5 years, I am honestly proud of the results we have achieved. Sabadell was going through difficult times in late 2020. During this 5.5 years, we, as a team, have managed to deliver on our strategy. We have deployed the profound transformation of the bank, which has enabled our financial turnaround. And now I would like to thank you for the interactions we have had during this period. The team and I feel we have been treated with utmost fairness and respect and I honestly thank you for that. I will now hand it over to Lluc start the Q&A section. Lluc Sas: Thank you, Cesar, for your commitment and for everything you have accomplished this year. We will now open the Q&A session. I would kindly ask you to limit your participation to a maximum of two questions. So operator, could you open the line for the first question, please? Operator: First question is coming from Cecilia Romero from Barclays. Cecilia Romero Reyes: I have two, one on volume growth and the second one on cost. On the first one, on the asset side, loan growth in Spain has been modest quarter-on-quarter. While some peers point to raising competition in both corporate SME deposits. And how are you seeing competition evolve across SMEs and corporates? And how are you balancing pricing, funding costs and returns? And how do you think about your appetite to compete in mortgages where cross-selling helps the economics? And finally, how do you see growth evolving across segments to deliver mid-single-digit growth this year? And then on costs, following the restructuring announcement and the EUR 40 million expected annual savings, could you help us understand how this fits within your current cost targets? Are these savings incremental or already factored in your 2027 guide? Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. So on -- let's go one by one. On Corporates and SMEs, I think if you look at it, we've increased by 5% quarter-on-quarter and 1% year-on-year. And looking ahead, loan demand from Corporates and SMEs remains solid. We keep a strong pipeline of medium- and long-term loans. Therefore, we are confident that growth will accelerate back to mid-single-digit levels and the front books and yields and spreads remain stable. You have to understand that the change in model is a long-term element. So the cost of risk going forward will be much lower. There has been a phenomenal transformation in the strategy of the bank. In terms of mortgages, to your question, the average front book yield on new Spanish mortgage lending is currently below swap rates, as you all know. And pricing conditions remain very competitive, even after taking potential cross-selling benefits into account. Therefore, we have intentionally reduced our market share of new mortgages lending from approximately 9% at the end of '24 when the yields were positive to below 6% this quarter when our natural market share is around 7%. And we will continue to adjust our appetite according to market pricing as we have done over the past year. On the consumer lending, I mentioned before that during the quarter, we introduced changes in the application process. And although the demand -- the upfront demand remained stable and strong, we had lower conversion rates. We have adjusted for these new changes and now conversion is back to where it was, and we expect healthy growth from now on. And in the cost of deposits and in the deposits, I think we've grown healthily in deposits, and that has been somewhat on the back of the growth of the digital account. We have been very successful in the growth of the digital account during the quarter. And as we have mentioned many times, this is not to increase the volume of deposits. This is to attract new customers that then become transactional and that allow for further growth. More than 60% of our acquisition is now through digital accounts when it was 0 a few years ago. And these clients behave well. They have strong transactionality, more than 50% have payrolls, 45% use payments every month and 40% use Bizum through Sabadell, which is a big sign of being engaged with us. And despite the fact that we have done this campaign at a high rate, it has been at the rate that we could obtain in the wholesale market. So it makes lots of sense. I will let Sergio to develop a little bit more on the cost side. But I think we are not -- just to make it very brief, I don't think we are adjusting our forecast now despite this one-off. Of course, that would imply that there is some room as the year progresses to review. But for the time being, we leave it untouched. Sergio Palavecino: Thank you, Cesar. A couple of comments to the first one, Cecilia. The first quarter is typically because of seasonality, probably one of the sort of slower in terms of volumes. In any case, we've been able to grow a little bit the loans and a little bit the deposits. And when you look at the year-on-year growth rate, it's at 5.6%. So it is actually absolutely in line with our expectations. And as Cesar mentioned, the pipeline is good. So regarding volumes. As of today, there isn't anything that makes us think that we're not going to grow in line with expectations. And then as per the cost to your question, this efficiency initiative, so the early retirement, the EUR 40 million in 2027 was not included in our guidance when we detailed the guidance of 2027 by the different lines. We think it's early to update guidance per lines in 2027 given the different changes that we're seeing in the market. Of course, this is a positive because then it allows us to have a buffer and then we see how inflation plays out in the different lines of the cost. But again, I think it's a buffer, and we feel optimistic about it. Lluc Sas: Okay. So operator, could you switch off the microphones when the analysts are asking the questions because we've been told that there's some feedback that analysts cannot hear the questions when they do the Q&A. So we can jump to the next question. Thank you. Operator: Next question is coming from Francisco Riquel from Alantra. Francisco Riquel: Yes. So I just wanted to say goodbye to Cesar and congratulations for the last 5 years' performance. So my first question is on NII. You maintain your guidance of plus 1% in '26 but Euribor rates are now higher than expected, and you used to have a positive sensitivity. So I wonder if you can elaborate on NII dynamics in coming quarters? And what is the offset to the higher Euribor rates? And in the case, the margin uplift is delayed, if you can update on the risk to your '27 NII guidance as well? And my second question is capital distributions, the EUR 90 million of restructuring charges that you will book in '26, I wonder if that is compatible with your distribution targets? You did not specify how much of the EUR 2.5 billion will be paid out in '26 and '27. So I wonder if top-up share buybacks will be postponed to '27 after the winding of operational risk-weighted assets or not? Sergio Palavecino: Thank you, Paco, for your questions. Regarding NII, NII sensitivity, you're absolutely right, it's a positive one. So when interest rates go up, we expect NII to be higher. Actually, for 100 basis points immediate uplift in all rates, then we expect a 6% increase in the second year. And the first year is less. So the first year is somewhat more stable. So the first year is more stable as said. Looking at the evolution of NII, we initially expected NII to grow by more than 1% and keep on growing into next year. And that was basically based on volume growth, while rates were expected to be stable. This time around, what we are seeing and when we look at the yield curve to update our expectation, the yield curve was reflecting two hikes from the ECB. So now we have updated our model with two hikes. So the ECB at 2.5%, which is definitely a higher rate. For the first quarter and the second quarter, volumes are not changing in our view. They are absolutely in line to our expectations. And then I think the question mark is whether at some point at the end of the year may be somewhat less volume. And as particularly, we are growing a little bit less than expected in mortgages because we want to be really prudent with prices, particularly in this environment. So the movements that we are seeing are not going to affect 2026, cost of deposits, the market looks good. In the past, this rate have had a very gradual pass-through into the deposit cost and from everything that we're looking at, this seems to be the case this time around. So the pass-through at the beginning is less than the pass-through that we have in the book, which is close to 30%. And then for 2027, we feel positive, but it's a bit early to say. Definitely, the higher yields is going to be a tailwind and then remains the question mark on volumes that we had expectation for a continuous mid-single digit at so far, we maintain, but I think we need a bit more time to have visibility in 2027 and also cost of deposits, although we feel very comfortable for cost of deposits. So I think those are the moving pieces that taking all that into account, we feel that the outlook is solid for this year. And then for next year, as said, we feel somewhat optimistic, but it's early to be precise. And regarding capital distributions, EUR 90 million is the one-off cost. But already in the period, we are expecting the benefits -- part of the benefits, EUR 40 million in 2027, EUR 15 million, almost EUR 15 million in 2026 million. So that combined is EUR 55 million. The net is only EUR 35 million, which net of taxes, is less than EUR 25 million. So yes, it's going to have a bit of an effect, but we are talking about less than 1% of the distribution. So we think that at this point moment in time, there might be some organic capital generation that can offset that small deviation. So we maintain the target of the EUR 2.5 billion distributions, which we have always seen them being higher in 2027 than 2026. In 2026, we have the extraordinary of the TSB distribution, EUR 0.5. We're actually distributing a little bit more than what is generated in 2026. So it's -- I think the balance between timing of the distributions are also quite sensible. Lluc Sas: Perfect. So let's take the next question, please. Operator: Next question is coming from Maks Mishyn from JB Capital. Maksym Mishyn: All the best to Cesar in the new chapter. Two questions from my side. The first one is, maybe I've missed it, but on the digital campaign for the deposits, could you give us a bit more color on pricing and volumes you were able to achieve with the campaign in the first quarter? And the second question is on cost of risk. Have you updated your macro models in the quarter? And can you provide us with some comfort that macroeconomic turbines may not push your cost of risk higher? Cesar Gonzalez-Bueno Wittgenstein: Thank you very much. So I think we have never been too transparent on the numbers of the digital account. It's quite successful. And we have now more than 600,000 digital customers. And what I could say is that it has increased overall by around 2 basis points to cost of deposits in the quarter. And let me leave it at that. It has been quite successful. We are very happy, and it is fulfilling all its purposes. Lluc Sas: And then we also had the questions on cost of risk and macro models. Cesar Gonzalez-Bueno Wittgenstein: Yes. Thank you, Maks, for your question. Regarding cost of risk and the macroeconomic models, we have, of course, reviewed carefully the scenarios and taking into account what is going on, the conflict and the uncertainty. For the basic scenario, we have kept it unchanged. We are -- we built this scenario during the second half of last year, and we built it on a quite a prudent basis. In our base scenario, we're assuming GDP to grow, in Spain, 1.7%, unemployment to be a little bit above 10% and what consensus is delivering today is an expectation of growth above 2% in Spain and unemployment below 10% while the price of real estate will not be declining. That is the consensus. And we feel that we have seen that the assumptions in our macroeconomic base scenario are actually more prudent than what we're seeing in the market. Of course, this only affects Spain, which is our home market. So we have not changed the base scenario. What we have done is we have changed the probabilities of the upside and the downside scenarios. You know that under IFRS 9, you have the base at the downside and the upside, and we have a shift 5% probability from the upside to the downside. And with this, this has triggered a EUR 20 million provision that has been already incorporated in the EUR 94 million of credit loan provisions. So this actually 10% in the change of probabilities. And for the time being, we will monitor the situation and the development. But for the time being and as long as the GDP expectation in Spain is maintained at a growth of around 2%, we feel that the scenario is going to be good. Lluc Sas: Okay. So let's jump to the next question, please. Operator: Next question is coming from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: All the best of luck for you, Cesar, in your new adventures. I just have one question on fees and one questions on the deposit and one on interaction with lending. So on fee income, I mean how should we expect the improvement in coming quarters? Is it mainly driven by an acceleration of the asset management net inflows because you are launching a new product campaign or how should we think about fee progression basically coming in the coming quarters? And the second one on the loan to deposit. I mean do you have any target for loan-to-deposit ratio in the long run or in the medium term? Cesar Gonzalez-Bueno Wittgenstein: Yes. On the fee side, I think we are expecting an improvement in the recovery of CIB activity. There were quite a few things in the pipeline that are probably delayed. I think the payment business is also going to do better and certainly, the net inflows in asset under management. And we have already seen a recovery in the first two months -- I mean, in the first two weeks of March. Sergio Palavecino: Yes. So if I follow up on those, natural actually, we expect the credit services and assets under management, we expect the 3 of them to grow from this level. Services, the different business lines are working well. We had this one-off in the first quarter and seasonality. Seasonality affects very much our payment service business. And then we mentioned also the Corporate & Investment Banking, which simply was slow in January and February, and then is not picking up in March and therefore, the second quarter is expected to be good in terms of activity. So we also expect growth coming from that business line that is going to affect or is going to affect positively the credit, the services and then finally, the asset under management because of the growth in balances. And per the loan-to-deposit is 92%, very stable. It's been very stable already for many quarters where we've been able to grow mid-single digit in loans and sort of 4% in deposits with a higher base of deposits. So at the end of the day, quite stable. If we were in a situation where we had the opportunity to grow the loan portfolio, I think growing up to a loan-to-deposit in the range of 90% to 100%, it could be no problem. So we would also feel that, that's not an issue. However, our -- in our plan, we will try to grow as balanced as possible. Lluc Sas: Thank you much for your questions. Let's jump to the next caller, please. Operator: Next question is coming from Borja Ramirez from Citi. Borja Ramirez Segura: Thank you very much for taking my questions. I have two, please. Firstly, on the net interest income, I saw that your ALCO portfolio grew by roughly EUR 2 billion quarter-over-quarter. If you could kindly provide details on the yields at which you bought new bonds? And then also on NII, I would like to ask, I think it was mentioned in the previous results call that you had you're going to decrease the cost of digital accounts from 2% to 1%, and there was a EUR 30 million positive NII benefit on a -- basis from this. If you could kindly confirm this number? And then my second question would be, it is noted regarding the change in the scenarios of the IFRS 9 models. I would like to ask if you could kindly remind me the macro relay provision. Sergio Palavecino: Sure. May I start with the ALCO question? Thank you, Borja. Yes, we have increased a little bit our ALCO portfolio, in line with our plan. The ALCO, the size of the ALCO book is related to mainly the ALM, the hedging that we do, the size of our current accounts and deposits, which have been growing. And then on top of this year with the sale of TSB at the TSB level, we are selling the TSB MREL bonds at the ex-TSB and replacing them with cash from the transaction. So we wanted to put that money to work partially. So that's why we wanted to increase the portfolio this year. And we have invested in the typical investments that we do that mean Spain and other core European sovereigns with durations up to 10 years, some of them hedged. So at the end of the day, the duration of the portfolio that we buy is between 5 to 6 years and with yields above 3% and in the current environment, actually very close to 3.5%. And then as per the online current account, you are absolutely right. We have the intention to cut the remuneration on the previous campaigns from 2% to 1%. We did, and that took place in the month of March. So it was only one month in the first quarter and the benefits will keep on coming. The very good news is that -- the very good news is that after this cut, we're seeing a lot of stability in the balances. So I think it's working the strategy of buying customers and then keeping the balances. And finally, regarding your question on the macro provision, I think I mentioned that it was EUR 20 million, the provision that we took after changing the probabilities. And Cesar, I don't know if you'd like to add something? Cesar Gonzalez-Bueno Wittgenstein: I think you were spot on. I think on the digital account, what we said is exactly that there will be a EUR 30 million saving from the portion of that portfolio that we brought from 2% to 1%. And of that, we have seen 1 month and that EUR 30 million is over the course of the year. And as you mentioned also the very good news, as expected, is that the loss of volumes is low. And this proves again that this is a transactional account. It's not deposits. It's not to maximize returns. It's to have a full current account that, at the same time, has low costs and full services and at the same time, yields something that is above 0. And that is exactly what has happened. And now there are different tiers, and that is the strategy around this account, there are different tiers. Some for acquisition because to create the excitement to move the account, you need a slightly higher rate, but then everybody understands that the current account with a decent remuneration of 1% is attractive enough and they are becoming transactional. So as I mentioned before, we are very satisfied with the progress of this strategy. Lluc Sas: Operator, could we have the next question, please? Operator: Next question is coming from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: Two follow-ups on lending growth. The first one is on the SME and corporate book, the Spanish one. I mean you've got peers basically growing, I mean, significantly above that 2% so I just wanted to follow up a little bit actually on what do you think explains that gap right now? Is it risk profile, risk appetite by Sabadell? Is the fact that the incumbents in Spain have stepped up the pace. Is it related to the fact that your customers are requiring less credit than other type of corporates. So just a little bit of color basically on that. And then the second one is whether you're seeing actually the international book ex-TSB as a bit of an offsetting factor against and that we're seeing some degree of acceleration, especially in Miami and the foreign branches actually. So do you think there is a little bit of an offsetting actually coming from international book and the Spanish book or you treat those books completely separately? Cesar Gonzalez-Bueno Wittgenstein: I think reducing the probability of default by 50%, as we have done in new lending, of course, strengthens our asset quality. But for a period of time, makes the volumes slightly more subdued. And it makes a lot of sense to do that, but it's a transition in which we are still somewhat immersed. You have to take into account that, that probability of default improvement has a long tail it will take more than 4 years to see the full benefit in the SME portfolio, 7 years in mortgages and more than 2 years for consumer loans. And for sure, it's very difficult to separate off all the different factors that make that demand a little bit more subdued, but it is our impression that this is the main factor that reducing the probability of default of being more demanding on the quality, on the risk quality of the new loans is having certainly somewhat of a slowdown, which will fade over time. And regarding the growth abroad, not really. We have good business units abroad, Miami, Mexico in particular and we do what's right. And whenever we find the right project, so the right returns on capital with the right risk, then we're able to do it, and we are seeing an environment with a lot of activity and project finance, in structured finance and the corporate, our corporate customers that are doing business abroad. So we are taking advantage of that activity, but it's not really like that we see sort of offsetting. We don't look things that way, no. Lluc Sas: Let's go to the next question then. Operator: Next question is coming from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: I have a couple of follow-ups on cost and distribution. So the first one was on cost. I just wanted to understand the phasing of any remaining one-off costs in 2026 and whether the plan as it stands now considers any further actions in 2027? And the second one was on distributions. I know you reiterated the EUR 2.5 billion in distributions for this year and next. But I just wanted to check that you also reconfirmed the previous dividend guidance of 2026 being above EUR 0.204. And then the last one on fees also, if you just can comment on the previous guidance of double-digit growth in asset management and insurance fee income growth from this year. I think that's growing only at 4% in Q1. Cesar Gonzalez-Bueno Wittgenstein: So you will complement to that. But on cost, we don't see further actions at this point in time in '27 and there will be a progressive deployment during '26, and we will accelerate it as much as possible. So we have incurred already in EUR 55 million of the EUR 90 million, and you should expect the greater start to happen relatively soon. And for '27 at this point in time, there's no expectation. That doesn't mean that there couldn't be later on. But at this point in time, there are no further expectations. And for the distribution, I think we have -- we are confirming everything, everything that we said in terms of distribution almost 6.5% of the total of the 3 years, the EUR 2.5 billion ordinary, the EUR 0.50, everything, I think, is being confirmed. Sergio Palavecino: Indeed. Yes. And finally, Pablo, I think you were asking for fees, which I think we've been discussing and the fee development -- I mean the expected performance of fee remains unchanged to what we said in the first -- at the beginning of the year, and for the year. So we expect fees connected with assets under management to grow linked to volume, but then we also expect a higher contribution from the different businesses that we run and in the presentation, we are acknowledging a slower start than expected. We were sort of expecting maybe a figure similar to the one that we have in the first quarter of last year. And the difference, which is some EUR 7 million is half that one-off and half a slow January and February in the import and export business and corporate and investment banking which has already get back on track from March. And with all this, what we are seeing is that we keep on targeting growth that might be close to the mid-single-digit range, probably the lower range -- the lower part of that range. So we are targeting close to 4% overall growth in the fee line for 2026. Lluc Sas: Let's go to the next question please. Operator: Next question is coming from Carlos Peixoto from Caixa Bank. Carlos Peixoto: Just a couple of questions from my side as well, basically focus on NII. I'd like to have a follow-up there. The first one is that your NII guidance is based -- or the above 1% growth is based on NII that was provided last year, excluding TSB or on the statutory NII that we now have? Just to understand the basis for the growth. And then delving into NII, just if you could remind us what type of savings you might be getting going forward from MREL instruments that you had to issue at the group level to finance the size of the group or when it includes the TSB and now with the sale you could have some savings on those instruments from maturing the instruments, basically, what -- how much could it be? And what will be the time line for those to kick in? Cesar Gonzalez-Bueno Wittgenstein: Thank you, Carlos, for your questions. Regarding the second one, MREL. We were done streaming an equivalent to EUR 1.4 billion of MREL to TSB, which is the MREL related to its risk-weighted assets. And that is the MREL that, therefore, we will be saving at the group level in the wholesale capital market, so EUR 1.4 billion. And that's why we're saying that we will not be active in the debt capital markets in 2026 as we don't need to get that. So if you apply the spread on the senior nonpreferred and senior preferred to that figure, it's something close to EUR 20 million per year that may take place already -- I mean, gradually from the second quarter of 2026, as we will not be issuing and we will have maturities. And then I think the first question, not sure if I got it fully right. I think you are asking about the perimeter for the NII, and we are trying to be comparable. So it's going to be the ex-TSB perimeter is the one that is going to remain. So that's the one we're being guiding on to try to make it -- [ PLs with PLs ]. Hopefully, that was your question, and I hope I answered otherwise, we can follow up on it. Lluc Sas: Thank you, Carlos. And then we have got one final question. So operator, please. Operator: Last question is coming from Britta Schmidt from Autonomous Research. Lluc Sas: Britta we cannot hear you. No? Well, so probably he's jumped to another call because we know that it's a busy day for you, so thank you for your understanding. And that concludes our presentation for today. Thank you, Cesar and Sergio, and thank you all for participating. If you have any further questions, the Investor Relations team remains available for any follow-up or additional information. Have a great day. Thank you. Cesar Gonzalez-Bueno Wittgenstein: Thank you.
Kevin Lorenz: Good afternoon, ladies and gentlemen, and welcome to WashTec's earnings call on the results of Q1 2026. My name is Kevin Lorenz. I'm Investor Relations Manager at WashTec. With me, I have today our Chief Financial Officer, Andreas Pabst, who will provide a brief update on WashTec and guide you through our quarterly results. Following his presentation, the floor will be open for questions. Also, you might have just seen a short video on our newest product, JetWash Connect during the waiting room, which we are very proud of. If you are interested, you can find this and further videos on this new product on our WashTec website or you can also just send us a short mail, and we will share it with you. But without further ado, I'm now handing over to our Chief Financial Officer, Andreas Pabst. Andreas Pabst: Thank you, Kevin. Also from my side, a very warm welcome. I really appreciate that you are in our call today. Let me first give you some brief statements about our current topics at WashTec before I shift over to the figures of the first quarter of 2026. Let's start with our new JetWash Connect. We already mentioned the planned launch of this new product during our last call on the fiscal year 2025. But now we are live. And as you can imagine, we are very proud on our product launch on April 14. Our new JetWash has some really good features for the users, for our customers, the operators as well as for us. First, the new steel structure. We own the complete construction details, and that puts us in the position that we can source the necessary steel parts locally instead of shipping them from Germany to all over Europe. Second, Wash & Pay leads to the fact that the average paid time increases by 25% to 30%. That means more revenue for our customers. And third, the new polish is a real eye catcher. You can really see the difference when you clean your car with this feature. With all these advantages, we believe that we can expand our business in this production category even further. Already with our last generation, we were able to achieve double-digit million revenue in Europe in 2025 that stands for approximately 10% of our equipment business. So we expect more to come. That brings me to my next topic. You are already aware that we are optimizing our production. This is one of the biggest levers we currently have in the company. We have made a major step in the future development of our production network. The grand opening of our new plant in Czech took place on March 26. We started with the transfer of preassembly, assembly and logistics to the new building. The state-of-the-art facilities ensures process stability and efficient material flows while enhancing preassembly capacity with clear structured process change. Currently, we have already transferred around 50% of the total jobs to be transferred. That means on the other side, we currently have planned higher costs. There are people in Augsburg who train the new colleagues in Czech. The handover is in quite good shape, and our employees are working very well together. We expect that this higher capacity need will be resolved before the end of this year, and then we will collect the full saving from this lighthouse project. Let me now briefly address the potential risks related to the conflict in the Middle East. From a revenues perspective, our direct exposure in the affected countries is limited and remains modest. However, the broader uncertainty can lead to a temporary reluctance to invest, particularly impacting equipment demand on a global level. This is something we are closely monitoring. On the recurring side of the business, our assessment remains unchanged. Based on historical data, higher fuel prices may lead to short-term adjustments in driving behavior, but we do not expect a structural impact on car wash usage. Accordingly, we see no material long-term risk to our chemicals and service revenues. On the cost side, we are paying particular attention to supply chains and commodity prices, especially energy-related inputs and selected raw materials. For metals, we are in the lucky situation that we have secured a major part of our need until end of this year already in December 2025. For other parts, we are increasing our stock level cautiously. Higher fuel prices, we counteracted with some surcharges for our customers in the field of service. Currently, we are discussing further mitigation measures and put them in place, depending on the duration of the conflict. You see we are prepared and do the utmost to keep the financial impact on WashTec manageable and to protect margins. On this slide, which you probably already know, you see our main efficiency programs, which we are currently driving. And you are, of course, aware that these are already fundamental for our company. For sure, you also can imagine that not all of those programs always run 100% as planned. I have already given an update on the optimization of production footprint, where we currently have some planned negative impact on the gross margin, but where we are fully in line with our targets. In terms of installation costs, here, we are facing some delays, which are -- influence our gross margin negatively. We somehow have underestimated the complexity of this job in some details and have intensified our efforts here. Our program for cost down of production and modularization is currently slightly behind time line, but overall, with no significant impact for the 2026 figures. On the other side, our programs for quality excellence and the Global Scope Configurator are developing extremely well. Our quality cost per units are decreasing continuously and contribute to our profitability. The Global Scope Configurator has been rolled out now to 3 European countries and further to come. This program clearly delivers what we expected, a strong complexity reduction along the whole process chain from the customer order to production. Now let's come to the figures for Q1 2026. Summing up Q1 in a statement. Revenue is good, especially in equipment in North America, improvement of profitability necessary. But first things first. Starting with our revenues for Q1 2026. We achieved a new first quarter revenue record of EUR 111 million, representing an increase of 2.3% year-on-year. This growth was primarily driven by a strong performance in North America, particularly in the equipment business, supported by higher revenues with key accounts. In Europe and Other, revenues were stable overall compared to prior year. On a business line basis, equipment revenues increased by 7%, while service remained stable. Consumable revenues declined mainly due to the weather-related lower wash volumes. However, the revenue decline was less pronounced than the drop in volumes, underlining the resilience of the underlying business. Looking at our profitability, we see an EBIT of EUR 3.8 million. This is an EBIT margin of 3.4%, whereas on -- 1 year ago, we booked 4.5%. The shortfall was on the one hand side, expected by necessary expenses caused by some programs. Remember my statements to a production shift to Czech. On the other side, we saw a cost increase in terms of installation. Our measures we started are not finished and do not show positive effects in the first quarter, but they will come. We have full focus on this cost block. Having a short view on free cash flow. The number is down by EUR 9 million to EUR 7 million. This drop doesn't make me too nervous right now as we have increased our stock due to the real good order backlog we have. Therefore, our net working capital increased to EUR 94 million and comparable number of March 2025 was EUR 82 million. So overall, Q1 was mixed in terms of financials and hard work is still in front of us. But given the strong top line as well as our current order book, we can look optimistic in the future, especially if we look at the development in equipment, what brings me to the next page. In the first quarter, we see a clear differentiation across our business lines. Equipment was the key growth driver with revenues up 7% year-on-year. This growth was primarily driven by North America, supported by higher revenues with key accounts, while Europe and Others also showed a slight increase. Service revenues were stable compared to the prior year, once again underlying the resilience of our recurring revenue base. This stability is a key strength of our business model, particularly in a more volatile macro environment. Consumable revenues were below the prior year level, mainly due to weather-related lower wash volumes. Importantly, the decline in revenue was less pronounced than the decline in volumes, which demonstrates the fundamentally sound operational development of our washing chemical business. Overall, we are confident with the growth of our top line. Now let's put eyes on our segments. In Europe and Other, revenue remained broadly stable year-on-year. Earnings in the segment were impacted by planned temporarily higher costs, mainly related to the expansion to our Czech site as well as delays in the execution of certain efficiency initiatives, particularly in installation and logistics. I already gave some insights here. In addition, earnings were affected by weather-related lower activity in consumable business. In North America, we saw a clear improvement in both revenue and earnings, driven primarily by higher equipment revenues with key accounts. The segment benefited from improved execution and more favorable product mix. Looking at the EBIT number, we see an increase in this KPI by EUR 1.4 million to now breakeven. This is the best EBIT in the first quarter in North America since 2017. Yes, that's remarkable. Coming now to our EBIT bridge, showing the development of Q1 '25 to Q1 '26. The increase in group revenue in the first quarter generated a positive gross profit contribution, while at the same time, the gross margin declined year-on-year, coming from 29.3% last year to now 28.4%. This was mainly driven by a less favorable product and regional mix, including a lower share of consumables and a higher share of equipment business in North America. In addition, gross profit was impacted by planned temporarily higher costs, primarily related to the expansion of the Czech site and delays in selected efficiency programs, as already mentioned. Selling expenses increased in line with revenue growth and remained broadly stable as a percentage of revenue. Administrative expenses are slightly higher compared to last year, mainly to ongoing IT projects. On this slide, you see some more financial KPIs. Net income and earnings per share follow mainly our EBIT development. Our net financial debt is still in a very good shape despite the outstanding amount is higher compared to the same time 1 year ago. Reason for this is besides higher dividend payment and the share buyback program, we already mentioned higher net working capital. On the following slide, you see our equity ratio and our fixed asset ratio. Both in a reasonable shape. In terms of employees, it is remarkable that we have increased our workforce by 94 year-on-year. Most of our new colleagues have been hired in the business line service followed by sales department. Now to the equipment order backlog, as always, indexed basis this time is the year 2022. Equipment orders received was significantly higher in the first 3 months of the year than in the prior year quarter. This cut across both segments and was primarily due to the positive trend in North American segment, where the increase was even well into the double-digit percentage range. Therefore, as already mentioned, we have a very strong order backlog, plus 10% compared year-on-year, plus 16% compared to end of 2025. And by the way, the increase in North America is even stronger. This gives us a good view on the top line in the coming months. Let's now turn to our guidance for 2026. In general, WashTec confirms its guidance for 2026 and expects that the delays in the efficiency projects will be made good over the course of the year. That is where we, the management and the complete team, need to focus on. We expect revenue growth in the mid-single-digit percentage range and an increase in EBIT that is disproportionately higher than revenue growth. The forecast does not make allowance for any further significant worsening of the economic situation due to the developments in the Middle East or other global disturbances due to some political statements and actions. However, in addition to high volatility in raw material markets, we are currently seeing a significant increase in uncertainty regarding the future course of the conflict in Middle East and the resulting indirect economic impact. That doesn't help too much for stable guidance. So this time, it is even more important to state that this guidance is subject to uncertainties and all these figures reflect our expectations based on our current knowledge and significant deviations in either directions are not factored in here. This concludes my remarks. On the following page, you will find our 2026 financial calendar. Thank you very much for your interest so far. Kevin and I are now available to answer your questions you might have. Kevin Lorenz: [Operator Instructions] We have the first question from Stefan Augustin from Warburg Research. Mr. Augustin, we can hear you. Stefan Augustin: Great. I hope so. I have a couple of questions. So the first one is actually, can you elaborate a little bit more again on the headwinds? So when do you think which one of the headwinds is going to start to decline? I mean, Czech Republic is probably second half of the year, so not Q2 yet. When is the element of the installation efficiencies going to kick in? And can you remind us on the SAP integration costs in Q1 '26 compared to the ones you might have had in Q1 '25? So that would be the first block. Andreas Pabst: Okay. So yes, you are right, the profitability or the increasing profitability for the transfer to Czech Republic will kick in more, end of this year, and we will see full effect according to the actual plans. And we are in the current time line, we are fully on track. We will see that in 2027. In terms of installation costs, we are currently really a little bit behind. We detected some, let's call it, difficulties, yes, where we need to dig further and we need to create other solutions to come back here. So that means, I would say we are here now 1 quarter behind, but we will manage to come up with this one during the year. And then you asked about the cost for the implementation of SAP. So if you look to the EBIT bridge, which is in the presentation, the deviation in administrative cost is more or less coming from this cost for the introduction of S/4HANA. So it's around about EUR 200,000. Stefan Augustin: Okay. The next one is the -- you mentioned that the orders that you received in Q1 are largely also on the U.S. side, but we should also expect growth and a positive book-to-bill in the quarter on the European side. Is that okay? Andreas Pabst: So if I look at the order income, I'm positive in Europe as well as North America for the first quarter. Both showed an increase compared to prior year. That is good. The increase was even -- just what I said was, the increase was even higher in North America. So yes, you're right with your statement. Stefan Augustin: And probably the weather, especially in Germany has been quite good in the second quarter or in April. So it would not be wrong to expect a better chemicals business in the second quarter. Is that a fair assumption? Andreas Pabst: Let me think about -- so currently, we have May 5, I guess. So the second quarter is not completely done yet. But looking at April was good washing weather, especially in Europe in one of our key markets. That's some headwind we have -- or tailwind, sorry. Stefan Augustin: Okay. And then maybe just switching back a little bit. The -- say, the headwind on the installation efficiencies, is that more in Europe or respectively, if we have in the second quarter, stronger volumes to expect from North America, would we still see a very or a sizable drop-through in operating leverage as the installation part is quite okay in North America? Andreas Pabst: That's really a good question. Thank you for that one. So the topic what we see in installation cost is mainly related to Europe. So the installation costs in North America are on a reasonable level if we compare it over the year and compare it to the targets we have. Kevin Lorenz: And we have another question from Wolfgang Specht from Berenberg. Mr. Specht, can you hear us? We can't hear you. Sorry, okay, I see the question was actually in written form. So the question is, connection is a mess still would have several questions. Okay. And so Mr. Specht, our provider in EQS has now also included an option that you can dial in via phone. Currently, many analysts have the problems that their banks are very restrictive with their IT and so if you can -- if it's possible for you, then you can also dial in via phone and there should be -- the procedure should be described. There should be a number that you have to call and then -- so let's maybe give him a little bit more time to -- if there's a question coming or not. Else -- I don't see any other questions right now. So I don't know, should we give him another minute or should we. Andreas Pabst: Let's wait for 30 seconds and see if it works, if not yes. And that's also. Kevin Lorenz: There should also be an option to write down questions in text form, also for everyone else who might still have questions. Andreas Pabst: So Mr. Specht, we really like to answer your question. So if it doesn't work right now, yes, probably then we can do it later on. That is for all the audience. But then I would say no further questions right now. So then ladies and gentlemen, on behalf of the whole Management Board, we really would like to thank you for your interest in WashTec and wish you a pleasant day. Thank you. Bye-bye.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today At this time, I would like to welcome everyone to the JELD-WEN First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to James Armstrong, Vice President of Investor Relations. Please go ahead. James Armstrong: Thank you, and good morning. We issued our first quarter 2026 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I'm joined by Bill Christensen, Chief Executive Officer; and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix to our earnings presentation. With that, I would like to now turn the call over to Bill. William Christensen: Thank you, James, and good morning, everyone. Before turning to our results, I want to thank the teams across JELD-WEN. Even with continued market pressure, our organization is showing up every day with focus and urgency driving operational improvements, supporting customers and advancing the work needed to strengthen the company. A key element of that work is investing for our customers through improved service and customer experience. As a company, we continue to place incremental focus into service and responsiveness, and we believe that this will create value as the year progresses. The macro environment remained soft in the first quarter consistent with our expectations. As a reminder, the first quarter is the seasonal low period, and we anticipate improvement as we move through the remainder of the year. During the quarter, we also implemented a number of pricing increases, and we expect those increases to begin flowing through more meaningfully in the second quarter and beyond. Overall, we delivered the quarter within our expectations and managed through a difficult volume environment. As seen on Slide 4, sales for the quarter were $722 million. As we have previously discussed, we took deliberate actions to align our labor with current market conditions, and we continue to adapt the cost structure of the business. At the same time, we are balancing investments in our customers by maintaining the resources needed to deliver quality and dependable service. We are already seeing significant service improvements across the company including our On-Time, In-Full Rates. Adjusted EBITDA was a modestly positive $6 million for the quarter, and cash performance was generally in line with our expectations. As a reminder, the first quarter is typically the highest working capital quarter, and we would expect working capital to unwind as we move into the back half of the year consistent with the seasonality of the building products industry. As we look ahead, we continue to focus on what we can control. As we mentioned last quarter, customers are very clear that consistent delivery and follow-through are what they value most. And we continue to direct investments towards these priorities. With the improvements we are seeing, we continue to discuss opportunities to regain volume, and we now expect improved execution and service levels to contribute to incremental sales versus the 2026 expectations we shared in the fourth quarter results call. We are strengthening the customer experience through better execution and consistency, and we expect that to support improved performance as the year progresses. At the same time, we are also seeing higher cost pressure, particularly in freight and pricing remains competitive in certain areas versus what we expected previously. We are managing those dynamics, staying disciplined on what is within our control while continuing to prioritize customer service and operational execution. Finally, we continue to progress the strategic review of our European business. While the process is ongoing and we have nothing to announce at this time, we believe this review could provide meaningful liquidity and help further strengthen our balance sheet. We are also evaluating various alternatives thoughtfully with a focus on improving financial flexibility while preserving long-term value. With that, I'll hand it over to Samantha to review our financial results in greater detail. Samantha Stoddard: Thank you, Bill. Turning to the financial results on Slide 6. First quarter net revenue was $722 million, down 7% year-over-year. The revenue decline was driven by lower volume/mix. While mix was down slightly year-over-year, most of the volume/mix decline was driven by lower volume. Adjusted EBITDA for the quarter was $6 million, down 72% year-over-year and adjusted EBITDA margin was 0.9%, down 190 basis points year-over-year. The lower earnings performance was primarily driven by volume/mix, along with negative price/cost dynamics during the quarter as inflation was not fully offset by pricing. These headwinds were partially offset by significantly improved productivity year-over-year. Turning to cash flow. Operating cash flow was a $91 million use of cash in the first quarter driven by lower EBITDA, combined with a $43 million use of working capital. As a reminder, the first quarter is typically the highest working capital quarter of the year, and we expect significant working capital improvement as we move through the remainder of 2026. As a result of lower EBITDA and the use of cash, net debt leverage increased to 11.3x at the end of the first quarter. Given the seasonal use of working capital, we drew $40 million on our revolver. We continue to manage the business with a disciplined focus on cash, cost and balance sheet flexibility. Turning to Slide 7. The year-over-year change in net revenue was driven primarily by lower volume/mix. First quarter sales were $722 million, compared to $776 million in the prior year, and core revenue declined 10% year-over-year. Pricing was a slight positive, but it was more than offset by the volume/mix decline, which drove the majority of the year-over-year reduction. The comparison also reflects a $30 million tailwind from foreign exchange driven by a stronger euro relative to the dollar. Taken together, these factors explain the year-over-year change in revenue and are consistent with the market conditions we discussed earlier. Turning to Slide 8. Adjusted EBITDA for the first quarter was $6 million, compared to $22 million in the first quarter of last year. The year-over-year decline reflects a combination of cost pressure and lower volume/mix. Price/cost was a $21 million headwind as pricing was slightly positive, but it continued to be outweighed by cost inflation in areas like glass, metals and transportation. Volume/mix was also a $22 million headwind, and that impact was driven primarily by lower volumes year-over-year. These headwinds were partially offset by improved execution across the business. Productivity was a $22 million benefit year-over-year, and we also delivered a $6 million improvement in SG&A and other expense despite a $10 million other income headwind from prior year. Turning to Slide 9 and our segment results. In North America, first quarter revenue was $453 million, compared to $531 million in the prior year. The year-over-year decline was driven primarily by lower volumes and the court-ordered Towanda Divestiture which had partial impact in the first quarter of 2025. Adjusted EBITDA for North America was $4 million, compared to $16 million last year. And adjusted EBITDA margin declined to 0.8% from 2.9%. Profitability was pressured by continued inflation and lower volumes, partially offset by significant year-over-year productivity and SG&A improvements. In Europe, revenue was $269 million, up from $245 million in the prior year, an increase of 10% year-over-year. The improvement was driven primarily by foreign exchange and slightly better pricing, partially offset by continued volume decline. Foreign exchange contributed approximately 11.5 percentage points to the year-over-year revenue change. Adjusted EBITDA for Europe was $7 million compared to $11 million last year and adjusted EBITDA margin was 2.6% versus 4.3% in the prior year. Productivity was a slight positive, but those benefits were more than offset by lower volume/mix, along with higher SG&A expense. With that, I will turn it back over to Bill to discuss our updated market outlook and how we are positioning JELD-WEN for the path ahead. William Christensen: Thanks, Samantha. Turning to Slide 11. I want to walk through our market outlook for 2026 and the assumptions underlying our guidance. Importantly, our view of the market has not meaningfully changed from what we outlined previously in our fourth quarter 2025 results call. We continue to operate in a challenging and uncertain environment and our outlook reflects a cautious view rather than any expectation of a near-term recovery. In North America, we expect the overall windows and doors market to be down low to mid-single digits. Within that, we see new single-family construction down low single digits and repair and remodel down mid-single digits. We now expect U.S. multifamily to be up significantly year-over-year, while Canada continues to face more significant pressure with high single-digit declines, reflecting ongoing economic softness and continued weak housing activity. In Europe, conditions appear to be stabilizing. We expect volumes to be roughly flat year-over-year. Demand remains subdued, but we are not seeing further deterioration from current levels. At the company level, our volume assumptions are now more aligned with the underlying market. We continue to expect some impact from prior pricing actions but we are also beginning to see the benefits of improved service levels. Our guidance reflects a modest contribution from these service improvements while maintaining a clear focus on pricing discipline. Overall, our framework remains consistent. Our guidance is based on current demand levels with pricing actions largely in place and a continued focus on margin protection and execution rather than relying on an improvement in end market conditions. Turning to Slide 12. I I'll walk through our updated full year 2026 guidance. Overall, we are increasing our revenue outlook, holding our adjusted EBITDA range and maintaining cash flow expectations. We now expect net revenue in the range of $3.05 billion to $3.2 billion, up from our prior range of $2.95 billion to $3.1 billion. This reflects a modest benefit from improving service levels, which brings our company volume assumptions more in line with the underlying market. April sales have been in line with our expectations, which supports the updated view we are sharing today. As a result, we now expect core revenue to decline between 3% and 6% year-over-year compared to 5% to 10% previously. The adjusted EBITDA range remains unchanged at $100 million to $150 million. While the higher revenues progress, we are seeing incremental price/cost headwinds relative to our prior assumptions, which offset the benefit from improved volumes. Our outlook continues to reflect higher pricing and a focus on execution in a still changing demand environment. On cash flow, we continue to expect operating cash flow of approximately $40 million and a free cash flow use of approximately $60 million. We still anticipate capital expenditures of approximately $100 million that are largely maintenance in nature. Our guidance assumes no portfolio changes. However, as noted, we continue to evaluate strategic options, including our review of the European business, and additional actions to improve liquidity. Turning to Slide 13. This chart bridges our 2025 adjusted EBITDA of $118 million to the midpoint of our 2026 adjusted EBITDA guidance of $125 million. Starting on the left, market volume/mix remains a headwind of approximately $25 million, reflecting the continued pressure we see across our end markets. The next item is net share loss which we now expect to be a $30 million headwind, improved from our prior expectation of $60 million. This reflects early progress on service and a more stable customer response as those improvements begin to take hold. We now expect a greater headwind from price/cost, which we anticipate to be approximately $40 million, compared to $10 million previously. The environment remains highly competitive and as our service improves, we've been more active commercially, including targeted promotional activity to regain traction with certain customers. In addition, we are seeing higher-than-expected cost pressure, most notably in freight. These external and commercial pressures are offset by actions within our control. We continue to expect approximately $75 million of benefit from rightsizing and base productivity, reflecting actions that are largely executed and will be realized over the course of the year. We also expect about $35 million of carryover benefit from our transformation initiatives, including automation, footprint optimization and systems improvements as those efforts continue to move in a more steady state operating model. The remaining items include approximately $10 million of headwind from compensation and other timing-related factors, partially offset by foreign exchange and other items. Taken together, these elements bridge to the midpoint of our 2026 adjusted EBITDA guidance. While the mix of headwinds has shifted, the overall earnings outcome remains unchanged, reflecting both the ongoing pressure in the market and the impact of the actions we are taking to manage through it. Before we wrap up, I want to step back and highlight the progress we are making on service across our North America business. On Time, in Full delivery or OTIF, is a key customer metric and it is where we have been intensely focused. As you can see on Slide 14, our OTIF performance has improved significantly over the past year, moving to over 90%. This is a meaningful step change in how we are serving our customers, and we are seeing that reflected in the feedback we are getting across the business. Customers are noticing the improvement. We are seeing better engagement, more consistent order patterns and importantly, increased opportunities to quote and compete for new business as our service levels improve. This progress is being driven by both stronger execution and deliberate investment. Operationally, we have now deployed our A3 management system across the network, which has improved how we identify issues, solve problems at the root cause and maintain consistency as well as ownership at the plant level. At the same time, we have made conscious decisions to prioritize service, including higher transportation spend, such as shipping partial loads when needed and maintaining staffing levels despite lower volumes. These are targeted investments to support service and rebuild trust with our customers. We believe that as service continues to improve, that trust will translate into volume recovery and share gains over time. That said, we are not finished. Our goal is to consistently operate above 95% OTIF and reaching that level will require further progress, particularly with our vendor base and how we manage special order products. Overall, we are encouraged by the progress we are making. Service is improving, customers are responding, and we are beginning to see that translate into commercial opportunities. Turning to Slide 15. I'll close by stepping back and putting our progress into perspective. Over the past year, we've made significant improvements in how we serve our customers. We have invested in service, strengthened our operating discipline and focused the organization on the metrics that matter most. Cash and liquidity remain a priority. We are taking actions to preserve cash, and we continue to evaluate opportunities to strengthen liquidity and maintain flexibility in an uncertain environment. Our strategic review of Europe is ongoing, and we continue to evaluate other opportunities to improve liquidity and strengthen financial flexibility. Across the business, we are also aligning labor with current market conditions while continuing to invest in the organization for the long term. That includes work to improve culture and engagement. We recently completed a company-wide baseline employee engagement survey, and our managers are actively using that feedback to create individual action plans focused on local level engagement. Importantly, our customers are seeing the difference. Service levels have improved, performance is more consistent, and we are beginning to rebuild trust. That is showing up in better engagement and increasing opportunities to compete for new business. However, we are not yet where we need to be. There's more work to do and we know that this will not happen overnight, but we are moving in the right direction and starting to see the early benefits. At the same time, we are managing the business with a clear view of current market conditions. We are aligning the cost structure to demand, maintaining pricing discipline and staying focused on execution. As I close, I want to recognize the work of our associates across JELD-WEN. The progress we are seeing is the result of their effort and focus every day. Our customers are noticing the improvement and it is important that we continue to build on that momentum. Overall, we are becoming a more consistent and disciplined company. We are improving service, rebuilding customer confidence and managing the business with a clear focus on cash and execution. With that, I'll turn the call back over to James for questions. James Armstrong: Thanks, Bill. Operator, we're now ready to begin Q&A. Operator: [Operator Instructions] Your first question comes from the line of John Lovallo of UBS. John Lovallo: The first one is, at the midpoint, your outlook seems to imply 2Q adjusted EBITDA of about $31 million. That's versus about $6 million in the first quarter. Can you just help us kind of bridge the ramp from first quarter to second quarter? Samantha Stoddard: John, yes, this is Samantha. I can help bridge that gap. So it's primarily driven by normal seasonality with the second quarter typically benefiting from higher sales volume and then better labor absorption as well. This year, we also expect to see the benefit of pricing actions that we implemented already in Q1, but begin flowing through more meaningfully at the start of Q2. And as you heard Bill say in the earlier remarks, we are already seeing the uptick in April. So we do feel good about going into Q2. John Lovallo: Got it. That's helpful. And then on the North American decremental margin, it is around 15%, which was pretty favorable, and I think it speaks to the cost controls and the cost takeout you guys have achieved. I mean how sustainable do you think this level of decremental is? And maybe more importantly, how are you thinking about incrementals in an improving volume environment? Samantha Stoddard: Yes. So I can start, and then I'll let Bill jump in. I think that in the short term, you are going to see us holding the line with the costs in particular. So you're right in that a lot of the transformational actions and cost takeouts that we saw in '25 going into '26 are going to continue. With the improved volumes from what I just spoke about, the seasonality as well as some of the higher price, that should then flow, I would say, our normal incrementals, 25% to 30% on the upside. William Christensen: John, it's Bill. So the only thing I'd add there is what I'm really pleased with is if you look at our bridge coming out of our full year '25 guide to where we are now, we've removed about $100 million of headwind. And that speaks to the hard work that our teams are doing every day to really make things work for our customers. So we're starting to gain traction and reducing the rate of decline, which is great. So we do have some share loss that's lapping from '25, but we feel pretty good here headed into the last 3 quarters of this year. Operator: Your next question comes from the line of Susan Maklari of Goldman Sachs. Susan Maklari: My first question is on the improved service levels. It's encouraging to hear that you're seeing such a nice lift there. I guess, can you talk more about how you're thinking of the path from here, the specific programs that you are working on and putting in place to support that? And I know last quarter, we talked about standardizing some of your operating systems and processes to help with that service. Is this part of what's driving that? And where you are in that process as well? William Christensen: Yes, Susan. Thanks for the question. So absolutely, standard work across our network of sites, both in Europe and in North America is progressing very well. And you can see, based on what we showed on Chart 14 with the improvement on the OTIF metrics, clearly, there's still work to be done. But we are in a pretty choppy demand environment. And so our network needs to be very flexible and as we noted in the prepared remarks, we have incurred some additional costs based on not in full shipments, but making sure we're doing everything we can to meet our customers' expectations. So that's progressing well. I think the second thing I'd want to call out is that the teams are working extremely hard to connect with our customers and define areas of opportunity where we can lean in together with them to regain some of the share that we've lost in the last couple of years, and that's starting to show up as well. So we think this bodes well for the back half of the year, even though we still are expecting a pretty soft market environment as we outlined in prepared remarks. Susan Maklari: Okay. That's very helpful. And then can you give a bit more color on the magnitude of the inflation? How we should be thinking about that path for price/cost this year? I know you mentioned that you're starting to see some of the realization on the first quarter increase. And with that, how you're thinking about that balance between volume versus price in this environment? Samantha Stoddard: Yes. Let me go ahead and start that, Susan. So on the inflation side, I think the biggest area that we're seeing inflation is going to be around the freight and energy prices. So we're seeing that both in North America as well as Europe. On the better note, we are seeing slightly less tariff exposure that we did expect when we were starting the year. In terms of the magnitude, they're somewhat offsetting each other, not exactly, but materially, they're about offsetting. So when we think about the price/cost negativity, I think that there is some of that in inflationary pressures. And there is the affordability challenge from a price standpoint. We are seeing competitive pricing in different areas of the market. So while we have already gone out with price, that is why we're calling down some of the price/cost that we initially expected to be around negative 10% from an EBITDA bridge, we are now seeing that to be a little bit higher. Operator: Your next question comes from the line of Matthew Bouley, Barclays. Anika Dholakia: Anika Dholakia on for Matt today. So first off, for Europe, you guys mentioned that you're not seeing any further demand pressure from current levels. So I'm curious if this suggests that pricing strength can continue in this region similar to 1Q? And then just kind of going off of that, how have some of the recent geopolitical dynamics maybe impacted the review of the European business, if at all? So yes, any color on that? William Christensen: Thanks for your question. Yes. So we clearly are seeing more signals that we're at the bottom of the valley from a volume decline. So Europe has stabilized. We called it last quarter. We're seeing similar trends just to remind you, it takes 9 to 12 months post start to put our product in. So it's going to be a while until you see things tick up in the Doors world. On pricing, we've done a great job across many European markets of introducing price to offset inflation and headwinds. The macro reality is going to have a pretty significant impact in Europe on energy, feedstock input prices, transportation costs, et cetera. We're already in market with pricing to offset a number of those headwinds. So I'd say we're feeling fairly balanced currently in Europe. And then the third comment is we wouldn't really comment specifically on where we are on the strategic review and what the influences would or wouldn't be as we said in the prepared remarks, nothing further process is ongoing, but no further details today. Anika Dholakia: Okay. Great. That's really helpful. And then on the second question, so on the productivity initiatives on the $110 million, I'm curious, I think last quarter, you guys said 50% completed, 25% actioned, but hadn't hit and then 25% still needed to be actioned. Is this on track with what you guys expected? Or any updates to these numbers? Samantha Stoddard: Sure. So breaking it down, the $35 million of the transformation carryover, that is 100% completed at this point. So these are structural costs. We talked about it on an earlier question that we are seeing the benefits of and they're 100% complete. On kind of the base productivity, rightsizing of the business, I would say we're greater than 80% of those initiatives that are done. So there's still a little bit of work to be done on some of the smaller initiatives, but the majority have been banked at this point, and we'll see that carry through in Q2 through Q4. Operator: Your next question comes from the line of Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: Can you talk more about the improvement in on-time deliveries you've seen over the last year and whether it's corresponded with the stabilization in your share position over that time period of service levels continue to improve? William Christensen: Yes. So yes, that's the short answer. The longer answer is, obviously, we have a fairly broad portfolio in the North American market. So there's a number of different areas where we're performing very well and continue to do so. And there's other areas where clearly we weren't meeting expectations of our customers. And as we had described last year, there was some share loss, some pruning on our side, but also some share loss. And we're definitely regaining share in certain pockets that our North America team is very focused on partnering with our customers to give them the product at the right time at the right place. So we're pleased with the improvements. And as I said, we've probably reduced by about half the headwind that we thought we would have this year from a top line standpoint. So we're making good progress, not finished. There's more work to be done, but I think that's a good signal that we're moving in the right direction, Jeff. I think that's the important message today on the call. Samantha Stoddard: And Jeff, just highlighting back to the full year guidance bridge. As I talked about earlier with Susan, that the price/ cost, unfortunately, has become a little bit more negative but that share loss volume/mix, EBITDA impact, as Bill was talking about, has improved by about $30 million from last quarter. Jeffrey Stevenson: That's very helpful. And then thanks for the update on the Europe strategic review. But previously, you talked about divestitures of smaller noncore assets as well, such as your distribution business in North America. And I just wondered if there are still opportunities across your footprint for other potential divestitures as well. William Christensen: Yes. So Jeff, what we've said is we continue to evaluate other options in addition to the strategic review to improve liquidity, which clearly is a key focus point of ourselves given the current macro environment. And that includes assessing sale of other assets, potential sale-leaseback transactions. No further detail from our side. I think more importantly, we've said this a number of times, I want to reiterate, we expect to address our near-term maturities before they go current in December. And for the time being, as Samantha laid out in her prepared remarks, we have ample liquidity, and we're actively managing cash in this soft macro environment. So I think that important combination. We continue to evaluate options. We have a number of options, and we're staying very close to the cash situation, combine that with improvements on service and better volume outlook from our side. We're feeling good about where we are currently. Operator: There are no further questions at this time. And with that, I will now turn the call back over to James Armstrong for final closing remarks. Please go ahead. James Armstrong: Thanks, everyone, for joining us today. If you have any follow-up questions, please feel free to reach out. We appreciate your time and interest in JELD-WEN. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. As a reminder, this call is being recorded. Thank you. I would now like to turn the call over to Kerri Joseph, Senior Vice President, Investor Relations and Treasury. Ms. Joseph, please begin your conference. Kerri Joseph: Thank you, operator. Good morning, everyone. Thank you for joining our first quarter 2026 earnings call. With me today are Ari Bousbib, Chairman and Chief Executive Officer; Michael Fedock, Executive Vice President and Chief Financial Officer; and members of our leadership and Investor Relations teams. Today, we will be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call in the Events and Presentations section of our IQVIA Holdings Inc. Investor Relations website at ir.iqvia.com. Before we begin, I would like to caution listeners that certain information discussed by management during this call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company’s business, which are discussed in the company’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-Ks and subsequent SEC filings. In addition, we will discuss certain non-GAAP financial measures on this call which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. As previously disclosed, we implemented a new segment reporting structure effective 01/01/2026. In conjunction with this change, prior period segment amounts have been recast to conform to this new reporting structure. I would now like to turn the call over to our Chairman and CEO, Ari Bousbib. Ari Bousbib: Thank you, and good morning, everyone. Thank you for joining us today to discuss our first quarter results. IQVIA Holdings Inc. delivered outstanding financial results, achieving record first quarter revenue and adjusted diluted earnings per share that exceeded the high end of our guidance, reflecting solid top and bottom line performance. We are seeing continued positive year-over-year momentum across the portfolio with strong acceleration of organic revenue growth. In fact, year over year, our organic revenue growth rate in Commercial Solutions doubled, and our organic revenue growth rate in R&D Solutions tripled. On the commercial side, revenue growth accelerated as clients continue to launch new products and increase the breadth of services they utilize from IQVIA Holdings Inc. We saw particular strength in Patient Solutions, which is the part of Real World that remained in the Commercial segment, and particular strength in Analytics and Consulting, which had the highest growth we have seen in three years, as well as strength in our Commercial Engagement Services, which includes the former CSMS segment. We feel good about demand on the commercial side with pipelines growing to record levels, and we think AI has something to do with it. AI is causing our clients to have more questions. It is causing them to increase their demand for IQVIA Holdings Inc.’s differentiated AI capabilities and for the innovation we are embedding across our commercial offerings. On the clinical side, we also delivered very strong performance in the first quarter with better than expected reported and organic revenue growth. We had solid bookings with double-digit growth year over year, both as reported and as recast. In particular, we had solid growth in net service fee bookings, that is, excluding pass-throughs. Net service fee bookings growth in the quarter was solid year over year as well as sequentially, both as reported and as recast. Cancellations in the quarter were within the normal range. So why was our book-to-bill ratio 1.04 in the quarter despite solid service fee bookings growth and normal cancellations, and no, AI has nothing to do with it? What happened was that pass-through bookings were unusually low in the quarter, simply due to the particular mix of indications of the clinical trials we booked in the quarter, which included more full-service trials with lower pass-throughs than usual. I want to note that the proportion of FSP in our bookings this quarter was consistent with historic levels. Regarding the overall demand environment, forward-looking demand metrics continue to point in the right direction. Our backlog reached a new record of $34.2 billion at the end of the quarter. Noteworthy is the amount of dollars from our backlog that will convert to revenue in the next twelve months. We have $8.9 billion out of our backlog, representing nearly 8% growth year over year versus the recast numbers last year. Our qualified pipeline grew mid single digits year over year, with notable strength in EVP. RFP flow grew high single digits year over year, driven by growth both in large pharma and in EVP. All of these comparisons are, of course, apples to apples, that is, versus prior year numbers that have been recast to reflect the new segment reporting. Finally, you may have noticed EBP funding was very strong in the first quarter, reaching $25 billion according to BioWorld, which is almost double the funding in Q1 2025. Now let us turn to the results in the quarter. We delivered outstanding revenue and profit results. Total revenue for the first quarter exceeded the high end of our guidance range, representing year-over-year growth of 8.4% on a reported basis and 6% at constant currency. First quarter adjusted EBITDA was up 5.5%. First quarter adjusted diluted EPS of $2.90 also exceeded the high end of our guidance range; it increased 7.4% year over year. Let us review a few highlights of business activity. A brief update on AI: IQVIA Holdings Inc.’s AI solutions are built on our unparalleled proprietary data foundation, best-in-class compliance with the privacy, regulatory, and integrity standards healthcare-grade AI demands, and are connected to our deep life sciences and healthcare expertise. We have been integrating AI into our operations and solutions at scale for nearly a decade. It is part of who we are and what we do. We already function as an AI-native company in life sciences. A few weeks ago, we unveiled iqvia.ai at NVIDIA’s GTC conference. This is our agentic AI portal and marketplace purpose-built for life sciences. It provides clients a single access point to their purchased IQVIA Holdings Inc. AI solutions, enabling centralized control with their internal user base, while also enabling visibility to a broader AI portfolio to support future solution adoption. Our deployment of highly specialized life sciences industry AI agents is progressing as planned. To date, we have 192 agents deployed in the field covering 64 use cases across both our Commercial Solutions and R&D Solutions businesses. Nineteen of the top twenty pharma companies are already using IQVIA Holdings Inc. agents in some of their workflows, underscoring broad industry trust in our AI capabilities. Switching to client activity in Commercial Solutions, this quarter we saw clients increasingly selecting IQVIA Holdings Inc. to build AI-ready data foundations, which facilitate the incorporation of AI agents, including our agents, into their workflows. These new services expand the scope of our partnerships with clients. A few examples of wins in the quarter: a top-10 pharma client awarded IQVIA Holdings Inc. a contract to modernize performance reporting on markets and therapeutic areas using an AI-driven analytics platform. The engagement replaces hundreds of disconnected reports and dashboards from multiple vendors with a centralized, managed, AI-powered IQVIA Holdings Inc. insights solution. IQVIA Holdings Inc. secured a multiyear partnership with a midsized client to build a scalable, AI-ready data foundation. The win demonstrates IQVIA Holdings Inc.’s plug-and-play capabilities within a client’s multi-provider technology ecosystem. Pfizer and IQVIA Holdings Inc. entered into a strategic regional promotion agreement covering selected Pfizer products across 23 countries in Europe. This collaboration brings together Pfizer’s scientific leadership with IQVIA Holdings Inc.’s promotional expertise, market intelligence, and AI-supported technology to support long-term impact. We entered into a strategic, long-term collaboration with Boehringer Ingelheim to transform the global commercial intelligence foundation. Boehringer selected IQVIA Holdings Inc.’s Data-as-a-Service plus platform as the core accelerator to harmonize and upgrade global commercial operations, enabling more scalable analytics and a single version of the truth across therapeutic areas and geographies. This collaboration will support upcoming product launches and market reporting across 59 countries. IQVIA Holdings Inc. was awarded a multiyear agreement to serve as the primary patient information and analytics partner across an EVP’s full portfolio, including our Data-as-a-Service platform. This partnership is designed to drive strong visibility into existing brands, accelerate improvements in analytics, insights, and pipeline assets, and enable more intelligent commercial and portfolio decisions. Turning to R&D Solutions, our strategy has been to leverage our AI solutions to optimize trial design and execution to reduce timelines for our clients. We have been doing this for years through protocol optimization, site identification, and operational risk mitigation, and we are taking this to the next level with AI agents, which lead to much faster study execution and increased quality by reducing errors and rework. For example, the agentification of the complex database setup process in study start-up or the AI identification of tasks involved in filing multiple documents in the Trial Master File. We are increasingly embedding these AI agents in our delivery model. Recent wins on the back of these capabilities include: a top-five pharma company selected IQVIA Holdings Inc. to provide AI-enabled global medical safety and pharmacovigilance services, building on a decade-long relationship and strong performance across both FSP and clinical delivery models. The deal consolidates safety operations under a single scalable model to improve efficiency and reliability while enabling ongoing innovation. A top-10 pharma client awarded IQVIA Holdings Inc. a multiyear agreement to serve as the primary partner for delivering full-service global clinical trials. We differentiated ourselves through AI-enabled innovation that accelerates development and improves execution quality. IQVIA Holdings Inc. won a contract with a global midsized pharma to deliver a Phase 3 clinical study supporting a high-profile oncology asset, based on our experience running similar studies and our ability to deliver AI-enabled trial design, protocol optimization, and site identification. A top-20 pharma company selected IQVIA Holdings Inc. to support a late-stage clinical program in asthma in overweight patients, highlighting AI-enabled clinical solutions, including protocol and design strategy optimization, regulatory compliance, and study document filings. For an EDP, we are delivering a global late-stage clinical program that integrates clinical and laboratory services within a single operating model, with agentified analytics embedded across site feasibility and selection, enrollment, and performance forecasting. Lastly, in the quarter, we announced a strategic collaboration with the Duke Clinical Research Institute to advance clinical research in obesity and related cardiometabolic conditions. The collaboration brings together IQVIA Holdings Inc.’s global operational scale and execution capabilities with Duke’s academic rigor and scientific leadership, creating an integrated end-to-end model for large, complex clinical trials. The partnership is designed to accelerate trial start-up, improve execution efficiency, and support regulatory submissions and commercialization. IQVIA Holdings Inc. contributes deep expertise in obesity and metabolic disease, having supported more than 120 obesity trials and enrolled more than 90,000 patients, including work across all FDA-approved GLP-1 therapies to date, providing sponsors with a proven operational foundation. This partnership with Duke has already resulted in a significant pipeline of opportunities and a few wins in the second quarter. I will now turn the call over to Michael Fedock for more details on our financial performance. Michael Fedock: Thank you, Ari, and good morning, everyone. As Kerri noted earlier, we implemented a new segment reporting structure effective 01/01/2026. In conjunction with this change, prior period segment amounts have been recast to conform to this new reporting structure. Let us start by reviewing the results. First quarter revenue was $4.151 billion, up 8.4% on a reported basis and 6% at constant currency. Revenue growth includes about two points of contribution from acquisitions. Commercial Solutions revenue for the first quarter was $1.754 billion, up 11.6% on a reported basis and 8.5% at constant currency. R&D Solutions first quarter revenue was $2.397 billion, up 6.2% on a reported basis and 4.2% at constant currency. Now moving down the P&L. Adjusted EBITDA was $932 million for the first quarter, representing growth of 5.5% year over year. First quarter GAAP net income was $274 million and GAAP diluted earnings per share was $1.61. Adjusted net income was $492 million for the first quarter and adjusted diluted earnings per share was $2.90, representing growth of 7.4% year over year. Now turning to RDS bookings. To provide an apples-to-apples comparison, last year’s Q1 2025 net new bookings and backlog have been recast to reflect the Real World Late Phase and certain other Real World offerings that are closely related to the clinical trial business, which we moved from TAS to RDS. On this new basis, R&D Solutions net new bookings in Q1 2026 were $2.5 billion, a double-digit increase year over year. RDS backlog at March 31 was $34.2 billion, an increase of mid single digits year over year. Additionally, the next twelve-month revenue from this backlog was $8.9 billion at March 31, which is up high single digits versus the prior year on a recast basis. Now reviewing the balance sheet. As of March 31, cash and cash equivalents totaled $1.947 billion and gross debt was $15.833 billion, resulting in net debt of $13.886 billion. Our net leverage ratio ended the quarter at 3.62 times trailing twelve-month adjusted EBITDA. First quarter cash flow from operations was $618 million; capital expenditures were $127 million, resulting in strong free cash flow of $491 million, which represents 100% of adjusted net income, a 15% increase year over year. In the quarter, we repurchased $552 million of our shares, which leaves us approximately $1.2 billion of repurchase authorization remaining under the current program. Now turning to guidance. We are reaffirming our full year 2026 guidance for revenue and adjusted EBITDA, and we are raising the guidance for adjusted diluted earnings per share. We continue to expect revenue to be between $17.15 billion and $17.35 billion, representing growth of 5.2% to 6.4%, or 5.8% at the midpoint. This revenue guidance continues to assume approximately 150 basis points of contribution from acquisitions and approximately 100 basis points of tailwind from foreign exchange. These assumptions are unchanged from the prior guide. We continue to expect adjusted EBITDA to be between $4.05 billion and $4.25 billion, growing 4.9% to 6.3% year over year, or 5.6% at the midpoint. We are raising our adjusted diluted EPS to be between $12.65 and $12.95, up 6.1% to 8.6% versus prior year, or 7.4% at the midpoint. Turning to the second quarter. For Q2, we expect revenue to be between $4.28 billion and $4.34 billion, which represents year-over-year growth of 6.5% to 8%. Adjusted EBITDA is expected to be between $955 million and $975 million, representing growth of 4.9% to 7.1% versus prior year. Adjusted diluted EPS is expected to be between $2.98 and $3.08, which represents year-over-year growth of 6% to 9.6%. Both this guidance and our full year guidance assume that foreign currency rates as of May 4 continue for the balance of the year. To summarize, IQVIA Holdings Inc. delivered outstanding financial results with first quarter revenue and adjusted diluted EPS exceeding the high end of our guidance. We delivered strong acceleration of organic revenue growth in both Commercial Solutions and R&D Solutions. RDS net new bookings grew double digits year over year with solid year-over-year and sequential growth in net service fee bookings. We continue to make very strong progress in the deployment of highly specialized life sciences industry AI agents, with more than 190 agents deployed covering over 50 use cases across Commercial Solutions and RDS businesses, with 19 out of the top 20 pharma companies already using our agents in some of their workflows. Forward-looking indicators continue to point in the right direction for both Commercial Solutions and RDS. We repurchased $552 million of our shares in the first quarter, and we reaffirmed our full year 2026 guidance for revenue and adjusted EBITDA and raised the guidance for adjusted diluted earnings per share. We will now open the call for questions. Operator, please go ahead. Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We request that you please limit yourself to one question so that others in the queue may participate as well. We will pause for a moment to compile the Q&A roster. Your first question comes from the line of an Analyst with Leerink Partners. Your line is now open. Please go ahead. Analyst: Good morning, everyone. Thanks for taking the questions. Maybe if I can dive in a little bit more on the services versus pass-through bookings that you saw in the quarter. As you think about the demand dynamic, how should we think about that conversion of what you are winning across the margin progression, Ari? I just want to make sure we all understand the push and pull on what is coming through into the backlog versus how profitable it is relative to the core business, especially if these are a lot more full-service-oriented wins within the RDS segment? Thank you. Ari Bousbib: I hope I understood your question well, but just to be clear, you understand that pass-throughs have zero profitability drop-through. That is clear. So pass-throughs are irrelevant to profitability. We have to report them because that is an accounting requirement. We had solid execution in the quarter. We booked $2.5 billion of trials in the quarter. It just happens to be that the mix of indications was such that we had full-service trials that had fewer pass-throughs than usual. In fact, if you look at pass-throughs, the first quarter was about one third lower than the historic average. It is always within a range, but it was significantly lower. Had we had a regular mix of projects consistent with long-term history and a consistent level of pass-throughs, then we would not be having this conversation. The infamous quarterly book-to-bill ratio would have been quite significantly higher. There is no impact on margins—no unexpected impact whatsoever. I want to point out that on pure service fee bookings, year over year and sequentially, we were up very significantly. Now, ignoring the pass-through issue, generally Q1 is always lower than Q4, usually by 16% to 17%. This quarter it was lower by less than that—about 13% down—so lower as always, but a little bit less than usual. Frankly, we also have the most conservative bookings policy in the industry. You only book business when it is contracted. So if we are awarded a couple of trials at the end of the quarter and the client board is only meeting on April 2 and that is when the contract is signed, then that is when we book it. It is not a first quarter win. The influence this can have on a reported book-to-bill is very significant. Again, and I said this when we reported book-to-bill ratios of 1.3, I said it when we reported 0.9, and I will say it again today: the quarterly book-to-bill metric is a bad metric to predict future growth. I can easily point to many competitors who reported great book-to-bill ratios and are now having very negative growth. Point to us: last year at this time, we reported a book-to-bill of 1.02, and if this were predictive of growth, this quarter we would be showing really poor, anemic growth in RDS, and yet we are reporting very strong 3% organic growth—over 6% reported. We have about two points from FX and about a point from acquisitions; our organic growth in R&D was 3%. Could you have predicted that from the 1.02 reported book-to-bill last year? The answer is no. Again, there is zero impact from AI in our bookings. The number of trials that we lost to anyone using any AI tool is exactly zero. And, again, no impact on margins whatsoever from the unusually low pass-throughs in the bookings this quarter. I hope that gives you enough color. Operator: Your next question comes from the line of Justin Bowers with Deutsche Bank. Your line is now open. Please go ahead. Justin Bowers: Good morning. A two-parter, maybe one for Ari and one for Mike. In terms of the wins you saw here, it is interesting to hear the full-service dynamics and that having fewer pass-throughs. Is that more of a function of how customers are deploying their clinical strategy, and are you seeing any shift there from large pharma, either in the quarter or what is in the funnel? That is number one. And then part two would be on the margins. Is that something that we would see this year, or is that more of a 2027 and beyond dynamic? Ari Bousbib: Thank you. Again, one quarter does not make a trend, and $2.5 billion of bookings that are going to convert to revenue over the next four to seven years is not going to affect our margins one bit. It is not indicative of any change whatsoever. It just happens to be that the trials that we won this quarter had lower pass-throughs. It has nothing to do with a change in customer dynamics. Some trials, like certain large vaccine trials, have an enormous amount of pass-throughs. There are certain types of large cardiovascular studies that require a lot of patients and a lot of procedures; the protocol may require more reimbursed expenses. That just was not the case this quarter. It is unusual to have lower pass-throughs, but that is what happened. I would not read anything about changing client dynamics into this. On demand, we see no change at all in the fundamental drivers of outsourced clinical development. Trial complexity is rising, the need to execute globally is rising, and the growing use of data and analytics—all of these point to the need to outsource more, not less. In the near term, we see that the environment has stabilized. Large sponsors are still taking a more deliberate approach to capital deployment, coming out of three to four years of policy-driven macro headwinds and disruptions. We have not yet returned to the decision-making speed we saw before this period started, but it is getting there and moving in the right direction. On the EDP side, funding is growing at a very nice pace, which points to renewed confidence in the pipeline. It takes a year to a year and a half before funding drives awards and into the backlog, but the demand indicators are quite strong. Michael Fedock: Just to reemphasize Ari’s point: do not draw any sort of margin conclusions from one quarter of bookings. Every dollar we book now burns over roughly five years. Some color on Q1 margins: we recorded about 60 basis points of EBITDA margin contraction, and all of that was due to non-operational headwinds—FX and pass-throughs. We have a very strong productivity program. Operationally, despite adverse mix, our productivity programs more than offset that mix, so we expanded margin operationally quite significantly in the quarter. This further highlights that you cannot correlate a quarter of bookings, or even several quarters, to future margins. Ari Bousbib: We report the book-to-bill because you want it, but it is not comparable to anyone else in the industry. Our number two competitor is part of a larger conglomerate; we know nothing about their numbers. Our number three competitor, we have no clue what their numbers are now or in the past three years. Numbers four and five are private. There is very little rationale to give so much color on bookings; conclusions people draw can be false and it is competitive information. Operator: Your next question comes from the line of an Analyst with Barclays. Your line is now open. Please go ahead. Analyst: Wanted to talk more about the upside in Commercial Solutions. You called out a few businesses that were really strong during the quarter, but it would be great to hear more about which areas were most surprising versus your internal expectations. And can you remind us on the mix of the more recurring revenue offerings within this business versus what is more discretionary? Thanks. Ari Bousbib: Thank you for the question. Our Commercial Solutions business is underappreciated. We performed very well in the first quarter. When the industry went through difficulties over the past three years, headwinds caused our large pharma clients to pause discretionary spending. Our growth rates never went negative, but they slowed to low single-digit organic growth. We then started to rebound, and a year ago in the first quarter our organic growth rate was about 2% to 2.5%. Our organic growth rate in Commercial Solutions this quarter was 5%. We reported 11.6% growth; at constant currency that is 8.5%, and when you strip out acquisitions, it is 5% organic growth—double the underlying organic growth year over year. What is driving this? On the clinical side, our AI work focuses on creating efficiency and improved execution to reduce timelines. On the commercial side, we are focused on innovation—creating new offerings—and those are gaining traction. Customers are dealing with massive amounts of data from us, from third parties, and generated by their own operations, and with disparate legacy systems. AI agentification enables clients to bypass and leapfrog systems and multiple vendors and data sources, analyze information much faster, derive insights, and make decisions at much higher speed. Our agents are healthcare-grade AI, tailor-made for regulatory requirements. Clients are very interested in these solutions. Our pipelines have reached record levels, in part influenced by these offerings. Concerns that AI would replace services are unfounded; quite the opposite, it creates new demand. The part of our commercial business theoretically most vulnerable to AI disruption—Analytics and Consulting—actually has a record pipeline and very strong growth, the best in three years, and we see this continuing. Underlying demand in Commercial Solutions is fueled by the number of new drug launches. In Q1 there were 10 new drug launches; launch activity is the bread and butter of our commercial business, and it is increasing. To summarize mix: our Info business is about 30% of the total and continues to grow low single digits, a little stronger given more demand for data that our AI agents create. The fastest growth within Commercial Solutions is Patient Solutions—the pieces of Real World that we kept in Commercial—with very strong double-digit growth. Everything else—Analytics and Consulting, Commercial Tech, and Commercial Engagement Services (including the former CSMS business), now also supplemented with AI agents—will grow mid to high single digits going forward. Operator: Your next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is now open. Please go ahead. Shlomo Rosenbaum: Hi. Thank you very much. Ari, I wanted to get a view on the market in general. Your commentary has been that it is stabilizing, but we are seeing things like Analytics and Consulting being the highest growth in three years, and that very often is a leading indicator that things are improving. Where are you seeing growth actually accelerating versus just stabilizing? And do you think your performance is indicative of market growth, or are you noticing an improvement in win rates? Ari Bousbib: I understand the question. We are coming out of a period of three to four years of significant turmoil in the industry, driven by the post-COVID deflationary environment, the biotech funding decline which constrained budgets, the IRA under the Biden administration, and announced or enacted policies under the Trump administration, plus M&A, tariffs, FDA changes, etc. All of that constrained the demand environment both on the clinical and commercial side. It is always difficult to evaluate whether we are truly out of it. Frankly, we ourselves are surprised by how well we performed in the quarter. We beat on every one of our financial metrics, and we surpassed our own expectations in both businesses. The AI disruption concerns are actually a tailwind for our business, and we are seeing it already. We feel confident that the tailwind will continue. In conversations with clients, large pharma is much more constructive on both RDS and Commercial—perhaps a little more on Commercial because large clinical trials and capital programs take more time to get started. We have not returned to “business-as-usual” speed, but we are much improved versus where we were. On the EVP front, funding reached record levels—$20 billion in the first quarter, almost double last year—which indicates renewed confidence. It takes time, but significant capital committed to specific programs is a strong indicator. Looking forward, large pharma clients tell us they plan to increase the number of molecules in their pipeline because they are using AI to identify more targets, most of which is at the discovery stage. That will increase the number of trials and the number of assets pursued, which in turn increases demand for CRO services, not the opposite. Some clients are even asking us what it would take to ramp up capacity to handle a larger number of targets, given the number of LOEs coming up in the four- to five-year timeframe and the need to replenish pipelines. On Commercial, I already commented on the strength and pipeline. Operator: Your next question comes from the line of Elizabeth Hammell Anderson with Evercore ISI. Your line is now open. Please go ahead. Elizabeth Hammell Anderson: Hi, good morning, and thanks so much for the question. Could you comment on the drivers of EBITDA margin as we move through the year? The second quarter guide implies a little bit lower EBITDA margin versus consensus. Is that a rightsizing of some of the mix impact? And how should we think about the back half of the year? Michael Fedock: Sure, Elizabeth. If you look at our EBITDA progression implied in our guide, it is pretty consistent with history—nothing noteworthy to call out there. On margins, as we mentioned when we gave our Q1 guidance, Q1 has the largest FX tailwind, and you will see that start to moderate as we go through the back end of the year. Given the strength in our productivity programs, we are very confident that reported margins will flip to positive as we progress through the year. Operator: Your next question comes from the line of Eric Coldwell with Baird. Your line is now open. Please go ahead. Eric Coldwell: Good morning. Going back to the bookings, maybe looking at it a little differently. You exited 2025 with about $10 billion of total net awards. If we use a rough 30% pass-through mix, that is about $3 billion a year of pass-through bookings, about $750 million a quarter. A third below would be about $250 million. If we add $250 million back to reported awards, as if pass-throughs were normal, that would get us to about a 1.15 book-to-bill. Is that logic consistent with what you are trying to express today? And then, can we get the constant-dollar organic growth in both segments on a recast basis? Ari Bousbib: Eric, the answer to your first question is yes. If, in addition, our RDS revenue had been what we planned as opposed to the strong burn because we converted faster in the quarter, it would have been north of that. I will let you do the math. On organic growth, from memory: RDS reported growth is 6.2%. About two points of that is FX and one point is acquisitions, so organic growth for RDS in the quarter was 3%—a year ago it was 1%. On the Commercial side, reported is 11.6%, with about three points of FX and a little more than three points of acquisitions, so organic is 5%, which is double where it was last year. So again, 3% organic for RDS, 5% organic for Commercial, and about 4% for the enterprise. Operator: At this time, I turn the call back over to Kerri Joseph. Kerri Joseph: Thank you, operator. Thank you, everyone, for taking the time to join us today. We look forward to speaking with you again on our second quarter 2026 earnings call. The team will be available the rest of the day to take any follow-up questions you might have. Thank you. Have a good day. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Welcome to the Fortrea First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Tracy Krumme. Senior Vice President of Investor Relations. Please go ahead. Tracy Krumme: Thank you. Good morning, everyone, and welcome to Fortrea's First Quarter 2026 Earnings Conference Call. With me today on the call is Anshul Thakral, Chief Executive Officer; and Jill McConnell, Chief Financial Officer. Before we begin, please note this call is being webcast. There is an accompanying slide presentation which can be found on the Investor Relations section of our website, fortrea.com. During this call, we'll make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to significant risks and uncertainties that could cause actual results to differ materially from our current expectations. We strongly encourage you to review the reports filed with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our press release and presentation that are posted on our website. Please note that any forward-looking statements represent our views as of today, May 5, 2026, and that we assume no obligation to update the forward-looking statements even if estimates change. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to nor a replacement for the comparable GAAP measures, but we believe these measures provide investors with a more complete understanding of results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and the presentation slides that are provided in connection with today's call. Lastly, I would like to add that Bill Holzmann, Vice President of Treasury and Risk Management, and I will be at the Barclays Leveraged Finance Conference in Austin on May 19. If anyone would like to meet with us on these dates, please contact me or a sales represented from the firm. With that, I'd like to turn the call over to Anshul Thakral, Chief Executive Officer. Anshul, please go ahead. Anshul Thakral: Thank you, Tracy. Good morning, everyone, and thank you for joining us today to discuss Fortrea's first quarter 2026 results. We started the year strong in the first quarter and remain on track with our plans. We made progress on our journey back to growth and margin expansion. We delivered solid results that reflect improving commercial traction, continued operational discipline and a clear focus on the actions we control in a market environment that is gradually becoming more favorable. As always, Jill will share a review of our financial performance, but I will start with a few highlights that clearly show the progress on our journey. We delivered revenue and adjusted EBITDA putting us on a track to achieve our full year expectations. We had a Q1 book-to-bill of 1.15x and a trailing 12-month book-to-bill of 1.05x, reflecting improved commercial execution for the third consecutive quarter. We also reached a strategic operational milestone with the recent launch of Fortrea Intelligent Technology, or FIT, as we call it. FIT is our technology suite that integrates persona-driven AI-powered solutions to automate workflows and streamline oversight, helping improve trial speed, predictability and quality. As I get more into the details of the quarter, I'd like to remind you that we are taking a disciplined approach to measure our progress using a framework of 3 pillars: commercial, operational and financial excellence. I'll do a deeper dive into our commercial and operational performance and then Jill will walk through the quarter's financial results. But first, let me speak to the environment, which continues to stabilize with early signs of improvement. Large pharma is more constructive and biotech funding has inflected positively versus last year, supporting a steadier demand backdrop. In addition, we're seeing operational indicators improving. For example, clinical trial starts rebounded this quarter. To address this growing opportunity, we remain focused on our foundational growth drivers that we call the 3 Rs: reach, relevance and repeat. During the quarter, we continued to see evidence that our commercial actions are translating into healthier activity levels and better quality engagement. In short, I was pleased with our sales in the quarter. Not only did we deliver a book-to-bill of 1.15x, which is our third quarter in a row of book-to-bills of 1.1x or higher, we also diversified our customer base, with notable success in biotech, a sector where Fortrea has deliberately been sharpening our approach. Our authorizations in the first quarter skewed toward biotech where we saw a significant year-over-year improvement. These organizations range from early growth innovators with fewer than 200 employees to publicly-listed development-stage companies with core strengths in oncology, cardiovascular, RNA-based therapeutics and other innovative therapeutic areas. Wins were driven by building new client relationships, senior-level engagement and scientific differentiation. We saw the number of RFPs issued in the first quarter for biotech opportunities increase both sequentially and year-over-year, including an increase in new-to-Fortrea biotech evidence that our reach and visibility are improving across the board. I'm pleased with how we continue to build on previous improvements in sales with new to Fortrea biotechs. Turning to another priority area for us, that's China, where we also saw strong double-digit growth in our pipeline of opportunities as well as some significant wins in the quarter. We believe we are well positioned in the country with more than 1,000 employees and around 10 strategic clients headquartered in China. Let me share some additional commercial snippets from the quarter that give me confidence in our underlying progress. We had the best first quarter since our founding for authorizations in clinical pharmacology, supported by both new and repeat customers. Beyond that, I'm extremely proud of our clinical pharmacology team for going beyond simple first-in-human and healthy volunteer studies. This quarter, the team at our Leeds clinic successfully performed its first-in-human dosing in patients with immune thrombocytopenia, a rare blood disorder for which new therapies and treatment options are desperately needed. This accomplishment was the result of great collaboration between our team and the sponsor and is another example of how we are on the cutting-edge of helping to bring life-changing therapies to patients. Overall, enterprise cancellations remain within an expected historical range. Beyond the metrics, we are seeing third-party validation that Fortrea's brand awareness is rising, consistent with what we're hearing in client conversations and what we're seeing in the sales funnel. Stepping back, our first quarter performance isn't an accident. It's the result of a deliberate commercial execution, expanding our reach, increasing our relevance through differentiated scientific and operational capabilities, and earning repeat work through better delivery. And that takes me to our second pillar: operational excellence. Operational excellence is how we deliver quality, predictability and efficiency for clients at scale. A major step forward in that strategy is the launch of Fortrea Intelligent Technology, or FIT, which we announced in April. The launch was met with strong reactions from customers, partners and investors. We saw immediate positive feedback from sponsors and technology partners, and it has helped strengthen our commercial narrative around predictability and execution. Over time we expect AI technology and innovation enablement to increasingly support win rate, operational efficiency and longer-term differentiation rather than being viewed as a stand-alone initiative. It's important to be clear, FIT is not a single product. It's an AI-enabled integrated platform strategy combining trial execution, oversight and intelligence, designed to improve predictability, reduce cost to serve, improve quality and strengthen the way we partner with our clients. In light of unveiling FIT, let me say a bit more about AI more broadly as it remains an active discussion topic. Across the industry, leaders have more data, more tools and more AI pilots, yet we haven't seen a commensurate increase in approvals. If we don't redesign how decisions are made, AI will amplify noise rather than improve outcomes. Our goal with AI is not automation. It is to create a force multiplier. Automation improves efficiency. Judgment improves outcomes. In clinical trials, some of the most valuable calls are when to intervene on enrollment, when to change a study strategy or when risk becomes irreversible. These are judgment-heavy decisions, and that's where AI must help, not replace our leaders. The expected AI revolution will require rapid evolution of the kind that has become a hallmark of the CRO industry. I believe CROs are ready for the shift just as CROs were ready for the pandemic. CRO stepped up and delivered significant value at the time it was needed. I believe this industry will do it again. Fortrea's approach is pragmatic and outcomes-focused. It keeps humans in the lead in a tightly connected R&D ecosystem, aided by an integrated and powerful AI-enabled information platform. We are already embedding AI into our workflows and integrating it with our deep therapeutic and domain expertise. We have equipped our award-winning trusted Xcellerate platform with AI and ML, a platform that currently has tens of thousands of users, including employees, clients, SaaS users and even investigator sites. As technology waves continue to revolutionize clinical trials, CROs serve as a change catalyst and as change agents. Alongside technology, we're staying intensely focused on improving delivery. Because in a services business, consistency is paramount. We continue to strengthen project management to increase speed, predictability and efficiency, with a particular focus on investigator sites and patient enrollment. Notably, we have revamped our approach to site activation, adding greater efficiency to significantly compress the time from site selection to site initiation, resulting in both year-over-year and sequential improvements. In the first quarter, we further broadened our site navigator program globally, including expansion in China and Japan. Site navigators provide dedicated support to sites. We also leveraged centralized start-up teams and partnerships with site networks in emerging regions, driving more consistent site performance across geographies. We also strengthened leadership in key areas, including the appointment of Erin Koch to lead our Functional Service Provider or FSP organization, supporting sharper execution and a tighter connection between commercial commitments and delivery. Quality remains foundational at Fortrea. We continue to advance our risk-based quality management approach and we're proud that our Chief Quality Regulatory Affairs and Sustainability Officer, Sandy Kennedy, was voted Chair of our industry association, ACRO. The appointment shows our credibility and leadership in industry quality standards. As the regulatory landscape around the world shifts to embrace and accelerate innovation that can improve patient outcomes, Fortrea is engaged and ready to help sponsors navigate the changes. In our Phase I clinical pharmacology services, we're performing well and adding momentum. For example, we're taking advantage of improving MHRA time lines to drive greater utilization of our flagship clinical research unit in Leeds in the U.K., supporting sponsors looking to move efficiently in early development. Clients across all of our services have experienced the difference from our progress in operational excellence. Our customer Net Promoter Score has improved steadily, reflecting ongoing progress in delivery and day-to-day client experience. Taken together, commercial traction, improving delivery and technology enablement, these actions are reinforcing one another. They strengthen how we compete, how we execute and how we build confidence with sponsors. Our third pillar is financial excellence, driving margin expansion, disciplined cash management and continued focus on the balance sheet. Jill will cover the details including key themes from our quarter and our guidance framework. But importantly, I'll highlight that we're making solid progress on margin expansion, as we journey toward mid-teens in adjusted EBITDA margin percentage over the next 3 to 5 years. Before I close, I want to recognize colleagues from Fortrea for their continued focus and resilience and thank our clients, partners and shareholders for their support. The progress we're making is a result of disciplined execution across the organization and our team's dedication to our patient-inspired mission. Now let me close with 3 takeaways. First, we're seeing improved commercial momentum, including continued strength in book-to-bill and biotech engagement. Second, we're elevating operational performance through better delivery discipline and the launch of FIT, which we believe will be an increasingly important differentiator over time. And third, we remain committed to disciplined execution and financial rigor as we continue this journey back to growth and improve profitability. With that, I'll turn the call over to Jill. Jill McConnell: Thank you, Anshul, and thank you to everyone for joining us today. As Anshul stated, we delivered a solid first quarter. I am very proud of what the team achieved, and before getting into the details, I'd like to briefly highlight our progress against financial excellence, the third pillar of our growth strategy. First, as part of our rightsizing initiatives, we delivered quarterly cost savings of nearly $16 million gross and over $9 million net, putting us on track to achieve our full year cost optimization targets. Second, the first quarter of 2026 represented the strongest start to the year since our spin, as evidenced by the year-over-year improvement in margin and in leverage ratios, reflecting our continued focus on rightsizing the business along with improving project mix and delivery. Now I'll cover the financial results in more detail. First quarter revenue was $636.5 million, down 2.3% year-over-year, consisting of a 3.2% constant currency decline, partially offset by a 0.9% currency benefit. The decline was driven primarily by lower pass-through costs in both our clinical pharmacology and clinical development businesses due to study mix as well as continued FSP headwinds. Importantly, underlying full-service clinical revenue grew year-over-year. On a GAAP basis, direct costs in the quarter decreased 4.1% versus the prior year primarily due to lower pass-through costs and headcount-related personnel costs. These reductions were achieved despite a year-over-year increase in variable compensation expense and currency headwinds, demonstrating our ability to balance rewarding our talent while maintaining cost discipline. SG&A in the quarter decreased 17.5% year-over-year, driven primarily by lower IT and headcount-related personnel costs, partially offset by higher variable compensation expense. Interest expense for the quarter was $19.1 million, down $3.2 million versus the prior year quarter, reflecting the $75.7 million repurchase of senior secured notes in the fourth quarter of last year, lower interest rates on variable rate debt and no revolver borrowings in the quarter. Book-to-bill was 1.15x for the quarter and 1.05x on a trailing 12-month basis. Backlog was $7.8 billion, and cancellations remained in line with historical trends. Adjusted EBITDA for the quarter was $47 million, compared to $30.3 million in the prior year period. The increase versus the prior year quarter was driven primarily by the benefits of our cost savings initiatives. Moving to net loss and adjusted net income. In the first quarter of 2026, net loss was $23.6 million, compared to a net loss of $562.9 million in the prior year period. Note that the prior year was impacted by a noncash pretax goodwill impairment charge. Adjusted net income for the quarter was $15.2 million, compared to $1.9 million in the prior year period. Adjusted basic and diluted earnings per share for the first quarter of 2026 were $0.16. In terms of customer concentration, our top 10 customers represented 54.8% of revenue for the quarter ended March 31, 2026. Our largest customer accounted for 17.2% of [ first ] quarter revenue. While we are still targeting positive full year 2026 operating cash flow, as expected, our cash generation in the first quarter was negative, primarily due to payments to our employees for variable compensation. However, our lower net loss and continued focus on improving our order-to-cash processes enabled us to offset a large portion of the impact. For the quarter ended March 31, 2026, operating cash flow was negative $17 million, compared to negative $124.2 million in the prior year period. And free cash flow was negative $25 million, compared to negative $127.1 million in the first quarter of 2025. Recall that negative cash flows in the first quarter of 2025 were primarily timing related due to the implementation of our ERP system. In the first quarter of 2026, DSO increased slightly compared to December 31, 2025, increasing from 16 to 20 days, consistent with our expectations. Even with this 4-day increase, year-over-year DSO was 31 days lower than the prior year. Net accounts receivable and unbilled services was $619.6 million as of March 31, 2026, compared to $729 million in the prior year quarter. This reduction is primarily driven by the continued improvements we made in our order to cash processes during 2025. For the second quarter in a row, we navigated the quarter without using our revolver. This combined with our solid cash position resulted in available liquidity in excess of $0.5 billion. Looking ahead, we are currently targeting the remainder of 2026 to be operating cash flow positive. With our targeted EBITDA and significant add-backs available under our credit agreement, we expect to maintain ample liquidity and significant flexibility under our financial covenants for the foreseeable future. Our capital allocation priorities remain driving organic growth, improving productivity and continuing to deleverage. Since the spin, we have paid down approximately 35% of our original debt. This has strengthened our balance sheet and improved our capital position, underscoring our disciplined approach to financial management. Backlog burn of 8.2% in the first quarter was lower sequentially, driven primarily by the impact of previously communicated pricing concessions on a large pharma FSP contract, the timing of change orders, and to a lesser extent, lower billable volumes consistent with historic patterns in the first quarter. As we continue on our journey of commercial, operational and financial excellence, we believe that sustainable revenue growth is key to our transformation, which is why we remain laser-focused on strengthening our commercial engine. The second half of 2025 was a step in the right direction, which continued into the first quarter of 2026. As our commercial engine matures and the market environment continues to normalize, we anticipate that these changes could enable more stable book-to-bill performance over time. With targeted value propositions that attract both large pharma and biotech customers, we believe we are well positioned to capitalize on demand across our end markets. Margin improvement remains a multiyear journey, supported by 2 primary building blocks: revenue diversification and growth, and our ongoing efforts to optimize costs and improve efficiency. Our cost actions continue to strike a balance between maintaining high-quality customer delivery while driving continued operational efficiency. With this combination, we continue to target an achievable path back to mid-teens adjusted EBITDA margin percentages more in line with peers, and our solid performance in the first quarter of this year is a step in that direction. Turning now to guidance. We reiterate our targeted full year 2026 revenue guidance in the range of $2.55 billion to $2.65 billion, and targeted adjusted EBITDA guidance in the range of $190 million to $220 million. As a reminder, the year-over-year anticipated decline in revenue primarily reflects the impact of softer bookings in the first half of 2025, continued FSP headwinds and anticipation of lower pass-through costs. The targeted improvements in adjusted EBITDA are driven by our continued efforts to rightsize the business, improve our efficiency and build a more attractive project mix. As I noted earlier, in the first quarter, we delivered nearly $16 million of new gross savings against our target of $70 million to $80 million, and more than $9 million in new net savings against our target of $40 million to $50 million, with the difference between gross and net being continued investments in our people. The first quarter slightly exceeded our expectations in terms of the pace and benefit of our rightsizing initiatives, putting us on a solid trajectory to achieve our guidance while allowing for targeted investments in our employees and in areas that we anticipate could support longer-term revenue growth. For the second quarter, we anticipate a modest sequential increase in revenue, driven by higher underlying service fee revenue and pass-through costs. We anticipate a slight step-up in adjusted EBITDA as the higher revenue will be partially offset by increased variable compensation costs. In closing, we are pleased to have delivered another solid quarter, demonstrating that we are making progress against our commercial, operational and financial excellence targets on our journey back to growth and margin expansion. Every day our customer-facing and supporting function teams show up with strong engagement and a commitment to accelerating the clinical development process. We remain excited about the future of Fortrea. Now we'll open the call for Q&A. Operator: [Operator Instructions] Our first question will be coming from the line of Patrick Donnelly of Citi. Patrick Donnelly: Anshul, maybe one for you just on the overall backdrop here. Pretty encouraging book-to-bill performance. Can you talk about what you're seeing? Last quarter, you talked about maybe a little more constructive conversations with biotech. Are you seeing that continued [indiscernible] looks pretty good there for a couple of quarters now, the competitive environment. Would love to just talk through that booking backdrop and the confidence level moving forward here. Anshul Thakral: Patrick, you're coming in a little bit muffled, but I think the question was around backdrop and the evolution of the backdrop specifically as it relates to the competitive nature in biotech. I think that's right, Patrick. As I said, in the world with large pharma, we're seeing a lot of constructive dialogue. We're seeing pipeline prioritizations have largely passed in 2025. But in biotech, we're seeing a slightly speedier path to recovery. As I mentioned, the RFPs for us were up sequentially in biotech, particularly new-to-Fortrea biotech. One of the things I'm very proud of our team is the reach component of our commercial strategy seems to be working really well. But I think that answers your question. We are seeing a little bit speedier recovery in the biotech space. Patrick Donnelly: Okay. That's helpful. And then, Jill, maybe one for you, nice progress on the EBITDA front, a little bit of combo on 2Q progression here. Can you talk about the moving pieces? Obviously, the pass-throughs are one impact. Can you talk about the cost levers you guys are pulling and, again, the right way to think about the level of conservatism layered in after the strong performance to start the year here? Jill McConnell: Sure, Patrick. Revenue was down sequentially, but I did comment that underlying service fee revenue for the second quarter in a row was up. And so I think that is a good sign that some of the work we've been doing to try to diversify the portfolio and really think about the mix of work we have is starting to recover. We continue to be pleased with our cost optimization efforts. They came in a little bit ahead of where we expected for the quarter. And I think the team just continues to really execute strongly. We've been talking about project efficiencies and how we deliver there. And those things are starting to come together. I think in terms of the guidance, it's 1 quarter. We want to continue to keep working at it. And if we have upside, quite frankly, there are opportunities where we believe some of those could be used for small investments to try to accelerate future growth. So I think we think sticking with the guidance as it is right now makes the most sense. Operator: And the next question will be coming from the line of Elizabeth Anderson of Evercore. Elizabeth Anderson: I was hoping to dig in a little bit on the China comments, Anshul, that you put through. Is that an area of like specific incremental investment given some of the opportunity, the changing market dynamics there? Or is that sort of part of a broader geographic investment mix? That would be helpful to get your broader thoughts on that topic. Anshul Thakral: Elizabeth, my comment in China is less about an incremental investment. It's a continued strength in China. Fortrea through its legacy has always had strength in operations in China, a little over 1,000 colleagues covering a majority of the clinical trial sites throughout the country. I think it's a comment on our continued strength. And as the market evolves and continues to pick up, we are the beneficiary of that, having a strong customer base in China. Again, we are focused on China Go Global, meaning assets that are coming out for the global markets, and we're running global clinical trials for those companies. Elizabeth, hopefully that answers your question. Elizabeth Anderson: Yes. No, that's helpful. I was just trying to understand whether -- how that was reflecting. So perfect. Operator: Our next question will be coming from the line of Max Smock of William Blair. Max Smock: Just wanted to follow up on some of the earlier commentary, particularly around small biotech. And trying to bifurcate, I think, between market improvement versus share gains. And the commentary I thought that you provided on the latter was pretty bullish there. So just in general, can you kind of help us understand like how much of that small biotech -- or improvement, I should say, that you've seen do you think is attributable to the market getting better versus how much is maybe you all taking share from some of the other players? And in terms of the share gains piece, like what are you all doing that's really resonating and allow you to get a bigger portion of the pie here moving forward? Anshul Thakral: Max, I think that's a great question. Share gain is always a hard question to answer given that you don't have perfect visibility on the data, especially given how many of our competitors are private. So I'll focus on the fact that we're seeing an uptick in activity. We're seeing an uptick in conversations as well as RFPs coming from small and midsized biotech companies. What I'm really proud of is our team. The win rates are broadly consistent with what I would want to see from our commercial team. But more importantly, the aperture is increasing. So we are starting to bring forth more new-to-Fortrea biotech into our pipeline and into our mix. And I think it's our commercial execution that I'm most proud of. Max Smock: That's very helpful. And then maybe just following up with one on margins. I think, Jill, maybe in your prepared remarks, you mentioned mid-teens margins over the next 3 to 5 years, I think that's the first time I've kind of gotten some detail around the time line there. And if I just think about what that means, call it, 15% by 2030, basically 700 basis points of improvement over the next kind of 4 years there at the midpoint, is that a reasonable way or like a reasonable starting point for thinking about margin expansion moving forward? And then just thinking through the cadence of improvement over the next 3 to 5 years and just the puts and takes behind that improvement as well. Jill McConnell: Sure, Max. I think we wanted to start to give some sense of what we saw in terms of how we would be back on that journey. And with the building blocks in place, if you remember last year when we talked about this, we said it's going to be based on continuing to deliver on the cost optimizations, which we've been doing and we're continuing to do. And then most importantly, being able to drive top line growth. And we said it would be really important to be able to see more consistency in our commercial execution. We now have 3 quarters of that with the pipeline growing. And the continued momentum and focus, we believe that we're starting to see the foundation for that, which should allow us to start to have more significant improvements in margin over time. We've talked about the fact that early on with low levels of growth, we will be able to absorb and use some of the capacity that we have. And then as we grow more, we will we would add back personnel but in a more measured way. And we're creating the environment that will allow us to do that. So we're thinking -- we talked to you guys last quarter about an Investor Day, we're thinking -- we're planning that logistics and more to come, but in the second half of the year, and that will be the place for us to really lay out more detail about what that margin progression would look like. Operator: And our next question is coming from the line of David Windley of Jefferies. David Windley: I think Fortrea wins the award for the cleanest quarter this quarter. So congratulations on that. The question that I have is around the cadence of client renewals, Anshul, I think we talked about this fairly recently. I think your view is that maybe the re-procurement cycle in the last couple of years was a little elevated, but not dramatically so. I guess I'd be curious how you view 2026 or maybe even '26 and '27 in terms of the larger client renewals that you are approaching and when you expect to have -- what your hopes and aspirations are for those and when you expect to have visibility on those. Anshul Thakral: Sure, David. Yes, we've talked about this in the past. I do think there was some level of elevation in terms of re-procurement conversations happening over the last couple of years. I think it was particularly in FSP, especially as there's opportunities for leverage in terms of price. And as we've talked about that in our own case, in one particular strategic client. If I look forward into '26 and '27, I see normal levels. I mean remember, in any one given client, they may have multiple outsourcing models. Within that particular client, they may have multiple therapeutic areas and business units within that particular client. So we've got a team that's focused on these renewals. We continue to see some level of steady progress, a couple a year. I won't comment on the specific numbers of the specific clients. But I think what I will comment on, what is interesting, as our -- as we regain stability in the marketplace and as I rebuilt the commercial excellence framework that we've been talking about, we're getting invited to certain renewals that we weren't invited to in the past, from a large and midsized pharma. And that's actually what gives me some pride in terms of what our commercial team is being able to accomplish here in 2026. David Windley: And then you touched on the topic of my follow-up, which was around that FSP concession that you called out. I guess I wanted to understand that a little bit better. Is that -- was that a, say, a rate card or a price level that is baked in and a new level on a go-forward basis? Or Jill, was your call-out, your words, about the first quarter highlighting a specific, say, disproportionately large effect here as we start the year that doesn't necessarily persist? I didn't quite understand the... Anshul Thakral: I'll make it simple, David. It was a particular client who decided to renew their multiyear FSP contract with several CROs a year early. And it was a rate card impact. And that rate card impact is a go-forward rate. And we've been able to absorb that rate card impact within our business. And some of that shows up here in Q1 because the new rates took effect in Q1. Does that answer your question? David Windley: Yes, it does. Operator: And our next question will be coming from the line of Eric Coldwell of Baird. Eric Coldwell: A couple of things here. First, on the bookings and bookings mix in the quarter, and Anshul, you highlighted your pleasure with the momentum on biotech in particular. Does that by default indicate a heavier skewing towards FSO wins versus FSP? I would assume so, but I'd love your commentary on the kind of the underlying quality of the mix of bookings in the quarter. And then as an adjunct to that, there was some chatter in the quarter leading up to this about rescue wins and various puts and takes across companies in the space, not necessarily new business in terms of demand, but business shifting from one player to the next. I'm curious if you could -- would be willing to share any perspective on size or quantity of rescue wins on a net basis as well? Anshul Thakral: Sure. Eric, I'm happy to share. In terms of booking mix, you're correct with your assumption, our bookings skewed more towards FSO than FSP in the first quarter. And our bookings skewed more heavily towards biotech than biopharma in the first quarter. So you're correct in both of your assumptions there in terms of the mix of the backlog. So we've got a quality of backlog going in -- a quality of bookings going into the backlog that I'm very happy to see. In terms of chatter, Eric, there's always chattered. I'll tell you there's always rescues in any given quarter. Typically, if a CRO has had some financial difficulties or there's been news in the marketplace, everybody is going to counter detail. It's happened to us. We've done it, vice versa, et cetera. But there is no -- there was no trend line necessarily of rescues happening in any given quarter. Look, we took on a rescue or 2. I'm sure every other CRO took on a rescue or 2. But I'll tell you from the perspective of CRO and perspective of sponsor, rescues are not taken lightly. They're not easy. They're not difficult. I mean they're very difficult to execute on. And while they may provide some short-term revenue, they're usually very hard. But there wasn't a trend line, I would say, in Q1 around rescues. Chatter, sure. Counter-detailing, always, but not a trend line. I hope that answers your question. Eric Coldwell: Yes. That's great. And then I know Jill made the comment that Q2 revenue is expected to be up modestly quarter-over-quarter. And I think there was an implication that that was in absolute dollars, both the service revenue as well as the pass-through revenue. So I wanted to verify pass-through revenue actually reincreasing, if you will, here in the second quarter. And then any kind of a signal you could give us on your expectations for pass-through mix for the full year, whether that's dollars, growth rates, percentages? Just anything to help us get a sense on the pass-through trend line over the next 3 quarters would be great. Jill McConnell: Sure. So in terms of the second quarter, you're correct, it's dollars both for service fee revenue as well as pass-throughs, and the step-up being pretty consistent between the 2. It's not going to get to the levels that we saw in Q2 and Q3 of last year. As we had shared on the call from year-end, we had a handful of trials. One, we reached the milestones reporting out a year ahead of time, so that trial was winding down. And then we had a few other very large ones that reached more maintenance stages of their life cycle. So we see it stepping up from Q1, but not to the levels that we saw. And I think for the remainder of the year, it will be pretty consistent to a slightly higher level than we saw in Q1, but still below last year. Because you'll recall, that's part of why we have a revenue reduction for the year, is related to a lower expectation around pass-throughs for what we see today. Eric Coldwell: Yes. Good. And then last one for me, variable comp. I was just hoping you could walk through all of the mechanics of that, what it's up in Q1, what your expectation is for incremental cost in calendar '26 now that you're a quarter in and you've realized Q1 results. I'm just curious where the final tally came on variable comp increases, both in Q1 and then for the full year on a year-over-year basis. And I'll wrap it with that. Jill McConnell: Sure. So we've been talking to you all about that journey and how it's important in our organization to make sure that we are compensating our employees in line with market and as they deserve. And we were pleased to be able to, for the first time since the spin, have a variable compensation payout for 2025. However, it was still below the norm. So this year, we're going back to what you would consider more normal levels of variable compensation. And in the quarter, that was a more significant increase because we took it up a little bit over the course of last year. So it's a little bit more of a significant headwind in Q1 this year versus Q1 last year. But it was built into our guidance. And as I mentioned earlier, if we continue to perform strongly, we're going to look at ways to continue to navigate how we compensate our employees and think about things that accelerate growth. Eric Coldwell: Could you give us the number, the incremental increase? Jill McConnell: I mean so a full year estimate for us is around about -- it comes in at around $60 million. So last year, we were a little bit north. So we paid out about 2/3, and then this year, we're looking more to be at a normal run rate. Eric Coldwell: Okay. So consistent with prior commentary. Jill McConnell: Yes. Correct. Anshul Thakral: Eric, you never give up on the number. That's good. Eric Coldwell: I like numbers. Operator: The next question is coming from the line of Luke Sergott of Barclays. Anna Kruszenski: This is Anna Kruszenski on for Luke. Anshul, you've made a number of leadership changes over the last few months and specifically within the commercial organization. So it would be great to just hear more about any key strategy shift here and how you've seen this drive momentum, especially with the 1Q bookings. Anshul Thakral: Yes. I think, look, the Q1 bookings are driven through execution. And it's not just the execution of the commercial team, but it's execution of our delivery team, continuing to delight our customers, continuing to ensure we have repeat work and continuing to present strategies in bid defenses that are differentiated and give us a leg-up over competition. It's also driven by execution of our finance team. So it's execution all around, not necessarily leadership changes, that are driving performance right now. And we continue to look for talented colleagues and individuals at all levels to be able to bring into the organization, especially as we as we return to growth. But it's really execution by our commercial teams, our operational teams and our finance teams that I think is giving us the wins that we need in the marketplace right now. Anna Kruszenski: That was helpful. And then, Jill, if we could go back to margins just a bit, I know you talked about like reinvesting some of the savings that you achieved in the first quarter, but if there's just any other color you can share on like how we should think about the cadence of margins, specifically in the second half of the year, that would be helpful. Jill McConnell: Sure, Anna. In terms of margin, again, we would see an incremental step-up, a slight incremental step-up in Q2, and I think it will just trend up slowly over the course of the year as we go forward. You're not going to see the big step-up, because Q1 came in more strongly historically, that 1Q to Q2 has been pretty pronounced. It's going to be much more measured this quarter because of where Q1 came in. And we're really pleased to see how strongly Q1 performed. But I think a slow gradual increase over the course of the year as more of the cost savings initiatives take hold and we continue to see some of the benefits of the new business wins we've had over the last few quarters. Operator: The next question will be coming from the line of Charles Rhyee of TD Cowen. Charles Rhyee: Can I just follow up there, Jill. You're kind of saying we should see margins kind of still steadily improved. And just to clarify back to some of the other comments, I think you guided to 2Q EBITDA being sort of a step-up from 1Q. But if we think about that, that's like the bulk of the [ range ] for EBITDA for the year. And I think to an earlier question, you had said you feel good about where it is right now and there's some investments that you have coming. Just curious, are those -- do you have like known investments that you plan to make particularly in the second half of the year? Or is that you just want to be prepared for more opportunistic on that? And then within this question, right, back to David's question around sort of the FSP, and you talked about the rate card impact, is that impact all already embedded within the 1Q performance and already embedded into 2Q? Or is there anything we would expect from that that could also show up in the second half? Jill McConnell: Sure. So in terms of investments, I think it's really important, one, we have been talking about how we make sure we compensate our people. We are a people business. Our revenue stream comes through our people, and we want to make sure that we are continuing to compensate them in a market that's starting to get just a touch more competitive, and being ahead of that. And we -- so some of the investments are definitely targeted towards that, continued investments in things like merit. The other ones, I think, are relatively smaller organic investments, but particular places like therapeutic areas and medical expertise where we believe certain investments and maybe even some target investments in the commercial organization, because we know that the real lever for getting that margins in line with peers is going to be revenue growth, so things that we believe will help to accelerate that growth trajectory. They're relatively small, but important for us to do as we prepare and come in to think about 2027 and beyond. In terms of FSP impact, it is pretty much already now manifested in the first quarter, probably even slightly more pronounced in the first quarter relative for that drop. But that was fully built into guidance, and so there isn't anything surprised there that we would expect to see. Charles Rhyee: Okay. That's helpful. I appreciate that. And then maybe, Anshul, I just wanted to -- I appreciate your comments early on when you're talking about sort of AI is for efficiency, but you need people for sort of interpretation and strategic kind of thinking. But I guess the question though is, obviously, with all the focus on AI up and down the chain, what are those discussions like when you're talking with sponsors? Like what are they asking from you in terms of your AI capabilities? And are you starting to see any types of changes in the pricing model to create incentives for partners to use more AI? Or I'm just trying to understand ways that you can still benefit. Because I think the big fear is that AI is going to drive lower cost, and then lower cost drives lower bid sizes, and that's kind of a negative cycle. Maybe you can talk a little bit how you can -- are there new scenarios where maybe more outcomes-based or risk-based that could be helpful for you going forward? Anshul Thakral: Sure, Charles, I'm happy to talk about it. This conversation comes up a lot. That's why I wanted to mention it in my prepared remarks and get ahead of it. I will say this, it's early days. And you're going to get tired of me hearing me say it's early days, because it genuinely is early days. I will tell you that most sponsors are having some version of a conversation, but it's looking to CROs as partners in, okay, we've got a tool here that could be a solution to helping speed up clinical trials. How we exactly use it? We don't know. The tool itself is a singular tool. It's a suite of tools that continue to evolve. The problems that we're solving for are, in some cases, relatively simple, and it's a matter of testing tools, piloting them, and then executing, such as in pharmacovigilance and safety. And then there's problems that are far more complicated, which is having the tool be able to analyze data that leads to better site selection and that leads to better signal detection around things that may or may not be going right or wrong in a clinical trial. But it's early days. I will tell you, almost every conversation we have is constructive in how do we solve it together rather than what are you going to do for me conversation, which I really appreciate, out of our clients. So far, we haven't seen any push on a commercial model as you're suggesting, because everyone is in the stages of developing, piloting, testing. We don't have active solutions that are rolling out at mass scale. And when we get there, yes, I'm sure we'll have conversations around commercial models. We'll have various conversations, just like we've had with every form of change, innovation, change to the workflow in this industry over the last 20, 25 years. I think people forget how resilient the CRO industry was in the middle of the pandemic in changing its workflows and models to be able to accommodate a new environment in a very short period of time. And I have full faith, not just in Fortrea, but in the entire industry's ability to do that over the coming years. Operator: Our next question will come from Jailendra Singh of Truist Securities. Jailendra Singh: So Anshul, I want to stick with the last question around the AI impact. And let me ask it in a slightly different manner and maybe see if you can give us some flavor around how do you think about the directional financial impact for the industry maybe near term and longer term? Would you agree that -- I mean clearly, CROs get paid based on billable hours and tasks, some of which could be automated. But on the flip side, you can argue that AI is driving more drug discovery, which could lead to more larger drug development pipeline longer term. And on margins, you should have more efficiencies. So would you agree with this view that AI adoption could result in some top line pressure near term, but then neutral to positive impact longer term, but better margin will offset top line headwinds. So any directional color you can provide would be helpful. Anshul Thakral: Jailendra, I appreciate the question, though I do think you kind of answered your own question to a certain extent, because I know you and I have talked about this in the past. So look, broadly, I think that it's harder to determine what will happen in the nearer term because it's harder to see the impact given all of the -- we have a lot of conversations happening, a lot of noise, a lot -- but not a lot of progress just yet. But you are right. I think in the near term, we will see certain areas that where workflow can be automated with machine learning, we'll see some margin, I would hope, appreciation for the near term and maybe some revenue headwind. But I would tell you, most, if not all of that, will be countervailed by the fact that, and I've talked about it and other peers have talked about it, is that the industry just continues to invest, reinvest into the next clinical program. We may even see speed pick up in terms of the early phase work as molecules move out of discovery at a greater rate. But long term, I see this as a tailwind and I see this as a net positive the industry. Longer term, I think we will finally get to a place where clinical trials will get modestly and modestly faster. We haven't seen that in the last decade, but I think we will get there with these new advancements in technology. What that will mean is an opportunity to develop more drugs. They have opportunity to solve more diseases, and CROs continuing to play a vital role in that. So longer term, I do see this as a net-net tailwind for the industry overall, not just for CROs, but for pharmaceutical companies as well as the pace of innovation gets faster. Jailendra Singh: My quick follow-up on -- I know this is a difficult metric to guide for, but how do you feel about sustaining these strong book-to-bill trends for the rest of the year? Should we still model like 1.1x as a baseline backlog for rest of the year? Or do you have a high confidence that it could probably sustain this 1.15x plus/minus range given recent results? Anshul Thakral: Look, as I mentioned in the past, I don't think trying to give guidance on book-to-bill is the -- is a prudent thing to do here. The market is recovering. As I've said, I see recovery in biotech, but I do see a constructive recovery in biopharma. I'm not going to guide to a book-to-bill. I'll tell you I'd drive the team to much higher standards. And what I am really happy is that both my operational and commercial teams are responding to the pressure and the high bar that I've set for all of them. Operator: Next question will be coming from the line of Justin Bowers of Deutsche Bank. Sam Martin: This is Sam Martin on for Justin Bowers and Deutsche Bank. Just 2 quick questions building on the previous themes of AI that were asked about. One on the commercial launch of Fortrea Intelligent Technology. Can you just dig in a little bit more to the initial reception where it's most concentrated, is among biotech or pharma, or really broad-based? And some of the earliest use cases that some of your customers are looking at applying it to? And then beyond that on AI, just given some peer commentary on efficiencies gain versus the cost to actually implement the solutions, what are you thinking about really a time line for the efficiencies to outweigh the cost and the investment required to kind of put AI-related solutions in your workflow? Anshul Thakral: Sure, Sam. I'm happy to try to answer both questions. Look, our launch of our FIT platform was received very well, both by technology partners and sponsors. I hosted a 2-day workshop in Boston when we launched our FIT platform, inviting both technology partners and sponsor partners. And it was meant as a true workshop in I don't think any 1 company, whether it's a technology company, a CRO or pharma, is going to be able to solve things on their own. We're got to find a way to work together to collaborate to develop solutions. It's another reason why our FIT platform is based on an open source architecture. We want to be able to invite partners both on the sponsor side as well as in the technology partner side to help us develop solutions because, at the end of the day, we're not trying to be a technology company. We want to be a clinical research services company where we're starting to develop solutions that increase efficiency, increase quality and increase throughput of the development pipeline. That said, all of that said, Sam, the reception was positive. A lot of traction, lots of folks wanting to work on solutions together. It's still early days. We're still in the stage of being able to throw pilots out there to see what's working, what we're able to do at scale, what we're not able to do at scale. And all of this work requires us working with partners, especially our partners on the client side, on the sponsor side. In terms of your question around AI and when will efficiency gains overcome the costs required, I think there's a lot of initial costs required to make sure you have that kind of infrastructure and platform that Fortrea does. And remember, for us, FIT isn't a stand-alone product. FIT is our way of embedding machine learning and AI into our existing workflow into clinical operations, to our Xcellerate platform. For us, now it's incremental cost. It's incremental cost and, more importantly, the incremental cost of technologies, incremental cost to pilots. It's incremental cost of testing the solution. I do think in the near to medium term, we'll start seeing that inflection point of efficiency gains outweighing the cost of running those pilots and the cost of developing the incremental agentic solutions. Operator: The next question is coming from the line of Michael Ryskin of Bank of America. Unknown Analyst: This is [indiscernible] on for Mike. Given several quarters of strong book-to-bill, how should we think about revenue conversion timing from here? And are study durations or start-up time lines changing versus historical levels? Jill McConnell: Yes. I mean I think -- [ Andrea ], thanks for the question. In terms of revenue conversion, as we said for the remainder of this year, we're pleased to be affirming our guidance. We will see a bit of a moderate step-up in the second quarter. And as the course of the year plays out, I think you'll see a little bit of continued strength as we go through the course of the year. We are obviously looking at what we can do to try to return to some level of growth in 2027, continuing to execute on the commercial side and get book-to-bills in line with what you've seen over the last few quarters, will be really important. And as I shared before, we do plan to have an Investor Day later in the year where we can lay out a little bit more about the specific journey going forward. Operator: Thank you. This concludes the Q&A session. I would like to turn the call over to Anshul for closing remarks. Please go ahead. Anshul Thakral: Thank you, everyone. As we conclude, I want to thank you for your continued engagement and really for your thoughtful questions. Our performance this quarter reflects the discipline and operational and financial rigor that is now embedded across Fortrea. We continue to make progress on our strategic priorities to drive growth, expand margins and strengthen our ability to serve clients globally. What matters to our clients matters most to us, and we remain focused on delivering high-quality execution and long-term value. We're confident in our strategy and are taking the right steps to drive continued execution. Thank you once again for your time. Operator: This concludes today's program. Thank you for joining. You may now disconnect.
Operator: Good day, and welcome to the Aptiv Q1 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Betsy Frank, Vice President, Investor Relations. Please go ahead. Betsy Frank: Thank you, Cynthia. Good morning, and thanks for joining Aptiv's First Quarter 2026 Earnings Conference Call. The press release, slide presentation and updated New Aptiv pro forma financials can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring and other special items, and will address the continuing operations of Aptiv as of March 31. The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation and the earnings press release. Unless stated otherwise, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Aptiv's Chair and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'd like to turn the call over to Kevin. Kevin P. Clark: Thank you, Betsy, and thanks, everyone, for joining us this morning. Starting on Slide 3. The first quarter concluded with the successful completion of the separation of our Electrical Distribution Systems business into a new independent public company, Versigent, which you'll hear more about following their earnings release and conference call after the market closes later today. The step in our portfolio evolution better positions Aptiv to enhance our advanced software and hardware tech stack, further diversify our end market mix and accelerate our revenue and earnings growth. I'll start by covering our first quarter total Aptiv results. We continue to flawlessly execute for our customers in an increasingly dynamic environment, further amplified by the conflict in the Middle East, enabled by our operating rigor and the resilience of our business model. We secured $7 billion of new business awards while also delivering solid financial results, including revenue of over $5 billion, an increase of 1% versus the prior year despite a deterioration in underlying vehicle production. Adjusted EBITDA of over $750 million, driven by flow-through on volume growth and strong operating performance, which helped to offset significant year-over-year headwinds from FX and commodities. When combined with lower net interest expense and a lower share count resulted in record earnings per share of $1.71. Varun will review our financial results in more detail later. Turning to Slide 4. My remaining prepared remarks will be focused exclusively on New Aptiv, a leading provider of advanced software and optimized hardware solutions across multiple end markets that are being shaped by the acceleration of automation, electrification and digitalization. Our deep domain expertise and experience providing OEMs with our technology stack to enable their vehicles to sense, think, act and continually optimize increasingly can be utilized for applications in other end markets, which I'll talk more about in a moment. Competitively, we're well positioned with content on all market-leading platforms across automotive, commercial aerospace and telecom. And roughly 1/4 of our business is in markets outside of automotive, and we have several strategic priorities underway to further increase our penetration of those markets, and we maintain a diversified regional revenue mix and have significant momentum gaining share with the leading local China OEMs on vehicle platforms sold in China, as well as exported to or manufactured in overseas markets. In addition, we've made significant progress further penetrating the leading OEMs serving the markets in Japan, Korea and India. Turning to Slide 5 to spend a moment discussing New Aptiv's investment thesis. First, we've built a comprehensive portfolio that collectively powers intelligence at the Edge by enabling devices and systems to sense, think, act and continually optimize. Second, we deliver our unique product portfolio through a robust operating model that leverages our global engineering, supply chain, manufacturing and commercial capabilities, enabling us to provide high-performance, cost-optimized solutions backed by a resilient supply chain on a global scale, ensuring flawless execution in a dynamic environment. Third, our unique product portfolio and robust operating model are leveraged to create an attractive financial profile that includes more diversified, higher-margin revenues. And lastly, generates a significant amount of free cash flow that can be allocated both organically and inorganically to enhance the earnings power of our business while also returning capital to shareholders. We made solid progress across each of these pillars in the first quarter. Continued product innovation supporting new and emerging use cases across diverse end markets, including two that were showcased at last week's Beijing Auto Show, the advancement of our next-generation end-to-end AI-powered ADAS platform designed to deliver safer and more enhanced hands-free L2++ autonomy in both highway and urban environments. And in robotics, we partnered to enhance the functionality and performance of both an AI-powered collaborative robot and an autonomous mobile robot for material handling, each of which integrates our award-winning pulse sensor and advanced compute solutions. We successfully navigated ongoing geopolitical dynamics and the evolving macro environment by leveraging our resilient operating model to manage through changing vehicle production schedules and increasing headwinds associated with rising input costs, including resins and metals, enabling us to deliver strong operating performance in the quarter, more than offsetting ongoing headwinds while continuing to invest in key strategic initiatives. Our financial results reflected continued momentum advancing our strategic priorities, including high single-digit revenue growth in nonautomotive markets and double-digit revenue growth across our software and services product portfolio as well as margin expansion of 30 basis points, excluding FX and commodities, a measure more reflective of the results of our business given we passed the majority of input cost inflation on to our customers. And lastly, we worked diligently through the Versigent separation to position both companies for success with strong operating models, resilient supply chains and solid balance sheets. However, there's still more for us to do, and I'm confident that we'll continue to make progress further strengthening our value proposition and creating shareholder value. Moving to Slide 6. Customer awards were strong in the first quarter, totaling $4.6 billion, an increase of approximately 15% from the 2025 quarterly average, and included roughly $900 million of bookings with nonautomotive customers. Both business segments posted solid results with approximately $2.4 billion in awards for Intelligent Systems, and $2.2 billion for Engineered Components. I'll talk more about some of the key customer awards across each segment in a moment, but would also note that we have a large and growing pipeline of commercial opportunities and expect 2026 bookings of more than $20 billion. Let's now review each segment in more detail, starting with Intelligent Systems on Slide 7. Our tech stack, which first enabled intelligence at the edge for automotive applications is now gaining momentum for applications in other markets such as drones within aerospace and defense, and robotics within diversified industrials. During the quarter, there were a number of new program and product launches of [indiscernible] include the launch of an intelligent interior camera that incorporates our entire software and hardware stack, enabling enhanced interior sensing functionality, including driver monitoring and driver view features for the flagship sedan vehicle platform of a luxury German OEM. And the launch of an integrated high-performance cockpit controller for the high-volume, mid-level variant of an Indian OEM's electric SUV lineup, which follows a successful launch last year of an entry-level model. We also secured several important new business bookings in the quarter, including active safety award from a large North American OEM that integrates our full tech stack from sensors to compute to software, for incremental large truck and SUV platforms, underscoring the flexibility of our solutions and deep technology partnerships with several customers. And sensors and advanced compute awards for a leading China local OEM for their next-generation EV platform, which support production for both the China [ market ] and export volumes. We also secured several notable software and service awards, including VxWorks RTOS and a Helix virtualization software award for a leading defense [ prime ], building upon an established long-term partnership with this customer. And the software tool chain award for a large North American OEM that will be used to optimize -- which will be used to build optimized deterministic software for mission-critical and safety-critical embedded systems. This award supports this OEM's software factory initiative to move towards cloud-based development and software-defined solutions. Lastly, our commercial momentum has also accelerated in the robotics and drone markets. In addition to our partnership with robust AI and [indiscernible] robotics, this quarter, we secured another partnership agreement with [ Comau ], a top 10 industrial robotics company. In addition, we've been executing sub proofs of concept and pilots in both the robotics and drone markets, that we're confident will translate to commercial agreements, and we plan to share further progress on these efforts in the near future. Moving on to Slide 8 to cover [indiscernible] components. Notable new program launches during the quarter included a broad array of high-speed interconnect launches, including [indiscernible], Ethernet in other flexible and modular assemblies across more than two dozen nameplates and OEMs, ranging from North America to Europe to China, powering next-generation software-defined vehicle architectures. High-voltage electrical centers for two major local China OEMs, which will support production for both the China market and export volumes. Continued proof points of the progress we're making growing in the China market, specifically with the top 10 local OEMs that are growing both domestically and overseas. And terminals across numerous models within the portfolio and across regions for a North American-based global EV automaker. Moving on to new business awards. We secured a high-voltage [indiscernible] award from a major Korean OEM that combines high performance at a competitive cost, supporting its next-generation multi-power train software-defined vehicle platform. High-speed interconnects and components from multiple aerospace and defense primes, including for lower orbit satellite and subsea applications, and a low-voltage connection system award for an integrated high-power energy storage solution from a North American-based global EV OEM that scales to support grid level performance and resilience. Collectively, these awards reflect the breadth of our solutions, meeting demanding performance and reliability requirements in automotive, which also translate across a range of other end markets. I'll now turn the call over to Varun to go through our financial results, and our full year and second quarter guidance in more detail. Varun Laroyia: Thanks, Kevin, and good morning, everyone. Starting with first quarter on Slide 9. Total Aptiv, including our EDS segment delivered solid financial results in the quarter, reflecting robust execution amidst a dynamic market backdrop, where we once again navigated industry-wide and OEM-specific production disruptions and macro-driven input cost inflation. Revenues of $5.1 billion grew at an adjusted rate of 1%, driven by strength at EDS, while [ new ] Aptiv absorbed certain customer mix headwinds, but importantly, progressed in diversifying revenues with 9% growth in nonautomotive, and 10% growth in software and services. Adjusted EBITDA was $752 million. EBITDA margin declined 90 basis points year-over-year, driven by FX and commodity headwinds of 180 basis points, well above the 120 basis points we had forecasted for the quarter. It should be noted that the year-over-year impact for [ new ] Aptiv was lower. Earnings per share was $1.71, an increase of $0.02 from the prior year, reflecting the benefit of lower interest expense and low share count, partially offset by a higher tax rate. Free cash flow for the quarter was negative $362 million, and this included approximately $260 million in transaction payments across [ new Aptiv ] and Versigent consistent with our guidance for the year. It should be noted that we anticipate approximately $100 million in separation costs for new Aptiv in Q2. However, we will recoup approximately $80 million of transaction payments which were tax-related later in the year. Turning to the next slide and looking at first quarter adjusted revenue growth on a regional basis for both Total Aptiv and New Aptiv. For Total Aptiv, revenue growth of 1% on an adjusted basis was driven by growth in North America and Asia Pacific, which was partially offset by a decline in Europe. New Aptiv, as I mentioned earlier, faced some customer mix headwinds in the quarter, most of which are [indiscernible], while generating strong results in strategically important areas. Looking at revenue growth by region for New Aptiv. In North America, revenue grew 7%, driven by double-digit growth in Intelligent Systems and strength in nonautomotive markets. In Europe, revenue was down 5%, largely reflecting unfavorable customer mix, specifically with one of our largest customers in Intelligent Systems due in part to a slower-than-expected ramp-up of next-gen programs. In Asia Pacific, revenue was down 5%, essentially in line with vehicle production, reflecting continued improvement in our business mix in China with local OEMs and growth with ex-China Asian OEMs. Moving on to our results on a segment level on Slide 11 and starting with Intelligent Systems. Revenue of $1.4 billion decreased 1% versus the prior year, which reflects two discrete factors. As we have discussed previously, the cancellation of certain programs from local China OEMs in 2025, which will anniversary midyear, and a greater-than-anticipated headwind from lower production at 1 of our largest North American customers owing to supply chain constraints following its supplier fire. Although this should be partially recovered in the second half of the year. Cumulatively, these two factors amounted to approximately 250 basis points of headwinds to Intelligent Systems revenue growth in the quarter. And these were largely offset by strength in other areas, including double-digit growth in software and services. Intelligent Systems adjusted EBITDA margin declined 90 basis points primarily owing to a 60 basis point headwind related to FX and commodities, as well as incremental investments across product engineering and go-to-market to continue diversifying towards nonautomotive markets. These were partially offset by performance improvements. Moving to Engineered Components. Revenue of $1.7 billion was flat on an adjusted basis. This reflects 6% growth in nonautomotive, including double-digit growth in diversified industrials markets, offset by a 2% decline in automotive, which reflects some customer mix headwinds in China attributable to broad-based production volume declines there, including with the largest local OEM. Engineered Components adjusted EBITDA margin declined 90 basis points which was entirely the function of a 140 basis point headwind related to commodities and FX. Excluding this impact, margin expansion was driven by performance initiatives. And lastly, I'll briefly comment on our EDS business, which will move to discontinued operations starting in Q2. Revenue of $2.2 billion increased 3% on an adjusted basis driven by strength in Asia Pacific, both in China via export volumes and in APAC ex China countries. And favorable customer mix in North America, which offset broader production clients globally. EDS adjusted EBITDA margin declined 70 basis points versus the prior year, and this reflects a 260 basis point headwind related to FX and commodities which was largely offset by the timing of certain recoveries and flow-through on volume growth. Moving to Slide 12 to discuss our balance sheet before I discuss guidance. We ended the quarter with $3.2 billion of cash. This was temporarily inflated as it included $2.1 billion of gross debt raised by our EDS subsidiaries, which was assumed by Versigent on April 1st. In conjunction with the spin-off, year-to-date Aptiv has paid down $2.1 billion of debt, including $300 million in the first quarter, and $1.8 billion in early April. This was funded by a [ $1.65 billion ] dividend on a net basis from Versigent upon the spin-off, and $400 million from cash on hand. Pro forma for the spin-off mechanics, New Aptiv gross leverage. For the first quarter was 2.3x, and net leverage 1.9x, both of which are consistent with our leverage levels [indiscernible] to the ASR program that was launched in Q3 of 2024. We also deployed $75 million towards share repurchases in the quarter and plan to remain [ Aptiv ] on this front through the remainder of the year. Looking forward, we remain committed to a balanced approach to capital allocation, focusing on bolt-on acquisitions and investments, as well as continued return of excess cash to shareholders. Moving on to our 2026 financial guidance on the following slide. We are maintaining our full year 2026 financial guidance which is presented on a pro forma basis to exclude our EDS segment in the first quarter. We continue to expect adjusted revenue growth of 4% at the midpoint. And this implies an acceleration through the course of the year which is driven by the following factors, first half to second half. First, approximately 100 basis points from an improvement in vehicle production. Second, approximately 150 basis points from the abatement of certain headwinds mentioned earlier, which are specific to our business, and include the production impact at one of our customers related to a supplier fire in North America, and select program cancellations in China in 2025. And third, approximately 300 basis points from the anticipated timing of program launches and ramps. We continue to expect adjusted EBITDA and EBITDA margin of $2.4 billion and 18.6% at the midpoint. I would call out that we are starting to see incremental inflationary pressures on materials as a result of the conflict in the Middle East. And relative to our prior guidance, we now anticipate higher input costs, primarily in commodities, some of which had occurred in the first quarter. However, as in the first quarter and through last year, we expect to continue offsetting these macro headwinds through performance initiatives and where appropriate, customer pass-throughs. We continue to expect adjusted earnings per share in a range of $5.70 to $6.10, which assumes an effective tax rate of 18.5%, and does not incorporate any meaningful incremental benefit from share repurchases. Free cash flow is expected to be $750 million at the midpoint which is inclusive of transaction costs associated with the EDS separation, the majority of which are being incurred in the first half, as well as continued investments in supply chain resiliency for semiconductors. For the second quarter specifically, we expect adjusted revenue growth of 2% at the midpoint. Adjusted EBITDA and EBITDA margin of $580 million and 17.6% at the midpoint. And lastly, we expect earnings per share of $1.40 at the midpoint. Just as a reminder for everyone, on day 1 of the EDS separation, New Aptiv is burdened by $70 million in annualized stranded costs, which we are working to completely eliminate from our cost structure by the end of 2027. And finally, outflows by reiterating that our robust business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results, as well as enhanced shareholder value. With that, I will turn the call back to Kevin for his closing remarks. Kevin P. Clark: Thanks, Varun. Before I wrap up on Slide 14, let me provide some additional context on our outlook. We continue to see significant long-term opportunity for our portfolio of products and solutions, while in the shorter term, we do see challenges that our industry will have to contend with. As Varun alluded to, the macroeconomic environment remains very dynamic, at present and is reflected in our first quarter results and full year guide, we're experiencing a meaningful increase in input costs, broadly related to the ongoing conflict in the Middle East. However, as evidenced by 2025, we have a resilient business model with an ability to mitigate and offset these pressures through performance initiatives and through commercial recoveries. That being said, should the current situation persists, it could amplify these pressures from a macroeconomic perspective, which are difficult to precisely forecast at this point. And this uncertainty could present a challenge to the value chain across the markets we serve, which is a risk, but it's also an opportunity for Aptiv to demonstrate our value proposition to our customers, providing high-performance, cost-optimized market-relevant system solutions at global scale and with industry-leading service levels. Now to wrap up, after reporting our final quarter as Total Aptiv, we're positioned to benefit from the sharper focus resulting from the completion of our strategic portfolio evolution. For the New Aptiv, we're now better positioned to accelerate our product development and enhance go-to-market activities to further penetrate multiple high-growth end markets. The high-quality opportunities we're actively engaged in is growing, and our momentum is accelerating. I'm confident these opportunities will result in incremental customer awards and strong financial results, and we'll continue to remain relentlessly focused on delivering value for our shareholders. Operator, let's now open the line for questions. Operator: [Operator Instructions] We will take our first question from Colin Langan with Wells Fargo. Colin Langan: Any color -- you kind of talked about some of the puts and takes. But the sales and margin guidance are at the midpoint [indiscernible], but we know FX is different. Commodities are different. Any puts and takes in terms of FX now a little bit more of a tailwind? Is commodity now part of your -- a bigger part of your sales and is production now down? Any color on the -- sort of the -- sort of recomposition of guidance given a lot of the changes in the quarter? Kevin P. Clark: Yes. It's Kevin, Colin. So that's a great question. So thanks for asking it. I think I'll start at a high level, and then Varun will walk you through the pieces. We're in a dynamic environment. I wouldn't say -- you made a comment or ask the question, is FX -- or FX -- is FX and commodities a bigger item for Aptiv -- the New Aptiv? From a commodity standpoint, it certainly isn't. What's going on as you follow the markets is we've had tremendous spikes in commodity prices over the last few months. And we do have products like copper, like silver, even to some extent, gold that impacts -- that is included in our product, and we get impacted by those changes in commodity prices. Clearly what's going on in the Middle East from a price of oil standpoint, impacts [ resins ]. So those input costs, the spikes in those input costs have significantly impacted us in the first quarter, and we believe for the foreseeable future. Relative to our traditional business, pre spin, I would say those are actually less from an overall buy and exposure standpoint. Varun, I don't know if you want to walk through? Varun Laroyia: Yes. I'm just going to paraphrase some of the stuff that Kevin just mentioned. But Colin, first of all, from a commodities perspective, copper, gold, silver, oil-based products such as resin, as Kevin mentioned, yes, we are seeing inflationary pressures. Those are up versus our guidance from 3 months ago. So that is one aspect, which is kind of weighing on overall updated guidance. Overall, FX remained positive for us on a year-over-year basis. So I just want to share that with you. And then I think your final point was underlying vehicle production assumptions. Yes. So from our perspective, first half to second half, we see activated vehicle production down [indiscernible] in the first half and down [ 1 ] in the second half of the year. So we do expect to see an improvement in underlying vehicle production first half to second half. Colin Langan: Now [indiscernible] imply went for the year-end production. Is that in line with S&P of [ down 2 ]? Kevin P. Clark: Yes. It's roughly in line with [ S&P ]. Colin Langan: Got it. And then just secondly, on -- if we look first half to sign up, I look at the midpoint of Q2 and the midpoint of full year guidance, you did explain pretty well the expected improvement in sales growth. There's pretty high conversion as well on margins. I think it's something like a 60% conversion on higher sales half over half. What's driving that? I know there's normally -- is that just normal seasonal recoveries? Or is that kind of skewed a little bit extra because of the commodity recoveries as well? Kevin P. Clark: Yes, I'd say a couple of items. As you know, the mix of our business first half to second half. Traditionally, we experienced higher margin, or higher flow-throughs giving engineering -- timing of engineering recoveries and items like that. There may be a small amount of commercial recovery that's back half loaded, but I think that's fairly balanced, Colin, for the full calendar year. I think the margin profile of the business ex our traditional EDS business is higher, so flow through on volume growth, just given where our gross margins are now, you should expect that to be actually higher. So I don't have the numbers right in front of me, but I don't think there's anything unique relative to first half -- second half profitability versus first half other than things like engineering recoveries. Operator: We will take our next question from James Picariello with BNB Paribas. James Picariello: Can you to the Aptiv safety growth in the quarter, and what your expectations are there? And then as well as separately for user experience. And then, yes, I know Colin just hit on this, but just on margin front. What differs this year in that first half, second half split on the year's margin cadence where we saw a more balanced split last year? Kevin P. Clark: I'm sorry, Can you repeat the second half of your question? [indiscernible] understood. James Picariello: Yes. Just on the margins, as we look at New Aptiv, so last year, the first half, second half split in profitability like just the margin was pretty balanced. First half, second half, and then this year's guidance has a more significant second half step-up on the margin front? Kevin P. Clark: Okay. I'll let Varun walk through that. As it relates to ADAS [indiscernible] growth, listen, as we is reflected in our disclosures in our presentation, we're starting to see conversions between different domains [indiscernible] so when you think about things like in-cabin sensing, is that an ADAS product, or user experience product, when you see domain consolidation and some element of use of fusion chips were the ADAS controller, or the [indiscernible] controller consolidating. It's going to continue to get fuzzier and fuzzier. So that's why we're trying to give a more clear of visibility and transparency to investors as you think about sensors and compute software and services breakdown. ADAS in Q1 was basically flat, though. Having said that, that's principally driven because of that large North American OEM that had significant supply disruption given the fire at their aluminum supplier. As we look at the back half of the year, we see a significant ramp-up related to that particular customer and ADAS growth. So we'd expect ADAS to be in line with kind of the mid-single-digit, sort of, growth rate. With respect to user experience, it's consistent with what we've talked about in the past as we introduce new -- as new programs get launched principally in China today. That's an area where we'll see second half more significant growth. It was impacted to some extent in the first quarter just given small delays in [indiscernible] in China well as some soft production with a European OEM in the [indiscernible] sector. Varun, do you want to talk about... Varun Laroyia: I will. Yes, yes. James, a good question, and thanks for raising it. So the question was specifically in terms of first half versus second half profitability. Listen, the 3 items I would highlight. The first, as Kevin mentioned, is just a second half, third quarter, fourth quarter, true-up associated with engineering credits, and that's something that we've seen in the years gone by also. That's kind of point number one. No change from that perspective. The second one I'd call out is just kind of recovery on commodities, and there's something that we've always talked about, there is a timing lag. The recoveries that we have -- the higher commodity prices currently, there is a timing like 3, 4 months is what we've typically talked about. We expect those to kind of come through in the second half as the second one. And the final point I can raise is we are happy with the way our software and services business has grown double digits in Q1. And that's an industry which continues to kind of have seasonality weighted more towards the second half of the year. So the margin profile associated with that product line also, kind of, adds to the overall profitability first half relative to the second half. James Picariello: Right. No, that's very helpful. I appreciate all that color. And then I [indiscernible] will host this conference call [indiscernible] today. But just on EDS, if you're willing to discuss this business at a high level, a competitor recently announced a major [ Conquest ] wiring award. I would just be interested in, again, any color on that competitor program announcement and any perspective on the broader bookings backdrop as it pertains to [ wiring systems ]? Kevin P. Clark: Sure. Thanks for asking this question. I typically wouldn't comment on an individual OEM program award. And I certainly wouldn't speculate on the relationship between another supplier and an OEM customer. I find it inappropriate and be very transparent [indiscernible]. However, given the nature of the comments made and the inaccurate message that's in the marketplace, I think I have to comment on this particular matter, and in line with kind of standards for the -- that should be upheld by our industry up. My comments, I want to make sure everyone [indiscernible] have been approved by General Motors leadership. I think that's important for you to know. I'll confirm GM did award a very small portion of the wire harness content on the T1 program to another supplier. This portion represents a simpler portion of the harness. It's a build-to-print portion of the harness. GM actually refers to it as the simple harnesses. We remain the supplier for the most complex portion of the programs where harness content firmly aligned with where our core strengths are. This is where most of the actual water harness content is. The bulk of our EDS business is more complex full-service wire harnesses where we design, we develop, we assemble the harness to bring more value to the OEM. And this is a business we've been strategically focused on. I think, as all you know. And this is, quite frankly, the area where it's the highest margin, and it's growing the fastest. And it's least exposed to changes in vehicle architecture and the transition to things like zonal controllers. Build-to-print. It's a much smaller portion of the EDS segment. That's, I don't know, 20% of total revenues, maybe 25% of total revenues, much less complex. It's much lower margin. And for that reason, it's not as a strategic area of focus for us. Now having said that, we want all of an OEM's wire harness business. And General Motors is a very, very important customer to us, and this is an important program. Regarding comments related to our relationship with GM, which for me is the most disturbing, in fact, remains very healthy. And I -- given the comments made, I've personally reconfirmed with GM leadership and I can share with you some comments that were made by GM leadership. There have been zero service -- these are quotes. "There have been zero service level issues. That is never a problem with EDS. EDS is the gold standard for wire harnesses and EDS is our strategic wire harness supplier. And there'll be incremental full-service wear harness opportunities for the EDS business with GM in the future." So I hope these [indiscernible] put these rumors and factually incorrect comments to bed. The EDS business is the leader in the wire harness space. It's a great business. And I'm sure Joe and team will make some comments during the earnings call early evening. Operator: We will take our next question from Chris McNally with Evercore. Chris McNally: Thanks so much, team. Kevin, on the call, I thought you sounded the most positive about some of these, sort of, additional areas of growing the active TAM that you've been in a long time. And I think a lot of times, we always discuss, sort of, M&A bolt-on opportunities in industrial. But just looking at the ECG highlights on Slide 8. I mean, the awards now are in naval, space, energy storage. And so my question here is on some of the exciting opportunities that the world is all seeing in AI and data centers, and that some of your competitors have strong business opportunity in. Could you just talk about what would have to happen organically for you to start to invest? Automotive is one of the harshest environments. Could you get into those businesses over the next year or 2 from an organic greenfield, brownfield perspective because it seems like a pretty big TAM opportunity? Kevin P. Clark: No, Chris, it's a great question, and I should start with -- it's a great question. It's a great opportunity. The team is making significant progress, quite frankly, across each of our businesses. As it relates specific to the Engineered Components business, we've been very active over the last 1.5 years, 2 years leveraging what we have in our Winchester product portfolio, which is principally targeted on nonautomotive business with a very strong position in areas like A&D, like diversified industrials. Developing solutions from that product portfolio with our traditional interconnect solutions and bringing those to nonautomotive customers more as systems. So we've made a lot of progress. That's an area we have been investing in, both from a product standpoint as well as from a go-to-market standpoint. We've been leveraging our customer relationships in the U.S. as well as in China, where there are strong OEM relationships that span across industries. So leveraging our capabilities and our relationships in those automotive businesses to take solutions into things like aerospace into areas like data centers. We have a very focused initiative as it relates to building out our data center product portfolio, certainly our space product portfolio. So there's been a great deal of focus in that space, and we're gaining real traction. To meaningfully move it, as we've talked about in the past, that really requires M&A. We have a long funnel of bolt-on M&A opportunities that the team is executing on. That hopefully, during the calendar year 2026, we're looking to close on. And to wrap up, quite frankly, we're very excited and feel like we're very well positioned to pursue these opportunities. But we're very excited about our opportunities within automotive and the trends that are headed there. Near-term, we're wrestling with a few customer mix issues and industry mix use that we think as we move on through the year, you'll see improvements on. Chris McNally: That's great, Kevin. So, I mean, [indiscernible] to paraphrase some of the small bolt-on acquisitions could go a long way to some of the internal initiatives that you've been working for. But with some of these bolt-on acquisitions comes to [ sales force ] and these relationships that then you may have a lot, so 1 plus 1 equal 3. Kevin P. Clark: Exactly. It's not just the product portfolio piece. It's the industry positioning piece and building up sales organization and product organizations that have years of experience in a particular sector that we can leverage across our broader product portfolio. Absolutely. Chris McNally: And then just the last follow-on. I mean I kind of focus on AI and data centers. But like energy storage actually should be very easy given some of the customers now, obviously, with a lot of battery -- excess battery capacity in the U.S., the customer set is almost the same for a good portion of that business. Is that one that could be done a little bit more organically? Kevin P. Clark: Yes. That's one that is being done very organically now. So that's a focused effort with a focused product portfolio with a focused sales team. So there are a significant number of business awards we received. They tend to be smaller relative to large OEM program awards. But we're gaining a significant amount of traction across multiple OEMs. So that is certainly a tailwind. Listen, as it relates to -- you made a comment about AI, and this is true in the interconnect portfolio, as well as in our software and services portfolio. As AI accelerates, it provides a structural tailwind for both of our businesses, whether that be some of the products that we have in intelligence systems, or in engineered components, as more and more is driven to the edge, AI is driven to the Edge. They need high-speed interconnects, high-speed cable assemblies. We need RTOS solutions, or Linux solutions to enable performance at the Edge, and those are areas that in automotive, we've been enabling for a very long period of time. And that's an area that we're confident we'll continue to get more traction. Operator: We will take our next question from Joe Spak with UBS. Joseph Spak: First question is, Varun, you mentioned -- and I appreciate all that, some of the margin drivers half over half. I think I counted like 550 basis points. But your guidance is about 180 basis points half-over-half. So I just want to, maybe, understand if we could sort of talk through some of the offsets and, sort of, what exactly is baked in? Like, is some of that -- some of the commodities and higher input cost, is that sort of what's sort of weighting that back down? Or maybe we just sort of complete that bridge? Varun Laroyia: Yes. Joe, it's Varun. It's a great question. Yes, you're right. I think in terms of the half-over-half walk on revenue, the 100 bps, as I mentioned, is improvement in the underlying vehicle production half-versus-half. About 150 basis points specific to us with regards to the production impact at one of our customers related to supply fire in North America and then obviously select program cancellations in China in 2025, that will anniversary midyear. And the final one to mention was just the 300 basis points of anticipated timing of program launches and ramps. So that's the 550 basis points that you mentioned. With regards to the commodity side of things, yes, as I mentioned previously, we are seeing incremental inflationary pressures on input costs over the last 90 days since we initially gave guidance for pro forma New Aptiv to now, there is an uptick of about 60 basis points on the commodities and FX side of it. As I mentioned, basically, it's commodities. FX remains a net positive on a year-over-year basis. And it's -- again, it's the same things with regards to based on where copper is trading. And while overall exposure levels to copper, pre-spin to post-spin are markedly down. We still have some of those. Some of those are contractual pass-throughs. The remainder of it is commercial negotiations. But then also, we have exposure to gold and silver. And if you see as to where those have been trading, on a year-over-year basis, that's the other aspect of it. And then finally, our Connection Systems and [indiscernible] business as part of the Engineered Components portfolio, does have a significant level of resin purchases. Clearly, a key input cost into resin is oil. But that's the other aspect that we've seen through -- come through, that we expect to kind of ramp up. So yes. And again... Joseph Spak: I may have misunderstood. So that happened was the top line and then we should think about the flow-through on that top line, and then some of the commodity inputs is sort of the offset to when we think about the margins? Sorry. Varun Laroyia: Yes, yes. That's right. Joseph Spak: Okay. Okay. And then Kevin, just maybe to follow up of your last conversation with Chris. The nonauto awards in EC and space, energy storage naval $500 million. I think we're all familiar with auto lead times, but maybe you could give us a sense for these businesses, like how quick do some of these business comes on? What's the sales process like? And when you kind of convert to revenue? And maybe the same thing for IS, if you don't mind, and [indiscernible] Kevin P. Clark: Yes. It's a good question. So the sales cadence, it's in both segments, the sales organization is a separate distinct sales organization. So we have separate teams and separate product teams. So commercial teams, as well as product teams that support the go-to-market. The programs tend to, between award and actual revenue can range as short as a few months to -- as fast -- as short as a few months to -- I think at the far end, you're talking under a year. So call it, 9 months in those sort of typical areas, so much shorter from a long lead standpoint than what we have in our traditional business, automotive or in commercial vehicle. Operator: We will take our next question from Mark Delaney with Goldman Sachs. Mark Delaney: The [ company ] spoke already about the pickup in growth from the roughly flat year-over-year organic in 1Q to the 4% outlook for the full year for New Aptiv. A couple of those drivers you spoke about were timing. We [ get 2 new ] product launches and an assumption that auto production is more stable in 2H. I'm hoping you could share more on whether there's any conservatism in those assumptions relative to customer schedules given that new launches can sometimes be delayed, and the potential or macro headwinds to weigh on demand? Kevin P. Clark: Yes. There is an element of conservatism we always place in our outlook. So we will always incorporate some element of what we refer to is hedged. And we rely upon both third-party sources as well, as our customer EDIs or schedules. There are some areas like China where schedules are a bit more fluid and changes are more -- can happen more quickly. That's less the case in places like Europe in North America. I think as Varun talked about, our outlook right now based on what we're seeing from a schedule standpoint, and then triangulating with IHS with some amount of overlay is the 100 basis point improvement first half to second half from a vehicle production standpoint. There are some specific customer headwinds that we're aware of. I mentioned the North American OEM, who we were impacted more than we originally forecasted in Q1 given a further reduction in their schedules as it relates to addressing the issues with their supplier. We pick up a benefit in the back half of the year as things become -- that gets addressed and they come online. And then we talked about we've been talking about since last year, the 3 China program cancellations that impacted us in the ADAS area, in the user experience area, we can size those, those annualized at the end of the second quarter. Those two together are worth roughly 150 basis points. And then there's roughly 300 basis points of program launches first half to second half from a growth standpoint. That's the area where we tend to overlay the most conservatism because things can shift. Some of that is in China. We did see some small delays as it related to Q1, but we're starting to see those programs launch now. That's what gives us confidence in the in the back half of this year and the revenue ramp first half to second half. Mark Delaney: Very helpful details and color, Kevin. And my other question was another one around the commodity and inflationary environment. Could you be a little bit more specific around to what extent Aptiv has seen incremental headwinds tied to inflation in 2Q that you haven't been able to offset yet? And then for your full year outlook, you spoke about getting recoveries, but you also mentioned that can come through [ on a lag ]. So I was a little unclear. Do you assume that you're able to recapture all of the recent inflation in your full year outlook? Or does some spill out into next year? Kevin P. Clark: So I think -- and Varun will correct me. I think as it relates to prior guide versus this guide, there's effectively roughly 50 basis points of FX in commodities that is in our -- that's come into our system. It's principally resin and commodity prices. And commodities would be copper -- I mentioned the copper, aluminum, areas like that. We expect to fully offset that, most of that, a significant portion of which would be operational performance initiatives that we have underway that we're able to offset the overall cost of the increased cost of those commodity prices. And there will be some amount some amount that we will push through to our customers. So we're not relying on customer recoveries to achieve our full year outlook. Those are things that we have a high level of confidence that we can manage through internally and at the same time, go back to our customers in areas where it's more challenging and pursue recoveries. You look at past track record from a recovery standpoint. We've collected 95% to 100% of what we pursued with our OEM customers because we do that operationally, we've performed extremely well. And we do that while we're presenting them with additional cost reduction opportunities to help support the recovery that we're asking for [indiscernible] Operator: We will take our next question from Itay Michaeli with TD Cowen. Itay Michaeli: Just wanted to focus in on the strong -- strong new business bookings of $5 billion and the $20 billion outlook. Kind of curious happening on the auto side. Like are we finally seeing major sourcing decisions being made next-gen architectures, and perhaps also winning some market share? Just kind of curious sort of what is driving, sort of, the inflection? Kevin P. Clark: Yes, it's a great question. Yes, I would say first quarter relative to last year, we started to see programs that we've been working on for a period of time, free up in decisions made. We're starting to see OEMs look at next-generation ADAS solution, the user experience solutions, vehicle architecture solutions, including what we refer to as smart vehicle architecture. So -- so we're seeing more of those opportunities. Itay, we have a high level of confidence in the $20 billion of bookings for New Aptiv [indiscernible] 2026, just given our funnel. I think that's, to some extent, dependent upon things stabilizing a little bit as it relates to the situation in the Middle East. We're not deteriorating. Maybe that's a better way to describe it. But we're seeing a significant amount of opportunities in and around the areas that are sweet spot. Itay Michaeli: Terrific. And a quick follow-up. I think earlier you mentioned, of course, supply chain risks to do the Middle East but also potential opportunities that can come out of that. Hoping you can kind of comment a bit more on that. Like, could you actually end up seeing -- or leverage our supply chain capabilities with OEMs, maybe kind of win more business going forward? Just kind of curious a bit on that comment. Kevin P. Clark: Yes. Listen, we are today, Itay. I would say, over the last 2 years, the job the team has done from a supply chain management standpoint, both from a service level standpoint as well as from a visibility and transparency has created a lot of goodwill and there are a number of OEMs that we're partnering with now in terms of regular supply updates. I mean, we're now at a point where we're informing OEMs of where their particular pinch points are. As we look at areas like memory, and other areas where there's concern about inflation, availability or constraints, those are areas that we've been focused on for the -- been aware of. Anticipating, focused on for the last couple of years. So we've been bringing them alternatives as it relates to a park standpoint. It's also presented us with opportunities to bring to them solutions that include more [ Aptiv ] content, displacing some of their traditional suppliers. And they're all very focused on it and listening. When we're able to say we're confident in memory supply for '26 and also '27, given the relationships and agreements we have with our suppliers, and we have actually multiple alternatives that we validated, that's very differentiating with our customers. So it positions us extremely well. And when we take that supply chain capability outside of automotive, to some of the areas like robotics, like drones. That is one of the big selling points we have in terms of supply chain visibility, knowing source down to multiple levels being able to provide multiple solutions depending upon where the application takes place, or is actually used. That's been one of the big areas that's been differentiating, for example, for us in their own space. Operator: We will take our final question from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to ask if you could just -- I would say this year's revenue growth in the context of the longer-term targets. And so you're expecting some level of acceleration over the next couple of years for the [indiscernible] targets. [indiscernible] this year will be around [ 4% ]. Can you just remind us holistically, what are some of the drivers of revenue acceleration as we move past this year and towards the next couple of years of the plan? Kevin P. Clark: Yes. Thanks, Emmanuel. That's a great question and I appreciate you asking it. It's a mix of two things. One, it's improved customer mix. So in our prepared comments Varun and I were talking about progress we're making with the China local OEMs focused on the top 10 OEMs for the China market. One of the fastest-growing areas for us is on export platforms, as well as with several [indiscernible] now. We're very much focused on supporting their initiatives to manufacture overseas. So we're supporting several of them in terms of evaluation and with some of them in terms of actual programs. We're working with European OEMs as well as Chinese OEMs as it relates to China [indiscernible] for European products. So we've been very engaged there. So that's an area where we expect to see a pickup. As it relates to APAC non-China, that's been a particular focus area. And as we've talked about in the past, that's one of the fastest areas of bookings growth for us, so that's Japan, Korea, and [indiscernible]. So we're seeing a benefit from that. And then lastly, when you look at the nonautomotive space, we're growing very strong nonautomotive growth, which based on bookings and potential bookings we have in front of us. We're very, very confident. And then when you look at the software space, both in automotive as well as outside of automotive, that's an area where bookings are strong, and we're seeing solid and strong revenue growth that will drive us to the midpoint or higher in that 4% to 7% growth range. Emmanuel Rosner: That's very helpful. And then I guess I was hoping to follow up on China. So in the quarter, the New Aptiv China [indiscernible] was down 14%. You've mentioned some of the factors, including still the ongoing impact from cancellation of programs. What is sort of like your estimate of when you believe China would, sort of, like become more neutral and then eventually positive to your growth? Kevin P. Clark: Yes, great growth. So actually positive growth you'll see in Q2, and that's a result of a couple of things, the launch of new programs, and we see the benefit from that. Two, in Q1, we were affected principally in our Engineered Components business by our exposure to the top the top OEM in China in their vehicle production -- reductions. So I would say disproportionately given their year-over-year comp, that normalizes in Q2, and it's not as big of a headwind. And then lastly, as you get in the back half of the year, we talked about those 3 programs that were canceled in the second quarter of last year from a comparison standpoint. We won't have to be dealing with that. So we're expecting very strong growth in China and for the calendar year 2026. Operator: That will conclude today's question-and-answer session. I will now turn the call back over to Mr. Kevin Clark for any additional or closing remarks. Kevin P. Clark: Great. Thank you, everybody, for your time. We really appreciate you participating in our earnings call. Have a great day. Operator: The call is now complete, and thank you for joining.
Operator: Good day, and thank you for standing by. Welcome to Avista Corporation Q1 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Stacey Walters. Please go ahead. Stacey Walters: Thank you, and good morning. Thank you all for joining us for Avista Corporation’s first quarter 2026 earnings conference call. Our earnings and first quarter Form 10-Q were released pre-market this morning. You can find both documents and this presentation on our website. Joining me today are Avista Corporation President and CEO, Heather Lynn Rosentrater, and Senior Vice President, CFO, Treasurer, and Regulatory Affairs, Kevin J. Christie. We will be making forward-looking statements during this call. These involve assumptions, risks, and uncertainties which are subject to change. Various factors could cause actual results to differ materially from the expectations we discuss in today’s call. Please refer to our Form 10-K for 2025 and our Form 10-Q for 2026 for a full discussion of these risk factors. Both are available on our website. On this call, we will also discuss non-GAAP utility earnings. Our first quarter earnings presentation is posted on our website and includes definitions and reconciliations for all non-GAAP disclosures, including non-GAAP utility earnings. Our non-GAAP utility earnings are comprised of results from our Avista Utilities and AEL&P segments. The unrealized gains and losses that have historically made up the majority of our non-regulated other business earnings can be significant, but they are difficult to predict and outside management’s control. Discussion of non-GAAP utility results and earnings guidance reflects management’s focus on the core utility business. And now, let me turn it over to Kevin for a recap of the financial results presented in today’s press release. Kevin J. Christie: Thank you, Stacey. Our consolidated first quarter 2026 earnings were $1.11 per diluted share compared to $0.98 in 2025. Our first quarter 2026 non-GAAP utility earnings were $1.10 per diluted share compared to $1.10 per diluted share in 2025. Now I will turn the call over to Heather. Heather Lynn Rosentrater: Thank you, Stacey. It is hard to believe the first quarter is already behind us. The year began with real momentum and the pace of activity across our business has only accelerated. In a short amount of time, we have taken meaningful steps to strengthen reliability and resilience, move forward with our growth opportunities, and continue delivering value for our customers and shareholders. We continue to advance important grid hardening work, pursue load growth opportunities, and support resource adequacy for our customers into the future, all of which contribute to the long-term strength of our utility. Our ongoing investment in grid hardening and resilience, including vegetation management, is helping to prevent outages that can occur periodically during inclement weather. Although much of the work is driven by our wildfire mitigation program, we have experienced benefits resulting from these efforts through enhanced system resilience and storm response preparedness year-round. We found that the predictive tools we developed to monitor wildfire weather conditions also help us better anticipate other weather-related outage risks. That means we can stage crews and materials earlier and, when appropriate, alert potentially affected customers so they can prepare before outages occur. The work we are doing to build a more wildfire-resilient system also benefits us day-to-day in smoother operations and results in better outcomes for our customers and the communities we serve. And we saw directly how being better prepared through predictive tools and material pre-staging enables faster restoration work just a couple of months ago. In March, nearly 60 thousand customers were impacted by outages from high winds, and I commend each of the employees and partners who joined us in the restoration efforts, replacing poles, reconnecting lines, and rebuilding infrastructure to successfully restore power to all customers. I am happy to say that our grid hardening and resilience efforts improved the overall response to the storm. Related to the work underway to advance our growth opportunities, we remain optimistic about the opportunities ahead. We are planning for the growth identified in our most recent integrated resource plan and potential new large load customer growth in a way that supports customer affordability, system reliability, and compliance with clean energy requirements. A key part of this work is strategic resource planning—making sure we add the right mix of resources at the right time and in the most cost-effective way so we can meet reliability and clean energy requirements without taking on unnecessary expense. Negotiations continue with one of the prospective data center developer customers looking to locate in our service territory, with a projected incremental load of up to 500 megawatts. Ensuring appropriate protections for our current customers is a key element of our negotiations, as we expect the new large load customer to return a significant contribution to support affordability for our existing customers. We are currently targeting a signed memorandum of understanding with this new customer by May 31. In addition to negotiation discussions with the potential data center developer, we continue to discuss these opportunities with community leaders and other stakeholders. We are also engaging with policymakers and the Washington Commission regarding data centers to advocate for policies that ensure appropriate allocation of costs and benefits associated with the integration of these large loads. To support resource adequacy for our customers into the future, resource planning is a crucial task. As we work with potential new large load customers, we also continue to work toward final contracts with the projects selected from our recent request for proposals, including the build-transfer for a battery energy storage project included in our base capital plan and targeted to come online in 2028. At Avista Corporation, several related processes together inform our decision-making about these future resources as we consider the timing of integrating potential new large loads. Work has already begun on our 2027 electric integrated resource plan, or IRP. We have made progress with key data points for the IRP, like our clean energy implementation plan, which was recently updated and approved by the Washington Commission. Long-term affordability is central to our planning practice as we evaluate the resource needs into the future. Overall, I am optimistic about the opportunities ahead. I will now turn the call to Kevin for additional discussion of earnings. Kevin J. Christie: Thank you, Heather, and good morning, everyone. Our focus on delivering results at the utility is fundamental to our success. Our performance this quarter reflects the continued commitment of our teams to disciplined cost management. We began the year with solid execution across the business, and we are well positioned as we move forward. Alongside our other initiatives, regulatory outcomes are key to our progress. The first settlement conference for our Washington GRC takes place on the 22nd of this month, and we will continue to work through the regulatory process if no satisfactory settlement is reached. We continue to invest in our utility infrastructure to support customer growth and maintain safe and reliable service. Based on updates to project costs, we now expect capital expenditures at Avista Utilities of $615 million in 2026. We expect capital expenditures from 2026 through 2030 of $3.4 billion. We continue to estimate potential capital investment of up to $350 million associated with integrating a new large load customer that would be incremental to the $3.4 billion five-year capital plan. Integrating that investment in our five-year projection would result in a rate base growth of 8%. Our base capital plan also does not include incremental transmission, like regional grid expansion, and any large load customer additions beyond the customer previously mentioned. Turning to liquidity, we expect to issue $230 million of long-term debt and up to $90 million of common stock in 2026, which includes $14 million issued in the first quarter. This morning, we are affirming our non-GAAP utility earnings guidance with a range of $2.52 to $2.72 per diluted share for 2026. Our guidance includes an expected negative impact from the Energy Recovery Mechanism, or ERM, of $0.10 in a 90% customer, 10% company sharing band. Our current hydro forecast shows above-normal levels of generation for the year. We do not expect a material change to our position. The ERM resulted in $0.01 expense in the first quarter, and we expect to recognize the remaining $0.09 spread evenly in the second and third quarters. Expected long-term equity at Avista Utilities is approximately 9%, excluding the impact from the ERM. This reflects expected regulatory lag of 0.6%. Over the long term, we continue to expect that our earnings will grow 4% to 6% from the midpoint of our 2025 earnings guidance. Our first quarter results are a strong start to delivering on our commitment to financial strength. Heather and I are excited to build on this strength as we look ahead. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Shar Pourreza from Wells Fargo Securities. Your line is now open. Whitney Wutalama: Good morning, team. This is Whitney on for Shar. On the electric margin, how should we think about electric utility margin from here now that the quarter has lapsed the Colstrip-related revenue effect? Does 1Q represent a cleaner baseline for the rest of 2026, or are there still a few unusual comparison items that we should keep in mind? Kevin J. Christie: Thank you, Whitney. Good question. We would consider the first quarter a more clean quarter as we go forward, but we will have to go through the whole year as we compare quarter after quarter from 2025, which had Colstrip in it for the entire year, and, of course, 2026 will not. But I think the first quarter of the year is a pretty good representation. Whitney Wutalama: Thank you, Kevin. And then on the regulatory side in Oregon, just in relation to the Fair Act transition and as Oregon moves towards the multiyear rate plan, what is the most important element in these discussions that you need to preserve during the transition? Is it the ability to file in late 2027 for 2028 rates, continued access to interim recovery tools, or some form of indexing to avoid a larger first-year catch-up? Kevin J. Christie: That is another good question, and it is hard to prioritize the three—they are all very important. If we are going to need to stay out longer while we are working through the proceeding, we, of course, would need some interim rate relief as we continue to make capital investments. And then as we look forward, we have had a lot of success with multi-years in other states like Idaho and Washington. To have a quality multiyear with a strong first-year starting point is also equally important as we look forward, and then, of course, earning a fair return for our shareholders. Whitney Wutalama: That sounds good. Thank you, Kevin and Heather. Operator: Thank you. One moment for our next question. Our next question comes from Michael Logan from Barclays. Your line is now open. Michael Logan: Hi. Thanks for taking my questions. Regarding the large load customer that put down a deposit, how are you feeling about reaching an MOU, or when can we expect that? I think you said 90 days or so on your last earnings call. And then subsequent to that, how long would the process take to reach an ESA and potentially formally enter your capital program? Heather Lynn Rosentrater: Great question, thank you. We shared that we are working towards a May 31 date for an MOU, and so the next-step timeline would be identified through that agreement. I do not think we have a clear understanding of what that next step will be, but we are looking towards that May 31 date. Michael Logan: Thank you. And then you highlighted previously 1.7 gigawatts remaining in your queue of potential large load customers. How are you feeling about that pipeline? Is there an update to that number? Heather Lynn Rosentrater: We do continue to vet those opportunities, and we are at about 1.1 gigawatts now in the queue. As we continue to work with these customers, we have higher confidence in what may come to be. We are excited about the opportunities that are still out there—specifically the one customer, but there are others as well that we are working. We are continuing to plan to be able to go out and have curated opportunities for customers once we have a better understanding of the best geographic locations that have available capacity, and we do have some of those areas on our system. We are also looking to be more proactive. Michael Logan: Lastly for me, regarding the Washington rate case later this month, how are you feeling about the prospects of reaching a settlement, or given that it is your first four-year plan filing in the state, do you expect it to be fully litigated? Kevin J. Christie: Michael, thanks for the questions. With regard to the Washington GRC, we are deep in the discovery process, which helps the parties formulate their positions as we enter into settlement, and, of course, we are prepping for settlement. I would like to think there is an opportunity for us to settle at least some, if not all, of the case. That being said, as you highlight, this is the first four-year that any utility, as far as we know, has filed in the state of Washington, and so there are a number of issues to work through. From a party perspective that might engage in settlement, it is hard to say how constructive or how well we can come together, given that they are going to view risks in a certain way and we are going to view risks in a certain way. I cannot give you a probability of settlement, but I think everybody is going to give it a shot. Michael Logan: Great. Thank you for taking my question. Kevin J. Christie: Thank you. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our next question comes from Julien Dumoulin-Smith from Jefferies. Brian J. Russo: Hi. It is Brian on for Julien. Good morning. Just to follow up on the four-year multiyear rate plan in Washington, remind us of your confidence or ability to manage within the revenue requirements and the return requirements over the four-year period, albeit with an off-ramp up to two years, especially given the geopolitical backdrop, fuel, inflation, etc. How can you de-risk this plan, if at all, relative to what has been filed? Kevin J. Christie: Thanks, Brian, for the question. I will start with the off-ramp that you referred to. We have the ability after the first year to file a replacement for years three and four, given the 11-month process, and that would occur if some form of inflation or additional investments beyond what is built into the case materialize. We have been very successful over the last several years adding deferral mechanisms that help to hedge some of our risk. In this particular case, we have a new mechanism that we are requesting around employee benefits—that is one of the remaining more volatile, harder-to-control items for us. If we were to have success with building that mechanism in, and with the other mechanisms that we have in place, we should be in pretty good shape. Of course, that is barring some kind of extreme inflationary activity—in that case, we would use the mechanism where we refile if that were to occur. We feel like we are in a good position to manage the risk that we might see materialize. The company is very focused on managing our costs, and we see some opportunities as we look forward. All of those things combined make us optimistic. Brian J. Russo: Understanding that you are reporting the non-GAAP utility EPS going forward, I noticed in other businesses there really were not any non-cash mark-to-market gains this quarter. Is there any insight there relative to what we are seeing in the broader market? And any additional thoughts on monetizing any of the investments that are more liquid than others? Kevin J. Christie: It is nice to see that things have leveled off, or appear to have leveled off, a bit from about a year ago, and we think with that calming we would see minor adjustments overall. You are referring to the bioscience company when you talk about monetization. To the extent we are excited about the opportunity there, it is a noncore investment, and we would exit at the point in time that makes sense. If there was value created through that exit, then that would help us with our overall equity needs, and hopefully we would be issuing low or no equity for a period of time, which would help boost our overall earnings. Brian J. Russo: You mentioned regional transmission opportunities possibly that would be upside to the CapEx. Can you discuss those some more? Understanding North Plains Connector would likely be post-2030, I am trying to get a sense of whether there is incremental upside to the CapEx relative to that $350 million that you highlighted. Heather Lynn Rosentrater: I am happy to cover this one, Brian. As you mentioned, the North Plains Connector, which we have talked a lot about, likely has opportunities beyond the five-year capital budget, but we are continuing to work with peers and other regional organizations to identify other opportunities for transmission investment that might make sense for us and our customers. There are a lot of reports acknowledging the need for more transmission in our region. We feel that we are geographically blessed—we are in between where a lot of the load growth is and where a lot of the new resources are. We do see potential opportunities in the future for additional investment there and we will continue to participate in those activities. Operator: I am showing no further questions at this time. I would like to turn it back to Stacey Walters for closing remarks. Stacey Walters: Thank you all for joining us today and for your interest in Avista Corporation. We hope you have a great day. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.