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Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Ingredion Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Noah Weiss, Vice President of Investor Relations. Good morning, and welcome to Ingredion Incorporated's First Quarter 2026 Earnings Call. I am Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zallie, our Chairman, President and CEO, and Jason Payant, our Vice President and interim CFO. Noah Weiss: The press release we issued today, as well as the presentation we will reference for our first quarter results, can be found on our website, ingredient.com, in the investors section. As a reminder, our comments within the presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those estimated in the forward-looking statements, and Ingredion Incorporated assumes no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in this morning's press release can be found in the company's most recently filed Annual Report on Form 10-Ks and subsequent reports on Forms 10-Q and 8-Ks. During this call, we also refer to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating income, and adjusted effective tax rate, which are reconciled to U.S. GAAP measures in Note 2, Non-GAAP Information, included in the press release and in today's presentation appendix. With that, I will turn the call over to Jim. Jim Zallie: Thank you, Noah, and good morning, everyone. While we expected a challenging quarter after last year's strong first quarter, results were weaker than anticipated in Food and Industrial Ingredients U.S./Canada due to operational challenges at our Argo facility. At the same time, performance in our Texture and Healthful Solutions and Food and Industrial Ingredients LatAm segments were in line with our expectations despite an increasingly uncertain macroeconomic environment. Overall, net sales were down 1% and adjusted operating income was down 22% versus last year, driven by Argo and softer industry volumes in Food and Industrial Ingredients U.S./Canada and LatAm. As expected, our Texture and Healthful Solutions segment delivered a solid quarter with broad-based volume growth reflecting increased adoption of our expanding solutions portfolio and continued customer demand for clean label offerings. Turning to the next slide, we are pleased that our Texture and Healthful Solutions segment posted its eighth straight quarter of volume growth, up 2%, led by clean label and texture solutions in EMEA and Asia-Pac. In Food and Industrial Ingredients LatAm, overall volumes were slightly down for the quarter due to expected weaker consumer demand versus a strong first quarter last year. We saw a modest recovery in Brazil, supported by improved customer demand and early benefits from our polyols network optimization completed at the end of last year. Additionally, this morning, we announced plans to cease operations at our Cabo manufacturing facility in Northeast Brazil by 2026 as we drive enterprise productivity to deliver operational efficiencies while sharpening customer mix priorities. We expect the actions we have taken in Brazil, both commercially and operationally, to deliver continued benefits throughout the year. In our Food and Industrial Ingredients U.S./Canada segment, net sales volumes declined 7% in the first quarter, driven primarily by operational issues at our Argo facility as well as softer demand across certain food and industrial markets. As noted earlier, Food and Industrial Ingredients U.S./Canada results were negatively impacted by Argo in the quarter. Within our February outlook, we expected $10 million to $15 million of additional costs to impact the quarter as the facility recovered to normal grind rates. However, additional operational challenges slowed the recovery and negatively impacted saleable inventory. As a result, the actual Q1 impact was much greater than anticipated, coming in at $40 million, comprised of higher maintenance spend and the costs associated with elevated levels of rework. Additionally, we incurred higher logistics costs as we sourced products from other facilities in our network to meet customer commitments. In response to challenges in our refinery operations, we took meaningful actions during the quarter to diagnose and remedy the sources of process failures. We assembled a multidisciplinary team of internal and external experts in refinery unit operations and are pleased to say that downstream production returned to normal levels by quarter-end. Unfortunately, in the midst of this progress, on April 10, there was an isolated thermal event in Argo's corn germ processing operations. While the front-end grind and refinery were not impacted, crude oil production went offline. Our teams are working diligently to restore our germ processing capabilities, and we expect to return to normal operations in this unit within the second quarter. Our balance-of-the-year assumptions for Food and Industrial Ingredients U.S./Canada are based on the germ processing recovery timeline that I just outlined, as well as sustaining current levels of production and yield through the refinery operations at Argo. Turning to a significant driver of Texture and Healthful Solutions growth in the quarter, our solutions sales continue to outpace overall segment growth. As a reminder, our solutions portfolio is approximately $1 billion, or 40% of this segment's revenue. Clean label remains a major growth driver within our solutions offering. It is noteworthy to point out that even against a challenging volume backdrop, customers continue to seek clean label options. Our industry-leading portfolio of functional native starches grew strongly in the quarter, benefiting from sustained customer demand for simpler ingredient panels and increased reformulation support. Examples include customized texturizing systems for dairy and dairy-alternative applications, as well as solutions supporting reformulation for healthier bakery and beverage platforms. Solutions growth is coming from more than just clean label ingredients. It also reflects the breadth of our capabilities and how we are partnering with customers through co-development, providing formulation expertise and differentiated ingredients. This combination is helping us deepen customer engagement and improve mix within Texture and Healthful Solutions. As part of the innovation engine for solutions, we are increasingly leveraging artificial intelligence to power the consumer insights and predictive formulation work that are at the heart of our solutions customer briefs. This is helping us accelerate the brief-to-solution cycle time. Moving to another bright spot in the quarter, our Healthful Solutions portfolio, comprised of clean taste solutions for sugar reduction and protein fortification, continued to grow strongly. Sales of our pea protein isolates, driven by recent new product innovations, grew more than 50% in the quarter, and our clean-tasting stevia-based solutions also demonstrated a solid 6% growth in the quarter. Growth in these categories is broad-based across both branded and private label, reflecting the heightened consumer pull for protein-fortified and lower-sugar offerings. As we look ahead to the remainder of the year, we are actively monitoring and managing both the direct and secondary effects of higher energy prices. The largest impact we foresee is related to increased logistics costs, which we are actively working to offset within-year price increases. It is important to mention that at this point, we do not foresee major challenges related to sourcing any of our important manufacturing inputs. The work done in recent years to increasingly localize our supply chains should position us well to mitigate disruptions. We are also monitoring the impact higher energy costs are having on packaging inflation and gasoline prices, and the effect that together they could have on consumer demand in the second half. At this point, it is too early to estimate the degree to which these inflationary pressures may impact volumes. We are also carefully monitoring fluctuations in the value of the U.S. dollar. The Mexican peso has unexpectedly maintained its strength, and this is presenting a meaningful transactional foreign exchange headwind for the FNII LatAm segment. The dynamics brought on by new inflationary headwinds are familiar to us, as we have successfully managed through these periods before. We have the operational experience to react with agility, and we are leveraging our pricing centers of excellence to implement targeted price increases where they are required and where possible. With that, I will turn the call over to Jason for the financial review. Jason Payant: Thank you, Jim, and good morning, everyone. Moving to our income statement, net sales for the first quarter were $1.8 billion, down 1% versus prior year. Gross profit declined 14% with gross margin decreasing to 22.4%, driven primarily by operational challenges at Argo; lower volumes and unfavorable mix in Food and Industrial Ingredients U.S./Canada and Food and Industrial Ingredients LatAm; and transactional foreign exchange impacts in Mexico. Reported and adjusted operating income were $203 million and $212 million, respectively. Turning to our Q1 net sales bridge, the 1% decrease was driven by $32 million in lower volume and $22 million in lower price/mix, partially offset by $33 million of favorable foreign exchange translational impacts. Moving to the next slide, we highlight net sales drivers by segment for the first quarter. Texture and Healthful Solutions net sales were up 2%, driven by sales volume growth of 2% and foreign exchange favorability of 2%, partially offset by lower price/mix. Food and Industrial Ingredients LatAm net sales were up 1%, driven by favorable foreign exchange, partially offset by lower volumes and weaker price/mix. Food and Industrial Ingredients U.S./Canada net sales declined 9%, driven by operational challenges at Argo and weaker consumer demand. Now let us turn to a summary of results by segment. Texture and Healthful Solutions net sales were up 2% in the first quarter, and operating income was up 1%. The increase in operating income was driven by favorable input costs, foreign exchange, and better volumes, partially offset by strategic price and mix management. In Food and Industrial Ingredients LatAm, net sales were up 1% in the quarter. However, operating income decreased by 9% to $115 million, with operating margins of approximately 20%. These decreases were driven primarily by Mexico transactional currency impact and softer volumes in Mexico and the Andean region. Positive performance in Brazil and the Argentina joint venture helped offset some of these headwinds, allowing the total segment to deliver results in line with expectations. Moving to Food and Industrial Ingredients U.S./Canada, first-quarter net sales were down 9%. Operating income was $34 million, driven by operational challenges at our Argo plant and weaker volumes and mix. Net sales in All Other increased approximately 3%, driven by continued growth in protein fortification, particularly in higher-value isolate and specialty protein applications. Operating income improved by over $3 million year on year, reflecting improved mix and operating leverage. Turning to our first-quarter earnings bridge, the top half of the slide reconciles reported to adjusted earnings per share, and the bottom half walks through the drivers of the year-over-year change. Adjusted diluted earnings per share declined by $0.63 year over year, including $0.71 of margin impacts and $0.14 of volume impacts, that were primarily the result of the operational challenges we previously discussed. These headwinds were partially offset by foreign exchange benefits of $0.07 and other income benefits of $0.08 per share, as well as $0.07 of non-operating items, including $0.06 of share repurchase benefits. Turning to cash flow and capital allocation, we continue to demonstrate financial discipline in the quarter. Year-to-date cash from operations was $33 million, reflecting a planned investment of approximately $205 million in working capital. This was driven primarily by receivables and payables. We invested $110 million of capital expenditures, net of disposals, to support reliability, capacity, and strategic priorities across the business. During the quarter, we continued to return cash to shareholders through $52 million in dividends and the repurchase of $14 million of shares. This underscores our commitment to balanced capital allocation and long-term shareholder value creation. Now let me turn to our updated 2026 outlook. As Jim noted in his opening remarks, we have revised our outlook to reflect the updated impact from Argo; foreign exchange transactional impacts from continued strength of the Mexican peso relative to the U.S. dollar; the impact of higher energy prices on input costs and logistics; and softer volumes in LatAm. For the full year 2026, we now anticipate net sales to be flat to up low single digits and adjusted operating income will be flat to down low single digits. Our 2026 financing cost estimate is in the range of $35 million to $45 million and a reported and adjusted effective tax rate of 26% to 27.5%. Our full-year adjusted earnings per share is now expected to be in the range of $10.45 to $11.15. This outlook assumes sequential operating improvements at Argo and continued resilience in the Texture and Healthful Solutions side. Our adjusted earnings per share range is based on a diluted share count of 63.5 million to 64.5 million shares. We anticipate that our 2026 cash from operations will now be in the range of $725 million to $825 million, reflecting our updated net income expectation as well as working capital investments in line with net sales growth and normalized inventory levels in Food and Industrial Ingredients U.S./Canada. Capital expenditures for the full year are now anticipated to be between $400 million to $440 million. Please note that our guidance reflects current tariff levels in effect as of April 2026. In addition, this guidance excludes any acquisition-related integration and restructuring costs as well as any potential impairment costs. Turning to our updated full-year outlook by segment, our net sales outlook for Texture and Healthful Solutions remains the same, but operating income is now expected to be up low single digits, which still reflects volume growth but is partially offset by higher input cost inflation. For Food and Industrial Ingredients LatAm, net sales are now estimated to be flat to down low single digits and operating income is expected to be down low single digits, reflecting foreign currency transactional headwinds in Mexico and softer volumes in LatAm. As a reminder, our Mexico business is U.S. dollar denominated, but most of our SG&A and operating costs are in pesos. As the peso strengthens against the dollar, our transactional costs increase in dollar terms, which negatively impacts operating income and can more than offset translational benefits against a weaker U.S. dollar in other parts of our LatAm business. For Food and Industrial Ingredients U.S./Canada, we now expect net sales to be down low single digits, and operating income is projected to be down low double digits, which reflects the impact of operational challenges in Q1 on our full-year outlook. All Other operating income is still anticipated to improve by $5 million to $10 million from full year 2025. Lastly, for 2026, we expect net sales to be flat to up low single digits and adjusted operating income to be down high single digits, as we lap a very strong second quarter in 2025. That concludes my comments, and I will turn it back over to Jim. Jim Zallie: Thank you, Jason. To close, even in a challenging quarter, we continue to see momentum in the highest-value parts of our portfolio, particularly Texture and Healthful Solutions, where customer demand remains robust, supported by clean label, healthy eating, reformulation, and solutions-led growth. As stated, our Food and Industrial Ingredients U.S./Canada projections are based on the sequential operational recovery at Argo throughout Q2 and reflect sustaining current levels of production and yield for the balance of the year. We are actively monitoring and managing the impacts of energy and currency movements and are pursuing targeted price increases where required and where possible. Our enterprise productivity initiatives, specifically from network optimization, are providing operational and commercial benefits which will support margin. With a strong balance sheet and solid cash generation, we remain well positioned to invest for growth, support our strategic priorities, and deploy capital with discipline as we continue to build long-term shareholder value. We will now open the call for questions. Operator? Operator: Thank you. Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. And our first question comes from Pooran Sharma with Stephens. You may proceed. Analyst: Hi. This is Jack Harden on for Pooran Sharma. Thanks so much for the question. Once Argo normalizes, do you still view the Food and Industrial Ingredients U.S./Canada business as capable of getting back to the mid- to high-teens operating margin profile? And is that more of a 2027 target now, or could that run rate be possible exiting 2026? Jim Zallie: Yes, the answer to that question is yes. We are still committed to getting back to the mid-teens operating income margins for that business, consistent with what we put forward in the Investor Day in September. The issues at Argo are the predominant driving factor in relationship to the margin decline and the operating income decline in that business. We are encouraged by how the grind and how the refinery operations finished the quarter. We were disappointed with the April 10 issue in the corn germ processing unit, but, again, that particular issue is isolated. It is in a very specific location within the plant, separate from grind, separate from the refinery operations, and the repairs are well underway. That unit should be back up and running again within Q2. So in answer to your question from a standpoint of getting back the majority of the 1,000 basis points of margin decline in this quarter compared to the 16% to 17% that we are typically projecting, I think we would say for 2027, certainly, that is our expectation at this point in time. Assuming that we can string a couple of good quarters together of run-ability and reliability, we feel that from a standpoint of the demand and how we have been able to service customers through this period, we can get back to those levels of operating income. Analyst: Thank you. And a quick follow-up on capital allocation. With updated cash flow from operations guidance and CapEx guidance remaining the same, how should we think about capital allocation through the rest of the year? And is the prior commitment of $100 million roughly the right way to think about it, or has that been updated as well? Thanks. Jim Zallie: Jason, do you want to take that? Jason Payant: Yes. I would say yes. Certainly, based on our current cash flow projections and capital allocation priorities, we plan to build on the $14 million shares we repurchased in Q1 to meet our full-year targeted commitment. Jim Zallie: And Q1's CapEx came in consistent with the full-year projections as well. So yes, it is to continue as planned for the capital allocation priorities. Thanks so much. Operator: Thank you. Our next question comes from Joshua Spector with UBS. You may proceed. Joshua Spector: Hi. Good morning. I wanted to drill into Texture and Health a little bit more and just understand some of your assumptions through the year. I guess if I look at the first quarter, your organic growth was about flat. You got the couple points basically from FX. So assuming FX becomes less of a tailwind, you basically need organic growth to pick up. So I am just curious relative to the 2% volumes and the down 2% pricing, how do you expect that to evolve through the year to get the segment to the low- to mid-single-digit growth you expect for the year in total? Jim Zallie: The mid-single-digit target is part of our long-term algorithm for growth. We are pleased to deliver 2% net sales volume growth in the quarter, and I think it is noteworthy again to highlight that it is the eighth consecutive quarter of sales volume growth. We really believe that the focus that we have now on solutions, which is a result of the re-segmentation work that we completed nearly two years ago, and the solution selling approach that we have globally implemented with trainings and certifications and formulation experts that collaborate with our 30-plus Idea Labs around the world, plus our technical headquarters in Bridgewater, New Jersey, all of that continues to come together very well on behalf of the customer. At the same time, driven by regulatory changes and health and wellness trends, there are a number of reformulations that are coming to us from customers. We also have proactively decoded, I guess you could say, better than we have in the past, the private label ecosystem and the supply networks, the co-packing networks, and we have an increasing pipeline of project briefs to support customers with solution selling and co-creation, which is driving really deeper engagement and faster delivery of solutions to customers. And so I think all of that makes us feel confident that when the macroeconomic conditions and inflationary pressures lessen a bit, that is going to enable us to move from what currently is low single digits to that mid-single-digit territory that we believe is absolutely achievable and correct for that segment based on the portfolio that we have, based on the differentiated ingredients that we have, and based on the investments that we have made in capabilities, both in people capabilities as well as in equipment capabilities within our R&D facilities. So that is what gives us the confidence that we can do that. Joshua Spector: Okay. I appreciate that. I guess I would be more specifically curious on pricing, because you guys had done well on volumes, but pricing has been a persistent headwind. It sounds like from how you described the call today, you would expect pricing maybe to pick up to cover some of the higher costs that you are starting to see in logistics and other areas. Is that the right framework? Jim Zallie: Let me try to clarify in relationship to something that occurred uniquely in the quarter to help put that in perspective. So first of all, let me speak to margins, which is what you are also getting at with your question around pricing. What is encouraging to highlight is that margins in U.S. and Canada in Texture and Healthful Solutions actually increased in the quarter. The majority of the slight margin compression we are seeing is related to the rapid rise in tapioca costs in Asia Pacific. Tapioca for us is a significant business, and that pretty rapid increase in tapioca costs in Asia-Pac started to occur at the end of Q4 last year, and so the time lag that it takes to pass through those costs through increasing pricing is what we are seeing in Q1 manifest itself. That typically takes about a quarter to a quarter and a half to work its way through, just on how tapioca pricing works. So that may help to clarify what you are highlighting in relationship to the quarter and some of the margin compression that we experienced. It is something that is pretty heavily weighted and unique to that particular issue. Joshua Spector: Okay. One other quick follow-up around that issue is just so pricing was still reported down. How do I square an escalation in cost and the pricing side there? Is that the timing that that margin and that price recovers in 2Q? Or are there other factors outside of this which are still pressuring that? Jim Zallie: Yes. So regarding pricing and taking it back to, I think, the prior earnings call and what we said in relationship to Texture and Healthful for the full year: going into contracting, we were, for our less differentiated products, having to price to maintain market share and, in some cases, increase our market share to a degree. We are expecting and are seeing increases in fixed cost absorption through our Texture and Healthful Solutions manufacturing facilities because we did pursue volume in the contracting period, and that is why the setup for this year you are seeing some of that play itself out in the way of how pricing is being viewed. But we believe that that was absolutely the right approach to continue with our relevance with the customer base that we segmented and targeted to then bring our solutions capabilities, which over time are going to increase our margins just due to the higher gross profit associated with solutions versus the, say, less differentiated parts of the Texture and Healthful Solutions portfolio. So there are a few things going on here strategically as it relates to how we approached the year from a standpoint of what the market gave us related to competitive dynamics going into contracting and how we pursued pricing. But the thing to be most encouraged about is the solutions growth in the quarter, which is margin accretive over time. And then we had this one issue related to the tapioca costs, which, again, we have been there on the other side of that before many times. Given our market position, those prices will flow through; it just takes about a quarter to a quarter and a half to get them. Joshua Spector: Okay. Thank you very much. Jim Zallie: Thank you. Operator: Thank you. Our next question comes from Benjamin Thomas Mayhew with BMO Capital Markets. You may proceed. Benjamin Thomas Mayhew: Hi. Good morning, and thanks for taking the questions. So my first question has to do with customers having to manage pricing. So I am just wondering what you are seeing in terms of elasticity on your products, and how, when you are trying to take this pricing, how might that impact volumes should you need to pass through an extended amount of costs through the balance of the year? Jim Zallie: I am going to let Jason take this, but let me just set it up. Obviously, very similar to last year in relationship to the tariff implementation, we have been very proactive to put in place a Middle East response team that is collecting all of the input to our business as it relates to the inflationary impacts of increased energy prices, and we are monitoring and managing those direct and indirect impacts. So we have a handle right now on certainly the direct impacts and what we need to do to offset the logistics cost increases and any increases that are flowing through to us directly with chemicals and/or packaging. Jason, you are overseeing that. Do you want to give some perspective? It is early. I know it is very early in the cycle, but the team is actively working that. Jason Payant: Yes, and as we have done in the past with tariffs and other disruptions like this, we do believe that we will be able to pass through most of the costs. Jim Zallie: There may be a small but manageable net negative impact, but overall history has shown that, contractually and consistent with market dynamics, we are able to pass those costs through. At this point, what is more difficult to predict is the indirect impacts this may have on consumer demand as our customers work to pass through those incremental costs onto the market. Yes. I think that is absolutely correct. I think that last year, if you remember, we navigated tariffs extremely well. In fact, I think the net impact to us was, after putting through price increases, a net impact of about $6 million for all of the tariffs that went into place last year, and we managed through that very well. This year, as it relates to the direct impacts thus far that we have been able to project forward for the Middle East energy price situation, we are seeing a number in a similar range. So we think that is extremely manageable. But to Jason's point, the bigger watch-out, I think, for everyone, for the industry at large, is the longer the conflict lasts and the inflationary impacts are felt through increases that consumer products goods companies are putting through in packaging—plastic-related packaging, which is mid- to high-single digits—and passing that on to the consumer, as well as gasoline prices that are going to impact lower- to middle-income consumers. That is where I think the watch-out is for the second half of the year, which is very hard to predict, even though in the first quarter, we saw minimal to no impact of this. But everyone is watching cautiously, despite the fact that consumers seem to remain robust in the first quarter, at least in the United States. Benjamin Thomas Mayhew: Got it. Thank you so much for the context there. That was very helpful. And just a follow-up question going in a different direction here. Your balance sheet—the cash balance is still very, very strong. We know that you have been looking at a pretty robust M&A pipeline, but that valuations have not quite been where they need to be to take action. As you are looking at a potentially tougher environment for the industry, how are you thinking about your M&A pipeline? Is it getting more interesting? And are you prepared to pursue more inorganic growth? Thanks. Jim Zallie: Yes. One of the things we are obviously fortunate to have is a strong balance sheet and strong cash flows, and that does provide us optionality to pursue value-accretive M&A. I think it is important to note that we have a track record for remaining disciplined in pursuit of M&A prospects, and when we do pursue a target and integrate that business, we have typically integrated and delivered on the business case. We have a robust M&A pipeline—we always do—and we are actively pursuing a number of businesses that could bring us sales, EBITDA, talent, and technology. Anything that is going to, again, enhance our winning aspiration in the areas of Texture Solutions and Healthful Solutions is going to be our priority. But, again, we will remain disciplined in relationship to the value-accretive nature of those and the executability and the synergies that we can deliver from those targets. Analyst: Thank you. Operator: Our next question comes from Analyst with Barclays. You may proceed. Analyst: Good morning. Thanks for taking my question. I just wanted to follow up a little bit on the performance in Latin America and what has been driving this. You have called out the volume decline, but if we look at some of the underlying trends, be it at the Coke bottlers or even what we saw with a large beer brewer in Brazil earlier this morning as well—reporting surprisingly better results—I was just wondering where the mismatch is between what we saw operationally for the Coke bottlers and brewers in the region, where we have actually flattish to maybe even slightly up volume, versus you guys having about a 7% impact on volume. I just wanted to understand the mismatch here. Thank you. Jim Zallie: Yes, it is a really good question, and we saw those results as well that you referred to. What we can say about our LatAm volumes: we expect volumes to be down slightly, lapping a strong 2025. For us, brewery volumes have been lower than anticipated thus far due to conservative customer ordering ahead of the World Cup, which is surprising. We believe this has the potential to pick up in Q2. However, we are lapping soft volumes in Q3 of last year related to a particular customer contract management issue, and we think that in the second half the volumes are going to be stronger. The Mexican economy continues to demonstrate softness, and thus we have a cautious outlook on volumes for the remainder of the year for Mexico. I think GDP growth now is in the 1% to 1.5% territory. Overall, against a record Mexico performance last year, we are seeing softness, and then, as Jason alluded to, we have the impact of the Mexican peso, which is a headwind for us as well. We will dig more into the numbers that you refer to, specifically in brewing, and try to understand what may be happening in relationship to, say, no- and low-alcohol beers, which appears to be growing 25% in comparison to mainstay beers, and understand how that then flows through to us and impacts us. But that is what we are seeing. That is what we can say to you in relationship to trying to reconcile it at this point in time. Analyst: Okay. And then just following up, the price/mix—was it more price, or was it more mix in terms of what drove the headwinds here? Just to understand if it is more like a price pass-through or if it is an actual mix effect to lower-price items. Jason Payant: In Latin America, you are asking. Yes, correct? I would say that all the impacts from the price were reflected in our guidance and even our original guidance. It is really, at this point, a mix issue. We are seeing differentiated customer mix and some product mix that is having a little bit of an impact there. But, overall, results were in line with our expectations for the quarter, and we are not seeing a huge change in LatAm balance of year. Obviously, the bigger drivers in our guidance change are Argo, which is about half of it, and then the balance is really the Mexican peso and some of the Middle East impacts on energy costs. So the LatAm piece is really a smaller component of that. Analyst: Okay. Got it. Thank you very much. Operator: Thank you. Our next question comes from Kristen Owen with Oppenheimer. You may proceed. Kristen Owen: Hi, Jim, Jason. Thank you for the time this morning. Just following up on this thread on LatAm, I wanted to ask if you could provide a little bit of background on the Cabo plant—just what the decision factor was there, and how we should think about that influencing margins. Also, just clarification on the model: is the shutdown of that plant included in the updated outlook? And then I have a follow-up. Thank you. Jim Zallie: The answer to your last question is yes, and I will give you some context in relationship to the decision that we announced today. We are always continuously evaluating the efficiency and optimization of our operations and network. As part of a broader initiative to adjust our operating footprint in Brazil, with a goal of strengthening operational efficiency, competitiveness, and long-term business sustainability, we made the decision to cease operations at our Cabo plant. That plant is in the northeast part of Brazil. Economic growth in that part of Brazil compared to when we made the decision to make that investment has not lived up to its potential. Brazil at the time of that plant going in—Brazil itself—was growing 7%. I remember when the investment was made. Here we are fifteen-plus years later, and the potential for that plant with its location and the economic growth in that territory just has not delivered. So while these decisions are never easy, the decision regarding Cabo does align with our long-term vision for Brazil as we concentrate resources on higher value-generating businesses. What I think is also noteworthy is the decision we took in Brazil as well in Q4 to close our Alcantara plant. The ingredient polyols business in Brazil is a strategic growth platform, and we successfully have executed that, and we have expanded our polyols production at our flagship facility at Mogi Guaçu, and that is delivering now on all elements. We are encouraged by that, and that will provide some strength for the Brazilian business in this year as well as the savings associated with the Cabo facility. These were all necessary moves to strengthen our footprint and our network in Brazil, dealing with the realities of the marketplace. Kristen Owen: Okay. Great. Thank you for that. And then my follow-up question: we have talked about some of the moving pieces in F&NI North America. I am wondering if you can help us understand how to think about co-product opportunities just given where fed prices have moved—maybe some crosswinds on the paper and packaging side—how we should think about that influencing the balance of the year. Thank you. Jim Zallie: Do you want to take that, Jason? Jason Payant: Yes, I can take that. I think our co-products are always an important part of the business. What we have been able to do over the past few years is mitigate some of the volatility related to the co-products. So, as we have been able to hedge further forward on our corn during our contracting process, we are also hedging further forward on our co-products. That does somewhat temper any volatility relative to our forecast, which is actually a good thing. We will obviously see a little bit of benefit as prices rise for the unhedged portion of our contracts, but it will be muted relative to what we may have seen five or ten years ago. Kristen Owen: Thank you. Jim Zallie: Thank you, Kristen. Operator: Thank you. Our next question comes from Heather Lynn Jones with Heather Jones Research. You may proceed. Heather Lynn Jones: Good morning, and thanks for the question. I hopped on late, so I apologize if my question is repetitive. I was wondering on the guidance side—I guess I just wanted to ask about your confidence level. As far as the Argo issue, you had the issues from last year's fire, and now there was a recent fire, I think, in the corn germ part of the plant. I was wondering: have the issues from last year been fully resolved? And does your guidance for the rest of the year assume that the corn germ piece is fully resolved relatively soon? Jim Zallie: Yes. The answer to your last question is yes. In Q2, that issue, we believe, will be behind us. Because Argo was so significant in the quarter, I do want to take just maybe a little bit more time, picking up on your question, to try to put it in perspective. It has been a disappointment for us. Early in the first quarter, we had a failure in our corn conveying at the plant, which led to incremental intraplant logistics to have corn flow as it should, and that led to increased logistics and maintenance costs. This was repaired in the quarter, and that is now behind us. In addition, in our downstream refinery operations, we experienced operational reliability challenges in our syrup refining, and that led to product downgrades and unexpected rework costs. Typically, we can overcome that pretty quickly. In this case, the issue and getting to the root cause proved a little bit more elusive, and it just took longer than we had anticipated. This issue, unfortunately, persisted through the quarter and was the single biggest unexpected negative impact to results. That is now resolved, and that is now behind us, and that came about through really a SWAT-team approach to get that behind us. While these issues cumulatively had a significant impact, we are pleased to say with where we are at right now, the issues are behind us, and refinery production is operating at normalized rates as we exited the quarter. But to the question you asked about the thermal event that we had: on April 10, we suffered that thermal event in our corn germ processing unit, which took this unit offline for approximately five to six weeks. That is scheduled to be back online within Q2. It was isolated. It was limited to just the germ processing area; again, the front-end grind and refinery were not impacted. What is important to highlight is that, due to the nonrecurring nature and magnitude of this event, that impact will be excluded from our adjusted results. What I leave you with related to the Argo plant is that we are seeing sequential improvement at Argo, and our outlook assumes we will sustain the production and yield levels we are operating at today. So hopefully, that provides you some additional context as it relates to Argo and the impact in the quarter. Heather Lynn Jones: It does. And I just want to clarify before my next question: so the issues from last year—where I think there was a dryer issue related to your gluten feed and gluten meal—that was fully resolved and was not a factor in Q1? It was more on the downstream refinery, but that is all been resolved and is working well. The corn germ issue is not resolved, but it is expected to be. But regardless, it is excluded from your adjusted guidance. Jim Zallie: That is 100% correct. Yes. I can say the challenge you have when your germ processing goes down is you have more germ. We can store a good proportion of it that we can process once everything is back online, but some of that will go into the wet feed pile, and it will impact co-product values overall, because you have a larger portion of product that you need to dry. We will not be able to manage that through all of the dryers. But the issues of last year are resolved. We do expect a little follow-on co-product headwinds as we get the corn germ processing back online. Heather Lynn Jones: Okay. Thank you for that. Then I want to go through your segment guidance. If I was reading the releases and Q4's release correctly, I think you took down T&HS a little bit. I think you had been guiding up low single digit; you are guiding up low single digit; you had been low single to mid single. LatAm now down, and U.S./Can down low double digit. U.S./Can seems obvious because of Argo. I was wondering on the T&HS side and the LatAm side—beyond brewing—has there also been disappointing demand, or are those guidance changes related to costs? Jason Payant: Yes. I would say the impact on T&HS really just reflects the higher costs that we are expecting from the higher energy costs and the lag that it will take in some regions to pass those costs through. Again, there will be a net negative, but a small, manageable impact for certain costs that we cannot pass on to customers—warehouse-to-warehouse transfers, things like that. That is really the cause of the reduced outlook for T&HS. Beyond that, we are expecting volumes and sales to be roughly in line with our original guidance, although, as we said, it is hard to assess the potential impact on consumer demand that those higher cost pass-throughs may ultimately have. That is something that we are watching carefully and would be included in the lower end of our range. Heather Lynn Jones: Okay. Thank you so much. I appreciate it. Analyst: Thanks for taking my questions. Just one quick one for me. You alluded in your prepared remarks earlier in the call to optionality regarding growth investments. I am wondering a couple of things around this dynamic. First, have the issues that you have been forced to navigate—be it Argo or the various macro dynamics—in any way compromised your ability to really focus on growth initiatives so far year to date? Second, can you talk about how you see these growth investments evolving? Are you leaning more into the protein side of the business that you highlighted, still focused on the Texture and Healthful Solutions segment? Any context there would be great. Jim Zallie: One of the things that we did is, alongside our enterprise productivity initiative—which we always need to have as a lever to drive continuous improvement in our business—as a management team we got together early in the year, looking at that initiative and what we wanted to achieve from that this year alongside what our CapEx budget presented. We ring-fenced certain investments that we preserved for support of our Texture Solutions capability build, and we proceeded to make the people investments and the innovation investments. Right now, one of the bodies of work in enterprise productivity—which you would think could be solely about cost reduction—but actually one of the biggest parts is enhancing our innovation operating model: how do we become even more efficient and effective from innovation with the investments that we can make in artificial intelligence to get the predictive formulation that is at the heart of our solutions capability, as well as the measurement capabilities to do structure-function predictability work for, again, texture solutions. We have ring-fenced those investments. We are continuing to make those investments. The cash flows afford us the opportunity to invest both in a balanced way in growth capital as well as reliability capital. We are always assessing those needs, and I think we have the balance right going forward. We spent a lot of time debating and discussing that. Analyst: Very good. I appreciate that context. I will get back in queue. Jim Zallie: Thank you. Operator: Thank you. I would now like to turn the call back over to Jim Zallie for any closing remarks. Jim Zallie: I want to thank everyone for joining us this morning. We look forward to seeing many of you at our upcoming investor events, with the next significant engagement being the BMO Farm to Market on May 13 in New York. I want to thank everyone for your continued interest in Ingredion Incorporated. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Sterling Infrastructure, Inc. First Quarter Webcast and Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. As a reminder, this call is being recorded on Tuesday, 05/05/2026. I would now like to turn the conference call over to Noelle Christine Dilts, Vice President of Investor Relations and Corporate Strategy. Please go ahead. Noelle Christine Dilts: Good morning to everyone joining us, and welcome to Sterling Infrastructure, Inc.’s 2026 First Quarter Earnings Conference Call and Webcast. I am pleased to be here today to discuss our results with Joseph A. Cutillo, Sterling Infrastructure, Inc.’s chief executive officer, and Nicholas M. Grindstaff, Sterling Infrastructure, Inc.’s chief financial officer. Joseph A. Cutillo will open the call with an overview of the company and its performance in the quarter. Nicholas M. Grindstaff will then discuss our financial results and 2026 guidance, after which Joseph A. Cutillo will provide some additional commentary on our markets and outlook. We will then open the call up for questions. As a reminder, there are accompanying slides on the Investor Relations section of our website. These slides include details on our full-year 2026 financial guidance. Before turning the call over to Joseph A. Cutillo, I will read the Safe Harbor statement. The discussion today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Sterling Infrastructure, Inc.’s most recent 10-Ks and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events, or otherwise. Please also note that management may reference EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, or adjusted earnings per share on this call, which are all financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday afternoon. I will now turn the call over to our CEO, Joseph A. Cutillo. Joseph A. Cutillo: Thanks, Noelle. Good morning, everyone. Thank you for joining Sterling Infrastructure, Inc.’s First Quarter 2026 Earnings Call. Sterling Infrastructure, Inc. is off to a fantastic start, delivering strong revenue growth of 92% and adjusted diluted EPS growth of 120%. Adjusted EBITDA more than doubled with margins expanding over 150 basis points year over year to reach a new first quarter record of 20%. During this period of unprecedented demand, our focus remains on pursuing projects that offer the most attractive returns. We are not looking to win all projects. We are looking to win the best projects. Signed backlog at the end of the quarter totaled $3.8 billion, a 78% year-over-year increase, and combined backlog grew 131% to reach $5.2 billion. Additionally, we have visibility into high-probability future phase opportunities that now total over $1.3 billion. Together, our signed backlog, unsigned awards, and future phase opportunities provide visibility into a total pool of work approaching $6.5 billion. This has grown by approximately $2.0 billion since year end. Notably, during the quarter, we were awarded the first phase of a multi-phase semiconductor fabrication campus. This first phase, which will be executed under a joint venture, totals over $500 million and is expected to be completed in late 2027 or early 2028. The campus build is expected to span a multi-decade period and presents opportunities for additional scopes of work through 2027 and beyond. The growth in our backlog and future phase work in the quarter, combined with our visibility into our customers’ multi-year plans, strengthens our confidence in our outlook. We believe we are perfectly positioned to continue to deliver strong earnings growth and returns for our shareholders for many years to come. The Sterling Way—our commitment to take care of our people, our environment, our investors, and our communities while we work to build America’s infrastructure—remains our guiding principle as we execute our strategy and grow the company. Now I would like to discuss our segment results for the quarter in more detail. In E-Infrastructure, first quarter revenue grew 174%, including organic growth of over 100%. The data center market was again the primary growth driver in the quarter. E-Infrastructure adjusted operating income increased 177% as margins expanded, despite the dilutive impact of the CEC acquisition. Revenue for our site development operations more than doubled and operating margins expanded both year over year and sequentially. Margins continue to benefit from our strong execution on large, time-sensitive, mission-critical projects. CEC delivered 78% revenue growth compared to its prior-year first quarter, with margins performing in line with our expectations. The Texas market remains exceptionally strong, with robust award activity in early 2026. During the quarter, CEC secured several large project wins, contributing to a $1.2 billion increase in its combined backlog since year end 2025. We continue to see tremendous opportunities ahead for both electrical and site development. In aggregate, our E-Infrastructure signed backlog, unsigned electrical awards, and future phase site development opportunities now exceeds $5.0 billion, representing an increase of $2.0 billion since year end. Mission-critical work, including data centers, large manufacturing projects, and semiconductor, represented over 90% of the E-Infrastructure signed backlog at the end of the quarter. Future phase work is predominantly related to mission-critical projects. Moving to Transportation Solutions, first quarter revenue grew 10%, driven by strong activity in the Rocky Mountain region, which benefited from favorable weather conditions and some earlier-than-anticipated project starts. Adjusted operating income grew 26%, reflecting strong execution and a mix shift towards higher-margin projects. We ended the quarter with Transportation Solutions backlog at $1.04 billion, a 20% year-over-year increase. Shifting to Building Solutions, in the first quarter segment revenue grew 3%, driven by a pickup in homebuilder activity, and adjusted operating margins were 8.7%. While we are encouraged by the slight revenue increase in the quarter, we continue to anticipate that the residential market will face strong headwinds throughout 2026. The strength of Sterling Infrastructure, Inc.’s diversified portfolio and strategy to focus on high-growth and high-margin end markets enabled us to deliver another fantastic quarter. With that, I would like to turn it over to Nicholas M. Grindstaff to give you more details on some of our financial metrics and 2026 guidance. Nicholas? Nicholas M. Grindstaff: Thanks, Joseph, and good morning. I will begin with our consolidated backlog metrics. Our first quarter backlog totaled $3.8 billion, a 78% year-over-year increase, or 51% excluding CEC. Combined backlog of $5.2 billion increased 131%, or 46% excluding CEC. First quarter 2026 book-to-burn ratios were 2.1x for backlog and 3.5x for combined backlog. Moving to our cash flow metrics, cash flow from operating activities for 2026 was a strong $166 million. We expect continued strength in operating cash flow for the full year. Cash flow used in investing activities included $20 million of CapEx. For 2026, we are forecasting CapEx in the range of $100 million to $110 million, which is unchanged from prior guidance. Cash flow from financing activities was a $27 million outflow, including share repurchases of $12 million at an average price of $305.14 per share. Remaining availability under the existing repurchase authorization is $362 million. We will remain opportunistic in our approach to share repurchases. We are in great shape from a balance sheet perspective. We ended the quarter with $512 million of cash and debt of $287 million, for a cash net of debt balance of $224 million. Additionally, our $150 million revolving credit facility remained undrawn during the period. Given our strong liquidity, we are in an excellent position to continue to take advantage of both organic and inorganic growth opportunities in the years ahead. Our current backlog, visibility, and strong market tailwinds position us for an even better year than we originally anticipated. We are increasing our guidance ranges for 2026 as follows. Revenue of $3.7 billion to $3.8 billion, which at the midpoint is a 20% increase over previous guidance and represents more than 50% growth over 2025. Diluted EPS of $16.50 to $17.15; adjusted diluted EPS of $18.40 to $19.05, which at the midpoint is a 36% increase from previous guidance and represents 72% growth over 2025. EBITDA of $800 million to $831 million; adjusted EBITDA of $843 million to $873 million. I will now turn the call back to Joseph. Joseph A. Cutillo: Thanks, Nicholas. For quite some time, we have been communicating a bullish view on our markets and outlook. As we sit here today, that outlook is stronger than ever and continues to surpass our expectations. Customers are continuing to ask for more, with projects growing in size, complexity, and duration. At the same time, we are being pulled into new geographies with urgency, as customers prioritize alignment with partners who have the capability and capacity to execute over the long term. Together, these dynamics reinforce our conviction in the multi-year opportunities across our markets. Moving to our segment expectations for 2026, in E-Infrastructure Solutions, we anticipate that the current strength in data center demand will continue for the foreseeable future. We continue to have conversations with our customers regarding how we can best support their strong multi-year capital deployment programs. As part of this, we are getting pulled more rapidly into new geographies, including Texas, the Pacific Northwest, and the Midwest. In the semiconductor market, our industry-leading capabilities enabled us to be selected as the site development partner for a mega-fab semiconductor campus. This award highlights how Sterling Infrastructure, Inc.’s highly differentiated capabilities make the company the partner of choice for large, mission-critical projects in the U.S. We believe that this is just the beginning of a wave of semiconductor fabrication activity that will begin to accelerate at the end of the decade. In addition, there are still several opportunities in the broader manufacturing market that we believe could be awarded in 2026 or early 2027. We are gaining meaningful traction in our cross-selling efforts between site development and electrical services. We are currently in active construction on two data center projects where we are executing both services in an integrated capacity. These joint awards have materialized approximately six to eight months ahead of our original expectations. For the full year 2026, we expect to deliver E-Infrastructure revenue growth of 80% or higher, including the full-year contribution of CEC. We anticipate that the legacy business will grow at rates approaching 60% or higher, as several of our larger projects accelerate. Adjusted operating profit margins for E-Infrastructure are expected to be in the mid-20% range. In Transportation Solutions, we are in the final year of the current federal funding cycle, which concludes in September 2026. We have built over two years of backlog and continue to see good levels of bid activity. For 2026, we anticipate continued growth in our core Rocky Mountain market. The downsizing of our low-bid heavy highway business in Texas is progressing according to plan, resulting in some moderation of Transportation Solutions’ top line and backlog, but should continue to drive margin improvement as we move through the year. We expect Transportation Solutions revenue to grow in the low to mid-single-digit range in 2026. After the strong first quarter, we anticipate a moderation of growth rates in the remaining quarters. This is driven by three factors: the early start of projects in the first quarter that we originally expected to start in the second quarter; the allocation of resources towards E-Infrastructure projects; and the final wind-down of our Texas low-bid work. In Building Solutions, we believe the business is well positioned for growth over a multi-year period. Our key geographies of Dallas–Fort Worth, Houston, and Phoenix are expected to see population growth driving new home demand. Additionally, there is an opportunity for share gain coming out of the down cycle. We anticipate that Building Solutions revenue will be modestly down in 2026 and that adjusted operating margins will be in the low double digits. On the acquisition front, we continue to look for acquisitions that are the right strategic fit to enhance our service offering and geographic footprint. We are seeing more high-quality acquisition targets in the market today than a year ago. Our significant balance sheet firepower positions us to take advantage of these opportunities. Moving to our full-year 2026 guidance, the midpoint of our guidance ranges would represent 51% revenue growth, 72% adjusted EPS growth, and 70% adjusted EBITDA growth. We will now open the call for questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment for your first question. Your first question comes from Sangeeta with KeyBanc. Please go ahead. Analyst: Maybe, Joseph, you can help us understand what you think went a lot better in 1Q versus expectations, maybe on revenue and margins, since usually we consider 1Q to be a seasonally slower quarter? And then if I can ask a follow-up on the comment you made on M&A targets and the fact that you are seeing better targets now, can you tell us how you define these services as being better than what you saw before? Joseph A. Cutillo: Sure. Q1 is, and will probably be consistently, our lowest quarter. A couple of things helped us. We certainly had some very good weather through the Rocky Mountains and some of the other regions, which enabled us in the Transportation segment to start some projects a little earlier and execute projects through the winter months when we normally shut down. That definitely helped us. But more importantly, as we look at E-Infrastructure, we are really starting to see the impact of the new projects that are coming in larger and more complex, and what the added values of our vertical integration are adding to the margin profile and productivity through the build of these projects. We are far enough along—again, a little bit of history—you know, we started this journey when data centers became really data campuses. We went from 100 acres to now doing projects that are north of 1,000 acres, and the future projects coming out look like they are multi-thousand acres. The larger they get, the more complex they get, the more we can leverage our vertical integration, and our size and scope, which drives more productivity. And that is why we have said all along, and we feel even more confident as we are executing, we will continue to see nice margin growth in E-Infrastructure. On M&A, we have some significant criteria that we look at. We always say we buy people; we do not buy businesses. So it is absolutely critical on the caliber of the talent and the willingness of the key team to stay. But our primary focus is in E-Infrastructure. If we take a look in a couple different areas—either geographic expansion of capabilities that we have, more focus on the site development from a geographic expansion standpoint, and then on the electrical side, a combination of geographic expansion and incremental services or products that we can offer. I will tell you we are looking beyond electrical as well. We are looking at the whole portfolio. We really spend a lot of time with our customers and understand what are their needs and what are driving the success or the complexity of these projects. And we will constantly look for those services to add to our portfolio. It is how we moved into electrical. Analyst: Appreciate it. Thank you. Operator: Your next question comes from Noah with William Blair. Please go ahead. Analyst: Joseph, Nicholas, and Noelle, thanks for taking my questions, and great quarter. You highlighted a robust bidding environment in Texas. Can you walk us through your current presence in that state as it relates to capacity and project manager availability, and how you would characterize Texas’ data center market today versus where, say, the Atlanta or greater Georgia market is at today, and your ability to gain share over there in Texas? And then as it relates to CEC, can you walk us through your current level of assimilation with the business as it relates to what you are seeing with revenue and cost synergies? You mentioned the two active projects involving both the legacy site development work with CEC’s electrical, but how much of their collective bidding pipeline is collaborative with this cross-selling? And then what is the progress on CEC’s margin expansion opportunity? Joseph A. Cutillo: Our approach in Texas is, we have CEC located up in Dallas—call that North Central Texas—and we are attacking Texas from the west and from the east. We are using our Rocky Mountain assets and businesses to come from the west to hit western Texas, and then we are leveraging the Atlanta folks and Southeast team to come from the east. They will make it all the way to Dallas and both of those teams will meet in the middle. So we have current capabilities and capacity to do that. We are constantly looking for acquisitions in the upper Pacific Northwest and also in Texas, so that we can add capacity as we move along the way. If I look at the market, I would tell you that the Atlanta/Southeast market is more mature with a longer runway and today is probably a larger market. As I look forward the next four to five years, I think people will be shocked with the size and scope and quantity of data centers, along with some other stuff, being built in the Texas market. We are in the early innings, but the projects are extremely big, they are coming out extremely quickly, and we see not only this year and next year, but what our core customers are talking about starting in 2028–2029. These projects, on top of being large, will take longer time frames to complete. A typical project today is more like three years; these will be pushing out more like four- and five-year projects. On CEC, we call it assimilation, not integration, and we have been really happy with the progress. We really did not think we would see a joint effort take place until late second quarter or early third quarter of this year; we started those in the first quarter, which is fantastic. We have had great reception from the hyperscalers, and they quickly see the benefit of combining these together and what it does to the cycle time of the build process. On margin expansion, we are still extremely bullish that we are going to see 300 to 500 basis points of margin improvement in 12 to 18 months. There are a couple end markets and products that we knew CEC was in that have much lower margin. We are exiting those, and as we exit those, margins will come up. On the core business ex those markets, we saw really nice margin expansion in the quarter—actually ahead of what we anticipated. In addition, it has taken off so quickly that we talked about expanding our modular capabilities. We just locked down a lease to triple the size of our modular build capabilities. We are building a world-class manufacturing site to do that, and we think we will ultimately expand that to other locations in the U.S. over the next 18 months. I just wish I had 2,000 or 3,000 more electricians—we would grow it even faster. Noelle Christine Dilts: One other thing to add here is we are getting pulled into these new geographies by our customers. It is not like we are just going into these new geographies cold. They are looking for partners that can support their builds in these new areas, and that is really a continuation of the geographic expansion strategy we have had since the beginning. It is just taking that one step further. Joseph A. Cutillo: Yes, and to add to that, our customers—if you look at our geographic expansion from the beginning—we have let the major hyperscalers pull us into new markets. They are more than pulling now; they are kind of screaming to get into these markets faster with the capital spending they are going to do. Our challenge is how do we grow as fast as we can and still deliver at the same levels and caliber. It also allows us to be extremely picky on the projects we decide to do and the projects we are not going to do, which helps us long term on margins and capacity planning. Operator: Your next question comes from Manish with Camper. Please go ahead. We lost them. If you are still there, please call back in. Otherwise, I will go to the next caller. Your next question comes from Brian with Stifel. Please go ahead. Analyst: Thanks. Good morning, everybody, and congrats on the great quarter here. Just a follow-up on Texas. In your traditional site development business, how much do you expect Texas to account for as a percentage of revenue there, putting CEC aside? And can you remind us where it was last year? And then is there any notable difference in the margin profile in the site development business in Texas relative to some of your other regions? And as a follow-up on CEC, in the release you talked about approximately $600 million contribution to backlog, but a $1.9 billion contribution to combined backlog. Can you help us understand the delta here? Joseph A. Cutillo: It is really hard to say where Texas will be as a percent of revenue. I will tell you it is growing extremely quickly, but so is the Southeast, and we have been pulled into the Midwest by one of our customers. So it is hard for me to give you a number without being wrong. Margin profiles—as long as the projects are getting bigger and more complex—will be fine. We have certainly seen in some of the far Pacific Northwest projects early on, where we have a smaller equipment group and are not as fully vertically integrated as we are in the Southeast, margins are a little lower, but they would be margins everybody would love to have. Part of our acquisition strategy is to look at how we start putting in those elements, or even organically adding those elements of vertical integration. We are really seeing the benefits of these ancillary goods and services—not only from time reduction of the project because we control more of it—but that is what is helping drive these margins. Everybody keeps asking us if we are getting more price. The answer is no, we are not getting more price. This is all around effectiveness and efficiency and what we are able to drive to the execution of these projects for our customers. On the CEC backlog versus combined backlog question, it is a combination—both external and internal electrical work—and that will be on upcoming centers and existing centers. The contracts with CEC are very similar to what we have talked about in our site development where the work is phased. They will release a small phase. We know that the scope of the project—say an internal electrical package—is $300 million to $500 million generally. We know the total scope, but they will release those in small pieces along the way. That is why you see some in backlog and some in future phase work. Those are projects that we are either actively working on or getting ready to work on. Noelle Christine Dilts: Just one thing to add. Within some of that work that fell into combined backlog, the terms and conditions are already finalized on that piece of the contract that may be unsigned but would fall into combined backlog, and some of that has subsequently moved into signed here as we have moved into the second quarter—a pretty big chunk of it. Analyst: Understood. That is very helpful. Thank you. Operator: Your next question comes from Alex with Texas Capital. Please go ahead. Analyst: Thank you, and good morning. Should we think about your new work being competitively bid versus negotiated, and how has that changed or how might that change? And congratulations on the semi campus—sounds really exciting. Do you see other opportunities developing outside the data center markets this calendar year, or is that more of a 2027 event? Joseph A. Cutillo: In theory, everything is bid. In certain instances, we are asked to go work on specific projects—consider that negotiated. Our pricing—people need to understand—we have done a tremendous amount of work for customers in the past. It is not like we can raise our prices 20% or 30% even if we are negotiating it. They know what the price range is going to be. It is our ability to execute faster than anybody else and be on time every single time that gets us pulled into these jobs. As we go forward, we are looking at these multi-year programs of our core customers and the size and scope, and it is causing us to look harder at those. We will be passing up on more jobs that may be smaller in size or scope, or may have lower margin profiles because they are not as complex as some of these bigger jobs. We will keep moving assets to where the most money is. With the combination of electrical and site, it really gives us another avenue on some of these extremely large projects coming out in the future. On the semiconductor fab, this is going to be one of the bigger jobs in the U.S.—the biggest semi fab plant in the U.S. We actually participated in the process because we did not know if we wanted to do the project or not, and it was fascinating to see the differentiation we had. There was no one else in the room that was going to have a chance at this. It is the first semiconductor project we have done; it is not a market we have been in in the past. A lot of the GCs and engineering firms in that space are not people we deal with every day—now we are dealing with them every day. When we show them our capabilities, we feel confident that, just like in data centers, we will be the supplier of choice for every chip plant that comes out in the future. We do not see the huge rush of chip plants coming out until 2029–2030. We are positioned perfectly for that. Operator: Okay, thank you. Your next question comes from Julio with Sidoti. Please go ahead. Analyst: Thanks, and good morning. I wanted to ask about how your competitive positioning is evolving due to these shifting and increasing customer needs. As you said, these customers are no longer asking you to scale, but kind of screaming for you to go into other geographies. As they act with more urgency, are you realizing a better pricing environment? Are you negotiating better payment terms? Related to that, how do you maintain risk discipline and not allow these large customers to force your hand into taking on more work than you would typically handle? And as a follow-up, on expanding production capacity, how would you rank order the levers you have to pull to continue to grow—both in the near term and in the longer term? Joseph A. Cutillo: If we are going to get criticized for something, it would be that we are probably not aggressive enough on price. We have a philosophy that we have a fair price and we make our money on execution. If we take care of customers, they will have us back. There is no reason for us to try to take advantage of a situation—history says at some point that comes back to bite you. We will keep growing margins with vertical integration and productivity. On risk, the beauty of all of this coming at us is we are not afraid to say no. Sometimes our biggest customers may not like that. There may be a geography or a small job that, for the time and effort, would take away significant capacity from doing their bigger jobs. We proactively tell them which jobs we will do and which we will pass on, and in some cases help them find someone else. We are incredibly risk averse; we will not take on high-risk jobs that are going to get us in trouble. Our biggest challenge is they would like to have us in two, three, or four new markets tomorrow. We have had to say no to some of those. Over the long term, that enhances our credibility with them because we will never let them down. On capacity, electrical is very different than site development. Electrical comes down to electricians. We have the university—great—but it is a four-year program to get someone through apprenticeship into a certified electrician. They can work along the way, but it is lengthy. Second, as we get larger multi-year jobs, you can attract electricians from smaller shops who want to be on projects for 18, 24, or 36 months. Third is acquisition: can we buy something larger that gives us geographic expansion, or smaller tuck-ins with 150–200 electricians we can convert to mission-critical work. The modular strategy is another lever—anything we can build in a factory where a certified electrician does not have to do 100% of the work saves field hours and adds quality. On site development, we have a waiting list of operators; it is really about project managers. Our AI project focused on PMs and we picked up about 15% capacity. We have an internship program—hiring people in their sophomore year, running them through college and our program—graduating four or five a year into real PM roles. We are also looking hard for acquisitions, but it is challenging to find the right ones at our size and scale; many small players have limited equipment and rely on tight rental/lease markets. If we find the right ones, we will buy them, alongside our internal development. Operator: Your next question comes from Adam with Thompson Davis. Please go ahead. Analyst: Good morning, and congrats on putting up one of the best earnings reports I have ever seen. You had some large awards recently for CEC—what should our expectation be for continued awards? And as they get out of some of their lower-margin ventures, does that free up electricians that you can move back into more mission-critical work? And on the M&A side, since your electrical deal has worked out so well, where are customers asking you to add scope, and could that include something purely on the manufacturing side? Joseph A. Cutillo: We get a double benefit from the low-margin stuff we want to exit—you free up people and your margins move up significantly. We have more opportunities than we have capacity to get to with CEC, so, like everything else, we will focus more where we get joint awards, because we can really leverage that on total project scope, take out significant time, and drive significant productivity. Net margins will go up as well. It has been fun to watch CEC over eight months transform—shifting more resources and capabilities to these joint opportunities. If I had 2,000 more electricians, we could put them to work in a quarter. On scope expansion, there is a lot more to these projects than people realize. There are underground components manufactured by others that we purchase and install—that may make sense for us to do. As we look at modular, we are starting with basic stuff, but there is no reason we cannot go to whole modules being built in a factory and set on-site. We see that expanding rapidly for two reasons: electrical capacity relief and opening up other end markets we are not in today. Operator: Your next question comes from Manish. Please go ahead. Analyst: Good morning, and congrats again. Joseph, two questions for you. One is on E-Infrastructure: the margins we are seeing—are they structurally sustainable, or are they peak margins? Is there more room to be had? And how should we think about margins and risk profile between data center and advanced manufacturing work? Lastly, on Residential and Transportation segments—how should we think about those two segments long term? Are they core or non-core? Would you monetize them if you found a bigger acquisition that gives you more scale in E-Infrastructure? Joseph A. Cutillo: On sustainability—if you consider margins going higher than they are now, then they are not at a peak because they will continue to go up. Margins will improve for a couple reasons. As jobs become more complex, we drive better productivity. As we vertically integrate through the Rocky Mountains and add larger equipment suites, we get further productivity—both drive margins. As we combine the site and electrical packages, there is another element of productivity, and the inherent margin of that is better for our CEC business on top of it. When you couple all of those, and exit lower-margin end markets at CEC, we will continue to see margins tick up in E-Infrastructure. You may see some quarter-to-quarter variability due to volumes, but the margin trend line will continue to grow. On margins by end market, fundamentally the same—size matters. A 50-acre data center will not have the margins a 1,000-acre data center has; same for manufacturing. There are opportunities for some large projects either late this year or early next year with similar margin profiles. The only variance we see is geographic—historically, our Northeast region has had lower margins due to generally smaller project size and some projects mandating vertical integration with the union base. Think of it as size, not end market. On Transportation, seven years ago I might have answered differently, but today we have turned Transportation. It is like the Rodney Dangerfield of our business—it does not get enough respect. Their margins are now almost 2x better than best in class. They have done a phenomenal job. We have turned that into a cash cow that throws off great cash we use to grow our high-margin, high-growth E-Infrastructure product line. We are also shifting assets towards E-Infrastructure. For example, we started with a pilot with Meta in the Pacific Northwest using yellow iron and assets out of our highway business in Utah with project management teams out of Atlanta. They executed at very high levels, and we have five or six projects out of that with customers and GCs. We are closing down our low-bid heavy highway business in Texas, and shifting those underground assets to E-Infrastructure—helping with underground utilities and duct bank work—converting them into E-Infrastructure. It is now so intertwined with E-Infrastructure that it would be hard to break out even if we wanted to. Building Solutions has been a great cash cow business. We will look for opportunities to grow it. We evaluate strategic fit every day. Right now, we believe it still has great long-term growth potential. We are in the best three markets in the U.S., so we have no plans other than to grow it. Operator: Your next question comes from Louis with William Blair. Please go ahead. Analyst: Good morning, Joseph, Nicholas, and Noelle. Following up, is your large semi fab project for your Patillo division? And secondly, what is the timing for the expansions into the Northwest and the Midwest? I think you referenced a trial project with Meta in the Northwest—has that already started? Joseph A. Cutillo: The semiconductor fab is being done in the Northeast and by our union operation, and that would be Patillo doing that. It is an exciting project for us right in our backyard and should be a great project. On the Pacific Northwest, that is one we started two years ago—that was our foray into transitioning RLW into E-Infrastructure site development, and we have both to pull through there. We believe, based on conversations with our customers, that in 2027–2028 there will be some nice projects coming out in the Pacific Northwest. Believe it or not, the Pacific Northwest and western Texas are a lot closer than people think. From our Salt Lake City office to our West Texas job is plus or minus 200 miles difference compared to us driving from Houston. Texas is a pretty big state. So we are using those resources to come further east as well. We believe 2028 is going to be the start of some really nice projects in the Pacific Northwest, so you will see us adding capacity and capabilities in that area over the next six to twelve months. We will be able to talk more about that probably in the second or third quarter. Operator: Your next question comes from Julio. Please go ahead. Analyst: Thanks for taking a quick follow-up here. You guided to legacy E-Infrastructure growth of 60% for 2026, which I think implies some moderation of the year-over-year growth rates above the 102% that was this quarter. Given the larger order intake this quarter, which I assume has some timing variability, how would you have us think about the year-over-year legacy growth rates over the remaining three quarters of the year to get to that 60%? Joseph A. Cutillo: I have not laid it out in that level of detail. On the timing around big wins, it is all about when these kick off, when they start, and how fast they go. If we get great weather through the rest of the year and projects kick off earlier, we will be really happy and we will beat those numbers. There are just a lot of variables left from now until the rest of the year. Julio, we can lay that out exactly for you and talk more about what that does quarter by quarter; I just do not have that here. Operator: There are no further questions at this time. I will turn the call back over to Joseph A. Cutillo. Please go ahead. Joseph A. Cutillo: Thank you, Melissa. I want to thank everybody again for joining today’s call. We are off to a great start, and we are going to have an amazing year. If you have any follow-up questions or want to schedule further calls, feel free to contact Noelle Christine Dilts. Her contact information is in the press release. Hope everybody has a great day, and again, thank you very much. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Good morning, everyone. Welcome to today's Transocean Ltd. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. During the question and answer session, to register to ask a question at any time, please press 1 on your telephone. Additionally, you may remove yourself from the queue by pressing 2. Please note today's call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the meeting over to David Kiddington, Vice President and Treasurer. David, please go ahead. David Kiddington: Thank you, and good morning, everyone. Welcome to Transocean Ltd.'s first quarter earnings call. Leading today's call will be Transocean Ltd.'s President and Chief Executive Officer, Keelan I. Adamson. Keelan I. Adamson will be joined by other members of Transocean Ltd.'s executive management team, Chief Financial Officer, Thaddeus Vayda, and Chief Commercial Officer, Roderick J. Mackenzie. In addition to the comments that will be shared on today's call, we would like to direct you to our earnings release, fleet status report, and 8-Ks filed yesterday that contain additional information, all of which is available on Transocean Ltd.'s website at www.deepwater.com. Following our prepared comments, we will open the conference line for questions. Please limit your inquiries to one question and one follow-up, as this will allow us to hear from more participants. Before we begin, I would like to remind everyone that today's call will include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. With that, I will hand it over to Transocean Ltd.'s CEO, Keelan I. Adamson. Keelan I. Adamson: Good morning, and welcome to our first quarter conference call. Today, we will address several topics. First, an overview of our accomplishments in the first quarter. Next, I will provide some market updates, including a few thoughts on the impact of events in the Middle East on our business. Then I will update you on the pending acquisition of Valaris. And finally, Thaddeus will make a few comments on our financial results and guidance. First, the quarter. Operational performance was very strong, with uptime of 98%. Adjusted EBITDA was $440 million, implying a solid margin of over 40%. Our average daily revenue in the period was $476,000, the highest in over a decade. These results were accomplished while working safely and efficiently with zero life-changing injuries or operational integrity events. This exceptional performance is due to our team's dedication to providing best-in-class service to our customers. We are committed to eliminating costs from our business and are on track to deliver, versus a 2024 baseline, savings of $250 million in aggregate through 2026. As we have discussed, these savings are associated with continuous improvements in how we run our rig operations, removing idle and stacked assets from the fleet, more efficient maintenance spending, and a reduction in shore-based support infrastructure. Since our February call, we have announced approximately $1.6 billion of backlog, including new contracts and contract extensions on five rigs in Norway, Brazil, and the Eastern Mediterranean, increasing our backlog to over $7 billion as reflected in our fleet status report published yesterday. Nearly one third of this backlog increase is related to a three-year contract on the Transocean Barron with Vår Energi in Norway at a rate of $450,000 per day. The program is expected to start in mid-2027 and includes options that, if fully exercised, could keep the Barron working in Norway into 2034. We are very excited to be commencing a new long-term strategic relationship with Vår Energi. In Brazil, three of our ultra-deepwater ships—two sixth gen and one seventh gen—were awarded contract extensions by Petrobras. The sixth generation drillships, the Deepwater Orion and Deepwater Corcovado, were each awarded three-year contract extensions, collectively contributing about $845 million in incremental backlog, committing the rigs into 2030. The seventh generation drillship Deepwater Aquila was awarded a one-year extension, contributing about $160 million in incremental backlog, committing the rig through mid-2028. Lastly, in the Eastern Med, the Deepwater Asgard was awarded a five-well contract, contributing about $158 million in backlog and committing the rig through 2027. Including these announcements, our firm full-year 2026 and 2027 contract coverage is currently 86% and 73%, respectively, providing a strong base for future cash flow and a line of sight to continued debt and interest expense reduction. On a related note, and as previously disclosed, we retired the balance of the Deepwater Titan notes, reducing debt by $358 million in excess of our scheduled maturities. This is consistent with our commitment to delever, simplify the balance sheet, and reduce interest expense as quickly as possible. Moving to our outlook for the business, we continue to see improving demand for our rigs and services. While not directly affecting Transocean Ltd.'s operations, recent events in the Middle East have further exposed the vulnerability of the global energy supply chain and, at an absolute minimum, have amplified the energy security imperative around the globe. This reinforces our thesis that offshore exploration and development will comprise an essential component of oil and natural gas supply for the foreseeable future. I will now provide a summary of developing opportunities around the world. The number of contract awards and tendering opportunities during the quarter remains high, with visibility into multiyear programs improving meaningfully. So far in 2026, S&P Petrodata has cited 80 rig years added across 61 newly signed floater fixtures. Assuming opportunities materialize as expected, we now see deepwater utilization approaching nearly 100% by 2027, setting the stage for a significantly improved business environment. Looking first at the U.S. Gulf, long-term demand remains stable, supported by recent lease awards. In the near term, any softness may result in some high-specification assets incurring idle time before securing new work. However, with elevated crude pricing, we would not be surprised if certain customers operating in this market chose to take advantage of this short-term opportunity. In Brazil, following the recent blend-and-extend negotiations, Petrobras awarded approximately 38 rig years, securing its strategic capacity for the coming years. We expect Petrobras to return to the market later this year to secure additional capacity for 2027 onward to satisfy additional exploration and production activity. Supported by incremental IOC demand, the overall rig count in Brazil is expected to remain stable between 30 to 33 rigs over the next five years, at least. As we highlighted last quarter, Africa is finally showing measurable and more consistent growth. We expect the regional count to increase from roughly 15 units today to at least 20 over the next one to two years. In Mozambique, one multiyear program has already been awarded by Eni, with two additional awards expected this year from Exxon and Total. In Nigeria, Shell, Chevron, and Exxon have recently awarded their development programs, while Total has just issued a new tender for a multi-well program starting in 2026. In Namibia, we continue to expect more activity as several majors, including most recently BP, evaluate opportunities in the country. And in the Ivory Coast, Eni has issued a one-rig tender for a three-year program beginning in early 2027. In the Med, our recent fixture for the Deepwater Asgard satisfies a portion of increasing demand in the region, with several other awards expected soon for drilling programs starting in 2027. Rig count in the region is expected to stabilize at around seven units going forward. Turning now to Southeast Asia and India, we expect domestic production and exploration initiatives to drive a material increase in activity beginning in 2027. In Indonesia, programs are currently being tendered, adding potentially 10 rig years across five rig lines to a market that currently only has one rig operating. As previously discussed on our last call, in India, ONGC and Oil India are expected to substantially expand the regional fleet by up to four drillships and two semisubmersibles in 2027, potentially adding 20 incremental rig years. In Norway, utilization of high-specification harsh-environment semisubmersibles remains robust through 2028, supported by recent awards from Vår Energi, Equinor, and Aker BP. Most operators are already in the market to secure capacity from 2028 onward, suggesting that utilization for these units should remain near 100% in the coming years. In summary, both the development of known reserves and the call for new exploration continue to build strong momentum. As evidenced by the recent increase in award announcements and numerous ongoing tenders for multiyear opportunities, our fleet is ideally positioned to capture value in this improving business environment. Finally, regarding the acquisition of Valaris, we are required to seek antitrust approval in seven countries, and we have received that approval in Saudi Arabia and Trinidad and Tobago. As of yesterday, we received a second request for additional information from the U.S. Department of Justice as a continuation of their antitrust review. Further, we continue to work with antitrust agencies for approval in Angola, Australia, Brazil, and Egypt. We remain confident that the outcome of the global regulatory review will be favorable and that we are on track to close the transaction in 2026. We remain excited about the capabilities and potential of the combined company. Until the transaction closes, we will continue to conduct business as separate companies. However, we have materially progressed our integration and business continuity planning. We remain confident in our ability to achieve over $200 million in cost synergies incremental to our standalone cost reduction initiatives of approximately $250 million that I mentioned earlier. On a pro forma basis, Transocean Ltd. is expected to have about $12 billion in backlog. The combined company's robust cash flow will continue to accelerate the reduction of gross debt, resulting in leverage of approximately 1.5x EBITDA within about 24 months of closing. The acquisition of Valaris is fundamentally aligned with Transocean Ltd.'s strategic priorities. We will be an industry leader with the scale, scope, and geographic reach that allows us to effectively support our customers in the cost-effective delivery of hydrocarbons from the world's offshore reserves. I will now hand the call over to Thaddeus to provide some brief comments on our financial performance and guidance. Thaddeus? Thaddeus Vayda: Thank you, Keelan, and good day to everyone. Most of the information you should need to update your models is provided in the materials we published last night; I will only make a few remarks this morning. Our performance during the first three months of the year exceeded our forecast and the guidance range we provided to you in February. As Keelan pointed out, contract drilling revenues of $1.08 billion reflected outstanding operations in the quarter, including revenue efficiency in excess of 97% versus our guidance of 90.5%. This is worth about $9 million in the quarter. Also included in the top line is $18 million of revenue recognized due to the early contract conclusion of the Deepwater Proteus. Additionally, higher recharge revenue and favorable foreign exchange effects, which are largely offset in our O&M cost, totaled about $18 million in the period. Operating and maintenance and G&A expense were $606 million and $49 million, respectively. Adjusted EBITDA of $440 million translated into a margin of over 40%, and cash flow from operations was $164 million. Free cash flow of $136 million reflects operating cash flow net of $28 million of capital expenditures in the period. Lower sequential free cash flow in the first quarter of the year is not unusual for us and is typically related to, among other items, the timing of collections and higher payroll obligations. We closed the quarter with an unrestricted cash balance of $330 million, which has since increased to about $495 million as of May 4. Our earnings report includes guidance for the second quarter and only slightly updated guidance for the full year for Transocean Ltd. on a standalone basis. There are only two changes to note in our annual guidance. First, the upper end of our full-year revenue range has been reduced by $50 million to $3.9 billion, primarily to reflect the passage of time. While there are a number of negotiations ongoing, given necessary lead times to plan and commence work, there is a somewhat lower probability of filling certain gaps in our 2026 contract schedule. As we discussed in February, our revenue guidance is otherwise based primarily on firm contracts, with the upper range reflecting the possibility of new contracts commencing slightly ahead of schedule or the extension of existing contracts. The lower end of our revenue range assumes that no additional fixtures with 2026 commencement dates are secured. Second, we have increased our capital expenditure expectations for the year by $20 million due to certain customer requirements that were not anticipated in our initial guidance. Approximately half of this increase is related to environmental upgrades to exhaust systems on a rig operating in Norway. We will substantially recover the cost of this upgrade by the end of the year through specific contract provisions. As we highlighted in February, our cost guidance for the full year reflects our ongoing cost efficiency initiatives and also contemplates slightly lower levels of activity in 2026 versus 2025, with idle time assumed on certain rigs with contracts ending this year. This includes the KG2, Deepwater Proteus, and Deepwater Skiros, as well as costs associated with the mobilization and preparation of the Deepwater Asgard and Transocean Barron for contracts we have recently announced. As you might assume, given the dynamic nature of the market, we may incur incremental expense to position and prepare idle rigs to pursue work. These new opportunities, likely commencing primarily in 2027, will increase utilization, revenue, and cash flow. To the extent that this occurs, we will provide updated cost guidance. With respect to inflationary trends resulting from events in the Middle East, we are just now beginning to observe some small effects on our costs, mostly as it relates to scheduled projects rather than on our active rigs. Recall that we have escalation provisions in certain contracts to permit some cost recovery. While prices for fuel have nearly doubled, our customers are generally responsible for providing it, which means we are only affected by this increase for our idle rigs, for which fuel currently amounts to less than 1% of O&M expense. Ocean and air freight costs are also up as much as 30%–50%, respectively, but logistics in general comprise only 2% to 3% of our annual O&M costs. We do expect that over time, higher energy and logistics costs will influence the pricing of goods and services we procure, but for now, that does not warrant modification of our guidance. As Keelan noted, in March we opportunistically retired the 8.375% notes due 2028 that were secured by the Deepwater Titan, reducing debt by $358 million and saving nearly $40 million in interest expense. Right now, we have about $5.1 billion of debt principal remaining. At the end of 2024, we were forecasting a principal balance of $6 billion of debt remaining at the end of 2026, meaning we are currently over $900 million ahead of schedule in our efforts to reduce debt and strengthen the balance sheet. We ended the quarter with a trailing twelve-month net debt to adjusted EBITDA ratio of approximately 3.1x, and we expect to retire at least $750 million in total debt in 2026, ending the year with a principal balance of around $4.9 billion, excluding our capital lease obligation. Based upon the consensus EBITDA, this would imply a ratio of about 3.3x at the end of this year. We will continue to evaluate opportunities to accelerate debt repayment and reduce interest expense. We closed the first quarter with total liquidity of approximately $1.1 billion, adjusting for the effect of the Deepwater Titan note retirement. This includes unrestricted cash and cash equivalents of $330 million, restricted cash of $285 million after the reduction of $87 million associated with the debt service reserve for the notes, and $510 million of capacity from our undrawn credit facility. On a standalone basis, and absent any additional early retirement of debt, we expect to end the year with between $1.25 billion and $1.35 billion of total liquidity, inclusive of our undrawn credit facility. This range is consistent with our previous liquidity guidance when adjusted for the early repayment of the Deepwater Titan notes. This concludes my prepared remarks. Keelan, do you have any final thoughts? Keelan I. Adamson: Thanks, Thaddeus. To conclude, we will continue to focus intently on achieving our strategic priorities, including optimizing the value of our differentiated asset portfolio in this improving market to maximize free cash flow, reduce total debt and interest expense, and simplify our balance sheet to create a sustainable and resilient capital structure. This is our 100th year in business, and we are striving to be the most attractive offshore drilling investment for those desiring exposure to increasingly favorable energy and industry dynamics. We will now open the call for questions. Operator: Thank you, Mr. Adamson. Ladies and gentlemen, at this time, if you do have any questions, please press 1. Additionally, you can remove yourself from the queue by pressing 2. As a reminder, we do ask that you please limit yourself to one question and one follow-up. We will go first this morning to Eddie Kim with Barclays. Eddie Kim: Hi. Good morning. I wanted to start off with a bigger-picture question. The world has clearly changed since your last earnings call in mid-February. It feels like the market is tightening based on the number of fixtures announced year to date. You also raised your utilization expectation next year to approach 100% versus 90% previously. If I go back four or five years, 2020 and 2021 were extremely challenging years for the market, but things started to turn in a big way in 2022 and 2023. By mid-2023, leading-edge rates were in the mid-$400,000s with an expectation that pricing could exceed $500,000 a day by the end of that year. Unfortunately, we ran into some industry white space which halted that trajectory, but nonetheless 2023 was a very strong market environment. Based on how you see things now and the customer conversations you are having, do you think the market environment next year in 2027 could be as good, if not better, than it was in 2023? Keelan I. Adamson: Good morning, Eddie. Thanks for the question. As you look at the business and the current situation in the world, we are not seeing an impact per se of what is happening today. What we are seeing is the development of a market that we were forecasting prior to any of the recent conflicts. As an industry, we have been talking about improved tendering opportunities, growth in the market, a real concern about hydrocarbon demand and more so about hydrocarbon supply, and many of our customers starting to lean into the exploration activity that needs to progress. We are seeing the results of that in the number of awards that have been announced year to date. The term of those awards has nearly doubled, and we are starting to see what we expected to happen with respect to rig utilization into 2027. We said we expected 90% utilization into 2027 and then improvement from there. The activity and the forecast are being realized from our perspective. The continual concern with energy security is a real topic of conversation around the world and is amplifying the need for further investment in the offshore space, particularly in deepwater. Utilization is building, backlog is building, and the rate progression will reflect the supply and demand dynamics that exist in the industry and the visibility for future work. Roddie, would you like to add anything to that? Roderick J. Mackenzie: Yes, probably just to pick up on one of the things that you mentioned. In the previous run-up, we kind of stalled out—yes, we posted a few rates above $500,000, but the context is important. We hit a bit of a global economic bump that coincided with a moment when many of the majors were focused on capital discipline, and part of that was their push for M&A. That created white space. The difference now is that at that time there was still a heavy skew towards shale, but now everything is pointing towards offshore. Offshore CapEx is going to be a much larger chunk of the pie, going from about 13% of total CapEx to nearly 30% by 2028. Basically, CapEx spend in offshore and deepwater is expected to approach $100 billion annually by 2030. In that context, the upside for us is very significant. There are not as many M&A opportunities available on the operator side, and to Keelan’s point, everybody is now looking at exploration. Basins that were previously explored and had discoveries are now shifting to development, and on top of that, we are adding a lot of exploration work. Eddie Kim: Got it. That is very helpful color, and that is a great point on the changing mindset of the majors. My follow-up is on the Petrobras blend-and-extends. They extended both of the 6G rigs, the Orion and Corcovado, for three years, but the 7G rig, the Aquila, was only extended for one year. Was there some intentionality behind that decision on your end to not lock in your high-spec asset on a multiyear deal in a rising dayrate environment? Roderick J. Mackenzie: Yes. As we have always alluded to, it is very important to us that we get appropriate value for our assets. The sixth gens are workhorses of the fleet and do a fantastic job, and Petrobras were very keen to extend the rigs. It is an interesting moment because Petrobras is traditionally the barometer of where things are going, so when you see them go long, that is a pretty good sign for us. In that instance, note the delta between the average dayrates between the sixth and seventh gen, somewhere in the region of $50,000 to $70,000. That is a fairly big deal. In our view, the market tightness is not projected; it is already here. A few quarters back, we were talking about things that were going to happen; now the scoreboard has fixtures on it, and they are prolific. As Keelan pointed out earlier, we are a third of the way through the year, and we have already significantly eclipsed what happened in all of 2025. So 2026 is shaping up to be something potentially as big as 150 rig years awarded, and that is before we consider direct negotiations that are not necessarily on the market. You are spot on in that strategy. We have always taken a portfolio view on the fleet—very keen to see those sixth gens go long and give us a bit of optionality on the higher-spec units as we move forward. Operator: Thank you. We will go next to Fredrik Stene with Clarksons Securities. Fredrik Stene: Hey, team. Hope you are well. Happy to see that the market is looking better. According to my numbers, we have the highest market-wide visibility contracting-wise, even above 2023 levels. Something is happening, and I am happy to see that. Today, my question relates more to the M&A process—the acquisition of Valaris. You gave some color in your prepared remarks, Keelan, but could you elaborate a bit more on what this second request actually means and the implications for potential deal risk? You still said confidence in second-half closing, but is that timeline potentially delayed now compared to before? And what does this potentially mean for remedy sales, etc.? I am not trying to be a devil's advocate; I am just trying to get clarity on what this actually means, even though it seems like most deals that receive a second request end up going through. Any color would be helpful. Keelan I. Adamson: Sure, Fredrik, and thanks for the question. We remain confident that the DOJ will approve the transaction. The second request is part of the process. For a deal of this nature, it is simply a case of needing a little bit more time to understand the competitive dynamics post-close. We have been heavily engaged with the DOJ, working productively with them, answering their questions, and helping them understand the nature of our business in the U.S. Gulf and the market worldwide. Those conversations have been going very well. There is no read-through I would suggest to you that changes our expectations. When we declared the timeline we believe this transaction would close in, we are still in that window and very much believe so. We are happy with the progress we are making and will continue to work with the DOJ as they assess the situation. Fredrik Stene: Thank you very much. As a follow-up, I think you said Saudi and Trinidad and Tobago have cleared approval already. In addition to the U.S., it was Australia, Brazil, and Egypt. Are there any risks of similar second requests or hurdles in those countries, or do you feel confident that those discussions are on the track you originally perceived? Keelan I. Adamson: It is following the exact process and timeline that we would have expected to go through the regulatory approval process. Some are further along than others. We are engaged with all of those countries, and everything is moving as we would have expected at this point in time. Operator: Thank you. We will go next to an analyst from Morgan Stanley. Analyst: Hey, thanks. Good morning, guys. I wanted to ask: you shared a couple of years ago, or more recently, some of the terms and components around reactivating a cold-stacked rig. Could you refresh us with your latest thoughts on the cost to reactivate a rig, the timeline, and what type of contract terms or macro backdrop you would need to move forward with that decision? Keelan I. Adamson: Good morning, and thanks for the question. It is timely as we talk about a constructive market going forward. However, we are a little bit away from a situation where either the market needs it or the economics are present for a cold-stack reactivation of a deepwater drillship right now. In a few years, it may be slightly different. From a cost perspective, we are still in the $100 million to $150 million range to reactivate one of these assets. We are comfortable with the stacked fleet we have, the condition they are in, and we have a good handle on the timeline it would take to bring one back to market; we are still in the 12 to 15 month range to reactivate and bring one of those rigs back to service. We will not do that speculatively. We will want a contract that fully recovers that cost and provides a return on top. We are not quite there yet. We would look for 100% utilization in the drillship market, with visibility into market programs, to justify bringing one out. You can imagine we will be looking for term and productive dayrate for that to happen. Roderick J. Mackenzie: To add to that, term and return economics are very important. At this point in the year, the average award has been 480 days, which is double what it was in all of 2025. But that is still not enough, in our view, to bring out one of the cold-stacked assets. It is encouraging to see a doubling of duration and effectively a four-times multiple on how many fixtures are being made today, but we still think there is room to run before we reactivate the cold-stacked fleet. Analyst: Great, that is helpful. A higher-level question: as you toured the world and pointed to areas where you see potential for incremental tendering, are there any areas where customer conversations or incremental activity are more related to events over the last two months in the Middle East—more related to building strategic reserves or reducing reliance on Middle East exports? You highlighted Southeast Asia and India previously, and you mentioned some big numbers in Indonesia. Can you parse out any areas where incremental need or demand is more related to diversifying away from Middle East exports? Keelan I. Adamson: The conflict is not that old at this moment, but nations around the world are reassessing their energy security and policies for energy supply. You highlighted a couple that come to mind straight away. In India, Prime Minister Modi has set his government in motion with a mission to establish the nature of their reserves in country. That is driving ONGC and Oil India action. It was a bit of a surprise when it came—we announced it last earnings call—and from our conversations in country with both the ministry and the oil companies, this is not a short-term effort. This is a significant investment with several years of CapEx commitment to establish their position from an offshore oil and gas reserve and supply perspective. That is just one country. In Indonesia as well, and when you look around the world at what the IOCs are looking at, they are focused on ensuring a diversified global supply—major developments going through sanction right now in Suriname, Namibia, Mozambique, into the Med and West Africa. The importance of a globally diversified supply is only more heightened now for secure, reliable, and affordable energy. Roderick J. Mackenzie: We have already exceeded last year’s fixtures and rig-year awards, and none of that was based on the Middle East conflict. The tenders on the market today—collectively we think somewhere in the region of 150 rig years awarded this year, maybe more—are not predicated on what happened in the Middle East. It is based on the macro shift over the past 12 months: the shift towards deepwater, customers ramping up exploration and development, moving beyond the strict capital discipline mantra. All of that was predicated on $60–$70 per barrel outlooks. Now we are in a different position, which is good for our customers’ earnings near term, but our fixtures are predicated on mid-range oil prices, not elevated prices. We have not yet seen the impact in our business of a prolonged increased oil price; our current work is predicated on oil prices of six to nine months ago. Operator: Thank you. We will go next to Gregory Robert Lewis with BTIG. Gregory Robert Lewis: Hey, thank you and good morning. I was hoping to spend a little time talking about the harsh-environment market. It is good to see the Barron move back to Norway. We have the traditional North Sea, but there was a rig that just won work in Canada, we have Australia, you hear about other pockets like the Falklands. This is a market where there is not a lot of supply. As you think about positioning Transocean Ltd.’s harsh-environment fleet for 2027 and 2028, should we expect more of a return to the North Sea, or are there going to be opportunities to keep this fleet spread? How tight could we be for the harsh market as we approach 2028? Keelan I. Adamson: Good morning, Greg. The harsh-environment market, while in balance currently, was expected to get tighter based on projects being sanctioned and growing activity. You are right—the harsh-environment market is no longer just Norway. It is returning to places like Canada and Australia, and rigs can be used in other, not-necessarily harsh, shallower-water environments. The opportunity set for the harsh-environment fleet is more global now, and we are not even considering yet what could happen in Namibia. With licensing rounds and the imperatives of Equinor, Aker BP, Vår Energi, and the energy security conversation in Europe, Norway is going to get busier. The opportunity presented itself to take the Barron back to Norway. We are very pleased to begin that relationship with Vår Energi again. We will continue to keep our assets in the most strategic locations and ensure we are available to the market upswing we expect in harsh environment. Roderick J. Mackenzie: To add, the name of the game over the last few years was operators retaining optionality on rigs without making large commitments, but the dynamic has shifted. Awards in Canada have been made; there is another tender for an incremental rig there. Within Norway, you see commitments—Vår, Aker BP, and Equinor’s NCS 2035 plans. The number of wells and the longevity of the programs speak to the Norwegian government’s commitment to sustain energy security in Europe. Those are strong fundamentals. We are about to enter a period of a very tight market because there is a shift towards longer-term contracting. That showed up in some numbers already and will be more prolific as operators need to secure assets because there are not many of them. There is a high chance more rigs will return to Norway because demand is well beyond the fleet currently in Norway. Operator: Thank you. We will go next now to Noel Augustus Parks with Tuohy Brothers. Noel Augustus Parks: Hi. Good morning. I was intrigued by what you were saying about exploration conducted long ago, with some of those projects now heading for development. For perspective, can you think of what may be the oldest exploratory project that you are now seeing greenlighted for development? Roderick J. Mackenzie: Good question. A lot of activity in Nigeria fits that description. Nigeria is expected to go up to five rigs; they had gone down to one. Much of what is triggering the incremental rigs now is based on exploration that took place some time ago—some as long as eight to ten years ago, certainly at least five years ago. A shorter example is Namibia. You saw lots of announcements about discoveries, then a lull as results were digested, and now we are seeing several long-term tenders based on development. Even there, there are still several exploration wells on the books. It is a treadmill: you have to keep discovering and exploring. Petrobras is vocal that they must contribute a significant portion of the portfolio every year to exploration. If you take your foot off the gas on exploration, your reserves dwindle quickly. Reserve replacement is becoming more of an issue, and the only way to address it is to explore. Noel Augustus Parks: Thanks. With energy security coming to the fore and the ripple effects for importing countries and their plans, assuming sustained higher oil prices, are there any regions where the economic opportunity could become so compelling that it overcomes some political inertia or opposition to moving forward? Roderick J. Mackenzie: It is definitely a theme. The war in the Middle East reinforces decisions already taken over the last several years, particularly by NOCs, to look at what they have within their own borders. Domestic production makes sense: you retain taxes, employ your people, and reduce dependency. Energy security reinforces domestic exploration. India is a top example. Even in places like the UK, I think you are going to see a U-turn; they have been cutting back for some time, but it is almost inevitable that will shift in the near term. Norway is a great example—linked to energy security and providing energy for Europe as the biggest producer in Europe. Overall acceptance that hydrocarbons are here for a very long time—there is no peak oil this side of 2050—so time to get on with it. Keelan I. Adamson: To add, deepwater is a very long-cycle business, and the economics are compelling at much lower oil prices than today. Activity we are seeing is based on fundamentals regarding supply and demand of hydrocarbons, concern on replacement of reserves, and the need to explore. Layering in energy security amplifies the case and will continue to promote more investment in offshore. It is a very good place to get affordable, secure, and reliable energy, and we continue to see it playing that role going forward. Operator: Thank you. Gentlemen, it appears we have no further questions this morning. David Kiddington, I would like to turn things back to you for any closing comments. David Kiddington: We would like to thank everyone who participated in our earnings call today. We invite you to follow up with us for any additional inquiries. With that, we will close the call. Operator: Ladies and gentlemen, this concludes the Transocean Ltd. First Quarter 2026 Earnings Conference Call. Thank you all so much for joining us, and we wish you a great day. Goodbye.
Operator: Good morning, and welcome to the Energy Transfer LP First Quarter 2026 Earnings Call. All participant lines will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one on your touch tone phone. To withdraw your question, you may press star then two. Please note this event is being recorded. I will now turn the conference call over to Tom Long, Co-Chief Executive Officer. Thank you, and over to you. Tom Long: Thank you, Operator, and good morning, everyone, and welcome to the Energy Transfer LP First Quarter 2026 Earnings Call. I am also joined today by Marshall McCrea, Dylan Bramhall, and other members of the senior management team who are here to help answer your questions after our prepared remarks. Hopefully, you saw the press release we issued earlier this morning. As a reminder, our earnings release contains an update to guidance and a thorough MD&A that goes through the segment results in detail. We encourage everyone to review the press release as well as the slides posted to our website to gain a full understanding of the quarter and our growth opportunities. As a reminder, we will be making forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements are based upon our current beliefs, certain assumptions, and information currently available to us and are discussed in more detail in our Form 10-Q for the quarter ended 03/31/2026 that we expect to file later this week. I will also refer to adjusted EBITDA and distributable cash flow, or DCF, both of which are non-GAAP financial measures. You will find a reconciliation of our non-GAAP measures on our website. Let us start with our financial results for the first quarter of 2026. We generated adjusted EBITDA of approximately $4.9 billion compared to approximately $4.1 billion for the first quarter of last year. DCF attributable to the partners of Energy Transfer, as adjusted, was approximately $2.7 billion compared to approximately $23 billion for the first quarter of 2025. These results were supported by strong operations, including record midstream gathering volumes, NGL fractionation volumes, NGL export volumes, and crude oil transportation volumes for the quarter. For 2026, we spent approximately $1.5 billion on organic growth capital, primarily in the intrastate, NGL and refined products, midstream, and interstate segments, excluding Sun and USA Compression CapEx. Turning to our 2026 guidance. As a result of our strong first quarter performance across our segments as well as revised expectations for the rest of 2026, we now expect our 2026 adjusted EBITDA to range between approximately $18.2 billion and $18.6 billion compared to the previous range of approximately $17.45 billion to $17.85 billion. This includes a beat of approximately $500 million and the capture of our full-year optimization target in the first quarter, as well as expectations for continued outperformance for the balance of the year. Now turning to organic growth capital guidance. We now expect 2026 organic growth capital to be between approximately $5.5 billion and $5.9 billion compared to our previous guidance of approximately $5.0 billion to $5.5 billion, excluding Sun and USAC. This increase is primarily a result of the addition of several new growth projects, including the construction of the new Springerville lateral off our existing Transwestern pipeline, the construction of pipelines and meter stations to provide natural gas to various power plants and data center sites in Oklahoma and Arkansas, accelerated timing on longer-term projects like Desert Southwest and FGT capital spend, and gathering system and compression buildout in the midstream segment, primarily in the Permian Basin associated with recent contract and acreage dedication extensions. I will provide additional details about these projects later in the call. Beyond these projects, we continue to have a significant backlog of opportunities that are expected to support future growth. Now turning to our results by segment for the first quarter, starting with NGL and refined products. Adjusted EBITDA was approximately $1.2 billion compared to approximately $978 million for the first quarter of 2025. We saw higher throughput across our Gulf Coast pipeline operations and record performance at our Mont Belvieu fractionators. In addition, new chilling capacity placed into service last year contributed to a $50 million increase in earnings, as well as record export volumes from our Nederland terminal in the first quarter. This more than made up for fog delays experienced in the first quarter of 2025. During the first quarter of 2026, we realized higher gains of $65 million due to the timing of the settlement of NGL and refined product inventory hedges, which offset losses realized in the first quarter of 2025. Results for the quarter also included an increase of approximately $50 million from higher premiums from the sale of propane and butane for both export and domestic supply, as well as approximately a $25 million increase due to inventory writedown losses realized in the first quarter of last year. For Midstream, adjusted EBITDA was approximately $887 million compared to approximately $925 million for the first quarter of 2025. Base business earnings increased primarily due to growth in the Permian Basin where we saw volumes up 8% related to new and upgraded processing plants brought online since the first quarter of last year. In addition, we saw a $25 million decrease due to lower NGL and natural gas prices compared to last year. As a reminder, the first quarter of last year included the recognition of revenue of $160 million from Winter Storm Uri. For the crude oil segment, adjusted EBITDA was approximately $869 million compared to approximately $742 million for the first quarter of 2025. During the quarter, we saw continued growth across several of our crude oil pipeline and gathering systems. Results also included a $60 million increase related to favorable impacts to our crude oil inventory value as a result of rising crude oil prices. We expect these gains to be mostly offset with hedge losses during the second quarter of this year. In addition, we recognized $43 million of revenue that had previously been reserved related to the recontracting and extension of a legacy shipper contract during the recently completed successful DAPL open season, and we had lower expenses due to a $43 million adjustment to an accrual for a litigation-related contingency. In our interstate natural gas segment, adjusted EBITDA was approximately $519 million compared to approximately $512 million for the first quarter of 2025. This increase was primarily due to higher contracted volumes and higher rates on several of our pipelines including Panhandle Eastern, Trunkline, Florida Gas, and Transwestern. And for our intrastate natural gas segment, adjusted EBITDA was approximately $437 million compared to approximately $344 million in the first quarter of 2025. This was primarily due to an increase of approximately $100 million from winter storm burn. Results for the first quarter show how incredibly well-positioned our assets are across the country. Combining our extensive pipeline network, our storage facilities, and our terminals with our exceptionally experienced optimization and operating teams, we were able to capitalize on quickly changing dynamics and market volatility. For a closer look at some of our major projects on the natural gas side of our business, where we continue to see significant demand for our services: We are making good progress on our Desert Southwest pipeline project. In March 2026, Transwestern Pipeline initiated the FERC prefiling process for the project as previously scheduled, and we expect to file the formal certificate application with FERC in the fourth quarter of this year. In April, as a continuation of our comprehensive stakeholder engagement program, we hosted 15 open houses in communities along the entire proposed pipeline route throughout Texas, New Mexico, and Arizona. Our teams continue to actively engage with elected officials, county leadership, landowners, and associated communities along the route to communicate project information and updates; we have engaged with over 500 stakeholders to date. Our discussions have continued to be very positive as existing and potential stakeholders learn more about the expected economic benefits, realize the critical need for a dependable supply of natural gas to help with the transition from coal generation to natural gas–fired generation, and to help address significant power needs in the coming years driven by population and demand growth in Arizona and New Mexico markets. We expect this pipeline to be in service providing a reliable energy source by 2029. On the existing Transwestern pipeline, we recently approved the construction of the new Springerville lateral, an approximately 120-mile, 30-inch pipeline that will have a capacity of approximately 625 million cubic feet per day and extend south to new natural gas power generation that is expected to replace two coal-fired plants. This project is backed by 20-year agreements and is expected to be in service in 2029. Total growth capital for this project is expected to be approximately $600 million. New construction on our Hugh Brinson pipeline is going well. We continue to expect Phase 1 to be in service in the fourth quarter of this year upon the full buildout of the 400-mile pipeline and associated compression required to move 1.5 Bcf per day of gas to customers’ contractual delivery points. However, if we stay on our current schedule, we will have the ability to begin flowing some gas early in the third quarter, which is prior to placing Phase 1 into service. We continue to expect Phase 2, which includes additional compression, to be in service in 2027. The pipe is fully contracted from west to east, and we also have a growing amount of backhaul volumes committed that are expected to add significant upside. Turning to Florida Gas Transmission, or FGT. In February, we completed open seasons for two new projects that are supported by 15- to 25-year long-term agreements with anchor shippers. The Phase 9 project is designed to expand firm gas transportation capacity to multiple new and existing meter stations located across FGT’s market area. This project will consist of the construction of approximately 90 miles of pipeline looping as well as new and upgraded compression, with an anticipated capacity of approximately 525 million cubic feet per day. We recently locked in pipe for delivery in 2027 and compression for delivery in 2028, and we continue to expect the project to be available for service in the fourth quarter of 2028. The South Florida project is designed to enhance the reliability of critical infrastructure and increase overall deliveries in South Florida. The project has a condition precedent but, once we reach FID, it will consist of the construction of an approximately 40-mile extension with a capacity of approximately 230 million cubic feet per day, along with compression and a new meter station, and is expected to be available for service in 2030. Energy Transfer LP’s share of the cost for these two projects is expected to be approximately $565 million and approximately $110 million respectively, depending upon final shipper volume elections. We continue to make progress on a new storage cavern at our 12 Bcf facility. In February, our intrastate power team added connections to serve three new power plant loads in the state of Oklahoma. We have since added a fourth connection for a total of approximately 300 million cubic feet per day of new gas supply. The first of these connections is in service, with two more expected in service in the third quarter of this year. The remaining connection is expected to be in service in 2028. These connections are supported by long-term contracts with investment-grade counterparties. In addition, we have entered advanced negotiations to serve another 400 million cubic feet per day of new power plant demand in Oklahoma. Since our last earnings call, Energy Transfer LP has entered into agreements to provide long-term firm natural gas transportation services through our Texas intrastate system to support the Nexus Hubbard campus located in Central Texas, where Nexus is constructing a behind-the-meter AI hyperscale campus powered by on-site natural gas generation. Initial volumes are expected to be approximately 150 million cubic feet per day with certain rights by the transporter to increase its capacity upon election. Costs associated with this project are expected to be fully reimbursed, and it is expected to be in service by the end of this year. In addition, we recently entered into firm natural gas transportation service through our EGT pipeline to support a new data center site in Arkansas. The facility is expected to be in service in mid-2027. Energy Transfer LP also previously entered into a 20-year binding agreement with Intergic Louisiana to provide at least 250 thousand MMBtus per day of firm transportation service to fuel their facilities in Richland Parish, Louisiana. To facilitate flow of this gas, we plan to construct an 18-mile lateral off of our Tiger Pipeline, for which our customer recently exercised their option to upsize the pipeline lateral to 36 inches, and they continue to have an option to increase their commitment to up to 1 Bcf per day. In addition to these projects, we have multiple ongoing discussions with power plants to provide significant volumes and associated transportation revenues across 15 states, which have a high likelihood of reaching FID. Now looking at our Permian processing expansions, the 275 MMcf per day Mustang Draw 1 processing plant is currently being commissioned and is expected to be in full service next month, and we expect volumes to ramp up quickly. We continue to expect our 275 MMcf per day Mustang Draw 2 plant to be in service in the fourth quarter of this year. In our NGL segment, we placed the Gateway NGL pipeline debottleneck project into service in the first quarter of this year, providing increased deliveries of Delaware Basin liquids to Energy Transfer LP’s NGL fractionation complex in Mont Belvieu. Construction is also underway on a new 3 million barrel ethane storage cavern at Energy Transfer LP’s NGL fractionation complex at Mont Belvieu. The cavern, which is expected to be in service in 2027, will help support our ninth fractionator at Mont Belvieu that is expected to be in service in the fourth quarter of this year, as well as future ethane export expansions. At Nederland, we have recently extended the vast majority of our ethane export agreements into 2041, adding 10 years to the current contracts. We are hopeful to be in position for incremental Nederland ethane expansion in the coming months. In our crude oil segment, we continue to work with Enbridge on a project to provide capacity for approximately 250 thousand barrels per day of light Canadian crude oil through our system. In addition, we have approved an expansion of the Bayou Bridge crude oil pipeline, which is expected to increase the capacity to up to approximately 600 thousand barrels per day depending on destination and product mix. This expansion is underpinned by a 10-year term extension and volume increase from a demand-pull customer and is expected to be in service in the first quarter of 2027. As you can see, we had a lot of great things happen in the first quarter and many more exciting things on the way, which contributed to our increased EBITDA guidance for 2026. Our guidance each year is based upon expectations for the base business, with minimal optimization included. However, in five of the last eight years, we have seen large spreads, optimization, and other opportunities that have provided significant upside to our base business. These kinds of benefits, while one-time in nature, highlight the unique ability of our business to consistently capture significant upside during market volatility. While additional upside is expected to be dependent upon the duration and impact of current market disruption and resulting commodity prices, our assets remain incredibly well-positioned to continue maximizing these opportunities. As a result, we are optimistic that some of the benefits we saw in the first quarter will carry over throughout the rest of the year, putting us in a position to achieve or exceed the high end of our guidance range. Additionally, we continue to expect the ramp-up of growth projects, including our FlexPort NGL export project, new Permian processing plants, Hugh Brinson, and others, which we expect will contribute to continued growth in 2026. In particular, as our Hugh Brinson pipeline is in service, it will be extremely well-positioned to become a major U.S. header system that ties together our network of large-diameter pipelines, providing significant future upside. Our large slate of growth projects is contracted under long-term commitments and expected to generate mid-teen returns and considerable earnings growth over the next decade or more. Completing these projects safely, on time, and on budget remains one of our top priorities for 2026. We also continue to see new growth opportunities across all aspects of our business, demonstrated by the announcement of several new projects this quarter, and we remain extremely well-positioned to help meet the substantial growth in demand for energy resources over many years to come. As a result, we also remain very focused on capital discipline, targeting a long-term annual distribution growth rate of 3% to 5% and maintaining our leverage target of 4.0x to 4.5x EBITDA. In summary, because of the breadth of our assets, we have an unparalleled ability to transport large amounts of energy from all of the major supply basins to markets throughout the U.S., including major trading hubs, power plants, data centers, city gates, industrial complexes, and other downstream markets, including international markets through our export terminals. This concludes our prepared remarks. Operator, please open the line for our first question. Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We will pause momentarily to assemble the roster. We have the first question from Michael Blum with Wells Fargo. Please go ahead. Michael Blum: Thanks. Good morning, everyone. Wanted to start high level in light of the Middle East conflict that is ongoing. Are you seeing any change in U.S. producer activity or messaging? And in a similar vein, would you expect to see any permanent shifts in where global buyers will be sourcing their hydrocarbons, perhaps leaning more heavily on the U.S.? And are you seeing any of that in your discussions yet? Marshall McCrea: Good morning, Michael. As I look around the room, there are several people who want to answer because we are so excited about where we sit and where our assets sit. Given what has been going on in the world, there is a very clear redirection to the U.S. for all products—LNG, NGLs, oil, etc.—and it really emphasizes the value of what this country offers and, more importantly, what our partnership offers to deliver these products around the world. If you talk about individual basins, it is all different, but the major tenor throughout is optimism. It is not a rush to put a bunch of rigs in, but even as of yesterday, one of our bigger customers in the Midland Basin, Diamondback, announced they are going to upsize and bring in more rigs. We think it will be a slow-moving pickup, not a lot of talk, but evident that we will see more rigs as more countries and companies turn to the U.S. for supply regardless of how long the war may last. An example in North Louisiana, the Haynesville: we are projecting about 800,000 Mcf of growth into our processing, treating, and downstream assets by August or September. Clearly, producers in North Louisiana are drilling and will bring on DUCs as we proceed deeper into this year, and we think that will continue for many years. We love where our assets are and are very excited about the future of drilling growth. It is not clear how quickly all companies and all basins will pick up, but the bottom line is there will be increased drilling and bringing on new wells from DUCs throughout the country, and we are very excited about where we sit. Michael Blum: Thanks for that, Marshall. Appreciate it. On LPG exports, can you remind us what percent of your capacity is contracted versus open? Are you seeing any increase in demand for contracted capacity? And do you think length of contracts or rates could trend higher over time? Marshall McCrea: Yes to all of the above. As mentioned earlier, whether with companies building assets here or buying products here, everybody is turning to the U.S., and we are extremely well-positioned. Our strategy is long-term. Whether LPG or natural gas, we are looking to extend into the 2030s and 2040s where possible. Our team did a great job at healthy rates extending our LPG business well into the 2030s. We do not have a lot of spot; we have four or five ship slots where we could be printing more money, but we do have some spots available at the FlexPort project that we just completed and are ramping. We have at least one or two slots a month that can benefit from higher spreads. We do think this environment will bring about longer terms and stronger margins over time as everyone leans on the U.S. for supply. Operator: Thank you. We have the next question from Gabriel Moreen with Mizuho. Please go ahead. Gabriel Moreen: Good morning, team. On guidance, in the slides you did not shift your allocation between fee-based and commodity-based margin through the year, and you are using the forward curves. On the other hand, you noted you are hopeful to exceed the upper end of guidance if things persist. Can you talk about the moving pieces, assumptions on commodity versus forward curve, and what you are baking in for the rest of the year? Dylan Bramhall: We had an incredible first quarter. We beat our internal plan by approximately $500 million and achieved our full-year optimization earnings target. Of that $500 million, about $300 million would probably be considered one-time. We call it one-time, but we see this almost every year at Energy Transfer LP because of our assets and people. The rest is a result of tailwinds to the business. We raised guidance by $750 million at the midpoint based on line-of-sight continued outperformance across most segments—volumes, rates, and spreads. The conflict in the Middle East has made clear, as Marshall pointed out, the need for reliable U.S. energy supplies, increasing demand, volumes, and rates. We pray for a resolution, but we believe supply and product flows will take an extended time to normalize and likely will not return to the pre-conflict pattern, similar to what we saw with the Ukraine conflict. For the balance of the year, the midpoint of our guidance range assumes a conservative commodity price stack going forward. If prices remain anywhere near where they are now, that will push us to the high end of the guidance range and potentially allow us to exceed it. Gabriel Moreen: Thanks. As a follow-up on Desert Southwest and the Springerville lateral, were the Springerville volumes contemplated in the original 2.3 Bcf/d on Desert Southwest, or is there potentially upsizing to the base project? Any potential for further laterals? And has anything changed on the regulatory approval or timeline given the lateral associated with the project? Marshall McCrea: The Springerville lateral is tied to the retirement of some coal plants and replacement with natural gas–fired generation. We believe the majority of that gas will come from either the San Juan Basin or the Permian Basin. There are other lateral opportunities off that, and we are constantly evaluating them. Separately, on Desert Southwest, throughout New Mexico and especially in Arizona, there are numerous opportunities to lay laterals to different power plants and customers. We are chasing a lot of demand and have zero concerns about selling the remaining portion of that gas through what will be the largest pipeline built in the U.S. once completed. As always, we will add value on assets already in the ground. The Springerville customers can ultimately source gas from anywhere on the TW system, but the vast majority will come from the Permian Basin or San Juan. Operator: We are not showing any further questions at this time. I will now turn the call back to Tom Long for any closing remarks. Tom Long: Thank you, everyone, for joining today. As you heard, we have a lot of great projects underway and a strong outlook, not just for the quarter we reported but for many years to come. Our projects are supported by long-term contracts with a healthy mix of demand-side customers, many with terms extending beyond 20 years. This supports why we remain optimistic and excited about our future. We look forward to following up with you on any additional questions. Operator: That concludes today’s conference call. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Electric Power First Quarter 2026 Earnings Conference Call. backgrounds. [Operator Instructions] I would now like to turn the conference over to Darcy Reese, Vice President of Investor Relations. Please go ahead. Darcy Reese: Good morning, and welcome to American Electric Power's First Quarter 2026 Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. Joining me today are Bill Fehrman, Chairman, President and Chief Executive Officer; and Trevor Mihalik, Executive Vice President and Chief Financial Officer. In addition, we have other members of our management team in the room to answer questions if needed, including Kate Dickson, Senior Vice President, Controller and Chief Accounting Officer. We will be making forward-looking statements during the call. Actual results may differ materially from those projected in any forward-looking statements we make today. Factors that could cause our actual results to differ materially are discussed in the company's most recent SEC filings. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We will take your questions following opening remarks. I will now hand the call over to Bill. William Fehrman: Thank you, Darcy, and good morning. We appreciate you joining us for American Electric Power's First Quarter 2026 Earnings Call. I'll begin on Slides 4 and 5. This is a defining period for our industry. The pace of change is accelerating and the opportunities ahead of us are expanding. Within this environment, AEP is extremely well situated to capture growth, given our scale, leadership position in generation and transmission, exceptional execution capabilities and our operational footprint in some of the fastest-growing regions in the country. As customer needs evolve, scale, innovation and intense focus on execution will define the next generation of utility growth. We are ready to meet unprecedented demand across our large service territory, not only driven by data centers, but also broader economic development. This is meaningfully expanding the long-term opportunity ahead of us and in the communities we serve. At the same time, our growth is only possible with trusted partnerships. We are staying closely aligned with our stakeholders, listening to our customers, governors, regulators and policymakers while working to advance solutions that support affordability, economic development, reliability and resiliency. As we scale our system, execution and operational discipline become even more crucial. These are significant strengths of the new leadership team at AEP. By leveraging our size and experience we are mitigating supply chain pressures and acquiring critical resources to support what is a multiyear sustained period of infrastructure build-out. This includes already securing extra high-voltage long lead-time equipment like transformers, breakers and [ Lattice ] steel. As we also said on past calls, we have secured more than 10 gigawatts of gas-fired turbine capacity. In short, we are executing on a disciplined strategy to deliver consistent and timely long-term value for both customers and shareholders. Now turning to Slide 7 and 8 of the presentation, I will provide a high-level overview of our first quarter results strategic outlook, affordability and regulatory progress before handing it over to Trevor to walk through our financials and strong growth trajectory in more detail. We are pleased to report first quarter 2026 operating earnings of $1.64 per share or $891 million. These results build on our financial and operational momentum from 2025 and give us confidence in reaffirming our full year 2026 operating earnings guidance range of $6.15 to $6.45 per share. AEP continues to experience substantial system demand concentrated largely in our key growth states of Indiana, Ohio, Oklahoma and Texas. In the first quarter, we contracted an additional 7 gigawatts of load, coming mostly from AEP Texas and AEP Ohio. And we now have an incremental contracted total of 63 gigawatts expected by 2030. This is an increase from the 56 gigawatts we shared just last quarter. Of the 63 gigawatts, nearly 90% are data centers, which include hyperscalers, while the rest are industrials. Contracted load customers must meet high credit standards through investment-grade credit quality, parent guarantees or other forms of credit support compliant with tariff requirements. They are also backed by electric service agreements and levers of agreement. To be very clear, I am intensely focused on execution of the projects required to get this load connected for our customers. That is why we earn business. Of the 63 gigawatts, 53 gigawatts are in Texas and Ohio requiring large-scale transmission projects, which we believe we excel at constructing and operating. The remaining 10 gigawatts requires new generation, for which AEP has secured the necessary long lead-time equipment and has strategic contracting arrangements to supply the labor necessary to successfully execute on our delivery commitments. Size matters, and AEP is using our breadth and scale to aim to provide what is needed to meet customer demands. Trevor will discuss the 63 gigawatts in more detail shortly. To support these projects, today, we are increasing our 5-year capital plan to $78 billion, up from the prior $72 billion, which now drives an expected 11% 5-year rate base CAGR. The $6 billion of incremental investments includes $3.5 billion in recently approved PJM and SPP transmission investments and $2.5 billion for I&M gas-fired generation. In addition, we have line of sight to over $10 billion of projects for 2026 through 2030. These investments are incremental to the new $78 billion plan and include the Piketon transmission project, the Wyoming fuel cell initiative and additional new generation opportunities across our footprint. We stand ready to capture incremental growth opportunities while maintaining a strong balance sheet, which, as I have said many times, is a key priority for us. Especially in light of the exceptional load expansion we are seeing, today, we are also reaffirming our premium operating earnings growth rate of 7% to 9% for 2026 through 2030. The $6 billion increase to our capital plan is driven by transmission and generation projects that come online later in the next 5 years. These investments are expected to be accretive to earnings in the back end of the plan and increase our expected long-term operating earnings CAGR to now greater than 9%. Turning to Slide 9 of our presentation, we believe our transmission, scale and expertise remain unmatched in the industry. Today, AEP owns and operates more than 2,100 miles of ultra-high-voltage 765 kV transmission lines across 6 states. Large [ low ] customers continue to choose sites in our footprint because of the strength and sophistication of our advanced transmission network. As we have highlighted before, AEP pioneered the modern 765 kV transmission system in North America, and we have more than 6 decades of experience designing, building and operating these ultra-high voltage assets. Currently, nobody even comes close to our experience and capabilities in this area. Hands down, we are the largest owner-operator in the United States. The strategic partnership agreement with [ Quanta Services ] that we announced late last year, continues to drive high confidence in the execution of our high-voltage transmission projects. By pairing AEP's vision for a modern, resilient grid with an industry-leading partner like [ Quanta ], we are accelerating the development of the 765 kV infrastructure build-out that will be essential to meeting the reliability, resiliency and energy delivery needs of the future. As I mentioned, we were recently awarded new 765 kV transmission projects in SPP and PJM. For SPP, we were directly assigned a major project that consists of 315 miles of 765 kV lines from Seminole, Oklahoma to Southwest [ Freeport ], Louisiana. We also secured additional projects from Potter, Texas to Beckham County, Oklahoma. Together, these projects totaled $1.6 billion and are anticipated to be in service by 2030. In PJM, we were awarded the build-out of 330 miles of predominantly 765 KV lines in Ohio and Indiana. These projects totaled $1.9 billion and also have expected in-service dates towards the end of our 5-year plan. Additionally, we are pleased to have been selected for a nearly 200-mile 765 kV project in MISO, which expands our competitive footprint into Wisconsin. While this project falls largely outside the current 5-year window with an in-service date of 2034, it gives us confidence and visibility in our longer-term growth rate into the future. With the addition of these projects, our transmission investment forecast now totals $33 billion, representing 42% of the overall $78 billion capital plan and underscoring our position in strengthening the nation's critical electric transmission backbone. Turning to new generation resources on Slide 10. AEP is proactively building the capacity needed to support accelerating demand and long-term growth. As part of this effort, we have expanded our generation capital outlook by $3 billion to $24 billion through 2030, driven by new gas generation at I&M. At a broader level, our portfolio strategy is intentionally balanced and diversified with investments across natural gas, solar, wind and storage. This mix strengthens reliability while promoting a disciplined approach to delivering cost-effective investments for our customers over the long term. We have secured access to more than 10 gigawatts of gas-fired turbine capacity from leading manufacturers and are advancing our projects through the interconnection process across PJM and SPP. We are leveraging experienced EPC partners alongside our in-house engineering expertise to deliver these projects efficiently and at scale. We are also maintaining flexibility in how we meet incremental demand for new generation, utilizing competitive RFPs and targeted bilateral acquisitions to supplement our self-developed pipeline and ensure we capture the most attractive opportunities. In parallel, we continue to evaluate nuclear solutions aiming to position AEP at the forefront of next-generation baseload technologies. As we have previously mentioned, we are actively reviewing several potential sites and interconnection locations as we assess how nuclear can play a meaningful role in the future to support load growth. Any nuclear investment will require strong capital protection, disciplined balance sheet safeguards and significant regulatory and governmental engagement, such as loan guarantees and long lead-time equipment support. No projects will move forward if they place undue risk on our business or our shareholders. While we have been very successful with building out transmission infrastructure in PJM, AEP continues to identify some issues around how quickly and efficiently load is being connected to generation. The current state of PJM's performance and stakeholder approval process does not give me great confidence that these issues will be resolved anytime soon. In fact, if something is not done now, I expect we could still be having these same conversations in 10 years. The PJM market worked very well when supply exceeded demand, but we are now in a very different time. As such, we are currently assessing all of our options to ensure that we are finding an efficient and effective path forward to deliver what our customers need, which simply put, is more interconnected generation to power their businesses. We are performing a similar review of our membership in SPP. Expanding the strengthening the grid will ensure new generation resources across all technologies can connect quickly, reliably and affordably to serve our fast-growing loan. As our exciting generation plans mature, we will share the financial plans as part of our normal cadence on the third quarter call later this year. Please turn to Slide 11. We -- even as we invest to meet rapidly growing load expectations, affordability is top of mind, and we remain focused on taking decisive actions to facilitate keeping residential rate impacts manageable. With the large load contracts we have secured, we are forecasting up to $16 billion in cost offsets for existing customers from their allocated contributions to expenses during the life of these agreements. This is a major affordability win for our existing customers and a clear validation of our customer-focused growth strategy. At the same time, our focus on customer service through accountability is delivering results. In fact, we have had a meaningful reduction in the average duration of outages across the system across the last year. which is strengthening customer relationships through more reliable power. While our rate base continues to expand, O&M is rising modestly at a 4% CAGR over the same period. driven by the additional staffing and maintenance support required to operate new generation and transmission assets being added to the system. This operational discipline is a real differentiator for AEP and positions us exceptionally well for the future. We are also tapping federal tools to strengthen customer savings. The team has secured $315 million in generation and distribution brands. We closed on a $1.6 billion DOE loan guarantee related to transmission, projected to deliver over $275 million in customer savings over the life of the loans. As part of our long-term strategy, we have also applied for additional DOE loans to fund our generation and transmission investments. We expect to provide periodic updates as loan closings progress. These are meaningful dollars going right back to customers, which is just another example of how we are pairing growth with affordability. Over the past 2 years, we have led the industry in establishing the right regulatory framework for a large load growth. We secured approvals for new data center tariffs in Ohio, followed by large low tariff solutions in Indiana, Kentucky and West Virginia, and we are not stopping there. We have active filings in Michigan, Oklahoma, Texas and Virginia. You will find a full summary of these actions on Slide 12 of today's presentation. These tariff structures are designed with a couple of clear goals: First, we are protecting our existing customers by ensuring data centers and other large load customers cover the investments required to support their energy needs. And second, we are protecting our revenue and earnings base through minimum demand charges embedded directly within these binding take-or-pay contracts. We have made solid progress on tariff structures, and we will continue to work with our regulators and stakeholders to make sure large load customers pay their cost to serve and provide cost relief to our residential customers. Turning to Slide 13, this brings me to our strong regulatory progress in the quarter across multiple jurisdictions. This continues to be a major focus area of mine. In Ohio, we secured commission approval of the distribution base case settlement, including an affordability measure, which contains a rate decrease for customers along with a 9.84% ROE, up from the prior ROE of 9.7%. As another example, in Arkansas, we successfully increased our ROE from 9.5% to 9.65% and Pointedly, we have not ended up with a reduced ROE in any recent rate case outcome. In Indiana, we advanced our resource strategy with approval of our expedited generation resource plan. setting the stage for an upcoming base rate case that will include a customer rate reduction, supporting our focus on affordability. In West Virginia, we received a favorable reconsideration order that increased the authorized ROE to 9.75% from 9.25%, a significant increase. The commission also approved a modified rate base cost infrastructure investment tracker. Both of these approvals come at an important time as the state seeks to advance its long-term energy strategy. And the initiative aimed at ensuring West Virginia has the reliable, affordable energy needed to support rising demand. With strong support from the governor, this presents significant investment opportunity under a more constructive regulatory environment. And we also continued to see consistent positive outcomes across other areas of our multistate footprint, including Oklahoma, Louisiana and Texas. Taken all together, we believe these actions and outcomes reflect the growing strength of our regulatory approach. By listening closely to state leaders and aligning our plans with their needs, we are achieving balanced regulatory results that benefit both customers and investors. Before I wrap up, I want to underscore just how exceptional the start of this year has been. Our team is operating at a level of execution that we believe is setting a new standard for the industry. We are making significant strategic investments to meet what is truly a transformative moment for our company. At the same time, we are working hand-in-hand with our regulators and policymakers to advance their key priorities, all while taking disciplined, proactive steps to maintain affordability for our customers. I'm extremely confident in our strategy, our capabilities and the AEP team, we are ready to capture the substantial opportunities in front of us by accelerating growth, having an intense focus on execution, driving customer affordability and and using AEP's size and scale to strengthen our competitive advantages while creating long-term value for our shareholders. I'll now turn the call over to Trevor to walk through our first quarter performance drivers and provide more detail on our financials and strong growth trajectory. Trevor Mihalik: Thanks, Bill, and good morning, everyone. On today's call, I will begin by reviewing the quarter's key earnings drivers, along with our confidence in load growth, which has increased 7 gigawatts from last quarter to now 63 gigawatts. I will then discuss our newly expanded $78 billion capital plan, up $6 billion and our expected increased long-term operating earnings CAGR of now greater than 9% based on this capital plan. I will then highlight the line of sight we have to over $10 billion of investment opportunities above our base capital plan before closing with comments on our balance sheet strength. Please turn to Slide 15 of the presentation. First quarter 2026 operating earnings were $1.64 per share compared to $1.54 per share in the first quarter of 2025. Results in our VIU and T&D segments remained strong during the quarter, driven by constructive rate case outcomes across multiple jurisdictions. As Bill noted earlier, we continue to see positive regulatory progress across our service territory. Regulated earned ROE for the quarter increased to 9.3% and is expected to reach approximately 9.5% by 2030 as we continue to execute our regulatory strategy with a focus on affordability for our customers. In addition to robust regulatory performance, we continue to advance our transmission investment strategy and saw ongoing [ loan ] growth across our footprint, which I will discuss in more detail shortly. These positives were partially offset by prior year's favorable weather and continued spend to enhance system reliability. Transmission Holdco performance was mainly impacted by increased expense, including storm restoration and higher property taxes. We expect Transmission Holdco earnings to be favorable on a year-over-year basis by the end of 2026. In the Generation & Marketing segment, results reflected stronger wholesale margin performance, partially offset by prior year contract optimization benefits. Finally, in Corporate and Other, the variance was largely driven by higher O&M, increased interest expense and timing related to income taxes, of which we anticipate the impact to reverse by the end of this year. Turning to Slide 16 and our current load outlook, we continue to see significant acceleration in contracted load growth. In support of that trend, we have executed on 63 gigawatts of total load, up from 56 gigawatts reported just a few months ago. This increase reflects continued progress converting projects from our planning queue into binding customer contracts. As a reminder, these contracts include letters of agreement and long-term electric service agreements, depending on the relevant tariff provisions in each jurisdiction. As Bill mentioned, with large load ESA contracts we have secured within our vertically integrated utilities, we are forecasting up to $16 billion in cost offsets for existing customers from their allocated share of fixed expenses. Our analysis estimates contracted revenue from large customers over the life of the ESAs and evaluates how fixed cost responsibility reallocates across customer classes over time, taking into consideration load wraps. As contracted load continues to grow, we remain equally focused on the quality and credit strength of the customers who are driving it. As Bill referenced earlier, our contracted customers must meet high credit standards. The majority of contracted megawatts are with large, well-capitalized hyperscalers and industrial customers. This high-quality and diversified customer base forms a strong foundation for long-term partnerships and infrastructure development. With that context, I'll turn to recent activity by region, starting with PJM. Contracted load in PJM increased by approximately 1 gigawatt during the quarter, driven primarily by additional customer contracts executed in Ohio. Substantially, all of our total incremental PJM load is supported by take-or-pay ESAs. Beyond near-term additions, we continue to see a robust pipeline of longer-dated opportunities in PJM. Most notably, we recently announced a 10-gigawatt data center campus with [ SB Energy ] in Piketon, Ohio. The majority of the incremental load associated with this project is not currently included in our load forecast that is reflected in the approximately 190 gigawatt active interconnection queue. Given the early stage of development, we anticipate incorporating this load into our forecast as commercial discussions progress and ESAs are formalized. In addition to the Piketon campus, we are also evaluating a multibillion-dollar Google data center development in Putnam County, West Virginia. This opportunity remains in the early stages and is not included in AEP's current load forecast for financial outlook. Turning to SPP. Contracted load increased by approximately 1 gigawatt during the quarter, driven primarily by an Amazon data center project in Northwest Louisiana. Almost half of our total incremental SPP load is now supported by take-or-pay ESAs, an increase from last quarter, reflecting continued progress converting new load development into binding take-or-pay ESAs. Stepping back, these newly announced data center projects are supported by high-quality hyperscalers, most of whom have publicly committed to funding the required infrastructure upgrades, helping to protect rate affordability for our broader customer base. At the same time, the scale of load growth we are seeing highlights the strength of our diverse footprint that is highly suited for data centers and our ability to attract large-scale economic development to the communities we serve. Turning to Slide 17 and shifting to ERCOT. This region accounted for the majority of contracted load growth during the quarter. Load increased to 41 gigawatts, up from 36 gigawatts reported at the end of the fourth quarter. For context, I want to highlight how this load is contracted and how this differs from PJM and SPP. All 41 gigawatts of contracted load in ERCOT meet the standards under Senate Bill 6 and are secured through executed LOAs. These agreements require customers to secure, complete interconnection studies provide detailed load forecasts and fully fund related construction costs. This structure acts as an effective filter, ensuring projects advancing into our forecast are well developed, financially backed and are executable. With that framework in place, we are working closely with ERCOT and other stakeholders to advance solutions that will support the significant and growing demand. Annually, in April, AEP Texas files its low growth forecast through ERCOT's regional transmission planning, or RTP, process. This RTP methodology analyzes peak load along with transmission and generation constraints to recommend system improvements. In this year's April 1 RTP filing, AEP Texas submitted 31 gigawatts of incremental demand by the end of the decade. Due to submission requirements and timing, AEP Texas has since executed LOAs for another 10 gigawatts of load above the 31 gigawatts, underscoring AEP's low growth needs of 41 gigawatts in ERCOT. Keep in mind, the underlying demand in ERCOT is real. It's supported by signed customer agreements formal planning submissions and backed by roughly 60 gigawatts of active load in the ERCOT interconnection queue. As Senate Bill 6 implementation advances, including backed processing, the focus will be increasingly on timing. We expect greater clarity and certainty later this summer as the rule-making progresses on when these loans will ultimately interconnect. AEP is committed to building the required transmission and distribution infrastructure in Texas, but timing remains highly dependent on the supporting generation. In short, the question is not whether the demand exists. but when it comes online in ERCOT. Turning to Slide 18. I want to spend some time on our capital plan and how it continues to strengthen our long-term earnings growth profile. Today, we formally increased our 5-year capital plan by $6 billion, bringing the total to $78 billion. This increase reflects our inclusion of the SPP and PJM transmission projects Bill referenced earlier, which together represent roughly $5 billion of awarded transmission projects. Consistent with our disciplined approach to capital planning we have incorporated only approximately $3.5 billion of those awards into the capital plan. Specifically for the SPP project, the exact division of lines between AEP and a regional peer has not yet been finalized. So we're using a conservative 50% assumption to update the capital plan. The expanded plan also includes our recent announcements related to I&M's planned acquisition of the [ Sycamore and Big Sandy ] natural gas generation facilities. From a timing perspective, this incremental $6 billion is largely associated with projects that enter service closer to the 2029 and 2030 time frame. As a result, these investments are accretive to earnings in the back end of the plan. The best way to think about this is that these investments not only reinforce our earnings growth, but increase our expected long-term operating earnings CAGR to now greater than 9% over the period of 2026 to 2030. Beyond the base plan, we continue to see meaningful upside. For the 2026 through 2030 period, we have line of sight to over $10 billion of projects that are not included in the $78 billion plan, including the Wyoming fuel cell project [ Hudson ] transmission project and additional generation investments. While these incremental opportunities remain subject to key gating items or require clarity and are therefore not reflected in our base capital forecast, they highlight the depth and strength of our capital pipeline. With contracted load growth now totaling 63 gigawatts combined with line of sight to over $10 billion of projects and other developing generation and transmission opportunities, we see meaningful upside to the current capital plan. We will provide a more fulsome update on the capital plan, our related financing strategy and talk through our long-term growth outlook as part of our normal cadence in the third quarter. Turning to Slide 19, I'll walk through our updated 5-year financing plan aligned with this new expanded capital program. To support the $6 billion of additional capital formally added today, we have modestly increased the level of growth equity in the plan. Equity has increased by $1.1 billion and now total $7 billion for the period of 2026 to 2030. Importantly, this incremental equity represents only 18% of the $6 billion of incremental capital growth, underscoring our continued focus on disciplined, balanced financing. Looking at the timing of the equity issuance. The majority remains weighted towards the back half of the 5-year plan, providing flexibility as projects advance and cash flows build with execution. Consistent with that profile, we intend to remain opportunistic across all financing instruments as market conditions evolve, funding long-term growth in a measured and shareholder-friendly manner. Let's now turn to our financing activity so far this year. Given our strong stock performance in the first quarter, we took advantage of the market and accelerated our at-the-market program. issuing $665 million of ATM equity. This fulfills 2/3 of our full year 2026 equity needs and reflects strong progress against our financing plan. In fact, we have issued the $665 million of ATM equity at an average price of over $131 per share. Looking across the planning horizon, -- we remain well aligned with our FFO to debt targets of 14% to 15% for both S&P and Moody's. As of the first quarter, S&P FFO to debt stands at 14.7%, near the top end of our target range; while the Moody's metric is 13.9% and just below our target, And both remain well above the downgrade threshold of 13%. Overall, the updated financing plan preserves balance sheet strength while supporting our expanded capital program. With a disciplined funding approach, a strong credit profile and flexibility to deploy a range of financing tools to take advantage of market conditions, we are well positioned to responsibly finance this growth while delivering exceptionally strong financial results over time. Turning to Slide 20. I want to close by highlighting a few key takeaways that reinforce the progress we are making across financial performance, growth execution and balance sheet discipline. First, we delivered a strong first quarter of 2026, with operating earnings of $1.64 per share. This performance gives us confidence to reaffirm our full-year operating earnings guidance of $6.15 to $6.45 per share, reflecting robust financial results through continued positive regulatory momentum. Second, our load growth story continues to strengthen. We now have executed on 63 gigawatts of incremental contracted load through 2030, supported by a diverse and high-quality customer base. This continued large load demand provides a strong foundation for long-term infrastructure investments that enable us to deliver reliable power to our customers. Third, we remain focused on executing our newly expanded $78 billion capital plan, which is driving an expected 11% 5-year rate base CAGR. The $6 billion of incremental investments reinforce our expected 7% to 9% annual earnings growth, increasing our expected long-term operating earnings CAGR to now greater than 9%. With contracted load growth totaling 63 gigawatts in together with line of sight to over $10 billion of projects in other developing generation and transmission opportunities, we see meaningful upside to the current plan. We will assess and incorporate further opportunities as part of our normal cadence in the third quarter. Fourth, we continue to fund this growth in a disciplined manner, with only a modest increase in incremental equity to support the expanded capital program. At the same time, our large and diversified footprint provides the flexibility to deploy capital, where it delivers the greatest impact while maintaining financial strength as we execute at scale. Finally, we continue to work closely with regulators and other stakeholders to keep affordability front and center, including forecasting up to $16 billion in cost offsets for existing customers. Through constructive engagement, we are advancing regulatory frameworks that balance fairness for customers and shareholders and support the critical work of building and modernizing the electric grid. Taken together, these elements highlight the momentum we are building and the discipline we bring to execution. We are confident in our strategy, supported by a growing pipeline of opportunities and a balanced financial approach. We believe AEP is one of the best positioned investor-owned utilities to deliver long-term value as we help build the critical infrastructure needed to support unprecedented growth. We operate in states that are highly receptive to our service model and are very pro business. We continue to see strong positive momentum across the platform with electrification at the heart of our growth story. Thank you for joining us today. I will now ask the operator to please open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Steve Fishman with Wolfe Research. Steven Fleishman: Thanks for all the updates. Bill. So so many questions. The PJM commentary, could you maybe give a little more color on kind of what -- a little more on why and what you're assessing what are -- what would it take to actually exit PJM? What would you like them to see to do to not exit maybe? Just any more color on that. William Fehrman: Yes. To be clear, we're not saying we're exiting PJM. What we are seeing is that as we look at the RTOs that we operate in, obviously, they're increasingly struggling to provide the responses that we need to meet the demands. And as we begin to prepare our plans and our ability to execute on this. We're extremely comfortable that we have the equipment, we have the engineering, we have the contractors. What we need is a faster way to interconnect into these systems. And so as we've seen, there's efforts that the government has put into place to try to move PJM along and SPP along and there's fits and starts on that and it's not really moving that quickly. And for us, we need to make sure that we're doing everything we can to, number one, help push that process along and work with our state regulators and governors and policymakers to try to advance the system that we have in place today. But as the manager of risk of this company, I also have to look at what happens in the event that we can't find a path forward on that. So we're in the very early stages of the evaluation phase, obviously, considering full ranges of options, including staying in these or shifting or exploring alternative structures. But the bottom line on this is we're going to continue to work closely with our regulators and policymakers, we're continue to engage directly with FERC and with the RTOs and with others to try to figure out how can we absolutely move this process along faster because while all of us are working very hard to get the equipment we need and the contractors we need, at the end of the day, we also have to get the interconnections we need to accelerate the interconnection and getting the generation to load. So bottom line, we're committed to participating in a market that's responsive to the customer needs, but we also know that we have to figure out a way to get it to move more efficiently and more effectively. Steven Fleishman: Got it. That makes sense. Two other quick ones. Just on the bloom and customer agreement in Wyoming, just how confident are you about these requirements being met in the second quarter to move forward with that? Unknown Executive: So those discussions continue to move forward. Obviously, for us, we're protected regardless of what happens on those projects. But our team has recently been in contact with the local mayor and other stakeholders in that region, there's active work going on. So I'm confident that, that project will continue forward, but there's some work that has to be done between other parties. For us, we are ready to go. We have everything we need in place. We're essentially doing a little bit of earthwork on this project, waiting for the -- basically the full release. We're continuing to work with Bloom to ensure that we can meet schedules that the customers want to have. And so for us, I feel as though we're in great shape on this. We're in a good position with regards to our commercial terms on this project. And hopefully, this will all get resolved by the end of the second quarter. Operator: Our next question will come from the line of Julian DeMolenSmith with Jefferies. . Julien Dumoulin Smith: I'll echo the comments here. Lots of questions and very well done guys, really quite something to start the year here. So maybe to pick it up for where Steve left it off here. How do you think about the cadence of the line of sight for that next $10 billion as you think about it, right? You've got this Wyoming piece, you get the Piketon piece. It seems like you might be insinuating some PJM generation opportunities. Again, I'm not sure exactly if that's right or when it's right or how you think about backstop procurement or bilateral participation. But just as you think about this refresh, you guys have obviously provided a little bit of an out-of-cycle comment here. How do you think about the third quarter cadence for instance, versus how you would set expectations across the litany of things going? Trevor Mihalik: Yes. Thanks, Julien. This is Trevor. Look, I would say, let me step back a little bit and just say we're always going to maintain a disciplined approach to capital planning where we only include really those projects that have sufficiently advanced and cleared getting the gating items with a high degree of regulatory confidence in our formal plan. Now I will say we have announced the Pyton project and the Wyoming fuel cell project. And so that's why we wanted to shadow this $10 billion because just between those 2 projects, that could be around an $8 billion amount associated with that. And then we do have other opportunities and line of sight to additional generation in the footprint. And so I think what I wanted to do was really put a marker around pipe in and Wyoming and then also show that there is incremental opportunity around generation and really kind of get the Street comfortable with the fact that we are really being pretty conservative in the $78 billion 5-year capital plan. And what I didn't want to do is just come out on the third quarter when we do the formal update without addressing these on the first quarter call because we have been public, at least with Piketon and Wyoming. So again, I think it really just shows the robust nature of our growing capital plan. And again, I think if you take a look over the last several years, we've been growing our capital plan. If you look at over the last 4 years at roughly a 22% CAGR in -- so it's a robust plan. And again, the $6 billion definitive line of sight, that's why we raised the plan and then the $10 billion is incremental on top of that. We're looking forward to coming out on the third quarter call with a more robust fulsome approach. Julien Dumoulin Smith: Got it. And just on PJM, just needle you a little bit here, timeline on that decision and if you would or how you participate in the backstop just to make sure I hear that right? William Fehrman: So on the backstop, obviously, when that process gets formally approved, we'll -- we are already looking for potential opportunities that we could bid in to that through our unregulated businesses. But the broader piece here for me is that we have to solve the speed to market issue here. And as we're continuing to work with PJM and other stakeholders and our governors, clearly, this is an area that has to get fixed. And so the point here is we are going to intently engage in this, we're going to figure out how we can get this accelerated, make sure that we do it in an appropriate manner with our states and and see where this ends up because PJM, in particular, is clearly a system that is not expediting the connection of flow to demand. And so we're very confident with where we sit today on the projects that we have today. But I also think in the world we're in, we need to figure out how to make it go faster. Operator: Our next question will come from the line of David Arcaro with Morgan Stanley. David Arcaro: Bill, as you talk about trying to move more quickly here. Are you looking at other strategies to or potentially expanding like pursuing on-site power anywhere else across your system, expanding what you had done with the fuel cells? William Fehrman: As we work with our customers. We're very proud of the fact that we're able to bring to them a variety of bridging strategies to serve their loads. And we've got a number of examples where we've done fuel cells. We have access to [ aero ] derivatives. We can do smaller interconnections into our system. So we have a variety of tools that we take to our customers to try to accelerate their ability to get their business online at the speed of which they want to move forward. And so we'll continue to offer those types of opportunities. We're also working to accelerate our ability to get transmission built. We're looking at different ways of how we construct transmission or design of transmission to accelerate the overall construction of this. And obviously, with our partnership with Quanta, that gives us a tremendous competitive advantage with them to find innovations for speed. And so this is, for us, all about getting our customers connected as absolutely fast as possible and working with them on where they want to be short term and where they want to be long term with their power supply and making sure that we're the ones that can deliver it, so we get their load. David Arcaro: Got it. That makes sense. And then let's see, Trevor. I was just wondering, looking at the equity financing update here relative to the incremental CapEx, could you also touch on now going forward to the extent some of that CapEx from the $10 billion bucket is brought into the plan over time? What does the equity financing need look like proportionally to that? Trevor Mihalik: Yes, sure. Let me start by saying that what we have is a strong operating cash flow model here, and we're forecasted to generate over $47 billion of operating cash flows over this 5-year period. And so to fund the growth, we will use a full range of financing tools. And you've seen us be pretty active with that, including hybrids and other equity-like instruments, structured financing and again, growth equity. And we want to make sure we take advantage of the most optimal market conditions and fund the plan in a balanced and shareholder-friendly way. But you've heard me say many times, David, that I'm not opposed to issuing accretive growth equity. And generally, what you see in the industry is typically, it's around a 30% to 40% equity content for CapEx. And what we announced today with the $6 billion is only 18% of equity content. And so you're always going to see us make sure we balance the most effective way to finance this in the most shareholder-friendly way. But again, I would go back to the strong operating cash flows. And the fact that we have multiple tools at our disposal and we're also very focused on our FFO to debt metrics, so I think you will see us continue to look at the timing of when that $10 billion rolls out over the plan and then the methodology in which we finance it. But right now, when you take a look at Page 19 of the presentation today, you'll see that we have $1 billion of ATM in 2026, of which $665 million is already issued and then really nothing in '27. And then we've got the ATM at $1 billion a year in each of the years, '28, '29 and '30 and then just a modest amount of growth equity in the back end of the plan. And so again, I think what this does is it really gives us a great deal of flexibility in how we're going to finance the incremental $10 billion or what we ultimately roll out on the third quarter call. We are going to ensure that we're doing this in a very disciplined manner as we finance these great opportunities. Operator: Our next question will come from the line of Richard Sunderland with Truist Securities. Unknown Analyst: I wanted to pick up a couple of the earlier themes around PJM, but kind of turn that to the SPP side. You spoke a little bit to progress there on the load front. But curious how you're viewing sort of SPP as a whole interest into that RCO and what it might mean for like Septoand continuing loan interest there? William Fehrman: Yes. So very similar view of SPP with regards to just a general focus of wanting to get load connected to generation there. SPP though, I would say, has been more aggressive in getting after these issues. We've had better luck in SPP. They've made their filings on the [ ARRIS ] program and such. And so it's, I would say, a little bit better there with regards to being able to get our generation connected and moving forward. So -- but still, we still want to make sure that we're staying on top of this. And because it is a part of any of these projects. And every utility out there who's trying to do this has the exact same issues we have. We're just going to engage more on this and make sure that we eliminate the risk and get our customers connected just as quickly as we can. Unknown Analyst: Got it. That's super helpful. And then turning to, I guess, a bigger-level topic around transmission, you've had a lot of commentary today on what you're doing there. I'm curious, what you see on the policy side as needs for transmission? I mean there's been a lot of focus recently around some recent FERC actions elsewhere. And I guess just the bigger question is, do you think there are opportunities on the transmission side that go beyond the sort of engineering construction efforts you spoke to earlier? William Fehrman: Well, certainly, on transmission. There's keys around accelerating right-of-way acquisition, there's keys around the supply chain of this and getting ahead of that. And as we mentioned earlier, with our size and scale, we are well ahead on our supply chain and the procurement for all of these projects that carry us out through this plan. I feel very confident with regards to having what we need there to get these done. Clearly, as we're going through the regulatory environment, I would say that at least in my discussions with the states. At the policy level, they're very supportive of transmission. They know that transmission forms the backbone for economic development. and that without a very strong transmission system that their economic development will, in some cases, be muted. And so for us anyway, we've had great success on transmission, both on the regulated side, on the competitive side. We've got an exceptional relationship with Quanta. So we know we have the labor to get it bill. We're having very innovative design so that we can reduce right of way. We can reduce the amount of weight for each of these structures that we have. So we're really attacking this from a multi-value stream of opportunity to continue our leadership role in the operation, maintenance and construction and transmission. Operator: Our next question will come from the line of Nick Amicucci with Evercore ISI. Nicholas Amicucci: I wanted to just kind of dig in a little bit on the growth equity proportion on Slide 19. So do we think about that kind of the $3 billion of gross equity. Is that firm? Or is that kind of contingent upon the CapEx pace? And how should we think about kind of that just moving forward as you think about '28 through '30? Trevor Mihalik: Yes. Definitely, Nick, I would say that, that $3 billion at the back end of the plan is tied to the $78 billion CapEx plan. And as we indicated, a lot of the uplift that we even had today with the $6 billion is in the back half of the plan when a lot of those dollars will come through. And so I would say it's pretty firm because we feel very confident about the CapEx plan. And this is what we would need to finance that. So the good news is we need it in that 28 to 30 period. And then we've been pretty focus on getting the ATM done this year and getting that $665 million done. And so from my perspective, I think the equity is really not much of an issue right now in support of the $78 billion 5-year capital plan. And it's really a modest amount of equity to think about what is ultimately needed to fund this growth plan. Nicholas Amicucci: Got it. That's helpful. And then as we -- as you kind of think about the potential uplift that we will receive with the third quarter update, to the CapEx plan. Should we -- is it fair to -- I mean we've seen a pretty consistent kind of breakdown between transmission and generation. And just given kind of the commentary surrounding speed to market. Is it fair to assume that, that breakdown kind of persists, so a little bit more heavily skewed towards transmission? Trevor Mihalik: Yes. I think that's a pretty safe assumption on this. While you have seen that we have a fair amount or $33 billion of the capital plan is associated with transmission right now. We continue to see a lot of opportunities around the transmission business, both within our service territory as well as competitive opportunities. Bill mentioned the one up in -- MISO up in the Wisconsin area. Those are opportunities that we continue to see, and people are acknowledging that AEP is differential with regards to being the largest transmission owner operator and the one that really pioneered [ 765 ]. And so a lot of that is a competitive advantage for us around transmission. But I also will say that what we're seeing with the load growth of the 63 gigs across our footprint, generation is also very important. And that's where we have been very aggressive in leaning into securing turbine slots and putting those turbine slots into the planning cycle. And so we're excited to roll out the updated capital plan on the third quarter call. But I didn't think that I could come out without actually updating on this call, at least the $6 billion. And then because we have mentioned the Piketon project as well as Wyoming, I needed to also at least speak to that $10 billion, which, again, in my prepared remarks, I said was fairly conservative. Operator: Our next question will come from the line of Andrew Weisel with Scotiabank. Andrew Weisel: Thanks. Good morning, everybody. I can maybe start continuing a little bit on that last one. If you could speak to the timing and pricing of gas turbines. You keep adding generation to the outlook. It sounds like there's potentially more to come in the near future. Are you looking at simple cycles, CCGTs or both? And given your strong relationships, you're certainly well positioned with suppliers. How soon could you add incremental units? And what level of pricing are you seeing? William Fehrman: So we're building out what our customers are asking for. So we have a variety of simple cycle projects as well as combined cycle projects across the 11-state footprint. As we talk with our customers and have them continue to lock in what their longer-term expectations are for additional projects and growth of the existing facilities that they have in place, we're in communication with the major turbine suppliers to ensure that we have access to those turbines. As far as what we see sort of going forward, we're most active with Mitsubishi and GE on the supply. We do have access to turbines going well out into the future. Obviously, the actual pricing of those are under confidentiality agreements. But for me, the important part of this is that we have access to turbines, we're able to get the equipment that we need to serve the load. We are a preferred supplier for these customers because our focus is on getting them interconnected either through a bridging strategy or through ultimate grid connection and expedited generation buildout. And so I'm excited with where we're at. As we noted earlier, our Q actually continues to grow. We now have 190 gigawatts in our queue of people wanting to interconnect with us, which obviously solidifies our continued growth and what we're trying to do. And I think, again, a big reason for that is, that we are delivering for these customers, and we're coming up with innovative and creative solutions to make sure we get them connected as quickly as possible. Andrew Weisel: Okay. Great. And then I realize we're at the hour, but 1 more quick one. On the Wyoming fuel cells, Bill, I think you used the term that you're protected, can you discuss that a little bit? I know you're waiting for the customers to get their work done? And you said you're hoping gets resolved by the end of the second quarter, which is just at the end of next month. Is there a deadline associated with your contract? And what happens if the end of June comes and goes without the customers figuring their side out? William Fehrman: Yes. I'll have Trevor give you a couple of the details here, but this was a fundamental part of this commercial arrangement, was to make sure that our company and our investors were protected on this project. Trevor, maybe you want to give them a little bit of color on this? Trevor Mihalik: Sure, Bill. Yes. So the good thing here, as Bill says, we are protected. And we can -- if everything were to not proceed, we have the ability to put the fuel cells back to the hyperscale at a cost plus, and we've been public about that, it's roughly 10%. So we're protected on that side. I think we have a deadline of the end of June, and then there is another 6-month period that the hyperscaler could -- if they can't advance discussions by the end of June, they could look to seek another location for that property. And if they can't, by the end of the year, find another property, then we can put those fuel cells to the hyperscaler at 110%. Andrew Weisel: And that property could be anywhere in the U.S.? Trevor Mihalik: Correct. Operator: Our next question will come from the line of Michael Lonegan with Barclays. Michael Lonegan: So when you say alternative strategies in obviously, you're already vertically integrated in West Virginia. Just wondering what are your thoughts on doing a [ Genco ] structure there? There's a clear backdrop in the state wanting more gas generation. Is that something you are considering? And what would you say that's within your risk tolerance there? William Fehrman: So we've been studying the Genco model, obviously, in Indiana is a perfect example of what they were able to complete there. We think that's an innovation that would work for us. Obviously, in West Virginia, we just completed the rate case that was in progress for a number of months, and we got a good reasonable outcome there, and we're in close communication with the governor and the energies are in West Virginia. And so we'll stay closely connected to them to determine how best to move forward. He's very committed to his 50 gigawatts by 2050 vision. And with the more reasonable regulatory outcome that we got there now, we are in deep discussions with him and his team and the regulator there to determine how best to deliver what they want. There is tremendous opportunity in West Virginia. And so that is another major growth opportunity for us in that state. Michael Lonegan: Then a lot of questions on the financing. You touched upon your equity needs, obviously, Just would you consider selling noncore assets or a sale of a minority interest to finance additional capital or mitigate equity needs? And then if so, what assets could be on the table for potential divestitures? Trevor Mihalik: Yes, Michael, I'm sure you're going to expect this answer, but we wouldn't talk about any kind of M&A and if we were contemplating that. But I would say this that we really like our footprint, we like the states we're in. We indicated that these are very pro-business states. And we're trying to grow this business and not shrink it. And I think there are alternative forms of financing that we can execute on to fulfill what we need around our growing capital plan without having to sell assets. So I would just leave it at that. . Operator: Our next question will come from the line of Bill Appicelli with UBS. William Appicelli: Most of my questions have been asked. But just as we unpack sort of the magnitude of the EPS growth upside here, you guys are modifying the language to say greater than 9%. I mean how much of this incremental capital should be reflected in earnings in 2030? And then when we think about the $10 billion, is that -- how much of that related to Piton and Wyoming could be sort of fully reflected by 2030 as well? Trevor Mihalik: Yes. So I appreciate the question. And I would say AEP's growth rate certainly is 1 of the highest in the industry. And I think the key point is that the increase in the long-term earnings CAGR to greater than 9% is supported by the $6 billion of incremental capital that we formally added to the plan. But as we said, it is weighted to the back half of the plan, and that's when we'll see more of the impact to EPS. But we do see other upside. And when you take a look at, for example, the Piketon project, if and when that advances, that's well within the 5-year capital plan. And it needs -- those assets need to be constructed by 2028. And so from that perspective, I think that's where we're saying there's upside and we're being conservative in the capital plan. Now what I want to do, because we have almost best-in-class growth rate of this 7 to 9, and then we have intimated that we were at in over the 5-year period with the previous plan and now we're greater than 9 with this plan, I always want to be careful that we're under-promising and over-delivering. And again, as you said, that $10 billion is not in that greater than 9% EPS CAGR. But what that ultimately means with regards to financing it and how that cascades through the earnings cycle that we would come out with once we update the plan on the third quarter call. William Appicelli: Okay. All right. No, that's helpful. And then just going back to a comment earlier about the reliability backstop, just to confirm, it sounds like you would be interested in submitting bids for under a bilateral fully contracted structure. Is that what I heard? William Fehrman: So we'll continue to follow the RPG process that's going through the approval process, and we'll assess that when it comes out. And if we have an opportunity to get into that through our unreg business, we'll certainly make that assessment. We would have good potential opportunities for that. But at the end of the day, we have to see what the rules are of the game and figure out if we have something that we believe would be competitive. William Appicelli: Okay. And then just one other one along that same line. The cost allocation that's being proposed is going to be a function of the EDC load forecast. So within your PJM load forecast, you guys feel confident that there's not going to be any revisions to that at this point in terms of tightening for -- as it relates to what PJM is going to need to see for cost allocation? William Fehrman: Yes. I'm confident right now that we're good with where we sit. Operator: Our final question will come from the line of Jeremy Tonet with JPMorgan. Unknown Analyst: This is actually Ed Kelly on for Jeremy. How are you using grid-enhancing technologies across your T&D network to do more with less and extract capacity by managing peaks better, whether that be through transmission grid management or grid edge intelligence and then using that to perhaps provide customer rebates to reduce rate of bill increases? William Fehrman: So our team is deeply engaged with innovation. We are tied in with a number of the manufacturers and technology developers out there on these types of of technologies and where they make sense. Our team is pursuing implementation of it. But to be very clear, I think that those help fill in some gaps, but we have tremendous need here for new generation and new transmission. And so our focus is really on both of these -- the three legs of the school, if you will: One, getting new generation connected; two, to getting brand-new transmission built to build out the backbone and deliver the energy and reliability that our customers want. And then the third leg is the variety of of guests and energy efficiency tools and new technologies and AI and the variety of innovations that are coming our way to assess. But with the dramatic need for additional generation, additional transmission that's out there, we have a strong focus on that to make sure that we're executing well for our customers. Unknown Analyst: Great. And just one remaining question for me. Could you clarify whether the current AEP Texas capital plan supports the contracted loads added in this quarter and last quarter or whether you might need to add more capital to support these added loads? Trevor Mihalik: Yes. There definitely is incremental capital that we would put in the plan. Now I would say when you look at the $78 billion capital plan, recall last fall, we shared a $72 billion capital plan that was really alongside the 28 gigawatts of contracted load outlook. And really, since that time, that contracted load outlook has now grown on an overall basis. And again, Texas is a big part of that, to 63 gigawatts. Now I will preface this by saying that the capital plan is really not built off of a direct one-for-one relationship between incremental megawatts and capital spend, certain investments are required regardless of the load growth. And so when you look at this, some incremental load can be served by existing system capacity, depending on location, timing and other factors, However, I would say that with the significant increase in contracted load through 2030, it really implies a meaningful upside to our current capital plan. And so that's really not incorporated into the amounts that we put out at this point right now. Operator: This concludes our question-and-answer session. I will now hand the call back over to Bill Fehrman for any closing comments. William Fehrman: Thank you. So we appreciate everyone joining us on today's call. We're very excited about the opportunities ahead at AEP as we continue to advance our long-term strategy. That's driving sustainable growth, enhancing the customer experience and really creating value for shareholders. Our focus remains on disciplined execution in some of the fastest-growing regions in the country, supported by our strong operational and financial foundation. If there's any follow-up items, please reach out to our IR team with your questions, and we look forward to seeing many of you at the upcoming investor conferences and meetings. This concludes our call. And again, thank you for your continued interest in AEP. Operator: Today's call will be available for replay beginning approximately 2 hours after completion and will run through 11:59 p.m. Eastern Time on Tuesday, May 12, 2026. Callers may access the replay by dialing (800) 770-2030 or 609-800-9909 and enter ID # 8577 followed by the pound key. This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. For optimal sound quality, we ask that you silence your electronic device. Star zero, and a member of our team will be happy to help. Good morning. My name is Stephanie, and I will be your conference operator today. Welcome to the Ecovyst Inc. First Quarter 2026 Earnings Call and Webcast. Please note, today’s call is being recorded and should run approximately one hour. Currently, participants have been placed in a listen-only mode to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to hand the call over to Gene Shiels, Director of Investor Relations. Please go ahead. Gene Shiels: Good morning, and welcome to Ecovyst Inc.’s first quarter 2026 earnings call. With me on the call this morning are Kurt J. Bitting, Ecovyst Inc.’s Chief Executive Officer, and Michael P. Feehan, Ecovyst Inc.’s Chief Financial Officer. Following our prepared remarks, we will take your questions. Please note that some of the information shared today is forward-looking information, including information about the company’s financial and operating performance, strategies, our anticipated end-use demand trends, and our 2026 financial outlook. This information is subject to risks and uncertainties that could cause actual results and the implementation of the company’s plans to vary materially. Any forward-looking information shared today speaks only as of this date. These risks are discussed in the company’s filings with the SEC. Reconciliations of non-GAAP financial measures mentioned in today’s call with their corresponding GAAP measures can be found in our earnings release and in the presentation materials posted in the Investors section of our website. I will now hand the call over to Kurt. Kurt J. Bitting: Thank you, Gene, and good morning. Consistent with the positive outlook for 2026 that we shared in our fourth quarter earnings call in late February, our first quarter results provide an excellent start to the year, with strong growth in both our regeneration services business and for virgin sulfuric acid. Sales for Regeneration Services were up on a double-digit percentage basis compared to 2025, reflecting high refinery utilization, favorable alkylation economics, and lower planned customer downtime compared to the year-ago quarter. First quarter sales for virgin sulfuric acid were also up significantly, benefiting from increased mining demand and the contribution from the Wagaman sulfuric acid assets that we acquired last May. As a result of the strong volume growth and positive pricing in the quarter, we reported adjusted EBITDA of $40 million, which is up 87% compared to 2025. During the quarter, we also maintained our focus on the implementation of our long-term strategic plan to accelerate growth and enhance value for our stockholders. During the first quarter, we repurchased approximately $36 million worth of our outstanding shares. And with regard to the pursuit of inorganic growth opportunities, our efforts over the course of the first quarter led us to last Friday’s announcement that we had reached an agreement to acquire the Calabrian sulfur dioxide and sulfur derivatives business from INEOS Enterprises in a transaction that will broaden our portfolio and further position Ecovyst Inc. for attractive growth in end uses we currently serve, such as mining and water treatment, and new end uses, including pharma and food processing. Kurt J. Bitting: As we move to the next two slides, I want to provide a brief overview of the Calabrian business and highlight the details and strategic merits of this transaction. What makes the Calabrian acquisition so compelling is how closely the business aligns with Ecovyst Inc. strategically, operationally, and commercially. The combination directly leverages our core competencies in sulfur chemistry and extends our platform into highly complementary adjacent chemistries. Just as Ecovyst Inc. is a leading provider of virgin sulfuric acid and sulfuric acid regeneration services, Calabrian is a leading provider of sulfur dioxide and sulfur-based derivatives. It is the sole on-purpose producer of sulfur dioxide in North America with a significant supply share, a leading producer of sodium bisulfite alongside Ecovyst Inc., a leading producer of sodium thiosulfate, and the sole North American producer of sodium metabisulfite. These products are critical inputs into a range of attractive end uses that overlap meaningfully with the markets we serve today, reinforcing the natural fit between the two businesses. Looking at a rough breakdown of Calabrian’s 2025 sales, nearly one-third of sales were to the mining sector, where we have well-established and long-standing relationships. Roughly a quarter of Calabrian’s 2025 sales were in water treatment, a market that we currently participate in with our virgin sulfuric acid, sodium bisulfite, and aluminum sulfate sales. Approximately 15% of sales were into specialty chemical applications and the balance of 2025 sales included sales into food preservatives and other applications. Similar to Ecovyst Inc., Calabrian has longstanding customer relationships with blue-chip customers, significant long-term contracts, and sales visibility. In terms of the strategic fit with Ecovyst Inc., I will first say that Calabrian has a seasoned and engaged management team, and we look forward to leveraging their expertise and enthusiasm as we move forward on a combined basis. Equally as important, Calabrian provides us with a very attractive opportunity to expand our reach and product offering in sulfur-related chemistries while leveraging our existing supply chain and manufacturing infrastructure. In doing so, it provides an opportunity to diversify our sales mix and increase our penetration into high-growth industries such as mining, water treatment, pharma, and food processing. Calabrian has two manufacturing locations: Port Neches in Texas, situated in the middle of our existing Gulf Coast infrastructure, and the Timmins site in Ontario, Canada, which we expect to broaden our exposure to Canada’s growing mining sector. Given our existing footprint in the Gulf Coast region, the acquisition provides opportunities to leverage our existing supply chain and manufacturing infrastructure. Finally, the financial profile is equally compelling. Calabrian brings attractive growth prospects, strong margins, and a track record of high cash conversion. On a trailing twelve-month adjusted EBITDA of approximately $24 million, the $190 million purchase price represents a multiple of approximately 8x, stepping down to roughly 7x as we capture synergies over the next three years. The transaction is expected to close by the end of the second quarter. We plan to fund the acquisition through cash on hand and a new debt offering, with specific allocation to be determined as we move towards closing. At this time, we expect that our pro forma net debt leverage ratio at close of the transaction will be approximately 2x. Before I hand the call over to Mike to review the details of our first quarter, I want to comment on our expectations for near-term demand trends and our confidence in the longer-term outlook for Ecovyst Inc. While the geopolitical and global macroeconomic environment remains dynamic, our outlook remains very positive. As a leading provider of products and services that are essential to our North American-based customers, we expect demand trends to remain favorable, underpinning our growth expectations for 2026. We see U.S. refinery utilization remaining high in 2026, with far less planned and unplanned customer downtime than we experienced in 2025. As such, we continue to expect higher volume for our Regeneration Services in 2026 with favorable contract pricing. We also expect volumetric growth for virgin sulfuric acid in 2026 with increased sales into mining, and a full year of contribution from the Wagaman sulfuric acid assets we acquired last year. Sales into the nylon end use are expected to be generally in line with 2025, and we anticipate relative stability across the broader range of industrial applications. Looking beyond 2026, we believe the long-term outlook remains extremely favorable. We expect that high refinery utilization will continue to support demand for our Regeneration Services business. And for virgin sulfuric acid, we believe we are positioned for growth, with sales into mining applications benefiting from multiyear expansion projects, growth in industrial applications associated with onshoring, and the prospect for continued sales recovery in the nylon end use. I will now turn the call over to Mike, who will review our financial results. Michael P. Feehan: Thank you, Kurt, and good morning. We are very pleased with our results for the first quarter and believe that we are off to a great start to the year, as stable demand and favorable pricing helped deliver solid results. Our sales were up 50% compared to the first quarter of last year. Higher sales volume for both virgin sulfuric acid and Regeneration Services, as well as positive pricing, translated into adjusted EBITDA of $40 million, up $19 million compared to the prior-year first quarter and ahead of our previously provided guidance range. Our favorable earnings compared to our guidance range were driven by higher-than-expected volume and pricing. We realized stronger-than-expected volume in Regeneration Services and, to a lesser extent, Treatment Services compared to our original expectations. With a significant spike in the cost of sulfur, we also realized a temporary benefit associated with the timing between when we incur the cost of our sulfur purchases and when we pass through those costs to our customers. Adjusted free cash flow for the first quarter was $4 million. Our net debt leverage ratio at quarter end was 1.2x, unchanged from year end, and our available liquidity remained strong at $237 million as of March 31. As we look at the first quarter financial results, sales were $215 million, up $72 million. Excluding the $33 million impact of higher sulfur costs passed through in price, sales were up nearly 27%. Regeneration Services volume was driven by less customer downtime compared to 2025. Sales volume for virgin sulfuric acid was also higher year over year, reflecting the contribution of 2025 and higher overall demand, including into nylon and mining applications. Average selling prices were higher, driven by virgin sulfuric acid pricing and favorable contract pricing for regenerated sulfuric acid. Adjusted EBITDA of $40 million was up $19 million, or 87%, driven by higher sales volume and favorable pricing, partially offset by higher manufacturing costs driven by higher turnaround costs, the impact of general inflation, and increased transportation costs. Favorable price-to-cost ratio at the contribution margin level remains evident in our first quarter. As previously mentioned, the pass-through effect of higher sulfur costs on sales was approximately $33 million, with the pass-through having no material impact on adjusted EBITDA. Excluding the sulfur pass-through, the price-to-cost uplift in the first quarter was approximately $11 million, largely driven by the net price impact, including favorable variable costs. Higher sales volume, including the contribution from the Wagaman assets, accounted for nearly $15 million of the period-over-period increase in adjusted EBITDA, and this was partially offset by higher manufacturing costs, including the incremental cost of the acquired Wagaman assets, as well as higher SG&A and other costs. Turning to cash and debt, adjusted free cash flow for the first quarter was $4 million, up compared to a use of cash of $13 million in 2025. The lower-than-average free cash flow for the first quarter reflects the normal cadence of cash generation, with the first quarter typically low primarily due to timing of working capital. During the quarter, we repurchased $36 million of our common stock at an average price of approximately $11 per share, and we have $146 million remaining under our existing authorization. We ended the first quarter with a strong liquidity position of $237 million, comprised of cash of $163 million and availability under our ABL facility of $74 million. With net debt of $234 million at quarter end, our net debt leverage ratio was 1.2x, unchanged from December 31. Turning to our 2026 outlook, note that the guidance included in our materials and discussed on this call does not include any contributions from the recently announced Calabrian acquisition. Our previous guidance provided in late February anticipated higher sulfur costs in 2026. However, disruption associated with the Iran conflict has resulted in further increases in sulfur costs. We now expect the impact of higher sulfur cost pass-through in price to be $30 million higher than previously guided, resulting in full-year 2026 sales to be in the range of $890 million to $970 million, up from our previously guided range of $860 million to $940 million. With a strong start to the year and having one quarter under our belt, we are revising our adjusted EBITDA guidance by tightening the range, now expecting full-year 2026 adjusted EBITDA to fall in the range of $180 million to $195 million. Similarly, we are tightening the range for adjusted free cash flow to be $40 million to $55 million. While we are not changing our guidance due to the announced Calabrian acquisition, we do intend to finance a portion of the acquisition through a debt offering along with cash on hand. As a result, we would expect cash interest to increase an additional $4 million to $5 million on a full-year annual basis. As we provide directional guidance by quarter for the balance of the year, for the second quarter, we continue to expect higher year-over-year sales of Regeneration Services, with favorable contractual pricing. We also continue to expect higher volume of virgin sulfuric acid driven by mining demand and the contribution of the acquired Wagaman assets, along with stable pricing for virgin sulfuric acid. Turnaround costs are expected to be lower than in the year-ago quarter. As a result, we project second quarter 2026 adjusted EBITDA to be in the range of $50 million to $55 million. For the third quarter, we continue to expect higher sales of Regeneration Services compared to 2025, and we currently project that virgin sulfuric acid volume will be slightly lower than the year-ago quarter, driven by the timing of our sales into nylon applications. With higher projected turnaround costs than in 2025, we expect third quarter 2026 adjusted EBITDA to be in the range of $50 million to $55 million. Finally, for the fourth quarter, we continue to expect higher sales of Regeneration Services compared to 2025, with favorable contractual pricing. We are currently expecting lower virgin sulfuric acid volume than in 2025. We also are anticipating that sulfur costs will ease from the current historic highs. As a result, we expect that sulfuric acid pricing, excluding the pass-through effect, will be lower due to the overall customer mix and timing between when we incur the cost of our sulfur purchases and when we pass through these costs to our customers. Lastly, we expect higher turnaround costs compared to 2025. As such, we currently anticipate that the fourth quarter adjusted EBITDA will fall in the range of $40 million to $45 million. I will now turn the call back to Kurt for some closing remarks. Kurt J. Bitting: Thank you, Mike. We had a great start to the year, and we are energized by the positive momentum we see as we move into the second quarter. While the global macroeconomic landscape continues to evolve, we believe Ecovyst Inc. remains well positioned to deliver on our objectives. Moreover, we are extremely pleased with our progress on strategic implementation as we maintain our focus on growth and on value creation for our stockholders. The disposition of our Advanced Materials and Catalyst segment at year end was a transformational event that resulted in a strengthened balance sheet and a robust liquidity position that provides us with the resources and flexibility to execute on multiple capital allocation alternatives, including the funding of organic growth projects, the pursuit of attractive inorganic growth opportunities, and the return of capital to our stockholders. During the first quarter, we returned $36 million in capital to our stockholders through share repurchases. As previously indicated, to support organic growth this year, we are investing in the expansion of our Gulf Coast storage and logistics capabilities that will further enhance our ability to serve our customers’ growing needs. Building upon last year’s successes, we also expect further contributions and network optimization benefits from the acquisition of our Wagaman site, as we continue to leverage the site’s capacity to meet the growing needs of our customers. With regard to our stated objective to pursue attractive inorganic growth opportunities, we are excited about the agreement that we have reached to acquire Calabrian, which will broaden our portfolio of sulfur products that we can offer to growing end uses. We look forward to the completion of the Calabrian acquisition and to providing you with updates on our ongoing progress as we move throughout the year. At this time, I will ask the operator to open the line for questions. Operator: Thank you. At this time, we will open the floor for questions. We will take our first question from John Patrick McNulty with BMO Capital Markets. Please go ahead. Your line is open. John Patrick McNulty: Yes, good morning. Thanks for taking my question, and congrats on a really solid start to the year. I wanted to dig into the changes since your last guide, both in the virgin acid markets and the scarcity around sulfuric acid on a global basis, maybe a little less so in the U.S., and also the strength of U.S. refining, which seems to be even better now given what has gone on in the Middle East. How have your expectations changed and how is that woven into the guide? I am a little surprised, with a couple of things being reasonably better, that you were not ready to raise at least the upper end of the guide. Can you help us think about that? Michael P. Feehan: Yes, John, thanks for the question. I think the first way we would look at that is there were some things that did change positively for us during the quarter. Certainly compared to the guidance that we had provided, we saw some strength in Regeneration Services and some positivity on the virgin pricing, but that is a little bit more based on timing. As we talked about, we expect to give some of that timing back in the fourth quarter. That Regeneration strength is clearly a tailwind for us, but we also are tempered with some of the other potential macroeconomic items that are going on. So we want to continue to keep our guide relatively where we were. We did raise the bottom end of it, so our midpoint is up to $187.5 million. We believe that there is strength in the numbers of what we have seen but want to be tempered with what we are expecting for the rest of the year. John Patrick McNulty: Okay, fair enough, and I understand it is a fluid situation. Maybe just speaking to Calabrian, can you give us some color as to how that business has grown over the past few years and what the longer-term growth outlook is? Kurt J. Bitting: Yes, sure. Thanks for the question, John. Calabrian has been in its current form since the 1980s with the site in Port Neches. They built a site in 2017 up in Timmins, Ontario, which is primarily used to service the mining sector in Canada. A lot of the growth in the Calabrian business has been from mining, and that backstops gold, which at current gold prices has been very healthy. So their business has grown from that. There has also been some growth in pharma, food, and other industrial applications. We look at that business as probably GDP to GDP-plus type growth, with some end uses moving faster than others, like mining and industrials. They are the only on-purpose North American producer of sulfur dioxide and the only producer of sodium metabisulfite in North America. They have a strong position and proprietary technology that is completely different from how competitors produce it. We are very happy with the acquisition and confident in its future potential. Operator: Thank you. We will take the next question from Patrick David Cunningham with Citigroup. Please go ahead. Your line is open. Analyst: Hi, everyone. This is Rachel Li on for Patrick. Adjusted EBITDA margins were meaningfully stronger than you expected this quarter, driven by higher volumes and incremental pricing above the sulfur pass-through, despite some other headwinds from transportation and manufacturing costs. As we look through the balance of the year, how should we think about the net price-cost dynamics? Michael P. Feehan: Thank you for the question. Yes, the margins were favorable. As we have discussed in the past, the pass-through of the sulfur cost is relatively neutral to EBITDA, so it does lower the margin percentage, but we did see positivity around overall pricing and volume that dropped straight through to the bottom line. That provided us with the higher margin. The price-to-cost ratio was positive in the quarter, and we expect that to continue throughout the year. We have been consistent over several quarters where we are making more EBITDA on a per-ton basis comparatively. So while the margin percent will look lower because of the sulfur pass-through, the earnings benefit is intact, and we expect that to continue through the rest of the year. Analyst: Great, thank you. And on the Calabrian acquisition, could you provide more detail on the contract structure and the level of visibility you have into forward sales and earnings? Michael P. Feehan: Yes. The business is similar to the general construct of the Eco Services asset business, where there are long-term agreements or certainly long-term customers with blue-chip users, whether in mining, industrials, pharma, food, and so forth. The contracts also have a high pass-through component, given it is a sulfur-based chemistry, so passing through sulfur is very important, and they have a similar dynamic to the Eco Services business. In terms of visibility, the customers tend to have very steady offtake. The products they purchase from Calabrian are critical to their processes, and there is generally very good visibility in terms of forecasting and readability of volume. Operator: Thank you. We will take our next question from Laurence Alexander with Jefferies. Please go ahead. Your line is open. Daniel Rizzo: Good morning. This is Dan Rizzo on for Laurence. Thanks for taking my questions. Looking at prices and structural change, oil analysts now expect about a 5% structural risk premium for oil due to what is going on in the Middle East. Do you expect a similar structural reset in sulfur prices over the long term that will flow through to your business, or should we view the sulfur spike as a net negative because it hurts industrial volumes? Michael P. Feehan: For our business, sulfur is at all-time highs right now, and the run-up in sulfur actually started well before the conflict in Iran. A lot of that is due to the need for the sulfur molecule and sulfuric acid to produce copper and other metals. We do feel there is definite demand for sulfur that will support higher prices. I do think right now we are in an extremely high situation given the geopolitical conflict. Long term, we continue to have the ability to pass through sulfur to our customers. Unlike fertilizer, which is very heavily dependent on commoditized markets where sulfur impacts demand a lot, our customers’ use of sulfuric acid tends to be a small component of their overall cost. While it is not ideal that sulfur prices increase, it remains a small component, so we are able to pass it through. Daniel Rizzo: Thanks, that is very helpful. On the most recent acquisition and synergies, should we think mostly about supply chain and procurement synergies as opposed to production and revenue, and will you quantify later? Michael P. Feehan: When we look at synergies, there are certainly some cost-based synergies, including procurement across sulfur chemistry, and we have a large supply and manufacturing infrastructure that should provide synergies, especially with the Port Neches site sitting in the middle of our Gulf Coast footprint. We also see revenue synergy upside, given the ability to leverage our sales force across sulfur products, one of which we already sell, sodium bisulfite. So we see a nice mixture of both cost and revenue synergies, stemming from the fact that we are both in sulfur chemistry and the products are closely related. Operator: Thank you. We will take our next question from Hamed Khorsand with BWS. Please go ahead. Your line is open. Hamed Khorsand: First, on the acquisition, you were talking about potentially selling into Canadian mining. Would these be relationships that Calabrian brings to the table? Kurt J. Bitting: Yes. We will be selling sulfur dioxide to Canadian mines, and these would be new mining relationships. Ecovyst Inc.’s mining relationships are primarily focused in the southwestern part of the U.S. Hamed Khorsand: And on the refinery side, is the increase in activity and utilization more about the current environment, or is it more of a normalization given where Q4 was? Kurt J. Bitting: The answer is both. Coming into this year, and as we guided on the previous call, we expected healthy refinery utilization due to significantly less planned and, hopefully, unplanned maintenance outages in the U.S. refining complex. Utilization was expected to be high. The current conflict has certainly added a tailwind—margins are high right now, not only for oil but for refined products, and U.S. refineries can take advantage of that. For us, the alkylation units that we service with regeneration are expected to run at very high rates this year, and really in all years, outside of maintenance. They do not have the ability to flex up a tremendous amount given the margin climate, but the current environment provides a tailwind for everything to run as hard as it can. Hamed Khorsand: Thank you. Operator: At this time, I would like to thank everybody for joining today’s event. You may now disconnect.
Operator: This is the conference operator. Welcome to the Ballard Power Systems Inc. First Quarter 2026 Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead. Sumit Kundu: Thank you, operator, and good morning. Welcome to Ballard Power Systems Inc.’s first quarter financial and operating results conference call. With us today on the call are Marty T. Neese, Ballard Power Systems Inc.’s President and CEO, Kate Igbalode, Chief Financial Officer, and Ralph Robinette, Ballard Power Systems Inc.’s new Chief Operating Officer. We will be making forward-looking statements based on management's current expectations, beliefs, and assumptions concerning future events. Actual results could differ materially. Please refer to our most recent annual information form and other public filings for our complete disclaimer and related information. I will now turn the call over to Marty. Marty T. Neese: Thank you, Sumit, and welcome everyone to today’s conference call. This morning, I will give an overview of our Q1 2026 performance and provide a commercial update. I will focus on the progress we are seeing in the bus market. We are also joined by our new Chief Operating Officer, Ralph Robinette. He will introduce himself and share updates on our operations. Kate will then review our financial results in more detail. We had a solid start to the year. Deliveries into the bus and rail markets drove revenue growth compared to last year. We also delivered another quarter of positive gross margins. This is our third consecutive quarter of positive gross margin. It reflects disciplined cost and commercial management and marks an important step in our transformation toward becoming cash flow positive. To build on this progress, we have set a few near-term focus areas, including deepening our partnerships with bus OEMs in key geographies, improving and expanding our fleet services capabilities and offerings, and lowering costs through automation and intelligence. I will spend a few minutes on these and provide some additional color. Turning to buses. We have made several important announcements in the bus market this year. In North America, we signed a multiyear agreement with New Flyer representing approximately 50 megawatts of fuel cell engine supply. This strengthens our position as fleets continue to scale in the U.S. bus market. In the UK, Wrightbus selected Ballard Power Systems Inc. to power its next-generation hydrogen bus platform using our newest FCmove SC engine. In the EU, Solaris also selected Ballard Power Systems Inc. as the fuel cell supplier for its next-generation hydrogen bus platform, including the FCmove SC for its 12-meter bus. These announcements matter for several reasons. First, these new agreements are multiyear partnerships with leading bus OEMs in major markets. They include both engine sales and long-term service support. This strengthens our position as fleets scale and as our fleet services business continues to grow. Our intelligent fuel cell engines help us deliver better service. They provide real-time performance data that allows us and our OEM partners to respond faster and keep buses on the road. Our remote operations center adds another layer of support by improving parts planning, logistics, and predictive insights. Combined with our industry-leading durability, these capabilities position our engines as a zero-emission solution that can match or even exceed battery electric and diesel alternatives on uptime and total cost of ownership. Ballard Power Systems Inc. Fleet Services plays a key role in this strategy. We are moving from being only a module supplier to becoming a proactive, data-driven fleet partner. Our approach is built on more than 300,000,000 kilometers of real-world operating data. Using this experience, we created the industry-first uptime standard, bringing together predictive maintenance, training, service support, and parts assurance. These offerings are designed to deliver up to 98% fleet availability. This creates real value for OEMs by reducing after-sales friction and lowering risk. It also gives operators more predictable lifecycle costs and stronger protection against budget swings. As our installed base grows, these services expand our recurring revenue and turn our fleet into a long-term strategic asset. Second, these long-term agreements support our product cost reduction goals. Both Wrightbus and Solaris have committed to our ninth-generation FCmove SC platform. This engine was designed to reduce cost and simplify installation and maintenance, cutting the number of components by more than 40%, improving power density and durability. Each new bus we deploy also creates a long tail of service opportunities. Buses stay in service for eight, twelve, and even sixteen years. Our growing fleet gives us a multiyear runway for operations, maintenance, and training services. Through Ballard Power Systems Inc. Academy, we continue to support operators and technicians with the skills they need to run these fleets effectively. Taken together, these agreements and deep relationships reinforce our long-term market position. Ballard Power Systems Inc. holds a leading share of the fuel cell bus market in North America, the UK, and Europe. Being selected for next-generation platforms positions us to maintain that leadership as adoption accelerates and total cost of ownership continues to improve. Delivering industry-leading fleet services throughout the life of the bus is a major opportunity, and we are only getting started. We will now move to operations, which are central to delivering scalable, cost-competitive, and commercially ready products. For that, I will hand it over to our new Chief Operating Officer, Ralph Robinette. Unknown Speaker: Thank you, Marty, and good morning, everyone. I am pleased to join Ballard Power Systems Inc. at this pivotal stage in our transformation. By way of background, I bring more than 25 years of experience in operations, manufacturing, and supply chain across advanced technology and clean energy companies. My career has been defined by a focus on implementing the operational frameworks necessary to move advanced technologies from lab to high-volume manufacturing, scaling production, launching new products, and using automation to improve productivity and reduce cost. Most recently, I served as Chief Operating Officer at a leader in the residential solar manufacturing and service space. I led manufacturing, supply chain, fulfillment, and factory expansion. This included the launch of an automated production facility built around a closed-loop learning process where field performance data from tens of thousands of homes fed directly back into product design and process improvement. Proactively taking actions to prevent performance issues further differentiated our products, services, and solutions in the eyes of customers. In short, I bring a track record of scaling technology and building efficient, high-quality manufacturing and service systems. This aligns directly with Ballard Power Systems Inc.’s goal of reducing costs as we move towards cash flow positivity. What excites me about Ballard Power Systems Inc. is the combination of strong technology and a market that is now scaling. As Marty noted, this shift requires a sharp focus on execution. My team and I are prioritizing what matters most to our customers: quality, cost reduction, improved throughput, consistent delivery at scale, and closed-loop issue resolution. Relentless customer collaboration used to drive product and process improvements directly from customer field data and performance is critical. A key part of our process improvement work is Project Forge, our high-volume automated bipolar plate manufacturing line. At Ballard Power Systems Inc., we already use AI-assisted vision systems to detect defects in our MEAs. With Project Forge, we are deploying the same methodology to detect defects in our plates. By moving to higher volume with significantly more automation, we expect lower unit cost, reduced material waste, and improved quality, consistency, and scalability. We continue to expect Project Forge to enter full production in the second half of the year. Delivering that ramp successfully is a top priority. As mentioned, we are increasingly focused on optimizing the value of the intelligence of our engines. While the first order of business is to maximize uptime for our customers, there is even more we can do with these data-driven insights. As our deployed fleet continues to grow, we are increasingly leveraging the engine performance data from the field, creating insights to feed back to our manufacturing, supply chain, and product development teams. Ultimately, this work is about serving our customers by driving efficiency, simplifying our processes, improving quality, lowering costs, and ensuring we can deliver high-performance products at scale. Much of this happens behind the scenes, but I expect we will see the impact in product margin expansion and improved working capital management as these changes take hold. Marty, back to you. Marty T. Neese: Thanks, Ralph. Before I turn the call over to Kate, I will close with a few brief thoughts. Across the business, we remain focused on balancing cost discipline with growth, reducing product costs, improving commercial structures, and expanding our service offerings. We are also moving into new applications where our technology provides a clear advantage. Today, we highlighted progress in commercial terms and product cost reductions through our work in the bus market and through our operational initiatives. We also have additional business development activities underway in rail, material handling, and stationary power. In stationary power specifically, we continue to see green shoots of opportunities to improve grid stability and energy resilience, including in defense applications with NATO nations. These collective efforts are important building blocks for long-term growth, and we will continue to update you as these programs advance. Stepping back, we are encouraged by the progress we are making. We are seeing stronger gross margins, better commercial agreements, and continued cost reduction. These are clear signs that our transformation is taking hold. There is more work ahead, but we believe we are building a stronger and more scalable business. As a final note, we will be hosting our Capital Markets Day event called the Ballard Power Systems Inc. Forum on October 22. This will be an opportunity to get an up-close look at our work and discuss in-depth our path to profitability. With that, I will turn the call over to Kate. Kate Igbalode: Thanks, Marty. As Marty mentioned earlier, we continue to make progress toward cash flow positive. We delivered positive cash flow in Q1. These results reflect the early impact of the transformation initiatives underway across the business. Total revenue for the quarter was $19.4 million, which represents 26% growth compared to last year and was driven by our rail and bus verticals. Gross margin improved to 14%. This is a 37% increase compared to Q1 2025. It also marks our third straight quarter of positive gross margin. The improvement was driven by higher revenue and lower manufacturing overhead. Turning to operating expenses and cash. Our total operating expenses were $16.4 million, which is a 36% reduction compared to last year. The decrease reflects disciplined cost control across R&D, SG&A, and commercial activities. It also reflects the benefit of restructuring actions completed in 2025. Cash used in operating activities was $7.8 million. This compares to $24.4 million in the prior year, a 65% improvement. The change reflects the impact of restructuring actions and stronger operating performance as the business continues to scale. Adjusted EBITDA improved to negative $11.4 million compared to negative $27.5 million in 2025. Improvement was driven by stronger margins and lower operating expenses. We ended the quarter with $516.8 million in cash and cash equivalents. This is a decrease of about 2% from the prior quarter, and we have no bank debt and no near- or mid-term financing needs. This strong balance sheet gives us the flexibility to deploy capital in support of our goal of becoming cash flow positive. Consistent with past practice and given the early stage of the hydrogen fuel cell market, we are not providing specific revenue or net income guidance for 2026. We do expect revenue to be weighted towards the second half of the year. Our 2026 guidance ranges are as follows: total operating expense of $65 million to $75 million and capital expenditures of $5 million to $10 million. I will now turn the call over to the operator for questions. Operator: We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We ask callers to kindly limit themselves to one question and one supplemental. We will pause for a moment as callers join the queue. The first question today comes from Baltaj Sidhu with National Bank. Please go ahead. Analyst: Good morning. Could you elaborate on the drivers behind the strong growth in stationary revenues? Specifically, how much was supported by one-time deliveries, and to what extent is demand coming from data center customers versus traditional verticals? And then just on the bus segment, what were the key drivers of the decline this quarter year-over-year? Was it largely delivery timing related, or are there any changes in customer ordering patterns or funding that we should be aware of? Marty T. Neese: I will start. The stationary power business that we are seeing growth in year-over-year is largely diesel genset replacement business, not necessarily tied to data centers. The data center opportunity is an area of deep exploration for the company, and we expect that to materially change as we go forward. But right now the increase that you are seeing is more what I would call diesel genset replacement business in the stationary power market. On the bus segment, it is just timing. More than anything else, it is the amount of inventory they have in the channels already and their build out, if you will. Additionally, in the EU, there was some slowness in some of the funding support, and that translated into year-over-year changes in the demand flow. We expect that to change going forward as the friction is reduced. More importantly though, the Wrightbus and Solaris announcements are huge wins for the company. Those are major design wins for next-generation buses, and no matter the lumpiness of the 2025 to 2026 epoch, if you will, we see that as being really strong indications of the value of our new product, and that will translate materially into significant demand in our order book over the protracted period of multiyear agreements. Operator: The next question comes from Rob Brown with Lake Street Capital Markets. Rob Brown: Hi, good morning. First question is on the fleet services business model that you are developing. How do you see that playing out? Do the new sales come with a service contract element as well, or what is your vision on how the service business develops? And then on the rail business, it was strong in the quarter and I think you have some contracts you are delivering. How does the rail business play out over the next few quarters? Is it delivering your current contracts, and what is the cadence of that flow? Marty T. Neese: That is a great question, Rob. Yes, for sure, each new sale does come with a service level agreement accompanying it. That is a matter of basic warranty, extended warranty, parts packages, training. We have an entire suite of value-added activities and services that we have been complementing our initial CapEx sales with. That translates into, with the long asset life, an extended service tail. You can think of that as you get the one-time sale of the CapEx but then you get an annuity of the service for the duration of the extended asset. On rail, we are expecting that the prior work done in the rail business is now opening up future opportunities for us. To be more specific, we did very large-scale deployments with rail customers, and they have had the products in their hands for some period of time. As they are starting to see the value proposition come into sharper relief and getting more and more comfortable and familiar with a fuel cell locomotive, they are starting to be more bullish on their future, which bodes well for us. We think that could be a really exciting piece of business for us. It could end up being one of those annuity-type accounts where every year there is a capability to replace diesel engines with fuel cells and do that year after year until they materially decarbonize fleets. That is early days for us, but the product is performing well, the team is happy, the customers are happy, and we expect that there will be further advancements in that market over time. Operator: The next question comes from Michael Glen with Raymond James. Please go ahead. Analyst: Can you discuss how the infrastructure and hydrogen availability have changed? Do you see any meaningful investments taking place behind the scenes to improve hydrogen availability or distribution? Historically, a lot of hydrogen has been generated from fossil fuel sources such as natural gas. Have you seen any change to bring back renewables in terms of hydrogen generation? Marty T. Neese: We have been seeing meaningful progress in the availability of molecules. The supply is reasonable; the unit economics are what need to continue to improve, and that is starting to also gain a bit more momentum. When you can provide molecule suppliers with stronger and more predictable patterns of offtake, they can get more aggressive in their pricing depending on the tenor of the contracts that they are signing with different folks. Our job so far is to focus on creating the downstream demand and the offtake signal that allows the supply to keep being built and being consumed appropriately. So far, so good on that, and we are starting to see more and more interest outside of the large-scale industrial use cases, and that bodes well for applications such as mobility and stationary power. Regarding renewable generation, my prior comments were really focused more on green hydrogen. Green hydrogen is starting to see more and more penetration. The traditional gray hydrogen, methane-based gray hydrogen, is certainly going nowhere; it is there, it is incumbent, and it is competing with other outlets for natural gas. Gray hydrogen has to have its own economic footing, but green hydrogen is starting to take more and more advantage of the penetration of renewables around the globe. To some degree, blue hydrogen will find its path as well on an increasingly ambitious agenda over the next few years. Operator: This concludes our question and answer session. I would like to turn the conference back over to Marty T. Neese for any closing remarks. Marty T. Neese: Thank you for joining us today. We look forward to speaking with you next quarter. Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Welcome to the FreightCar America, Inc. first quarter 2026 earnings conference call. At this time, all participant lines are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Chris O'Dea with Reverent Investor Relations. Over to you, Chris. Chris O'Dea: Thank you, and welcome. Joining me today are Nicholas J. Randall, president and chief executive officer, Michael Anthony Riordan, chief financial officer, and W. Matthew Tonn, chief commercial officer. I would like to remind everyone that statements made during the conference call related to the company's expected future performance, future business prospects, future events, or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America, Inc.'s Form 10-K description of certain business risks, some of which may be outside of the control of the company, that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events, or otherwise. During today's call, there will also be a discussion of some items that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon. Our earnings release for the first quarter 2026 is posted on the company's website at freightcaramerica.com along with the 8-K, which was filed at market close yesterday. With that, I will now turn the call over to Nick for a few opening remarks. Nicholas J. Randall: Thank you, Chris. Good morning, everyone, and thank you all for joining us today. Our first quarter results were in line with expectations and remained consistent with the operating cadence we expect for 2026. At the same time, our commercial differentiation and expanding aftermarket business, which grew 86% year over year, continues to distinguish FreightCar America, Inc. and reinforces the resilience of our business model across market cycles. Our ability to serve specialized customer needs through not only new car builds, but also retrofits, conversions, and our expanding aftermarket platform all play a key role in growing our addressable revenue opportunities and allowing us to fulfill a broader set of customer programs. In short, FreightCar America, Inc. is a truly diversified railcar company and that remains central to our strategy. Supported by our manufacturing expertise and strong productivity improvements, we realized one of the highest gross margin quarters in over a decade, with 17% gross margin in the quarter. This represents an expansion of 190 basis points year over year. What is especially encouraging is that we achieved this performance on lower utilization, highlighting the operational agility and the variable structure of the business. Commercial activity was also encouraging in the quarter, with significantly improved pipeline activity amongst key accounts and solid order intake, including demand for our conversion and retrofit work. We increased our backlog by $19 million sequentially and, together with the expected contribution from retrofit and aftermarket activity, we continue to expect performance to be weighted towards the back half of the year. Internally, as we have scaled our manufacturing footprint, we have been on a continuous improvement journey focused on enhancing productivity and strengthening execution across our manufacturing operations. During that time, we have successfully established four fully operational production lines and have taken a relentless approach in driving efficient manufacturing practices. We are extremely pleased with our progress to date, noting that we have increased productivity by approximately 50% over the last 24 months. In addition, we remain agile and are able to remain flexible as needed, giving us additional operating capacity capability as demand evolves. Together, these actions and capabilities provide additional support to drive consistent margin performance over the long term. At the same time, programs like TrueTrack are helping reinforce accountability, real-time build visibility, and quality throughout the production process, driving greater consistency, reducing rework, and strengthening production discipline across our operations. We also remain focused on the continued expansion of our aftermarket platform, an important part of our strategy to build a broader and more balanced rail business over time. We are excited with the progress we have seen so far with our recent [inaudible], which represents an important step in expanding our aftermarket capabilities. We remain disciplined in how we invest behind that, with a focus on selective adjacent opportunities that strengthen our position in core rail markets, expand our capabilities, and support attractive long-term returns. Overall, we remain mindful of the current new build environment, where industry order activity has remained relatively consistent with last year's levels. Importantly, that dynamic continues to point to underlying pent-up demand as fleets age and deferred replacement needs build over time. As those fleets reach retirement age, customers are increasingly likely to place orders closer to the required delivery timing, which tends to favor more agile manufacturers by creating a shorter lead time environment. FreightCar America, Inc. is well positioned in that regard. With our improved productivity, stronger operating discipline, and a flexible manufacturing model with scalable capacity, we are well equipped to respond efficiently and capitalize on opportunities as replacement demand returns over time. With that, I will turn it over to Matt to discuss the market environment in more detail. W. Matthew Tonn: Thanks, Nick, and good morning, everyone. I will start with a brief update on the market and our commercial activity during the quarter. Industry conditions for new railcar builds remain relatively consistent with the prior year, with expected annual deliveries tied to replacement demand. This dynamic reflects underlying demand as fleets continue to age and replacement needs build over time. Order activity during the quarter was also consistent with this environment, with industry orders totaling 5,654 units compared to 5,085 units in the prior year period. Railroad service metrics continue to trend positively across the industry. Key indicators like reductions in dwell time and increased velocity speak to improved rail service, customer confidence in rail operations, and support long-term rail demand. Through the first quarter, U.S. carload traffic was up over 4% year over year, with 13 of the 20 carload segments showing growth. Grain and chemical carloads posted the strongest growth, which has also been reflected in our pipeline for new covered hopper cars. Overall, first quarter car loadings excluding coal were the highest since 2015 and indicate that despite softness in some sectors, underlying rail demand remains resilient. During the quarter, we saw strong commercial activity, including growth of our sales pipeline across our broad product portfolio of new build and conversion railcars. Further, we continue to see increasing interest in our aftermarket business as customers look to extend the useful lives of their aging railcar fleets through scheduled maintenance activity. Backlog at the end of the quarter totaled 2,058 units valued at approximately $156 million, with a diversified mix across new builds, conversions, and retrofit programs that support a balanced revenue profile. Importantly, we are beginning to see customers who were evaluating new car orders moving forward with purchase decisions. In those instances, our flexible manufacturing footprint and ability to pivot quickly positions us well to meet customer-specific delivery timing requirements. From a market share perspective, we estimate our addressable share of industry new railcars, excluding tank cars, was approximately 17% for the quarter, which is in line with our typical market share. Importantly, this metric does not include our work outside of new railcars, including railcar conversions, retrofits, and rebodies, which further diversifies our revenue base and expands our participation across the broader railcar market. Looking ahead, as Nick mentioned, we remain on track to begin shipments under our tank car retrofit program in the second half of the year, with initial activity expected in the third quarter and more meaningful contribution in the fourth quarter. Overall, while near-term market conditions remain measured, we are encouraged by the level of commercial activity, the strength of our pipeline, and the continued diversification of our backlog. With that, I will turn the call over to Mike to walk through the financials in more detail. Michael Anthony Riordan: Thanks, Matt, and good morning, everyone. I would like to begin with a few first quarter highlights. Revenue for the quarter was $64.3 million compared to $96.3 million in 2025. The year-over-year decline primarily reflects lower railcar deliveries, with 577 units delivered in the quarter versus 710 units in the prior year period. As noted, this was largely driven by underlying demand and expected timing. While production timing impacted first quarter deliveries, we were encouraged by the momentum in our aftermarket business, where sales grew 86% compared to the prior year period. This growth reflects the progress we are making in expanding our presence in the aftermarket, driving further diversification to our business over time. Gross profit for the quarter was $10.8 million compared to $14.4 million in the prior year period. Gross margin was 16.8%, up 190 basis points from 14.9% last year. The improvement in margin was driven primarily by a more favorable product mix that expands beyond new railcars, as well as the productivity gains and operational efficiencies across our manufacturing operations that Nick mentioned earlier. Importantly, we delivered this margin improvement despite lower production volumes, underscoring the benefits of our mix, productivity, and cost discipline. This improvement reflects the progress we have made in strengthening execution, improving throughput, and driving a more disciplined operating model. Selling, general, and administrative expenses as a percentage of revenue increased to 17.7% from 10.9% in the prior year period, primarily reflecting lower revenue in the quarter rather than a meaningful increase in absolute SG&A expense. On the bottom line, we reported net income of $41.6 million, or $1.15 per share, compared to $50.4 million, or $1.52 per share, in the prior year period. Results for the quarter include a $49.1 million non-cash gain related to the remeasurement of our warrant liabilities. Excluding non-cash items, adjusted net loss was $500,000, or $0.04 per share, compared to adjusted net income of $1.6 million, or $0.05 per share, in 2025. This change primarily reflects lower volumes in the quarter. Adjusted EBITDA for the quarter was $3.2 million, representing a margin of 4.9%, compared to $6.4 million, a margin of 6.7%, in the prior year period. The year-over-year decline in adjusted EBITDA was primarily driven by lower deliveries, consistent with the expected quarterly cadence, partially offset by the margin improvements mentioned earlier. We continued to execute a disciplined and measured capital allocation strategy, balancing targeted investment in the business with a continued focus on liquidity and financial flexibility. From a balance sheet perspective, we further reduced debt in the quarter and ended with $52.8 million in cash and cash equivalents. Capital expenditures for the first quarter totaled $147 thousand. Moving forward, we continue to expect 2026 capital spending of $7 million to $10 million, including approximately $4 million to $5 million of maintenance spending as well as targeted investments to complete our previously announced tank car manufacturing initiatives. The productivity improvements we have made, together with our flexible manufacturing footprint and existing production lines, gives us the capacity to support higher production levels as demand improves without significant additional capital investment. Because that capacity is already in place within our current footprint, we can scale production as needed while continuing to direct capital towards opportunities to strengthen the business over the long term, including expanding our aftermarket platform and pursuing selective opportunities that enhance the stability and durability of our revenue and cash flow profile. Overall, first quarter results were in line with our expectations and reflect the planned production cadence for the year. We are reaffirming our full-year 2026 guidance, and our expectations for a stronger second half remain intact, supported by backlog visibility, scheduled program activity, aftermarket momentum, and continued productivity improvements. We will now open the call for questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Mark Reichman with Noble Capital Markets. Please state your question. Mark Reichman: Thank you. So if I look at railcar sales revenue divided by railcars delivered, it was a little under $92 thousand for the first quarter. That number drifted down throughout 2025, and that was also true for the backlog value per railcar. So I was just wondering if you could talk a little bit about the product mix changes throughout the year. Would you expect that number to get above $100 thousand? Michael Anthony Riordan: Hi, Mark. This is Mike. You are right. In the back half of 2025, we talked about mix shifting more towards conversions and rebody opportunities we had. The same thing in Q1; it was a heavier conversion quarter. I would expect, as we move into the back half, to see that number go above $100 thousand as the mix will shift back towards new car activity in the second half of the year. Operator: Does that answer your question, Mark? Mark Reichman: It does. The second quarter, would you expect an improvement from the first quarter in that regard as well? Michael Anthony Riordan: From an average selling price, we should see that go up from where we were in Q1 as well, and then build throughout the year. Mark Reichman: Okay. And then just my next question is, I think expectations were for a much stronger second half, but with rail deliveries at 577 in the first quarter, it seems like there might be a little catching up to do to get within guidance. Could you maybe talk a little bit about the cadence of railcar deliveries? And do you think your net railcar orders received, I mean, I think it was 709 in the first quarter, are going to fuel strength into the second half of the year? Nicholas J. Randall: Mark, I will start answering that question. It is really an order pipeline question, and then that will drive the delivery cadence in the second half. This time last year, we talked about how improving our agility in manufacturing—effectively shortening our lead time and improving our response time—would favor people in a market where the number of orders being placed is lower than the replacement average. That is what we are seeing again. We drove a lot of productivity improvements and we have shortened our, or improved, our velocity and shortened our dwell time in the manufacturing plant, which allows us to keep capacity open in the near term for customers as they place orders. Then we get visibility into the full pipeline of our commercial opportunities. We have an increase in the pipeline activity—that is customers talking to us about orders in the 2026 timeframe and our ability to fulfill those orders still within the 2026 timeframe. We are able to have more insights than we do talking about pure booked orders on the pipeline activity—the type of product, what the product is waiting for to become a live order, etc. So yes, it is going to be weighted towards the second half. We said that last year, and it was. We are committing that it will be the same this year. A lot of the work we did, both in our scalable manufacturing and our ability to ramp up from what we did in Q1 to significantly higher numbers without introducing risks, is key to our success in that as well. The order activity, I will pass on to Matt; he can talk a bit more about that. But yes, it is heavy weighted to the second half. We knew that going in and we have designed our plan around that, and we are still confident we can deliver on that. W. Matthew Tonn: I will just add that we have been adept at being able to convert orders with very short lead times. Customers that have been on the sidelines are now moving into the order stage, and our ability with our efficient footprint has allowed us to convert those orders very quickly and deliver. That was executed multiple times within the quarter. And just to comment on the pipeline, the pipeline is continuing to grow. It has been quite active in the latter part of the first quarter and into Q2. I will not speak to order activity in the quarter; we will save that for the next earnings call. But overall, we have a high level of confidence in the strength of the pipeline for 2026, and even pipeline activity into 2027 and beyond. Mark Reichman: That is great. That is very helpful. Thank you very much. Operator: Our next question comes from Aaron Bruce Reed with Northcoast Research. Please state your question. Aaron Bruce Reed: Thank you. A little bit of a follow-on to the comment on the lower deliveries. I was wondering if you could shed a little light around whether deliveries were impacted at all by preparing for the tank car deliveries in the back half of this year. You are not going to be operating on that fifth line, but that fourth line. Did that have any impact as well? Nicholas J. Randall: No, Aaron. The opposite. We have historically talked about having a fifth line on the roof, and we can open that fifth line pretty quickly, in under 90 days. But with our productivity improvements, what we are finding is we are raising the throughput on those first four lines in our ability to convert more cars on those four in a more productive manner. What that means is our installed capacity on those first four is increasing quite significantly compared to what we originally intended, with those productivity and velocity improvements. So yes, we will more than likely do the conversions you mentioned—some tank car conversions—on the footprint we have, possibly not even needing the fifth line for that. It is available to us should we need it. But I would rather sweat the assets as much as possible before we commit to expanded capacity. In short, the volume was not impacted negatively because of preparation work. The preparation work has gone to plan. We have the certification as required, but that has not impeded our freight car business or our freight car capacity. We were simply responding to customer demand profiles during the quarter. Aaron Bruce Reed: Okay, great. And then another follow-up question to that is, last year I think overall deliveries across the industry were around 30,000. Do you have any more insights about what you might expect for the total number of deliveries for the remainder of 2026? And have you gotten any indication of what 2027 might look like? Nicholas J. Randall: I am not going to try to quote year-to-date; I will do it in full years because it is easier to do the math that way. Typically, when we look at deliveries, deliveries are going to lag behind order activity. So we look at the order activity for 2025, which would suggest that deliveries in 2026 are going to be somewhere between 25,000 to 30,000, giving a wide range, given that some can still convert in 2026. That would be kind of consistent. Then I would expect the orders in 2026 to be about that range or slightly higher as they start receiving orders in the back end of 2026 that go into 2027. There is a lag time. Traditionally, if you look in the rail industry, that lag time between order placement and delivery has been as far as 18 months or longer. Typically now, certainly with our agile manufacturing platform, that timing from order placement to delivery can be as short as 9 to 12 weeks in some cases. What we are seeing is a compression of that order cycle from order placement to delivery. We have structurally aligned our operations, supply chain, and support engineering roles so that we are very agile in that process, which allows us to capitalize on that shortened lead time that the market and the customers are beginning to look for. Aaron Bruce Reed: Super helpful. And then I guess one last question: when you look at the total overall number of deliveries throughout the year and your overall market share, even as the industry is seeing deliveries fall a little bit, you are continuing to take market share. Have you seen any competitors take any competitive pricing action to combat the market share you are taking, or is it pretty much the same as it was before? Nicholas J. Randall: I will answer at a very high level and then get more specific. In a free market economy, competitors always respond in some way, whether it be pricing or value proposition or some other way. I would expect that to always be true in the rail space. For us, that means we are very conscious that we have to earn the right to win our work and earn the right to win our market share. We take that very seriously. We have never said we are going to be the lowest-cost producer, but we will be the most valuable producer. We will make sure that we deliver exactly what our customers want and need and enhance our value proposition. We truly believe in our products, our services, and the relationships that we build. When we combine all that together, we win work on our own merits. Competitors can respond to that how they see fit. We will keep an eye on it, but we have grown both in account count and in market share, as you said, and we fully expect to sustain those gains and, in fact, build upon them. As the market deliveries respond back to the normal 38,000 to 40,000 units a year, we truly expect to protect that market share gain through that growth cycle as well. Aaron Bruce Reed: Super helpful. Thank you. Nicholas J. Randall: Thanks, Aaron. Operator: Our next question comes from Brendan Michael McCarthy with Sidoti. Please state your question. Brendan Michael McCarthy: Great. Good morning, everybody. Thanks for taking my questions here. I just wanted to start off on the Q1 gross margin and see if we could dissect that a little bit more. How much of that was structural in nature, or was that more so driven by your higher conversion deliveries in the quarter? Michael Anthony Riordan: Hey, Brendan, this is Mike. I would call the majority of that structural. We did not have any retrofits. But as alluded to, with the average selling price being down, we had more conversions; you will naturally see the gross margin up. As we have mentioned, typically, the bottom-line gross profit on a per-unit basis is relatively similar between conversions and new cars. But you have a lower price tag on a conversion, so you see the margin a little higher. Brendan Michael McCarthy: Got it. That makes sense. I meant to say conversions actually because I think the retrofits are more back-half weighted in the year. Is that correct? Michael Anthony Riordan: Yeah. Brendan Michael McCarthy: Got it. On that point, with the retrofits in the back half of the year, I think you mentioned you are still expecting to see the average sales price step up throughout the year. Can you differentiate that between the two, in terms of delivery cadence? Michael Anthony Riordan: Sure. I think we have mentioned that the retrofit program we have is a two-year program. It kicks off in Q3 for us and really starts going in Q4. Probably about a quarter of that total order will take place in calendar year 2026, with the balance going through 2027. So the retrofits will have a lower impact on ASP this year compared to next year, where the bulk of them are taking place. Brendan Michael McCarthy: Okay. That makes sense. That is helpful. And then last question for me: on the guidance affirmation, how confident are you that you can really hit the midpoint there, and how much of that is backed by you banking on a recovery in industry order flow in the back half of the year and really capitalizing on those short lead times? What is underpinning the confidence there? Nicholas J. Randall: I will walk through that first, and then Matt can put some color around some of the order activity. Yes, the year is back-half loaded. We know that; we planned around that. The back half is not really requiring the industry to get back to normal. We have always planned on the industry order quantity being somewhere around 25,000 to 30,000, similar to what it was last year, and that is what our guidance is based on. If there is a sooner-than-expected return to normal replacement levels, then that would probably support a stronger result. But the assumptions we have in that are based less about industry dynamics, which are good to look at, and more on our relationships and our actual customers and the orders they are working through, and the projects that those orders are going to be delivered for. We are able to base it on the facts of the order pipeline and gestation process and risk-adjust from that. While the industry level is a background that helps set the main scene, when we look at our guidance and our forecast, we are really looking at our own pipeline with a lot more detail and risk-assessing against the orders we have and the projects we are working on and what may or may not influence accelerating or deferring any of those projects. It is not always fully reflective. Last year, we grew market share and we grew unit count even though the industry counts went down significantly. It is going to be a rinse and repeat for us this year—similar dynamics. Still a lot to do, clearly, but I am confident that we are not just mapping it simply to “here is what the industry does, so therefore here is what we do.” We truly believe we have to earn the right for every order, and we work on it on an order-by-order basis with our customers and our projects. Matt, if I missed anything on that. W. Matthew Tonn: Just a couple of comments, Brendan. The back-to-back years of order activity have averaged 23,000 units. We are scrapping more cars than are being ordered. When we have conversations with customers about their needs, we are getting to an inflection point where we cannot keep this low level of order activity and high level of car scrapping and not start replacing railcars. We have spoken in the past about impending demand as we approach the end of the decade, and customers are starting to get— I will not say more serious, but certainly focused on—their demand for railcar needs now. This is what we refer to as a high-quality pipeline. We are seeing much more activity in terms of permitting and funding for railcar builds. So when we talk about how the outlook is for the remainder of the year, it is based upon good order activity that we have seen so far in the quarter, but I think there is also solid, high-quality pipeline activity that gives us high confidence in meeting our guidance. Brendan Michael McCarthy: That makes sense. I appreciate the detail there. That is all for me. Operator: Our next question comes from Mark Reichman with Noble Capital Markets. Please state your question. Mark Reichman: Thank you. Just a follow-up. You can imagine, with 577 deliveries in the first quarter and guidance between 8,000 and 8,500, people are going to be a little skeptical about meeting that guidance. But on the other hand, you have that ABL facility, and that gave you a lot more production flexibility. We cannot really see what is going on behind the scenes, but do you have some deliveries already in the bag that you know are going to get delivered in the third and fourth quarters? I guess what I am asking is whether your recent flexibility in terms of being able to produce and deliver is part of what is behind the lumpiness in the delivery schedule this year. Nicholas J. Randall: I will try to break down the couple of questions wrapped up in that one, and then Matt and Mike can add some color. First, if you just look at our guidance at the entry level, as you said, it is just over 3,450 or so still to do at the end of Q1 to ship in the year. That would say, on a level-loaded basis, call it 1,200 units a quarter, or about 90-something units a week. That is well within our capacity. We have demonstrated much higher shipment profiles than that before. So I do not think there is a capacity concern or ability to flex. We drove the productivity improvements so that we can handle a lot of those delivery commitments sometimes in a single shift as opposed to a double shift. We have a lot of improvements baked into that. So I do not think we have a risk from a capacity perspective; we can flex our volume and throughput very high. Second, on timing: we may build cars ahead of schedule. We may do a build sequence in a prior quarter, but then you have finished goods or on the ABL or some of the financial mechanics that then get the revenue recognition in a later quarter. We sometimes do that. There is not a lot of that in Q1, but you will see some of those in Q2 builds that will ship in Q3 and Q4. That is normal for us as we smooth out that process. Those things do happen and will happen, but they allow us to buffer supply chain variability and maintain consistent output. That usually works better for us. From a pipeline perspective, there is higher customer demand in the second half than there was in the first half, certainly in the first quarter. There is only so much prebuild you can do ahead of time because then you have to pay the storage fees, the movement fees, and a whole bunch of things. With our flexible manufacturing, we are able to deliver when our customers need them rather than having the customer make compromises on shipment timing and storage, etc. When you roll all these things together—between our scalable manufacturing, our operational excellence, our TrueTrack, and our deep relationships with our customers—we are able to flex our delivery times so that our customers do not have to make compromises. That allows us to have another edge as to why we are a supplier of choice for most of our customers. Mark Reichman: That is great. That is very helpful detail, Nick. Thank you. Operator: That was the last question for today, and it concludes the teleconference call. You may now disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Hello, and welcome to the Viper Energy, Inc. first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press *11 again. Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Chip Seale. Chip Seale: Thank you, Andrew. Good morning, and welcome to Viper Energy, Inc.’s first quarter 2026 conference call. During our call today, we may reference an updated investor presentation which can be found on Viper Energy, Inc.’s website. Representing Viper Energy, Inc. today are Kaes Van't Hof, CEO, and Austen Gilfillian, President. During this conference call, the participants may make certain forward-looking statements relating to the company’s financial condition, results of operations, plans, objectives, future performance, and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company’s filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kaes. Kaes Van't Hof: Thank you, Chip. Welcome everyone, and thank you for listening to Viper Energy, Inc.’s first quarter 2026 conference call. The first quarter marked a strong start to the year as production exceeded our expectations and that momentum is carrying into an increased growth outlook for the remainder of 2026. During the quarter, operators in our acreage turned more than 650 gross horizontal wells to production, led by Diamondback’s 114 gross wells in the Midland Basin, with meaningful contributions from leading third-party operators across both the Midland and Delaware Basins. Based on first quarter results and continued strong activity across our acreage, we are increasing the midpoint of our full-year oil production guidance by roughly 2.5% and expect growth to be driven primarily by Diamondback’s acceleration in near-term activity and continued development of Viper Energy, Inc.’s high concentration royalty interest throughout the basin. Importantly, this increased production outlook represents over 5% organic growth relative to our pro forma 2025 exit rate. In addition to this organic growth, Viper Energy, Inc. also continues to execute on our differentiated inorganic growth strategy. Yesterday, we announced the Riverbend acquisition, in which Viper Energy, Inc. will acquire over 3,000 net royalty acres and approximately 2,000 barrels of oil production per day for $337 million in cash and 3.7 million Class A shares. These assets are highly complementary to our portfolio, with roughly 75% overlap on our existing acreage and further increase our exposure to high-quality third-party public operators. Turning to capital allocation, our first quarter return of capital of $0.94 represents 90% of our cash available for distribution, and this is comprised of a $0.68 per share dividend and $0.28 per share of stock repurchases executed in the quarter. As we have outlined, we are committed to returning at least 75% of cash available for distribution, and our return of capital framework is designed to be both disciplined and flexible to fit the needs of our business. Prior to the Riverbend acquisition, we had a further commitment to return 100% of cash available for distribution if we were at or below $1.5 billion of net debt. On that point, it is important to note that $1.5 billion net debt is not a static amount, but instead represents a capitalization mix designed to evolve with the continued growth of the business. Within our broader capital allocation strategy, we will continue to invest in growing our business when the right opportunities present themselves. However, in periods where we are closer to our minimum debt mix, we will provide all that cash back to our stockholders. In closing, Viper Energy, Inc. offers a differentiated investment within the energy sector. Our mineral and royalty model, deep inventory position, and alignment with Diamondback support durable organic growth and strong free cash flow generation. Combined with disciplined capital allocation, we are well positioned to deliver sustainable per-share growth and attractive long-term stockholder returns. Operator, please open the line for questions. Operator: Certainly. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. One moment, please. First question comes from the line of Greta Drefke with Goldman Sachs. Greta Drefke: Good morning, team, and thank you for taking my questions. First off, I was just wondering if you could speak to the number and scale of remaining Permian pure-play packages available that Viper Energy, Inc. could potentially consolidate over time. Do you expect Viper Energy, Inc.’s consolidation strategy to be the roll-up of smaller positions, or are there positions with meaningful scale that Viper Energy, Inc. could evaluate over time? Kaes Van't Hof: Hey, Greta. Thanks for the question. I think it is going to be both. This deal with Riverbend is kind of the first deal in this size range that we have executed at Viper Energy, Inc.’s new pro forma size and scale, meaning post drop-down. I think it is a nice tuck-in acquisition, and we can execute on these very seamlessly. When you think about the opportunity set of deals in this size range, it is quite sizable, actually. In addition to that, there is a handful of larger opportunities. We will see how things play out. It is still tough to get deals done in this market, I would say, but as we showed yesterday, there are ways for buyers and sellers to come together with the volatility to still get deals done. I would say I am cautiously optimistic, but the opportunity set, both medium-sized and larger, is really quite massive for Viper Energy, Inc. We think we have positioned ourselves to be the buyer of choice for those mid-sized to larger deals. A deal like Riverbend would have been a very large deal for Viper Energy, Inc. three or four years ago, and now we are able to finance it without going to the market, able to pay down that financing very, very quickly, and not have a huge overhang on our stock. I think it is pretty clear that any large private equity-backed mineral position that has been built over the last five-plus years is now considering an exit with oil prices where they are. I think we are clearly the buyer of choice, but we need to be disciplined in terms of our valuation framework, and getting this deal done with Riverbend is a good example of that, and hopefully more to come. Greta Drefke: Great. Thank you. That is very helpful. And then for my second question, I just wanted to follow up a bit more on Riverbend specifically. You outlined that about 75% of the asset base overlaps with Viper Energy, Inc.’s existing assets, but I was wondering if you could provide any more detail on the quality and/or geological differences of the other 25% relative to Viper Energy, Inc.’s position. Austen Gilfillian: Yes, so the Midland Basin is going to be a lot of overlap. The Midland Basin is almost three-quarters, call it 70%, operated by Exxon and Diamondback. We are really kind of in the Midland, Glasscock, up in Reagan area, and a lot of undeveloped acreage under Exxon. I would say that looks a lot like Viper Energy, Inc. does today. The Texas Delaware looks pretty similar with some of the Reeves County assets under Permian Resources, for example. What is different is probably some of the New Mexico assets, and that is the exposure that we outlined under Conoco, Oxy, and EOG. So it is really a balanced mix. It gets a lot of what we like in the Midland Basin, and it gets some new, exciting exposure in New Mexico that Viper Energy, Inc. historically has not had a huge presence in. Operator: Thank you. And our next question comes from the line of Analyst with Barclays. Analyst: Hello. Good morning again. I want to ask about capital allocation. Given Diamondback is taking a more opportunistic approach on buybacks, can you speak to the capital allocation process and decision-making for Viper Energy, Inc. in terms of both the percentage of free cash flow being returned and the allocation of that cash return in the form of buybacks versus variable dividend? My follow-up is actually something that you mentioned on the Diamondback call, this resource recovery, that we are on the cusp of a technical breakthrough and could see resource recovery increasing in the Permian. Clearly, that is beneficial for Viper Energy, Inc. Maybe just speak to where you are seeing the productivity trends across Midland and Delaware, and how that potentially higher resource recovery could help drive Viper Energy, Inc.’s production growth down the road as well. Kaes Van't Hof: Good question. I would say the difference between Viper Energy, Inc. and Diamondback still remains that, because of the low or zero CapEx at Viper Energy, Inc. and the fact that this was taken public as a distribution vehicle, we still want to be primarily a distribution vehicle where share repurchases are brought into the equation when we have a unique situation with an unorthodox seller or a non–long-term holder of the stock, or the stock is significantly depressed in terms of valuation. Versus Diamondback, where you have an E&P business with CapEx and different priorities in terms of free cash generation. So we have gone to this number where we are going to distribute at least 75% of our free cash every quarter. This quarter we went with 90% because the balance sheet is in really, really good shape, and we will see what happens in Q2. If we have significantly higher prices throughout the quarter, I think we have flexibility to return anywhere between 75% and 90% of free cash because we know that the excess free cash flow is going to pay down the Riverbend deal very, very quickly. Viper Energy, Inc. is in a really good spot, but I would say overall we are focused on more cash going out the door than repurchases and have less need for debt reduction given the position of the business. On the resource recovery theme, this is a long-term megatheme. I do not have a ton of concrete examples today. Obviously, we have done some tests at the Diamondback level of surfactants and advanced chemicals, and those have been done in areas where we do have Viper Energy, Inc. interest, so Viper Energy, Inc. does get that benefit. It is immaterial today, but using the crystal ball four, five, six years down the road, could that be a material part of Diamondback’s capital plan and therefore Viper Energy, Inc.’s production profile? I think that is entirely possible. The other key advantage that Viper Energy, Inc. has is being in roughly 50% of the wells in this basin. We have differential knowledge as to what everybody is trying across both sides of the basin. As these tests continue, we will have differential information at Viper Energy, Inc. and hopefully leverage that to improve returns across both companies. Operator: Thank you. And our next question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: Hey, Kaes. My first question, just on production guidance: besides the boost in Diamondback, could you talk about what other sort of upside third-party activity you are assuming? And secondly, just on the M&A side, after the prior sale earlier this year, are you holding much that you would now consider non-core at this time? Kaes Van't Hof: I will give you my high level. We have not booked a ton of third-party acceleration or faster development yet in our guide. I think it is likely to come, but we have seen the leading indicators without seeing them convert into dust and wells turning online. If I was a betting man, at these oil prices, things are going to accelerate throughout the basin. Austen Gilfillian: There are two parts to the DUC equation. One is the absolute amount of DUCs and permits that we have; the second part is how quickly those get converted to production. It is easy to see in real time any increase that happens in the DUC and permit count. It is harder to get a feel for the quicker conversion rates. Right now, we are getting the benefit of any increased permitting activity, but we have not modeled increased rates of conversion. That is going to be the biggest driver as you think about how it impacts the next six months. We are watching and monitoring things as they evolve, and we expect some things to come our way, but we probably have not fully baked in the acceleration benefit from third-party operators across the basin. Neal Dingmann: Thanks, Austen. Kaes Van't Hof: On the M&A side, we cleaned up all the non-Permian assets and used that to put the balance sheet in perfect shape. I think we will see a wave of private equity-backed mineral companies at least try to test the market over the next couple of quarters to a year, and we are primed from a positioning perspective to take advantage of that. Neal Dingmann: Thank you. Operator: Thank you. And our next question comes from the line of Paul Diamond with Citi. Paul Diamond: Thank you all. Good morning, and thanks for taking the call. Just a quick touch on Riverbend and the M&A. You talked about the availability of deals, but how has recent volatility impacted the bid-ask of the deals of different sizes? Are you seeing a bit more convergence on those large deals, of which Riverbend is an example? And just one quick piece of housekeeping: cash taxes had a bit of a run-up with recent pricing. At what point do you see things settle down? Is it still like 27% to 28% where things kind of level out, or how much has current volatility pulled that back? Kaes Van't Hof: We only have one good data point with the Riverbend deal. What is interesting about that deal is the strip is so backwardated that we can underwrite a relatively moderate flat oil price scenario for the NAV of that deal, call it $65 to $70 a barrel, and that actually is not too far off from where the strip is. You have the front end that is so high, so yes, we are paying a lower front-year cash flow multiple, but we are not breaking our pick on NAV because the NAV is pretty tied to that long-term mid-cycle price that we are underwriting. Riverbend had owned this position for a while, and they were looking for an exit, and the stars aligned; they were the first to make the move. Credit to them: they now have about 3 million shares of stock that are up 8% to 10% from where we did the deal, and that is a win-win. Beyond that, I have not seen anything else hit the market yet; I just know that supply is likely coming. Austen Gilfillian: On cash taxes, the rate is not changing that much in itself. We still have the 27% to 30% of pretax income, and that is really your 21% statutory rate and the effect of having a higher depletion rate from an income perspective than from a tax perspective. For first quarter taxes, we were higher as an absolute dollar amount than we guided to because income was up, but we expect that 27% to 30% to be a pretty steady rate going forward. Paul Diamond: Understood. Appreciate the clarity. I will leave it there. Chip Seale: Thank you. Operator: And our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: Good morning, and thanks for your time again. Kaes, perhaps for you, more broadly as you think about the green-light environment for Diamondback, what degree of flexibility do you have in the development plan at Diamondback to lean more into the areas where Viper Energy, Inc. has higher NRIs for both 2026 and 2027? And maybe just more specific on 2026 guidance: is it fair to think about the cadence of growth beyond 2Q as a steady build of maybe 1,000 barrels per day per quarter to get to the average of 65.5? Kaes Van't Hof: I think the way we look at it remains the same. We do look at all of our inventory on a consolidated basis for the portion of Viper Energy, Inc. that Diamondback owns. That moves the high-interest area to the front of the development plan. If anything over the next couple of years, given the quality of what we have seen in the Barnett near Spanish Trail, I would bet that area gets accelerated versus expectations over the next 18 to 24 months. One of our best Barnett wells is right off that Spanish Trail, and it is very unique to have an area where you own 100% of the minerals. I think we have a two-well test coming on—it has been a four-well test—coming on in Spanish Trail later this year, and if I was a betting man, I would say that is going to result in accelerated development of the rest of that branch. Austen Gilfillian: On the cadence, I think that is directionally right. We will see how things trend, and if activity gets brought forward, that could move things a little bit, but as we see things today, that seems directionally right. Derrick Whitfield: Thank you. Operator: Thank you. Our next question comes from the line of Leo Mariani with Roth. Leo Mariani: I just wanted to revisit the question of variable dividend versus buyback. On the Diamondback call, you were pretty clear that you wanted to take more of a countercyclical approach and, when well above mid-cycle oil prices, lean more on paying down debt. Obviously, you do not really need to do that at Viper Energy, Inc. Should we be thinking similarly where at a higher-than–mid-cycle oil price, you are more likely to push money to the variable dividends and the buyback could be a bit more muted in the near term? Also, jumping back to the Riverbend deal: you did a good job talking about where the acreage was in terms of key operators. You made a high-level comment that some of the stuff under Exxon was a little more underdeveloped. Can you give a sense of the overall flavor of the inventory there? Is it geared more toward emerging zones, or is there still substantial core legacy zones like Wolfcamp A and Wolfcamp B? And based on what you are describing, if oil prices hang out here, would you expect that production grows a bit over time from that individual piece? Kaes Van't Hof: Generally, you are correct. We are going to lean more towards cash returns at Viper Energy, Inc. It is how the business was set up. We have not used a ton of leverage in deals—particularly the drop-down—and we paid off most of that CTO debt with the non-core asset sale. In the uses of free cash flow, Viper Energy, Inc. has a base dividend that is going to continue to grow. I would put the variable dividend probably a little bit above repurchases, just because that is how the business was set up. I do not think we are going to sit on a bunch of cash at Viper Energy, Inc., given the strength of the balance sheet. The decision tree becomes easier when you are a distribution vehicle versus an overall NAV growth vehicle at Diamondback. We are going to keep distributing cash, we are going to grow these per-share metrics, and that should result in a higher stock price but also higher distributions. Austen Gilfillian: It really highlights the advantage of the business model when you have roughly 90% free cash flow margins. It allows you to do all of the above. You can pay a big dividend with a base plus variable, you can opportunistically invest in the business—whether that is buybacks or acquisitions—and you can have targeted debt reductions, especially in times of higher commodity prices. You do not have to sit around and wonder which of those options to choose, because your investment as a percentage of operating cash flow is pretty low given the margin. On Riverbend inventory, most of the value will come from your core zones being undeveloped, especially in New Mexico and in the Midland piece. If you look at the Midland–Glasscock line, kind of in what we call the four-corners area there, there is a big chunk of legacy Pioneer—now Exxon—completely underdeveloped acreage that I think will be the primary acreage that supports the production profile over the coming years. As you dig in and think about some of the unquantified zones that we did have to pay for, you are getting the emergence of the Barnett in the Midland and also the Woodford in the Delaware, kind of on the eastern edge of the Delaware Basin. We are pretty excited about that. So I think it is a good mix of existing production and also core undeveloped zones, and you get the unquantified upside to go along with it. That is the beauty of the mineral business model. Kaes Van't Hof: On the trajectory, I think 2027 probably grows, and it has got a couple of years of slight growth. Generally, if you zoom out and look over a five- to ten-year period, it looks pretty flat, but 2027 certainly looks higher than the next-twelve-month production number that we put out. Operator: And our next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Tim Rezvan: Good morning, folks. Some of mine have been answered, so just one for you. We were a little surprised that the Viper Energy, Inc. secondary earlier this year was mostly Diamondback selling and not as many unnatural holders. That overhang is still out there a bit. Is there a price at which you potentially would not participate if some of these unnatural holders come to market? How do you think about dampening volatility should they look to sell because shares are back up to about $50? And as a follow-up, we have heard from some minerals peers that, all else equal, a higher strip is bringing sellers to market. Are you seeing that dynamic as well, or are you facing a different dynamic because you are sort of elephant hunting with a couple of the very large packages out there? Kaes Van't Hof: It kind of depends on the size of the deal and the nature of the trade. If it is a sizable deal and we need to make sure it goes smoothly with public shareholders, then we want the long-term holders of the stock to win long term, and that is probably a good use of capital. If it is smaller one-offs, we probably do not need to support it, given the higher float and liquidity of the business. Flexibility is key, and size of the prize is also key. We are well on our way at Viper Energy, Inc. toward that goal of S&P 500 inclusion as the business gets bigger. That is only going to help float, liquidity, ability to exit, and ability to get deals done. Austen Gilfillian: We have seen it on both levels. We are still actively engaged in our ground game, and calls have picked up on that front, surely as a result of where oil prices have moved. We have seen it on the smaller deals, and we have also seen it on the mid to larger packages—the phones are definitely ringing. I just cannot predict yet what the higher strip or volatility means in terms of ability to get deals done. I think the supply is going to be there. It is key for us to stay disciplined, and when the right deals can generate good returns, we will act. If we do that, things will come our way over time. Operator: I will now hand the call back over to CEO, Kaes Van't Hof, for closing remarks. Kaes Van't Hof: Thanks, everybody, for your time. Busy week, and thanks for your support of Viper Energy, Inc. The future is bright. Operator: Ladies and gentlemen, thank you for participating. This does conclude today’s program, and you may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to the Surgery Partners First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dave Doherty, Surgery Partners' Chief Financial Officer. Please go ahead. David Doherty: Good morning, and thank you for joining Surgery Partners First Quarter 2026 Earnings Call. I am joined today by Eric Evans, our Chief Executive Officer; as well as Justin Oppenheimer, our Chief Operating Officer, who joined the company in January. During this call, we will make forward-looking statements. There are risk factors that could cause future results to be materially different from these statements as described in this morning's press release and the reports we file with the SEC. Company does not undertake any duty to update these forward-looking statements. In addition, we reference certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. we reconcile these measures to the most applicable GAAP measure in this morning's press release. With that, I will turn the call over to Eric. Eric? J. Evans: Thank you, Dave, and good morning, everyone. Before we get started, I'd like to introduce Justin Oppenheimer on the call this morning. Justin joined the company as our Chief Operating Officer in January and has made an immediate positive impact on the organization. By way of background, Justin was previously an executive at Hospital for Special Surgery, the world's leading academic system focused on musculoskeletal care, where he held several roles overseeing operations and strategy. Justin will be available to answer questions during the Q&A portion of our call, and we look forward to using to know him better in the months ahead. Now moving to our first quarter operational and financial performance. I'll start with a brief overview of our first quarter results, followed by additional color on our progress across the 3 pillars of our growth algorithm, organic growth, margin improvement and capital deployment. Let's start with the highlights. We are encouraged by our start to the year. First quarter performance broadly in line with our internal expectations, reflecting improved stability across the portfolio and initial signs of recovery in areas that were pressured towards the end of 2025. As a reminder, we ended last year with a select number of clearly identified addressable headwinds, particularly within a small subset of our surgical hospital portfolio. Entering 2026, our focus has been on restoring operating consistency and predictability, better supporting physician transitions and positioning the business for sustainable growth. We believe our first quarter results reflect early progress we have made and position us well to meet or exceed our 2026 objectives. At a high level, during the quarter, we delivered approximately $811 million of net revenue, same-facility revenue growth of 4.4% and adjusted EBITDA of approximately $102 million, as we continue to execute against the foundational drivers of our long-term growth strategy. Dave will walk through the financial details shortly. Tracking our first pillar, organic growth. Same-facility case growth of 0.6% in the first quarter was modest and below our long-term growth algorithm driven by primarily by temporary weather-related disruptions early in the quarter that led to case losses or deferrals in several higher volume but lower acuity markets. Importantly, these impacts were not broad-based and did not materially affect the higher acuity portion of our portfolio. We would also note that this performance is relative to a strong prior year comparison where we delivered approximately 6.5% same-facility case growth in the first quarter of 2025. As we have noted in the past and given the continued acuity shift in our space, we believe the total same-facility net revenue metric remains the best to assess our growth as it reflects both total cases, acuity and rate improvements. At 4.4%, our same-facility revenue growth was in line with our first quarter and long-term expectations. We remain focused on executing our organic growth strategy centered on expanding surgical case volumes while strategically shifting towards higher acuity procedures. To this end, we continue to see favorable trends in our musculoskeletal service line with total joints performed in our ASCs growing 14.6% year-over-year. Our investment in surgical robotics continues to support this momentum. Our portfolio consists of 73 surgical robots, further supporting higher acuity procedures, we can perform safely and efficiently across the platform. We remain focused on thoughtfully deploying this technology to enhance our capabilities where it drives clinical value and enables us to earn more complex, higher acuity cases. Physician recruiting remains another key driver of long-term growth. During the quarter, we recruited approximately 140 physicians with a strong concentration in orthopedics, ophthalmology, GI and other priority specialties. While new recruits take time to ramp, these additions position us well for accelerating volume and acuity as the year progresses. De novo development continues to provide one of the highest returns on capital across our portfolio. During the first quarter, we opened one de novo, bringing our total openings to 9 over the trailing 12 months. Our de novo ASCs are heavily weighted towards MSK, aligning closely with our long-term strategy to expand higher acuity capabilities in attractive markets. Turning to margin expansion. Our adjusted EBITDA margin was 12.6%, in line with our expectations for the seasonally lower margin first quarter. Overall, cost management was solid in the quarter, with both labor and supply costs showing sequential improvements as a percentage of net revenue relative to the first quarter of 2025, which Dave will provide greater detail on in his comments. Our proactive efforts allowed us to partially offset the onetime pressures related to reestablishing incentive compensation, increased provider taxes and tariff pressures that are detailed in our posted slides. Regarding payer mix, while we did see modest payer mix pressure in the first quarter, the trend is moderating from the second half of 2025, and we are continuing to take action to both recover and grow our commercial market share as well as to reduce our expenses to improve our Medicare case profitability. Importantly, regarding the 3 surgical hospital markets we discussed on our fourth quarter call, they are executing their plan through the first quarter, and I am confident that our new leadership teams that are in place will continue to drive progress. Moving into -- on to our third pillar, capital deployment towards M&A. During the first quarter, we deployed approximately $4 million of capital. Our pipeline remains active, and we continue to target deploying approximately $200 million in capital annually. While first quarter deployment was modest, we continue to have a healthy pipeline and remain optimistic about our long-term opportunity to be an accretive consolidator in the very fragmented ASC landscape. As a reminder, our full year 2026 guidance does not factor in any potential impact of M&A. In parallel to continued execution of disciplined M&A, we have made progress on our portfolio optimization initiative. Our efforts remain focused on a small number of larger surgical hospital markets that have broader services than our core short-stay surgical focus. We are in advanced discussions on one key opportunity in a larger surgical hospital market and are working through customary diligence and transaction considerations. Our Board is actively engaged in this process, and we continue to target an announcement in mid-2026. As we continue to advance our portfolio optimization efforts, our focus remains on unlocking financial benefit to the company through reduced leverage and improved free cash flow conversion. Before turning the call back to Dave, I want to thank our teams across the organization as well as our physician partners for their focus and execution, particularly in navigating a dynamic operating environment. We remain confident in the durability and value of our model, the strength of our physician partnerships and our ability to execute against our strategy as we move through the remainder of the year. With that said, I will turn the call back to Dave. Dave? David Doherty: Thanks, Eric. Adjusted EBITDA for the quarter was $102 million. Compared to last year, results reflected the planned impact of payer mix and provider tax items discussed on our fourth quarter call and embedded in our 2026 outlook. Against that backdrop, overall performance came in modestly ahead of expectations and in line with our underlying assumptions for the year. Supply expense represented approximately 27.2% of net revenue during the quarter, while SWB expense was approximately 30.5% of revenue, both showing modest improvement year-over-year. Both professional and medical fees and G&A expenses were broadly in line with the prior year. Other operating expenses were 7.3% of revenue, higher year-over-year, reflecting the provider taxes we have previously discussed. While these items contributed to margin pressure during the quarter, they were fully contemplated in our internal expectations and full year outlook. Collectively, expense ratios were generally consistent with the prior year and our expectations. Same-facility case growth was 0.6%, with several specialties contributing above 2% growth, including vascular and orthopedics. These trends helped offset case deferrals driven by weather-related disruption in higher volume, low acuity markets early in the quarter, which we estimated affected growth by approximately 40 basis points. Working capital performance remained solid. Days sales outstanding were approximately 66 days, consistent with both the fourth quarter of 2025 and the first quarter of 2025. Interest expense increased year-over-year by approximately $7 million, reflecting higher rates following the expiration of our interest rate swap. This increase represented a meaningful cash headwind during the quarter, though it was partially offset by base rate reductions we executed on our credit facility in 2025 and by improved working capital performance. Operating cash flow for the quarter was approximately $12 million, an increase from $6 million from the prior year period, reflecting improved underlying performance consistent with typical first quarter seasonality and timing-related movements in working capital. Capital expenditures during the quarter included $9 million of maintenance-related spend, largely associated with equipment refreshes, information technology and routine facility investments necessary to support ongoing operations. In addition, we made $58 million of distributions to our physician partners, consistent with the historical patterns and our partnership-based model. Net leverage under our credit agreement was approximately 4.3x, which is consistent with the fourth quarter. GAAP net debt to adjusted EBITDA was approximately 5.1x. We remain focused on disciplined capital allocation and expect to continue to drive gradual deleveraging over time, supported by earnings growth and ongoing portfolio optimization. During the quarter, we deployed approximately $4 million on acquisitions. Based on internal development reporting, we estimate these acquisitions will contribute approximately $7 million of revenue in 2026. Regarding our share repurchase authorization, we did not repurchase shares during the quarter. As discussed previously, we will remain disciplined in the use of this program and we'll evaluate repurchases opportunistically based on valuation, liquidity and alternative uses of capital. We are reiterating our full year 2026 revenue guidance of $3.35 billion to $3.45 billion and adjusted EBITDA guidance of at least $530 million. For the second quarter, we expect revenue to represent 24% to 24.5% of the annual target and adjusted EBITDA to be 23% to 23.5%. We -- as you've heard from us today, we continue to manage the business prudently with a focus on enhancing execution and protecting and growing margins. While we know there is still work to be done as we continue to navigate near-term market dynamics, we believe our early efforts have laid solid groundwork for continued improvements in 2026. In addition to disciplined execution of our organic growth strategy and continuing to drive operational efficiencies, progress on M&A and our portfolio optimization initiative represents additional potential levers to accelerate our return to our long-term growth algorithm. We remain confident in our full year outlook and more broadly, our ability to return to consistent and sustainable growth, fueled by the strength of our unique short-stay surgical platform. With that, I will turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] We take the first question from the line of Brian Tanquilut from Jefferies. Brian Tanquilut: Congrats on the quarter. I know it was tough. So maybe I'll start with Justin, since you're new to the earnings call, just curious, I mean, you've been here about 4 months now. Anything you can share with us in terms of what you see -- what you've learned about the company, the operations and then what areas of opportunity you see in terms of like blocking and tackling or areas of further productivity and efficiency gains where you can make a difference in the operations. Justin Oppenheimer: Thank you for the very first question. Maybe what I'll do is just highlight 3 categories of early observations just to stay organized, maybe one around people second around our organization's positioning and three, our operational priorities. So the first, our people, I've spent nearly every week on the ground in our markets, spending time with our people and physician partners. And very impressed with the positive culture of Surgery Partners. It's palpable. Everyone is committed to their patients, to their physician partners to each other. We have talented people who want to have an impact and create value for our physician partners and our shareholders. And so I think just a level set summary on our people, and I think our culture is very strong. Initial talent assessment as our core operators are strong. There's always places to shore up, but that's to be expected. The second category just around our organization's positioning. One of the reasons I joined Surgery Partners is its positioning in the market. The tailwinds in this sector are real, and you can really see them on the ground. Patients want and appreciate the convenient high-value care that we're producing. Physicians want to bring their patients to our efficient facilities and partnered facilities and payers want the procedures done in the right setting. And so you can really see this on the ground. And what's more positive from my mindset is Surgery Partners is the only company at scale focused solely on the management of surgical facilities into the future. So this has been all confirming. To get to your question about operational priorities, with the cultural foundation and these industry tailwinds, the priority is really on execution. And I do believe there are a lot of embedded earnings with better execution, a real focus for our teams coming out of the first quarter is on organic growth and operational excellence. And those have been the central themes coming out of my first 100 days. Growth means physician recruiting and physician relationships, operational excellence means hardwiring cost management and really pulling the key levers that make surgical facilities. And so both our teams and you all hear this drumbeat of growth and operational excellence from me throughout the year. So maybe I'll end with that. Brian Tanquilut: That's very helpful. Maybe, Dave, just shifting gears quickly. As I look at the P&L, a lot of progress here on SWB, supplies cost and even profits. So just curious, I mean, how do we think about, number one, what those levers were pulled during the quarter? And second, the sustainability of these levels of cost essentially its operations level. J. Evans: Yes. Thanks, Brian. I may jump in here, and then I'll let Dave add a little color if he wants to. First of all, thank you for the comments on the quarter. Glad to have a solid start to the year. I think when we look at the cost controls and Justin has been jumping in with this, our team has been focused on cost management for a long time. But we came out of last fourth quarter with a real focus on driving some cost out of the business to improve margins on the Medicare business. You're seeing that show up in SWB and supply management. We do think there's still opportunities there. We've talked about -- if you look across the business the last 5 years, we have consistently improve margin over time. We do have some near-term headwinds. We've outlined in our slides, but we still feel really good about the team's ability to continue to take advantage of our scale in efficiency to drive those costs down as a percent of net revenue. So I don't know, Dave, if you have anything to add to that. But I mean I would say we believe Q1 with a lot of confidence in our ability to manage those costs and to find ways to drive improvement around margins. David Doherty: Yes. I'd just supplement that with a couple of things maybe to highlight where we're going to see some of this pressure coming through on those headwinds that we've cited. And we experienced a little bit inside the first quarter. So those are legitimate headwinds that we're seeing. Reestablishing the bonus is a big one that will start to show up in the second quarter, and you'll really start to see that more significant in the third quarter. So you'll see a little bit of pressure really more of a return to normal on that SWB line as a result of that. The provider tax pressure that we'll see will pop up in our other expenses, and that's a net new item for us. I think historically, that number has been around $200 million for the year. That number will be a little bit elevated this year as we overcome those new -- those new pressures that we've talked about before. Offsetting all of that is exactly what Eric was talking about and what we alluded to in our fourth quarter call as we adjust to the payer mix that we've talked about, cost containment is the other way that we're doing that in a strong partnership. That's what we're really excited about the early work that Justin has done. That we'll see kind of across the board supplies G&A and SWB improvement accelerating more in the second half of the year. Operator: We take the next question from the line of Matthew Gillmor from KeyBanc Capital Markets. Matthew Gillmor: I appreciate the comments on the 3 markets showing some recovery. I just wanted to see if there's any additional details to share, especially with respect to some of the payer mix dynamics that you called out last quarter. J. Evans: Yes. Thanks for the question, Matt. And Justin has actually been on the ground a lot as have I in those markets. What I would say is, look, the pressures have moderated, although there are certainly -- it sounds like we've bounced back completely. We've talked about a little bit. We've got new leadership teams in those markets. We've also got a just -- we've had a lot of time to sit down with our physician partners and focus on the fact that despite all their hard work and growth efforts, they didn't necessarily see it flow through. And so the focus on really, really coordinating closer and tighter to make sure we're competing appropriately for each and every commercial patient to maintain and grow that market share has been there. We've also done a lot of work around just timing of physician transitions, and that continues to be a focus area for us. I would say pretty pleased with the first quarter. Those 3 markets are in line with where we expected them to be making progress. And again, I will reiterate, while those 3 markets had pressure, they are really great markets for us overall. They continue to have really strong payer mix in general, despite the pressure. They also have really, really strong market positions. But yes, no, it's encouraging to see those get back online. Obviously, the fourth quarter was an unexpected kind of challenge in those 3 markets, and we're excited to kind of see the early progress. David Doherty: Great. And then following up on the comment you made about surgical robots and the contribution to total joints. Can you maybe just sort of paint the picture in terms of the growth in surgical robots over the past maybe a year or 2? And how many you think you can add to the portfolio over the next couple of years? J. Evans: Yes. Great question. I mean surgical robots really over the last 4 or 5 years have been an unlock for us and largely with physicians that might have already been partners are using our facility. And we did not feel comfortable bringing those higher acuity cases until they had the matching technology. We continue to see technology in general robotics, whether it be orthopedic robots in some cases, some of the new soft tissue robots that are coming out. The ability for us to make it easy for physicians to move patients safely and have the same level of technology they get in the traditional acute care setting has been a big unlock. And we still see opportunity there. Again, roughly 70% of our total facilities have the ability to do MSK. And a lot of those over time have added robots. We still have a ways to go there. I mean you see that even -- we're still seeing strong double-digit growth in total joints. I don't see that changing in the near future. There's still a lot of cases to transition. When you think about -- we talked a little bit in the opening comments about our de novo pipeline, again, very, very MSK heavy. I think you can expect to see robotic expansion there as well. So we think we're in the early innings. Over the last several years, I mean, we've added double-digit robots on average most every year, continue to find opportunities for that. And in some cases, as we're out recruiting, one of the things we have to be very focused on is how do we match up technology and capacity in a way that's attracted to physicians. And I think our team does that very, very well. Operator: We take the next question from the line of Ben Hendrix from RBC Capital Markets. Benjamin Hendrix: I just wanted to talk a little bit about the lower acuity deferrals weather-related that you saw in the first quarter, just how you're thinking about those getting back on the schedule. Should we expect some skewness in the second quarter in terms of the case growth versus rate balance? And how do you expect that mix to kind of track through the rest of the year? J. Evans: Ben, thanks for the question. So as far as the weather-related deferrals, obviously, I think you've heard all of our peers and everyone talk about January and February, certainly had some weather where it hit us tended to be in markets where we had a lot of kind of high volume, lower acuity procedures, think GI and eyes. About -- Dave mentioned in the script, about 40 basis points of impact on our growth. So instead of 60 basis points, we would have been at 1%, still not where we expect to be long term. As far as getting those cases back, some of them will probably come back over the course of the year. The reality of it is when you lose those cases for weather, you lose a day, it's hard. A lot of those really busy facilities. They're full most of the time. And so yes, we'll capture some of that, but I wouldn't think it's going to lead to any kind of real skewing. The good news is we've seen really strong growth within high acuity. So I don't know, Dave, if you would add anything to that. David Doherty: Yes. Maybe just one thing, just a reminder on the calculation for same-store rate, particularly on a business that has high-acuity business and lower acuity business. And it's not a return of those cases, but a return to normalcy sequentially between the first quarter and second quarter, we'll put a little bit of pressure on that rate just sequentially, if you're looking at net revenue per case. Benjamin Hendrix: And just to follow up. We're getting some incomings on the cash flow from operations print. Just any more detail you can provide on the working capital dynamics you're expecting? And how should we about timing of cash flow realization through the year? J. Evans: Yes, I'll let Dave dive into the details. I'd just say high level on free cash flow, we're very, very focused on driving improvement there. First quarter was an improvement over last year. This business produces a lot of cash. We've got to make sure we continue to convert that and grow with our business along the way we see lots of opportunities in working capital. I'll let Dave talk about a few of those that he's working on this year. David Doherty: Yes. Yes. So first off, just dissecting the first quarter cash flow from operations. We did have some benefit from working capital relatively marginal. I'll talk about that in just a quick second. But other factors that you can kind of look at lower below-the-line spend year-over-year as that number comes back down as we've been guiding to more in line with long-term historical perspective. And interest cost is interesting. There's 2 components of our corporate debt. As you might recall, last year, we did refinance our term loan and the revolver, bringing that down to very good interest rates of SOFR plus 250 basis points. That generated a net positive for us in the quarter of about $9 million. However, in the quarter, that was offset by pressure from unwinding the last quarter's benefit of the interest rate swap that we had last year and then marginally higher debt that we hold related to our refinancing of last year. So working capital, we will now kind of overcome that. Starting in the second quarter, you won't see that interest pressure from the interest rate swap termination. So that unlock should start to happen there. On a working capital basis, again, something I'm super excited about working with Justin and his team on is embedding greater working capital discipline at the facility level. Our days sales outstanding was 66 days in the quarter. That's the same as it was in the fourth quarter. We need to make that better as we progress throughout the course of the year, and we've got plans in place. That's the single largest lever that we have at the facility level in order to unlock that cash flow. Our physician partners are aligned with that because they get better distributions when that happens. So we do expect that, that unlock should happen over the course of the year. Operator: We take the next question from the line of Whitt Mao from Leerink Partners. . Benjamin Mayo: I may have missed this, but how much were the provider taxes in the quarter, both revenue and other operating expenses? David Doherty: Yes. Thanks, Liz, for the question. Yes. So as a reminder for the large group, we did talk about new headwinds that we're facing this year that fall into kind of 2 categories. In one state, the -- pretty much the only state where we have any exposure to Medicaid that was in across the board, 4% rate reduction that started to impact us in the fourth quarter of last year and did impact this year. That had a very small impact on revenue, almost inconsequential, but of course, that flows all the way down to the bottom line. And we also had provider taxes introduced in 2 new states, for which we have virtually no Medicaid business just for the fact that we carry the title hospital in those 2 markets. The combined pressure on the adjusted earnings line for those 2 things is estimated to be around $8 million for the full year, a little bit more front loaded because of that Medicaid rate pressure only affects 3 quarters of the year. So we're a little bit more than 25% of that number impacting our results, split between revenue and other operating expenses. Benjamin Mayo: Okay. So divide it by 4, so more than 2 in the quarter year-over-year was the pressure... David Doherty: That's fair. Benjamin Mayo: Yes. Okay. And my other question is just around like what we're seeing with a lot of the payers that continue to push this campaign around prior authorization. And I'm just wondering if you're seeing any changes with the plan's behavior? And then just also any comments you have around CMS' prior of demo with the Wiser model, whether or not that's having any impact one way or the other. J. Evans: Yes. Thanks, Whit. Appreciate the question. Look, we are certainly all on board and in favor of all the work the payers are talking about when all of the prior authorizations. We do see in markets one of the great things about our model is we are aligned with payers and saving the system money. So this idea of payers making it harder to get approval in the wrong setting of care is a great thing for us. We obviously fully supportive this push to reduce prior authorization burden going back to that 66 DSO days and all the other complexities we face, obviously, would be a welcome headwind -- or a welcome tailwind for cash flow. So we do see payers making real efforts there, and I do think that benefits our business moving forward just because of our cost position. With regard to the Wiser program, that has gone in place the Medicare demo. We have seen -- early on, there were some learnings there just to make sure, as you know, it add some more administrative, unfortunately, work on our side. But we feel like we're through understanding the program. We don't see any material impact. And we understand the goals of that program, which, again, I want to make sure patients are getting the care they need the right care in the right place. All of those efforts align perfectly with our mission, which is really to provide high-value care at the right setting, right care, right place, right price. And so we think those are going to be long-term tailwinds. We haven't seen tremendous impact there yet, although there are certainly markets where we are hearing that it's harder for physicians to get their patients into a hospital when there's an ASC option, and that's great. Operator: We take the next question from the line of Joanna Gajuk from Bank of America. Joanna Gajuk: So can you give us an update on the portfolio optimization and selling or, I guess, reducing exposure to your surgical hospitals? J. Evans: Sure, Joanna, thanks for the question. Obviously, it's something we've talked about for last several quarters is portfolio optimization. We remain committed to reviewing those opportunities within our portfolio to do several things. I just want to remind everyone what we're looking to accomplish with this. One is to make -- to actually delever faster, so finding a way to help us delever improving free cash flow conversion. Some of those places are a little bit more capital intensive than our core business. The third is really to improve our growth rate going forward. And then lastly, just simplify the business to our core short-stay strategy. So we do see opportunities there. It has been -- as you bring up here, the timing of this, it's been hard to predict. We do have a large market, we mentioned in my comments earlier that we are in the final stages of, we are still targeting midyear. But I'd be clear on that, that we're going to be very disciplined on making sure these are good assets, making sure we get the right value while we're committed to portfolio optimization. We want to do it in a way that's accretive to shareholders and make sure we accomplish those things that I talked about earlier. So there's one market that's in the very advanced stages there. We're targeting midyear. We'll see. Obviously, nothing is done until it's signed. And then there are a couple of other markets that we're going to be exploring and we'll give you the right -- we'll give you the updates as those are appropriate. Joanna Gajuk: And I guess with that, if I can, any update on your Investor Day that you were planning? I guess, is it still in the works? So are you waiting to complete more of these before you have this meeting? J. Evans: Yes. No, we're definitely still committed to doing an Investor Day. As we've said before, we are tying that to having something meaningful done within our portfolio optimization. We do plan to do that later this year. And so we're staying very closely tied to that timing. And as we have something to update you on there, we'll obviously do it quickly. Operator: We take the next question from the line of Andrew Mok from Barclays. Unknown Analyst: This is Thomas Walsh on for Andrew. You shared some of the deliberate actions taken to address payer mix pressures from the back half of 2025. How did commercial mix come in, in the quarter? And could you comment more broadly on the view of the strength of the consumer wallet and employment trends in your markets? J. Evans: Sure. So commercial came in about 50% for the first quarter, which was -- had a little pressure. If you look at sequentially, and we always have a little bit of pressure. Obviously, our population is aging. We've got to take commercial market share to stay even. But I feel pretty good about the moderation of that. We are seeing some -- again, some improvement signs there. It was not nearly the same pressure we saw in the fourth quarter, but also did not totally abate. So we're very, very focused on that. I think from your question around just the consumer wallet, it's interesting, the pressure we saw in cases in the first quarter relative to kind of lower acuity, higher volume rates was mainly around weather. I think it's a little early to say. I mean the economy still seems to be holding up relatively well. I'm not ready to say that we're seeing consumers make different decisions. But again, one of the hardest things in health care is to determine why patients don't walk into your doors. But we feel good about the start year for growth. When it comes to -- I think you're kind of alluding to some of the pressure, too, that's been on exchange -- the exchanges and kind of patients transitions there. We've mentioned before because of the nature of our business. We don't really have ERs. It's purely elective. We have not historically in most markets, seen a lot of those HIX patients. And so we haven't really felt a material pressure there, but we continue to watch that. The good news is we're not exposed to kind of payer mix weakening. The only thing that we would have to watch closely is there some kind of dampening or postponing of procedures. And I think it's too early to say we've seen any of that. We continue to believe have great confidence in our outlook for cases this year, which admittedly is a bit below our kind of long-term algorithm of 2% to 3%. Unknown Analyst: And following up, you provided second quarter revenue and EBITDA outlook, that appears slightly below your normal revenue seasonality and some below consensus estimates. Are there any timing elements in the second quarter to consider or for the remaining of the year? J. Evans: Yes. Thanks for the question. I mean there's always some timing elements. I would say -- let me start off by saying we were very confident in our full year guidance. The second quarter guide is just a prudent guide from where we sit today. We feel it's -- actually, if you look at the longer-term seasonality, it's relatively in line with what we've said historically. Certainly, we're entering Q2 with confidence in how the business is progressing this year. We feel good about our ability to meet or exceed our outlook. And I think you should just say that -- I should say it's early in the year. It's a prudent guidance for Q2. I don't know, Dave, if you would add anything. David Doherty: Yes, perhaps just a point of emphasis when you're doing a comparison year-over-year. In the second quarter of last year, we -- I'm sorry, in the third quarter of last year, we announced one of our initial portfolio optimization efforts that took a surgical hospital from a consolidated position down to a deconsolidated position. So that revenue would have been in the second quarter last year, not in the revenue for this year. Any other factor that's going to affect your year-over-year performance inside the second quarter are those headwinds that we've highlighted in our financial supplement. Operator: We take the next question from the line of Sarah James from Cantor Fitzgerald. Sarah James: I want to continue that topic a little bit more. Can you help us bridge the first half to the second half, the EBITDA ramp there? How much of that depends on payer mix recovery versus your cost actions? J. Evans: Yes. Thanks for the question, Sarah. I think look, if you want to -- if you're thinking about bridging the first half performance second half performance, we are not -- there's nothing embedded in there that's some dramatic improvement in our payer mix. So we do have -- again, we're seeing moderation so that is contemplated, but it's -- the second half does not depend on that. From a cost standpoint, we're always working on ways to more efficiently run the business. We do expect to continue to drive improvement on that throughout the year. But I think what I would say is from a seasonal adjustment standpoint that this is a relatively normal spread. And we feel really confident in our ability to deliver not only on Q2, but on the full year. David Doherty: Maybe if I just add just to that fair -- for your benefit. As a reminder, I mentioned this a little bit earlier on the call, but some of those headwinds that we've noted are more front-end loaded and the biggest one being that Medicaid cut, which will not affect our year-over-year performance in the fourth quarter. And the other thing is -- the other 2 things, Eric did mention the focus on cost containment in the industry as those pick up, and we kind of mature into those, those will have an impact inside the second half of the year. And then finally, that portfolio optimization work that we talked about a little bit earlier in my last question, the increase that comes from an earnings perspective, as we talked about last year, is mostly back half of the year weighted. So those are the key components that would drive better performance in the second half of the year, all relatively marginal. But when you add them together, that's how you get north of 50% of the earnings in the second half of the year which is normally the case. It's normal, yes. Operator: We take the next question from the line of A.J. Rice from UBS. Albert Rice: First question around the deal activity, you did $4 million in the quarter, you're saying you're still reiterating the $200 million spend. That's been an area of volatility the last 2 years, 2 years ago above expectations last year, well below. Can you comment on visibility on that deal spend, what the pipeline looks like, what the competitive landscape looks like? J. Evans: Sure, A.J. And it's a great question. Actually, the point you're bringing up is exactly why we don't have it in guidance this year, right? I think we've struggled the last several years with kind of over and under and the timing of M&A is fickle. We'll say, look, we feel good about our pipeline. We continue to see new things coming in. And certainly, it's a very fragmented industry. So big picture that $200 annual number is one that we are continuing to talk about long term. Obviously, off to a little bit of a modest start this year, but we do feel good about the pipeline. It's always a little bit fickle. I would remind everyone that anything we do on the M&A pipeline is pure upside to guidance. And so we do -- look, I expect we're going to make progress. I think last year, we ended up finishing not too far off A.J. I think we had up spending about $180 million had some great deals. We finished up with a big one in the fourth quarter. it was back-end weighted, obviously. And this year, it looks like we're going to end up being a little back-end weighted to given the first quarter. But look, I would say we're were the last kind of only stand-alone short-stay surgical operator. We're well positioned in the market that need -- that is going to continue to consolidate. We think we're well positioned to be one of those consolidators. And so like I don't -- long term, nothing's changed, but the timing is fickle and admittedly, it's been a slow start. Albert Rice: Okay. The other thing I was going to ask you about, you mentioned that you recruited roughly 140 physicians in the quarter. I usually think of the heavy recruiting periods more in the second half of the year, the back half of the year, but maybe not in your case. But just give us a perspective on that. Is that sort of normal course? Or are you -- is that a step up? And anything to call out on where their focus is in terms of any kind of surgical specialty or anything? J. Evans: Yes. Great question. I would say the 140 is kind of -- is basically in line with where we would expect in the first quarter. You're right, we are back-end loaded when it comes to recruitment. That's always the case. And so our physicians that we recruited in August through December of last year, obviously contributing into this year, that will be where you'll see that number raised in the back part of the year. Very focused still on MSK. We spend a lot of time on those higher acuity services and so the team is focused on driving growth there. I would say as a kind of a positive of those 140 doctors this year, they are, by doctor, higher net revenue in total than last year's recruiting class. So again, we very much closely watch kind of that performance. And we've got a very targeted list we're going after. The good news is with technology and with the inpatient only list coming off, that eligible list of proceduralists who can bring all their cases continues to grow. We continue to stay focused on going after the right docs. But definitely back-end loaded, I feel good about the early start. Operator: We take the next question from the line of William Spivack from TD Cowen. Will Spivack: Can you just talk about your expectations for the split between case growth and revenue per case growth as the year progresses? David Doherty: Yes. Thanks, William, for the question. So what we have implied in our guidance for the year continues to be approximately 3-plus percent same facility revenue growth, which is how we prefer to look at this. As you saw in the first quarter, we had just under 1% same-facility case growth. I think you'll skew more positively on the rate side as the year progresses. Of course, as I mentioned earlier, with the return to normalcy in the second quarter, that may be pressured a little bit. But -- so that -- I would consider that to be normal fluctuations. But you'll roughly get an equal contribution between both of those, perhaps skewing a little bit more towards the rate side. Will Spivack: Okay. Just as a follow-up, just to clarify a question from earlier on the other OpEx and provider taxes. So I think you said that was about a $2 million headwind maybe a little bit more to EBITDA in the quarter. So I think other OpEx was up about $15 million. Can you break out how much of that other OpEx increase was the provider tax side so we can kind of back into the revenue as well? J. Evans: Yes. So there's a lot of moving parts there because of all the different states and how they flow through. If you think about in total at a gross level, that OpEx expense related to provider taxes is about $11 million, with the biggest part of that being the new states that we've added. But we'll certainly -- we're happy to go through those details. Then I would also say that other operating expense, if you look at it over time, it does fluctuate quite a bit. This year, though, that change is driven by those provider tax changes, not only in existing states, but importantly and the biggest contributor this year as the new states that added those. And unfortunately, added those without any Medicaid benefit for us. We're obviously still going to be very active in advocacy on some of those areas. So I don't think those things are necessarily forever, if we can work on them, but that's where that's showing up, and that's roughly the numbers. David Doherty: Yes. Yes. I would say a large majority of that year-over-year increase is related to provider taxes, roughly a little bit less than half of that relates to the new provider taxes associated with those programs from which we get no benefit. The good news is those -- even though there may be a big number on provider or other operating expenses, they are in facilities that we don't have a significant ownership interest in some cases, they're relatively small. So that does move down to -- in line with kind of what our long-term growth algorithm, the way I answered with question earlier. So the adjusted earnings piece of that is going to be a little bit lower -- a lot lower, I should say. Operator: We take the next question from the line of Bill Sutherland from the Benchmark Company. William Sutherland: Just want to think about the de novos for a second. Can you give us a sense of kind of what's in the pipeline and maybe how they're sort of moving towards consolidation as a group? J. Evans: Bill, I appreciate the question. We are excited about the de novo pipeline. We have 5 expected to open later this year, 7 more in the pipeline, and we continue to see interest in that area. It is a place where we see the opportunity for accretive growth. Unfortunately, it takes a while to show up. As we've talked about, it takes 12 to 18 months to syndicate and 12 to 18 months to build, a year to get to cash flow breakeven, but the return on these is quite good. And so we're getting into that point where we've been doing this now for a couple of years, it will start becoming run rate. We are not yet to the point, Bill, where we're doing buy-ups in those facilities. We've got about half of those that are with health systems about half that are independent although that independent number, I think, is going to go up over time. In those independent centers, there will be an opportunity as they ramp, we expect to buy up and consolidate those centers. But we're not to that level of maturation, but we're super excited about where those are heading. And feel good about the opportunity to continue to have that be a nice lever to help meet our growth. Operator: Ladies and gentlemen, we take the last question from the line of Benjamin Rossi from JPMorgan. Benjamin Rossi: Just following up on your physician recruitment comment, in the language from the final OPPS rule, much of the logic stream from CMS' discussion about removing the inpatient-only list come from this concept of greater physician autonomy over where they treat their patient case load. Just taking a step back, when thinking about the changes that allow physicians to take a greater portion of their book of business into the outpatient setting, what do you consider to be some of the remaining obstacle they're paying points for doctors that prevent them from treating their entire caseload of Medicare and commercial patients in the outpatient setting at this point? J. Evans: Yes. Great question, Benjamin. I appreciate the question. So the inpatient only [indiscernible], we are very excited about the fact that the government has decided to put the decision back in the physician's hands. As you probably know, over the last 10 years, the government has spent a lot more money than it needed to because they were behind on getting Medicare caught up with what was happening with commercial patients. It happened with total joints. It certainly happened in vascular procedures. And so you I think you look at some of these things, and the government has seen repeatedly where commercial has moved faster and doctors that move patients safely based on technology in front of their list on the Medicare side. So we're always excited when the government leans in to prefer our setting because we know we create great value. We've got great outcomes. So continue to see that as a nice tailwind for the business going forward. Some of the obstacles that still remain. There are some states that haven't caught up with CMS in certain areas of vascular and EP. There are -- in cardiovascular. There are -- I think there's obviously always different parts of the country that physicians have. It's a little bit sometimes going to be a little bit of gill mentality. They have their own reasons they think patients can't be safely treated and certain side of care that we have to go through. Technology is sometimes a barrier. There are certain specialties where the technology, the robotics technology, for instance, is sometimes a limiting factor for ASCs to be able to afford the capital. We think there's real opportunity with payers and with some of the new technologies coming out to fix that issue. So There are some minor things left. I do think that a lot of those things continue to melt away as physicians experience our side of care, continue to have great outcomes with patients and higher acuity. And we're thrilled that no matter which administration has been in democratic, republic and they've supported the ASC space. But in particular, this administration with the removement of the inpatient-only list, that plays perfectly into our thesis, perfectly into what we're trying to deliver for the health care system, and we expect that, that's going to be a nice tailwind for us in the coming years. With that, I appreciate -- go ahead, sorry. Benjamin Rossi: No, sorry, I just wanted to say appreciate the color there. Just real quick then. Now 140 new additions on physician recruiting. Any comments on if these are replacing retirees and departures versus being truly additive? J. Evans: Yes. So I think in the first quarter, we feel really good about the additions we have had. Some of those would be replacing retiring some of them are pure net adds. I don't have that net number. We haven't released that. But I would say we're pretty happy with our start around this recruiting. We do see it as additive to the -- to our growth profile going forward. We're going to be closely watching that this year. Obviously, last year, we had a bit higher retirement rate than we've seen in the past, and we are adjusting to that to make sure we manage that very, very carefully. But super excited about kind of the early reads on recruitment this year. And again, I think as technology and as government regulation allows us to target additional procedures, it certainly continues to open up that world of recruits for us, and we're being very focused on that. So -- appreciate the question. I think that was our last question. I appreciate everyone's time today. And look, I'll let you enjoy the rest of the day. Thanks so much for your time. See you. Operator: Thank you. Ladies and gentlemen, with that, we conclude today's conference call of Surgery Partners. Thank you for your participation. You may now disconnect your lines.
Operator: Hello, everyone. Thank you for joining us, and welcome to the ADM Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's call, Kate Walsh, Director of Investor Relations for ADM. Ms. Walsh, you may begin. Kathryn Walsh: Welcome to the First Quarter of 2026 Earnings Conference Call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer; and Monish Patolawala, our Executive Vice President and Chief Financial Officer. We have prepared presentation slides to supplement our remarks on the call today, which are posted to the Investor Relations section of the ADM website and through the link to our webcast. Some of our comments and materials may constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These statements and materials are based on many assumptions and factors that are subject to numerous risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation and the materials. Unless otherwise required by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events. In addition, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and presentation slides, which can be found in the Investor Relations section of the ADM website. I will now turn the call over to Juan. Juan Luciano: Thank you, Kate. Hello, and welcome to all who have joined the call. Please turn to Slide 4, where we have outlined this quarter's performance highlights. Today, ADM reported adjusted earnings per share of $0.71 and total segment operating profit of $764 million for the first quarter of 2026. Our trailing fourth quarter adjusted ROIC was 6.4%, and cash flow from operations before working capital changes was $442 million for the quarter. Operating performance was robust during the quarter as our team advanced our company priorities, and our crushing and ethanol businesses benefited from an increasingly constructive commodity and margin environment. In particular, soybean crush and ethanol margins strengthened meaningfully as the market anticipated the finalization of renewable volume obligations for 2026 and 2027, which the EPA published on March 27. We commend the administration and the EPA for advancing our renewable volume obligation that strengthens markets for American farmers and enhances America's energy security. The RVO drives demand for corn, soy and other domestic feedstocks, and it supports a reliable domestic fuel supply chain that offers consumers dependable choices in their daily lives. I also want to thank our team for delivering on our plan in a complex and rapidly changing environment. Based on our expectation that we will continue to successfully advance our priorities throughout the remainder of the year, combined with the expectation that the constructive margin environment we are in continues, we are raising our earnings guidance range for 2026. Our full year adjusted EPS guidance range is now $4.15 to $4.70, up from our previous range of $3.60 to $4.25. Please turn to Slide 5. As we look at our strategic priorities for 2026, we remain focused on continuing to reduce our manufacturing and transaction costs, generating strong cash flows, investing in our growth platforms, and further developing and expanding our deep bench of talent to support our strategic priorities. Based on these priorities, we achieved notable progress in a number of areas during the first quarter. Here are several highlights. Our Ag Services business achieved higher North American export activity, which included increased shipments of soybeans and sorghum to China, and the continuation of a strong corn export program. We demonstrated the ability to capture underlying margin opportunities in crushing and refined products and other subsegments. We also delivered strong soybean meal sales during the quarter, driven by robust global consumption. Our team capitalized on the constructive margin environment for ethanol, with strengthening ethanol margins more than offsetting the continued softness in starches and sweeteners volumes. And our Nutrition business achieved higher flavor sales, and we're seeing momentum built around natural colors and flavors. Also, we are seeing the benefits of our strategic portfolio actions taking hold. From a manufacturing standpoint, we made solid strides in increasing throughput and decreasing unplanned downtime across our production footprint. During the first quarter, our team delivered strong global crush volumes, with oilseeds tonnage increasing 2% compared to the prior year quarter, and we achieved the best overall global site crush production on record. For Nutrition, the team continued to improve operational execution, and we are seeing substantial progress with the continued recovery of our Decatur East plant and animal nutrition operations. As we look ahead, we're also targeting a meaningful reduction in transaction costs across our global footprint, including further automation and use of AI in workflows to reduce manual touch points, errors and cycle times. These initiatives also extends to our supply chain management and freight and logistics networks. We continue to pursue high-growth opportunities that are designed to generate enduring returns. We recently created a new senior innovation and growth leadership role responsible for accelerating projects in this area across the enterprise. A number of the initiatives underway are already generating revenue, and we are encouraged by the progress we are making. I'll talk more about this on the next slide. All of this is bolstered by the development we are doing around our workforce talent and capabilities. We're strategically focused on making sure we have the right people and skills for both our business needs today and for the future. For example, we recently established the ADM capability center in India to build and maintain deep technical and functional experience in priority areas. In summary, our team is executing well against our plan, and we're taking advantage of market opportunities while consistently strengthening the performance of our operations. Looking through to the rest of 2026, we have clear priorities that are centered around ensuring we have the right talent and capabilities in place to drive growth, margin expansion and cash flow, while remaining steadfast in our discipline around cost management and capital allocation. And to that end, we remain committed to returning value to our shareholders with the dividend we paid in first quarter representing our 377th consecutive quarterly dividend. Please turn to Slide 6. We're making disciplined investments today in the platforms that will drive our growth for tomorrow. Our next wave of value creation is grounded in 5 key pathways that span both near-term opportunities already contributing to growth today as well as long-term initiatives that will continue to scale over time. Importantly, these are areas where we understand the markets and the customer needs and where we believe we are well positioned to win. I'll take a few moments now to discuss our growth pathways in a little more detail. Starting with advanced nutrition, we are developing innovative solutions as customers shift from artificial to natural ingredients, particularly in colors and flavors in North America. We are expanding both capabilities and capacity to meet growing demand for healthier products that deliver on appearance, texture and taste. Within functional health, we continue to build on our leadership in digestive and metabolic health and immune support, with a growing pipeline of solutions targeting stress, mood and sleep. For biosolutions, our initiatives are centered on valorization or the unlocking of new markets for our existing products, essentially doing more with what we already produce. A concrete example of this is a starch-based component we developed for fabric softeners, for which we were recognized earlier this year with the best innovation contributor award by Henkel Consumer Brands. In precision fermentation, we see significant opportunities at the intersection of biology and engineering. Advances in technology are enhancing the efficiency and scalability of our existing fermentation assets and we're expanding our portfolio of cleaner, simpler and more sustainable solutions. For example, during the quarter, in animal nutrition, we successfully completed a trial for a scalable animal-free protein for pet food. And in the human nutrition space, we progressed the development of a novel enzyme with widespread functionality in food applications. And in decarbonization, we are leveraging our existing carbon capture and storage footprint to develop a broader portfolio of solutions. This includes serving customers with high purity CO2 needs, expanding renewable natural gas operations and advancing pathways to convert ethanol into sustainable aviation fuel. During the first quarter alone, we sequestered approximately 300,000 metric tonnes of CO2, a milestone that underscores our leadership in this space. Taken together, these platforms represent a compelling set of value creation opportunities that leverage our core business and provide meaningful expansion into new markets for years to come. With that, let me hand it over to Monish to share a deeper dive into our first quarter financials and full year outlook. Monish Patolawala: Thank you, Juan, and I wish you all a very good morning. Please turn to Slide 7. AS&O segment operating profit for the first quarter of 2026 was $273 million, down 34% compared to the prior year quarter. Included in the first quarter of 2026 is approximately $275 million of net negative mark-to-market and timing impacts, of which roughly 70% were attributable to the crushing subsegment, and the remaining balance was 2/3 attributable to refined products and other and 1/3 attributable to Ag Services. In the prior year quarter, the net negative impact of approximately $22 million were mainly related to Ag Services. The Ag Services subsegment in the current quarter generated operating profit of $200 million, representing an increase of 26% compared to the prior year quarter. The increase was driven primarily by higher export activity in North America, which was supported by increased trade with China and a strong corn export program. Additionally, prior year quarter results were pressured by certain export duties. For the crushing subsegment, we reported an operating loss of $79 million for the quarter, which represents a decrease of $126 million from the prior year quarter. The decrease was driven by net negative mark-to-market and timing impacts. The team executed well during the first quarter of 2026, with planned productivity improving compared to the prior year quarter. Additionally, soybean meal sales remained strong throughout the quarter as a result of strong global demand. For the refined products and other subsegment, operating profit was $86 million, down 36% compared to the prior year quarter, primarily driven by net negative mark-to-market and timing impacts. Equity earnings from our investment in Wilmar was $66 million for the quarter, down 8% compared to the prior year quarter. Turning now to Slide 8. For the first quarter, Carbohydrate Solutions segment operating profit was $356 million, representing an increase of 48% compared to the prior year quarter. The period-over-period increase was primarily a result of strengthening ethanol margins, supported by effective risk management and policy incentives. In the starches and sweeteners subsegment, operating profit was $229 million, representing an increase of 11% compared to the prior year quarter. The increase was driven by stronger results from ethanol in our corn wet milling plants in North America, and was partially offset by lower global liquid sweeteners and starches volumes and margins due to similar trends to what we saw last year. In the vantage corn processors subsegment, operating profit was $127 million, representing a $94 million increase from prior year quarter. ADM's corn dry milling ethanol operations benefited from strengthening ethanol margins, supported by effective risk management and policy incentives. Overall, base ethanol EBITDA margins for the quarter were higher both sequentially and compared to the prior year quarter. Now turning to Slide 9. For Nutrition, segment revenues in the first quarter were $1.8 billion, down 1% compared to the prior year quarter. Human nutrition revenue increased by 3% year-over-year, driven primarily by higher flavor sales and inclusive of foreign exchange gains. Animal nutrition revenue decreased by 5% year-over-year, with the decrease primarily attributable to our previously disclosed portfolio exits and the formation of the animal feed joint venture with Alltech, which was partially offset by foreign exchange gains. Nutrition segment operating profit was $135 million for the first quarter, representing an increase of 42% compared to the prior year quarter. Human nutrition operating profit was $104 million, up 39% compared to the prior year quarter as a result of higher flavor sales and foreign exchange gains as well as the continued recovery of the Decatur East plant. Animal nutrition operating profit was $31 million for the quarter, up 55% compared to the prior year quarter. The increase was primarily attributable to benefits associated with strategic portfolio and cost optimization actions taken over the last year, foreign exchange gains and the increased focus on higher-margin product offerings. Corporate and other businesses contribution to operating profit was lower compared to the prior year quarter, driven primarily by higher claim settlements in other business, which were partially offset by lower corporate function costs. Turning now to Slide 10. For the first quarter of the year, ADM generated cash flow from operations before working capital of approximately $442 million, approximately flat relative to the prior year quarter. We continue to be very disciplined in the areas in which we invest. During the first quarter of 2026, we invested $194 million and maintain our expectations of full year 2026 CapEx being in the range of $1.3 billion to $1.5 billion. During the quarter, we distributed $254 million in dividend, marking our 377th consecutive quarter of paying a dividend. And lastly, our net leverage ratio at March 31 was 2.2x, which is higher than the previous quarter. However, this is generally in line with our expectations given the normal seasonality of our business and the impact of higher commodity prices. Our year-end net leverage ratio expectations remain at approximately 2x. Now on to Slide 11, where we have provided details on our updated 2026 outlook. Earlier today, as Juan mentioned, we raised our current outlook for 2026 adjusted EPS to a range of $4.15 to $4.70, up from the previous range of $3.60 to $4.25. There are 2 main drivers to our guidance range. First, the expectation that our team will continue to solidly execute against our plan for the remainder of the year; and second, the expectation that the improved margin environment for crushing and ethanol businesses will continue. Overall, our guidance range is underpinned by several factors. In AS&O, first quarter 2026 results include approximately $275 million of net negative mark-to-market and timing impact. Negative mark-to-market and timing impacts are the result of increasing commodity prices, and in this case, signal improving underlying market conditions for us. As a reminder, the final impact of the mark-to-market and timing impacts will be realized when the underlying inventory forward contracts and futures and foreign currency contracts are executed. Based on that, the majority of the $275 million of net negative mark-to-market and timing impacts reported in the first quarter are forecasted to reverse in the second quarter. The remaining impacts are forecasted to reverse during the second half of this year. As a reminder, we cannot and do not estimate new mark-to-market and timing impacts in our guidance, and there could still be additional mark-to-market and timing impacts in future reporting periods. In Ag Services, we are assuming that China will resume a normalized buying pattern for North American soybean. For Carb Solutions, we expect strength in ethanol margins supported by policy incentives will continue to more than offset softness in starches and sweeteners as the same consumer behavior trends we experienced in 2025 continue to pressure S&S volumes and margins. Expectations for year-over-year growth in Nutrition remains intact, with operating profit increasing primarily as a result of higher flavor sales, continued recovery in Decatur East and margin expansion in Animal Nutrition as we maintain our focus on higher-margin product lines and ongoing cost optimization initiatives. We will continue to closely monitor external factors, including consumer trends, energy costs, supply chain dislocations along with global trade and tariff dynamics, foreign exchange and ethanol industry development throughout the balance of the year. We also are progressing the cost savings program we launched last year, and remain on track to achieve our targeted aggregate cost savings of $500 million to $750 million over the 3- to 5-year period which commenced in 2025. In summary, Q1 presented a dynamic market environment, characterized by significant events that created challenges but also created opportunities, and we were well positioned to capitalize on the environment as evidenced by the underlying margins across our Ag Services and Oilseeds businesses and our ethanol operations. Beyond that, we continue to execute well in our Nutrition business, particularly in our flavors product line. In closing, I would like to recognize our ADM team members for their focus and dedication in executing against both our near-term objectives and our strategic priorities. It is their hard work that positions us well in a rapidly shifting global landscape, enabling us to continue delivering on our financial commitments and consistently returning value for our shareholders. With this, I'll hand it back over to Juan. Juan? Juan Luciano: Thanks, Monish. As we look ahead, we are increasingly constructive on our outlook for 2026. Despite the complexity of the global environment, the policy clarity we now have, combined with our team's disciplined execution, position us well to deliver meaningful growth in 2026. Beyond 2026, we have a clear road map for long-term value creation that we're actioning, one that leverages both our deep capabilities and the breadth of our operations to create enduring value for years to come. With that, we'll take your questions now. Operator, please open the line. Operator, please open the line. Operator: [Operator Instructions] Your first question comes from the line of Manav Gupta from UBS. Manav Gupta: Congrats on a strong quarter and a guidance raise. The beat and race story is always welcome. My quick question here is, obviously, sir, there's one part where the RVO is helping you, policy formalization is helping you. But there is another part where [ world ] is generally short diesel, and what we are seeing out there is globally shortages of diesel and one area where U.S. is somewhat unique is we have this level of higher renewable diesel, biodiesel production, we can do to meet some of those challenges. And I just wanted your view on it. Are you already seeing out there, producers with ideal plants who are not running that hard in 2025 already looking to run much harder in 2026? And how does that benefit ADM? If you could talk a little bit about that. Juan Luciano: Yes. Thank you, Manav. Listen, I think we said it in the previous quarter what we expected the RVO impact was going to be in the market. The first thing that we said, it was going to come in RINs coming up, and we saw RINs going up by $1. Then that created a margin for all these biodiesel plants and renewal diesel plants to come on stream. That pulled soybean oil demand and that increased crush margins, so crush rates. So if you look at on margins. So if you look at crash rates for March, we jumped 6%. So crush rates in March for North America run about 10% higher than last year. So I think that it happened in the sequence we expected. Probably, it's happened with more violence than we expected. It was faster maybe because of pent-up demand. We've been waiting for RVOs for a couple of years or maybe the effects of shortages or the perception of shortages given the Strait of Hormuz issues. But -- so we see that. We see that biodiesel traded mostly with RVOs, I would say. And we see those plans coming on stream. So yes. Manav Gupta: Perfect. My quick follow-up is on human nutrition, a very positive trend, revenue up 3%, but profit up 39% in human nutrition. Can you talk a little bit about that positive trend? And what's driving the improvement in profitability in the human nutrition business? Juan Luciano: Yes, the team did a very good job. Of course, part of the drivers are in flavors, and I think that our -- they can continue to convert our pipeline, and maximizing profitability with product mix, cost management, the normal levers you pull in these cases. I would say you also have to remember that we finally brought the Decatur East plant back. That product has always been lauded as the best quality in the industry. And now we are back with our full volume and recovering the position we lost over the last couple of years. So I think that very strong performance in both areas in human nutrition, and we expect that to continue into Q2. Monish Patolawala: Manav, as for our script, we had some foreign exchange gains that help us there, too. But operationally, the team did very well. Manav Gupta: Congrats on a very good quarter. Operator: Your next question comes from the line of Ben Theurer from Barclays. Benjamin Theurer: Congrats on a very good first quarter. Maybe just following up on some of the changes to guidance, and if you could maybe help us frame a little bit the high versus the low end of it? I mean, I guess the market was expecting some sort of a race. But just to understand what factors you're kind of like seeing that could drive you to the higher end of that new guidance versus what are the risks that keep you on the lower side? That would be my main question. Juan Luciano: Yes. Let me give you a flavor, and maybe Monish can chime in later. So we underpin the raising guidance on, of course, the continued advancement of our priorities that the team continues to execute well, and this constructive biofuels environment that we got after the clarity with the RVOs. If you think about the businesses, from an AS&O Ag Services perspective, we expect a normalization of the offtake of soybeans from China. And then we continue to expect a constructive biofuel environment going forward. We expect the majority of our -- you know the big mark-to-market, we have $275 million in Q1. We expect the majority of that to come back in Q2. But of course, margins, as they continue to climb, we may generate new mark-to-market that we don't have the ability to forecast, that is not included in our guidance. From a Carb Solutions perspective, we expect the same dynamics, a little bit of softer sweeteners and starch, with a strong ethanol dynamics to continue into Q2 and probably the rest of the year or at least the rest of the summer. And nutrition growth continued to be intact the way we see it forward with strong flavors, with still a strong recovery of specialty ingredients given by the Decatur plant being back. And animal nutrition continues to -- on a smaller scale because it's smaller than human continue to put very good year-over-year improvements based on their improvement plan, but now they are shifting to more specialty products. So all in all, we see most of our business doing very, very well. Monish Patolawala: I think, Ben, you had a question on what risks also we are watching. If you've seen the strip we had laid it out, but just again to reiterate. Of course, we'll watch all external events that play out. But energy costs, foreign exchange, input cost for nutrition, global trade policy, all of those tariffs are all things that we are watching, and we'll keep you all posted as we see things evolve. Benjamin Theurer: Okay. Fantastic. And then just quick follow-up on the sweeteners and starches business within Carb Solutions. Obviously, that continued weakness something we've kind of like seen industry-wide. What are the -- are there any specific measures that you can take to kind of like maybe stop the bleeding a little too harsh, but like stop the decline be supportive here? Are there any things around innovation or things that you can do shifting away from that business on the sweeteners side? What are like the things you're looking at in order to kind of like manage that business? Juan Luciano: Yes. We've been working for many years in the diversification of the grind that you've heard us many times saying the fight for the grind. So we produce many products and that helps sometimes soften this. You heard us saying talking about biosolutions and how we are moving some of those products into different applications, industrial applications. So we have some successes with starches in places like personal care or fabric softeners, things like that. So is a slow because, of course, those markets are smaller than a sweeteners market, and then it takes more effort, but we continue to have efforts there to diversify the grind. We can't invent that Mexico will help us with a great World Cup. Everybody will drink lots of softdrinks. Benjamin Theurer: I'm going to do my best. Juan Luciano: Help us. Operator: Your next question comes from the line of Pooran Sharma from Stephens, Inc. Pooran Sharma: Congrats on the strong results here. I maybe wanted to just focus on -- absolutely, the first question, just wanted to focus on ethanol. Can you talk about what is driving margin strength here? I think it's export demand. And there was momentum prior to the start of the conflict with Iran. So just want to understand from your point of view, what is -- what's driving this? And have you seen any incremental upside from the conflict? Juan Luciano: Yes. Listen, as you said, before the conflict, we were already seeing good margins for ethanol. I think that we had rough weather, in general, that affected some of these plans with the polar vortex in January or something. So we were coming into an environment we had strong domestic demand, given by the tightening of the RINs and the values of the RINs. Also a strong export demand. Demand for exports were about 10% year-over-year. So that was pulling on an industry that was not producing fully, and I draw down inventory. So we are going a little bit through maintenance now before the driving season anyways as well. So we expect that to do well. Don't forget that ethanol at about $2 per gallon is incredibly competitive globally. You have [ our but ] trading at north of $3.50. So there is a big incentive here to blend domestically, so we expect domestically to something in the range of 14.5 billion gallons, give or take. When you add to that, 2.4 billion gallons, that is our expectation for exports, that's almost close to 17 billion gallons. I still remember how much I was celebrating with our exports worth 1 billion gallon a few years back. So now we're talking about 2.5 billion gallon. Whether those exports are being held by maybe the conflict or the tightness, maybe there is some of that. But you see more and more countries trying to bring resilience to their fuel system by diversifying into biofuel. So you see Vietnam increasing now to E10, you see Brazil going now to B32. So you have many countries popping up into that, and they are -- all of that is helping the U.S. export. Pooran Sharma: Great. Appreciate the color there. And just really quickly, was there any 45Z incorporated to ethanol earnings? And then when we think about modeling this, should we be adding this to segment income? Or should we be excluding these from the tax line? Juan Luciano: Yes, you should be including it to segment income. And I would say, yes, we have. And of course, we continue to work on all the details that need for implementation of that. But the team has done a good job. And at this point, for the year, we are expecting an impact of about $150 million for a full 2026. Operator: Your next line comes from the line of Andrew Strelzik from BMO. Andrew Strelzik: Obviously, a very dynamic environment out there, inverted curves. I was hoping that maybe you could help us think about the kind of earnings cadence through the year, whether it's first half, back half split or however you want to frame that? And also, to what extent you have visibility for the balance of the year versus where you typically are at this time of the year, obviously, that had been a little bit of an issue in prior quarters. So curious where that is, too. Juan Luciano: Yes. Listen, I've been doing this for quite a while. So at the beginning of my mandate, I remember we were like 48.5 to 51.5 or 48-52 in our split first half, second half. Since our product mix has shifted and maybe the U.S. is not as competitive as exports of grain. Probably now we are talking about something like 49-51 type of split between first half and second half. Of course, there is a lot of uncertainty still. The visibility we have, listen, what we get to this point of the quarter, for Q3, if you will, we're probably sold about 30% in mill and about 50% to 60% in oil. So we still have a piece open there. And of course, for Q4, it's only maybe 10%. So we still have a lot to go through. In general, I would say customers are not buying that much in advance. The oil industry is normally more spot. And I would say the -- for our oil customers and for human consumption is also relatively, we don't have a huge book yet. So I think we're trying to stay open. So. Monish Patolawala: I'll add on, Andrew, for Q2, when you think about the operating -- the quarterly cadence that Juan mentioned. Just on Q2, Q2 will be stronger than Q1. A couple of things we've talked about, the mark-to-market of $275 million approximately that we took in Q1. Majority of that will reverse in Q2 and the balance in the second half. Secondly, seasonally, nutrition is higher, especially our flavors product line. So that you can factor that into. And the third one is strength in ethanol, as Juan mentioned. So that's all put together. You'll also see tax rate was a little lower in Q1, that will normalize itself over the year. And then the second piece is, as we have talked about, we've been very prudent on cost and CapEx through first quarter. And as we are starting to see the constructive environment, we will continue to invest in our growth initiatives, continue to invest in digitization, all of that setting us up for the long-term value creation for ADM. Andrew Strelzik: Okay. That was super helpful. And my follow-up is related to that. You talked about pretty tightly managing the capital spend. But as your earnings trajectory improves, in this more constructive environment, whether it's '26 or beyond, how are you thinking about capital allocation incrementally? Are there more CapEx projects on the radar? Maybe you could talk about those as -- maybe it's the buyback that's more interesting. Just how you're thinking about capital allocation? Juan Luciano: Yes. We continue to invest with our balanced framework of capital allocation that we have maintained for a few years, always our biggest opportunities in cost and growth projects, and we give priority to that. As Monish just described, we have a lot of projects related to cost savings in manufacturing, but also our low cost to serve and increasing capabilities. And we also have our fuel in 5 growth platforms that will serve us well, that we like very much because they have a balance of short-term, medium-term and long-term impact for ADM. So it gives us a good cadence going forward. So then, of course, we honor the dividend, and we will continue to try to pay and grow the dividend every year as we have done for many, many years. I think this year, we just paid -- this quarter, we paid like 377th consecutive dividend, which is an incredible record for the company. And of course, probably what is embedded in your question is what are we going to do with M&A or buybacks. And we will continue with our prudent bolt-on M&A. So we've done that when we see value opportunities are there or something that fits strategically to our developments. And yes, it is plausible that as our cash flows improve and our balanced capital allocation remains the same way, that potentially, we could do buybacks into the future. That's not out of the question. So we will continue to monitor how things evolve. Operator: Your next question comes from the line of Heather Jones of Heather Jones Research. Heather Jones: The first question is going back to what you were saying about the cadence of earnings. And if I understood you correctly, saying roughly half will be in the second half? And if I take the midpoint of your guide, that would apply only 20%, 25% year-on-year growth and would imply you get close to where second half of '24 was. So just wondering, the biofuel policy, not just in the U.S. but globally, is the most constructive it's ever been. And so just wondering, what are the things in your business that are giving you pause that would cause the year-on-year growth to not be more robust than that? Or is this just conservative? So that's my first question. Monish Patolawala: Yes. Heather, it goes back to what Juan and I have talked about in our prepared remarks as well as a few of the questions that have already been asked. When you thought about when we came into the year, we had talked about a more back-end loaded. Secondly, as everybody knows that the RVO is coming in, we pretty much called the trajectory, right? It just came in faster than we thought. And based on that, we felt that it's prudent right now based on the mark-to-market reversal, there's normal seasonality we get in nutrition as well as ethanol strength that we'll see 49% to 51% first half, second half. The other things, when you factor in the second half, right now, there is an inverted curve. And that inverted curve is for multiple factors, including some of the risks that exist in the economy right now. We also have a slightly higher tax rate that will come in, in the second half of the year, and we will invest more in R&D and digitization that I talked about. But when you put all that together, when we look at the first quarter, the team started very well. You've seen that they've been able to capture the opportunities and margins that existed. So as that curve moves through and the opportunities exist, I can tell you the team is very well geared to take advantage of that. 2Q is a very important quarter for us because we have to make sure that all these executions happen. We'll get some more clarity as the world continues to evolve. We've got policy dynamics that we are watching through. Our assumption is that China will continue to buy its normal volume in Q4, but that's to be watched. So put all that together, we raised our guidance from $3.60 and $4.25 to $4.15 to $4.70. Again, the team is executing well, good start to Q1, and we'll continue to execute over the next 3 quarters, and we'll keep you posted. Heather Jones: Okay. And then my follow-up in on ethanol. And so -- it sounds like you raised the amount that you think will -- the 45Z will benefit earnings somewhat for the full year. But I mean, it was an extremely strong quarter both in the wet milling side and dry. And European market has been strong for some time. So just wondering what changed? I mean, were there risk management -- was the risk management benefit unusually large? Or should we consider -- should we assume that the kind of strength that we saw in Q1 is sustainable throughout the year? Juan Luciano: Yes. Heather, there are so many factors to consider here in 45Z. You need to think about the carbon intensity score by every plant, the prevailing wage, the amount of carbon we sequester, the production volumes, but also the industry pricing reaction to this policy. So at this point in time, given what happened in the Q1, we are increasing the expected amount. I think we mentioned last time it was going to be 100 million. Now we're saying it's 150 million. I think that that's how we see it at this point in time. Could it be a surprise for the positive? We hope so. At this point in time, that's what we're looking at. Operator: Your next question comes from the line of Steven Haynes at Morgan Stanley. Steven Haynes: I wanted to ask on Carb Solutions maybe just in the quarter, kind of within the [ 3 50 ] or so of operating profit that you all did. Can you maybe just help us think a bit about how much of that splits out between ethanol versus the nonethanol piece? Obviously, we can see the VCP part of it, but it's harder to disaggregate within sweeteners and starches. So if you could just provide any additional color there, that would be helpful. Juan Luciano: Yes. Maybe I can provide the dynamics and maybe Monish, if you want to give more granularity later. I think we continue to see a certain weakness in sweeteners. So our sweeteners and starches volumes are down 3% and margins are down a little bit more than that. Of course, Carb Solutions, corn plants are very big energy users and chemical users. So the cost of those plants are not doing great right now with the conflict, although we continue to improve our operational performance. Energy is up and some of the chemicals are up. I think we started to see starches getting better and stabilizing in their volumes. And ethanol has been the good actor of the quarter. So we -- EBITDA margins per gallon went up like $0.18 from the same quarter last year. So driven by all the factors I think I explained before in one of the questions. So I will say, hopefully, that gives you an idea. That's our expectation, if you will, for the second quarter that those dynamics will be maintained. And the nature of the results should be similar. Of course, are easy to see in BCP. And in the wet mills, we produce about 22 different things out of a wet mill. So it's more difficult to quantify there because also, we try to optimize that mix all the time, looking at the different margins, at the different grind providers. So that's not that easy to call. But I hope with the granularity I gave you provide you enough to -- for you to build your models going forward. Operator: Your next question comes from the line of Dushyant Ailani from Jefferies. Dushyant Ailani: Maybe my first one, could you talk a little bit about the soybean meal demand? I know I think earlier in your comments, you mentioned that you use strong demand there. But could you maybe just talk a little bit about the puts and takes in terms of how that evolves through the course of the year? Juan Luciano: Yes, of course. Listen, soybean meal continues to be strong. If you look at the soybean meal versus corn ratio, that sit near 2 or below, that sustains strong inclusion in feed formulas. You see even that's more acute in China where corn prices are higher. So global soybean meal demand continues to surge driven by still healthy livestock profitability and expanding of the daily output. So the U.S. has a big book for exports on soybean meal. I think that, that was helped a little bit by Argentina. Argentina lost all the cushioning from the old crop. And now basically, their crush is limited by the harvest, and harvest was a little bit delayed by a couple of weeks because of the floods. So I think that we are exporting a lot and demand has been very good. So that has provided another strong leg of the crush. Today, soybean oil is probably like 52%, 52.5% of the crush. And that's putting -- that's probably, as much as we are crushing, we probably tighten up the meal balance because meal is so strong. So I hope that helps. Dushyant Ailani: Yes, that does. And then my follow-up question is on Decatur East. I think you said that it's basically fully up and running. I think in the prior call, you had mentioned that there were some customers that had moved away. Have you been able to recover all of them? What's the data status on that? Juan Luciano: Yes. No, of course, you won't recover this immediately. People -- our absence was long, more than a year, so people took different commitments on that. And we are rapidly trying to recover that. We have now a full -- our full volume is being offered. And as I said, I think that we trusted our good quality. The preference that customers have traditionally have for this product will bring us back. But the team is making progress, not full -- We haven't recovered our full position yet, and that will probably take a while. Operator: Your final question comes from the line of Matthew Blair from TPH. Matthew Blair: You mentioned the inverted soy crush future spur previously. Could you talk about what's really driving that? Like are there fundamental factors that are pulling on future margins? Or is this just like a matter of liquidity and less liquidity in the outgoing months? Juan Luciano: Yes, I think that there is a strong immediate demand for soy and for oil and meal. And of course, there is uncertainty about what's happening in the future in the second half where there is -- at this point in time, you have very strong demand for soybean oil, very strong demand for soybean meal and a relatively flat soybean trading in kind of a flat range, if you will. So all of a sudden, you look at the future and you need to think about, okay, what's going to happen with the trade deal and Trump visit to China? Will that move soybeans? And then you think about resolution of the conflict, crops and weather and all those things. So energy prices, so there are a lot of uncertainties in the second half. And I think that, that's I think Monish showed it or mentioned it before in the guidance. We're looking at consumer impact. We're looking at demand. We're looking at inflation. We are looking at many things. So I think the curve is reflecting that. And to the extent that we move forward and those dynamics continue, the curve may be extending forward, so -- and shifting into the future. So we are monitoring that. Operator: We have reached the end of the Q&A session. I will now turn the call back to Kate Walsh for closing remarks. Kate, please go ahead. Kathryn Walsh: Thank you all for joining the call today. We appreciate your continued interest and support of ADM, and wish you a great rest of your day. Goodbye. Operator: This concludes today's call. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Procore Technologies, Inc. FY '26 First Quarter Earnings Call. [Operator Instructions] I will now hand the conference over to Matthew Puljiz, SVP of Finance. Matthew Puljiz: Good morning, and welcome to Procore's 2026 First Quarter Earnings Call. I'm Matthew Puljiz, SVP of Finance. With me today are Ajei Gopal, President and CEO; and Rachel Pyles, CFO. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call include forward-looking statements regarding, among other things, our financial outlook, platform and products, customer demand, operations and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties and assumptions and are based on management's current expectations and views as of today, May 5, 2026. Procore undertakes no obligation to update any looking statements except as required by law. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We'll also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release and our periodic reports filed with the SEC. With that, let me turn the call over to Ajei. Ajei Gopal: Good morning, everyone, and thank you for joining us. Continuing our momentum from 2025. Q1 saw strong performance that exceeded the high end of our guidance. For Q1, we delivered 15.7% revenue growth and 17% non-GAAP operating margin, which represents 650 basis points of year-over-year expansion. I'm particularly pleased with these results given the ongoing headwinds from a challenging construction environment. On our last earnings call, I outlined why Procore will be an AI winner. Our flagship products and early investments in AI, including our acquisition of Datagrid, has positioned us well to capitalize on the disruptive technology. Building on our flagship system of collaboration with nearly 3 million active users and a massive proprietary dynamic data set, Procore AI can deliver outcomes simply not possible with traditional software. In that call, I walked through a real example of a customer using our AI agents as a digital coworker capable of executing complex high effort tests with [indiscernible] a critical advantage for an industry facing a severe labor shortage. This also opened a meaningful new dimension to our TAM as Procore AI can access construction labor budgets well beyond the industry's software spend. Our path forward is defined by a powerful economic duality, upside opportunity through AI monetization and downside protection through our volume-based model. I believe Procore will unlock unprecedented value as the definitive winner in the Agentic AI era. I would like to begin today's call by discussing the great progress we have made with Procore AI on last call. Then I want to discuss our continuing success with our flagship solutions. Finally, I'll discuss our intention to continue to improve margins and free cash flow per share. Let me start the Procore AI, which include our recent acquisition of Datagrid. I am pleased that the technology integration has proceeded rapidly leveraging the foundational security and platform investments we had made earlier in Helix. We have taken the best of both products to provide customers with new capabilities and are now executing on a combined product road map for Procore AI. Our solution enables customers to deploy embedded Procore AI agents that can execute tasks such as RFI analysis submittal cross-checking and compliance auditor. We recently released agents in the triggers, which enable customers to define automated event-driven AI workflows transitioning from reactive to proactive test execution across their projects. We are piloting a new voice AI interface designed for field workers who want hands-free access to project data on the job site. We also recently introduced a specialized contract review agent that can efficiently analyze construction documents that flag any risk in the contract. By building on the foundations already established in Procore AI, we were able to introduce this workflow in fewer than 30 days, and it is already being tested by customers. As the hard Procore AI is a reasoning engine purpose-built to construction. It understands the language and logic of the project. For example, when an RFI is how a submittal connects to a drawing, how a change order gets approved. On top of that, it works as a [indiscernible] system that holds context across multiple steps. It don't just answer a question, it understands the threat. For example, why is the middle was sent, what is obligate and what needs to happen next. Think of it as a digital coworker that encodes the logical construction decision making, reasoning about the project the way and experienced practitioner would. This data and contact can only be accessed within a system of record and coloration like Procore. That capability is backed by a tool library of dozens of construction-specific capabilities, including co-compliance capulators, drawing analyses and documents cross-referencing engines. And it is still early. As we continue to develop Procore AI, going deeper into our proprietary data and broader across project types, the reasoning engine will only become more capable. We expect our solution to continue to improve with every layer we unlock, and we have a long runway ahead of us. Turning to go-to-market. We made a deliberate decision to launch Procore AI through a dedicated specialist team working today as an overlay alongside our core sales force. The team is very small and intentionally so. The goal was to learn what the commercial motion looks like before scaling it. We are now working on translating those learnings into enablement for the broader sales force and we expect much of our sales organization to be selling Procore AI in Q3. I'm excited that customers are adopting our Agentic solutions in addition to our flagship offering. A great example of this is within the estimating department and one of our Enterprise customers Crest operations. Crest is already seeing transformative ROI from Procore AI. For their most complex projects, bidding is an audios process involving thousands of data points across massive sets of doing. By leveraging Procore AI, Crest has done a manual process that could spend weeks of effort down to an automation that can take as little as 20 minutes. This isn't just an incremental improvement in speed. It is a fundamental shift in their competitive advantage, allowing them to bid more accurately respond to opportunities faster and ultimately drive a level of ROI that was previously unattainable. Moving to our flagship solutions. In Q1, we have driven more innovation at a faster pace than ever before. We expect that these new product capabilities will help to drive sales, increase customer satisfaction, and improve retention. I'll start with the largest and most mature part of our business today, U.S. general contractors. We are focused on improving our platform by enhancing products like quality and safety and by extending Procore Connect to support RFI in addition to drawings. I'm particularly pleased with the general availability of the updated Procore scheduling, our natively connected scheduling solution that has already been implemented by over 2,000 companies since February launch, making it one of the fastest adopted products in our history. Together, these releases defend and extend our leadership while opening new expansion opportunities in civil and infrastructure construction. In Q1, Trinity Group a long-time GC customer expanded its construction volume commitment to $1.1 billion, a 6x increase. Trinity is evolving from a heavy user of siloed tools into a platform-first organization to support rapid growth and the growing complexity of large-scale bills and is increasingly relying on the Procore platform to help run its business. Now let me move beyond general contractors. On our last call, I focused on owners, including data center operators, this time, I would like to discuss new functionality available to specialty contractors as well as international customers. For specialty contractors, we introduced materials management which provides end-to-end supply chain visibility for self-perform contractors from procurement and better management through delivery tracking to the job site. This is part of our broader investment in a purpose-built self-perform platform that unifies resource management, financial and scheduling for the specialty and self-perform contractor market. This represents a significant step in our strategy to serve the heavy construction market where equipment costs can be just as material as labor for some projects. Also in Q1, Helm Group, a leading specialty and mechanical contractor in the Midwest, ranked #61 on the E&R 600 significantly expanded its construction volume commitment after 18 months of successful usage. The company which specializes in major projects like data centers and Northwestern University's new football stadium initially started with only a portion of its construction volume. Following a successful initial rollout of project management tools, Helm Group decided to standardize on Procore. The primary goal of this expansion was to achieve increased labor productivity, mitigate risk and streamline project management operations in a single location. Moving to international markets. We launched a new BIN model federation and streaming viewer, which enable customers to federate and navigate large 3D building information models directly within Procore. A key requirement for winning upmarket in Europe. This is the anchor of our European common data environment strategy, which combines bin, asset management document management and product execution into an ISL-19650 compliance solution. This positions Pro port as the connected construction platform for markets where CD clients is a contractual requirement. In Q1, we signed a new contract with Collin Construction Limited, a large general contractor headquartered in Dublin. Collin had been using over 25 disconnected point solutions and is now standardized on Procore's unified form to solve reporting and mobile access challenges. The customer anticipates saving over 46,000 labor hours over the next 3 years, the equivalent of more than 13 full-time employees as well as decreasing nonrecoverable change order by 25%. Moving to strategic partnerships. In Q1, we announced that we are integrating the Procore platform with NVIDIA on [indiscernible] VSX Blueprint to accelerate the building of AI factories and other critical infrastructure. This integration will establish a digital thread throughout the entire construction life cycle to build safer, faster and smarter infrastructure. The combination of Procore and NVIDIA solutions will enable teams to rapidly model design changes using a high fidelity, physically accurate 3D digital twin resulting in infrastructure that comes online faster and is optimized for pet performance. This has started our strategy of developing meaningful relationships with leading vendors that will reap rewards in the long term. Next, I would like to briefly talk about our use of AI to enable us to grow more efficiently in the future to increase the speed of the organization and to improve margins. Today, every Procore employee has access to at least one AI platform from the leading vendors. In R&D, we're in the middle of incorporating AI to transform our operating model. The part of that organization that have already gone through this position are able to deliver products faster and more efficiently than before. The rest of the organization will follow R&D leads, and we expect to see and efficiencies from these changes to provide our financial model with incremental leverage in 2027 and beyond. Rachel will expand on this opportunity in a moment. And speaking of Rachel, I'd like to take this opportunity to formally welcome her to the team as our new CFO, along with our new CRO, Walt Hearn. Rachel and Walt, our business and technology [indiscernible] and each held a key leadership role with me at ANSYS. They are highly qualified individuals who is successful in vertical software. We have all worked together and know how to meet challenges and deliver value as a team. I'm excited they are joined Procore at this critical time. I have been CEO of Procore for about 6 months now, and my enthusiasm of the job, the company and the construction industry has only grown. I remain optimistic for Procore's future, which is reflected in our financial performance for Q1, where we exceeded the high end of guidance and increased our full year outlook. A special thanks to my colleagues at Procore of their hard work and dedication to our customers and stakeholders. Looking to the future, Procore plans to grow its presence in the construction industry become wider in the AI era and continue to compound free cash flow per share. And with that, I'd like to turn the call over to Rachel. Rachel? Rachel Pyles: Thank you, Ajei, and good morning, everyone. I am incredibly excited to be joining Procore at such a transformative moment. Before we dive deeper into the numbers in the overall business, I would like to briefly touch on why I joined Procore and my approach to the CFO role. Joining this organization represents a rare opportunity to serve as the CFO for a category leader that is digitizing the industry that builds the world. Beyond Procore's established leadership position, I see a compelling financial profile with clear levers for long-term value creation. Furthermore, my prior history with Ajei and Walt ensure strategic alignment from Dave Batten allowing us to move decisively as we scale. I'm thrilled to be part of this journey and look forward to building on the strong foundation already in place. My philosophy as CFO will be anchored in the pursuit of durable, profitable growth. Given Procore's market opportunity, this should remain our top priority. The pursuit of durable growth will be underpinned by disciplined and thoughtful capital allocation strategy, specifically to reiterate our capital allocation philosophy. First, we will prioritize high ROI organic growth investments. Second, we will remain targeted with acquisitions that accelerate our strategic road map. Finally, we are committed to returning excess capital to shareholders via opportunistic share repurchases. By aligning our investments with this framework, we aim to consistently compound free cash flow per share, ensuring that our category leadership translates directly into long-term value for our shareholders. Moving on to our Q1 results. Total revenue in Q1 was $359 million, up 15.7% year-over-year. Q1 non-GAAP operating income was $61 million, representing a non-GAAP operating margin of 17% and up 650 basis points year-over-year and free cash flow was $56 million, up 20% year-over-year. As for our key backlog metrics, current RPO grew 21% year-over-year and current deferred revenue grew 17% year-over-year. Turning to commentary on our results. We delivered another quarter of durable revenue growth driven by healthy demand across our customer base. This performance was underpinned by 3 primary strengths. First, we secured several significant new logo wins that highlight our increasing market share. Second, we saw a meaningful shift towards larger-scale engagements with a 6-plus figure ARR wins growing 24% year-over-year. And finally, we generated strong pipeline in the quarter. This momentum in high-value customer wins and overall pipeline strength gives us confidence in our trajectory and sets that a favorable foundation for 2026. Our strength in the quarter also contributed to strength in CRPO. This metric continues to benefit primarily from longer average contract duration. When normalizing CRPO for this dynamic, the year-over-year growth was consistent with both Q1 revenue growth and ending ARR growth. Once contract duration stabilizes, reported and normalized CRPO growth will eventually converge with revenue growth. Our performance this quarter unexplored our commitment to driving long-term shareholder value. By delivering durable top line growth, combined with strong year-over-year margin expansion, we improved our growth in year-over-year free cash flow. Those items, coupled with limiting our share count growth via disciplined equity compensation and our share buyback activity drove meaningful improvement in our North Star metric, free cash flow per share. We believe this approach of compounding free cash flow while managing our share count remains the most effective way to maximize returns for our shareholders over time. Looking ahead and to expand upon Ajei's commentary, we view AI as a fundamental catalyst for our long-term financial profile. On the top line, we expect AI to serve as a tailwind to revenue growth as we monetize high-value capabilities and deepen platform engagement. Regarding our margin profile, we do anticipate modest headwinds to gross margin given the increased compute expenses to support these workloads. However, we expect this to be more than offset by the tailwinds to our operating expenses as we leverage AI to drive internal efficiencies and scale across all functions. Ultimately, the convergence of durable growth and an optimized cost structure reinforces our conviction that AI will be a powerful tailwind to free cash flow per share, creating a highly efficient engine for long-term shareholder vacuum. With that, let's move on to our outlook. For the second quarter of 2026, we expect revenue between $364 million and $366 million, representing year-over-year growth of 13% at the high end. Q2 non-GAAP operating margin is expected to be between 17.5% and 18.5%. For the full year fiscal '26, we are raising our revenue guide to a range of $1.499 billion to $1.53 billion, representing total year-over-year growth of 13.6% at the high end. We are also raising our non-GAAP operating margin guidance for the year by 50 basis points to be between 18% and 18.5%, which implies year-over-year margin expansion of 390 to 440 basis points. Finally, we are maintaining our free cash flow margin guidance of 19%, which implies year-over-year free cash flow margin expansion of approximately 280 basis points. To wrap up, we are pleased with the quarter and are excited about the momentum we have created for the remainder of the year. We are confident that we can continue to provide durable growth, margin expansion, limited share count growth and compound free cash flow per share. With that, let me ask the operator to open it up for questions. Operator: [Operator Instructions] Your first question from the line of Joe Vruwink with Baird. Joseph Vruwink: [indiscernible] congratulate Rachel on your appointment. I wanted to start with a few things on financials. One is good to see the upside, but the magnitude of upside in revenue and CRPO is, I suppose, a bit less than the prevailing experience where you've been beating by 3% to 4% anything to read into that? And then the second is just on the outlook. You're bringing up the full year by more than the 1Q upside but it looks like that overage or upside remainder is weighted to the second half. Maybe what's informing your expectation there? Rachel Pyles: Thanks, Joe. I appreciate the question. Excited to be here. First, what I would say about our overall financial deal, we were really pleased with the results. If I think about we had strong pipeline, we had strong new logos. So just overall excited about the performance. In terms of the revenue upside that you saw, that was really consistent with what you saw in Q4 in terms of a beat so nothing really different there. And then if you think about our guide, Q2 at the high end is consistent with the Street estimates. No change in our guidance philosophy. We're still going to give you guidance that we feel a high level of conviction in. Joseph Vruwink: Great. And then I wanted to ask on broker scheduling and maybe a bit more feedback since general availability. I remember -- there is discussion at ground break, just spotlighting this particular area is one that's really differentiated in terms of pulling in the full Procore platform capability and AI to the extent that this gets adopted or maybe see as a landing point, does it open richer cross-sell opportunities or maybe give customers more obvious and explicit exposure to what Procore AI can do? Ajei Gopal: Yes. I mean absolutely, Joe, thanks for the question. Look, we're excited about broker scheduling. Firstly, we were able to get the product out and we were able to see very quick adoption because it's essentially natively connected into the platform, and that gives customers tremendous benefits when they take advantage of the product. And obviously, we're in a position to, as part of our strategy, continue to add more AI capabilities, and that will obviously reflect in the flagship products as well. Operator: Our next question comes from Saket Kaila with Barclays. Saket Kalia: Welcome, Rachel. Ajei, maybe for you, maybe just to zoom out a little bit. I'd love to get your views on kind of where we are in this construction cycle. There are tons of factors, of course, to consider. But I know you spend a lot of time with customers, what are they saying to you right now just about project starts this year and how they're thinking about the environment? Ajei Gopal: Saket, thanks for the question. So I would say that the construction environment has been pretty stable, certainly from the -- in the time that I've been with the company now with -- in the conversations that I've had with customers, it's been pretty stable over the last couple of quarters. What I would say, though, is that there's different levels of excitement about certain portions of the business. In fact, last time I talked about data centers, and even though data centers represent a relatively small amount of the overall construction volume, there's a lot of excitement about data centers. And certainly, there we are in the center of the conversations I mentioned in the script in the prepared remarks, I mentioned our relationship with NVIDIA, where we are working with them on a blueprint to accelerate the building of AI factories and other infrastructure. So those kinds of activities create a lot of excitement because there's those data centers are front and center right now. But otherwise, it's a pretty stable demand environment. And obviously, I'm excited about those conversations with customers because it does reflect their trust in Procore and their perspective on how we can help them as we move forward together. Saket Kalia: Got it. That makes a ton of sense. Rachel, maybe for you. It was great to see CRPO growth kind of continue at 20%. And of course, you noted the duration benefit there as well. Maybe the question is, how do you think about the glide path for maybe that growth rate starting to converge with revenue growth? Rachel Pyles: Yes, thanks, Saket. That's a great question. So CRPO has remained strong. We are starting to see that average contract duration start to normalize. So between Q4 and Q1, duration stay kind of roughly flat quarter-over-quarter. If you look forward kind of once that duration does stabilize, it will probably take around 3 to 4 quarters following that stabilization before you see the CRPO and the revenue growth kind of comes together. Operator: Our next question comes from Dylan Becker with William Baird. Dylan Becker: Maybe, Ajei, for you to start. It sounds like kind of platform consolidation remains a key theme in kind of the customer conversations and expanding volume. And I think that makes sense, right, in the context of leveraging your agents, utilizing more of the platform to deliver more of that -- realize maybe more of that value. I guess to what extent is that AI conversation playing a role in kind of catalyzing adoption from an industry perspective? And maybe validating the perception or buy-in into Procore AI strategy to help those customers solve for productivity, if that makes sense. Ajei Gopal: Yes. So if I understand the question, let me just -- let me sort of address it, and then if I miss the point, please ask more. But when I've had a number of conversations with customers about the overall platform and about AI, in general, certainly in the context of construction. When you talk to customers, many of them I mean, they don't really have the time or the inclination to become experts for AI and construction. They look to us as being their technology partner. They've worked with us for years. They trust us. And their objective is they just want to be able to build better projects, that's their business. And they want to make sure that their vendors, their tech vendors and their tech partners are in a position to do their job, which is to bring them the best and the latest technologies, including, of course, AI to be able to help them perform what they need to do. And so the fact that we are able to provide Agentic AI capabilities that have such compelling value. The fact that we're able to provide Agentic AI capabilities from within the context within security within the framework of their system of record, of their system of collaboration where they store their data, with the area where they rely on to participate with all of their partners and our projects, I think that gives them a lot of comfort as we are making these investments. So we can have those conversations with them. They see what we're able to do. And and that's been very positive for us. And I'll give you an example of customer engagement. We just had one of our largest customers here in Austin for hackathon last week. And they brought together about 85 of their employees, and it was a multi-day event. And we were able to, in the context of the platform, we were able to post their creation of agents and they've built something like 300 custom automation agents that they were able to pull together for their particular use case. So that just gives you an example of how customers are able to take advantage of our genetic capabilities under the overall umbrella of the Procore platform. Dylan Becker: Very helpful. And maybe to kind of stick with you or Rachel, love your kind of perspectives here. But as kind of an extension of that, you called out kind of some of the commercial learnings and how you're kind of deploying agents maybe being deployed a bit more broadly in the go-to-market muscle in the third quarter. I guess maybe kind of any learnings in receptivity around what the monetization strategy is going to look like. And then I think -- you also called out the internal efficiency leverage is kind of be felt more into 2027 and beyond. But maybe just kind of reconciling or how we should think about the timing between 2026 and 2027 for some of these benefits to layer in? Ajei Gopal: So in terms of the go-to-market, it's pretty much what I said in the script, which is we wanted to make sure that we completed the -- or we made significant progress on the technical integration between the projects. And as you know, we did the acquisition of Datagrid earlier this year that the data grid platform with the data capabilities were integrated into the Helix work that we've done earlier. So there was a lot of good positive energy there from that integration work. Coming out of that, we have obviously an updated product capability where we're now with a small overlay sales force, as I described, of a very small number of people talking to customers in conjunction with the sales force, but really as an overlay so that we can get the value proposition, the ROI down. And then the expectation, of course, is in Q3 that we'll be in a position to roll it out to the larger sales force. Our expectation is for our genic solutions that we'd be in a position to be able to monetize that and some capacity-based consumption-based licensing structures. In contrast with our ACV-based pricing licensing structures for our flagship offerings. And so that's the path going forward. As far as the -- I'll let Rachel address the rest of the question. Rachel Pyles: Yes, absolutely. So Ajei, I think highlighted a lot of the top line benefits that we're expecting from AI and from the token-based model we rolled this out across the sales force and engage our customers. So I'll speak a little bit more about kind of the margin impact. So I think that as we see more agents deployed, we're going to start to see some gross margin headwinds that come from that. Now I think over time, those will really be managed in 2 ways. So first, I'm optimistic that those overall costs themselves will come down kind of over the long term. Similar to, I think, about a little bit like cloud computing, when cloud computing, everyone moved to the cloud, costs were up, but then over time, those came down and optimistic that will happen here. But even more importantly, on our side, the benefits that we expect from deploying AI within our own workflows across all parts of our organization, I expect will more than offset any headwinds that we see from the gross margin. So I'm really excited about that opportunity and it gives me even more conviction about our margin expansion kind of over the long term. Dylan Becker: Ultimately, is this more of a fine tune? Or should we expect major changes going forward again? I'm just trying to kind of gauge the approach. Ajei Gopal: Great question. Thanks. So as I've been looking at the company, look, my core takeaway is that we have a really strong foundation. We certainly have great relationships with customers. We have built a great platform on which to be able to build our products and we've built a great platform in which to be able to sell and support our products. And so I think we're in a good place, of course, where we are today. But the reality is that the world that we're in continues to change the market conditions continue to change. Technology continues to evolve. And I believe that every company needs to be in a position to change to reflect market circumstances and the need to continue to move faster. And so what I felt was important as we go to this next stage was to make sure that I could bring on a couple of executives who I know well, who would allow us to be able to move really fast in a complex business environment, we stand what it means to run a global business. And certainly, you have that with Walt and Rachel I've worked as well for a number of years. given where we are with the opportunity, we need to continue to be able to move fast. And I expect Walt to provide leadership along the different dimensions of growth our organization as he has in the past working together with me. So I'm excited about his participation with the company. I'm excited about the foundation that we have and I'm excited about our ability to continue to evolve our business to take advantage of the optionality in front of us. Dylan Becker: And just a quick follow-on with Rachel saying the guidance at hasn't changed, but you're seeing decelerating growth at least in your guide. So many are asking, are you embedding the potential disruption of more changes in this guy in the front half of the year. Is that why it's so conservative on the total year deceleration? Rachel Pyles: So if I think about just coming back to our guidance philosophy, we consistently have a beaten raise methodology, and that's what you're seeing us do here. So really nothing different than what we've done historically. Ajei Gopal: So our expectation is to continue to execute as we improve our business. And so there isn't any subliminal message here. Operator: Our next question comes from DJ Hynes with Canaccord. David Hynes: Ajei, do you think the network effects of the business model get any stronger as AI is increasingly embedded into workflows and collaborators get insight into those capabilities. In other words, like is it only the payer that will realize the benefits of Helix and your AI agents? Or does the whole ecosystem equally benefit, which could be a good thing for generating broader demand? Ajei Gopal: Well, when you think about Procore, Procore is intrinsically a system of collaboration, right? Because if think about the nature of construction. Construction is essentially multiple parties getting together on a project of one and with strong commercial relationships between the parties with an ongoing sequence of changes and modifications, et cetera, based upon the realities of the day-to-day activities that are taking place on the construction side. And so it is intrinsically a system of all parties collaborating in a very safe and secure manner where changes are -- have financial consequences and therefore, need to be audited and managed effectively. That is a -- that is kind of a very unique -- it's a very unique environment. It's not just a sort of a system of record that's available to just a single party. And as such, when we're in a position to take advantage of and create a genetic workflows the benefit accrues to all of the people who are collaborating on the project because, obviously, as we create digital coworkers, for example, which is one way to think about agents. If you think about digital cowork is helping that allows people to be able to make decisions faster more effectively, that creates more speed that creates more accuracy in the overall collaborative effort on the construction side. David Hynes: Yes. Yes. Okay. Makes sense. And then, Rachel, I'm not sure if I missed it, but can you give us a sense for how much data grid and FX impacted both revenue and CRPO in the quarter. I think investors are trying to wrap their arms around inorganic ex FX growth rate in the quarter. So anything on that front would be helpful. Rachel Pyles: Yes, absolutely. So first with FX, FX on our overall consolidated business was immaterial. If you think about where you see FX it comes through in our international business, there was about a 2 percentage point impact in that business. But from a consolidated perspective, it was de minimis. On the Datagrid side as well, data grid, as Ajei said, we're just finishing the integration and going into GA shortly those capabilities. So Datagrid was really immaterial to the overall results. Our organic business continues to grow 15% to 16%. Operator: Our next question comes from Adam Borg with Stifel. Adam Borg: Maybe, Ajei, just on the macro going back to that, we talked about it being stable over the last 6 or so months. I'd love to talk a little bit more about the government vertical, in particular, especially following the FedRAMP modern authorization earlier this year. Ajei Gopal: Yes. Yes. Sorry, you said you want to talk about the government vertical and then I lost you [indiscernible] ask the question. Adam Borg: Apologies. Yes, just the government vertical, especially following the FedRAMP Moderate authorization earlier this year. Ajei Gopal: Okay. Yes. So look, I think the FedRAMP thing, we were very excited about the FedRAMP authorization that we got earlier it is fundamentally a longer-term play for us because it allows us to participate in some of these government contracts. There is inherently some latency in government contracts, but it is in order to allow us to participate with them, we need to have that authorization. So government agencies require the authorization, the GCs that build on their behalf required authorization. We're certainly able to have these conversations with customers but the impact takes a little bit of time before from the time of announcement to the time that you can actually see it as well. Adam Borg: Super clear. And maybe as my quick follow-up. Earlier this year, Procore began offering 4 bundled packages each with 3 tiers. Just curious how that new package and pricing is -- really new packaging has been receptivity from the customer base. Ajei Gopal: Yes. So we had a chance to roll that out earlier, and the feedback from customers has been positive. I think it gives us an opportunity from a proper perspective to really position the right capability for the customer, depending on what they're looking for. And it certainly gives us an opportunity to generate incremental monetization as our customers move up that packaging stack. So it's still early days, but we're pleased with the capabilities that we have. And frankly, I guess the other point is that the intent behind the packaging was to really streamline the sales cycle. So it provides an ability for customers to be able to digest kind of a bundled value price as opposed to wondering about multiple a la carte items. And that gives customers a very clear path to being able to add an adoptable products. And so that combination, I think, is something that I think works so well for the customer and frankly, works out well for us as well. Operator: Our next question comes from Matthew Martino with Goldman Sachs. Matthew Martino: Ajei, I wanted to touch on international for a moment. With Walt now in the seed, where do you see the most meaningful opportunities to strengthen the international franchise from your here? And how do you think about the trajectory of that part of the business over time? I know you announced some new products as well to capture the upmarket in Europe. So if you could tie all that together. Ajei Gopal: Yes. So on the new products, just to slide together, we announced a CDE in Europe. And in fact, last week, I believe, we had an innovation conference in London, where customer feedback on the CDE was very positive. I think we had something like 170 regional customers and prospects. We had strategic partners and I think that continues to help reinforce our central role in the construction type system because, certainly, in that geography, the CDE is an important aspect of the tech ecosystem. And so that's one of the reasons why we're very pleased with that. I would say that, overall, if I were to Think about our go-to-market. I mean, obviously, international has been a relatively smaller part of our business relative to the opportunity. And it's obviously an area where we will spend some more time. I think the U.K., Ireland is where we're spending some initial momentum, but we do see opportunities in EMEA and with Walt in seat, I think we'll have an opportunity to continue to accelerate that part of the business, and we're looking forward to seeing that. Matthew Martino: Got it. And then, Rachel, for you, you laid out a capital allocation framework across organic investments, targeted M&A and opportunistic share repurchases. So as the new CFO stepping in, how are you thinking about the relative priority of those 3 buckets in the current environment? Rachel Pyles: Yes, absolutely. Thanks for the question. As I think about it, I really do them in that order. So first, focusing on organic growth and making the right investments there. And then to the extent that we the M&A becomes available that helps us accelerate our strategic road map, we will definitely pursue that. I think about those 2 things kind of one and then the other M&A, you can't always predict when it's going to happen and when it's going to be available. But certainly, we'll look to pursue those opportunities. And then finally, third would be the strategic opportunistic share repurchases. Operator: Our next question comes from Daniel Jester with BMO Capital Markets. Daniel Jester: Maybe, Rach, just starting with you on the seasonality of margin performance this year. I think last quarter, it was suggested that maybe the fourth quarter exit rate of margin expansion this year might be a little bit lower from sort of typical events and things like that. Any updated color on how we should be thinking about the margin trajectory this year. Rachel Pyles: Yes, absolutely. Thanks for the question. So we're confident in kind of our overall margin profile. As you imagine all expenses are linear. And so margin does move around in the quarters. But from an overall perspective, you're very confident in our full year margin expansion numbers. Daniel Jester: Okay. And then, Ajei, just on the comments about specialty contractors that you made. It's great to hear about that. And I think in the past, I think there's a lot of focus on owners and as great opportunities for Procore. Maybe can you just double-click on the specialty contractor opportunity and how you can maybe see that additive to growth this year? Ajei Gopal: Well, we certainly -- with respect to specialty contractors, I think we've had, from a product perspective, incremental releases that we talked about. I talked about materials management on the call. And obviously, I talked about equipping telematics. Both of those are areas of products that I think will help with our specialty contractors. I mean we give them essentially a place to manage documents to attract labor to track equipment to coordinate the DCs to get paid faster. So there's a lot of value that we're in a position to provide 2 specialty contractors. I'm excited about the area, and this is this is obviously one of the areas of focus for us as we go forward. Operator: Our next question comes from Jason Celino with KeyBanc Capital Markets. Jason Celino: So maybe my first question is kind of the incremental operating leverage comment that you expect to see in 2027 from AI. When we think about this internal AI adoption, I guess where is Procore on that journey today? Or said another way to drive that incremental leverage next year. are those AI efficiencies that you've already implemented? Or is that based on a road map of AI adoption you look to take on? Ajei Gopal: So let me just jump in here a little bit to talk about kind of where we are today in terms of our use of AI. Look, when you think about -- and I mentioned this in the script, but I'm excited that within our R&D organization, we're in the middle of transforming our operating model using AI. And my expectation is that as we go through that transformation, the rest of the organization will be in a position to follow the lead the R&D organization has -- is driving. And to be honest, we are already seeing the benefits of that and the part of the R&D organization that has adopted a very different model from a more traditional model, taking advantage of Agentic capabilities. We're starting to see increased speed in terms of product delivery, increased capabilities. So that value and benefit is something they're excited about. We're in the middle of that taking place. And obviously, the rest of the organization will follow. And we expect, obviously, the speed and the efficiencies from those changes are the basis of some of the financial leverage that we talked about for the next year. Rachel Pyles: To kind of add on to what Ajei said, he mentioned R&D is going first and then the capabilities out to the rest of the organization. But I would also note that we do have AI capabilities in other parts of the organization and our employees have access those tools, although not quite as advanced as on the R&D side. As we go into '27, I'm excited about seeing that all come together and seeing the efficiencies really across all parts of the organization. So I don't -- you're not going to see the leverage coming just from one place. It will really be coming from all lines across the P&L. Jason Celino: Okay. Great. And then in prior questions, you've talked about seeing a stabilized macro, but maybe going a step deeper in your conversations with customers, how are they managing the increase in oil prices. Obviously, it adds to the project cost, and it doesn't sound like it's affecting near-term project starts, but curious how conversations are going in more recent discussions. Ajei Gopal: I mean I think the important thing to recognize is the projects that we are involved in working with customers on all long-term projects. And so there it's not about what happens that's perhaps contained to one quarter or another. So no customers have really, in my conversations have really talked about this as being a long-term consideration. And so we continue to see a stable demand environment for the products and from our customers. Operator: Our next question comes from Ken Wong with Oppenheimer. Hoi-Fung Wong: When looking at the shape of the guidance, it does seem to imply second half acceleration from 2Q. Should we think of that as just purely mechanical? Or are you guys -- as you think about the business, as you look at what's in the pipeline that there is some business momentum, there is some improvement and an inflection coming in that back half? . Rachel Pyles: Thanks, Ken. It's really mechanical. So consistent with what you've seen us do in the past, we did a beat and raise this quarter. Again, that no change in our guidance last year. We're continuing to give you guidance that we feel a high level of conviction in. Hoi-Fung Wong: Got it. And then Ajei, I think it was someone alluded to earlier, but again, great to see you pair up with Walt again. As you and Walt look at the current go-to-market, any additional changes you think that needs to be made whether it's in terms of the organization or just the approach to selling. Any thoughts there that you can share with us? Ajei Gopal: Well, Walt has been officially in the seat for a little over a month, April 1. So he's still evaluating the organization, the team, et cetera. But look, Walt understands the vertical software motion, he spent years in vertical software. Obviously, we work together in a vertical company -- vertical software company. So he understands the motion. He understands the customers and how to have those conversations. And he was, frankly, with me working -- we were working very closely together on the journey that we went through in our last company to be in a position to take the sales organization and continue to scale it both internationally as well as across multiple customer segments and continue to expand the business. So I'm excited about Walt's capabilities but certainly, what I can tell you is that even as we make changes, and obviously, every sales leader will find areas of ongoing improvement as we make changes we will -- my expectation is that we will continue to execute as we improve, and I'm excited about that. Operator: We have reached the end of the Q&A session, and this concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Harley-Davidson 2026 First Quarter Investor and Analyst Conference Call. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Shawn Collins. Thank you. Please go ahead. Shawn Collins: Thank you. Good morning. This is Sean Collins, the Director of Investor Relations at Harley-Davidson. You can access the slides supporting today's call on the Internet at the Harley-Davidson Investor Relations website. As you might expect, our comments will include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in today's earnings release and in our latest filings with the SEC. Joining me for this morning's call are Harley-Davidson, Chief Executive Officer, Artie Starrs; and Chief Financial and Commercial Officer, Jonathan Root. With that, let me turn it over to Harley-Davidson, CEO, Artie Starrs. Arthur Starrs: Thank you, Shawn, and good morning, everyone, and thank you for joining us today for our Q1 2026 financial results as well as an introduction to our new strategic plan, which we're calling back to the bricks. I'll begin with an overview of our Q1 performance. Jonathan will then provide additional financial commentary before we turn to our strategy. Before I get into it, I'd like to take a moment to acknowledge our deeply committed and passionate Harley-Davidson employees, who worked tirelessly to bring Harley-Davidson alive across the world. Thank you, Team HD. Starting with retail sales. We're pleased with our performance this quarter. North America delivered a 14% increase versus the prior year, contributing to global retail sales growth of 8% in what remains a challenging consumer environment. These results reflect the impact of the actions we've taken to drive demand and improve execution. As noted on the Q4 earnings call, dealer health and inventory levels remain a key focus for the company. During the quarter, we reduced global inventory by 22% year-over-year as we continued to prioritize dealer inventory sell-through and aligning wholesale shipments with retail demand. We'll share more detail on this in our strategy discussion. Strengthening dealer relationships has also remained a priority. We recognize the critical role our dealer network plays in the Harley-Davidson ecosystem, and we're encouraged by the renewed sense of partnership and momentum across the network. This will be an important driver as we move forward into our next chapter. During the quarter, we also formally reopened our Juno Avenue headquarters in Milwaukee, Wisconsin. Affectionately referred to by our Harley-Davidson Community as the bricks with our employees at headquarters returning to the office for the first time since 2020. Finally, we've been encouraged by the early reception to our new marketing platform, Ride. I'll speak more about the brand platform and the value we believe it will bring as part of our strategy presentation. With that, I'll turn it over to Jonathan. Jonathan Root: Thank you, Artie, and good morning to all. I plan to start on Page 4 of the presentation, where I will briefly summarize the financial results for the first quarter. Subsequently, I will go into further detail on each business segment. Let me start with our consolidated financial results for the first quarter of 2026. Consolidated revenue in the first quarter was down 12% and driven primarily by HDFS revenue being down 54% as it moved into a new capital-light model after the closing of the HDFS transaction, where we sold a significant part of the retail loan book and agreed to a forward flow in which we expect to sell approximately 2/3 of future originations. Consolidated operating income in the first quarter came in at $23 million compared to operating income of $160 million in Q1 of 2025. This was driven by a significant year-over-year decline in operating income at both HDMC and HDFS as we expected. The operating loss at LiveWire was $18 million which was in line with our expectations and $2 million favorable to a year ago. In Q1, earnings per share was $0.22, which compares to $1.07 in Q1 of 2025. Now turning to Page 5 and HDMC retail performance. In Q1, North American retail sales of new motorcycles were up 14% versus prior year with approximately 24,000 motorcycles sold. In Q1, retail sales of new motorcycles outside of North America were down 4% versus prior year with approximately 10,000 motorcycles sold resulting in Q1 global retail sales of new motorcycles being up 8% versus the prior year with a total of approximately 34,000 motorcycles retailed. While we are relatively pleased with the start to the year, particularly in the U.S., we remain mindful of the global consumer discretionary landscape, which remains uneven. We are aware that pricing continues to be on the top of customers' minds given the current global setup that includes inflationary pressures, interest rates that continue to run above recent historical lows and global geopolitical uncertainty. In North America, Q1 retail sales were up 14%, where U.S. retail sales were up 16% and Canada retail sales were down 8%. Results were driven by continued strength in our Touring and Trike models as consumers reacted well to our new 2026 Motorcycle Launch and targeted customer incentives. This translated into a significant market share gain with Harley-Davidson reaching 38% of the U.S. 601 CC+ market, up 2 percentage points year-over-year. Dealer inventory in North America declined 21% year-over-year, reflecting a more balanced setup as we enter the main riding season. In EMEA, Q1 retail sales posted a modest decline of 3%. In the quarter, performance reflected a subdued economic environment in Europe, although supported with early model year 2026 product momentum across the continent, as evidenced by the quick sell-through of new units that began arriving later in Q1. The Rev Max platform continued to outperform the broader portfolio led by adventure touring, which showed strong growth year-over-year. In addition, from a market share standpoint, we moved from 2% to 4% of share in the European market in Q1. In Asia Pacific, Q1 retail sales declined by 9%. In the quarter, we experienced modest declines in the core portfolio, including touring, strike and soft tail reflecting broad-based pressure across Japan, Australia and China, partially offset by positive results in our noncore motorcycle portfolio with strength in adventure touring. In Latin America, Q1 retail sales delivered another strong quarter with retail up 21%, where both Brazil, our largest Latin American market and Mexico were up, while other Latin American countries were down modestly year-over-year. Touring and Trike were the standout categories in the market. Dealer inventory at the end of Q1 of 26 was down 22% versus the end of Q1 of '25. Specifically, North American dealer inventory was down 21% and dealer inventory outside of North America was down 23%. This has allowed Harley-Davidson dealers to start the upcoming 2026 writing season with a largely appropriate setup. In addition, the quality of dealer inventory is healthier today than 1 year ago as it is more current from a model year standpoint. At the end of Q1, North America dealer inventory was comprised of approximately 2/3 of current model year 2026 motorcycles. In comparison, in the prior year period, a little less than 1/2 of all dealer inventory was current model year. We expect this improvement in healthy dealer inventory to pay dividends in future periods and believe it sets Harley-Davidson and our dealers up for greater success. Before we get into revenue, let's conclude with some information on wholesale shipments. From a wholesale shipment perspective, in Q1 of 2026 and we delivered approximately 37,300 units compared to 386,000 units in Q1 of 2025, which is down 3% year-over-year. As we are now beginning the prime riding season in North America, we have recently heard from dealers that they could benefit for more inventory with regard to particular places, models, entrant levels. This is a good sign, and we expect to ship more units on a year-over-year basis in Q2 and Q4, while running lower in Q3 in comparison to the prior year period. We expect this will get us to a more even shipment cadence across the quarters in comparison to what we have delivered in recent years. Now turning to Page 6 and HDMC revenue performance. In Q1, HDMC revenue decreased by 2%, coming in at $1.1 billion. We point out that from a business line standpoint, motorcycles came in at $836 million C&A plus apparel came in at $200 million and licensing and other came in at $20 million. The drivers of overall revenue at HDMC included lower volume or shipments and lower net pricing and incentive spend. These were partially offset by favorable foreign currency. Now turning to Page 7 and HDMC margin performance. In Q1, HDMC gross profit came in at 25.3%, which compares to 29.1% in the prior year. The year-over-year decrease was driven by the unfavorable impacts of increased tariff costs of $45 million in Q1, which will be covered in more detail in the next slide, net pricing and incentive spend due to effective sell-through of prior model year dealer inventory. Product mix, lower volumes and higher-than-expected supply management costs as we work through a unique supplier situation. These were partially offset by the positive effects of tariff recovery settlement from prior years and favorable foreign exchange. In Q1, operating expenses totaled $248 million which was $49 million higher compared to prior year. This falls into two broad buckets. The first piece is a restructuring expense of $15 million, driven by costs incurred related to strategic changes, including the company's decision to eliminate certain roles, resulting in onetime employee termination benefits and other recurring charges. The second piece consists of $34 million of additional costs in the quarter specifically due to higher warranty spend due to select product recalls, select people costs, primarily related to executive team changes on a year-over-year basis, increased marketing spend as the marketing development fund matures, and limited other discrete expenses to operate the business. In Q1, HDMC had operating income of $19 million, which compares to operating income of $116 million in the prior year period. Turning to Slide 8. In 2026, the overall global tariff regulatory environment continues to evolve. There are a number of factors at play in the space, including the potential for increased tariff recoveries and evolution in the application of IIFA Section 122 and updates to Section 232 steel and aluminum tariffs. In Q1, we saw the most significant year-over-year impact in tariffs we expect to experience this year. This is a result of the increased tariff levels, which were initially put in place beginning in Q2 of 2025. In Q1 of '26, the cost of new or increased tariffs was $45 million. As tariff policy changes, there are lags associated with the various tariff levels as these adjustments work their way through our parts inventory imported prior to the current Section 232 pronouncement. We continue to pursue mitigation actions where possible and pursue tariff recoveries when viable. We note that recent U.S. administration tariff regulation announced in early April, included an exemption on certain motorcycles and for parts and accessories for the use in the manufacturing promoter cycles. We would note that Harley-Davidson is a business very centered in and around the United States. 3 of our 4 manufacturing centers are U.S.-based and 100% and of our U.S. core product is manufactured in the U.S. This change will serve in helping mitigate the impact to tariffs to Harley-Davidson and enable us to strengthen our commitment to U.S. manufacturing. At this point in time, we expect the cost of increased tariffs to be in a range of $75 million to $90 million for the full year 2026, which is favorable to what we guided to in our prior quarter. From a cadence perspective, our expected tariff amount will decrease consecutively as we work our way across the remaining quarters in 2026. Turning to HDFS on Page 9. At Harley-Davidson Financial Services, Q1 revenue came in at $112 million, a decrease of 54% driven by lower interest income due to the decline in retail receivables related to the sale of loan assets as part of the new HDFS transaction. Other income within HDFS revenue was favorable year-over-year due primarily to new servicing fees, investment income and new gains on third-party loan sales. HDFS operating income was $22 million, representing an operating income margin of 19.9%. On the expense side, interest expense and the provision for credit loss expense were both significantly lower, which was due to the decreased size of the retail loan portfolio and related debt on a year-over-year basis and as expected. With the change in strategy associated with the HDFS transaction. The HDFS team continues to manage expenses prudently with operating expenses decreasing by $1 million versus prior year. Turning to Page 10. In Q1, HDFS' annualized retail credit loss ratio on managed loans was 3.6%, which compares to 3.8% in the year ago period. We are pleased with HDFS loan origination activities as total retail loan originations in Q1 were up 14%, coming in at $671 million in Q1. We Total gross financing receivables were $2.5 billion at the end of Q1, where retail receivables were $1.3 billion and commercial receivables were $1.2 billion. Now turning to Slide 11 for the LiveWire segment. For the first quarter of 2026, LiveWire revenue increased 87% over prior year driven by increases in electric motorcycle and static brand electric balanced bank units. Consolidated operating loss decreased by 11% and resulting from improved gross profit and lower selling, administrative and engineering expenses. In turn, this drove an improvement of over 25% in net cash used by operating activities in Q1 of '26 compared to Q1 of '25. For 2026, LiveWire's focus is heavily geared around the imminent launch of its F4 Honcho products, in particular, continued network expansion cost savings and improvements and product innovation and development focused on products that will be profitable and positive drivers of cash flow. Now turning to Slide 12. We wrapping up with consolidated Harley-Davidson, Inc. financial results. We had net cash use of $228 million from operating activities in Q1 and which compares to $142 million of operating cash in the prior year period. Operating cash flow was lower than the prior year due to reduced cash inflows at HDMC on lower wholesale shipments. Also at HDFS, the operating cash flow decreased due to reduced interest income and due to new originations of retail finance receivables under the forward flow arrangement that were classified as held for sale, which is classified as an operating activity under U.S. GAAP. As a result, the originations to be sold to our strategic partners or outflows reduced cash flow from operations as there were no comparative retail finance receivable originations classified as held for sale in the first quarter of the prior year. This was partially offset by the inflows from the proceeds from the sale of retail finance receivables classified as held for sale. This will remain a distinct year-over-year item as we move through 2026 as a result of the HDFS transaction, which concluded throughout the second half of 2025. Total cash and cash equivalents ended Q1 of 2026 at $1.8 billion compared to $1.9 billion a year ago. As part of our share buyback strategy, in Q4 of 2025, we entered into an accelerated share repurchase agreement to repurchase $200 million of the company's common stock. As part of the ASR agreement, we received $160 million or 80% of the notional worth of shares or 6.3 million shares delivered to us before December 31, 2025, with the remainder expected to be delivered in early 2026. On February 12, 2026, our ASR was concluded, and we received an additional 3.1 million shares on February 13 2026. These shares had a value of $64.7 million, considering the share price during the ASRs performance period. Beyond the ASR, the company also repurchased another 3.5 million shares on a discretionary basis for $63.3 million in the first quarter of 2026. Therefore, in Q1, we repurchased a total of 6.6 million shares worth $128 million on a discretionary basis. We note that since our Q2 of 2024 earnings announcement, where we also announced a plan to repurchase $1 billion worth of our shares through 2026 that we have repurchased a total of 26.8 million shares. That is a total value of $726 million of Harley-Davidson shares purchased. We are pleased with the performance and have decided to conclude reporting on this program as we look forward to aligning our capital allocation approach with the updated strategy that Ed and I will walk through shortly. Share buybacks remain an important part of our capital allocation strategy, and you will hear more on this, including a refreshed and updated approach to capital return to shareholders. As we enter the main riding season, we remain pleased with our dealer inventory levels and leading market share position in the U.S., new model year '26 motorcycle launch, including the new limited touring motorcycles and the all-new redesigned trike models. We are also pleased with the reception to a number of new, more affordable motorcycles, which have a focus on critical price points to help stone demand. While we are not changing our financial guidance, we would note that our optimism on the year has increased. This is due in large part to our retail results in North America, and we are also pleased with the early action of our cost reduction. For the full year 2026, the company reaffirms its guidance and continues to expect at HDMC retail units of $130,000 to $135,000 a and wholesale units of 130,000 to 135,000. We believe that global dealer inventory levels are healthy, and therefore, we expect retail and wholesale to have a largely one-to-one relationship in 2026. In line with my earlier comments versus prior year, we expect shipments to be higher in Q2, relatively flat in Q3 and then up again in Q4. At the same time, we continue to expect production units at HDMC to be lower than wholesale units shipped in 2026 as we work to prudently manage overall company inventory levels. For 2026, we expect this will have a deleverage impact, which will put pressure on operating leverage and operating margin, but we expect to come into alignment by next year. In addition, we still expect to face a greater overall cost for incremental tariffs in 2026 compared to 2025 and which we covered in detail previously. As a reminder, in full year 2025, we incurred a cost of $67 million in new or increased tariffs. And in 2026, we forecast a cost of between $75 million to $90 million of new or increased tariffs based upon current tariff levels and versus the 24 baseline. This is an update to the prior range we provided of $75 million to $105 million. At HDMC, we expect operating income of positive $10 million to a loss of $40 million. At HDFS, we expect operating income of $45 million to $60 million. As a reminder, the new business model at HDFS, given the HDFS transaction, where Harley-Davidson Financial Services now employs a capital-light derisked business model and has significantly changed financial earnings profile relative to before the transaction. For LiveWire, we are forecasting an operating loss in the range of $70 million to $80 million. And with that, I'll turn it back to Artie to cover our strategic plan. Arthur Starrs: Now turning to our strategic plan for Harley-Davidson. On behalf of our Harley-Davidson community, Jonathan and I are excited to introduce our Back to the Bricks plan. Designed to reignite brand enthusiasm with riders around the world while driving profitable growth for our dealers and shareholders. It is grounded in the work we've done since October. We've spent significant time assessing the business, engaging deeply with dealers and riders and most recently, through a global road show where we connected directly with the majority of our dealer network in all of our global dealer advisory councils. The Back to the Bricks plan will restore Harley-Davidson and position the company for growth. First, we are intensely focused on leveraging Harley-Davidson's competitive advantages, specifically brand, diversified revenue channels and most notably, P&A and financing products and our dealer network. Second, we are leaning into a true win-win model with our dealer network. Our dealers are not only our retail channel, but the frontline builders of our rider community. They are the true source of strength and a competitive advantage when our dealers win the enterprise wins, and so do our shareholders. Third, we have already taken immediate actions to recapture share by better serving the large and community of riders, where Harley-Davidson has a clear right to win. Fourth, we're doing this from a position of strength and plan to leverage our balance sheet, bolstered by cost and restructuring actions to enable both investment in the business and returns to shareholders. We are executing against a clear path to strong and growing free cash flow and EBITDA margin. And lastly, we brought on some great leadership talent to support the business as we enter this new chapter for the company. Moving to Slide 3. There are really three things that define Harley-Davidson. First, we are a 123-year young brand that designs and manufactures the best motorcycles in the world. combining iconic design, precision engineering and a look, sound and feel that is unmistakably Barley Davidson. Second, through our best-in-class dealer network, we serve a global community across segments. We've helped define over decades. Our riders show up in powerful ways through hog chapters, rallies, events and by giving back to their local communities. And third, maybe most importantly, is the culture of riding. Since starting at the company, I've spent time with riders and dealers at events, rallies and swap meats. And what stands out is the emotional connection riders talk about their motorcycles, their rides and their community in deeply personal ways. For them, riding isn't just about getting somewhere. It's about the experience itself. The ride is the destination. Turning to Slide 4. We're in the midst of a bold restoration of the business to drive value for shareholders. What's clear is that our heritage remains a powerful advantage, not something to preserve, but something to build from. It starts with our portfolio. Taking a step back over the last several years, we leaned heavily into touring and electric. Going forward, we are shifting to a more rider-centric portfolio, one that is more accessible, more customizable and better aligned to the needs of the full spectrum of our riders. Touring will always remain our core. We're building clear pathways into the brand that support long-term touring growth. While also addressing other writing occasions and styles. Importantly, we can do this using our existing platforms, moving from too many of too few to a more balanced lineup. We're also adopting an enterprise profitability model, recognizing that our success is directly tied to the success of our dealers. When dealers win, we win. By aligning Harley-Davidson and dealer economics, we can create more value for riders, stronger profitability for dealers and more dependable cash flow for shareholders. I'll come back to this in more detail shortly. Another key pillar is parts and accessories. Customization is at the heart of Harley-Davidson. It's how riders make each bike their own what we often think of as freedom for the sole or more personally freedom for our so. We're reestablishing parts and accessories as a core growth driver, one where we have a clear right to win, and in alignment with dealers as this is an important component of their profitability. We're also reinforcing motor clothes and apparel, growing from the core of the brand. On promotions, as inventory has normalized, we are shifting to a more targeted and disciplined approach, one that supports volume while protecting margins. An expanded portfolio will play an important role here as well. From an investment standpoint, we continue to see upside in existing platforms, particularly within touring, but our near-term focus is on executing better with the platforms we already have rather than introducing entirely new ones. By leveraging our existing platforms and powertrain to bring new motorcycles to market, we are operating with a more capital-efficient model. Finally, we've taken important steps to refocus our brand around our community as reflected in the launch of the ride marketing platform. Taken together, we believe these actions position us to revitalize the business by leaning into what has always made Harley-Davidson strong and executing with greater clarity and discipline. As you can see on Slide 5, a we've experienced a decline in retail volumes, and that's had a direct and meaningful impact on both company and dealer performance. At the core of this is a loss of relevancy with riders, most notably with the exit of iconic motorcycles like the Sportster, which limited accessibility and contributed to lower volumes. Additionally, we are excited to introduce Sprint the perfect entry for many to the Harley-Davidson brand. At the same time, as volumes declined, our cost base remained largely fixed putting pressure on margins and driving a greater reliance on broad-based promotions, particularly on higher-priced motorcycles. And importantly, lower throughput at has had a direct impact on our dealers, reducing traffic, compressing profitability and limiting the performance of key revenue streams like parts and accessories and service. All of this reinforces a critical point. restoring profitable volume is central to improving overall performance. And that's exactly what our strategy is designed to address, making the brand more accessible through a combination of portfolio changes, more targeted pricing and promotions and improved operational execution. Moving to Slide 6. While recent performance has been impacted, the underlying market opportunity remains significant. We see meaningful white space in existing markets, areas where Harley-Davidson has strong legacy equity and a clear right to win. Across new motorcycles, used motorcycles, parts and accessories and apparel, there is share of wallet that we were capturing as recently as 2019 that we are no longer capturing today. That creates a very direct opportunity to regain market share and do so in segments where our brand is already strong. Importantly, this strategy is not about entering new categories where we lack a competitive advantage. It's about doubling down in the categories we know where we have credibility, scale and deep rider connection. We believe this positions us to regain lost share while driving meaningful volume growth over time. Now turning to our strengths on Slide 7. The foundation of Harley-Davidson is its legacy, an unparalleled brand with unique American heritage, as recognized recently by USA TODAY as part of their 50 iconic brands that shaped America Series. Underpinned by a best-in-class dealer experience, deeply committed riders and craftsmanship that delivers something truly unique. When I first joined the company, those advantages were immediately clear. And as we've looked more closely at the data, they've only become more compelling. We are one of the most recognized and esteemed brands in the category and in many ways, we help define it. Our dealer network is a true competitive advantage, consistently delivering a best-in-class customer experience and serving as the frontline of our brand. Our riders have an incredible affinity for Harley-Davidson. They don't just buy our products, they live our brand. It's a level of loyalty and engagement that is difficult to replicate. And all of this is anchored in superior craftsmanship and quality that continues to resonate strongly with our riders. Taken together, these strengths provide a powerful foundation as we execute our plan and move the business forward. Now turning to our strategic road map on Slide 8. Against the backdrop we've just discussed, we've developed a plan for the next several years that unfolds in three clear phases. First is the reset. This phase is already underway and focused on taking cost out rightsizing dealer inventory, strengthening our dealer relationships and rolling out the ride marketing platform. We're making progress across all these areas, and today, we'll provide an update on that momentum. Second is the growth phase. Beginning next year, you'll see a more expanded and balanced portfolio designed around what riders want, while leveraging the full life cycle of the motorcycle to unlock additional revenue streams. Parts and accessories will play a much larger role both in dealerships and as a core revenue driver. At the same time, we're refining our promotional approach to be more targeted, driving traffic and volume while preserving profitability. And third is the acceleration of value creation. As the portfolio becomes more accessible and better aligned to needs of our full spectrum of riders, we see opportunity to deepen ridership engagement. This includes greater participation in the used motorcycle ecosystem as well as further driving adjacent areas like apparel and licensing. With the foundation established in the first 2 phases, we believe we are well positioned to drive more sustainable enterprise growth in wider economic enterprise benefits. Turning to Slide 9. What are we doing right now? We've already begun putting this plan into action, and we're encouraged by the early momentum. As part of Phase 1, our actions on cost and inventory have been swift and effective. We've moved quickly to reduce head count and take cost out of cost of goods sales, creating room to reinvest in key growth areas like parts and accessories. As we previously outlined, we expect to deliver at least $150 million in annual run rate cost savings that will impact 2027 and beyond versus 2025 levels. At the same time, we've made meaningful progress on inventory. Global retail inventory is now at a much healthier level, down significantly, 22% year-over-year. So we still see opportunity to improve assortment and allocation at the dealer level. Importantly, these actions are starting to translate into results. we're seeing sales momentum return with retail growth and market share gains, including an 8% increase in global retail sales in Q1 2026. Now turning to our dealers on Slide 10. The Harley-Davidson dealer network is a clear competitive advantage, and our strategy is intentionally designed to support and strengthen their profitability. I firmly believe this company will go only as far as our dealers take us. That's why dealer profitability is a central pillar of our plan. Since joining, I've spent a significant amount of time with dealers, along with the broader leadership team, listening and learning directly from them on the ground. Our focus is on earning their trust and ensuring they're confident and excited about the path forward. We've already taken action through inventory rightsizing, better alignment on promotions and structural improvements to dealer programs. And we're not done. There are additional actions ahead that we expect to further strengthen dealer economics. Our objective is clear: to materially improve dealer profitability over time, supporting a stronger, more stable network and enabling long-term growth. As shown on the slide, we are targeting a meaningful step-up in dealer profitability over the next several years. Moving to Slide 11. It's important to understand the role dealers play in the Harley-Davidson ecosystem. Dealer profitability is nonnegotiable and ultimately a win for shareholders. At the core, brick-and-mortar economics and frontline enthusiasm are directly linked. When our dealers are profitable, they can invest in their business, delivering a better rider experience at the point of interaction with our brand. Stronger dealer economics also reduced the need for discounting and OEM promotional support, helping preserve the premium positioning and long-term health of the brand. Dealers are not just our primary sales channel. They are a powerful marketing engine, building the brand and local communities at scale. When they are successful, we unlock the ability to invest more in rider growth through initiatives like Riding Academy, HOG engagement and events that deepen connection to the brand. And importantly, healthy dealer profitability attracts capital, bringing more investment into the network and supporting long-term rider-centric growth. Moving to Slide 12. I want to spend a moment on the lens through which we're now viewing growth and profitability. We've done significant work to better understand how we make money as one enterprise, Harley-Davidson and our dealers together. What's clear is that focusing solely on wholesale and retail motorcycle margins is an incomplete view. A motorcycle generates value over its entire life cycle across parts and accessories, service finance and insurance and ultimately, the used market. And importantly, Harley-Davidson and our dealers participate in that value at different points in time across multiple revenue streams. So going forward, we're managing the business against this broader enterprise economic model. By increasing new motorcycle volumes, we not only drive profit at the point of sale, we also expand the base of motorcycles in the market, which fuels downstream revenue across all of these channels. We believe this will create a more stable diversified and sustainable earnings profile over time. It also changes how we think about the portfolio. We intend to bring motorcycles to market in a way that supports the full enterprise profit model not just the economics of an individual launch for motorcycle. We expect this to reduce pressure on any single product and lead to more balanced performance across cycles. And importantly, the portfolio changes we're making, particularly around accessibility and customization play directly into this model by supporting higher volumes and stronger life cycle value. Over time, we plan for this to become a compounding growth engine. The return of Sportster and the introduction of new models like Sprint are great examples of how this approach will create value across the system. We're really excited to announce that our iconic Harley-Davidson Sportster will be returning in 2027. This has been the most requested motorcycle from both our riders and our dealers, and we're bringing it back better than ever. Sportster is a perfect embodiment of back to the bricks, and it fits naturally within our enterprise economic model. For context, Sportster has historically been a middle weight highly customizable motorcycle with an air cooled powertrain and accessible starting price point, making it an important entry to the Harley-Davidson brand. While it was discontinued in 2022, it has remained incredibly strong in the used market, often retaining value at or above original MSRP, which speaks to its enduring appeal. With its accessibility, we expect Sportster to drive higher volumes. And with its customization potential, we expect strong attachment to parts and accessories as riders personalize their motorcycles. Beyond the motorcycle itself, Sportster also creates opportunity across apparel, licensing in the broader wider ecosystem. Importantly, it demonstrates how our strategy generates value across the full life cycle from the initial sale to entry into the used market. Taken together, Sportster is a critical part of our plan to restore volume, strengthen our portfolio and drive long-term enterprise value. We look forward to sharing more specifics later this year. Additionally, we're excited to bring Sprint to market beginning in the back half of 2026. This lightweight, customizable and accessible motorcycle provides a great entry to the brand for many riders. We are excited to be returning to a space that we haven't been in since the 1960s. And we believe that the Sprint will provide a great starting point for riders to enter the brand as they progress through the portfolio. Over the coming periods, we will be providing more detail on how this aligns with our portfolio planning and lifetime value creation. Moving to Slide 15 and zooming out to a broader view of the portfolio, we are taking deliberate steps to realign the portfolio. Making it more rider-centric and better positioned to replicate the value creation cycle we just discussed across more models. Over the past few years, pricing and portfolio decisions reduced accessibility for some riders which contributed to lower volumes and ultimately, pressure on profitability. We're addressing that directly. Going forward, you'll see a more balanced lineup across price points. while still maintaining our premium positioning. We're also expanding the use of blank canvas motorcycles, which we know is a key differentiator for Harley-Davidson. Giving riders more opportunity to personalize their motorcycles through genuine parts and accessories. These changes are informed by deep analysis of the used market, direct dealer engagement and what we've learned from recent promotional activity. Importantly, we see clear gaps in the portfolio that we can address efficiently without starting from scratch. We're leveraging our existing platforms in Powertrain, where we see significant room for growth, allowing us to expand the lineup without incremental capital investment. Taken together, this positions us to deliver what riders want, improve accessibility and drive stronger volume and life cycle value across the portfolio. Now turning to parts and accessories on Slide 16. This is one of our most important revenue channels and a significant growth opportunity. We believe there is a potential to drive 20% to 30% sales growth over time. We also recognize that we've under-invested in this area in recent years. Customization is at the core of the Harley-Davidson experience and a key driver of dealer profitability. No two Harley-Davidson motorcycles on the road are the same and that's exactly how riders want it. So we've laid out a clear road map to rebuild our leadership in parts and accessories, leveraging our dealer network and existing manufacturing and supply chain capabilities. That starts with expanding our assortment, including reinstating approximately 30% of SKUs that were previously eliminated. We're also refocusing on core categories where Harley-Davidson has historically been strong. Like seats, exhaust, lighting, windshields and handlebars and pairing that with an increased emphasis on blank canvas motorcycles that are designed for personalization. Importantly, we're integrating parts and accessories into the motorcycle launch process, ensuring availability at launch, supported by HDFS financing and aligned dealer incentives. As we execute this, we expect stronger dealer performance, increased attachment rates and ultimately both revenue growth and margin expansion over time. Turning to Slide 17. We're also refining our approach to promotions. Historically, our promotional activity has been broader and less targeted. More recently, we used promotions to help reset elevated dealer inventory. Which, while necessary, put pressure on profitability. Now with inventory at healthier levels, we're shifting to a more disciplined and targeted approach. Focused on driving traffic and conversion at a lower cost. An important enabler of this is our expanding portfolio, which allows for more value-based messaging across a broader range of products. rather than relying on heavy discounting on a narrower mix. We're also strengthening our capabilities with recent hires who bring deep experience in performance marketing in automotive retail. And the launch of our marketing development fund in 2025 is a key step in better aligning scale with more effective localized dealer messaging. Together, these efforts are improving how we manage incentive spend, driving more predictable growth while recognizing that many riders don't require heavy promotion to convert. The result is a more efficient model. which we believe will support volume recovery while protecting margins. Now turning to our marketing approach on Slide 18. Last month, we launched our new brand platform, Ride, which really brings everything together. It's built on a simple but powerful insight, joy and Swagger. At its core, Ride celebrates the experience of riding and most importantly, our riders themselves. They and their motorcycles are the stars of the show. This reflects a broader shift in how we show up as a brand. We're moving toward more authentic, rider-focused storytelling that reinforces the community and culture at the heart of Harley-Davidson. We're also reallocating our marketing investments. moving away from a heavier e-commerce spend and toward top of funnel, brand-building efforts to drive awareness and engagement. You may have even seen us recently on Wheel of Fortune. At the same time, we're making better use of tools like the marketing development fund, while upgrading our digital platforms and programs to support both global scale and local activation. And perhaps most importantly, the power of ride is that it gives us a single unified voice while still allowing flexibility for riders and dealers around the world to bring the brand to life in their own way. It connects all aspects of Harley-Davidson from product to community to marketing under one cohesive platform. And as you can see on the slide, it creates a clear and flexible framework for how we bring the brand to life across riders, dealers and markets around the world. Over time, we expect this to drive stronger engagement, deeper relevance and ultimately growth. Now I'll hand it over to Jonathan to take you through the financial section. Jonathan, over to you. Jonathan Root: Thanks, Artie. Now turning to our financials on Slide 21. All of the facets of the strategy we've just laid out support our financial growth trajectory over the next few years. We believe we have a clear path to achieving $350 million plus EBITDA in 2027. The path to get there is clear and execution-driven anchored by roughly $150 million in fixed cost reduction, better alignment between wholesale and retail volumes the full impact of Sportster and Sprint, targeted expansion in high-margin parts and accessories and more effective disciplined promotions. Beyond 2027, the story doesn't stop. We expect continued strong growth driven by further cost absorption, a broader P&A and motorcycle portfolio, incremental product improvement and smarter incentive execution. The bottom line is, this is a structural step change in profitability with clear levers and meaningful upside ahead. Now on Slide 22, we'll take a closer look at how we get there. This bridge outlines the key initiatives that will drive EBITDA improvement. In the near term, the focus will be on cost reduction and operating leverage, which we see as the primary drivers of performance. With these actions already underway, we have a clear line of sight to achieving $350 million or more. Beyond 2027, a Drivers for continued growth will include, but not be limited to, improvements in motorcycle margins and volume supported by growth in parts and accessories. Turning to our medium-term targets on Slide 23. We expect to return to sustainable growth across key metrics. We expect to achieve mid-single-digit retail unit growth over the medium term. As Artie discussed, this return to growth will be driven by the significant actions we are taking across our business. Furthermore, we expect the momentum in retail units and other enabling actions to drive mid-single-digit growth in P&A and AML. Combined with the ongoing inventory rightsizing, we expect this return to growth to have a significant impact on dealer health. From a margin standpoint, we expect to drive significant improvement in gross margins approaching 30%, while operating expenses as a percentage of sales decreased to less than 20% and from the 25% in 2025. Over the midterm, we expect CapEx to remain broadly in line with recent expenditure levels. In totality, we expect to deliver attractive top line growth and drive towards a 10% to 12% EBITDA margin over the medium term. These targets reflect a more balanced and resilient business model underpinned by the Back to Brick strategy. I'll now touch briefly on HDFS on Slide 24. We believe that the business remains a highly strategic asset. Following the transaction, we have transitioned to a more capital-light model while maintaining HDFS' role in supporting motorcycle sales and dealer financing. We recently held a call to discuss the HDFS business in greater detail but at a high level, we expect HDFS to see improved returns while reducing capital intensity. We expect to continue to strengthen HDFS' leading position in powersports and intend to expand our high-value finance and insurance product suite with optimized offers supporting motorcycle sales. In connection with our enhanced P&A offerings, plans to leverage additional financing to drive P&A sales. Lastly, we are also better training dealers to maintain the best-in-class penetration rate of HDFS. With all this in mind, we are targeting $125 million to $150 million in operating income for the business by 2029. Turning to capital allocation on Slide 25. Our priorities remain consistent. We will reinvest in the business where we see opportunities to drive growth across the key initiatives of our strategy. We also remain committed to returning capital to our shareholders through share buybacks and dividends. Additionally, we remain open to opportunistic value additive M&A. And with that, I'll hand it back to Artie. Arthur Starrs: Thank you, Jonathan. To conclude, Harley-Davidson is built on a strong foundation, an iconic brand a deeply loyal rider base and a differentiated dealer network. We're excited about the path forward. Our dealers are energized, and we're seeing real enthusiasm from the rider community around back to the bricks. This strategy is intentionally grounded in our core strengths, and we're doubling down on what makes Harley-Davidson unique, especially our dealer network. Importantly, execution is already underway and we're seeing early signs that our actions are delivering results. We're doing this from a position of strength with a solid financial foundation to support both investment in the business and returns to shareholders. And we have the right team in place. energized and equipped with the experience needed to deliver on this plan. We remain committed to working closely with our dealers every step of the way to create value for our riders and ultimately for our shareholders. Thank you for your time this morning. And with that, we'll take your questions. Operator: [Operator Instructions]. We'll take our first question from today, and that is from the line of Robin Farley from UBS. Robin Farley: Two questions, if I may. First is -- just wondering what medium term is 2029 medium term just to kind of put a finer point on thinking about the targets? And then the other question is a little bit with tariffs, some of the bridge to your 2020 EBITDA is from, I guess, lower tariffs lumped in with some other things. And so if you could just help us think about that what you're expecting, what's factored in, in terms of tariff refunds into that? And your full year was unchanged, but tariffs seem a little better, so maybe there's an offset there. And then just -- I don't know if the manufacturing for Sprint, if you're assuming tariffs on that, if that's going to be outside the U.S. and potentially tariffs. So I know that's a lot of tariff balled up into one, but just whatever you want to address. Arthur Starrs: Great. Robin, thank you. It's already -- appreciate the questions. I'll take the first one, and then I'll let Jonathan handle the tariff specifics. When we said medium term, we mean 3 to 5 years. So hopefully, that helps on the tariff piece of Jonathan? Jonathan Root: Yes. So from a -- so thank you, Robin. From a tariff standpoint, I think when you look at our 2026 estimate, we obviously have a midpoint of $83 million on that, if you look within the first quarter, we had $45 million in tariffs that were paid. That leaves $38 million, again, just using the midpoint for simplicity for the balance of the year. Our viewpoint is that, that tariff amount will consecutively decrease by quarter as we benefit from the current tariff structure that we laid out on our slides. So in effective Q2 as we got into April, there were some changes from an overall tariff philosophy perspective that were put out there. You see the benefits of those. Obviously, that sort of accrues over time. we think that, that sets us up for 2027. We're not providing 2027 guidance at this point. But at 2027, that is arguably more attractive than where we are from a 2026 perspective. So you can infer and use some of your own judgment on where that lands. From a tariff refund perspective, there's obviously a tremendous number of companies large and small across the United States that are working on tariff refund and approach to tariff refund right now. Obviously, we will be working and following all of the guidelines that we need to from a tariff refund perspective, but a little difficult for us to talk through some of the specifics on timing. And when all of those dollars will hit throughout the year, we certainly have a little bit of benefit baked into our expectations, but it's not a tremendous driver for us. It's really more as we look, what are the current tariff rules that are in place how do we think that will accrue and you see the benefit that we've put in place from a guide perspective versus what we originally guided to for 2026. Operator: Our next question comes from the line of James Hardiman with Citigroup. Your line live. James Hardiman: So two questions on sort of the back to bricks opportunity. I guess, first, when we talk to investors, the 1,000-pound gorilla fair or not is sort of the demographic backdrop, right, specifically lower popularity of motorcycling if you think about younger generations maybe relative to their baby boomer counterparts. Artie, obviously, that's something that you've had to consider how does the back to the Bricks address that? Obviously, you've got some market share recapture goals that are pretty aggressive. Is there any concern that market share gains could be offset by category declines if those demographic headwinds persist? And I did have a follow-up if we could. Arthur Starrs: We can, James, thanks for your question. I think -- the biggest thing in this strategy back to the Bricks is we're prioritizing rider needs in a rider-centric portfolio. So we specifically called out. Two examples of how we're doing that. The Sportster, one of our most iconic motorcycles as recently as 5, 6 years ago, the market for that motorcycle is 35,000 to 40,000 plus on a global basis. Our riders and many younger riders and our dealers have expressed it is the #1 universal request from the motor company to deliver around a great Harley-Davidson Sportster and what we're talking about today is the 83. And so when I look at the demographics, how young people have always entered our brand, over 123 years. It has been motorcycles like the Sportster and over the last 30 or 40 years, the sports there has been a critical entry point to the brand. The second motorcycle is the Sprint, we have not had a motor cycle like the Sprint in some time. We see it filling an important need in Riding Academy, as someone who recently went through Ride Academy, being able to get on a motorcycle and then buy that same or a similar motorcycle is a gap in our current portfolio, which we're extremely enthusiastic about what this print is going to do. And I'd remind you that the number of designations at least in the United States right now, it's quite strong, as strong as it's been. And we see the opportunity for us as we present the brand as you look at the marketing campaign, this concept of Joy and Swager is something that we believe is and will resonate with young people. It's core to bringing young people into the brand over many, many years, which the brand had done successfully. So I'm quite optimistic. And the portfolio of motorcycles we're bringing forward, I think, addresses this well. James Hardiman: That's great. And it's a great sort of dovetail into sort of my follow-up question. Obviously, as we think about your medium-term target, of mid-single-digit retail growth, most specifically, I think if investors felt comfortable with that number alone, this would probably be a $40 or $50 stock, right? But help us understand that target while factoring in the return of sports there and the introduction of Sprint, how much of that retail growth is coming from those items? I'm just trying to understand sort of the organic versus the inorganic contributors to that mid-single-digit retail growth. Can you get to a place where the organic piece is also growing at a nice clip? Arthur Starrs: Sure. So thanks for the question. The Sportster is an important part, and Sprint obviously complements it as well. I referenced the volumes on Sportster historically. I'll go back to we feel that if we meet our riders where they're at, we can grow at these levels and beyond. I'm not going to give a specific number in terms of how much Sportster constitutes the amount of growth. But just based on historical numbers of Sportster that have sold and a projected number of Sprint, we believe that a significant portion of the growth will come from there. In addition to that, this concept of decontented or blend canvas motorcycles that we referenced in the presentation is something our dealers have been asking for. And it does a couple of things. Number one, is it leverages existing platforms and powertrains that we have and provides more accessibility across Touring and soft tail. Which is extremely exciting. And I'll remind everybody that some of these things were in Q4, we took action with things like our solo introduction, they're already working. So some of the retail success that we saw in Q1, we've effectuated in these plants. So I'm very enthusiastic about growth in both cruising and touring with a more distributed and accessible portfolio of motorcycles. Sportster is a big part of it. And given what's sold historically in Sportster, I'm quite confident and what's happening in the used marketplace on Sportster, if you look up in some of the used market channels, it's extremely exciting to see residuals maintain, and it's difficult to get your hands on an 83 right now, which means there's a real need. That's great color. Jonathan Root: James, the one piece that I would add to is, as you refer back to what was in the strategy deck, there's a page in there that talks through the multiyear view of motorcycle and the ancillary revenue streams. And so as you listen to Arty talk through changes to that portfolio, some of the kind of early wins that we've been seeing with solo models and some of the benefits that our price point focus is beginning to drive. That obviously has showed up in the first quarter from a retail standpoint. So inside of Q1, we've demonstrated the benefit to the approach that has been laid out. And then from an overall strategy standpoint, as we think through a life cycle and lifetime view, we can really envision people moving through the portfolio. We can see the benefit that accrues to both Harley-Davidson and our dealers that aligns with what Art talked through, and that's what gives us so much confidence in where we're going with the midterm targets and what's been laid out there. Operator: Our next question is from the line of Joe Altobello with Raymond James. Joseph Altobello: A couple of questions on the category expansion here. You talked about Sportster talked about Sprint. It sounds like those are smaller bites. Are there other sort of subcategories that you're looking to expand into as well, just beyond smaller CC engines? And then second question, there's a reason why Sports or was discontinued, right? It was hard to make money. So how is the economics of that bike changed? Arthur Starrs: Great question, Joe. Thank you. Let me take the second one first. So our team has done an extraordinary job over the last couple of years working on this project. And we have the cost at a place that we're extremely comfortable against the expected MSRP that we referenced. More importantly is this enterprise profitability model that has been just a fantastic way for us to communicate with our dealers. And when you think about the value that a motorcycle like Sportster Brings to Bear, it's very exciting when you look at the parts and accessories relevancy and opportunity. When you look at the service revenue that it brings through our dealerships, when you look at the used market that it feeds and maintain such strong residual values. So we're comfortable with the profitability of the motorcycle itself. However, we're extremely excited about how it juices the economics for the overall enterprise. To your first question, as it relates to other additions inside the portfolio, you can expect to see and the slide in the materials that references some of the current holes in the portfolio, those are examples of where our dealers via our riders have specifically asked for motorcycles from us that they expect. They expect from us and have gotten in the past. Some of these include maybe a little bit more content, and many of them include less content. But once again, within existing families and with existing platforms and powertrains, and I'll I can't give much more detail than that. I will share [ one teas ] with you, which you may have seen on social media, which you can expect from us to continue to do, and that's to get feedback from riders at the Mama Tried Show here in Milwaukee, subsequently at Daytona and then the MotoGP race in Austin, we teased a modern expression of our iconic Cafe racer. And it's got an extraordinary buzz and feedback from our riding community. And I think that would be the type of motorcycle that is still large in terms of large displacement powertrain that you can expect us to get feedback from riders, and you might see that from us and the market. But we're very excited about the response to it. Joseph Altobello: That's very helpful, Artie. I can just quickly follow up on that. The U.S. market for you has outpaced international for quite some time. Is the sports there is the Sprint part of that strategy to grow your international business? Arthur Starrs: The Sportster is number one request from global dealers. If you walked into our dealership in Shanghai, if you walked into our dealership in Louisville, Kentucky, if you walked into a dealership in Frankfurt, Germany. And you asked the deal or the sales team lead in those dealerships, what can Harley-Davidson do for you, you would hear bring back to Sportster. So yes, but it's global truth in terms of the enthusiasm around that bike. Operator: Our next question is from the line of Andrew Didora with Bank of America. Unknown Analyst: Just kind of change gears a little bit to HDFS, Jonathan, the $125 million to $150 million op income target. I guess, what kind of -- I know the business has changed here. I guess what kind of receivables balance you kind of anticipate growing to over. Through that time frame? And then more importantly, just the revenue breakdown of HDFS, how should we think about maybe just interest income contribution versus the more kind of fee-based services income as the segment grows. Arthur Starrs: Okay. Andrew, thank you for your questions. I'll start with a little session that we put out a couple of weeks ago on HDFS that really walked through that business, the different revenue streams of that business in a little bit more detail. than obviously what we've covered here in earnings. That's probably a good refresher in terms of where that business goes as we move forward and what we're seeing. Obviously, from a revenue stream perspective in terms of where we are -- we have -- we did at the end of last year, sell off the back book as we've covered. And then on a go-forward basis, we continue to service those loans, so important that we are continuing to make sure that we are retaining the customer focus on the interaction and then a lot that we think we can do as we think through how we move those customers through the portfolio over time in the way that we're marketing to them. On a near-term basis, we obviously will make sure that for any originations that we have from this point going forward, we retain 1/3 of those originations on our balance sheet and then 2/3, we have the ability to sell off to our partners. We continue to service all of those loans. So over time, the fee income associated with servicing is something that continues to grow. We also retain the revenue streams fully relative to protection products we also retain the revenue streams fully relative to card products and what we do from a card perspective, and then we also fully retain everything from a wholesale and commercial loan standpoint. So dial in or tune into the recording that's available on our IR website that will walk through that in more detail. A couple of other pieces that I would call out from an HDFS standpoint, we're really pleased with what we're seeing on our managed annualized retail credit losses. So we have a page inside of the Q1 deck that highlights the year-over-year-over-year improvement in credit losses. So pretty excited that we have Q1 '26 kind of back below where we were not only in Q1 of '25, but Q1 of '26. So overall, I think the dynamics of the business are performing pretty well. We obviously have provided the $125 million to $150 million guide with the viewpoint that, that is a more capital-light model versus the way that we've run historically. So while the operating income is at a different level. We're really excited about the return that, that generates for our shareholders and obviously, frees up a lot of capital for us to remain committed to the shareholder priorities that we put out there from a capital allocation standpoint. So hope that helps. Unknown Analyst: Okay. And then I know, Jonathan, you mentioned in your prepared remarks, like interested in opportunistic M&A. Just curious kind of what could that entail? Is that more on manufacturing capability or brand side? Just curious there. Arthur Starrs: Yes, Andrew, it's Artie. I think we would look at any M&A as something that would accelerate the core areas of growth that we've laid out in the strategy. So anything that could drive dealer profitability would certainly be of interest. Parts and accessories would certainly be on the table. It was listed as the third thing right now. So it's not a top priority for us. But we do want to call out that anything that would make us stronger and allow us to drive the strategy faster, we would consider. Operator: Our next question is from the line of Molly Baum with Morgan Stanley. Unknown Analyst: I kind of wanted to ask maybe one or two about the affordability dynamics right now for your customers. You made a comment in the prepared remarks about how many riders aren't requiring have or don't require having promotion to convert. So can you maybe talk about you as it for motorcycle buyers at present and what you were seeing from a promotional standpoint in 1Q and maybe even right after you cleared through some of the heavy inventory levels? And then just how you're thinking about affordability more broadly in the current environment and going forward. Arthur Starrs: Thanks, Molly. Yes. On affordability, I really look at it as accessibility. So it's certainly price is a part of it, but also meeting riders where they're at and filling their needs with our portfolio. So when we look at Q1, we were pleased certainly with how the promotions restored the dealer network to healthier inventory levels, and that was focused on model year '25 touring. But we were also pleased with motorcycle sales that weren't promoted. And it demonstrated to us in some of the maybe more modest tweaks we made with the 26 launch an action in Q4. And going forward, having more options available to riders is important. Certainly is price, but also features and benefits. The freeze I'm using internally is we've had too many of too few models on dealer floors. And by using and leveraging existing powertrain existing platforms, we can have a much broader assortment of motorcycles to present across, certainly, Sprint and sports are good examples, but even within legacy cruising and touring. And what excites me about this is we're going to be more nimble as it relates to promotional activity. If you think about the promotions in Q1, we had a challenge. We actioned it on a model year '25 touring. But going forward, we will have more diversity within the touring lineup, where we can be a bit more surgical and segmented on which motorcycles we may have to promote at various points in time and maintain healthier margins on the balance, so to speak. It's something dealers have asked for and we're going to be delivering on that as part of our go-forward plans. Unknown Analyst: Great. And maybe if I could ask one follow-up on the dealer profitability piece. You had talked a little bit about last quarter about some immediate changes you made with the fuel facility model adjustments, changes to e-commerce strategy. you kind of talk about how much of the doubling profitability by '26, doubling again by 2019. How much of that is kind of improving the cost base, getting excess inventory to the system versus how much is structural from these strategy changes that you're making? Arthur Starrs: What we put in place in Q4 and what is in place currently we believe is appropriate. There's always the chance that there's small adjustments that we would align with our dealers on. But the Back to the Bricks plan and the targets that we put forward do not contemplate a change in the structural arrangement with our dealers. The e-commerce strategy that we made tweaks to in Q4 as part of the go-forward plans. We instituted a marketing development fund, which is in place right now. So there's no structural change that no material structural change that's contemplated in driving the profitability. It's inventory. It's the right motorcycles at the right time with a rider-centric portfolio. and certainly leaning into this marketing campaign, we think is going to pay a lot of dividends. Jonathan Root: I think, Molly, the pieces worth adding on the dealer profitability side of the equation to is that, obviously, volume and throughput makes a pretty meaningful change in their bottom line. So as we think through the -- again, going back to the strategy and the page that we built out that really helps you envision all of the different revenue streams for both Harley-Davidson and our dealers. That's a pretty important page to envision the way that we're running the business as we move forward. And so through that, the targets that we have on the mid-single-digit growth rates that you're seeing, are really, really important for us and the benefits that accrue to our shareholders, and they are equally important for our dealers. And then in addition, as you see us really double down on our growth surrounding P&A. Not only do you see P&A benefits from an overall revenue and margin standpoint. But inside of the dealer side of the equation, it does also drive some really nice service growth. So we're pretty excited about the way that we actually get our dealers back to something that we think is a much healthier and much better way to run their business. Operator: Our next question is from the line of Tristan Thomas-Martin with BMO Capital Markets. Tristan Thomas-Martin: I just want to kind of circle back to two questions I was asked previously. First, just in terms of the Sprint, my understanding is it's being built overseas. So how do kind of reason tariff changes regarding imports potentially impact pricing on that? And then have you -- did you provide a breakdown of your medium-term retail CAGR like your expectations for U.S. versus global markets. Arthur Starrs: Sure, Tristan. I'll take -- I guess I'll take both of those. As it relates to Sprint, we're finalizing the specific production plans. We did call out that Sportster, U.S. Sportster will be made in New York and our York, Pennsylvania facility. And obviously, we're pleased with the revised guidance that we put forward on tariffs for 2016, and we do contemplate based on current expectations that we have some favorability in tariffs going into '27 across the portfolio. And I'm sorry, the second question was the CAGR in terms of CAGR on U.S. versus international, we're not breaking that out. I will tell you that there's not a material change, U.S. versus international, primarily because the motorcycles that we're talking about here and the rebalancing of the portfolio and filling in the holes are similar globally. So we generally have the same portfolio around the world right now. As I mentioned, the dealer request and enthusiasm around Sportster in particular, and motorcycles that are raw blank canvas and allow for parts and accessories, genuine parts and accessories additions to them are globally wanted. And so we don't have, I'd say, a material difference in the growth trajectory by market. Tristan Thomas-Martin: Okay. And just one follow-up on kind of the aftermarket plan. I'm not sure if I'm reading between the lines correctly, but are you -- is there going to be more focus on dealership kind of aftermarket add-ons versus factory aftermarket or kind of factor add-on you mean parts and accessories in our dealerships and some customization at the dealership level? Arthur Starrs: Yes. Yes. So what we're saying is we expect to have more motorcycles in the portfolio that are maybe more approachable from a price perspective and have less accessories on them. And then our dealerships would be equipped with the P&A to personalize them for the riders which is consistent with what the brand has done over many, many years. So it's frankly leaning into a legacy strength where P&A has maybe not been as a focus for us with many of our motorcycles, in particular large touring motorcycles, having a fair amount of content. Operator: Our next question is from the line of David MacGregor with Longbow Research. David S. MacGregor: I guess the question is on LiveWire and just the rules that LiveWire plays in this product portfolio in vision. And just if it is sort of something you can -- are considering staying with just how we should think taking maybe that 3- to 5-year outlook you'd expressed earlier, just with the use of cash for that business over the next 3 to 5 years? Arthur Starrs: Yes, David, thank you. This is Artie. The first thing I'll say is we're excited about LiveWire team's efforts this year and the pending launch of the Hangzhou bike, which is, I think, an interesting and exciting addition to the portfolio, and we'll be monitoring that closely rest of the year to see how that does. But we're very excited to see how that comes to market. I'll repeat what I shared on previous earnings as it relates to LiveWire. We funded the loan in the back half of 2025. And that's our outstanding capital commitment, and we don't have intentions to fund the business directly from Harley-Davidson at this point in time. David S. MacGregor: Is there a way that you can influence demand. I mean you're talking about creating a higher level of interest back to James' questions with demographics. And I'm just wondering if there's a way that you can shape demand as well on the electric front or you feel like there's steps you could take to maybe at a higher level of engagement. Arthur Starrs: Yes. We're focused on this back to the Bricks plan and driving dealer profitability and getting the portfolio in a place that we think riders want from us. Cream and his team are focused on the electric side of the house at this time. Jonathan Root: Yes. And David, one piece that I would add, David, on the kind of demand influences that through what you would have seen with what we delivered in Q1 we certainly believe that when we get the right alignment on marketing promo and kind of how we run that, we can drive traffic to dealers, and we can drive higher close rates. As you heard already talk about, I think one piece that always fits with me from an RD perspective is too many of too few. And you heard him reference that earlier on the call today when we think through where the portfolio is going and some of the pieces that we have, the ability to drive, we're really excited as the product portfolio becomes a little bit more nuanced in terms of what we're putting into market. We can lean into a lot of the strategies that we've really demonstrated some good success with and do that in a much more targeted way. So pretty excited about where we're going from the midterm as we think about both what we've demonstrated within Q4 of last year, Q1 of this year. And then with what we've lined up from a strategy perspective, where we're going. So excited to see that kind of demonstrated ability that we've put in market so far and how that aligns with the strategy that's built out. David S. MacGregor: Do you have goals in place for building dealer support for LiveWire? Jonathan Root: The LiveWire team is certainly working on their approach to how they manage their dealer relationships. Operator: Our next question is from the line of Brandon Rolle with Loop Capital. Brandon Roll?: First, just on the dealer profitability improvement. Would you be able to size the headwind from maybe a more standardized rebate program to HDMC margins? Arthur Starrs: Thanks, Brandon. You're talking about HD-1 rewards in the holdback? Brandon Roll?: Yes. I think under the previous management team, they had kind of made the rebate program or rewards program a little more difficult to pull back some margin into the company. So it seems like that's going back out to dealers. And I was wondering if you're able to size the headwind, if any, to or HDMC margins. Arthur Starrs: Yes. I would characterize the headwind as modest over medium-term period. The previous holdback was variable. So it was based on sales targets, and this is fixed. I wouldn't characterize it as it's not the primary driver of the profitability improvements that we're experiencing or forecast. I think it's a small amount on a year-over-year basis, but it's not the primary amount. The larger impact which I heard consistently from our North American dealers, both in the fall and again on a recent road show was the predictability was so important. Predictability of having the fixed holdback was critical in terms of staffing levels, being able to project cash flow throughout the year. And I think it's just an example of us understanding our dealers businesses. and respecting what they need to run their business well and service our riders well. And so I'm pleased where we are and where we are today is precisely what we've modeled going forward. Brandon Roll?: Okay. Great. And just one last one. On your U.S. dealer network, how do you feel about the current size of the network? Obviously, there's been a lot of dealer consolidation over the last few years. Do you feel like you have the dealer networks at the right size? Or are you going to continue to kind of, I guess, move away from inefficient dealers and, I guess, not shrink the dealer network, but maybe make it stronger. Arthur Starrs: We're always looking for ways to make the dealer network stronger, and we love the fact that we have individual maybe smaller dealer owners, dealer principles in certain markets. And we also feel privileged to have some larger entities that own groups of dealerships. And I think the -- the strength of our brand is a balance of both. One of the amazing things about Harley-Davidson dealerships is we have dealerships along these iconic rides. Where families in some cases, have owned these dealerships for decades, in some cases, 70, 80, 90 years and extremely proud of that. And at the same time, we had recent acquirers in the market where some of our largest and some of our most profitable dealer owners are getting bigger in the system and I love them all. We're committed to having a healthy dealer network, and we're not precious about size. We're precious about dealers that are enthusiastic about our brand and serve riders well. Operator: Thanks for your question. Ladies and gentlemen, we have time for a final question from the line of Jamie Katz with Morningstar. Jaime Katz: I will make it quick. I get most of the profit improvement that you guys have, a lot of it looks like it's coming from leverage within SG&A. But can you talk a little bit more specifically about the top opportunities that are being targeted for cost reduction this year? Just so we can get a better idea of where that low-hanging fruit is coming from. Arthur Starrs: Jamie, thank you for your question. Yes, so it's obviously a balance of some head count and then obviously some non-headcount-related costs and then also some cost of goods related actions. Our teams are -- have done a fantastic job in Q1 at identifying areas. We've obviously done a significant amount of both competitive benchmarking, but also what's the right thing for Harley-Davidson and ensuring that we can grow going forward. We're not going to provide detail beyond that at this time, but we're very confident and the targets that we put forward and specifically the $150 million plus that we've earmarked for 2027 and beyond. Jaime Katz: Okay. And then just quickly, I know there was some gross margin impact by pricing and mix. Is there any way to think about how those are trending over the remainder of the year just sort of from where you stand today? Arthur Starrs: Yes, Jamie, I'll let Jonathan take that one. Jonathan Root: Okay. Thank you, Jamie. So as we look at pricing and mix and sort of compare that to relative stability, I think, as we look through Q2, Q3 and Q4, you did hear in the Q1 financial comments, a little bit more information relative to timing. So take a listen to that call in terms of how we talked about year-over-year quarters and what you see there. So from an overall pricing mix perspective, pretty flat to kind of a little bit of favorability in the balance of the year. As we look at what's coming, we're pretty excited about what we're going to be introducing, and you'll see some of the impacts from that. Please take a listen to what we talked about from a timing standpoint, that will be important as you're thinking through what our trajectory is going to look like for the year. And then you will see a little bit less of an impact from incentive-related activity. So as we've talked about, we were pretty aggressive in what we did from Q1 from a Q1 standpoint, we're really pleased with where we landed dealer inventory. And so we think that really set us up for a very successful balance of the year. And hopefully, that sort of helps address your question. Operator: Thank you for your questions. And ladies and gentlemen, that will close down our Q&A session for today. Artie, I would like to turn it back over to you for any closing comments. Arthur Starrs: Well, thank you, everybody. I appreciate you participating in today's call. And hopefully, you can tell how enthusiastic our team is, and I am in particular about our path forward, and we look forward to updating you on our progress, and we'll talk to you next earnings. Thank you. Jonathan Root: Thank you.
Carrie Gillard: Good morning, and thank you for joining Shopify's First Quarter 2026 Conference Call. I am Carrie Gillard, Director of Investor Relations. And joining us today are Harley Finkelstein, Shopify's President; and Jeff Hoffmeister, our CFO. After their prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are based on assumptions and, therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements. We undertake no obligation to update or revise these statements, except as required by law. You can read about these assumptions, risks and uncertainties in our press release this morning as well as in our filings with the U.S. and Canadian regulators. We'll also speak to adjusted financial measures, which are non-GAAP and not a substitute for GAAP financial measures. Reconciliations between the 2 are provided in our press release. And finally, we report in U.S. dollars, so all amounts discussed today are in U.S. dollars, unless otherwise indicated. With that, I will turn the call over to Harley. Harley Finkelstein: Thanks, Carrie, and thanks to everyone for joining us. We've got a lot to talk about today. Commerce is moving at lightning speed right now and so is Shopify. So first, let's kick off with the headlines. Q1 GMV was $101 billion, that is up 35%. I'll say that again, Q1 GMV was $101 billion. That is the second consecutive quarter our merchants have done over $100 billion in sales. Now that is commerce at a truly vast scale. Our revenue was $3.2 billion for the quarter, that is up 34%. And our free cash flow was $476 million, delivering a 15% free cash flow margin. That means we've now put up 4 straight quarters of 30% or more revenue and GMV growth alongside mid- to high teens free cash flow margins every single quarter. There are very few publicly traded companies today that are able to make that claim at anything like the scale. It is a very small club and that is something we are very proud of. And the reason is actually very simple. We've never lost sight of our mission to help our merchants win. And that is why every day, we are seeing new businesses light up with their very first sale. And in tandem, we're seeing more of the world's biggest brands migrating to us from all corners of commerce. In Q1, we signed 3 legends of luxury, Mulberry, BevMo! and LVMH. And in fashion, we welcomed Ragan Bone, luxury outlets, the Outnet and RooGuilt Group and the iconic Lands End. BevMo!, one of the largest liquor store retailers in the U.S., has brought us into power all of their locations with Shopify point-of sale. And Orvis, the outdoor brand that was founded in 1856 is moving to Shopify for a full unified commerce solution. Meanwhile, Q1 saws go live with incredible brands like The Benetton Group, Victoria's Secrets, Body, Epic Shop by Vail Resorts and Reitmans. And here's the best part. We're not just winning the retail legends of today, we're powering the retail legends of tomorrow, and it's happening really fast. We'll get into some real merchant stories later because the velocity we're creating is important to understand. Okay. Let's step back for a second. There's a lot of noise around what AI will mean, at an individual level, at a company level and at a cultural level. Now here's our perspective. First, we're not approaching a new era anymore. We are already in it. In 2026, AI is now Shopify's native language. We bet early on AI and forced its adoption. It's embedded in everything we do, the products we build, the channels we power, the way every single person on the team operates. AI has become an exoskeleton for everyone at Shopify, giving them a virtual team of agents and that makes room for rapid experimentation. It allows them to pursue multiple ideas at the same time and then double down on the winners. And here's what else we believe to be true. No group benefits more from AI than entrepreneurs. The logic is simple. AI is making entrepreneurship dramatically more accessible and in fact, accelerated. That means we're going to see more entrepreneurs, and they're going to scale more easily. AI-powered shopping democratizes discovery. Reach is not just influenced by budget anymore, it is influenced by relevance, which benefits both merchant and buyer. And the right products fund the right shopper at the right moment. And this is enormous potential for new and scaling merchants. And because we win when they win, it also has enormous potential for Shopify. So let's just say the thing. There's always going to be some market confusion when we see a significant shift like we're seeing right now with the rise of AI. We've seen it before. I'm sure we'll see it again. And every single time the world gets more complex, Shopify gets more valuable. We absorb more of that complexity into our systems and become more valuable to merchants. So when we look at this new era of commerce that we're in, there are really 3 core principles that [indiscernible] by Shopify is in such a strong position. That's what we're focused on, and that's what we're going to talk about today. The first principle, Shopify has a huge advantage that is about to compound. We have 20 years of commerce data. We have data on purchase intent across millions of merchants, hundreds of millions of buyers and billions of products. And in a world where real-time information is now table stakes, the edge is the insight beneath it. And that requires a depth, not just access but experience. We've seen merchants start, stall, pivot and scale millions of times across every category and geography. It allows us to build on the real behavior of commerce and to keep shipping products grounded in insights only we have. Deep experience applied at speed. That is very hard to replicate and it compounds. Every capability we add embeds merchants further into the platform and grows the value of being on Shopify. And Sidekick is the perfect example of this. As a reminder, this is our intelligent assistant, which is trained on our knowledge base, payer with completely personalized Intel, it has it each merchant's particular business. Now last quarter, we told you the numbers were encouraging. Well, that was just the beginning. The number of weekly active shops using Sidekick in Q1 was up 4x year-over-year. We saw over 12,000 custom apps created in Q1 alone using Sidekick. And nearly half of all Shopify flows generated in Q1 were built with Sidekick. And Theme Edits just from last quarter are in the multimillions, growing over 1,000% in a single quarter. Every app built, every automation created, every task completed is the merchant getting more done with less and running a smarter and a more productive business on Shopify. In a world where discovery is changing faster than ever, where AI is reshaping help buyers find products and how information surfaces, these merchants are moving faster using Sidekick to keep pace with where commerce is going. And then there's Pulse. Sidekick's smart suggestions feature, which proactively delivers personalized recommendations for merchants using market trends and data from their store, which Sidekick then executes on the merchant's behalf. And I'll give you a great example that I just saw the other day. It was an accessory brand, and Pulse noticed that this brand was getting attention in the right places. Its products were being endorsed by fashion publications and showing up on celebrities' Instagram profiles. So it proactively suggested that the merchant create a social proof page on their website to build trust and validation. And once the merchant agreed, Sidekick created that page on the merchant's behalf, and it was already all within minutes. Now just a few months ago, that process multiple specialists, marketing design, copywriting and often an incremental cost to the merchant and likely several weeks from start to finish. And now it is happening autonomously in minutes at 0 incremental costs to the merchant. And that is just one of the smart recommendations being served up to that merchant as part of their daily operations. This is our compounding advantage. Commerce intelligence, power smart tools that drives merchant success, which in turn, powers more commerce intelligence. Now that leads nicely into the second principle, which is the demand conversion flywheel. It should be getting more obvious that every quarter that Shopify is no longer just the platform to convert demand, we are becoming the platform to create it to. And that end-to-end position is a major advantage for merchants. First and foremost, online GMV growth accelerated year-over-year. This is our DNA, the core of our business. The online store is not going anywhere. In fact, we believe that new and emerging and AI channels places like ChatGPT, Microsoft Copilot, Google AI Surfaces and Meta will be a tailwind to driving e-commerce growth and penetration over time. So let's talk about these channels. We are the only platform that enables discovery and selling inside ChatGPT, Copilot and Google, all from one single system of record. And the early signals on AI channels are really compelling. And in the first quarter, AI-driven traffic to Shopify stores has grown 8x year-over-year, while orders from AI-powered searches have increased nearly 13x. And within this, new buyer orders are occurring at nearly twice the rate of other channels. Okay. Now let's talk about Shopify's catalog because this really, really matters. To date, we've structured more than 1 billion products with clean attributes, real-time pricing and accurate inventory. So AI agents can surface the most relevant products in seconds, and the results speak for themselves. Traffic from catalog-powered AI searches convert 2x more than traffic from general AI searches where the agent is working from scraped or often outdated information from across the web. That is the value Shopify brings. Okay. I'll give you another example of driving demand. Campaigns, which is one of our ad products, finding new customers one of the hardest things we're running the business. Paid marketing has historically been expensive, complex and simply out of reach for smaller merchants who don't have the budget or the expertise to compete with larger brands. Well, campaigns is changing that. In Q1, the number of merchants with a live campaign was up 3x year-over-year. That is not a small signal, that is a product that is starting to have a true impact on our merchants. And what I love is the impact this is having on SMBs, in particular, because a lot of them would not otherwise have had access to performance marketing at this level. For some of the smaller merchants, shop campaigns is contributing as much as 1/4 of their total GMV. That is not a nice to have. That is a growth engine. Shopify is giving them economies of scale that were previously only available to the largest brands. And with new channels added in Q1, including ChatGPT, Pinterest and Microsoft monetize, we're bringing more services and more reach and more buyers into the ecosystem. Here's another example of driving demand, the Shop App. Shop App had a strong Q1. GMV was up 70% year-over-year, a clear signal that the buyer network is deepening and shop is becoming a meaningful commerce destination in its own right. Monthly active users grew over 40% year-over-year and unique buyers purchasing directly on Shop grew over 50% compared to Q1 of last year, meaning more new shoppers are discovering and buying through the Shop app than ever before. And remember, the Shop app is just one facet of shop, which is the buyer-facing side of Shopify. Sign in with Shop is our user verification tool, which recognizes buyers across devices, stores and surfaces with no sign in friction. And usage is growing steadily. We are up 3x year-over-year, and it is now enabled across nearly our entire merchant store from base. In an agenetic world, this really matters. Agents need to know who they are buying for and we are ready. This is the Shopify flywheel. We're not just converting demand, we're also intelligently creating it by surfacing the right products, personalize the right shoppers at exactly the right time. Our compounding advantage, the billions of data points we've collected over 20 years of commerce, powers our demand conversion flywheel, which is moving faster every quarter. These are not small things. These are the principles that will power the future of commerce. Okay. The third principle I'll leave you with is what I call invisible complexity. Here's the thing. The hardest parts of commerce are the parts that nobody sees, and this is where Shopify thrives. We saw it when the online DTC boom happened and everybody wanted to build their own stack. We saw it when social commerce started to take off and people predicted storefronts would migrate into their social feeds. And we've been seeing it again this year with some uncertainty around what AI will mean for commerce. But commerce is massively complex. We just spent 2 decades making it look easy. Merchants bring their product and we handle everything else. And every time the world gets more complex, that role becomes more valuable. And the industry agrees, as you might have seen with the latest news on the Universal Commerce Protocol, or UCP, which we co-developed with Google. UCP is an open protocol that makes agentic commerce work at scale. It enables the full commerce journey, product discovery, checkout, payment post purchase across any platform with any payment processor. We codevelop UCP because we believe the future of commerce runs an open standards, not closed systems. And then we created the UCP Tech Council, the technical body, that steers the protocols direction to ensure it evolves to meet the needs of businesses, platforms, developers and consumers. We are now seeing the biggest and most innovative companies across essentially the entire industry coming together around UCP to help push agentic commerce forward. And last month, Amazon, Meta, Microsoft, Salesforce and Stripe all join the counsel, committing their expertise in Internet scale transaction processing to build one universal protocol for commerce. The companies that power how the world shops are now building on one standard, and Shopify is at the center of how commerce gets done in the age of AI agents, and this is what it looks like in practice. Payments is another perfect example of invisible complexity. It's designed to feel simple, but under the hood, it's anything but fraud detection, tax calculation, compliance across dozens of markets, currency conversion, identity verification, payment authorization, all working together invisibly at lightning speed. Shopify Payments is built on top of all that comprehensive tooling, designed to ensure merchants can sell easily across every channel, including a agentic without adding incremental complexity. And for small businesses, especially, this matters enormously. Managing and reconciling multiple payment processors is a distraction no merchant needs. And we do not do this alone. We work with the best-in-class partners, Stripe, Affirm, Globally, PayPal, local payment methods all over the world, all integrated and all available and all managed in one place. Merchants get the breadth of a global payments ecosystem with the complexity of managing it themselves. This is the Shopify difference. In Q1, Shopify Payments processed $67 billion of GMV, up 41% from last year, reaching 67% penetration. That number keeps moving up every quarter because merchants trust the full platform, not just the check at moment. And then, of course, their Shop Pay, the Internet's favorite checkout, because we believe it is simply the easiest way to buy anything anywhere, one tap, done. All the complexity of payments completely hidden. In Q1, Shop Pay processed $35 billion of GMV, up 59% year-over-year. Outside the U.S., Shop Pay GMV in Q1 grew over 70% as we continue to expand into more markets, supporting major local payment methods all over the world. making it not just the Internet's favorite checkout, but one that feels native to buyers wherever they are. In fact, international is another perfect example of massive, but almost invisible complexity. Q1 delivered international GMV growth of 45% with cross-border GMV representing 16% of total. We are consistently rolling out new updates and products to grow our international footprint. In Q1, we quietly shipped updates that individually may not make headlines, but together are steadily making Shopify more native to more places. Things like merchant billing, which is now in 7 new European currencies or capital now available in France or smart market and smart language recommendations where merchants get relevant recommendations based on the markets they sell into. Every quarter, we build more. And we removed more barriers for merchants all over the world to choose Shopify. Now let's talk enterprise because there's perhaps nowhere that this idea of invisible complexity shows up more clearly. Custom stacks and legacy platforms were built for a world that no longer exists. They're slow to adapt, expensive to maintain and increasingly unable to keep pace with how buyers shop today, let alone tomorrow. Our value proposition is straightforward, better conversion, lower total cost of ownership and a unified commerce system that actually works at a speed and a price point legacy platforms cannot match. You see this shift most clearly in heritage retail, brands like Orvis, Mattel and Hunter Douglas. These are companies that built their names over decades, or in some cases, centuries. They know retail. What they're grappling with is the technology underneath, legacy systems that are costly, slow and holding them back. And they're not just coming to Shopify for an online store. We're in the room for a much bigger conversation. Unified Commerce, POS, Payments, B2B, agenetic surfaces, the full picture. And once they join, they stay. More products, more surfaces, more of their business running on Shopify. But enterprise growth is not just about brands choosing Shopify, it's also about brands growing up on Shopify. Groons, for example, the gummy supplement brand that launched in Shopify in 2023, well, last month, they were acquired by Unilever for over $1 billion. In just over 2 years, they scaled to hundreds of millions in revenue. So the opportunity here is large and growing, and we're continuing to go after it. In just the last 2 years, the total number of large merchants doing $100 million or more in GMV on Shopify has nearly doubled. That is real growth. And it's coming from merchants that are scaling into that category as well as those that are already there and looking to modernize for what's next. And all of this puts us in an incredibly strong position to continue driving this part of the business. On our last call, I said we'll see more billion-dollar brands born in the next 10 years than the last 100. And a lot of people thought that was hyperbole. It was not. Groons is a perfect example, and everything we're building is designed to make this happen faster. So when I zoom out, this is what I see. Over 2 decades, we've collected deeper commerce knowledge than almost anyone else on the planet. We've used that knowledge to build a platform that makes it not just possible, but common for a single entrepreneur to become a massive business in a couple of years, if not less. And we're now moving into an era that will benefit entrepreneurs more than any other group. There is simply no job that will be more accelerated by AI than entrepreneurship. That means there are about to be a lot more entrepreneurs, and that means more people that need the Shopify platform. And in the meantime, we're continuing to deliver strong and durable growth. real operating leverage, fast product velocity and a platform advantage that keeps compounding. And with that, I'll turn the call over to Jeff. Jeff Hoffmeister: Thanks, Harley. Q1 reflects strength across all dimensions of our business, not just any one in isolation. Our growth is broad-based across geographies, merchant sizes and channels. International, enterprise, off-line and BB are all scaling. Underneath all of this, the cohort dynamics continue to compound. I believe that remains one of the most underappreciated characteristics of our business. Each quarter's results are an aggregation of successes over many years of merchant cohorts. Each new cohort stacks on top of the prior one and our newer cohorts are larger than the ones before them, a reflection of the breadth of merchants we are attracting. But what's incredible is that the older cohorts, even the merchants who have been on Shopify for many years, are not plateauing. They continue to grow. As an example, in Q1, almost 90% of our revenue was from merchants who have been on the platform for more than a year. The driving force is our platform and product velocity. That's the structural advantage of Shopify. We give you everything you need by operating across the entire commerce stack. It's not the power of any 1 element of the platform. It's how they all work together to help merchants accelerate their success. It's a knowledge and expertise readily available through Sidekick. It's the speed, context and simplified complexity behind checkout. It's the ability to sell across every channel, every surface and every geography from day 1. Internally, we are making every function faster, sharper and more productive. An output per employee is improving through deliberate AI usage. The result is that we are building more, shipping more and serving more merchants. The leverage we have and continue to deliver is what funds ongoing investment. In AI infrastructure, global reach and platform death. That discipline is what we have demonstrated consistently. We will always lean into growth because as we grow, we invest more in driving success for our merchants and for Shopify. Now let's take a closer look at our GMV. Unless otherwise specified, all growth rates are presented on a year-over-year basis. Q1 GMV was $101 billion, marking our second quarter with GMV over $100 billion, representing growth of 35% or 30% on a constant currency basis. Diving deeper into different GMV perspectives, let's first look at merchant size. In recent quarterly calls, I've talked about 3 strata, merchants doing up to $2 million in GMV, those doing $2 million to $25 million in GMV and those doing more than $25 million. We saw strength across merchant GMV bands consistent with recent trends. The $2 million to $25 million GMV band added the most incremental revenues year-over-year, but the other 2 segments were not far behind. And the greater than 25 million band merchants are growing the fastest. Further, when we look at just our merchants doing more than $100 million in annual GMV, we see a consistent and accelerating growth story. The share of our revenue coming from that segment has grown each year, up over 200 basis points in the last 2 years. This is a multiyear view playing out exactly as we expected. Moving to regions. Europe maintained its momentum with European GMV up 48% or 35% in constant currency. 2025 was an outstanding year in Europe. So delivering continued mid-30s growth in constant currency against that backdrop reflects years of deliberate investment in that market. North America accelerated from an already strong Q4, demonstrating the continued durability of our core market. That is, of course, on significantly higher GMV levels, demonstrating our ability to not only grow well in our largest market, but also further tap into the immense opportunity outside of the U.S. Regarding same-store growth and new merchant acquisition, the contribution from each was relatively balanced, a split that has remained consistent for multiple quarters now. Finally, turning to channels. Two channels to call out this quarter. Offline GMV was up 33% and accelerating from Q4. The fastest-growing slice within off-line remain merchants operating more than 20 stores, which this quarter had location growth of 50% year-over-year. B2B GMV grew 80% in Q1 with broad growth across both new and established merchants. In Q1, we made several other features of our B2B offering available to most of our standard subscription plans, given these merchants the ability to manage their wholesale and D2C's needs side-by-side in 1 place. Now turning to revenue. Q1 revenue grew 34% or 32% on a constant currency basis, fueled by the GMV outperformance. North America grew 33%; Europe, 42%; and Asia Pacific, 30%. The pace of growth in Europe speaks to the opportunity that remains ahead. And while growth internationally continues to outpace North America, North America had its strongest quarterly growth rate in over 4 years. Merchant Solutions revenue grew 39%, driven primarily by the strength in GMV and increased penetration of Shopify payments. $67 billion of GMV was processed on Shopify Payments in Q1, that's 41% higher than the prior year and 67% of GMV, 3 points higher than Q1 of 2025. We see a clear path for the rate to continue moving higher, stemming from deeper penetration across all geographies, growing adoption in the 15 European countries in Mexico where we launched payments last year, expansion into new countries beyond the 39 where we are today and continued Shop Pay momentum. Near term, Europe will be a headwind to Global Payments penetration metrics, given the recent launches of payments in numerous countries last year, but that should prove to be a tailwind for us over time. Subscription Solutions revenue grew 21%. The incremental year-over-year revenues were fairly balanced across 4 elements: monthly subscriptions for our plus plans, monthly subscriptions for our standard plans, variable platform fees and lastly, revenue from apps, themes and domains. The growth in our plus and standard monthly subscriptions reflects 2 things working simultaneously, new merchants coming on to the platform and existing merchants upgrading as our businesses scale. Both are driving the growth. The growth in variable platform fees reflects 2 primary factors. The average VPF rate has increased and plus merchants this past quarter grew faster than our overall merchant base. The growth in our revenue from apps, themes and domains reflects both the quality of our developer ecosystem, with thousands of apps extending the capabilities of our platform and changes to our developer revenue share terms that created a favorable comparability dynamic, which it largely normalize as we progress through the year. Q1 MRR grew 16% year-over-year with continued growth across standard, plus and point of sale. As a reminder, Q1 was the final quarter where our year-over-year growth rates in MRR are impacted by our rollout of 3-month trials in our largest markets in Q1 2025. That headwind is behind us. Plus MRR represented 35% of MRR for the quarter, up from 34% a year ago. Q1 gross profit grew 32%, coming in slightly ahead of our expectations, driven by the outperformance in revenue. Our gross profit has now grown in a compounded annual growth rate of 29% over the past 3 years. Gross profit for Subscription Solutions grew 21%, with gross margin coming in at 80%, in line with Q1 2025. Economies of scale and efficiencies and support were partially offset by increased LLM cost, driven by growing merchant usage of our AI products, most notably Sikik. We expect this dynamic to continue. The more merchants use these products, the more data we have and the better the outcomes we can deliver. And the better the outcomes, the more deeply embedded they become in the platform. Additionally, changes to our developer revenue share terms I mentioned earlier also contributed a tailwind to gross profit dollars. With the biggest benefit expected in Q1, normalizing as we progress through the year. Merchant Solutions gross profit grew 40% with gross margin coming in at 39%, essentially flat year-over-year. No specific items to call out as similar dynamics played out as we have seen in prior quarters. Operating expenses were $1.2 billion for the first quarter or 37% of revenue, a 4-point improvement from Q1 last year. We continue to drive operating leverage through 2 key elements: growing gross profit dollars and delivering continued headcount discipline. Both of these allow us to invest in further AI usage internally and our returns-based marketing, which in turn helps fuel more growth, R&D, sales and marketing and G&A as a percentage of revenue each improved year-over-year. Transaction and loan losses came in at 3.7% of revenue, up from 3.2% in Q1 2025. As a reminder, the dollar amounts here tend to scale with volumes in our payments, capital and credit products. Each of these products continues to grow well. So the goal, of course, is to keep loss rates low as we scale merchant adoption. Payments revenues continues to grow very nicely. As I mentioned earlier, and our loss rate in payments in Q1 was below Q1 of last year. Credit was the largest component of the year-over-year increase. Q1 free cash flow was $476 million or 15% of revenue, in line with our outlook. As previewed on our last call, these results reflect a slightly higher effective tax rate. One item to note before turning to outlook. Beginning in the second quarter, we are adopting an accounting treatment for our merchant cash advances. That will match the accounting for our capital loans. This transition was prompted by some regulatory changes in Canada and related subsequent changes to our merchant cash advances product in Canada. For Q2, relative to our current accounting, this change is expected to be a tailwind of approximately 0.5 point to free cash flow margins. With that, let's move to our outlook for Q2. We expect Q2 revenue growth in the high 20s year-over-year. The expected sources of growth are consistent with the drivers that we saw in Q1 with the one key difference being that our Q2 revenue guidance assumes approximately 0.5 point of FX tailwinds versus the more than 2 points of FX tailwinds that we saw in Q1. We expect our gross profit dollars to grow in the mid-20s. The differential in the revenue versus gross profit growth rates is driven by the continued mix shift between the growth rates of Merchant Solutions and Subscription Solutions, which is expected to narrow compared to 2025 and the continued strength of payments. We expect operating expenses in Q2 to be 35% to 36% of revenue, an improvement from the 37% we delivered in Q1 and a meaningful step forward from the 38% we delivered in Q2 of last year. Turning to free cash flow. For Q2, we expect free cash flow margins in the mid-teens. In summary, Q1 continued the momentum of an outstanding 2025. We delivered the highest quarterly revenue growth rate in over 4 years, both for the business as a whole as well as the U.S. specifically. Strength was broad across merchant sizes, channels and geographies. Gross profit has compounded at 29% annually over the past 3 years, and our commitment to these free cash flow margins remains unwavering. The business is durable, our position is unique and our conviction is that the investments that we are making today in AI infrastructure, in the merchant-facing surfaces being built on top of it and the data advantage that comes from powering a meaningful share of global commerce will further strengthen our position. As entrepreneurship enters a new era shaped by AI, we sit here today with the platform, the scale and the momentum to be at the center of it. With that, I'll now turn the call back over to Carrie for your questions. Carrie Gillard: Thanks, Jeff. We will now take your questions before turning the call back to Harley for some final words. [Operator Instructions] Our first question comes from Justin Patterson of KeyBanc. Justin Patterson: Great. It seems like there's a natural flywheel between AI supercharging product velocity and Sidekick effectively driving uptake of new features. How should we think about that flywheel playing out and what it means for KPIs? And then just a quick one for Jeff. How do you balance the benefits of AI versus rising token costs? Harley Finkelstein: Thanks, Justin. Next for the call. It's Harley. I'll start with the first part. Look, I mean, Sidekick is really becoming a merchant's co-founder. It's becoming the new way merchants run their business. This is not a tool that they open occasionally, but this is this active presence that shows up every day. It now with Pulse, it proactively suggest ways to improve their business and then execute it on their behalf. And so numbers in Q1 were not just encouraging, I think are remarkable. Weekly active shops are up 385% using Sidekick. We saw 12,000 custom apps built in Q1, which is up like over 200% quarter-over-quarter. And if you look at Shopify Flow, which is really used for business processes for our largest merchants, nearly half of all Shopify flows generated in Q1 were actually built with Sidekick. So this is a huge compounding advantage. This allows us to not only leverage our 20 years of commerce insight, and this incredible data set we understand about how businesses operate, but also to pair that with the specific needs and the specific use cases of what a merchant requires. So I think how merchants are using it is important. The early signals really matter here. And we're seeing these. Merchants that are just starting to play with it really become power users very, very quickly. So roughly half the conversations are about store setup, design and theme configurations. And then once they gets set up, it's about growing the business faster. So it is something that we knew would be well received by merchants, but I think the efficacy and the efficiency of driving value is something even we are incredibly surprised by. It's amazing. Jeff Hoffmeister: Yes. I mean -- and I'll pick up on that very point in terms of where Harley left it. The impact that we're seeing, not only in terms of how our merchants are using Sidekick, but how we're using it internally has been super impactful. Harley in his comments talked about the exoskeleton, which we give our not only our engineers, but really everyone throughout the organization in terms of how they can do more with AI and it's proven to be very, very impactful. So it's really not even a question of where are we using AI, but where aren't we using AI? Because it's been an extensive usage in pretty much all departments within the company. So we're, of course, mindful of the right tool for the right problem, and we were mindful of the cost and we think through that. But this is something we're seeing significant benefits in terms of how employees are deploying it and how merchants are getting value out of it. Harley Finkelstein: Yes. I think actually, AI right now writes well over 50% of our code today, and that number is going up significantly, not down. But I think more than any other company, AI, Shopify's native language. Carrie Gillard: Thank you for your question, Justin. Our next question comes from Bhavin Shah at Deutsche Bank. Bhavin Shah: Great. Harley, as you think about expanding your product capabilities and how you can better serve merchants, how do you approach building versus partnering more broadly? And how might that differ from more software like solutions versus some that are more fintech-related? Harley Finkelstein: Yes. Look, I mean, Shovel's philosophy around partnership has, I think, been long study, but we partner where we can get massive leverage and where we think there's a company out there that's doing a really great job we can plug into. And when we think there isn't something out there that is 10x better than what we can do ourselves, we just build it. And that's always been the case, particularly when it comes to even the app ecosystem, you're seeing at the same time more merchants using Sidekick to build these custom features for their shop. But at the same time, you're seeing more app developers build for Shopify's ecosystem than ever before. In fact, we've now put the app approval process on rails using incredible AI testing so that we can get more apps into the app store faster. And if you talk to partners and particular app developers that are building for commerce or retail, for the most part, Shopify's and our app stores become their default go-to-market. It is the place where they build for. So that will continue. And just in terms of how we think about generally, these larger-scale partnerships, obviously, there are these amazing new surface areas. We talked -- obviously talk about agentic quite a bit, whereby it should be incredibly clear that Shopify's at the epicenter right now, this AI era. And so we are currently the only platform on the planet powering, selling inside of ChatGPT, Copilot and Google, all from one system of record. So when we see these opportunities to work with other companies, we show up with a catalog, we show up with all the functionality and the right APIs and so that they can move faster too. And I think that's the reason why Shopify has been uniquely positioned as one of the best companies to partner with an all of tech. Carrie Gillard: Thank you. Our next question comes from Dominic Ball at Redburn Atlantic. Dominic Ball: So 2 questions on as AI is lowering the barriers to entrepreneurship, are you seeing acceleration in SMB merchant sign-ups? And second question is with integrations with Claude, ChatGPT, does AI risk pushing Shopify sort of back from a merchant's UX perspective? Harley Finkelstein: Yes. I'll take the second part and then Jeff can talk about the first part of that question. Look, agents do not buy pass Shopify, just the opposite. In fact, they write right into Shopify. I mean, I think you saw in sort of recent headlines that merchant store fronts really matter. You saw ChatGPT move to in-app browsers for their checkouts. So it's literally the Shopify store front within the chat. And again, when a buyer is shopping in ChatGPT, they're browsing Shopify's incredible catalog. So the momentum on agentic has been amazing. We're always trying to find new ways for merchants to have an easier time to build their company -- their businesses better, faster. We have more integrations even announced yesterday, where Shopify now make store building and management as easy as having a conversation where you can sort of effortly connect your existing store right to your favorite chat agentic application and then chat to add products or just inventory across locations. But this idea of combining Shopify's incredible platform and the product the way that we think more entrepreneurs are looking to build, we think, put Shopify and pull position when it comes to the agenetic entrepreneurial evolution. And I think Jeff will talk a bit about ads, but I think there is no -- let me say this actually in the most simple terms, and there is no job that is more AI safe than entrepreneurship. And I think there's also no place that you're going to see more acceleration with AI than maybe entrepreneurship in general. And I think as Shopify is the entrepreneurship company, I think that's going to be great for entrepreneurship in general, that's also be great for Shopify. Jeff Hoffmeister: Yes. I think that's the perfect launch point to your first question, Dominic, just in terms of what we're seeing in merchant additions and kind of whether this is going to accelerate some of the things we're seeing, especially on the SMB side. Harley alluded to it, like we do think there will be tailwinds here. I think from our vantage point, you look this -- and you see this in the growth numbers, right? The growth that we delivered in Q1 was exceptional. One of the things I made it -- one of the points I made in my comments was it essentially evenly split between same-store sales growth and new merchant acquisitions. And so you can see that in terms of what we're doing at the top of the funnel, merchant adds more broadly. It's true across geographies. You see this in some of the data. There was some U.S. census bureau data in terms of the number of startups that you see on a monthly basis. So we're seeing some signs of it. It's early to say, "Hey, AI was the thing that was the specific spur of additional activity in terms of start-ups." But the pipeline looks as healthy isn't as strong as we've ever seen it. Carrie Gillard: Thanks, Dominic. Our next question comes from Nick Jones at BNP. Nicholas Jones: You put out some really great kind of statistics or growth rates for Pulse and Sidekick. As we think about AI investments from here and maybe how it translates to margin expansion. How are the AI investments in terms of kind of creating structural advantages versus maybe keeping up with table stakes that we're hearing across maybe other platforms to make SMB's lives easier, more efficient that makes sense, I guess, kind of what is kind of a structural advantage and what is increasingly maybe table stakes that folks are looking for as businesses deploy AI across their platforms? Harley Finkelstein: I mentioned earlier that I think Shopify is internal, like AI is now Shopify's native language. What I mean by that is that we bet really early and we force its adoption across our company. And I think AI has given this exoskeleton everyone at Shopify, where effectively every single person on the team has this virtual team of agents that creates incredible opportunity for these like rapid experimentation. It allows them to pursue multiple use at the same time then double down on what's winning. And I think I mentioned in previous answer that AI now writes well over 50% of our code and that number is going up. But what that actually means is that our best engineers aren't writing a few lines of code or doing less. It means they're operating at this much higher level. They're directing reviewing and making calls that we're able to provide -- we're able to do because of 20 years of context. So AI handles the execution and they handle the judgment. And I think the output proves that. We shipped over 300 new products and features last year alone. We kept our flat headcount, which we're very proud of. And that's only possible because something has changed fundamentally. I know Tobi has been taking a bit about river, which is a perfect example of it, but it's this AI coding partner built right into Slack for the entire team where they can pull into any threat, any conversation and do, frankly, a remarkable amount of the engineering work. And we built it because we needed it and now it's deeply embedded in how we operate. So I think more than any other company, Shopify is very much leveraging AI in an incredible way. Carrie Gillard: All right. Our next question comes from Michael Martin at MoffettNathanson. Michael Morton: Harley, you've had a lot of success with the enterprise over the last 2 years. I wondered if you could talk a bit about your learnings with your go-to-market strategy, if you see any opportunities for tweaks? Or if you're really happy with the product market fit and it's just more of an execution game. And then quickly one for Jeff. Just on OpEx growth. You've been really tight with headcount management. And any additional color on the destination and duration of the investments you're making in OpEx lines would be really helpful. Harley Finkelstein: Let me start with our enterprise and Jeff could jump into OpEx. I mentioned this on the call, but I'm going to repeat it because I think it's important. The number of merchants doing over $100 million of GMV on Shopify has nearly doubled in the last 2 years. I think we have now -- we're in the right to be in every serious enterprise conversation, and that's the shift. Our go-to-market engine sort of runs 2 tracks in parallel. Obviously, SMB is all about velocity and the enterprise is really more about depth. And we've built this dedicated team and professional services that embeds into that enterprise motion. Product is unequivocally a major driver. When we show up, we show outcomes. We show speed, we show cost, we show conversion, we show simplicity. And I think more and more with these very large brands that are coming on, brands that I mentioned on this call, they're looking for this unified commerce platform. They're looking for basically the last migration they're ever going to have to do. And so when Shopify shows up, with this global scale this unified platform, but also allowing them to sell right away across ChatGPT and Copilot, our differentiation is frankly quite structural. And I think at our scale, that compounds. I think that advantage will grow over time. And we can also move at this incredible pace, which works well. So I think generally, the strategy is working really well. We're focused now on just faster execution. We've also learned that -- I think the enterprise is human executive trust unequivocally moves deals. This is an area I'm personally spending a lot of time in myself. And I think our installed base on the enterprise is a flywheel. I think growth begets more growth. And if you look across every vertical or product category, the fact that we now have and are adding the top merchants and top brands across every vertical, that means that flywheel is speeding up. And there are places where we are improving pricing clarity, making the ROI way more obvious. There are some edge cases that we're already closing the gaps where potentially deals take longer than they should. But the strategy is really, really working in a way that I think you're -- I mean, you're seeing the results now. So now it's about execution and consistency. I think now it's about turning more consideration into more winning when it comes to the enterprise, and that's where I'm spending a great deal of my time and I'm incredibly optimistic about that. Jeff Hoffmeister: Yes. And Michael, to your question on OpEx and where that's going, overall, things remain exactly as we've been talking about in terms of the discipline we're delivering on free cash flow margins. You saw this in the significant growth that we had in That, of course, drops more gross profit dollars down, and that gives us the opportunity to continue to invest like we have been and find the areas where we can continue to drive that top line itself. You referenced headcount. We've obviously been disciplined for 3 years now. We're -- on any given year or in fact, slightly down from the year before. I don't see that changing. We've talked a few times in terms of already on this call in terms of how we're using AI internally and the efficiencies, the acceleration that's giving us, and we expect that to continue. And as we spend, as you can tell from some of the marketing efforts that we've done, marketing, and I mentioned this on the call that sales and marketing as a percentage of revenue is down year-over-year as was G&A as well as R&D. So we can continue to drive those down as percentages, but marketing dollars themselves will be up year-over-year, but we're just getting better and better and better on the marketing spend. And I mentioned on the last call that roughly 40% of our marketing dollars was in Europe in the performance marketing side. We continue to see success in Europe on this piece. One of the things we've actually seen on the marketing spend in Europe because we spent a little bit more the granularity we get has been meaningfully increased. The signal value we get has allowed us to be much more effective in Europe than even though we've been historically on the marketing spend. And we've increased the percentage of marketing spend which is performance. So the pieces which were not core, hardcore performance marketing we've reduced. So we're really in a spot where I think we can do some really interesting things on OpEx. The only difference, and I talked about this a little bit on the last call, the only difference really between last year and this year is going to be a little bit on the taxes in terms of what we're seeing on the effective tax rate. But we're at a spot now where that should level off. So from our vantage point, we feel really good about driving the gross profit dollars growth, which allows us to do everything we need to and obviously have the dollars left to do the share repurchase among other things. Carrie Gillard: Our next question comes from Rob Wildhack at Autonomous. Robert Wildhack: Harley, I wanted to ask about the demand creation principle you highlighted in the prepared remarks. We hear you loud and clear on the products and tools that Shopify offers merchants to create demand. I was wondering if you could compare that to what a non-Shopify merchant can do or is doing to get themselves discovered by LOMs. Like what are the table stakes there? What are some of the savvier non-Shopify merchants do? Because I think that would be really interesting context for the Shopify agentic toolkit. Harley Finkelstein: Yes. I mean, as I mentioned, on sort of demand creation, I think we're making a lot of progress on the sort of customer acquisition piece. I think there's now -- started with one way, now there's multiple ways for buyers to discover our merchants, job campaigns. Shop app and obviously some of the agentic discovery. But in terms of some of the stuff we're doing with the agentic plan, for example, again, that rolled out early March. That mean that any brand and any platform can now sell across AI channels via Shopify catalog and no Shopify stores acquired. It's remarkable. Everyone -- pretty much every merchant, every brand retailer in their Board meetings are talking about how they get it discovered. And so what we're seeing now is that ultimately, it is -- obviously, we have a way to help them with that. And I think we've now made it clear that Shopify is sort of at the center of this. Again, I mentioned earlier, but I'll say it again, we're the only platform powering selling inside of ChatGPT instead of Copilot and inside of Google all from one system. And what we're seeing already in terms of the proof points is that orders from AI searches are up nearly 13x. AI-driven traffic to Shopify stores has grown 8x year-over-year. And new buyer orders from AI searches are actually occurring at nearly twice the rate of traditional organic search. The big thing though with catalog is that I think a lot of non-Shopify merchants are seeing that catalog is actually doing a much better job of organizing and syndicating their products across every agentic surface versus sort of the old scraping thing that was happening prior to catalog. So it's doing 2 things. One, it is unequivocally getting Shopify connected with a lot more non-Shopify merchants per se beginning those conversations, which, again, may lead to them joining the agentic plan or ultimately may lead them to come into Shopify for their entire migration, which obviously is our plan and our hope. But even if they just want to be part of catalog and just be part of the agentic plan on its own, that already is a massive lift to them relative to everything else. I mean Shopify catalog is now the authoritative source for product discovery. There's now 1 billion products across millions of merchants. The data is structured, the pricing gets accurate. There's real-time inventory, clean attributes, and OpenAI and Microsoft are already using the catalog to power discovery. But so I think generally, this plan, this agentic idea, agentic plan idea is working really well for us. And I think the retail industry has certainly taken notice. Carrie Gillard: Our next question comes from Samad Samana at Jefferies. Samad Samana: So I wanted to pull on the agentic commerce thread. I think Stripe sessions was last week, and they're obviously a very close and successful partner of Shopify's. And they are all that several kind of new updates that allow whether that's agents to buy directly with the product catalog that someone's using and/or native checkout inside of Facebook by partner with Meta. I'm just curious as you see the surface area of commerce expanding. Can you just help us understand that if a Shopify merchant has these alternative channels where they're checking out, how the monetization still works and if the economics change? Because, obviously, you guys sit at the center of all this and are partnering with everybody, but I think investors are just trying to understand how monetization economics look as the surface area expands. Harley Finkelstein: Let me start on your first question. So I feel like I need to say this very clearly, but Stripe and Shopify are really incredible, long-standing partners that -- and I think we've been building the future of commerce together. We've partnered with them now for over a decade across payments and financial products. And I think what you're seeing is both companies are very serious infrastructure companies that are working together. The key to the -- I think the key to this is the partnership is actually deepening. Stripe recently joined our UCP Tech Council alongside Amazon, Meta, Microsoft and Salesforce, we were the founding member. And just to kind of be clear about this, UCP is now becoming the industry standard. And Shopify built it. It is the only standard that covers the full commerce journey end-to-end. And UCP, whether -- does all the work from discovery to transaction to fulfillment. We now have about 20 retailers and platforms that are part of the UCP. Stripe has now joined the UCP Governing Council, with us in Google, which is the overarching governance body for the protocol. But this is what it looks like when an open standard wins. Now in terms of agentic generally and just to kind of be very clear about kind of checkout and how that operates, I think it's really important. So I said this earlier, I'll say it again. As you saw recently, merchant store fronts really matter. So you -- when you saw ChatGPT move to an in-app browser in their checkout that is literally the Shopify storefront right within the chat here. And so it functions exact same way from an economic perspective as it would if any consumer is buying on a Shopify store. It's just a new surface area. Back to my point earlier that I'll repeat because think it's important is that every merchant, obviously, wants to have recurring customers. They pay for the customer, they want to see more of that. But the idea that now some of these agentic services now introducing new consumers, like net new consumers to Shopify merchants through services, we think, is an incredible thing as it allows our merchants to expand their total addressable market and, therefore, Shopify's as well. So generally, it's going really well, but we're really, really happy with where we lined with UCP. The relationship with Stripe is fantastic. We presented at Stripe session as well to your point here. But we compete where 2 serious companies naturally wood, but we also partner where our merchants need us to. And every time a new frontier opens, whether it's stable coins, or agentic commerce or financial products, we really do build alongside each other, and that's been true for over a decade. Carrie Gillard: ; Our next question comes from Colin Sebastian at Baird. Colin Sebastian: I guess, Harley, I mean, at a high level, I mean just the rapid market share gains we're seeing here on a same-store GMV basis. I know there's a lot of focus on ultimately what the impact will be from agentic commerce. But I mean you're assuming -- we're assuming e-commerce growth accelerates, do you envision Shopify taking even more share or share at a faster rate going forward? And then a quick follow-up. I'm curious on how you're thinking about the role of the App Store, especially with all the activity in Sidekick. Is there as much utility from the external app store? Is there an opportunity maybe to allow merchants to extend what they're building out to the broader community? Harley Finkelstein: Actually, it's a great question. Merchants that have built, specifically some of the larger merchants, the midsize and enterprise merchants that have built custom apps on Shopify. We've actually seen them at some point, decide to shift from just being a merchant and -- a merchant and as an app developer, some of them have actually discovered this incredible tooling. They're building for their own business and then put in the App Store as well. But in terms of what Sidekick is doing, like Sidekick actually, we see as a real supplement to the App Store, not a replacement. In fact, if you're -- you probably have noticed that we're spending a lot more time without app billers than ever before. hosted a town hall a couple of weeks ago with thousands of our biggest app developers. We have additions dot dev happening in Toronto this summer, which is in person with our app developer community, which has already sold out. actually, we think there's never been a better time to build on Shopify App Store. The applications that are being built by Sidekick are really very specific nuanced feature sets for particular merchant businesses. And so for most of them, it really is just for the individual merchant. We see them we see those -- the opportunity for the app developers just to continue. That being said, though, what is happening that is super interesting is that now merchants who may have had to spend weeks or even months building a feature either internally or hiring an agency to do so. They're able to do so much more work themselves using Sidekick and that means they're able to go much faster. So the first part of your question sort of around e-commerce in general. Remember that e-commerce in the U.S. is still sub-20% of total retail. And what we're seeing is a part of the reason why the stat around this kind of proof point new buyer orders from AI searches are occurring at nearly twice the rate of traditional organic search. The reason that is so important is because what we're seeing is that merchants are now discovering new buyers on these genetic services that they may not otherwise have seen. So we do think it's going to pull more consumers into e-com who may have been laggards. We also see that it may introduce new on e-com native shoppers to start doing so on a more regular basis. Net-net, though, we think that's going to mean more GMV for merchants. And certainly, our business model is predicated on the more money our merchants make, the better Shopify does. Jeff Hoffmeister: Yes. And Colin, the only other point I'd add is just think about, again, the quarter we just posted in terms of what that means to the momentum of this business. Like the strongest growth rate we've had in the U.S. in 4 years, the strongest growth rate we've had in our business overall in 40 years. we're believers in what's happening here. Carrie Gillard: And our last question will come from Richard Tse at National Bank. Richard Tse: Yes. Thank you. There were some recent reports that you guys are considering moving deeper into financial services. Like I'm wondering if you can maybe comment on that and then potentially how that would impact some of your existing partnerships. Jeff Hoffmeister: Yes. I mean I would say, as you know, Richard, we've had -- if you think about financial services, the first product we really had was capital, and that product is roughly 10 years old. That's something that we've had for a while has worked really well. there's other suites of products that we provide in kind of financial services more broadly. This is 1 of the areas where we have seen merchants, and this is one of the things which is classic core Shopify, which has helped merchants and situations, which they either face complexity or they face opportunities where we can help them do that. And that's one of the things we found in our capital business where we've been really thoughtful in terms of how we do lending and to help them accelerate their business. So as that capital business has continued to grow, some of the things you've had on balance and credit have continued to grow. And so that's something that we want to support. And that's one of Harley and I have been just as we've talked about the growth levers of this business and all the things are going to provide durable growth over the years. This is one of the things that we've talked about. There has been -- to your point, there's been some stories out there in terms of some of the money transfer licenses and some of the flexibility that would give us to help us accelerate the growth for merchants, and that's one of the things we're going to continue to do. We're going to go to where we think we can add the most value to merchants, and this is 1 of those segments. Harley Finkelstein: You look at capital, I mean, capital continues to expand more markets, smarter offers, better pricing, look at balance, balance is now deepening its utility for merchants and their data operations. I think financial services is just becoming more embedded in a more valuable part of the Shopify platform. And it's not a [indiscernible] product, it's embedded in the platform that merchants already trust, and it's -- We think there's a lot more to do there. Maybe before we just hang up here, a couple of sort of final things before we close the call that I think might be helpful. I just want to start with this. I just want to say how proud I am of this team and the current execution that we're into this company. I'm coming up to over 16 years at Shopify, and I think this is Shopify operating at its best. It's important to remind everyone that the numbers that we're putting up this quarter, they are not an accident. They are the result of a very, very clear strategy that is being executed exceptionally well. We're almost halfway through 2026. And I think AI is certainly Shopify's native language. We bet early on it and we force this adoption. And now it is as reflexive inside our company as any company, it's embedded in everything we do and the products we build and the channels we power, the way every single person on the team operates. And I think it's become this incredible exoskeleton for this company. Finally, I'm going to say this again because it's important. The AI era is not coming, it is absolutely here. And we think there's simply no job that will be more accelerated by AI than entrepreneurship. In fact, it may be the most AI safe job out there, which -- and what that means going forward is that there will be more entrepreneurs, and we think that means there's going to be way more demand for the Shopify platform. We think tomorrow's billion brands are being born today. They're being board on Shopify and just incredibly proud of the team. This is Shopify at its best. Carrie Gillard: With that, this concludes our first quarter 2026 conference call. Thank you for joining us. Goodbye.
Operator: Good morning. Welcome to the Waters Corporation First Quarter 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded. If anyone has objections, please disconnect at this time. It is now my pleasure to turn the call over to Mr. Caspar Tudor, Head of Investor Relations. Please go ahead, sir. Caspar Tudor: Thank you, Lila, and good morning, everyone. Welcome to Waters Corporation's First Quarter Earnings Call. Joining me today are Dr. Udit Batra, our President and Chief Executive Officer; and Amol Chaubal, our Senior Vice President and Chief Financial Officer. Before we begin, I will cover the cautionary language. In this conference call, we will make various forward-looking statements regarding future events or future financial performance of the company, including the financial and operational impact of Waters combination with the Biosciences and Diagnostic Solutions business of Becton, Dickinson and Company or BD. We will provide guidance regarding possible future results, as well as commentary on potential market and business Waters Corporation over the second quarter of 2026 and full year 2026. These statements are only our present expectations and are subject to risks and uncertainties. Please see the risk factors included within our Form 10-K, our Form 10-Qs, our other SEC filings and the cautionary language included in this morning's earnings release. During today's call, we will refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are attached to our earnings release or in the appendix of the slide presentation accompanying today's call. Unless stated otherwise, all organic revenue growth rates are presented on a constant currency basis and are in comparison to the first quarter of 2025. For acquired company revenue, unless stated otherwise, all results cover our period of ownership from the transaction closing date on February 9, 2026, through to the end of the quarter for acquired company revenue growth rates, unless stated otherwise, all growth rates are presented on an estimated as-reported basis, covering the period of ownership in comparison to the prior year equivalent period that predates Water's ownership. Finally, we do not intend to update our guidance, predictions or projections, except as part of a regularly scheduled earnings release. or as otherwise required by law. On today's call, Godet will begin with our key messages and business highlights. Amol will then review our financial results and outlook. After that, we will open up the lines for questions. I'll now turn the call over to Udit. Udit Batra: Thank you, Caspar, and good morning, everyone. We delivered an excellent first quarter as a combined company, marking the start of a new powerful era of growth across our 4 divisions. We achieved double-digit organic growth in our legacy businesses, delivered meaningfully better-than-expected revenue for our newly acquired businesses and grew adjusted earnings per share by 20%. We also took decisive steps towards building our new platform for sustained long-term growth, driving strong momentum and underpinning our raised full year growth outlook. Before turning to the numbers, I want to recognize our teams for delivering this strong start to the year. They are enacting immediate operational improvements, continuing to deliver pioneering innovation and collaborating effectively to deliver revenue synergies already, all while ensuring a smooth transition from BD. It is a true privilege to work with my colleagues, and I'm proud of what they have accomplished. In the first quarter, total company as reported revenue was $1.267 billion, comprising of $747 million of organic revenue and $520 million of Biosciences and Diagnostic Solutions following February 9 acquisition closing date. Organic revenue grew 13% as reported and 11% in constant currency, exceeding the high end of our constant currency guidance range by approximately 200 basis points. Orders again, outpaced sales. Biosciences and Diagnostic Solutions revenue exceeded guidance by $40 million and grew an estimated 7% on a reported basis versus the prior year equivalent period, a strong opening performance for these businesses under Waters' leadership. On a full quarter pro forma basis, comparable revenue growth also exceeded expectations and improved meaningfully relative to fourth quarter trends. Execution initiatives launched at the close -- at closing drove flat year-over-year reported growth despite a $20 million headwind in respiratory testing due to the weak flu season. Excluding these impacts, growth was approximately 3% for the full quarter. With our strong top line performance, combined with disciplined cost management and operational excellence across the organization, adjusted EPS grew 20% year-over-year to $2.70 per share, exceeding the high end of our guidance range by $0.35. Let me now cover these drivers of strength in more detail. Beginning with our organic revenue performance. The Analytical Sciences division grew 12% in constant currency, with instruments up 8%, chemistry up 13% and service up 14%. In pharma, we grew mid-teens with sustained above-market performance supported by our unique exposure to idiosyncratic growth drivers, continued strong instrument replacement and excellent adoption of new products in our high-growth adjacencies. In academic and government, we grew high teens, driven by strength in Europe and broad-based demand for our revitalized high-resolution mass spec portfolio. In industrial, we grew low single digits, led by chemical analysis and continued momentum in PFAS testing applications. Thanks to the effective cross-divisional collaboration, given our diligent integration planning, approximately 1 percentage point of analytical sciences growth was driven by tandem quadrupole mass spectrometry sales through the Biosciences channel and early proof of revenue synergy realization. Within the Advanced Diagnostics division, the clinical business unit previously reported within the Waters division grew 14% despite DRG weakness in China. Strength was led by double-digit growth in the Americas and Europe. The Material Sciences division grew low single digits, reflecting solid performance across core industrial and high-growth applications given present macro conditions. Turning now to our newly acquired businesses. The Biosciences division delivered $230 million of revenue, representing 7% estimated growth on an as-reported basis from the closing date of the transaction to the end of the quarter. Flow research and Flow clinical, both grew 7%, Reflecting improved execution and increased commercial activity. Reagents grew low double digits, while instruments remain pressured due to U.S. academic and government trends, and ongoing China-related constraints, including export restrictions of high-parameter products and lack of a localized product portfolio. Meanwhile, overall demand for our recently launched FACSDiscover A8 and S8 systems remained strong. On a full quarter pro forma basis, Biosciences declined 1%, marking a significant improvement from the 10% decline in the fourth quarter of 2025. This inflection is further underscored by our ex-China growth which was 4% for the full quarter. As we localize the China portfolio in the second half of this year, launch additional new products and implement incremental new commercial actions as the year progresses, the business is poised for further acceleration throughout 2026. Within the Advanced Diagnostics division, Diagnostic Solutions delivered $288 million of revenue, representing 8% estimated growth on an as-reported basis from the close date. Microbiology grew 10% and reflecting improved commercial momentum tied to the newly enacted KPI discipline ahead of our BACTEC FXI launch in blood culture. On a full quarter pro forma basis, Diagnostic Solutions business grew 1%, a clear acceleration from high single-digit decline in the fourth quarter of 2025. Excluding respiratory testing headwinds, growth was 6% for the full quarter, reaching mid-single-digit underlying growth sooner than expected. At the divisional level, including the clinical business unit, Advanced Diagnostics grew 3%. Excluding these same respiratory headwinds, the Advanced Diagnostics division grew 7.5% for the full quarter pro forma basis, reflecting strong underlying momentum. This inflection was delivered even ahead of the full benefit of our commercial execution initiatives and new product launches and despite a 2% China DRG-related headwind that will annualize into the baseline in the second half of the year, positioning the business for continued acceleration as we enter the back half of the year. Less than 90 days post close, we have already made notable progress after taking control of the Biosciences and Diagnostic Solutions businesses as is evident in our results. Immediately after the February 9 closing date, we launched a 180-day plan to reinvigorate growth centered on a focused set of rapid execution initiatives. Early results have been outstanding, driving a clear and meaningful step in revenue -- a step-up in revenue performance relative to the pre-closed performance trends. Our first priority was to instill focus, accountability and urgency across our newly acquired businesses. We have since substantially increased the frequency and rigor of forecast and funnel reviews, with deeper inspection of conversion rates, deal progression and pipeline quality. This has driven greater visibility and transparency, faster decision-making and improved commercial execution. In parallel, we have taken deliberate actions to increase commercial activity across the organization. We have raised expectations around customer engagement, driving our sales team to spend more time in the field, getting in front of the customers and increasing outbound activity. This has been reinforced with clear KPIs and daily management, resulting in meaningful increases in call volume customer visits and pipeline generation, which is driving stronger funnel trends and overall commercial momentum. Our second near-term priority under our 180-day plan is pricing discipline. We have deployed our experienced Waters pricing team across Biosciences and Diagnostic Solutions where we have conducted a comprehensive pricing review and are establishing 2 new deal desks. We are already seeing tangible results with pricing actions taken right away in the quarter, already beginning to augment revenue performance. In addition, we are actively reviewing reagent rental contracts and utilization data to identify commercial opportunities. Within U.S. Diagnostic Solutions alone, our initial review of 1,600 contracts has identified approximately 700 that are currently out of compliance, representing a double-digit million shortfall annually. We see meaningful opportunity to improve operational follow-through on these contracts in the quarters ahead. Our third near-term priority is to regain share in Flow research. We have already approved and initiated actions to localize manufacturing of Flow instruments in China to improve market access and reduce export complexity, addressing a key source of share loss. We intend to begin manufacturing key products in China for China, starting in the third quarter, which is already providing our team a strong impetus to begin competing for tenders that require local manufacturing. We're applying the same playbook that has made our analytical sciences business a growth leader in China. For Flow research reagents, we're improving product availability and speed to customer by adjusting our distribution strategy, leveraging new channels and mobilizing Waters' existing distribution network. These actions are expected to begin resolving prior constraints that have impacted share beginning in the second half of this year. We remain the market leader in downstream high-volume life science applications, spanning LCMS, light scattering and precision chemistry workflows together with related service and informatics. In the first quarter, we launched our next-generation Microflow LC Chemistry Columns with MaxPeak Premier technology, delivering up to twice the sensitivity of traditional microflow columns for used in high-throughput bioseparations, DMPK and OMEX applications. In light scattering, we also recently launched our omniDAWN Multi Angle Light Scattering Detector, which is an industry first extended range detector for use in UPLC and meeting the rising throughput and resolution requirements of our customers. These new product launches increased our degree of differentiation when serving large molecule applications in our attractive end markets. In microbiology, we recently announced that our next-generation blood culture system, the BACTEC FXI, has received CE marking under the European Union's In Vitro Diagnostic regulation, representing a key milestone in our microbiology product road map and delivered ahead of schedule. BACTEC FXI is a groundbreaking new product that combines industry-leading automation, allows 60 sample loading and offers a 3-hour faster detection time than the current generation BACTEC, which was launched over a decade ago. This system is now available in Europe and Japan, and we're pursuing additional regulatory approvals in other key global markets in the months ahead. In molecular, we recently received FDA clearance for our BD Onclarity HPV self-collection kit and BD Onclarity HPV assay, enabling at-home cervical cancer screening with extended genotyping for multiple high-risk strains. This solution allows patients to collect their own sample at home, which is then analyzed in the lab using the BD Onclarity HPV assay, removing barriers to the screening access. Cervical cancer is highly preventable, yet remains significantly underscreened. Nearly 1 in 4 women in the U.S. is not up to date with cervical cancer screening despite HPV being the primary cause of nearly all cervical cancers. Screening gaps persist due to access challenges, discomfort and patient avoidance of pelvic exams, self-collection directly addresses these challenges by offering a less invasive and more convenient alternative with a proven ability to increase screening participation. As the most comprehensive at-home cervical cancer screening tool available, we are empowered by a mission to remove these barriers that prevent individuals from receiving routine screening. Our goals are aligned directly with the priorities established by the U.S. Department of Health and Human Services, which identified expanding at-home testing as a top public health priority last year. We have already begun to sign contracts with strategic partners as we bring this solution to market. Now turning to the synergies. On cost synergies, we remain firmly on track to deliver our $55 million target for 2026 driven by organizational optimization, procurement savings and network optimization with a clear line of sight to deliver. Since February 9, we have moved quickly to enact our restructuring plan and are now in advanced stages of implementation. We expect these actions to improve cost efficiency by optimizing spans and layers, eliminating redundancy and achieving a leaner centralized cost structure as part of the integration. The associated savings will hit the P&L beginning in the third quarter of this year. We've also activated our centralized spend control tower, increasing visibility into indirect spend and driving more disciplined procurement execution. These actions are enabling us to capture savings across key categories while improving control and accountability. At the same time, we're also taking business level cost actions, separate from our synergy program and rightsizing costs in areas where there is clear opportunity to realign with the revenue base. together with our growth outlook, these actions support solid margin progression in the second half of the year. On revenue synergies, as I mentioned earlier, we're already ahead of plan. We have moved quickly to activate cross-selling across the combined commercial organization, leveraging the Biosciences channel to drive incremental demand for mass spec in pharma clinical settings. We expect further contribution as we continually scale these efforts throughout the year. As we progress through 2026, additional synergy levers will start to build across instrument replacement, service plan attachment and e-commerce. In total, we remain well on track to deliver $50 million of expected revenue synergies this year. On instrument replacement of the 22,000 ripe for replacement, 12,000 are BACTEC, with over 50% greater than 5 years old and over 25% greater than 10 years old. Since February 9, we have accelerated the U.S. and European launch of BACTEC FXI by 3 to 5 months relative to the inherited business case, creating earlier revenue capture across the significant installed base opportunity. On service plan attachment, we have completed the first ever full coverage analysis of low microbiology and molecular diagnostics installed basis. Beginning this quarter, we are assigning these opportunities to account-level representatives supported by clear KPIs and our water service leadership team. an effort, we expect to drive at least $20 million of incremental revenue over the next 5 years. On e-commerce, we have scaled our digital capabilities team in recent weeks. We now have more than 100 full-time employees in our e-commerce team at our global capability center in Bangalore. This investment is a key enabler of a future best-in-class e-commerce platform, strengthening our competitive position and driving increased customer adoption of digital ordering channels, which is a key synergy. Turning now to 2026 guidance and our value creation road map. We have begun 2026 with significant momentum, driven by the instrument replacement cycle, idiosyncratic dose drivers and accretion from our high-growth adjacencies. As a result, we are raising our full year 2026 organic constant currency revenue guidance to 6.5% to 8%, reflecting our strong first quarter performance and embedding $15 million of expected revenue synergies from cross-selling of mass spec. For the acquired businesses, we now expect Biosciences and Diagnostic Solutions to generate approximately $3.035 billion of reported revenue in 2026, which includes $35 million of expected revenue synergy contribution tied to the vectors I just covered, including instrument replacement, service plan attachment and e-commerce. Together, total 2026 reported revenue is expected to be approximately $6.405 billion to $6.455 billion based on latest FX rates. Turning now to EPS. Given our strong first quarter results, updated FX assumptions and the prudence embedded in our second half outlook, we are raising our full year adjusted EPS guidance by $0.10 to $14.40 per share to $14.60 per share, reflecting growth of 10% to 11%. With our synergy levers now underway, we have an excellent platform for continued strong performance as a new powerful era of growth begins, unfolding in 3 phases over our midterm outlook. In Phase I, where we are today, the incremental performance at our acquired businesses is tied to immediate operational improvements, such as those outlined in our 180-day plan, together with early revenue synergies from cross-selling. The strong Q1 results give us confidence that this foundation is being built at speed. In Phase II, these operational improvements are then joined by our full first tranche of revenue synergy levers, spanning instrument replacement, service plan attachment and e-commerce. These are near-term well-defined opportunities that are expected to begin contributing starting in the third quarter of this year. In Phase III, the strategic power of this combination becomes most visible. New product launches and bioseparations taking flow into QC in bioanalytical characterization and our new platform launches such as rapid stability testing are expected to add further incremental growth vectors as we increasingly leverage our joint capabilities. Each of these spaces takes us further up the growth curve from the mid-single-digit pro forma growth rate where our full year guidance sits today, progressively upwards into the high single digits over the next several years. This is very similar to what we have seen at our legacy Waters business over the last 5 years. At the same time, we expect to drive significant margin expansion augmented by our cost synergies and expect to achieve at least 100 basis points of adjusted operating margin expansion every year through the end of the decade. Together, this powerful equation yields a mid-teens adjusted EPS growth algorithm and one we are executing against with increased confidence. In summary, we are laser-focused on delivering value through our execution and operational improvements, innovation launch excellence and synergy realization. With this transformation already underway, this value creation journey is beginning now and we are doing so at speed. With that, I will now turn the call over to Amol to cover our financial results and guidance in more detail. Amol Chaubal: Thank you, Udit, and good morning, everyone. In the first quarter of 2026, we continue to deliver industry-leading growth. We delivered reported revenue of $1.267 billion, which was ahead of expectations. Momentum remained strong at Waters organically, and our newly acquired businesses delivered a strong start as our 180-day growth revitalization plan began to take hold. Organic revenue was $747 million, growing 13% as reported and 11% in constant currency, which was 200 basis points above the high end of our guidance range. Our newly acquired businesses delivered $520 million of revenue during our period of ownership, $40 million of our guidance and representing 7% estimated as-reported growth versus the comparable prior year [ stop period ]. Importantly, performance was ahead of expectations on a full quarter pro forma basis as well. As reported growth for the full quarter was flat improving notably versus the prior quarter and underscoring the strength of our execution and growth revitalization initiatives. Excluding $20 million of respiratory testing headwind, growth was 3% for the full quarter. By geography, as reported, revenue was $505 million in the Americas, $412 million in Europe and $350 million in Asia. We effectively managed our supply chain and mitigated elevated freight costs, tariff costs and inflationary pressures while continuing to invest for the long term. Total company adjusted gross margin was 54.7%, approximately 200 basis points better than expected. Adjusted operating margin was 23.6%, also approximately 200 basis points better than expected. This reflects strong margin results in a dynamic macro environment and one achieved before the benefits of our cost synergies and broader cost actions start to flow through the P&L. Our operating tax rate came in at 15.6% and net interest expense was $38 million. With our top line strength, disciplined cost management and operational excellence, adjusted EPS grew 20% to $2.70. On a GAAP basis, we reported a diluted loss per share of $0.87, reflecting acquisition-related purchase accounting charges, including amortization of acquired intangibles and inventory step-up as is typical following a transaction of this scale. Free cash flow for the quarter was $42 million outlay impacted by deal-related transaction costs and the timing of net cash settlement with BD. Turning to our results by operating segments. The Analytical Sciences division, which is our legacy waters division, excluding the clinical business unit, delivered as reported revenue of $607 million, up 14% as reported and 12% in constant currency. In constant currency, instruments grew 8%, chemistry grew 13% and service grew 14%. Instrument strength was broad-based across both LC and MS driven by robust replacement activity and our idiosyncratic growth drivers across GLP-1s, PFAS, India generics and biologics. Leveraging the Biosciences sales channel, we also achieved strong mass-spec results in pharma clinical settings, as Udit outlined. Chemistry growth was again led by MaxPeak Premier and new products within bioseparations which have been a vertical success. Our service results reflect strong pull-through from recent expansion in service plan attachment levels. By end market, pharma grew 14%, non-pharma grew 8% as academic and government grew 18% and industrial grew 3%. Within Pharma, spending trends remain strong across ethical pharma, CDMOs and Chinese biotech. Growth was broad-based with high single-digit growth in Americas and Europe. Asia grew nearly 30%, led by over 50% growth in China, low teens growth in India and low teens growth in Japan. Within academic and government, growth was driven by strong spending trends in Europe and solid demand globally for our revitalized high-resolution mass spectrometry portfolio, including Xevo MRT and Xevo CDMS. In China, we continued strong capture of stimulus standard opportunities. Within Industrial, Asia grew mid-single digits, Europe grew low single digits and the Americas was flat. Growth was led by chemical analysis and PFAS applications. For PFAS, we sustained strong growth despite a tough prior year comparison led by double-digit growth in both Europe and China. The Biosciences division, which represents the former BD Biosciences business delivered as reported revenue of $232 million, representing 7% estimated as-reported growth from the closing date to the end of the quarter versus the comparable prior year [ stopped period ]. Reagents grew low double digits while instruments remain pressured due to U.S. academic and government trends and China-related constraints such as lack of localized product portfolio. Overall, Flow Research grew 7% and Flow Clinical grew 7% with stronger commercial execution driving increased activity levels across both business areas. Within Flow Research, performance was led by reagents and strength in our FACSDiscover A8 and S8 instruments, particularly in Europe. Within Flow Clinical, ex-China grew 13% while China declined 25% due to DRG headwinds. By geography, Europe grew over 30%, the Americas grew 10% and Asia declined high teens, led by China. On a full quarter pro forma basis, Biosciences declined 1%, representing significant sequential improvement versus the fourth quarter trend tied to our commercial actions. On an ex China basis, Biosciences growth for the full quarter was 4%. The Advanced Diagnostics division comprises of the former BD Diagnostic Solutions business, and the mass spec Diagnostics clinical business unit previously reported within Waters division. Total as reported revenue for the division was $349 million. Diagnostic Solutions delivered $288 million of as reported revenue, representing 8% estimated underlying growth from the transaction closing date to the end of the quarter. The clinical business unit delivered $61 million of revenue, up 16% as reported and 14% in constant currency. On an as-reported basis, microbiology revenue was $203 million, reflecting 10% underlying growth for the own period, driven by improved commercial momentum as our execution initiatives began to take hold. Ex China grew low double digits, while China declined 12% due to DRG headwinds, which was better than expected. Molecular Diagnostics and Point of Care revenue was $84 million, reflecting 2% underlying growth for the owned period. On a full quarter pro forma basis at the divisional level, advanced diagnostics grew 3%, which includes a 4.5% headwind from respiratory and a 2% headwind from China. The acquired Diagnostic Solutions business grew 1%, reflecting a significant improvement in growth versus fourth quarter trends. Growth for the full quarter was driven by microbiology, which grew 5% led by high single-digit ex China growth. Excluding the same respiratory headwind, Diagnostic Solutions grew 6%, setting us up well for the rest of the year as these headwinds are not expected to recur. The Material Sciences division delivered as reported revenue of $79 million in the quarter, representing an increase of 6% as reported and 2% in constant currency. Growth was led by strength in high-growth segments such as batteries and electronics testing as well as aerospace, and we saw continued momentum in electric vehicles and data center applications. However, this was partially offset by soft trends in core industrial applications such as chemicals and materials. Now I will share further commentary on our full year outlook and provide our second quarter guidance. Beginning with organic revenue, we have entered 2026 with significant momentum, driven by instrument replacement cycle, our idiosyncratic growth drivers and accretion from our high-growth adjacencies. We are raising our full year 2026 organic constant currency revenue growth guidance to the range of 6.5% to 8%, reflecting our strong first quarter performance and embedding $15 million of expected revenue synergy contribution. We now expect foreign exchange translation to have neutral effect on organic sales, which translates to organic reported revenue of $3.37 billion to $3.42 billion in 2026. Turning to our acquired businesses. We now expect Biosciences and Diagnostic Solutions businesses to generate approximately $3.035 billion of revenue in 2026, which includes $35 million of expected revenue synergies. Together, total reported 2026 revenue is expected to be approximately $6.405 billion to $6.455 billion based on latest FX rates. The restructuring actions tied to our cost synergies are taking place towards the end of the second quarter, together with business level cost realignment. This supports solid margin progression in the second half of the year. In addition, we have a range of operational initiatives in place to fully offset anticipated impact of elevated freight, raw materials and component costs due to ongoing conflict in the Middle East for the balance of the year. Together with our strong first quarter results, we now expect our full year adjusted EBIT margin to be 28.2% in 2026. Below the line, net interest expense is now expected to be approximately $186 million. Given diligent work by our tax team, our full year tax rate is now expected to be approximately 16%, which we expect to persist in future years. This translates to a full year 2026 adjusted earnings per fully diluted share of $14.40 to $14.60, which is a $0.10 raise in our guidance range, reflecting our strong first quarter results, partially offset by incremental prudence embedded in our second half assumptions and updated FX rates. For the second quarter of 2026, we expect organic constant currency revenue growth of 6% to 8%. Foreign exchange represents a headwind of approximately 0.5% at current rates, resulting in organic reported revenue guidance of $814 million to $829 million. We expect revenues from the Biosciences and Diagnostic Solutions businesses to be approximately $802 million in the second quarter of 2026, which represents approximately 2.5% of reported growth. Together, these results in our total reported second quarter 2026 revenue of $1.616 billion to $1.631 billion. Second quarter adjusted earnings per fully diluted share is expected to be in the range $2.95 to $3.05, which is flat to 3.4% growth given the full burden of higher interest costs and newly issued shares and ahead of cost synergies and business level cost action benefits that begin to flow through the P&L starting in the third quarter. Turning to our implied guidance assumptions for the second half of the year. Even with the full year raise in organic growth guidance, our strong first quarter results and the second quarter guided midpoint of 7% implies a prudent 6% organic constant currency growth in the second half of the year. This is deliberately lower than what was implied in our prior guidance as it further derisks our back half organic growth outlook. For the Biosciences and Diagnostic Solutions, our strong first quarter performance and second quarter guidance also meaningfully derisks our implied second half outlook. Our second half assumptions reflect a prudent growth rate of 1.5 percentage points above our second quarter guidance, well supported by incremental commercial and operational actions already underway and a favorable prior year comparison. With that, I will now hand it back to Caspar. Caspar Tudor: Thanks, Amol. That concludes our prepared remarks. We are now happy to open the lines and take your questions. Operator: [Operator Instructions] Our first question will come from Tycho Peterson with Jefferies. Tycho Peterson: Maybe just starting with the guide here, a number of moving pieces. Obviously, the $40 million beat on the BD side, you've got headwind you called out. So it looks like the base business is getting better by about $5 million on an organic basis. The $35 million in revenue synergies, though, can you maybe just touch on where you think those are coming from earlier? I know you gave a little bit of color, Udit. And then what's captured on pricing? I know you kind of flagged that as maybe showing up a little bit earlier. Amol Chaubal: Yes. I mean, look, on the revenue synergies, the first phase of revenue synergies is around things such as instrument replacement, service plan attachment and e-commerce and that's what is embedded in that $35 million outlook. What's not embedded in that guide is the pricing actions that we are taking. What's not embedded in that guide is also how we've successfully neutralize the impact of tariffs on our legacy Waters business. And what's not embedded in that guide is the benefits of being more disciplined on our reagent rental contracts. Udit Batra: Yes. So Tycho, just building on that, I think that the revenue synergies that Amol outlined, the 3 levers we've talked about in the past. But what's really new is the 180-day plan, right? I mean we basically work diligently to look at how we were doing funnel reviews, how -- what the activity was in the field. In fact, in some cases, the weekly call rates have actually doubled, right, and especially in the U.S. Advanced Diagnostics business. We've also implemented pricing improvements and with our deal desk both in bioscience and diagnostics. And we're looking at reagent rental contracts across the Diagnostic Solutions business. And having looked at roughly 1,700 or so accounts, close to half of them are out of compliance, and that's a double-digit opportunity. So these will start to now play out in the -- in starting Q2. And then finally, we are localizing our portfolio in China, really using the same playbook that we did for the Analytical Solutions business, which has incredible growth this quarter, right? So really following that labor. What's not really incorporated is the 180-day plan, which is having quite an early impact. Tycho Peterson: Okay. And then for the follow-up, Udit, can you talk about biology. Obviously, there was a comp factor there, but 10% growth is notable, up low double digit ex China. Just talk about your confidence in turning that business around, obviously, the new BACTEC coming fairly soon. So yes, maybe just talk about your confidence in recovery there. Udit Batra: So Tycho, maybe first, just some contextual comments, right? Take a step back, I mean, Waters is focused on high volume regulated applications, right? That's what we've done throughout our existence. We take sort of lean brands and then with smart commercial execution, really meaningful new products, deliver what we are seeing as industry-leading growth for our Analytical Sciences business, both growth and margins, right? And we intend to do the same with microbiology, where the unmet needs are very significant and we've gotten off to a fantastic start. Microbiology has the same characteristics, high-volume regulated applications with significant unmet needs. Really great start, about 5% to 6% growth in spite of the DRG headwinds. And as you go into the back half of the year, the baseline becomes easier and the FXI launch, we're very excited about that should augment not just the revenue synergies from instrument replacement, but the underlying business itself. So really exciting times and significant unmet needs that excites our team. So expect to see that business nicely. Operator: Your next question will come from Patrick Donnelly with Citi. Patrick Donnelly: Udit, maybe one on the core kind of legacy Waters instrumentation side. It seems like LCMS, you had a pretty nice quarter. I know you called out pharma. And then it seemed like [indiscernible] actually improved a little bit. Can you just give a little more color on what you saw how the biopharma conversations trended in the quarter? And then as well, just ack ago, what you're seeing there? Udit Batra: Yes. So sure, Patrick. Look, first on instruments overall, LCMS was high single digits, yet again. The replacement cycle is still underway, contributing nicely, especially in the U.S. and in Europe. It's augmented by the new products, Alliance iS and now the Xevo MRT having a wonderful start and chemistry doing a great job there as well and the idiosyncratic growth drivers, right? You see GLP-1 testing focus on biologics, India generics, all contributing to the instrument growth rate. Now to your question on pharma itself, I mean, really pleased with what we see, right, to what I said to Tycho as well for a downstream high-volume regulated player, right? And we've seen terrific trends there. We brought new products into that space. We're seeing mid-teens growth overall, high single digits in Americas and in Europe, where ethical pharma is leading the charge with instrument replacement. In China, we saw over 50% growth driven by biotech CDMOs and emerging innovative large pharma companies that are homegrown in China and India continued its track with genetics. So feel extremely good about what's happening in pharma. I mean that remains one of our strengths and really sort of looking forward to what the rest of the year brings in that category. Patrick Donnelly: Okay. That's helpful. And then maybe one on BD. I guess in hindsight, now that you guys have been behind the curtain a little bit here for a few months. When you look back at the 4Q kind of underperformance, how much do you think was just kind of an air pocket as the transition of the management happened? I guess what I'm asking is on the execution improvement versus the actual market improvement, what have you seen from 4Q to 1Q and then the expectations going forward? Udit Batra: Yes. Look, I mean, as we've come into come into the ownership. We've seen tremendous collaboration with -- amongst the teams. The integration plans were put together across the BD teams and the Waters teams and it was, in some ways, an advantage to have time between announcement and close. So that diligence really got the quarter -- the owned period of the quarter off to a fantastic start, right? I mean the diligence that you've seen with Waters in the past with really sort of focusing on high-quality funnels. I mean our funnels look better than they ever have. the forecast accuracy improved as a consequence. We've implemented the pricing initiatives across the 2 new businesses, really incredible transparency and collaboration on looking at reagent rental contracts and also the China localization piece. So the 180-day plan itself was put together in collaboration with the teams. And to your question on air pockets, et cetera, it's very difficult to judge such things. I mean it was a declining business. But you see an advantage of just giving it focus. And what I'll remind you is that these are 2 businesses that have leading brands, really sort of brands that define the category. They are in high-volume regulated settings, and our Waters playbook is very relevant there, and you're seeing the impact of that. Operator: Your next question will come from Vijay Kumar with Evercore ISI. Vijay Kumar: Great. Udit and Amol, congrats on a nice spread and thanks for all the detailed disclosures in the presentation. That was really helpful. Maybe my first one on this BD performance in Q1. And when I look at the full quarter reported growth for BD, it looks like it was flattish, but for the period owned under Waters, it was up 5%. Maybe just talk about this delta between the full quarter versus period owned. Was there any timing shipments, those kind of things that aided performance under Waters ownership. Is this because of extra days? And I'm curious, I think the prior guidance was assumed BD to grow maybe up low singles 2%. Has that changed at all? Amol Chaubal: Yes. I mean, look, when we put together our guidance, we factored in things such as there will be a few extra days because of the quarter, but also a few days when the situation will be disturbed during the close, right? And that's how we sort of prepared our guidance. The way the teams executed makes us feel really proud that things are working, the 180-day growth revitalization plan is starting to bear fruit, and that's what sort of resulted in this significant $40 million beat, right? And what we've done with that is we've sort of derisked our second half of the guide and makes it far more palatable. We've sort of taken down sort of point of care in the second half of the year to not be an average, but significantly below average. And that gives us a lot of room to outperform and puts us in a great spot for the remainder of the year. Vijay Kumar: Understood. And then maybe my follow-up on -- given that you mentioned that days of back here, when you look at core Waters, it 11% organic, what was underlying organic ex days? When you say back half is 6%, is that for core organic or pro forma organic inclusive BD. And given your comment on order strength, I'm curious on why back half couldn't be better. Amol Chaubal: Yes. So I mean, look, the extra days benefit our recurring revenue. And roughly, we had 4 extra days in terms of working days, and that brings about 4% more recurring revenue, which is roughly 2% more total revenue for the legacy Waters business. But even if you strip that out, I mean, chemistry grew 13% and service grew 14%. So both of them, even after you take out 4% flying at meaningfully elevated levels versus the historical performance, and that's to do with how our teams are executing really well in the field. For the guidance perspective, our first half growth for the legacy business constant currency is roughly 9%, and we've derisked the second half. One for the 4 or so extra less working days that we have in Q4, 2 just because of the current macro, right? And so the second half embedded constant currency growth guidance is roughly 6%. That puts us in a really solid spot because we're not seeing any of that in our funnel. On all remains very strong, and we continue to fly at the altitude that we are flying at that gives us great confidence on the second half of the year. Udit Batra: So Vijay, just to sort of conclude that thought. As you go into the remainder of the year, I mean there's fantastic momentum on the base business. There's no 2 ways around it. The 180-day plan has sort of got off the acquired businesses to a great start. But remember, there's a lower baseline already starting in Q2 with the respiratory headwinds gone. For the latter half of the year, there is no DRG sort of headwinds anymore as well. And then you augment that with new launches, FXI BACTEC, as well as the A7 in our Bioscience business and the reagents and the revenue synergies that start to play out as well. So we are really sort of positive about the setup that we see for the balance of the year. Operator: Your next question will come from Doug Schenkel with Wolfe. Douglas Schenkel: So first, on competition. One -- I guess there's 2 here. Your team is bringing a new level of discipline to the life science business. I'm just wondering if there's been any notable competitive responses worth calling out. The second question is, there's 2 product areas where you are or will soon be competing with private equity-owned businesses. Generally speaking, how does competing with PE differ? And does this create new opportunities for the business? Udit Batra: Excellent questions, Doug. Look, on waters itself and competition, I mean, I'll repeat what I said earlier, we are diligent about being focused on high-volume regulated settings, right, where the drivers are very well understood and are consumption oriented, and that's allowed us to outpace the market over the last several years. And in those setups, I mean, we have leading brands. We had it with the legacy Waters business. Now we have it with Bioscience, which defines the flow cytometry category and reagents and with the diagnostic solutions business with microbiology. So we feel very good about the brands we've inherited and we're working hard on bringing the same execution discipline that has bought waters to the top of the league table, both in growth and margins and free cash flow. So as we start, and your question to, sort of, I think the microbiology business that's been acquired by PE players, I mean, we think it's going to be quite rational in terms of pricing. And we are a pricing leader in the categories we compete in because we bring in tremendous innovation into the markets. And we expect something similar from the PE player. So not worried. I mean, I think we are now in a position where, as a team, we're more focused on unmet needs on proof of principle of our new products, commercial execution than anything else. Operator: Your next question will come from Evie Koslosky with Goldman Sachs. Elizabeth Koslosky: So starting with the core business, can you talk to the mid-teens growth in chemistry. I think it's well above the full year guidance that you previously gave of around 6% to 7%. So how durable is this growth moving forward? And what's the updated guide for chemistry in the full year? Udit Batra: Let me start, and then Amol can talk to the guide. I mean, you can say nothing more than just being ecstatic about what we're seeing with chemistry, right? I mean this is a journey that started a few years ago when we took our R&D dollars and dedicated 70% to 80% of them in bioseparations and the steady stream of new products is driving growth, right? I mean that's what you saw in the latter part of the year last year, and you see it now as virtually all new molecular entities, especially biologics, are first looking at Waters offering and then going elsewhere. So we feel very good about where we stand. And as you look at the mid- to long term, I mean, there is no reason to believe that all of this will not flow downstream and chemistry on the mid- to long-term basis, should now be instead of a 7% grower, a 9% to 10% grower at least. I'll let Amol comment on the balance of this year and our guide assumptions. Amol Chaubal: Yes. I mean, look, in Q2, there was a little bit of pull forward, which we outlined in our last year's Q2 earnings call. And in general, we've been cautious given we had such an amazing double-digit growth in industry every quarter last year. We are sort of reducing the guide for this year to like 6.5% full year. Just to be prudent. But I mean, what we are seeing in Q1, 13% growth, that is real and that we expect to continue. The only reason we are guiding at 6.5% is the baseline is pretty strong, and we're being prudent. Elizabeth Koslosky: Great. And then on the acquired asset, can you talk to the decision to localize the manufacturing in flow cytometry in China? How much of an investment does this represent? What's the local competition like? And then how durable are some of the market growth drivers like MNC pharma funding in the region? Udit Batra: Yes. I mean, look, I, thanks for the question. But let me start sort of at the highest level. I mean pharma in China is doing extremely well. I think we talked about this several quarters ago. roughly 1/3 of all biotech molecules that are unlicensed by large pharma now come from China. That has then helped the CDMO industry grow and also is giving birth to sort of fully integrated innovative pharma companies in China. And pharma for us in China grew over 50%, right, behind these trends and strong, strong execution. And this sort of result was only possible because we have a fantastic team in China that insisted that we localize our portfolio in China to be available to customers across the board, and we did that first for Analytical Sciences business. And we intend to do the same for Biosciences where at this point, not much of the portfolio is localized. So we're doing that at a rapid pace. We have our own site in Suzhou, where we'll start doing this. And in Q3, you should start seeing the orders flow in from the localized portfolio. There is another headwind in China for the flow business, which relates to export controls. And there, we've streamlined the process dramatically during integration planning and now since the close of the deal. In fact, we've seen the highest number of orders flow in, in the last few days ever since the ban went in place. So it's the same playbook EV that allowed the Analytical Sciences Solutions business to now really set the standard for the industry's growth in China, and we expect to do the same for Bioscience. Operator: Your next question will come from Puneet Souda with Leerink. Puneet Souda: The first one on pricing versus volume. Could you talk a bit about how much of the growth was driven by volume in the quarter? You talked quite a bit about pricing initiatives. But wondering if you could drill down a bit and just give us some volume growth metrics in the BD business? And how sustainable is the pricing tailwind just given the competition and, let's say, the microbiologic business? Amol Chaubal: Yes. So on the legacy Waters business, we did roughly a little over 200 basis points of price, and that's consistent with how we've been performing the last few years. On the BD business, we did just about 0.5 percentage of price, which is in line with how BD has been doing historically. That's also what we've embedded in our full year guide, nothing different from the historic performance. We do see a very meaningful opportunity to bring the BD business where our legacy Waters business is. And as Udit outlined, we've already instituted 2 deal desk. We see tremendous areas of opportunity, not just in pricing but also in tariff mitigation and also in reagent rental contract compliance. All those are opportunities we are pursuing, none of which are in our guide. Udit Batra: Yes. And just to sort of add one other comment on pricing. There are pockets already, Puneet, in the in bioscience and diagnostics, where we see pricing similar to what we've been able to implement in the legacy Waters business. The reason we're not putting it, embedding it into the guide is simply because we want to see that play out and be sort of pervasive across all geographies. And so really good starting point and I expect that to be an upside as we go through the year. Puneet Souda: Got it. And then on the core, I mean, congrats on the momentum there. I just wanted to get a sense of -- in the LCMS instrument replacement cycle, where do we stand? Are you seeing sort of a pull forward of that replacement cycle peak that, I think, you were expecting in '27? Could we see that in '26 now? Just wanted to get a sense of where we stand in the replacement cycle. Amol Chaubal: Yes. I mean, the replacement cycle is going really well. And as we outlined, right, I mean it's first started with large pharma than the CDMO step team. There are still some participants like the CROs and the Chinese branded generics and some of the biotechs that are still not replacing even when their fleets are significantly overaged. And so that gives us a good runway into 2027. And then keep in mind, 2021, 2022, were very large instrument placement years, and those instruments then come up for replacement in 2029, 2030. And so one would say, hey, you may hit a bit of an air pocket as we go through 2028. And that's exactly where the reinsuring dynamic plays out because a lot of reshoring placements would likely happen second half of '27, all of 2028. So the setup is really good. We could move seamlessly from one instrument replacement cycle to another with the reshoring bridge in between. Operator: This concludes the Q&A portion of the call. I will now hand it back to Caspar. Caspar Tudor: Thank you, Lila. This concludes our call. We look forward to connecting with many of you at upcoming events and conferences.
Operator: Good day, and welcome to the IAC First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Christopher Halpin, COO and CFO. Please go ahead, sir. Christopher Halpin: Thank you. Good morning, everyone. Christopher Halpin here, and welcome to the IAC First Quarter Earnings Call. Joining me today are Barry Diller, Chairman and Senior Executive of IAC; Neil Vogel, CEO of People Inc.; and Tim Quinn, CFO of People Inc. IAC has published a presentation on the Investor Relations section of our website today entitled Q1 Earnings Presentation as well as a letter from our Chairman published last week. On this call, Barry, Neil, Tim and I will provide some introductory remarks referencing that presentation and letter and then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance and are based on current expectations and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent annual report on Form 10-K and in the subsequent reports we filed with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings release, investor presentations, our public filings with the SEC and again to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. And now I will turn it over to Barry. Barry Diller: Thank you, Chris. Good morning, everyone. I wrote a letter that I hope everyone has read because it says it far better than I can say about this transition that we're undergoing. A lot of people ask why now? Well, the truth is this is really been going on for the last couple of years as we simplified -- want to simplify our operations. We've been through -- since this organization started 30 years ago. We've been through 4 cycles. Each time we've gone through one of those cycles, we've been a smaller enterprise because we spun off so many public entities. I like that because I think that gives us kind of energy and focus to build up again. I also think that the 2 principal assets probably, hopefully, the only assets that the company will have in the future. I'm talking about the -- actually the present rather than the future, people and our interest in MGM Resorts. In a way, as I wrote, I think there's a perfect hedge. One is in the virtual world primarily, that certainly prints a lot of magazines as well, but it's very much in the digital world and the other is very hard assets of resorts in the United States and in China, and a building in Japan. But rather than me [indiscernible] around, I hope you'll just take a second to read the letter. I'm not -- actually, I should do the thing that they do with Amazon, which is, all right. Now we'll take 5 minutes for everyone to read the letter and be silent, but I'm not going to do that. I would like though to be sure to thank Mr. Halpin, who has been with us for many years outstandingly. And is this the last call which you will be on or you'd be on the next one, too? Christopher Halpin: It's sort of a coin flip. So we'll figure it out at [indiscernible]. Barry Diller: We'll have one more of you, but thanks for a great information. Christopher Halpin: Thank you. Barry Diller: And with that, let's move on. It's much better, actually, I think for all of us, if you just ask pointed questions and we'll respond pointedly. Christopher Halpin: Fair enough. We're just going to do a few prepared remarks just to lay out some key pages. So Neil, do you want to kick it off? Neil Vogel: Sure. Everyone goes on to Slide 5. And you can see we, again, at People Inc., we had a very solid quarter. We delivered 8% digital revenue growth, our tenth consecutive quarter of growth and digital adjusted EBITDA margins expanded to 20% from 18% in Q1 of last year. Our performance is underpinned by diversified audience and revenue mix, a real diverse audience and real diverse revenues and a laser focus on meeting our audiences where they are now. To that end, in the quarter, we continue to invest in a host of new products and services including what BD calls or inversion projects and what we've called our inversion projects. These are businesses built off of our iconic brands that extend and transcend traditional publishing models, accelerating our nonsession-based revenue. We have a few updates on the early projects we've talked about and some highlights of what's to come. There's real traction around our [indiscernible], our recipe locker tool, the People App and InStyle breakout series, the intern and the boss on social media. We expect to roll out in Q2 a membership club for a super fans of Southern Living among our strongest audiences and plan to follow with a similar program for food and wine. And something very exciting for us. We're launching a new social shopping tool based on the learnings of our scaled commerce business, where shoppers can easily save and store their pics for future purchases in a very innovative way, that's to come as well. We plan on a drumbeat of product launches through the coming quarters. So you can expect that from us. And look, our focus is meeting audiences on their terms and the next slide further illustrates this. So if everyone flip to Slide 6. You'll see the trends over the last few years continue. As you can see, our opportunity is clearly on the right side of this page, core web sessions continue to be challenged. Google search traffic declined as expected, and we expect that will continue. Traffic from the Open Web also declined a bit as a substitution rate from core web sessions to off-platform audiences increases. The driver of our growth continues to be though these off-platform audiences, which grew 27% in Q1. We see strong performance across Apple News, TikTok, Instagram, YouTube and syndication partners. And our audience trends align with where users are today and how advertisers and marketers want to connect with them. As you can see in our numbers, the strategy is working. That takes us to Page 7. Our big story continues to be our nonsessions-based revenue, which grew 24% year-over-year in Q1. Non sessions-based revenue continues to grow as a percentage of our digital revenue. We're now at 41% versus 35% in the first quarter versus the first quarter last year. Similar to last quarter, this is led by Decipher, our AI-powered targeting tool, ad-targeting tool by our social and custom ad programs by Apple News and by strong licensing performance, including the addition of our Meta deal. We also maintained a healthy business in sessions based revenue by delivering a solid quarter and continued strong monetization of these audiences. The strength of our brands is really driving premium rates. And look, the model for our future is clear and in focus. One, strong growth from our non-session-based revenue streams; two, executing against our sessions-based businesses; and three, connecting directly with our audiences and advertisers and meeting them where they are, including our big focus on our version projects. We're very proud of the quarter, and I'd like to welcome Tim to the call who's going to give a rundown of the financials. Unknown Executive: Great. Thanks, Neil. It's great to be here, and I'm excited to have a chance to work with everyone. I, along with almost the entirety of our management team have been in our positions for over a decade, both working with and for Neil and under the leadership of IAC. So this continuity is a big part of the success that we've had together and something that we think is -- it gives us a lot of confidence as we undertake what's going to be an exciting transition. So we look forward to that. Referencing Slide 8 for a second and refocusing on the financials. As Neil said, we had a really strong quarter in Q1. Digital revenue grew 8%, and we saw digital margin expansion of about 200 basis points, generating solid 45% digital -- incremental digital margins. This is a testament to the strength of our brands, the diverse revenue models that they support and the continued discipline we bring to all of our investment decisions. Print EBITDA declined in the quarter, which was expected. There is some quarter-to-quarter volatility there, but we reiterate our expectation that full year print EBITDA will cover people in corporate overhead with the caveat this year, excluding the estimated $15 million of Google litigation expense. Finally, I want to highlight that we continue to generate really solid and predictable free cash flow of almost $50 million in the quarter, putting us on track to exceed $150 million of free cash flow this year. That's on net debt of about $1.1 billion. So we feel really good about the balance sheet and the opportunity to continue to delever rather quickly. Moving on to Page 9. I want to highlight some changes we made to our segment repeating. We transitioned the management of a business we call M&I, which is a legacy media agency business, previously captured within our Print segment, which now operates under the decipher team in Jim Lawson. As a result, we reclassified the business from print to digital, both for Q1 and over historical periods. The reason for this is it unlocks 2 exciting new opportunities for us. Number one, it opens up a new distribution channel for Decipher, notably independent agencies and political advertisers previously untapped by our sales team. The second opportunity is by putting this business and operations under Decipher, we can offer these advertisers a more advanced product delivering superior performance and at better margins to People Inc., and you saw some of that benefit -- some of that accrued to our benefit in Q1. One point on political advertising. Historically, People Inc., has not run political ads on our branded properties, but we can now target this ad category on third-party sites using Decipher. These political ad cycles create a little bit of volatility in the numbers, especially related to the 2024 presidential election cycle. Excluding those political dollars, just to give you a baseline, M&I was -- revenue was flat, excluding political. So that's the business we're bringing over. This change in segment reporting resulted in about a 200 basis points drag in digital revenue growth in Q1. So the 8% growth would have been 10%, but for the change. Ultimately, however, this move is expected to accelerate growth and adoption of December, particularly in the second half of this year. This change -- all these changes did not impact our guidance for the year, which remains in reiterating digital revenue growth of mid- to high single digits, delivering total company adjusted EBITDA in the $3.10 to $3.40 range. With that, I'll hand it back over to Chris to take you through the IAC changes. Christopher Halpin: Thanks, Tim. Moving to Slide 11, we'll talk through financial performance beyond People Inc. this past quarter. It was a busy quarter on a number of fronts as we continue to execute on our core strategy of simplifying IAC and building our cash balances. First off, we completed the sale of Care.com in March, generating $296 million in net proceeds. Following closing, Care.com is now presented as a discontinued operation in our consolidated financials. We think this caused a little bit of confusion overnight, which we'll talk about more later. Barry Diller: I mean I hope it's the thing that caused a lot of confusion given how banged up we got just from people not being able to add properly. Christopher Halpin: We'll work with them on it, BD. We continue to allocate capital to the 2 companies we know best and believe in, IAC and MGM. We repurchased 2.9 million shares of IAC for $111 million since our last earnings call, and we've now bought back 13% of IAC since the beginning of 2025. We also purchased 1 million incremental shares of MGM for $37 million, increasing our ownership to 26%. As Barry said in his letter, we continue to view both stocks as the priority areas of capital allocation. Our Emerging and Other segment showed strong performance this quarter as both Vivien and the Daily Beast continued their momentum with both seen accelerating revenue growth in the 2 companies combining to generate about $4 million of adjusted EBITDA in the quarter. We also closed operations in our Search segment in April. As many of you know, this was a noncore business that had frankly lived on well past many expectations. As previously disclosed, Google notified us late last year that it would not renew our search contract under the existing terms. Following negotiations across the first quarter, we came to the conclusion that we could not confidently operate the business profitably on the new terms on offer from Google. As part of the shutdown, we incurred $7 million in costs from severance and the write-off of prepaid software and the search business will also now be shown as a discontinued operation starting in our second quarter financials. One other note, we sold an unutilized domain name for $7.5 million this past quarter. With the search business now closed, we will look hard at monetizing the portfolio of domains that underpin that business including [ ask.com ] creating cash raising opportunities. Finally, there's a lot of noise in comparing year-over-year profitability in the first quarter. So we laid out on the bottom right of the page, some key onetime items, including last year, a large noncash lease gain at People Inc. and the costs associated with our CEO separation and this year notable severance transaction and litigation expenses. Moving to Slide 12. Last week, in parallel with Barry's letter, sharing his rationale for a planned rebrand of IAC as People Inc., we issued an 8-K summarizing the key elements of the consolidation of the corporate functions of IAC parent and the People Inc. subsidiary. The underlying principle is with 1 core operating business in People Inc., 2 layers of corporate expense, 1 at IAC and 1 at People Inc. are no longer necessary and don't make sense. When we managed a number of operating businesses, the IAC corporate layer provided strategic oversight, shared services and M&A support to the individual companies enabling them to operate independently and positioning them for growth and success. But with the sale of Care.com and the narrowing of our focus to People Inc. and MGM Resorts, the opportunity presented itself to eliminate duplicative functions and generate significant savings. We've mapped out a careful consolidation plan in which over the course of the coming quarters, more than half of the corporate employees of IAC, including much of senior leadership will transition their responsibilities to counterparts at People Inc. and exit the company. Key areas in this consolidation are accounting, tax, internal audit, legal, M&A, among others. Each employee has a specific exit date and a retention plan in place to ensure they remain engaged until the consolidation is complete. The full transition process is planned to run through February 2027. We expect annual run rate operating expense savings of $40 million and a reduction in stock-based compensation of $20 million to $25 million. These savings will phase in over the coming quarters as employees depart, with the second quarter of 2027 being the first clean quarter where the P&L will show the full savings of the consolidation. Total onetime expense of the rationalization is $63 million, comprising $15 million in cash severance and related expenses, of which $10 million was recognized this past quarter and then $48 million of stock-based compensation expense, which will be recognized over the next 4 quarters. Kendall Handler, our superb Chief Legal Officer, and I will leave in mid-August, following the filing of second quarter financials and then will remain on as advisers through March 2027. Further, we expect that Neil will become CEO of the parent company, newly renamed People Inc., and Tim will become CFO in that same mid-August timing. All of us are working together to have a smooth transition to set up People Incorporated for continued success. Finally, moving to Slide 13. This will be the last slide we present before going to Q&A. I know you're happy about that. On guidance, we reaffirmed People Inc. adjusted EBITDA guidance at $310 million to $340 million while raising emerging and other guidance to $5 million to $15 million of adjusted EBITDA based on the strength at Vivien and the Daily Beast. As a reminder, Care.com is now a discontinued operation, so it is removed from both our financials and our guidance. We saw a couple of reactions overnight that cited a Q1 IAC consolidated miss and reduced guidance. But our analysis is that those market commentators and a number of analysts failed to adjust for Care's revenue and EBITDA being removed as discontinued ops. As a reminder, search will also be classified as such and will not be in our reported or historical revenue and prospective revenue and adjusted EBITDA and is not part of our guidance. We've raised corporate expense guidance to $95 million to $105 million due entirely to the severance that I just mentioned before and other onetime charges. Following completion of the consolidation, we expect annual run rate IAC corporate costs to be around $45 million and stock-based comp for the entire companies declined to $30 million. These figures are prior to any future reallocation of People Inc. leadership cost to the corporate level, which may occur. However, any such shift in cost allocations would have no impact on expected consolidated expense savings. With that, let's go to Q&A. Operator, first question, please. Operator: The first question will come from James Heaney with Jefferies. James Heaney: Can you just talk about the next chapter of IV? Like what do you think the next 5 years are going to look like? And what are the key areas of capital allocation going forward? And then would you still look to do M&A and select new areas? And then I have a follow-up. Barry Diller: Well, I can't tell you what the next 5 years. I can't tell you -- I mean, I can tell you with the next year, maybe or months are going to be. 5 years, who the [indiscernible] knows. What we have is, I think, extraordinary opportunity with what we got. I mean, what Chris has just gone over really is kind of a great cleansing. And that cleansing, as I said, has been going on for a while now. The combination of it was actually this quarter, changing our name, doing all of the tasks continuing to shed noncore assets, core assets, as we said before are hopefully going to be just 2. We've got plenty of capital. We've got a very good balance sheet. We can go in whatever direction that there is opportunity. I think that biggest -- probably the biggest opportunity we have in front of us is the work that is being done in our publishing business and people and what we call [indiscernible] inversion, which is -- we've got 19 different initiatives, having nothing to do with standard advertising or subscription revenue. Out of this, I think we can build wholly owned or partnered extremely large businesses in all sorts of categories. The thing that I came to understand about people is across the -- how many -- actual -- I mean, I always get this figure wrong. How many magazines do we have [indiscernible]? Neil Vogel: We have about 40 brands and 9 or 10 significant brands, so invested. Barry Diller: Throughout this, there is so much we know about so many things that no one actually else knows. And instead of being in the kind of tried and true publishing model of licensing, your brands and licensing all this knowledge and all that stuff for other people to exploit, we're going to exploit it. And out of that, I would be -- I'd be giantly disappointed if we are not able to build real substantial businesses having nothing to do with advertising, having nothing to do with subscriptions, but having to do with goods, services, products, et cetera, that out of the corpus of our understanding in all these areas, we have a better advantage than anyone else. And the other thing -- one other little note is, we published, what, $300 million or so actual hard copy things that are in people's homes or whatever, an additional page cost us 0. How many actual other digital impressions do we have? [indiscernible] so if we come up with and if we don't come up with it, we're really [indiscernible]. But if we come up with good ideas, we can promote them at not a dollar really additional cost to us. What a megaphone that is for the future. So I -- that's the work that we're going to do. Wherever else, what [indiscernible] we're going to use our cash flow, we're going to continue to opportunistically buy our stock. We'll continue to invest in MGM Resorts, which I also couldn't be more excited about its future. So this is -- again, it's been worked on for the last almost 2 years. But this moment forward is a clean, clear, simple sheet that we get to write on, and we got, I think, all the necessary tools. So a bit long-winded, but there it was. Next question. James Heaney: Great. And I actually just had one follow-up on just the macro environment [indiscernible] sorry, just from environment across people and other businesses, just kind of what you're seeing from geopolitical any other macro factors would be great? Neil Vogel: Yes, I'll do a quick take on the ad market. I think last quarter, we told you guys on a 10-point scale, it was a 6 out of 10, I think it's still a 6 out of 10. There's opportunities, there's risks. Tim is here with us now. He can give us some color across industry. Unknown Executive: Yes, there's certainly strength in places like health and pharma, tech, telco, areas that are exposed to the consumer are a little bit soft or particularly the average consumer, I would say, things like CPG, food, bev. And we did see a little bit of a slowdown in planning related to the Iran issue and conflict. We think that's abating a little bit now, but it's still a little bit touch and go. But overall, as Neil said, the market is strong, but it's not -- I wouldn't call it ripping. Barry Diller: Good enough to do our job unless something changes. Christopher Halpin: Yes. And I would just say, across the portfolio, we've been talking about the divergence between high income and low income for a while. I didn't know that was called K-shape but now that's called K-shape. I think that's just only continued and maybe probably unfortunately being exacerbated for the country, what's going on right now. Operator: Your next question will come from John Blackledge with TD Cowen. John Blackledge: Could you talk about the key drivers of the 1Q People Digital revenue line items saw the outsized growth at performance marketing and licensing and other revenue? And just any color on revenue trends in the second quarter. And then on digital EBITDA, that was better than expected. Just any -- any color on the drivers of the upside to margins? And how should we think about 2Q and the rest of the year? And if you -- and just lastly, if you can give some color on like 1 or 2 of the separate initiatives as part of the inversion process, that would be great. Neil Vogel: Let me do the inversion first, and then Tim can take the string of other questions. So the emergent stuff that [indiscernible], look, most importantly, it has energized our organization. We are really in a great spot where we own these brands that are iconic and pillars of sort of [indiscernible] culture at American a couple of stats, some updates on things we've talked about. One of the first things we did is we launched this recipe Locker. We're probably more than half of the recipe traffic on the Open Web right now. We launched it a little more than a year ago. We have 3.5 million registered users. We have 40 million recipe saved. We have a lot of momentum and a whole bunch of new product initiatives launching in the next couple of months. The People app, which we've talked about before, again, the real win here is how we're engaging people. Visit to the app is about 3x as long as a visit to the web. If we get people playing games, which is the most popular thing on the app, it's a 20-minute visit. We're up to 430,000 users since the last call. And I think the important thing to note about both MyRecipes and the People app, which have taught us how to engage users directly and all of these new skills is, as BD said, we have not gone outside our own assets at all to grow these things. And as we roll out and as we tighten up financial models around these, that's a really big opportunity. Another thing worth mentioning is we've really looked at social video and social video series is sort of like the new TV. And we have a real breakout hit on our hands in style with 2 properties called the intern and the boss. They were -- the first property the interim was launched about a year ago across all these episodes, which are 3-minute long episodes, 4 minute long episodes. We've got 45 million views in a year, and a robust sponsor business has grown around... Barry Diller: Just one side that a while ago that just on internal 1 package, 1 series alone, which is they do multiple series a year, multiple [indiscernible] one episode was like [indiscernible]... Neil Vogel: We have been very fortunate that we've been able to sell a season is about 20 minutes long in total 6 or 7, 3-minute episodes and we have sold full seasons in that neighborhood, some more, some less. So there's a lot of interest in what we're doing and different... Barry Diller: Completely homegrown. Neil Vogel: Completely homegrown, completely made by us. We own all the rights. We own everything, and it's a really successful venture that we're now modeling across people and a whole bunch of other properties... Barry Diller: So Southern Living, Southern Living one of our strongest [indiscernible] hello, if somebody cough, whatever. There are a couple of things in Southern Living that I think are really interesting. It's such a loyal base. So a couple of [indiscernible]... Neil Vogel: Yes, Southern Living is a really big important property for us. Culturally, it is incredibly important in a big part of the country... Barry Diller: One of the things that I learned about and for those people who are the follower of South. Now from [indiscernible], which is a particular southern drink, it is. Southern Living is going to -- has developed. You keep saying that you're going to let me taste this... Neil Vogel: We are going to let you taste it, but not right now... Barry Diller: That we are making our own team, our own brand, which we are going to manufacture and distribute and under the Southern Living branded Southern Living Suite T. That -- who knows where that actually goes. If it emerges out of the South, and so many of these beverages have been geographical in where they've started and then they go nation and worldwide. Who knows what that can become. Also, Southern Living does these houses. And I mean, they build every year... Neil Vogel: We sell architectural plans to build Southern style houses, really high end houses. They're very, very beautiful houses. Barry Diller: Yes. And also, this community, I mean, we may develop a Southern Living actual housing community, branded Southern Living for that kind of lifestyle that, again, we'll own and hopefully operate. Neil Vogel: So when BD mentioned before, 19 different ideas, there are actually probably more than 19 ideas floating around. And we are really chasing these down. I think going back to the tea, it's a really good example. Barry Diller: We can do each one, it can be a separately organized, finance business, whether our capital or other people's capital, that is a stand-alone P&L of its very own separate and apart from this historic publishing business that can spin off -- span off individual profit P&L businesses that have their own revenue, their own structure, et cetera. And you say what can happen again, it won't happen in a year. But in the next years, as I say, 5 years out, this could -- this is the fertile ground for dozens of businesses as we're looking at this because we got the intellectual property that can give us an edge in this that I think no one else has once we begin to concentrate on it, which is what we started to set [indiscernible] I guess we should go to the next question. John Blackledge: Well, let me just -- I'll tackle the financial questions as well. Barry Diller: What was that? Unknown Executive: Which was how do we get through Q1, [indiscernible] Barry Diller: I mean that's [indiscernible] people want to hear about our future rather than enabling little figures that no one pays attention to. Look, if you all paid attention to what happened to Care.com, and how it affected this what last quarter or whatever the confusion in guidance and all of that, that would have been, I would say, paying attention to the business. Unknown Executive: What I would just say is that Q1 was a continuation of Q4, which was really strength -- incredible strength in licensing and commerce, in particular, with the ads business roughly flat as we navigate these volume challenges. What I think the future is, is what BD is saying and Neil is saying, which is these non session-based revenue models, which currently comprise about 40%, 41% of our revenue, grew 24% in Q1. And that is the future while we kind of hold the line on the traditional sort of session-based media model, as it relates... Barry Diller: I mean, we've lost -- how much of our traffic have we lost from Google? Unknown Executive: From Google, 65%. Barry Diller: Okay. What publisher has navigated this transition anywhere close to how you have all navigated this. We have transitioned from depending -- everyone has been -- and I said for a decade more that we all kind of our surf on the property and land of the monopoly of Google. And this transition out of depending upon someone else to give you traffic, which is what every animal has done in this digital world for the last almost 20 years. And we have now transitioned out of it into 2 positive territory of our own traffic with our own hands, not dependent on anyone else. I find it incredible that no one really recognizes that feat for what it has been. [indiscernible] Unknown Executive: We think that's the future. And we're going to -- we think we see that 40% that is the traditional model grow meaningfully over the coming quarters and years. Barry Diller: And it's our. We don't have to -- we don't have to beg or borrow or getting these end of conversations with the monopolist. And we're really on our own firm ground, which is completely different than I think almost -- not almost -- it would be every other publisher other than the New York Times and the Wall Street Journal that have strong subscription revenues. Operator: Your next question will come from Cory Carpenter with JPMorgan. Cory Carpenter: I wanted to ask about MGM in Turo. Maybe Barry for you with MGM. Could you just talk to what you see as the benefit of keeping MGM within People Inc., why not split that out separately? And then on Turo, any update you guys can provide on how that's performing? And is that a business that you plan to hold on or also are looking to divest? Barry Diller: I don't do the MGM thing. Yes. The answer is, of course, it is. Look, this corpus used to house 50, 60 different businesses. We can certainly handle 2. And MGM -- the prospects for MGM, I think our outstanding. MGM -- once we get closer to, we're building a large resort in Japan and each year that we get closer to its opening. I mean the only gaming resort -- and some great size, a $12 billion project that will open in Japan and, I don't know, [indiscernible]. The closer we get to it, the closer people will understand how discounted MGM is. I'm quite happy for it to be discounted now because it allows us -- MGM has bought back 45 -- almost -- we have a little 45% of its stock over the last 5 years. Its operations have been solid. People talk about Las Vegas. [indiscernible] through also endless cycles. Nobody is killing Las Vegas. Their current conditions that bother going into that have particularly for instance, Canada, we're, I think, down -- I may get the stat wrong, 40%, something like that, from Canada, which was a very good draw for Las Vegas because of the policies of the administration and other onetime items and things. And it's just, I'm kind of glad it's been discounted because it has allowed us to buy back so much of the stock, which I think -- that -- the discount that it currently has will close at some point. I'm not anxious for it to close too soon. Christopher Halpin: Turo has executed well on its strategic effort to return to growth. We've talked previously that Turo experienced a real slowdown in volumes coming out of the froth of the pandemic. And that, combined with industry pricing pressures due to both working off pandemic highs and also some mistakes in electronic vehicles made by competitors. So the confluence of those 2 drove Turo revenue growth to mid-single digits at one point. Company generated over $1 billion of revenue in 2025, but management really focused last year with the Board on driving substantially more growth reinvigorating marketing and improving cost efficiency. They hired a new CMO and David Cornes, who we believe is making the right steps to drive greater brand awareness. We've always said with Turo awareness in testing the product in many ways is the biggest challenge, repeat rate, NPS reviews are excellent. So David and team are focused at getting more people into the funnel and trying it and we're excited to see that play out. They also promoted Cedric Matthew to Chief Business Officer in order to improve pricing, matching and execution across the marketplace. These efforts have borne fruit with Turo returning to double-digit revenue growth year-over-year in the first quarter, really led by increases in volumes. Rental car market pricing is no longer a headwind, and the company really has a clear game plan to drive more new users in. And we think it's an experience that blows away any [indiscernible]. Barry Diller: If you asked us 6 months ago, I don't know whatever we'd say. I would have said okay, let's sell our interest in this. We're not going to increase it. We're not going to take over control of it, et cetera, et cetera. But it's now performing very well. I doubt in a year or 2 or 3, it will be part of this corpus because it will probably go public at some point or get sold by some strategic player or whatever, but it's now operating solidly. And my attitude is, unless somebody comes along and so it's a big little brick on our table, we'll keep it as it grows and it will spin itself out in some form, and we'll take the cash. Christopher Halpin: Yes. The only thing I'd say is I totally agree. They continue to improve gross margins and adjusted EBITDA margins solidly profitable with free cash flow. So full agree. Operator: Your next question will come from Ross Sandler with Barclays. Ross Sandler: Neil or Tim, just wanted to go back to the off-platform revenue. Could you just talk a little bit more about how you're diversifying the traffic to off-platform and what you're doing to kind of drive monetization and better margins in that business and kind of what you see for the medium-term kind of growth rate there. And then second question is somewhat related, but any update on the Google ad tech litigation like a time line for remedies and what we might hope to have as an impact to our business? Neil Vogel: Yes, I'll do the lawsuit piece, and then I'll let Tim go through the numbers. As we've said before, the lawsuit that you're referring to is sort of what people call the Google Ad Tech lawsuit, it's building on [indiscernible] that Google legally uses dominance to monopolize the ad server and ad exchange markets. We believe we can fully rely on the government's findings here, and we believe damages will be significant given our scale and level of participation in these markets. Barry Diller: I mean it's not really a lawsuit in the sense of law suit because the ruling has already taken place. They've already said that Google is guilty of this [indiscernible] other thing. We and a bunch of other people have based on that huge claims, I mean, they are [indiscernible], they are legitimately huge. I mean -- and to me, it's like, okay, we will just wait for this process, which I guess is like a year or 2 or something like that... Unknown Executive: We intend to invest between $10 million and $15 million in it this year. We expect that it will take the entirety of this year into next year optimistically to resolve in the first half of next year, unless we were able [indiscernible]. Barry Diller: Yes, I mean it's just a money trough. How big, we don't know. Ross Sandler: Yes. And then to transition to Tim's answer, by the way, very high margins. Unknown Executive: Yes, correct. That's correct. Barry Diller: You can walk across the street with your check, the cash [indiscernible]. Neil Vogel: I would like to catch that, [indiscernible]. I'll do a quick background on the off-platform and I'll let Tim take the numbers. The -- just if you zoom out, the reason why our offering [indiscernible] the reason why our off-platform business is working is if you zoom out, we bolted is because we have these terrific iconic brands. And since we bought Meredith 5 years ago, we've worked incredibly hard to put our brands in a position where they can do all of these new things and where their permission to come into people's lives different ways. And whether it's some of the inversion projects or whether it's things like our historical events and things we've done, we've got real momentum because our brands are so strong, particularly the 7, 8, 9 brands that we talk about the most. And I'll let Tim get into talking about the specific drivers, but this is the underpinning of everything we're doing going forward. Unknown Executive: as we were saying before, 41% of our revenue grew 24% in Q1. That revenue is comprised of licensing, which is everything from Apple News to our AI deals to content syndication, as we've been saying and Neil has said a few times, we're creating more content today than we ever have in the past and distributing it across more platforms with success than we've ever had in the past. What is unique to us, we think, as we've highlighted a little bit here, is we have the combination of brands, audience size and reach, data about those audiences. And in the current incarnation, a sales team to go out and access advertisers to sell into those audiences. And so that's where we can control our own destiny, and grow, again, the nonsession-based revenue streams at, we think, really attractive rates, and that's the future for us. And we -- and it's not all speculative. We actually did it in Q1. Operator: The next question will come from Justin Patterson with KeyBanc. Justin Patterson: Two for Neil, if I can. First, I would love to hear more about your top priorities for Decipher for the year? And then second, just as you step back and look at how AI has changed the traffic funnel, what are some of your latest learnings there and how you think you can continue standing up a durable business for the next few years? Neil Vogel: Sure. I'll do the AI question first, and then we can talk about the other question, Tim can help with that. If you look at where AI is for us from here, we feel very strongly about this. We have more opportunities going forward than we believe we have risks. If you go back in time 1 year or 2 years and you look at the risk of AI for us, they all had to do with search. And is AI going to disintermediate our audience sources. That already happened. And we came off the -- other side of it with a more diversified business and I believe is a stronger business. Now we're looking at AI as opportunity. And I'll just dovetail back to what Tim just said. We are making 50% more content than we made 3 years ago at the same cost, and I would argue at an incredibly -- at a way higher quality and everything is still made by humans. We are able to do that because all of our processes, we are able to streamline with AI. We are able to use AI and Decipher to really tighten our ad targeting. We're able to use AI in our commerce business to really understand what makes people respond to offers. And AI for us, and people -- we are embracers of the future. We are deeply unsentimental about processes of how we've done things. And we've taught our 3,500-person organization, how do you use AI, -- like we don't have an AI [indiscernible] it is your job in your seat to understand who AI applies to you, and it's really, really working. And the thing that people think is somehow AI is in congressive brands. What has happened with us is in a world where people's output is now increasingly confused as to, is this real, this is not really mistake. Brands are the -- they're there -- it's a value now. People trust us. They know what they're going to get. And we can now harness AI to make our brands and our brand offerings stronger. We think the opportunities are massive. And look, we are AI optimists at our place. And I think that is really important. And again, dovetails into all the things we're doing with inversion and all the things we do day-to-day to sell ads, like putting AI in your business when you have these incredible brands and they're all powered by humans is an incredible opportunity. Barry Diller: I think that's really well said. I will just add one thing about what I said earlier about what a wonderful situation is. I also have a natural hedge inside your own house. AI at MGM is actually meaningless. It is obviously being used internally to make the systems better in all sorts of ways. But nothing is going to get no AI until we get into the final simulation, whenever that comes. But nobody is going to get between a customer and one of our resorts is not possible to happen. And so it's this wonderful kind of hedge in the world. If everybody worrying about how AI is going to change the story their business, et cetera. At MGM, guess what, people are going to come to our places. There's not going to be a way for AI to in any way to disintermediate them. And I truly love that one. It's really the fundamental reason I got interested in that area is because I was worried a few years ago about all sorts of areas of ours being dependent upon other people's control and here is this place where if you offer customers a great experience they're going to come to it. All right, end of that. Neil Vogel: Quickly on the Decipher. Look, we're very optimistic about the Decipher. It really expands our TAM across the Open Web and CTV. And most importantly, it works. We have incredible first-party data. We have all kinds of AI powering going on, and I'll let Tim [indiscernible]. Unknown Executive: Yes, I just think I want to reiterate what you'll say is our capabilities are getting more sophisticated. We're getting our products are better. We have now our premium sales team selling it to existing advertisers. We have this M&I sales team selling it to the middle market independent agencies and political advertisers. We're really excited about it. And again, I reiterate what we said last time, we think it adds 200 to 300 basis points of growth to our growth rate back half of this year and into next year. Operator: The next question will come from Youssef Squali with Truist. Youssef Squali: So Neil, maybe just a follow-up to the advertising question. Can you maybe talk about the level of visibility you guys have in performance marketing and licensing revenues within people in particular? And any chance of seeing maybe additional licensing deals announced? And then Barry, given the very high free cash flow nature of the business and the cash you have on hand, et cetera, any interest in maybe starting a dividend to attract some yield-seeking investors at this point? Neil Vogel: I'll go first. I'm assuming you mean AI licensing deals, very quickly, these seem to be bucketing into 2 categories. One, the All You Can Eat deal, which is sort of like the foundational LMs like our Meta deal and like our OpenAI deal. And then there are the more marketplace deals like our Microsoft deal, which will be pay-per-use deals. We -- since we started locking traffic, we have found -- we've entered into very productive discussions with all kinds of players, both expected and unexpected in this market with the exception -- exception of Google. And what we are seeing is we're entering a phase of AI where the Internet -- the available source of information have been crawled and what's really valuable is people who are making new information. We make an awful lot of new information, and it's really valuable to people. So I would expect we will have more to report on this in the future. I've got nothing now [indiscernible] it's just -- it's also early. It's really -- also early on all of it. But the key thing we've done, and we believe this is the right thing to do is we want to be early and we want to seed at the table with everybody, and that is our take. And so far so good. We'll obviously keep you guys updated as things develop. Christopher Halpin: The only thing I'd add is the pivot, the strategic shift that Neil and Tim have already talked about of moving all of the content development overwhelmingly from evergreen to new content makes us even with so many other content sources getting washed out to see in the competitive pressures really positions people link even better with all of the AI models as a constant producer of new information, which is what they need... Unknown Executive: High-quality volume of quality... Barry Diller: Sorry. As far as the dividend is concerned, sure. I hope as we build up cash, I think we should be a dividend-paying operation. So I would expect that to happen in the future. Operator: The next question will come from Jason Helfstein with Oppenheimer. Jason Helfstein: I guess as a follow-on on capital allocation. Given the healthy forecast for free cash flow this year, should we just assume that, that is basically deployed between a combination of buybacks, MGM purchases and potentially a dividend? Or is there kind of a desire to see that kind of just build up on the balance sheet for optionality? Barry Diller: Well, I mean, listen -- no, sorry, let me start again, which is -- the answer is yes, which is we're kind of use our cash to continue to shrink the capitalization of this company opportunistically. I think we'll continue to invest in MGM. And yes, I would think -- I'm not so sure we'll do it within -- I don't people do it within the next few quarters. But sure, we will pay an appropriate dividend. I don't have any -- I think the investments we're going to make are going to be inside the operations of people. I don't see anything. We're not -- we're actually collapsing our -- we had a very large M&A group. We will have a very small M&A group out of this. I'm not seeing that as a -- like as we operated historically, we were out there for all of the opportunities that came along with being very early into e-commerce and Internet activity. So so we were always on the lookout, always in any sector, in any place. We're not that anymore. I don't want us to be bad. We have so much opportunity in-house. That's where we should direct our capital. Operator: And the next question will come from Matt Condon with Citizens Bank. Matthew Condon: I just want to ask on affiliate commerce growth. It seemed like you guys had a healthy quarter there. Can you just talk about the drivers and just the future potential there to sustain growth? Unknown Executive: I would just say that the commerce business has been remarkably consistent and resilient for quarters and really years. It's a testament to our team and their ability to drive growth, meaning [indiscernible] growth to recaptures, otherwise, that business wouldn't be growing. We're doing that by creating more [indiscernible] as Neil highlighted, and deepening the partnerships and relationships with the retailers. So there was an earlier question about visibility. We have solid visibility there. Obviously, the consumer is performing well, and we feel good about it and kind of sites. We have some new products coming out soon that we're excited about. Barry Diller: The only thing I would add is in by, and we'll see you in a while. Thanks, Chris again. So please [indiscernible] your income probably will be with us the next thing is that I hope that out of this in the coming days, we straighten out these numbers so that what was a very good first quarter won't be misinterpreted as something other than that, which it seems to have been at least overnight. Christopher Halpin: Which is the Care discontinued app. Barry Diller: Yes, yes, yes. Other than that, I wish you all well. Thank you all, and we'll see you -- well we don't see, but you'll hear from us. Neil Vogel: Thanks all. Unknown Executive: Thank you, operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Welcome to USA Compression Partners, LP First Quarter 2026 Earnings Conference Call. During today's call, all parties will be in a listen-only mode. At the conclusion of management's prepared remarks, the call will be open for a question and answer session. If you would like to ask a question during this time, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Thank you. And this conference is being recorded today, 05/05/2026. I would now like to turn the call over to Clint Green, President and CEO. You may begin. Clint Green: Good morning, everyone, and thank you for joining us. With me today is Christopher M. Paulsen, Senior Vice President and CFO; Christopher Wauson, Senior Vice President and COO; and other members of our leadership team. This morning, we released our operational and financial results for the quarter ending 03/31/2026. Today's call will contain forward-looking statements based on our current beliefs and certain non-GAAP measures. Please refer to our earnings release and SEC filings for reconciliation and definitions of non-GAAP measures and related risk factors. As we discuss performance, please note that the JW acquisition closed on January 12, and therefore, Q1 earnings exclude the impact of revenues and expenses for JW Power for the first eleven days of the quarter. Before we get into the quarter, I want to take a moment to recognize our team on safety. Our people go to work in the field every day, working around complex equipment, driving millions of miles a month, and the way they return to their family matters more than any financial metric we report. In 2025, our combined TRIR finished at 0.39, a 50% reduction from 2024 and well below the BLS industry average of 0.70, a benchmark we have now beaten for twelve consecutive years. We are proud of these results, and we remain committed to continuous improvement. Moving to the quarter, which included two integrations that established upward momentum for the company. First, we kicked off the integration of JW Power at a time when horsepower lead times continued to extend. Customer discussions commenced immediately upon closing, starting the process of onboarding new customers to the USA Compression Partners, LP platform. As of early March, we have integrated the combined operations organization and established a new reporting structure. Second, on February 1, our integration of legacy USA Compression data into a new ERP system was completed. Our respective integration teams worked long hours to enable a smooth transition of both, and I cannot be more appreciative of their efforts. Throughout it all, we have maintained our operational momentum while delivering DCF and leverage metrics that show meaningful year-over-year improvement to our unitholders. The company is now broadly diversified across every major basin, horsepower class, and customer type. In the last few months, we have contracted over 90% of our 2026 horsepower, which will more than double the new horsepower deployed in 2025. Additionally, we have continued the momentum in our small horsepower class with utilization up nearly 10% year over year. The introduction of JW Power's manufacturing capabilities is enabling us to manage a dynamic compression market differently than in the past. Certain new engine lead times have recently tripled from 50 weeks to approximately 150 weeks. And while historically we might hesitate to commit to the full horsepower cost that far in advance, we are now able to directly acquire highly marketable engines with optionality to package for our own internal contract compression needs or future resale to third parties. Engine costs represent approximately 25% to 40% of the total skid cost, with just a fraction of that cost provided as a deposit. In the event of an unexpected contract compression market shift over the next several years, we believe we could also divest those engines for other use cases, further reducing any unlikely downside exposure. Additionally, the diversity of our manufactured compression products, including mid-sized large horsepower, electric, and high-pressure gas lift, supports more competitive pricing for our customers while enabling us to adapt to the ever-changing marketplace. So far, the oil-directed rig count remains flat this year, but producers are showing more optimism looking out over a twelve-month horizon than we have seen for some time, reflecting a much improved commodity backdrop. The twelve-month oil strip has significantly lagged physical spot prices and arguably is underpriced for an immediate and permanent ceasefire, much less a long-term conflict. We believe spot natural gas prices do not reflect the LNG risk associated with the Strait of Hormuz. Finally, 2026. I will now turn the call over to Christopher Wauson, our Chief Operating Officer, who will provide additional insights to our current operations and our out-year growth plan. Christopher Wauson: Thanks, Clint. As of today, the operations and commercial organization have been integrated with both JW employees and legacy USA employees under new reporting structures consistent with a best-in-class approach, the longer-term result will be streamlined route optimization, customer contracts, vendors, inventory, safety protocols, and systems. As discussed in the prior quarter, we expect $10 million to $20 million of annual run-rate synergies by year-end 2027, and we are still tracking towards those estimates. The current new compression lead times have presented a new challenge for near-term business continuity and long-term planning for both contract compression and manufacturing. As a result, we have already placed orders for engines and package components for 2027 and engines for 2028 and a portion of 2029. Package component lead times remain well inside of engine lead times, but we will continue to monitor and place these orders when needed. These advanced planning efforts should enable new contract compression growth to stay largely consistent with 2026, in excess of 100 thousand horsepower each year. As far as our manufacturing book is concerned, we have some specialty horsepower slated for resale, but the vast majority is expected to go into our fleet. Our 2028 orders are nearly entirely weighted to large 3,600 series engines, which are the most desired by our compression customers while also having substantial optionality for sale should the market shift. We continue to have robust conversations across our diverse customer portfolio and, as Clint mentioned, we have contracted more than 90% of nearly 110 thousand new horsepower expected to be added to the fleet in 2026 and are presently in the middle of multiyear strategic planning discussions with some of our strongest customers to shore up our 2027 book. Notably, we experienced lower churn rates than expected in Q1, which is a reflection of the tightness in the current market. This backdrop, coupled with the idle units acquired from JW, positions us for outside horsepower growth in the back half of the year and into early 2027. Finally, while oil prices have moved up significantly in the last month, we are focused on minimizing cost increases tied to lubricants. If oil prices were to remain at current levels, we would expect much of that increase to show up in the second half of the year as our lubricant contracts renew. I will now turn the call over to Christopher M. Paulsen to discuss our financial results in detail. Christopher M. Paulsen: Thanks, Chris. For basis of comparison, our quarter and year-ago financials exclude the benefit of JW that closed on January 12. For Q1 2026, our income statement reflects the results of JW's contributions for 79 days in the quarter, and therefore our non-GAAP financial numbers, including EBITDA and DCF, reflect the same. By contrast, our non-GAAP operating metrics tied to horsepower, including utilization, average revenue per horsepower per month, and average active horsepower, are calculated based on month-end and therefore fully reflect JW's horsepower contribution for the quarter. As we highlighted in our December 1 deal announcement, while JW provides meaningful near-term accretion and immediate deleveraging, the company in aggregate also has lower gross margin than our legacy asset base, in part due to the manufacturing and AMS operations that contributed approximately 10% of legacy EBITDA. Turning the page to Q1 results, we increased pricing to an all-time high averaging $22.73 per horsepower, a 5% increase in sequential quarters and an 8% increase compared to a year ago. Average active horsepower ended at 4.438 million. Our first quarter adjusted gross margins came in at 64.4%. Regarding the consolidated financial results, our first quarter 2026 net income was $38.3 million, operating income was $91.4 million, net cash provided by operating activities was $86.1 million, and cash interest expense, net, was $47.1 million. Our leverage ratio at the end of the fourth quarter was 3.74 times. Turning to operational results, our total fleet horsepower at the end of the quarter was approximately 4.931 million horsepower, adding approximately 1.037 million horsepower as compared to the prior quarter, largely tied to the JW acquisition. Our average utilization for the first quarter was 91.9%, a decrease compared to the prior quarter after incorporating JW. First quarter 2026 expansion capital expenditures were $26.4 million and our maintenance capital expenditures were $9.2 million. Expansion capital spending in Q1 primarily consisted of new units, while maintenance capital activity was deferred for a few weeks in February due to the implementation of SAP on February 1. For the remainder of the year, most growth capital will be focused on new horsepower and reconfiguration, while maintenance capital will normalize towards our full-year projections. We continue to maintain our full-year adjusted EBITDA range of $770 million to $800 million, distributable cash flow range of $480 million to $510 million, maintenance capital range of $60 million to $70 million, and expansion capital range of $230 million to $250 million. As Christopher Wauson noted, we are nearly fully contracted for 2026 and are placing advanced orders to maintain full utilization of our manufacturing complex for several years. As stated in February, our near-term target is to maintain a 3.75 times debt to EBITDA, and we made significant progress towards this goal in Q1. While we hit this target for the quarter, we anticipate it will tick higher in Q2 as we take delivery of new horsepower, then trend back lower by year-end. Energy high-yield markets remained open and very resilient throughout the Iran conflict. Our improved leverage metrics put the company in a strong position to access capital markets later this year to the extent we want to provide more consistency in our debt tranche sizing and duration. This quarter was a whirlwind of activity for our operations and finance teams as we implement new systems with new assets and new faces. The execution was nothing short of exceptional as we laid the foundation for more acquisition opportunities to come. We will stay disciplined and evaluate opportunities that fit with our financial goals and core competencies. In the near term, our business will be improved through a gross margin push, working to improve structural cost and the efficiency of the JW organization in the face of an inflationary oil environment. And with that, I will turn the call back to Clint for concluding remarks. Clint Green: Thanks, Chris. This business demands that we stay close to our customers every single day, understanding their needs, anticipating where they are headed, and making sure we are ready when they call. The discipline does not change with the commodity cycle. What is changing is the opportunity in front of us. The demand for natural gas, both to move it and to power the infrastructure around it, continues to grow, and we feel very good about our position in that story. The relationships we have built with our suppliers combined with our manufacturing capabilities give us a real advantage in an environment where equipment lead times remain extended. We intend to use that advantage. We are bullish on contract compression overall, and I am excited about where we are headed. We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 again. Your first question comes from the line of Nate Pendleton with Texas Capital. Please go ahead. Nate Pendleton: Good morning, and congrats on the record results. So you had a really strong quarter across the board. Can you talk for a moment how this compared to your internal expectations following the JW integration? And then maybe your decision to keep the guidance the same here in lieu of those results. Clint Green: Yeah, Nate. Thank you for that. I mean, I feel like we are in line with where we thought we would be as we put this model together late last year and decided to move forward with the acquisition. We have already worked through some of the operational changes in the structure. We are working hard on our routing and ways to save going forward. But overall, we are really happy with where we are at in the process and excited about where we are headed by year-end and then through the future. Nate Pendleton: Got it. Thanks, Clint. And this is my follow-up maybe for Christopher M. Paulsen. I believe last call, you talked about looking for a distribution coverage expanding beyond the 1.6 times marker as sparking some conversations. With coverage now over 1.7 times, can you talk about how you weigh adding to an already strong distribution versus other uses of capital? Christopher M. Paulsen: Sure, Nate. Just before that, just to add a little bit to Clint's comments as it relates to the JW transaction as well. I think we mentioned this before, but we have been generally very pleased with the sophistication of their operations. As we start to embark upon another SAP implementation for their operations in particular, we are seeing some things that we want to adopt in our own, which is fantastic and which is probably expected from a company that has been doing it for 60 years. So there are areas of manufacturing that are done exceptionally well, areas as it relates to customer interaction and outreach that have been done exceptionally well, the retail side of the business. So I will just point to that as well. But as it relates to your distribution question, we were pleased to see that number tick up to 1.72 times. Part of that relates to the fact that we had a bit of a partial quarter. We ultimately had lower maintenance expenditures. That was due to the SAP implementation itself. We did a couple weeks of paper stacking as it relates to the transition. We really had kind of a quiet period for about a week and a half where we told our folks to limit their maintenance expenditures, and so as a result, our maintenance expenditures were down, and therefore, DCF ticked up. Now that being said, we also did not account for the DCF over those eleven days while fully accounting for maintenance capital. So I think net-net, we feel really good about setting up for a durable and really a disciplined approach to distribution over time and our distribution policy. We want to see something sustained for a period of time and continue to hit our financial metrics in terms of leverage, but also continue to see and repeat these types of numbers before I think we would begin to approach the conversation about any change in distribution policy. Nate Pendleton: Understood. I really appreciate all the detail. Congrats again. Clint Green: Thanks, Nate. Operator: The next question comes from the line of James Rollyson with Raymond James. Please go ahead. James Rollyson: Hey, good morning, gentlemen. Clint, you talked about lead times stretching out again. It is pretty remarkable to see how that has spread to numbers we have never seen before, and it seems you are pretty well ahead of the game by placing orders for engines out multiple years. I am curious how you are seeing your customers and maybe even competitors in terms of how they are set for planning out this far in advance. Because it was not long ago that customers were caught by surprise when, a couple years ago, lead times were beyond a year, and now we are almost three years. So I am just curious how you think the customer base and the industry is set for planning on these extended time horizons. Clint Green: Yeah. It was a little bit of a surprise at one point with the lead times. We were running around 55 to 70 weeks just depending on the day, and then overnight, Cat went to 100 weeks or 108 weeks, and that is when we got in gear pretty quickly to try and figure out how we were going to cover that. So we got creative for 2027 and were able to pull some stuff in, and then for 2028 we decided to go ahead and make that engine order. The customers, I think they are dealing with it just like we are. Thankfully, we are able to provide for our customers with our plans for the future. And competition, I have not really heard what they are doing on any front. I am sure they are trying to figure it out just like we are. I think our capital program has gone from a one-year program to probably a three-year outlook and taking pieces of it at a time as we have to order engines. Now, a lot of it is driven by the generator orders, because you see that Ariel and cooler manufacturers, those lead times are still at 25 to 30 weeks. They are not stretched way out. So I think everybody is taking it in stride, and we are trying to make sure our customers are taken care of. James Rollyson: Yeah, well, kudos for being ahead of the game. Then I guess there is a follow-up. Maybe you guys can talk about OpEx, or mainly higher oil prices that will drive lube oil and fuel costs up to some extent in the second half if oil prices stay up here. Curious how you think about your ability to pass that on given how tight the market is and maybe the lag effect of being able to price that on. Obviously, you did not change your guidance, so it is not impacting your margins at this point, but just curious how you are all thinking about it. Christopher Wauson: Yeah. No. Thanks for that. One thing with inflation, with oil prices, all of our costs are going up. So we are continuing to drive efficiencies in the organization to protect that margin. And as contracts expire and renewals come up, we do plan to address that accordingly. So it is kind of twofold. We are going to manage it as best we can and continue to drive for efficiencies. That is the biggest win here. James Rollyson: Appreciate the color, guys. Thanks. Operator: The next question comes from the line of Elias Max Jossen with JPMorgan. Please go ahead. Elias Max Jossen: Hey. Good morning. Just wanted to start on the outlook for new unit procurement. It seems like you have got orders placed for the next several years. So how should we think about the cadence of unit additions over these next couple of years? I know some of your peers have given an outlook through the decade, but just curious how we should think about new units in the fleet. Thanks. Christopher Wauson: One thing we are trying to do is stick to that 100 thousand-ish horsepower of growth year over year, maybe even up to 125 thousand, just depends on how things shake out. But that is the beauty of our manufacturing business. We can control that a whole lot better now. It is a lot more optionality. It enables us to really make those decisions and do what is best for our customers and the organization. Clint Green: Yeah. Hey. This is Clint. I want to add on that. I talked about a three-year capital program, and we are really only talking about the cost of the engine for that three years. We have the engines ordered, but we will wait and monitor lead times on compressors and coolers, and that way, we can order those, you know, within 40 weeks or something like that to have them in time for the engines to arrive. So I want to make sure everybody understands we are not committed to the full compressor cost going out three years. It is just a deposit on the engine so far. Elias Max Jossen: Got it. That is a helpful clarification. And then maybe shifting over to some of the stronger pricing we saw this quarter as well as the utilization noise from the JW integration. Can you help frame run-rate levels on both of those metrics going forward? Should we expect continued pricing growth, and how will fleet utilization, you think, ultimately shake out once you are fully integrated? Thanks. Christopher M. Paulsen: Hey, Eli. So as it relates to the first part of that question, on the utilization front, the utilization is reflective of the fact that we brought in over a million horsepower and essentially got that optionality, I think, on the cheap. As we mentioned in our acquisition call, we noted that we felt like there were 900 thousand-plus readily deployable. We have taken the initial pass through that fleet, and that is why you see the over a million horsepower within our total count. We will continue to review that and look more deeply into that total capacity. And part of that will be as we continue to increase orders, increase our small horsepower utilization—as we noted, we increased it over 10% year over year—we see that potential to improve from here. Those are some of those units that we will evaluate. So presently, the horsepower utilization that you see, I think, is a baseline for new run-rate. I think it can only improve from here, both in terms of small horsepower and also as we dig deeper into some of that capacity. We may ultimately decide that that capacity is no longer deployable within our operations but can be used on other operations elsewhere. As it relates to the revenue side of the question, the revenue has continued to improve as we know—5% to 8% in terms of revenue relative improvement. We see that continuing to improve consistent with the way in which we have approached it in the past. As we see cost increase, many of our contracts, and I should say most, are CPI-U based. We have seen CPI-U tick up almost 100 bps from not very long ago. So one, we will have the CPI-U support as it relates to revenue. But two, we are partnering with our upstream and midstream companies. We always do just that. They understand through any cycle that there is a give and take, and we recognize that too and have partnered as it relates to the business and would anticipate that as our costs increase, there will be some relative cost increase on the other side of that. We just need to have constructive conversations. And that is a big part of having great relationships within the business and being around since '98 and having nearly two decades of relationships with our top 10 customers. Elias Max Jossen: Got it. Super helpful. Leave it there. Thanks. Operator: And once again, if you would like to ask a question, please press the star 1 on your telephone keypad. The next question comes from the line of Douglas Irwin with Citi. Please go ahead. Douglas Irwin: Hey, team. Thanks for the question. Maybe one on JW Power here. It sounds like the manufacturing business is already maybe changing the way you approach your growth backlog a little bit. Just curious, now that you have had a bit more time with these assets under your belt, if there may have been any other opportunities or surprises you have been able to uncover with regard to synergy opportunities that maybe you did not fully appreciate beforehand? Clint Green: Yeah. This is Clint, Doug. Thanks for your question. I mean, we fully expect to—or we hope to—find some diamonds in the rough that we were not expecting. Definitely, the manufacturing business, the capacity there is between 100 thousand and 125 thousand horsepower in that facility, which is kind of what we expect to grow or plan to grow—maybe a little north of that—over the next few years. So we feel like that will give us a lot of flexibility. The operations side of it—being in every basin now and having facilities that are across the road from each other in several spots—there may be some synergy opportunities there. We think there is more to come. We are just trying to dig through all the opportunities and figure out which ones really come to life. Douglas Irwin: Got it. That makes sense. And then maybe just a higher-level one as a follow-up. Looking at Slide 4 here in your slide deck, you call out a need for over 10 million incremental horsepower by 2030, which is obviously a huge number. Just curious what you see as your role in meeting that demand moving forward. Do you potentially see a need to lean even further into growth relative to what you already messaged here over the next couple years? And if you can, maybe talk about what basins on that map you see yourselves as having the biggest advantage in? Christopher M. Paulsen: Yeah. This is Chris. Great question. As it relates to that, part of it is what is the right forecast? We are always actively reviewing the overall forecast for natural gas, understanding the LNG markets and data center markets—they are exceptionally fluid, as you well know. Ultimately, we feel really good about the forecast that was put forth on that particular slide and the forecast as it relates to those basins. It is all related to the relative natural gas price as well. Ultimately, the Rockies, for instance, is an area that we would say at a higher gas price would probably be in a flattish range, whereas I think the rest of those areas are well established in terms of their growth trajectories at current pricing, if not above. As we think about our place in this trajectory, we want to be in a position to maintain our current standing and our current market share. We know that in areas like the Northeast, we have an outsized market share, and it is an area that has returned to growth. There are really fundamentally sound measures that support that 5 to 7 Bcf. I think if we see coal-to-gas switching, that number increases from here. That is really based on announced projects, and there is still probably more to come there. As it relates to the Gulf Coast and the Permian that are going to make up more than half of that, we are well situated there. We are a big player in the Permian. We are a huge player in the Gulf Coast and Mid-Con, and we want to maintain our market share, if not grow it, in those respective areas as well. Douglas Irwin: Awesome. Thanks for the time. Clint Green: Thank you. Operator: And the next question comes from the line of Analyst with Stifel. Please go ahead. Analyst: Thank you. I just wanted to follow up on that last question. Listening to the Energy Transfer call, they were talking about the U.S. becoming a preferred supplier to the global outlook when everything settles out from the war. As you think about that, should we expect to see an acceleration of your business? Clint Green: We fully expect so. This is Clint. If you look at the market, there is 15% to 20% of the LNG capacity effectively locked in because of the Strait of Hormuz right now. JKM prices yesterday were at $16, and U.S. gas prices are at $2.80 to $3. If you back up to January and February of this year, JKM was $9 to $10 and U.S. Henry Hub pricing was $2.80 to $3.20. So even though JKM has gone up, we have not seen the pricing increase here in the U.S. Part of that is takeaway capacity. By the end of the year, we are going to have a lot more capacity coming out of the Permian. There are several LNG facilities either expanding now or under construction. If you look at the U.S. Department of Energy’s website, they show five of those facilities will be online within the next 24 months. With all that said, if gas takeaway is able to get out of the Permian and get to the facilities on the Gulf Coast, and is able to get on boats and go across the ocean, the demand for U.S. natural gas is going to go up. We could not be more excited about the natural gas story right now, whether it is dry basins or the Permian or wherever. Any of that growth, with us being in all the basins, means that we have to grow with it. So we are super excited about the prospects of the future here. Analyst: Appreciate that. And then let me ask you about the extended lead times. When you look at the 3,600s and you are talking, I believe, 2.5 thousand horsepower and up, is that all being driven by AI backup power or primary power, and so you are competing against that? Is that what is really taking the lead times up, or is it something else? Clint Green: Well, it is both. It is natural gas-driven engines that are generators that are driving that market up significantly. A lot of people are ordering generation. Then you have folks ordering natural gas compression engines to supply the gas to the generators. Cat really does not have big plans to expand their manufacturing facility in the near future for the 3,600 series, which is the 4.5 thousand up to 5 thousand horsepower. Those are the drivers behind it. I think we are to the point now where we are starting to look at other engine manufacturers' options, whether it is domestic or international, because I believe there is a hole that we have got to start filling in the future if this is going to continue out. Operator: Thank you. And there are no further questions at this time. I would like to turn it back to Clint Green for closing remarks. Clint Green: Thank you all for joining our call today. As always, we are deeply appreciative of our employees and the stakeholders that enable us to conduct our business every day. With that, we want you all to have a great day. Thank you for joining, and see you next time. Operator: Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.
Operator: Welcome to the Powell Industries, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star and then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would like to turn the conference over to Ryan Coleman, Investor Relations. Thank you, and over to you. Ryan Coleman: Thank you, and good morning, everyone. Thank you for joining us for Powell Industries, Inc.'s conference call today to review fiscal year 2026 second quarter results. With me on the call are Brett A. Cope, Powell Industries, Inc.'s Chairman and CEO, and Michael W. Metcalf, Powell Industries, Inc.'s CFO. There will be a replay of today's call available via webcast by going to the company's website, powellind.com. A telephonic replay will be available until May 12. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, May 5, 2026, and, therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results, that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials, and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I will turn the call over to Brett. Brett A. Cope: Thank you, and good morning, everyone. Thank you for joining us today to review Powell Industries, Inc.'s fiscal 2026 second quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. The Powell Industries, Inc. team delivered another solid quarter of operational efficiency and order growth, as the momentum we experienced at the start of our fiscal year continued through the second quarter. Activity levels across each of our core end markets remained healthy, with notable strength in the quarter from liquefied natural gas projects, a mix of electric utility distribution and generation projects, and also data center projects within our commercial and other industrial market sector. Revenue in the quarter grew a steady 6% compared to the prior year, and continued solid project execution across the company delivered a gross margin of 29.6%. We recorded $490 million of new orders in the quarter, bringing our midyear total to nearly $1 billion in new awards. I would also note that our order book in the quarter continued to be very well balanced across the markets in which we compete. During the quarter, we were awarded two mega projects, one for a data center and a second for an electric utility generation project. Each of these projects is in excess of $75 million in value. The balance of the order book in the quarter was comprised of a higher number of small- and medium-sized projects. Our backlog now sits at $1.8 billion, 12% higher than the prior quarter and 33% higher than one year ago. The growth in our backlog now provides visibility well into our fiscal 2028. The composition remains healthy with a mix of projects of varying sizes that will help maximize productivity across our manufacturing plants. As of quarter end, the electric utility market represented 30% of our total backlog, while the oil and gas market, excluding petrochemical, and the commercial and other industrial markets each accounted for 29%. The diversification of the business in the electric utility market and more recent expansion of our commercial and other industrial market, anchored by a demand driver from data centers, are contributing to reduced cyclicality in the business, allowing us to plan beyond the current cycle and invest more broadly alongside our customers with greater visibility. At the same time, our outlook for our core oil and gas market remains strong. We are in the initial phase of a multiyear buildout of LNG export capacity. We believe the structural cost and competitive advantages possessed by U.S.-based exporters has been elevated by the risk of multiyear-long capacity impairments across the international markets and the need for importers to diversify and replace those volumes. We are cautiously optimistic that the petrochemical market is in the early stages of a cyclical inflection after several years of lower activity levels. We are seeing some activity in the gas-to-chemicals market and are further encouraged by recent upward price revisions within the global polyethylene market. I would like to take a moment to mention a commercial development that took place subsequent to quarter end. I am very pleased to share that Powell Industries, Inc. was awarded a mega project for the first phase of a new greenfield data center. The scope of this award is in support of a behind-the-meter design for the first phase of a planned multiphase campus. This project award is in excess of $400 million. This project now marks the largest project award in Powell Industries, Inc.'s history. This award is a testament to our employees, our culture, and the entire Powell Industries, Inc. team across the company as we assembled a multidivision, multicountry execution plan to meet the demanding timeline on this project. To that end, recent order trends, our market outlook, and our continued organic product development continue to support prudent additions in manufacturing capacity. Last quarter, we signed a lease for incremental space located near our Ohio facility. This past quarter, we leased office space in the Houston metro area, which will serve as a second satellite engineering center. This center complements our initial satellite engineering office that we announced and opened last year. This second center is geographically located to further enhance our ability to add critical members to our world-class electrical and mechanical engineering and design teams. In response to the growth of our backlog, we are evaluating a smaller leased facility of approximately 50 thousand square feet near our Moseley campus. This space would help support a new $8 million investment in fabrication equipment for short-term rapid expansion of our metal fabrication capacity. We have previously shared our efforts to evaluate a larger investment in a facility that would require $70 million to $100 million of capital and provide upwards of an additional 250 thousand to 300 thousand square feet of factory capacity. While we continue this assessment, we are currently evaluating complementary options for bridging between short-term requirements via a leased facility versus a somewhat longer term of a greenfield facility buildout. We are being very thoughtful throughout this process and expect a decision within the next few quarters. Meanwhile, the expansion of our Jacinto Port facility is progressing on schedule. This incremental 335 thousand square feet will be critical to ensuring our ability to support all of our end markets, but specifically by providing our oil and gas customers with a premier domestic facility to produce engineered-to-order power distribution solutions for both on- and near-shore projects as well as continued support for offshore applications. Operationally, our teams across our facilities are rising to meet the challenge of accelerating growth. We remain disciplined on the commitments we have made to our customers while staying focused on continuous improvement and driving incremental efficiencies throughout every step of our operations. As noted earlier in my comments around the recent large data center award, Powell Industries, Inc. has a market-leading strength that is inherent in our people and internal collaboration. When our teams across our North American facilities come together, we are able to leverage our substantial footprint to tackle large challenges either for a single project or a broad step-up in market demand as we are currently experiencing. Critically important to our growth and future needs, I would also like to call out the increased efforts of our strategic sourcing and supply chain teams. It is essential that our team engages our partners to both broaden and deepen those relationships and optimize our supply chain in support of our future growth. On the M&A front, we continue to evaluate a growing pipeline of inorganic opportunities that complement our organic initiatives and better position us within key markets. Candidates include complementary products and/or capabilities to our current portfolio or are oriented toward building out our services franchise. Along these lines, our recent acquisition of REMSDAQ continues to progress well and has quickly proven synergistic and accretive across the company. Lastly, pursuant to our ongoing efforts to build a stronger, more diversified business, we have recently begun investing in resources to build a wider funnel of government-related work, including U.S. military and defense applications. These are markets with secular, long-term growth drivers that typically carry recurring revenue profiles, which would be conducive to growing our services franchise. We are in the early days of this effort but believe our U.S.-centric supply chain, operations, and workforce leave us well positioned to play a critical role within the markets that support our national security and defense. On a related note, I would like to briefly commend the White House's recent presidential determination under Section 303 of the Defense Production Act, which formally designated both substations and switchgear, among other electrical products and their upstream supply chains, as essential to national defense. Ensuring the domestic production of critical electrical gear is essential to America's ability to deploy large-scale grid infrastructure, and the presidential memorandum authorizes the Department of Energy to expedite procedural requirements and immediately deploy federal capital to expand domestic grid manufacturing capacity. In summary, we remain very pleased with our financial performance for the first half of the year and are encouraged by the commercial dynamics that we continue to see across the markets we serve. With that, I would like to turn the call over to Mike to walk us through our financial results in greater detail. Michael W. Metcalf: Thank you, Brett, and good morning, everyone. In the 2026 second quarter, we reported total revenue of $297 million compared to $279 million, or 6% higher versus the same period in fiscal 2025. New orders booked in the 2026 second quarter were $490 million, which was nearly double the orders booked in the same period one year ago, and included two mega orders, each with an order value exceeding $75 million. The first mega order reflects the largest utility order that the business has ever recorded and is for a large generation facility in the Eastern United States. The second mega order in the quarter for medium-voltage electrical distribution equipment is destined for a data center in the Central United States. As a result of the strong commercial activity across our key end markets, book-to-bill ratio for both the second quarter as well as the 2026 first half is 1.7 times. The continued momentum across all end markets, particularly domestically, and the resulting orders volume in the second fiscal quarter elevated our backlog to $1.8 billion, a 33% increase, or $438 million higher versus the same period one year ago and $189 million higher sequentially. The composition of our backlog continues to diversify, with our core industrial end markets across petrochemical and oil and gas representing 33% of the total backlog, while the electric utility and commercial and other industrial markets represent 30% and 29% of the $1.8 billion of backlog, respectively. As Brett mentioned, in early April, after the close of our second fiscal quarter, the business secured a mega order in the data center end market with a value in excess of $400 million. This order value is not reflected in either the orders or backlog numbers for the 2026 second quarter, and will be included in our fiscal third quarter reported numbers. Turning to revenue, compared to the 2025 second quarter, domestic revenues were higher by $4 million, or 2%, while international revenues were up by $14 million to $64 million, primarily driven by the offshore projects that are being executed in the Far East and Africa as well as an uptick in project volume across our U.K. operation. From a market sector perspective, revenues increased 35% in the commercial and other industrial market versus the 2025 second quarter, while the electric utility and the oil and gas markets increased 14% and 11%, respectively. Offsetting these increases, the petrochemical market declined by 37% versus the same period one year ago on the softness across this end market over the past several quarters. The light rail traction power market was lower by 10% on relatively light volume as a percentage of the total business revenue. Gross profit increased by $5 million to $88 million in the 2026 second quarter versus the same period one year ago. Gross profit as a percentage of revenue was slightly lower by 30 basis points to 29.6% of revenue versus the same period a year ago, and was 120 basis points higher sequentially. Margin rates exiting backlog continued to benefit from strong execution and volume leverage across all of the Powell Industries, Inc. divisions, with favorable project closeouts contributing roughly 90 basis points of margin tailwind in the 2026 second quarter. Selling, general, and administrative expenses were $20 million in the current period, an increase of $4 million compared to the same period a year ago, primarily driven by higher compensation expenses across the business. SG&A as a percentage of revenue increased by 90 basis points year over year to 8.7% in the current fiscal quarter, but declined sequentially by 130 basis points reflecting a higher revenue base in the 2026 second quarter. In the 2026 second quarter, we reported net income of $45.9 million, generating $1.25 per diluted share, compared to net income of $46.3 million, or $1.27 per diluted share, in the 2025 second quarter. On 04/02/2026, the company effected a three-for-one forward split of its common stock and proportionally increased the number of shares of authorized common stock from 30 million to 90 million shares. This was at market open on 04/06/2026. Share and per share amounts disclosed have been retroactively adjusted to reflect the stock split. During the 2026 second quarter, we generated $51 million of operating cash flow, principally driven by higher earnings generated in the second fiscal quarter. Investments in property, plant, and equipment in the fiscal second quarter totaled $1.8 million, reflecting modest capital spending on equipment maintenance and production assets, as well as capital expenditures related to the Jacinto Port expansion project. The majority of the $12 million to $13 million planned investment to upgrade the Jacinto Port fabrication yard is expected to be incurred during the 2026 fiscal year. At 03/31/2026, we had cash and short-term investments of $545 million compared to $476 million at 09/30/2025, and $501 million at 12/31/2025. The company does not hold any debt. Looking forward, as we move into the back half of 2026, we remain encouraged by sustained commercial activity across our core end markets. Coupled with our continued focus on execution, our ability to leverage volume across our global manufacturing footprint, and the size and quality of our backlog, Powell Industries, Inc. is well positioned to deliver strong cash flows and earnings performance. We will now open the call for questions. Operator: To ask a question, please press star and then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble the roster. We are showing the first question from Tomo Sano with JPMorgan. Please go ahead. Analyst: Hey, good morning. Congrats on the quarter. Given the strong $490 million in orders booked in Q2, and then with the addition of the $400 million-plus data center orders, how should we think about your order outlook for Q3 and beyond? And also, in light of this, how do you plan to manage the associated increases in SG&A and R&D expenses, please? Brett A. Cope: Tomo, I will take the first part of that and have Mike jump in on the SG&A side. The outlook is strong. Activity entering Q3 shows no letup, just as in the prepared comments. We started at the beginning of the year with Q1 flowing into Q2. We feel good about all three of our core drivers in the commercial and other industrial market, which has really blossomed over the last two years; oil and gas, which we are built for with a very solid outlook; and I love the utility space, and we are hunting hard in that space. It has always been the distribution side, but now with the uptick in generation, that is business that we want as well. The capacity adds that we are doing, the incremental so far, and the larger one that is under evaluation, align with that. The data center order noted in the prepared comments was a team effort. It has roughly a two-year burn; it will run through fiscal 2028. As we typically share, we are very thoughtful about our schedules, and we feel good about how it lays in across all of our facilities and meeting the commitments we have made on that job. On the cost side, we are making some investments in the business. We have largely invested in some of the strategic pillars that you find on the investor slides, especially around service and automation. On the heels of the acquisition of REMSDAQ, we have added resources in the United States to start expanding that business, along with some synergistic adds we found in the data center market in the short term. We are still progressing our medium- and long-term plans that align with the reason we bought the business to begin with, which was to expand in the utility market. Michael W. Metcalf: Good morning, Tomo. With respect to SG&A costs, they continue to trend in the upper single digits as a percentage of revenues as we invest in some of these new programs that Brett alluded to. The increase on a year-over-year basis is driven by higher base and, to a lesser extent, variable incentive compensation expenses in the first half, in addition to the REMSDAQ acquisition. Remember, for the first half of last year, we did not have REMSDAQ in the numbers; this year we do. As we focus on growing the business organically and standing up some of these new capacity adds to address the market demand, while in addition investing in new initiatives such as the government initiative that Brett talked about in his prepared comments, these are investments that we are making in SG&A from a people and infrastructure perspective that we feel will generate a positive return as we look forward. On R&D, it is trending higher, which we view as favorable. We finished the quarter at about 1.4% of revenues, and you can expect this to probably hold in the range between 1% and 1.5% as the team ramps up the organic initiatives to develop and commercialize new products. Analyst: Thank you, Brett and Mike. And just one follow-up, if I may. Your strong core engineering capabilities, along with execution strengths such as ETO and key systems, have clearly earned customer trust. How do you view the evolving competitive landscape given increasing demand and expanding supply? What steps are you taking to maintain your competitive edge? Brett A. Cope: It has become much more competitive the last couple of years. There are a lot of new entrants, some new private equity money coming in and trying to build up new models. They are slightly different than what we do, but everyone is playing in the same general area. Powell Industries, Inc. takes pride in the fact that we have a long-tenured group and a very family approach in the way we compete. As noted in the prepared comments, we are adding a second center here in Houston to attract additional talent to the team, and we think that will prove fruitful in the next couple of quarters. We are also reengaging our offshore centers, expanding their capability, doing training, and investing there to ensure that we have options offshore as well. Buried within the whole model, in the data center and discrete commercial markets, we have talked about what the engineering load will mean to power this cycle that is going to be a lot more product-centric. We are still in the early innings, but we are starting to see that around the company. Mike and I just finished our spring operational tours, and I can share that we are seeing some nice engineering efficiency on these large jobs in the data center market, which will reduce the burden and allow us to make some adjustments in how we allocate our resources going forward on these different segments. That is an encouraging sign we suspected, and we are starting to see early returns to that thesis. Analyst: Hey, thanks for taking the question. Maybe a follow-up on that $400 million-plus order you got in April—fantastic. Is that all outside, or is there some inside the four walls as well? And you mentioned first phase and potential for additional phases—maybe start there. Brett A. Cope: Hey, Chip. Good morning. Fantastic opportunity. As you have gotten to know our model, when you get in earlier, given our strong engineering capability and our ability to work with our clients and really effect a great solution regardless of the market, that is exactly what this was. We were brought in early on a behind-the-meter project. It is not a simple job—they are generating on-site and there is some complexity around that. Again, that fits us very well. The initial award is all outside the data center. It is sizable—gigawatts in the initial phase—and there are multiple planned phases that we are anxious to see progress over time. We are certainly hopeful that they will. It is in the NeoCloud space. We think we will get a shot at the internal side of the data center on this one. There is no guarantee today, but we will do everything we can to put our best foot forward as this evolves now that we are on the early phases. We are following that commercially to see if we can get that over the line. Analyst: Excellent. And, Brett, two more on that one. Margin implications, given it is such a large order, and then the timeline being pretty quick—how are you thinking about execution risks and how will you manage that? Brett A. Cope: I think the margin potential fits with the comments made today and on earlier calls. I definitely believe there is opportunity here as we unlock our product-centric models as they develop across the company. Once you do the initial design, it is a multiproduct program. It is quite wide-reaching across the different products we offer at Powell Industries, Inc.—a mix of voltages, quite a bit of 15 kV, a lot of 38 kV, both primary switchgear as well as secondary switches that we produce here, along with the CableOS product in Chicago. It touches just about every division in the company in the North American footprint, which is why in the prepared comments we highlighted how we put the team together. For each one of the divisions, we will unlock some potential as we ramp up volumes. On timing, it is not $400 million over the next five years; it is a two to two-and-a-half-year buildout because we were able to use the incredible footprint that we have in the company. It was a real team effort. We came together and broke the order apart. We have done that in the past on other jobs. I go back to Hurricane Harvey where a job came in and the client needed it really quick. That is a super exciting competitive advantage that Powell Industries, Inc. has—our footprint is so similar from factory to factory with metal fab and our processes that we can lever that in times of need or market demand, as we are seeing now. That is absolutely what we have done here. We are excited to have earned the award and anxious to make it a success and, as you noted, see the additional phases in future years. Analyst: If I could sneak one last one in—around capacity, you outlined where you are going and the potential to grow capacity. Given strength across all your markets and data center in particular, if you were to see similarly sized opportunities, what is your ability to meet those as they come along? Brett A. Cope: We are definitely reacting, thus the comments in the prepared remarks. Along with any job, when we evaluate schedule, we look at everything all the way down to supply chain. We are clearly adding short-term capacity here in Houston, especially around what we can control on the metal fab side. While the organic build continues, we are looking at a pivot in the near term to maybe add a larger leased space that is a little bit more efficient. There are a lot of builds in different locales, including here in Houston and some other commercial centers in North America, where things are already there, and with minimal modification, we can get them productive quicker. If and when the next one comes, we could follow the same model. The constraints would be people and supply chain, which are not easily unlocked, but we would attack it with the same vigor that we attacked this one. Mike and I are very involved in the supply chain side, and the whole team has gone out over the last couple of quarters to really engage it much better, to ensure that as we make our schedules on our proposals and make firm commitments, we are backed by supply chain so we do not have a miss there. As long as we can unlock that, it will come back to just attracting talent and getting them trained and into the Powell Industries, Inc. model to execute. That would be the number one concern moving forward. Analyst: Yes, thank you. Good morning. My first question is on pricing power. Brett and Mike, you talked quite a bit about strong markets, but in your commentary, you mentioned pricing is stable, broadly keeping in line with inflation. Why are we not getting more pricing if the markets are as strong as they are? Brett A. Cope: We are getting some price, Manish, for sure. In certain product areas that have become constrained in the demand–supply curve, we are absolutely moving up price incrementally in those markets across all three verticals. We are very sensitive to where you can push price and where you need to hold your ground. Between price and efficiency gains, as we start to build our plans for 2027 and beyond, we will get a good feel in Q4. I do not think it will come out so much in the numbers in Q4, but internally we will start to see it. Going back to the earlier question on our operations reviews, we are seeing efficiency build, and I think that will come out as price. We will be able to better report on it as we hit the end of this fiscal year and prepare into 2027. Analyst: My other question pertains to you taking on larger, more complex projects. How should we think about the cadence for margins going forward? And then more specifically on the $400 million-plus award for the data center—was that a solo award, and how does that change your perspective on the TAM for Powell Industries, Inc. in the data center market? What percentage of market share is reasonable that you can achieve? Brett A. Cope: Those questions go together. On this particular job, we really do well on the complex power story problem, and this one has a degree of complexity that we had not seen in some of the other data center jobs that we have been building our market segment on. We got involved early. There is a unique complexity beyond the behind-the-meter design that is akin to a power island that we might see on an industrial facility or even an offshore platform, where you are generating and distributing load locally. These behind-the-meter projects have a higher degree of complexity around the gear and the automation, and that fits us very well. So the TAM on behind-the-meter is going up for Powell Industries, Inc., beyond a straight utility connect. We are interested in both—it is not that we will not pursue both models—but the behind-the-meter opportunity for Powell Industries, Inc. is clearly going up with this complexity equation. Depending on how they are generating—whether it is a mix of resources or renewable—there are a lot of ideas we are seeing commercially. Our excitement for that potential is growing. And yes, the $400 million award we got post quarter end was one purchase order. Analyst: Thank you. Operator: We have the next question from the line of Alex Rygiel from Texas Capital. Please go ahead. Analyst: Thank you. Just a maintenance item here first. Backlog as a percentage of total by market—could you provide that once again? Michael W. Metcalf: Yes, sure, Alex. As we deconstruct the backlog segmentation for Q2, roughly 5% was petrochemical, 30% was utility, 6% was traction, and 29% was commercial and other industrial, which includes data center, which is in the low twenties as a percentage of that 29%. The rest is other industrial and energy-related categories. Analyst: Very helpful. And then as you look into the data center market more broadly, how many customers are you working for right now, and how many customers are you talking to right now? You can generalize, but I am trying to get a sense of how broad your sales effort is into that segment. Brett A. Cope: Hey, Alex. It is becoming broader every quarter. If you go back a couple of years ago when data center was 7% of the backlog and then 15%, 22%, and now jumping the next couple of quarters, it started through different channels—in what I would call indirect channels through distribution or through partners where we were getting a piece of the scope, not really getting a look at the whole opportunity, whether outside the data center or inside the data center. Over the last couple of years, we have been adding resources—front-end, applications, folks from the industry—to help us better understand how to attack that market more thoughtfully, and that is clearly delivering a return. Today, we still have that indirect OEM and partner model, which has grown, but we are clearly driving our own direct destiny where we are getting in earlier and having direct conversations with the contractor or the ultimate end client, or a combination of the two, and that is starting to grow. We like both channels to market and will continue to thoughtfully invest where it makes sense to support the broader buildout of the market. Analyst: Hi, guys, and thanks for taking the questions. I am curious about how you are handling the spike in metal prices in 2026, and how that impacts the gross margin profile on a go-forward basis? Michael W. Metcalf: Good morning, John. We are very proactive with our metals, specifically copper. As you know, we use a lot of copper, and we do have a hedging program for copper. It essentially acts as an insurance policy to protect the margins that we have in backlog. We stay on top of steel and aluminum as well, and we are pretty proactive with the supply chain for those core commodities. Analyst: Got it. And I think in the prepared comments, you said something about small- to mid-sized projects being a net benefit in the quarter. Can you drill down a little on what is going on there? Brett A. Cope: Good morning, John. We had the two sizable jobs noted—the data center job we logged in the quarter pre-close of March and the utility job, which I do not want to lose sight of; I love the utility business. When you look at the balance—and you know our model well—when we get that nice mix of having those anchor jobs in the backlog and then being able to put different size jobs—the small zero to $10 million job and then the next step up, the $10 million to $50 million—that mix, given the cycle of a project build, is really advantageous for the Powell Industries, Inc. model. We bring the project in, we schedule it, and there are stop-and-hold points throughout its cycle. Given different job sizes, it gives us leverage to move the crews in and around it. When we lose that mix, it creates another pressure in the business to manage through the P&L of each of our factory locations. The really healthy bulk of small and mediums that came in Q2—and is continuing in commercial activity as we look forward—is very healthy and very encouraging for how we think about planning the business. We wanted to call that out. Analyst: Certainly. And is it running above that $50 million threshold, Brett, or no? Brett A. Cope: No. We see the normal cadence of potential out there going forward in terms of those jobs that are larger than $50 million. There is still a healthy mix across all of our core markets; the timing is the variable. Analyst: Good morning, Brett and Mike. Brett, the outlook is very strong, and you are considering a potential expansion of $70 million to $100 million. Given the outlook and what you are seeing, what do you need to see more of before you make that commitment? It seems like the business is very good and you could go ahead with it. What else might you need to make that commitment? Brett A. Cope: John, not too much more. Mike and I have a board meeting in a couple of weeks. We have been talking to the board the last couple of quarters about it. With the active quarter and with the commercial activity maintaining, we had to react on some of the short-term needs—unlock some needs that may be not optimal, if I am completely honest, but they will absolutely get a good return and were needed. I think we are just about there in being able to support not only the market activity but also our intentionality on our strategic builds, which is why we called out some of the work on the service side. That team is maturing; they are doing a great job building sub-strategies within that growth strategy of ours, and they are getting more confident. That adds into the options A, B, and C for the next big chunk of space. Analyst: If we think about it and, say, in three or four months you make that decision, what kind of timeline would it be to get something like this constructed and up and running? And what might be the revenue capacity or potential of such a new manufacturing space? Brett A. Cope: A greenfield is probably going to run us, conservatively, two years. The actual build time is less, but the variable is always permitting. That is one of the reasons that, given the rapid growth, we may bridge that with a similar-sized leased facility and have to outlay some capital for the cranes and things we would need for the various activities over a two- to five-year lease term while the other facility is being built. If we go the lease route, there is still some permitting, because no facility is purpose-built. You get the shell and you still have to do some things to it. We would see revenues quicker—we would move inventory to that space, get the cranes, and you would probably be looking at productive capacity within six months. Analyst: Total revenue of such a facility? Brett A. Cope: It is going to scale; it depends on the mix of service, projects, and products that we ultimately put into that, but you can run $100 million to $250 million. Analyst: Have you had to turn down any orders at this point? Brett A. Cope: I would not say we are turning anything down. Are we able to meet the schedules of everything coming in the door? The answer is no. We have a really broad funnel. We have expanded our process around that funnel with the growing commercial and industrial segment and the growing resources there, plus the growing capacity. The team play, as we noted today, has become much more prevalent day in and week out here at the company, which has been fantastic—seeing the company come together and the team really work across functional areas, geographies, and facilities. We are unlocking every little bit of opportunity, which has been fantastic to see. We are not able to respond positively to all the opportunities, but where we cannot hit exactly what they ask when they come in the door, we engage them on sequencing and constructability of their site and other things we can do to work together. Those conversations, given our model, are pretty effective at reaching a good solution for both the client and for Powell Industries, Inc. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Brett A. Cope for any closing remarks. Brett A. Cope: Thank you. Mike and I thank everyone for joining us this morning. We are very encouraged by the commercial strength we are seeing across each of our core end markets and continue to expect another strong year for Powell Industries, Inc. I would like to thank the entire Powell Industries, Inc. team for their hard work and commitment to both Powell Industries, Inc. and, of course, to our customers. Mike and I look forward to updating you all next quarter. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Greetings, and welcome to the MFA Financial, Inc. First Quarter 2026 Financial Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Harold E. Schwartz, General Counsel, to begin. Thank you. Harold E. Schwartz: Thank you, operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect management's beliefs, expectations, and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “should,” “could,” “would,” or similar expressions, are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors, including those described in MFA's Annual Report on Form 10-K for the year ended 12/31/2025, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks, uncertainties, and other factors could cause MFA's actual results to differ materially from those projected, expressed, or implied in any forward-looking statements it makes. For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's first quarter 2026 results. Thank you for your time, and I would now like to turn this call over to MFA's CEO, Craig L. Knutson. Craig L. Knutson: Thank you, Hal. Morning, everyone. Thank you for joining us for MFA Financial, Inc.'s first quarter 2026 earnings call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer, Michael C. Roper, our Chief Financial Officer, and other members of our senior management team. I will offer some general remarks on the macroeconomic and political landscapes and will then provide an update on MFA's business initiatives and portfolio activities. Then I will turn the call over to Mike, followed by Bryan, before we open up the call for questions. Moving to market conditions in the first quarter of 2026, it was very much a tale of two market environments. Fixed income markets began the year with a continuation of the strong investor demand and low volatility we experienced in 2025. The economy continued to exhibit resiliency and the labor market seemed to stabilize, particularly with a surprisingly robust January nonfarm payroll print in early February. Mortgages performed particularly well, aided also by a directive for the GSEs to purchase $200 billion of agency mortgage-backed securities in early January. Unfortunately, the party ended abruptly with the onset of a war in Iran, which spiked volatility, pushed rates sharply higher, and dramatically raised oil prices. Higher energy prices renewed fears of inflation, and markets adjusted expectations for fewer or even no rate cuts later this year. Mortgage spreads widened significantly against this backdrop and contributed to an economic return for MFA in the first quarter of negative 1.2%. However, despite the market volatility and heightened geopolitical tension, markets remained open and orderly. We priced two Non-QM securitizations in March and, while spreads were modestly wider, the market functioned normally. This is a testament to the expansion, maturity, and depth of these markets over the last four years. The second of these two Non-QM securitizations was a relever of two previous deals, which is a good example of what we often refer to as an underappreciated source of optionality—our ability to call these deals as they season and pay down, enabling us to lower borrowing costs and unlock additional capital. We grew our investment portfolio to $12.5 billion in the first quarter, adding almost $700 million of agencies, including TBAs, $471 million of Non-QM loans, and Lima One originated $219 million of business purpose loans. Our asset management team continues to work diligently to resolve delinquent loans in the portfolio. This can be maddeningly time-consuming, but our team has been working out delinquent loans for over a decade, the majority of which were purchased as nonperforming loans. They are the best in the business at this and uniquely suited to the task. Finally, our listeners will recall that we began a program in the third quarter of last year to issue additional shares of our two outstanding preferred stock issues via an ATM and use the proceeds to repurchase common shares at a significant discount to book. While this program is modest in size thus far, this is very accretive and, importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock. Finally, we continue to pursue expense reductions both at MFA and at Lima One, which Mike will discuss shortly. I will note that we have added an additional distributable earnings metric that we are introducing in response to requests from analysts and investors—distributable earnings prior to realized credit losses—and Mike will describe this in more detail shortly. We believe that this new DE metric offers a useful representation of how we think about the earnings power of the portfolio, and for those of you that follow commercial mortgage REITs, it should be a very familiar concept. Taken together, MFA has a diversified business strategy that includes multiple attractive target asset classes with a robust ability to source these assets, a reliable and proven ability to obtain durable nonrecourse leverage to generate attractive ROEs, a highly confident in-house asset management capability, a keen focus on expense management, and a demonstrated responsible capital issuance philosophy. I will now turn the call over to Mike to discuss our financial results. Michael C. Roper: Thanks, Craig, and good morning, everyone. At March 31, GAAP book value was $12.7 per share, and economic book value was $13.22 per share, each down approximately 3.8% from 2025. MFA again paid a common dividend of $0.36 and delivered a quarterly total economic return of negative 1.2%. For the first quarter, MFA generated a GAAP loss of approximately $10 million, or $0.11 per basic common share. Our GAAP results for the quarter were adversely impacted by net mark-to-market losses on the portfolio of approximately $28.8 million, driven by higher rates and wider spreads through March 31. Net interest income for the quarter was $59.2 million, an increase from $55.5 million in the fourth quarter, driven by rate cuts late last year and growth in our investment portfolio. These benefits were partially offset by interest income reversals totaling $3.5 million associated with loans moving to nonaccrual status in our transitional loan portfolio during the quarter. On the G&A front, we are happy to report that we again made significant progress with our cost reduction initiatives. In February, we entered into a series of agreements to relocate our corporate headquarters to a new location here in New York without paying any early lease termination fees. As a result of these agreements, we expect some short-term noise in our reported G&A, including $2.4 million of accelerated noncash depreciation expense recognized this quarter and an additional $5 million expected in the second quarter. Following these accelerated noncash charges, we expect to realize run-rate expense reductions of approximately $4 million per year related to the move, which is nearly $40 million in total over the remaining term of our prior lease. Including the expected savings from the relocation, we now estimate that our expense reduction initiatives have achieved nearly $20 million per year of run-rate overhead savings versus 2024 levels. Moving to our DE, distributable earnings for the first quarter were approximately $31.1 million, or $0.30 per share, up from $0.27 per share in the fourth quarter. The increase was primarily attributable to a $0.03 benefit associated with the lease modification and approximately $0.02 of higher mortgage banking income at Lima One. These benefits were partially offset by an aggregate $0.02 charge related to higher carrying costs on REO and higher realized credit losses on our fair value loans. We remain focused on growing ROEs, and we continue to expect our DE will begin to reconverge with the level of our common dividend later this year. As Craig mentioned earlier, this quarter we are introducing an additional non-GAAP measure which further adjusts our distributable earnings to exclude realized credit losses on our residential whole loans held at fair value. We are providing this new disclosure to give additional context around our distributable earnings as credit losses on our legacy multifamily portfolio continue to flow through DE. As we have noted on prior calls, because resolving NPLs does not impact our DE long after the loan has been marked down in our GAAP results and book value, these losses can potentially obscure the current earnings power of the portfolio. While credit losses are a normal and recurring part of investing in credit assets, we expect that the resolution of the legacy multifamily portfolio and improvements in processes and underwriting more broadly at Lima One should result in significantly lower loss rates across more recent vintages of origination. As a result, we believe this new metric, alongside our reported GAAP results and our existing DE disclosure, can give investors a clearer view of the underlying earnings capacity of our investment portfolio as we work through the resolution of these troubled legacy assets. While the timing of loan resolutions and resultant credit charges can be difficult to reliably forecast, we expect realized credit losses on the legacy transitional loan portfolio to accelerate meaningfully in the second quarter before beginning to normalize as we move through 2026 and into 2027. As a result, we expect that the difference between DE and this new supplemental DE measure will narrow considerably over time. We anticipate reassessing the usefulness of this new measure as the runoff transitional portfolio continues to wind down. Finally, subsequent to quarter end, we estimate that as of the close of business on Friday, our economic book value was approximately flat to the end of the first quarter. I would now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One. Bryan Wulfsohn: Thanks, Mike. We acquired over $1 billion of residential mortgage assets in the first quarter. This included $471 million of Non-QM loans, $400 million of agency securities in addition to $300 million of TBAs, and $219 million of business purpose loans originated by Lima One. Non-QM remains our largest asset class. During the quarter, we grew our Non-QM book to $5.5 billion. We added $471 million of new loans with an average coupon of 7% and an LTV of 68%. Although our portfolio has grown significantly in recent years, along with the broader Non-QM industry, we remain highly focused on credit quality and continue to review every loan prior to acquisition. Credit performance in our Non-QM book remains strong, with a default rate just above 4%. During the quarter we issued two securitizations. First, in early March, we issued our twenty-second Non-QM deal, selling $326 million of bonds at an average coupon of 5.12%. The newly originated loans in that deal carry an average coupon above 7%. Later in March, we re-securitized over $400 million of seasoned Non-QM loans that had been in two deals we issued several years ago. This relever unlocked approximately $40 million of cash and additional financing capacity. We expect this move to be accretive to our earnings moving forward. During the quarter, we continued to grow our agency portfolio, which now exceeds $3.5 billion in size. Our investments this quarter continued to focus on low pay-up spec pools. After the escalation in the Middle East unleashed a broader sell-off, spreads widened by nearly 40 basis points from the tights, and we took advantage of the volatility, establishing a $300 million TBA position in late March. Since then, we have seen spreads retrace about 10 basis points. We expect to add to the portfolio depending on market conditions and excess investment capacity. Turning to Lima One, Lima originated $219 million of business purpose loans during the first quarter. This included $145 million of new transitional loans and $74 million of rental term loans. We continue to sell the longer-duration rental loans at a premium to third-party investors. This quarter, we sold $81 million, generating $2.7 million of gain-on-sale income. Mortgage banking income at Lima rose to $7.7 million, an increase of 34% from the fourth quarter. During the quarter, Lima's monthly submissions and origination pipeline reached their highest level since 2024. With the recent opening of our wholesale channel and the relaunch of multifamily lending underway, we expect Lima's contribution to our earnings to grow from here. Lastly, touching on our credit performance, during the quarter, delinquencies rose in our residential loan portfolio to 7.8%. The increase was driven primarily by elevated default activity in our legacy multifamily book, which, as a reminder, has been in runoff mode for the past two years. We have made further progress shrinking that multifamily book and resolving nonperforming loans since quarter end. Our delinquency rate has already fallen back to 7.3%. We look forward to recycling that capital back into income-producing assets as we move through the year. In summary, Q1 was a productive quarter for our investment platform: we grew the portfolio, executed two Non-QM securitizations, saw strong momentum at Lima One, and continued to move our credit borrowings toward non-mark-to-market financing. We believe the current environment positions us well for the year ahead. And with that, I will turn the call over to the operator for questions. Operator: We will now open the call for questions. Thank you. Ladies and gentlemen, at this time, we would like to begin the Q&A session. Your first question comes from Bose Thomas George with KBW. Please state your question. Bose Thomas George: Yes, good morning. Actually, how much capital was tied up in the remaining multifamily transitional portfolio at quarter end? And just your guidance on the convergence between the DE and the dividend—does that include paydowns as well? Michael C. Roper: Hi, Bose. Yes, to answer your second question first, the forward guidance on DE reconverging by the end of the year does include anticipated paydowns of some of the troubled assets and redeploying into our target assets. To answer your question on how much capital is locked in that multifamily book, it is just over $100 million—$101 million at the end of the quarter. Bose Thomas George: Okay, great. Thanks. And then on the expenses, after the second quarter, when that noise is over with the depreciation, what is a decent run rate for expenses going forward? Michael C. Roper: Yes. So I think there is always a little bit of noise from quarter to quarter in our G&A for various reasons. For example, this quarter we had about $4 million of accelerated noncash stock-based comp charges, which is consistent with the first quarter of the past few years, and then the $2.4 million of the accelerated depreciation. So if you take this quarter and normalize for those one-timers and then about a penny a quarter—or roughly $1 million a quarter—for the lease changes, I think that is a pretty good start for the run rate of G&A. Bose Thomas George: Okay. And each first quarter will have that noncash comp piece that kind of bumps it up a little bit? Michael C. Roper: Yes, exactly. The accounting rules require us to expense awards made to retirement-eligible employees on the grant date instead of over the three-year service period. Bose Thomas George: Okay. Okay. Great. Thank you. Operator: Next question comes from Marissa Wilbos with UBS. Please state your question. Marissa Wilbos: Thank you and good morning. On the Agency MBS portfolio, how should we think about it? Is it ultimately something that you are going to rotate back into Non-QM and BPL, or is this a strategic reweighting in the portfolio? Bryan Wulfsohn: Yes, I would think we will most likely have some exposure, but the level of exposure will be wound down a bit depending on the attractiveness on the credit side. So as Lima grows its production, you could expect that agency portfolio to receive paydowns, and we could also sell bonds to help fund the growth at Lima One, in addition to Non-QM purchases as well. Marissa Wilbos: Okay. Great. And for Lima One, what is its posture on AI and automation within servicing and underwriting? Is there a cost target that you are willing to share for 2026, 2027 there? Bryan Wulfsohn: We are trying to reduce G&A there by roughly 10% plus, and we are on the way to doing that. We had some efficiencies gained in Q1. We are utilizing AI down there, utilizing the Claude and Anthropic AI infrastructure to help accelerate those moves. It is unclear if there is an exact percentage of cost reductions we can say AI will accrue to the business, but it is one of those things that we are exploring, and there will be ongoing benefits as we utilize the AI code and agents down there. Marissa Wilbos: Okay. Great. Thank you. Operator: Your next question comes from Matthew Erdner with JonesTrading. Please state your question. Matthew Erdner: Hey, good morning, thanks for taking the question. I would like to touch on the multifamily. Is there anything that specifically drove the delinquencies to increase quarter over quarter significantly? Bryan Wulfsohn: Well, the whole portfolio’s loan structure was three-year terms with two-year extensions. They are all really coming up on maturity and have been extended. So at this point, there might be some where the borrower has been out trying to get refinancing, and they realize they cannot get the same amount of proceeds that they borrowed initially, so then they call it a day, and we have to deal with the property or work out a mutual resolution. Really, I think it is the fact that as they are toward end-of-life, you see more delinquencies in certain cases where the borrower is unable to refi or sell the property timely. Matthew Erdner: Got it. And then, as it relates to that, should we expect you guys to bring some of these properties in, stabilize, and then sell? Or are you going to look for them to hit the market, see what they can get, and then move on from the asset? Bryan Wulfsohn: It is really a case-by-case basis. Some assets we will try to stabilize where it makes sense depending on the time and capital required to do so. But in some instances, it just makes sense to hit the bid and move on. Matthew Erdner: Got it. That is helpful. And then one last one for me as it relates to this. I appreciate you throwing in the adjustment there for DE. Should we expect a number kind of similar to 3Q levels? Michael C. Roper: Yes, so, as I said in my prepared remarks, it is really hard to have a reliable forecast of when exactly the losses are going to hit. Every foreclosure is different, every borrower is different, and there can be some timing differences from quarter to quarter pretty easily. I think with that said, in the immediate term—we expect this primarily in the second quarter—we are expecting somewhere in, call it, the high teens of credit losses on multifamily resolutions. Part of the reason why our guidance is the back half of 2026 is that one bad multifamily loan rolling through the next quarter can be a 3 or 4 cent swing in DE, depending on the timing of that resolution. But our base case is somewhere in the mid to high teens of credit losses for the second quarter before beginning to normalize in the back half of the year and into 2027. Matthew Erdner: Got it. I appreciate the comments. That is helpful. Thank you, guys. Operator: Your next question comes from Mikhail Goberman with Citizens JMP. Please state your question. Mikhail Goberman: Hey, good morning, guys. Hope everybody is doing well. If I could just clear up one thing: when you talk about distributable earnings converging with the $0.36 dividend in the latter half of the year, are you referring to the current $0.30 figure you printed in Q1 or the $0.34 prior realized credit losses figure? Michael C. Roper: That is referring to our $0.30 DE, or the DE with loss adjustments. Mikhail Goberman: Gotcha. Thank you for that. And in looking at the Lima One pipeline, what do you guys see as the product mix going forward? Obviously, a very good quarter to start the year. Do you see momentum picking up in Q2, Q3? And your thoughts on the product mix going forward? Bryan Wulfsohn: Right now, the mix is really split between transitional and rentals. As we bring wholesale more online, we could see growth on the rental side accelerate. But we are also seeing great growth on the transitional side. When we said the pipeline is the highest it has been in the past couple of years, that is plus or minus $200 million at the moment. In terms of what the pipeline converts to actual loans, you might be, say, 50% to 60% to 75%, depending on coupon, timing, and other factors. So that might go to roughly $100 million per month, plus or minus, in the near term, and we still expect to grow from there. One thing we have not really hit upon yet is multifamily is relaunched, but the pipeline and submissions are really not including multifamily figures. We think we are in slow growth mode there; we have looked at a lot of loans, but we have not closed anything yet. The hope is that multifamily really comes online in the back half of the year and could help accelerate growth on top of what we are doing on the transitional and rental side. Mikhail Goberman: Great. Thank you, guys. Michael C. Roper: Thanks, Mikhail. Operator: Your next question comes from Doug Harter with BTIG. Please state your question. Doug Harter: Thanks. On the transitional loans, could you just remind us at what level those are marked and how we should think about resolutions and working through that book and any impact that it should have on book value? Michael C. Roper: I will speak to the second half of your question first. We mark these loans every quarter to fair value, and that is not just what we would expect in a credit loss situation—it is what we think we could sell the loan for. There is not a huge market for delinquent transitional loans, so a loan rolling delinquent can have a pretty big impact on its fair value even if we think the LTV is good enough to be money-good on that asset. As far as the mark level, it is a story of the current loans versus the delinquent loans. The current loans, with their, call it, 10% to 11% coupon, tend to be marked just slightly below par. For the delinquent loans, it is really on a loan-by-loan basis. I think the weighted average total discount for the portfolio in multifamily is just over $50 million, and then single-family is probably closer to about $15 million to $20 million discount. Doug Harter: Great. So it just depends on the ultimate resolution, but you feel like on the delinquent loans you have been fairly conservative? Michael C. Roper: Yes, for sure. We have always taken great pride in our marks process and have extreme confidence in the level of our marks. I think we have said over the last few quarters that as we have resolved some of these delinquent loans we are generally—almost entirely—generating gains. This quarter, we resolved another $160 million of delinquent loans, and the P&L versus our prior mark on those assets generated a gain of about $14 million this quarter. So, again, all of the empirical evidence, including where we have executed loan sales in prior quarters, gives us a lot of confidence in where we have these assets marked. Doug Harter: Great. Thank you. Michael C. Roper: Thanks, Doug. Operator: Thank you. And there are no further questions at this time. I will now hand the call back to Craig L. Knutson for closing remarks. Thank you. Craig L. Knutson: All right. Well, thanks, everyone, for your interest in MFA Financial, Inc. We look forward to speaking with you again in August when we announce second quarter results. Operator: Thank you. And that concludes today’s call. All parties may disconnect. Have a good day.
Operator: Morning. My name is Jason, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade Company's First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Chris Forrey, Senior Vice President of Finance and Investor Relations. Mr. Forrey, you may begin your conference. Chris Forrey: Thank you, Jason, and good morning, everyone. I would like to welcome you to Boise Cascade Company's First Quarter 2026 Earnings Call and Business Update. Joining me on today's call are Jeff Strom, our CEO; Kelly E. Hibbs, our CFO; Joanna Barney, leader of our Building Materials Distribution operations; and Troy Little, leader of our Wood Products operations. Turning to Slide two. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA, and segment income or loss to segment EBITDA. I will now turn the call over to Jeff. Jeff Strom: Thanks, Chris. Good morning, everyone, and thank you for joining us for the earnings call. I am on Slide three. As I step into the role of CEO, I want to express my deep confidence in our company, our talented people, and our established direction. We have a strong foundation and a proven strategy that has positioned us well in the marketplace, and I am committed to building on that momentum. My thanks to our outstanding team whose dedication, expertise, and commitment to our customer and supplier partners are what drive our continued success. I am excited to lead us forward, focused on delivering sustained value for all of our stakeholders. Let me turn to our first quarter results. Total U.S. housing starts increased 1% compared to the prior-year quarter. However, single-family housing starts were off 5% for the same comparative period. Our consolidated first quarter sales of $1.5 billion were down 2% from 2025. Our net income was $17.8 million, or $0.50 per share, compared to net income of $40.3 million, or $1.06 per share, in the year-ago quarter. Our businesses delivered solid results for the quarter despite continued demand uncertainty resulting from geopolitical events, volatile mortgage rates, and severe weather. The challenges of consumer sentiment and home affordability remain the most significant headwinds for residential construction activity. In this environment, we are continuing to leverage our integrated model, which consistently demonstrates its value and resilience, particularly in challenging market conditions like these. As a follow-up to our previously disclosed legal matter that was resolved last week, this was a legacy issue involving certain hardwood plywood purchases made at a single distribution facility in Pompano, Florida between 2017 and 2021. We bought the wood from a former U.S.-based supplier that improperly imported the products. We were not involved in creating or operating the supplier scheme, but we did not follow some of our own internal processes that would have prevented us from making these purchases. We have taken responsibility for that and have strengthened our processes to prevent this from happening again. Kelly will now walk through our segment financial results, capital allocation priorities, and second quarter guidance, after which I will provide insights on our business outlook and make closing comments before we open the call for questions. Kelly E. Hibbs: Thank you, Jeff, and good morning, everyone. BMD sales in the quarter were $1.4 billion, down from the first quarter of 2025. BMD reported segment EBITDA of $48.2 million in the first quarter, compared to segment EBITDA of $62.8 million in the prior year. Selling and distribution expenses were up $8.2 million from the first quarter of 2025. In addition, gross margin dollars decreased $6.5 million compared to the prior-year quarter, reflecting lower gross margins on all product lines, particularly EWP. In Wood Products, our sales in the first quarter, including sales to our distribution segment, were $398.2 million, down 4% compared to the first quarter of 2025. Wood Products segment EBITDA was $32 million compared to EBITDA of $40.2 million reported in the year-ago quarter. The decrease in segment EBITDA was due primarily to lower EWP sales prices as well as higher per-unit EWP conversion costs. These decreases were offset partially by lower per-unit OSB costs, as well as higher plywood sales volumes and price. Moving to Slides five and six, BMD's year-over-year first quarter sales decline of 1% was driven by net sales price decreases of 3% offset partially by net sales volume increases of 2%. By product line, general line product sales increased 4%, commodity sales decreased 5%, and sales of EWP decreased 7%. Sequentially, BMD sales were up 2% from the fourth quarter of 2025. Weather had a significant impact on first quarter sales activity at our Southeast and Northeast distribution centers, as the affected locations were closed for a combined 35 days in January and February. The impacts were evident in BMD's daily sales pace during the quarter, with daily sales of approximately $21 million in both January and February before rebounding nicely in March to $24 million. Our first quarter gross margin was 14.4%, down 30 basis points year over year. The decline was driven by EWP competitive pricing pressures, as well as lower margins on general line. BMD's EBITDA margin was 3.5% for the quarter, down from both the 4.5% reported in the year-ago quarter and the 4.1% reported in the fourth quarter. Lower gross margins, coupled with the effects on our operating expense leverage from branch closures in the first quarter, negatively impacted our EBITDA margin result. Turning to Slide seven, on a year-over-year basis, first quarter I-joist and LVL volumes were down 51%, respectively. Sequential I-joist and LVL volumes were up 168%, respectively, driven by seasonal demand improvements and channel restocking ahead of the spring building season. As it relates to pricing, first quarter EWP sales prices declined about 7% year over year and remained flat sequentially. Turning to Slide eight, our first quarter plywood sales volume was 373 million feet compared to 363 million feet in the first quarter of 2025. The year-over-year increase in plywood volumes was due primarily to the restart of operations at our Oakdale mill in the fourth quarter of 2025. Sequentially, our plywood sales volumes were up 5% from the fourth quarter of 2025 as anticipated due to seasonal demand improvement. The average plywood net sales price was $343 per thousand in the first quarter, representing a 1% increase year over year and 4% sequentially. We attribute the recent improvement in plywood pricing primarily to weather-related supply constraints in the South combined with reduced imports. Notably, Brazilian imports declined by more than 60% year over year in 2026. However, following the late February Supreme Court decision that validated the use of IEPA to impose tariffs, higher import volumes are anticipated, which are expected to influence market dynamics in the coming months. I am now on Slide nine. We had capital expenditures of $40 million in the first quarter, $23 million of spending in BMD and $17 million of spending in Wood Products. The capital spending range for 2026 remains at $150 million to $170 million. Roughly a third of BMD's 2026 spending relates to growth projects across our system, with the balance of our spending in both segments attributable to business improvement and efficiency projects, replacement projects, and ongoing environmental compliance. Speaking to shareholder returns, we paid $10 million in dividends during the quarter. Our Board of Directors also recently approved a $0.22 per share quarterly dividend on our common stock that will be paid in mid-June. Through the first four months of 2026, we repurchased approximately $91 million of our common stock, including approximately $66 million in the first quarter. Since the beginning of 2024, we have repurchased approximately 12% of our outstanding shares. As of today, approximately $148 million of our outstanding common stock is available for repurchase under our existing share repurchase program. As expected, we utilized cash in the first quarter, primarily driven by seasonal working capital needs along with our planned capital investments and shareholder returns. However, the ongoing strength of our balance sheet remains in place, which positions us well to continue the pursuit of our strategic objectives. I am now on Slide 10, where we have outlined a range of potential EBITDA outcomes for the second quarter, along with the key assumptions underlying these projections. As we look ahead, end market demand remains uncertain, and certain cost inputs are volatile. For BMD, we currently estimate second quarter EBITDA to be between $65 million and $80 million. BMD's current daily sales pace is approximately 15% above the first quarter sales pace of $22 million per day. Gross margins are expected to be between 14.25% and 15%. Importantly, as our guide suggests, if our current sales pace is sustained, we expect BMD to show a healthy sequential improvement in EBITDA margin. For Wood Products, we estimate second quarter EBITDA to be between $32 million and $47 million. Our EWP order files are showing seasonal strength, and we expect sales volumes to increase mid-single digits sequentially. EWP pricing is expected to range from flat to low single-digit declines sequentially. In plywood, we expect sequential volume increases in the mid-single digits. On plywood pricing, quarter-to-date realizations were 8% above our first quarter average, with the balance of the quarter market dependent. We expect our per-unit manufacturing costs will be comparable to the first quarter, as higher volumes and early results from focused site improvement plans across our manufacturing system are expected to offset recent energy-related cost increases. I will turn it over to Jeff to share our business outlook and closing remarks. Jeff Strom: Thank you, Kelly. I am on Slide 11. Given the current environment, visibility into end market demand for 2026 is limited. For much of the first quarter, mortgage rates declined to the lowest level in over three years. However, recent geopolitical turmoil has led to volatility in Treasury and mortgage rates alike, introducing greater uncertainty on the remainder of the spring selling season. Homebuilders are responding to the cautious demand environment with thoughtful approaches to starts, home sizes, location, and inventory. As a result, maintaining our focus and staying agile remains central to Boise Cascade Company's strategy for delivering outstanding service across a broad selection of in-stock, industry-leading building materials in any operating environment. The alignment of our two business segments is evident every day and is a driving force in our world-class operations. Enhanced channel visibility supports the alignment of our production rates and inventory strategies with end market demand. Cross-divisional coordination and our strong financial position provide the security and flexibility for our teams to execute our strategy and deliver long-term value creation. We are committed to continuously seeking new opportunities to leverage our integrated model by driving greater efficiency, responsiveness, and innovation across our organization. As we consider the future of homebuilding, we remain confident in the structural drivers of U.S. housing demand, which include the persistent undersupply of housing driven by generational tailwinds, near-record levels of homeowner equity, a decade of underbuilding, and an aging U.S. housing stock with the average home being more than 40 years old. The strong fundamentals for both new residential construction, repair, and remodeling reinforce the industry's favorable outlook. Boise Cascade Company's investments throughout the business cycle give us confidence that we can outpace industry growth as these market tailwinds materialize. Thank you for joining us today and for your continued support and interest. We welcome any questions at this time. Jason, please open the phone lines. Operator: Thank you. We will now begin the question and answer session. Our first question comes from Michael Roxland from Truist Securities. Please go ahead. Michael Roxland: Yes. Thank you, Jeff, Kelly, and Chris for taking my questions. First question I had, Kelly, just in response to one of your comments regarding Brazilian import and lower tariffs. You mentioned expecting to see them in coming months. Have you started to see any increased plywood or wood flows from Brazil at this juncture? And it also seems like my second question, just EWP prices in the first quarter sort of stabilized quarter over quarter. One of your peers was showing mid-single-digit decline in pricing. Can you provide any more color around what is driving the price stability in your business maybe versus some of your peers? Kelly E. Hibbs: Yes. So my understanding, Mike, is that the true answer is yes. We are expecting to see more and more of that show up at the ports, maybe a little bit delayed because there was a phenol disruption at a manufacturing site in Brazil. But we know the wood is coming and we are seeing quotes show up in the coming months. Jeff, do you have some more color on that? Jeff Strom: I would add that there has been some that has showed up, but not significant enough that would cause any major impact. Troy Little: Yes. I mean, we were able to hold prices relatively flat since the third quarter of last year, but that is definitely not a function of less pressure in the market. It has come back. There has been more chatter. There is regional pricing pressure from our competitors still. We have the conversations with homebuilders and still a strong concern for home affordability. So right now, it is just a matter of being very strategic. It is regional conversations, making sure that we are competitive, but we are not leading with price, leading into our model and our service proposition. Fortunately, so far, we have been able to hold prices, and right now, quite honestly, our order file is strong, which allows us to be selective in how we address our pricing. Operator: The next question comes from Ketan Mamtora from BMO Capital Markets. Please go ahead. Ketan Mamtora: Good morning, and thanks for taking my question. Perhaps to start with, can you talk about freight and transportation inflation that you are seeing across both Wood Products and Distribution? If you can quantify that headwind and how you all are mitigating that? And then, when I think about the second quarter EBITDA guidance, appreciate that it is a dynamic environment. As I think about your top end versus the bottom end of the guidance range, can you at a high level talk about what that contemplates? Should I think about your current daily pace getting you to the midpoint of the guidance range in Distribution? Is that the way to think about it? Troy Little: Ketan, this is Troy. In terms of diesel prices, we are seeing that in various aspects of our business. The biggest one for us is probably in our resin costs. That is the input cost that is affected related to the increase in prices. We did have a price increase probably in the 10% range around our resin. Then we have some direct cost, if you think about fuel for rolling stock and things like that, which is not a huge spend for us, but that will be an impact. Moving veneer around the system, we see that in our wood costs. Then there is the indirect, every piece and part that comes into our system has some type of inflationary pressure around freight. We are working on our cost control on the opposite side of that to help mitigate some of that. It is hard to quantify all that, but I think we are still comfortable that we should have comparable manufacturing costs, as Kelly mentioned. Joanna Barney: And then I will jump in on the Distribution business. Diesel rose significantly during the quarter. We were paying almost double at the end of the quarter what we were paying at the beginning of it. Most of it we are able to pass on through our daily transactions with our customer base. There are some fuel surcharges, and our people have done a tremendous job of passing those along, but there has been some short-term impact to our margin on program business where freight was included as part of the original program. At times, there are delays in what we are able to go out and recoup as far as those costs. I would also add that there has been a lack of trucks and drivers due to tight immigration policies. That has impacted freight rates and the availability of trucks as well. Jeff Strom: The thing I would add on the BMD side is that every load that goes out of our warehouse every single day, we make sure that we optimize. We are sending out a full truck to spread that freight as efficiently as possible, and we have been working really hard on doing that. Kelly E. Hibbs: So, Ketan, let me take a shot at the guidance piece. I will start with BMD first and then give you a little color on Wood Products also. You kind of hit it in your question, which is we still have two months to go in the quarter. End market demand is pretty uncertain, and how much of the demand we have seen so far is replenishing the channel versus end market demand is a little hard to tell. There are unknowns and volatility around the cost inputs. That is why we draw a pretty wide range around our EBITDA forecast for both businesses. Specific to BMD, if you assume that the sales pace we spoke to so far this quarter is sustained, and our margins are at the midpoint of the range that we put out, that would get us into the midpoint of the range, into the low $70 millions. That would get us back to a really good spot in terms of a healthy improvement in EBITDA margin, into the mid-4% range. In Wood Products, it is a similar theme in terms of the challenges with forecasting. Troy spoke to good order files in EWP and pretty good order files in plywood, but we know, particularly in plywood, how quickly things can flip. Again, that is why we purposely put a pretty wide range around those results. Operator: The next question comes from Susan Marie Maklari from Goldman Sachs. Please go ahead. Susan Marie Maklari: Good morning, everyone. Thanks for taking the questions. My first question is around thinking of the environment that we are in and the increase in macro uncertainty that we saw at the end of the first quarter. Has that had any impact on the mix you are seeing between sales coming out of the warehouse versus direct? What is the overall read of your customers, and how is that influencing the guide and how we should think about the flow through to results? And within general line, can you talk about what you are seeing from your suppliers in terms of competitive dynamics and pricing over the next couple of quarters? Jeff Strom: I will take a stab at the first part. What we did see in the first quarter, when commodities started to move and prices were down to begin with, was people stepping in and buying more directs than we have seen in the past few quarters. There was absolutely a shift to that. But as we move forward, with the uncertainty that is out there, that most often creates more reliance on distribution, and we are absolutely seeing that. Our warehouse business continues to be very strong and continues to be what people want to use. Joanna Barney: On suppliers and pricing, we saw late in the first quarter somewhere in the neighborhood of 25 to 30 price increases. Some of those were surcharge-driven, based on gas and freight, but most of them were product price increases. We are seeing broader product offerings and suppliers starting to understand that there has been some strength in the market that they are pushing into, and they are starting to move their prices accordingly. Operator: The next question comes from Kurt Yinger from D.A. Davidson. Please go ahead. Kurt Yinger: Great. Thanks, and good morning, everyone. I just wanted to go back to BMD. Looking at the volume performance there, even if we strip out an assumption on hold-in, it looks pretty flat, which I would say is good in this market. Can you talk about whether it is product category or customer initiatives that seem to be bearing fruit there? And then on the gross margin line, as we move into the back half, is the competitive environment so challenging that it would be tough to get back to that 15% plus gross margin level, or is that still an attainable goal? Joanna Barney: I would say it is both product and customer initiatives. As a backdrop, we had some margin return-on-sale impacts that were either a onetime event or not expected to be permanent. To Kelly's point in his prepared remarks, we had 38 days of closures with weather. Some of that business we recaptured, some of it we lost, but our costs remained fixed, so there was an impact there. We had fuel surcharges that we passed through, but there is timing that goes on there, so there is a margin shift. Within general line, we are focused on growth of our home center special order business, which we grew by double digits, and we continue to build out our door segments, gaining market share there. We are driving top-line revenue. Tied to our door initiative, we have pushed into the manufactured housing sector and saw double-digit growth in the first quarter, with a lot of upside opportunity there. We are making strides with our digital strategy. Our e-commerce business was up 57%. On commodities, you will continue to see us outperform the market because we have built out commodity technical systems that give us early indicators and real-time views into trends, inventory levels, and market segments, so that we can move quickly across our system. Our commodity volume and footage was flat to up in the first quarter, and we actually saw margin expansion, in spite of lower pricing. We feel confident that we are expanding our market share in commodities based on the systems we have built and the educated risks we take in putting inventory on the ground, built on years of experience and the expertise of our people. That has helped us in deflationary pricing environments to hold on to our volume and expand our margins. On gross margins versus 15% plus, I think it is an attainable goal. The current demand environment is uneven and rate-sensitive. There are still a lot of opportunities, but they vary by geography, product category, and builder type. When interest rates dipped below 6%, we saw strength return pretty quickly. If rates pull back and geopolitical tensions ease, BMD could see some improvement from seasonality as commodity prices improve. We are still seeing pricing pressure on EWP, although it is abating. We have had margin impacts across a wide breadth of general line products, and we saw year-over-year commodity price deflation, but we have offset that with margin expansion. If nothing changes in rates or tensions, we would have a more measured outlook: some seasonal improvement, but not a broad-based acceleration. Operator: The next question comes from George Staphos from Bank of America. Please go ahead. George Staphos: Hi, everyone. Good morning. Thanks for taking my questions. First, is there a way that you can give us a ballpark figure for the inflation you have seen in your cost of goods on an annualized basis that you have yet to recover in pricing actions already? Second, on plywood, you said there is some wood already showing up from Brazil and South America, but it has not had a big effect. Why do you expect it might have a bigger effect? What would some of the factors be, given your experience? Kelly E. Hibbs: I will start on the first one and speak specifically to Wood Products. In BMD, we are seeing some freight increases that we will largely be able to pass through over time. In Wood Products, the big items subject to inflationary increases that we are experiencing now and did not really see much of in the first quarter are glue, natural gas, and purchased electricity. Generally speaking, that is roughly 10% of Wood Products cost of sales. To the extent we see, and we have seen, about 10% increases in some of those key inputs, that gives you a sense of the cost impact, assuming volumes remain the same. On the second question around plywood imports, Jeff? Jeff Strom: We have not seen a huge impact because there has not been a whole lot that has come in so far. Why do we expect there will be an impact? It is supply and demand. It depends on where it comes in—what port, whether it is a big plywood market or not—and how much comes in. If there is a lot and a big price advantage, imports will grab some share. We have seen that before. But with what is happening there, there has been a delay with transportation and freight coming over. It will be wait and see when it gets here. George Staphos: As a quick follow-up, what are the spreads between current market pricing and what the quotes are coming in on imports? Can you give us a sense of the arbitrage? Jeff Strom: When it first got here, if I remember right, it was about a 10% difference between the two—what the pricing spread was when it first arrived or what they are quoting. Operator: The next question comes from Jeffrey Stevenson from Loop Capital. Please go ahead. Jeffrey Stevenson: Hi, thanks for taking my questions today. How much did restocking ahead of the spring selling season contribute to the improved sequential EWP volumes during the quarter? And could you provide an update on current EWP channel inventories at this point of the year compared with both last year, when they were elevated, and historical levels? Also, could you provide an update on the new Thorsby line and how we should think about the ramp and production at the facility as we move through the first half of the year? Troy Little: Undoubtedly, the better part of the first quarter was probably a restocking story. Maybe late in the quarter there was some follow-through, so it was a combination of both. Our order file grew to a solid two-week order file, and we have carried that through April and into May. On channel inventories, there is still a reliance on two-step distribution. Talking to our channel partners, they have increased inventory, but they are not back up to the high end of their targets for this time. On Thorsby, it is largely as planned. Right now, we are testing out and getting our products certified in the various depths and series. That is expected to go through the second quarter. In terms of sellable product, we would not have sellable product until probably the beginning of the third quarter. To a degree, that is capacity we have, but demand will dictate. To the degree demand is there, we will start producing out of Thorsby; to the degree it is not, we will use that as throttle. Going into the third quarter, I would not anticipate that being a huge volume contributor right now. Operator: Our next question comes from Reuben Garner from Benchmark. Please go ahead. Reuben Garner: Thank you. Good morning, everyone. Maybe just a follow-up on EWP price-cost dynamics. I think you referenced an expectation of low single-digit sequential pricing declines. What is driving that? You mentioned a strong order file and inflationary pressures. Is it still just so competitive, or supply-related? Is there a lag from competitiveness several months ago that is flowing through now? Why would we see sequential declines when we have a strong order file and inflationary pressures? And then on the BMD side, I think, Kelly, you mentioned margin pressure in general line products. Is there something unique going on there in any specific categories driving that? And where do inventories stand today in general line, and how are you thinking about them for this year? Troy Little: It is flat to down. There is enough chatter out there that we could see continued erosion from the competitive environment—primarily on retaining business. On delivered cost, if freight increases are not fully passed through the channel, there is some impact to net sales price on the freight side. That combination may lead to a little erosion, but we are not anticipating a lot. That is why we have the flat to low single-digit range. Joanna Barney: From a margin compression standpoint, the biggest pressure we have seen has been across engineered wood, but that is abating. The rest of general line shows small margin impacts across a wide breadth of products, mostly market-based at the distribution level—nothing out of the ordinary. On channel inventories, the business starts we have seen are starting to normalize a bit. The channel is lean but relatively stable. Customer purchases have been more consistent than the start-stop we saw last year. We have started seeing price increases from multiple suppliers on the general line side as well. Jeff Strom: I would just add that single-family is such a driver for us, and single-family demand is very much muted. When it gets like that, everybody is fighting for what is out there. It is hyper-competitive right now across pretty much everything. Operator: And the next question is a follow-up from Kurt Yinger from D.A. Davidson. Please go ahead. Kurt Yinger: Great. Thanks. Troy, have you seen any derivative impact in terms of the EWP price conversations you have had, maybe specifically on floor systems, given what we have seen in dimensional lumber inflation? And then, looking at the outlook, it sounds like the order book is pretty strong. I know the first quarter benefited from some restocking, but it does not seem like much of a sequential seasonal lift in EWP volumes in the second quarter versus the first. Is that related to the restock dynamic or more of an assumption around some softening in single family as we progress into summer? Troy Little: Nothing that I am aware of on floor systems. Typically, once you get builders to convert to EWP floor systems, you do not see them convert back. On open-web truss, that is a competitive product to I-joist, and the cost inputs for those products have been quite volatile in recent quarters. But I-joists are maintaining share. We were happy to see the good sequential volume increase we saw in I-joist. Kelly E. Hibbs: On the outlook, it is a little hard to sort out exactly how much of the first quarter was end market versus channel restocking; it was some of both. As we move into the second quarter, if you read the transcripts from the national homebuilders, they are very focused on sales pace and moving spec inventory, moderating their starts pace to their sales pace. Some are talking about increasing starts, but more seem to be talking about decreasing starts and transitioning a bit more to build-to-order, given improved cycle times. That all plays into the narrative. We are doing our best to pick up the demand signal from the homebuilder channel, which suggests we are not going to see a big seasonal increase into the second quarter. Operator: This concludes our question and answer session. I would like to turn the conference back over to Jeff Strom for any closing remarks. Jeff Strom: Thank you for your continued interest in Boise Cascade Company. Please be safe and be well, and we look forward to talking to you next quarter. Thank you all. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.