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Operator: Good morning, everyone, and welcome to the Lear Corporation First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead. Tim Brumbaugh: Good morning, everyone, and thank you for joining us for Lear Corporation's first quarter 2026 earnings call. Presenting today are Raymond E. Scott, Lear Corporation President and CEO, and Jason M. Cardew, Senior Vice President and CFO. Other members of Lear Corporation's senior management team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Raymond E. Scott begins, I would like to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear Corporation's expectations for the future. As detailed in our safe harbor statement on Slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-Ks and other periodic reports. I also want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today's call is on Slide 3. Raymond E. Scott will review highlights from the quarter and provide a business update. Jason M. Cardew will then review our first quarter results and provide an update on the full year. Finally, Raymond E. Scott will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I would like to invite Raymond E. Scott to begin. Raymond E. Scott: Thanks, Tim. Please turn to Slide 5, which highlights key financial metrics for the first quarter. We started the year strong, delivering significant increases in both revenue and earnings in the first quarter compared to last year. Sales increased 5% to $5.8 billion and core operating earnings grew by 10% to $297 million. Adjusted earnings per share was $3.87, a 24% increase from 2025, and our highest quarterly EPS since Q1 2019. Operating cash flow improved significantly to $98 million for the first quarter. Slide 6 summarizes some of the key business and financial highlights from the first quarter. Our strategic priorities remain focused on four key areas: extending our global leadership in Seating, expanding E-Systems margins, growing our competitive advantage in operational excellence through Idea by Lear, and supporting sustainable value creation with disciplined capital allocation. During the quarter, we continued our momentum of winning key awards in both Seating and E-Systems. Our most significant E-Systems award, announced in March, was with General Motors, where we will supply wire harnesses for the full-size SUV programs starting late 2027. This is a major new win for Lear Corporation on a key GM platform. Our execution track record and automation capabilities gave GM the confidence to award a portion of this program mid-cycle. This award positions Lear Corporation to win additional content on subsequent generations of GM's full-size SUV platform. During the quarter, our E-Systems team was also awarded the power distribution module for the next-generation electrical architecture with a key North American automaker. Our power distribution module proactively detects electrical issues to help ensure critical systems continue to operate. This capability is essential across all powertrains, particularly as new vehicles adopt software-defined architectures, electrification, and advanced driver assistance technologies. This award leverages our PACE award-winning technology and establishes Lear Corporation as an industry benchmark and trusted leader in this fast-growing strategic segment. Another key award in the quarter was for a high-voltage power distribution unit with Audi for a new program in North America, continuing our momentum in power electronics. These awards build on the reputation that we have been developing across our customer base. As these new programs launch, our E-Systems revenue will improve customer diversification. We are accelerating our growth with Chinese automakers in both segments. In E-Systems, our collaboration with Seating to leverage key relationships, as well as investments designed to strengthen our local engineering capabilities, enabled us to secure wire harness awards that will generate consolidated average annual revenue of $140 million, surpassing our new business awards with Chinese automakers for all of 2025 in just the first quarter. Key wins include conquest awards with Dongfeng and SAIC, as well as new business with Geely. These programs launch as early as mid-2026 and are accretive to our two-year backlog we announced in February. In Seating, we secured complete seat awards with BAIC, Dongfeng, and Geely in China that will also generate average annual revenue of approximately $140 million, a portion of which is in our non-consolidated joint ventures. In addition, we are in a strong position to secure business with two Chinese automakers expanding their production in Brazil. We also continue to see additional opportunities with Japanese automakers. In the first quarter, we were awarded a new program to supply complete seats for FAW Toyota in China through one of our non-consolidated joint ventures. In Seating more broadly, the pace of awards for our thermal comfort modularity is accelerating. In the quarter, we won four new awards for ComfortFlex and ComfortMax seat solutions, bringing the total to 38 for these innovative products. Two awards are with BMW in Asia, one combining lumbar massage and another combining heat, ventilation, and seatbelt reminders. We also won our first module awards with Audi in Europe, combining lumbar massage, and our ComfortMax seat solution with Geely in Asia. Two programs launched during the quarter, with 12 additional programs launching through the rest of this year. These awards extend our leadership in Seating and also customer adoption of these modular solutions. We expect adoption rates will continue to accelerate as these solutions become more pervasive. Many of these new business awards launch this year and next, particularly those in China, where the time from sourcing to launch has significantly accelerated. This increase in our 2026 and 2027 two-year backlog is approximately $250 million, improving our near-term growth outlook in both business segments. We are accelerating the capabilities we are developing under our Idea by Lear framework, particularly in automation and the use of digital tools. Progress is being made at our Rochester Hills Advanced Manufacturing Center, where we will showcase some of our key product and process innovations, and we continue to implement these capabilities into our current manufacturing processes. The Orion facility supporting GM's expanded full-size SUV and pickup truck production is utilizing Idea by Lear from the start. Leveraging our process-related acquisitions, approximately 80% of our capital is being developed and deployed in-house, including 100% of our advanced robotics and vision systems. This demonstrates how we are using Idea by Lear to reduce manufacturing costs and improve profitability from day one, rather than implementing cost savings initiatives over the life of the program. In E-Systems, we validated and launched two differentiated wire automation solutions internally developed by our most recent acquisition, StoneShield. These solutions deliver Lear Corporation-specific competitive advantages by improving cycle time and productivity in seal insertion and heavy-gauge crimping. It was a strong quarter both commercially and financially. Revenue in the quarter increased 5% year over year, with growth in both segments, even after the reduction in revenue resulting from changes in tariff policy, as well as the impact from the end of production of the Ford Escape, Focus, and Lincoln Corsair. Stronger conversion on higher volume and continued momentum in our underlying net performance drove improved margins in both segments and for the total company. Free cash flow improved by $5 million in the quarter, allowing us to take advantage of the attractive stock price and accelerate our share repurchase program. In the first quarter, we repurchased $75 million of shares and continued to repurchase shares throughout the quiet period, putting us on pace to buy back over $300 million in the year. This combination of strong financial results and our disciplined capital allocation plan has driven consistent earnings per share growth. Our first quarter EPS increased by 24% year over year, a truly remarkable accomplishment by the team and a clear indicator of the value we are generating for our shareholders. Slide 7 provides an update on key metrics to track our progress on expanding margins and generating long-term revenue growth. The pace of awards is normalizing after several years of delays as customers adjusted their production portfolio strategies. This gives us much better visibility into our pipeline of future opportunities. In the quarter, we secured several conquest awards for seat components such as surface materials. The pipeline for complete seats awards is concentrated in the back half of the year, very similar to the pattern we saw in 2025. For E-Systems, we are seeing increased conquest opportunities in wire harnesses, particularly as competitive landscapes have shifted significantly due to strategic actions and operational performance of key competitors. In the quarter, we won three conquest awards for wire programs, two in Asia and one in North America. Two of these awards were for wire harnesses previously supplied by a key competitor. We also won a small conquest award in electronics for a second North American automaker. These wins will generate approximately $200 million in average annual revenue and represent about a third of our increased two-year backlog. We see additional conquest opportunities expected to be sourced throughout the remainder of the year. Awards for our thermal comfort modular solutions are accelerating. New wins with Audi and Geely bring us to 17 unique customers for ComfortFlex and ComfortMax seat solutions. Notably, approximately half of the revenue from this quarter's thermal comfort awards will come from modular solutions. The collaboration between Seating and E-Systems, combined with the strength of our local teams, continues to drive new business with Chinese automakers. In the quarter, we won new business in both segments with the same customers like Dongfeng and Geely, clearly illustrating the synergies between our two business units. Our continued investments in Idea by Lear and automation are expected to generate an additional $75 million in savings this year. The first quarter delivered approximately $70 million in savings, putting us well on track to achieve our target, with savings expected to build throughout the year. Our teams continue developing innovative methods to drive efficiency. For example, our Seating team held a global inventory workshop during the quarter to leverage digital tools that will improve supply chain and inventory efficiencies, ultimately enhancing future free cash flow generation. We also held our Lear AI Olympics in North America. Over 400 hourly and salaried operations employees participated, generating more than 100 AI projects with solutions throughout our manufacturing value stream. This grassroots event exemplifies Lear Corporation's innovative culture, empowering employees to identify and drive efficiency improvements in all facets of the business. As Idea by Lear continues to mature, we see our employees developing and participating in new and innovative future events. Restructuring savings from last year's investments combined with actions planned for this year are expected to total $80 million. In the first quarter, we generated $26 million in savings, giving us a strong start towards our full-year target. Our first-quarter net performance puts us on track to achieve our full-year margin expansion targets: 40 basis points for Seating and 80 basis points for E-Systems. Despite higher engineering and launch costs to support our growing backlog and a challenging year-over-year comparison, our Q1 net performance exceeded expectations. Slide 8 illustrates the significant shift in our customer mix in China. In the first quarter, we secured $280 million in business awards with Chinese automakers across both Seating and E-Systems, ranging from complete seats and thermal comfort solutions to wire harnesses. The speed to market with the Chinese automakers is significantly faster than in other regions. We are seeing request-for-quote to sourcing to launch cycles completed within the same calendar year. This accelerated pace drove a portion of our $250 million increase in our 2026 and 2027 backlog from recent business wins. Strategically, these wins validate the organizational changes we made in 2023 to bring Seating and E-Systems under the same leadership to better align how we serve Chinese automakers. The collaboration between our Seating and E-Systems teams in that region, combined with strengthening our local engineering capabilities, is helping us win across both segments, often with the same customer. Our ongoing rigorous review of the Chinese automakers' competitive positions and product strategies, both inside and outside the country, is a cornerstone of our strategy. We are focusing resources on the customers that have the greatest long-term potential for market success and pursuing programs with the highest risk-adjusted returns and strongest margin potential. As Chinese automakers expand both within China and globally, we believe this integrated leadership model positions Lear Corporation to capture a large share of that growth with a broader, more competitive product offering. Chinese automakers continue to expand production outside of China, particularly into Europe and South America. We are in a strong position to secure business with two Chinese automakers expanding their production in Brazil, which we expect to be awarded within the next coming months. We are actively pursuing additional opportunities globally with BYD, LEAP Motors, among other Chinese automakers. While we maintain a strong, profitable business with multinational customers in China, our new awards with Chinese automakers are aligning our customers' revenue mix with the country's market share dynamics. We expect China automakers to represent more than half of our 2027 China revenue. And with that, I will turn the call over to Jason for a financial review. Jason M. Cardew: Thanks, Tim. Slide 10 shows vehicle production and key exchange rates for the first quarter. Global production on a calendar basis decreased 3% compared to the same period last year. This year's fiscal calendar resulted in four additional production days this quarter compared to last year, which will be offset in the fourth quarter. On a Lear Corporation fiscal basis, production increased by 3% in North America and 4% in Europe, while China was down 5%. As a result, global vehicle production was up 3% on a Lear Corporation sales-weighted basis. The U.S. dollar weakened against both the euro and the RMB. I am sorry. Let us skip the page. Turning to Slide 11, I will highlight our financial results for the first quarter of 2026. Our sales increased 5% year over year to $5.8 billion. Organic sales were up 3%, reflecting higher volumes on Lear Corporation platforms and the addition of new business in Seating. Core operating earnings were $297 million compared to $270 million last year, driven by higher volumes on Lear Corporation platforms and favorable foreign exchange. Adjusted earnings per share were $3.87 as compared to $3.12 a year ago, reflecting higher earnings and the benefit of our accelerated share repurchase program. First quarter operating cash flow was $98 million compared to a use of $128 million last year due to higher core operating earnings and improvement in working capital and payments related to commercial settlements for EV clients. Now turning to Slide 12. Slide 12 summarizes the revenue impacts from recent changes to U.S. tariff policy. Although there is no earnings impact, we felt that the complexity of changes in U.S. tariff policy and significant impact on revenues warranted further explanation. There were two significant changes to the tariff regime that are expected to result in lower revenue both on a year-over-year basis and relative to our February outlook. OEMs are now receiving import adjustment credits based on a percentage of MSRP for vehicles assembled in the U.S. These credits can be allocated down the supply chain, allowing suppliers to import components effectively tariff-free. As a result, we had lower pass-through revenue from tariff reimbursements in the quarter, which we expect to continue going forward, as well as from a one-time adjustment for credits applied retroactively. This will also improve cash flow by eliminating the timing lag between paying tariffs and receiving customer reimbursement. Second, the Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act, or IEEPA. As those tariffs are refunded, we will return the proceeds to customers who had previously reimbursed us. In anticipation of those refunds, we recorded a one-time adjustment in the first quarter to reverse IEEPA-related recoveries that had previously been recognized as revenue. In 2025, we recognized $194 million in revenue due to the recovery of tariffs we paid during the year. Our February full-year 2026 outlook included a $100 million year-over-year revenue tailwind from tariff recoveries based on the assumption that there would be no changes to the tariffs in place at the time. In the first quarter, the one-time reversal resulted in a $175 million year-over-year revenue reduction, which, when combined with the application of customer credits, led to a $243 million reduction in revenue from what was assumed in our February outlook. For the full year, we now expect a $285 million year-over-year revenue reduction driven by the one-time adjustment in the first quarter as well as tariff-free imports using customer-allocated credits throughout the remainder of the year. This represents a $385 million revenue reduction from what was assumed in our February outlook. The magnitude of these revenue impacts with no corresponding effect on earnings is a testament to the team's ability to achieve full recovery of tariffs, both in 2025 and 2026. Our strong track record of navigating tariff policy changes and protecting earnings gives us confidence in our ability to continue to mitigate impacts regardless of the policy environment. Slide 13 explains the variance in sales and adjusted operating margins for the first quarter in the Seating segment. Sales for the first quarter were $4.4 billion, an increase of $253 million, or 6%, from 2025. Organic sales were up 3%, reflecting higher volumes on Lear Corporation platforms such as the Jeep Grand Wagoneer and the Ford Explorer and Lincoln Aviator in North America, as well as the addition of new business including the Series M7 in China, the BMW iX3 in Europe, and the Jeep Cherokee in North America. Adjusted earnings were $305 million, up $25 million, or 9%, compared to 2025, with adjusted operating margins of 6.9%. Operating margins were higher compared to last year primarily due to higher volumes and the mix of production by program, a margin-accretive backlog, and net performance, partially offset by the impact of foreign exchange. Slide 14 explains the variance in sales and adjusted operating margins for the first quarter in the E-Systems segment. Sales for the first quarter were $1.4 billion, an increase of $9 million, or 1%, from 2025. Organic sales were flat as higher volumes on Lear Corporation platforms, including the Ford Expedition, Bronco Sport, and Lincoln Navigator in North America, were offset by the build-out of the Ford Escape, Focus, and Lincoln Corsair reflected in our backlog. Adjusted earnings were $86 million, or 6.1% of sales, compared to $74 million and 5.2% of sales in 2025. Higher operating margins were driven by increased volumes on Lear Corporation platforms, net performance, and the impact of foreign exchange, partially offset by the build-out of the programs reflected in our backlog. Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full-year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules, and S&P forecasts. At the midpoint of our guidance range, we assume that global industry production will be down less than 2% on a Lear Corporation sales-weighted basis, driven by lower volumes in our largest markets: North America, Europe, and China. From a currency perspective, our 2026 outlook assumes an average euro exchange rate of $1.17 per euro, and an average Chinese RMB exchange rate of 6.91 RMB to the dollar. Slide 16 reaffirms our outlook for 2026. Our first quarter results were strong and the second quarter is trending favorably, putting us on a trajectory to deliver results between the midpoint and high end of our guidance range. However, given the uncertainty around the overall global macro environment and potential impacts from the conflict in the Middle East, we felt it was prudent to simply maintain our full-year outlook at this time, essentially protecting for the risk of these events impacting global industry production in the second half of the year. Moving to Slide 17, we highlight the value created through the execution of our disciplined capital allocation strategy. Over the past four years, we have returned more than $1.8 billion to shareholders through share repurchases and dividends, consistently reducing our share count each year. From 2021 to 2025, cumulative revenue per diluted share grew 36%, while adjusted earnings per diluted share increased 61%, with steady growth in both metrics every year over this period. Performance significantly outpaced both the S&P 500 and the S&P 1500 Auto Components Index. Despite this consistent execution and outperformance, our valuation multiple significantly lags that of the S&P 500. We believe this disconnect reflects an underappreciation of our future earnings power, strong cash flow generation, and disciplined capital returns in an industry experiencing modest growth in production. Given our current valuation and confidence in our ability to enhance long-term shareholder value, we believe the best near-term use of excess cash is to continue prioritizing share repurchases and our sustained dividend. We remain focused on generating strong cash flow, investing in the core business to drive profitable growth, and returning excess cash to shareholders. In 2026, we are targeting free cash flow conversion of more than 80%, which will enable us to buy back at least $300 million worth of stock, with additional repurchases depending on free cash flow generation and tuck-in acquisition opportunities. As we drive growth and margin expansion, the resulting strong cash flow and our disciplined capital allocation strategy will continue to generate shareholder value. Now I will turn it back to Raymond E. Scott for some closing thoughts. Raymond E. Scott: Thanks, Jason. Please turn to Slide 19. The first quarter was exceptional, demonstrating the strength of our strategy and our ability to execute. Our commercial success continues the momentum from 2025, including the major conquest truck program and the GM Orion plant in Seating, and the $1.4 billion of business awards in E-Systems. Our first quarter key business wins, such as the major GM full-size SUV wire harness award, key power distribution module wins, and growth with Chinese automakers, increase our two-year sales backlog. More importantly, the near-term success winning new business awards combined with significant opportunities to secure new business throughout the remainder of 2026 positions both businesses to generate sustainable revenue growth over the next several years. Idea by Lear continues to differentiate us. Our automation capabilities are key drivers of new business wins, enabling us to launch at speeds previously unprecedented in the industry. While our competitors are trying to catch up, we will be creating the next generation of solutions, further widening our advantage. Financially, first quarter results were strong across the board: revenue up 5%, core operating earnings up 10%, and adjusted EPS up 24% to $3.87, the highest quarterly EPS since Q1 2019. Free cash flow improved by $25 million, enabling us to repurchase $75 million in shares, putting us on pace for over $300 million of buybacks in 2026. We are on track to deliver our full-year net performance targets: 40 basis points in Seating and 80 basis points in E-Systems. The pace of new wins and strong pipeline position us for long-term success. We will now open the call for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star and then one on your touchtone phones. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. We will pause momentarily to assemble the roster. Our first question today comes from Dan Meir Levy from Barclays. Please go ahead with your question. Dan Meir Levy: Hi. Good morning. Thanks for taking the questions. I wanted to first start with a question on the revenue outlook. You are cutting—there is a negative impact from tariffs, there is a lower LVP outlook, there is a little bit of positive offset for FX. I think you are talking about some positive backlog. Maybe walk through the moving pieces that allow you to maintain outlook? And in fact, I think you sort of gave some implied commentary that there is potentially even some upside on that piece. I interpreted that correctly. So if you could just focus on the moving pieces on the revenue side. Thank you. Jason M. Cardew: Sure, Dan. Just from a revenue perspective, you have highlighted the key drivers pretty well. We have the reduction in revenue due to the changes in tariff policy, which is $385 million. That is largely been offset by two things. One, foreign exchange—so the change in assumptions around the euro and the RMB, among others. And then also the impact of commodity and other pass-throughs to customers, and the most notable change there is around copper. We have also seen commodity increases with foam chemicals, with steel, and so there is a pretty meaningful increase in revenue with no corresponding earnings impact as we pass through those adjustments, mostly on a one-quarter lag. So there is a small leakage from an earnings perspective. And then in terms of the industry volume assumptions, first of all, we recognize S&P adjusted the overall industry, but we obviously do not sell to every program in the industry. If we look at our mix of programs, there were actually some programs that S&P increased their full-year outlook on, so we have favorable mix that is offsetting a portion of that lower industry volume. And then we also have the benefit of the new business awards that launch starting in the second half of the year. So there is a small incremental revenue from the backlog that also helps offset that industry volume. Dan Meir Levy: Thank you. Second, if we could just double click on the margins, please. You just did your best quarterly margin, I think, in something like five years. I know that there are some nuances there that are going on with tariffs and what is happening there. But the guidance does imply a decrease in margins for the subsequent quarters. Maybe you could just walk us through the margin dynamics—what would drive this implied decline in margins? Or is that some form of conservatism? Raymond E. Scott: Why do I not go first here, Dan, and Jason can talk a little bit about it. I think one is, Jason in his narrative talked a little bit about it. Given the uncertainty around how we are looking at the second half of the year—and that can go in a lot of different directions—we are probably conservative if things play out differently. And I will tell you right now, I talked about the momentum and how I felt about this year. Now we have the actual facts in front of us as to how we are performing. Think about E-Systems—E-Systems has done a great job. We had some operational issues. We had some issues relative to the decrease in volume here in North America around the EV market. I feel really good that the majority of that is behind us. The operations are running significantly better. So from a sustainability and durability perspective, the margins in E-Systems are at a better place. In Seating, we are doing a really good job, particularly in Europe, around some very similar situations around volume, cleaning that up. We started the year off strong. I think we are just looking at the second half, and I think there is a lot of narrative around—not just us—but what the second half brings with the situation that is going on with Iran, and inflation, and what demand is. But I feel really good about the things that we can control. I think it would have been an absolute beat and raise, but we are just being a little bit cautious given some of the things that we are being faced with that are outside of our control. But the things we are controlling—we crushed it. I talk about momentum, now to be able to back it up. What we did in Seating with the truck award, the conquest wins validated our modularity and our technology around automation and the digital changes within our manufacturing plants. And then right behind that, with this major conquest win on a mid-cycle program—that is very rare—opening that door on the T1 platform mid-cycle, putting us in great position for the next generation T2 on a very popular product line. And the wins that we saw in China were exceptional. I feel the momentum. I feel really good operationally how we are performing in both segments. And the wins were exceptional. That is where my head is at. I think we are just being a little bit mindful of what we are being faced with outside of our control. Jason M. Cardew: And, Dan, I will give you a couple of data points to help round that out as well. It is important to note that the first quarter margins benefited from this change in tariff policy, so that reduction in revenue creates a little bit of an artificial boost to the margins in the quarter. It was about 20 basis points in Seating and 40 basis points in E-Systems. We also had a little bit of a benefit from commodities in E-Systems in the first quarter, just the way we account for copper revaluation as copper prices have come up, and then that kind of unwinds itself through the balance of the year. So, very strong first quarter, but there are a couple of nuances there that are important to highlight. Looking at the second quarter, we have a pretty good line of sight now on production schedules and our operating plans, and we feel like the second quarter is going to be strong as well. We expect revenue of $6.1 billion to $6.2 billion in the second quarter. As I look at that year over year, we would be up about 2%—so roughly $100 million year over year—in the second quarter. Looking at each of the business segments, we expect Seating margins to be in the mid-6s and E-Systems to be in the low 5s. E-Systems would be up a little bit from last year, and Seating would be down to flat compared to last year. We also see strong net performance in both business segments in the second quarter. Forty and eighty basis points is our full-year guidance, and that is similar to how we see the second quarter playing out. We also expect very strong free cash flow in the second quarter—likely $150 million or maybe a bit more than that. So the second quarter is set up pretty nicely. That leads to the obvious question: why are you not raising full-year guidance? And Raymond explained it pretty effectively. It is really a bit of conservatism on our part. You may recall on the fourth quarter earnings call, when we talked about the full year, we said that the high end of our guidance range effectively represents what our customers’ production schedules are and how we see the year playing out. Then at the midpoint, we had $400 million of revenue protection, and another $400 million at the low end of the guidance range for the unexpected or deterioration in the market that we are not currently seeing, but we protected for that nonetheless. We have not used really any of that protection through the first half of the year. So if things hold together, we are tracking between the midpoint and the high end of the guidance range for the full year. I think that would help smooth out the progression of operating margins throughout the balance of the year and would make a little bit more sense overall. I just want to reinforce one point that Raymond made around execution. I have been here for 34 years. I have seen good performance and bad performance over that time period. I would say, right now, what we are seeing in both Seating and E-Systems is the best execution operationally probably in ten years, and I think it is not just in the segments overall, but it is in every region and every subsegment. We have not had that in quite some time. We are not happy with where operating margins are today—there is lots of room for improvement, particularly on the E-Systems side—but that consistent execution and operational discipline really is a key enabler to achieving not just the 40 and 80 basis points of net performance that we see this year in Seating and E-Systems respectively, but into 2027 and beyond. It is important to highlight that the performance of the team is at another level today than where it was a year ago, two years ago, five years ago. It is really a strong performance across the board. That is what really gave us mixed feelings about whether to adjust the full-year outlook. We have so much confidence and so much momentum, we really wanted to raise—sort of take the low end of that guidance range out—but with all that is happening with the uncertainty around Iran, as Raymond mentioned, we thought it was prudent just to hold serve for now and provide an update. We will have a chance at the end of the second quarter and at a couple of public investor events to provide an update on how Q2 is playing out, and we hope to provide a little more color again on the full year at that point. Dan Meir Levy: Great. Thanks. That is very helpful. Operator: Our next question comes from Colin M. Langan from Wells Fargo. Please go ahead with your question. Colin M. Langan: Oh, great. Thanks for taking my questions. Just wanted to follow up on the comments, just so I understand. You mentioned that tariffs helped margins in Q1. Is that just because the accounting is more skewed on the sales impact in Q1 versus the rest of the year? And then also you mentioned that copper actually helped margins on E-Systems in Q1. That kind of surprised me a bit because I thought copper prices were kind of all over the place—there might actually have been a headwind. So why would copper actually help in Q1? Jason M. Cardew: I will start with that and then move back to tariffs, Colin. The way we account for copper and value our inventory—if there is a large change in the copper price, we revalue our inventory. That led to a step up of the inventory and a benefit to cost of sales in the quarter. That was partially offset by the higher copper prices and the lag of recovery, but it was a tailwind in the quarter. In regards to the tariffs, we had the full value of this refund for 2025 tariffs all recorded in the first quarter. We had $175 million of refunds between the IEEPA tariffs and the use of credits that our customers have given us applied retroactively to last year. It is about $70 million, or a little less, in IEEPA tariffs and $106 million in the Section 232 credits that we are able to apply for refunds. That is the disproportionate impact on the first quarter revenue and margins as a result of that. Colin M. Langan: Okay. That is helpful. And then since we are talking about raw material, can you remind us what your hedging is on copper in particular and steel and resins and other commodities? And is there an impact in the guide for a little bit of a pinch on some of those? Jason M. Cardew: We do not hedge commodities, Colin, but we do have back-to-back indexing agreements in place pretty much across the board now. The vast majority of copper, steel, foam chemicals, and leather are all on pass-through agreements. In certain cases, with steel, for example, the customers are buying that steel for us, so we see no impact from that. In other cases, there is a one-quarter lag or two-quarter lag, and so we are seeing across-the-board increases in commodity costs. But the end result, in terms of the earnings impact, is pretty negligible. It is about $10 million worse than where we were sitting here on the fourth quarter earnings call for the year, but it is a pretty modest impact. Colin M. Langan: Got it. Alright. Thanks for taking my questions. Operator: Our next question comes from Joseph Robert Spak from UBS. Please go ahead with your question. Joseph Robert Spak: Thanks. Good morning, everyone. Raymond, I wanted to go back to some of your comments. You talked about some changing competitive dynamics in wiring, and I was wondering if you could spend a minute talking about how you are positioning Lear Corporation to take advantage of that. I know you mentioned some conquest wins, which sound pretty exciting. But from your perspective, is it better to win conquest business or really go after some of these new architectures? Do you have a preference there? Maybe I have a follow-up, but I will pause there. Raymond E. Scott: I think it is a combination of both. The conquest opportunities have presented themselves over the last six months. I think I have been hinting at this or talking about it—the amount of requests we have got for quotes, mid-cycle or next generation. That is something that is relatively new. I think it is a combination of maybe strategic directions with other companies or performance. Quite candidly, I think we have gotten a lot of requests for quotes because of the lack of performance by others. I have always said that the ticket to get into quoting is you have to perform every day around quality and delivery—you have to meet the customers’ expectations. Those are more of a recent anomaly that continue to persist. We still have a significant amount of electrical opportunities when we think about newer platforms, and that is part of what we just announced too. Some of these new electronic awards are very strategic. They are placed right where we have really good capabilities and competencies. The customers spend a lot of time with us and our capabilities. The electronic wins also come in at a higher margin than our overall target margin, so they are coming on at a very good accretive level as we start to launch them. The third element I will say is this new ability to gain access to the domestic Chinese market. I was just in China last week. It is amazing—the amount of opportunities we are seeing not just in Seating but in E-Systems. We had a dinner with a key customer and we expanded the relationship to include commercial trucks, both in Seating and E-Systems. That door is more of a recent area. We had more wins in this quarter. Hopefully, we have the same success we had at the last call—right after we got off, we had two significant awards in China. I see that as a really nice opportunity for us to continue to grow. It is the combination of what we have done from a leadership organizational perspective. That door is open and we are seeing significant opportunities. I am excited. It is very rare—when we get these conquest wins that are mid-cycle, they do not do that because they are happy and content. They are doing it very strategically, very intentionally. Our job on that T1 is to deliver. When that door is open, I hope we can take advantage of it post-delivery and continue to expand our position on the next generation of that platform. That was very strategic. What is good about all this is that we have target margins, we are competitive, and we are hitting what we believe is an absolutely acceptable return for our company. It shows that the automation and the digital changes we are making in our manufacturing plants, both across electronics and wiring, are very competitive. Our reputation is as a leader for quality and delivery. I am excited where we are at in E-Systems, but it is across a lot of different areas, not just the current conquest wins, but also the new generation of electrical architecture. Joseph Robert Spak: Great. Thanks for that. And then, Jason, maybe if I could—two quick ones. First, I appreciate all your comments on margin expansion cadence throughout the year. But in the quarter, you mentioned extra days, extra volume. Did that also help the margin—did you get a little bit more fixed cost leverage, or is it really just a dollar thing? Second question is with the metals Section 232 tariff changes—I do not think there is any change there—but it is a little confusing because when we start looking to some parts, there are definitely elements of wiring that are listed in there. Maybe you could confirm that auto wire harnesses are not really impacted by the change, or if they are, that would be great to know as well. Jason M. Cardew: There really are no new tariffs that are impacting us, other than you have the Section 122 tariffs replacing the IEEPA tariffs, and that is a little bit of a wash—maybe a little bit lower overall. That has been factored into the updated commentary around the impact of revenue for the full year due to tariffs. In regards to your question about the additional workdays—yes, that would benefit the quarter on a year-over-year basis. It really shows up on the volume line. Volume overall, I think, was about $190 million, and roughly two-thirds of that is a result of the additional workdays, with the balance being higher volumes on a normalized basis. It is important to point out that that was a positive development for us. We had full-year negative volume/mix factored into the initial guidance and the first quarter was off to a positive start relative to that. So even normalizing for the workday difference, it is still a positive trajectory relative to what we had anticipated when we issued our initial guidance. Joseph Robert Spak: So just on the shape of the year-end margins, if I am following right, you have got to have greater expansion over the next two quarters because I am assuming there is giveback in the fourth quarter just on the calendar. Is that the right shape of the year? Jason M. Cardew: That is exactly right. If you think about first half, second half, you have your normal seasonality in the third quarter, where you are going to have downtime in Europe. Then you have typically a strong fourth quarter, particularly in China—historically very strong in the fourth quarter. That may be a little more tempered for us on a year-over-year basis as a result of the change in the calendar and the impact on the number of workdays in each quarter relative to the prior year. Operator: Our next question comes from Mark Trevor Delaney from Goldman Sachs. Please go ahead with your question. Mark Trevor Delaney: Yes. Good morning. Thanks for taking the questions. I think the two-year net backlog was $1.325 billion at the end of last year, and you spoke about the new awards adding $250 million. I believe that is all scheduled to ship for 2027. Maybe you could share more on where the backlog now stands. Were there any other puts and takes to it besides the $250 million? And in terms of the linearity, can you confirm that the incremental does all ship in 2027? Jason M. Cardew: There is a little bit of that $250 million that will hit 2026 and, given the volatility of customer plans, we did not want to put a pinpoint number to it, but it is positive within 2026 as well. That is a comprehensive look at the overall change in the 2026 backlog and 2027 backlog, so it includes some timing changes and other assumption changes embedded in that. If we look at it on a three-year basis, if you were to include 2028, where some of these awards show themselves more fully, it is about a $400 million increase in our three-year backlog. We did not provide a starting point for 2028, but overall, over that three-year period, the awards received in the first quarter increased the backlog by $400 million. It was an incredibly strong start to the year. As Raymond pointed out, the new development—particularly in China—is how short the development windows are and that the gap in time between award and launch is much shorter than what we are historically accustomed to seeing. We are excited about the opportunity to continue increasing the 2027–2028 backlog with awards that happen throughout the remainder of this year. Mark Trevor Delaney: Thanks for that color, Jason. I also wanted to talk about the competitive landscape. You already mentioned the momentum that Lear Corporation is seeing with conquest opportunities in wiring and E-Systems. Could you give an update on Seating? I ask because last quarter you announced the largest conquest award in the company's history on the Seating side, and I think that was driven in part by the automation capabilities that Lear Corporation has. With that award now in place, and what it shows for the industry more generally with what Lear Corporation can deliver, can you give an update about whether it is generating additional interest from other auto OEMs that may also want to take advantage of what Lear Corporation can provide? Raymond E. Scott: There is a lot going on in Seating, and it is important how we are communicating this. The award you mentioned was very important on that truck platform because it validated the work we have been doing for ten years. The way we differentiate ourselves—if you think through all the different acquisitions—what is important is we talk about manufacturing our own capital, how we have a modular system, how we are looking at automation and digital changes on the plant floor. That is very attractive to all of our customers. That win was significant because it was based on everything I just mentioned. Think back through IGB, Cogsberg, InTouch, WIP automation, the most recent acquisition in E-Systems, ASI, M&N—the list is long. We have been doing these great acquisitions for over ten years to really build the competencies and capabilities that we have. In a world where automation and digital are the buzzwords, we have been building on that for over ten years, and we are really putting it in place. What is important in how we track ourselves—before we started communicating this externally—we had to have contracts and proof points that this is real. The 38 contract wins are because we are vertically integrated and we manufacture the module itself down to the lumbar. We are not partnering or using supply agreements. Customers see the real value in that, and that helps us expand our margins and help our customers with efficiencies and purpose and use within the vehicle. When I was in China last week, it was amazing—the content that is going in the vehicles and the need for speed to accelerate technology within the seats. When you have the vertical capabilities like we have, we can meet their timing. We can meet their specifications and the requirements they are looking for—adaptability and customer preferences. We have built an innovation center to showcase it to analysts and our investors. The customers have seen it. You are seeing in-production use of automation of a modular system. It is amazing how that is adapting because the timing could not have been better. We thought about this ten years ago, but every one of our customers—the domestic Chinese are accelerating speed to market and really wanting to ensure they are driving a competitive seat system. The traditionals are trying to understand how they can get to that, and we are showing them what we are doing. We are doing it both with the domestic Chinese and here at home with the North Americans and Europeans. We are being very selective too. The Orion facility was a very targeted approach that will have all of our best capabilities for automation and digital tools. What we are doing with the innovation centers can replicate and speed to market within our production facilities. It is picking up momentum. I was hesitant when we talked about all this, and now we have 38 contracts within the modular arena. We are the only ones doing a modular system where we vertically integrate our own components. It is a differentiator for sure. Frank has done a great job now in Audi in Europe. Obviously, we are in North America. As this becomes more prevalent, our customers were somewhat concerned around wanting to see it in production first. Now that it is in production, we can take production parts and show them, and then walk them through a line. That is what they did with the truck business we got—they went through an audit, they saw our facilities. Every one of our customers is coming back and saying, I have never seen this. We just had a major OEM come through our facility in Rochester and they said there is no seat company doing what you are doing. Think about the time we have been doing this—it is over ten years. We have acquired specific skill sets that have been integrated—just that integration takes time. Now we are at full momentum of what we are seeing. We are going to be selective. The Orion win was a conquest too because we had a competitor with a plant sitting right there and we won that business. We are going to be selective on customers, how we position ourselves, how we invest in them on a particular platform. We are definitely differentiating ourselves. We have to do a better job of explaining that because it is not a fancy marketing slogan. This is real. We are in production. We vertically integrate. We have the components. The automation side in our manufacturing plants is incredible. It has really taken off, and I am excited. Particularly with the domestic Chinese, they are pushing the market to think differently. The timing could not be better for what we have been putting in place over ten years. Again, we can extend the meeting. I would love to have everyone out to Rochester Hills. You have to see what it is—and that is in production. That is not theory. Those are production parts that are built in an automation facility around digital tools that are 100% going into production. Operator: Our next question comes from James Albert Picariello from BNP Paribas. Please go ahead with your question. James Albert Picariello: Hi. Good morning. Can you speak to the content and margin opportunity for E-Systems as we think about OEMs transitioning to domain-centralized architectures? I assume a portion, if not all, of the wiring awards you called out this morning are on this type of platform. For many folks on the outside looking in, the headline features of these next-gen electrical systems call for dramatic reductions in copper and overall wiring content. It is a much more simplified design. I know it is more complicated than that. Can you speak to the positive features of these next-gen electrical systems as it pertains to your E-Systems business? Thank you. Raymond E. Scott: A couple of things. We mentioned these electronic modules that we won. They are smart and specifically used on these new architectures. We have really put ourselves in a leadership position. We will be able to announce a little bit more about the platforms and what we won as we work with our customers. Those are really the leading-edge electronic systems for this architecture you are referring to, and we are in a very good position there. On wiring, we do get asked—so far we have not seen significant changes in wiring. There are different alternative materials and things that are being tried. Upfront design—we work closely with BMW. When I talked about the wins that we got around early development of the harness upfront, that is a big ingredient in how you can really save and look at cost savings within the harness program. Usually the after-design gets put into the vehicle, but with BMW upfront, we put our automation tools in place so we could get a more efficient design. The changes to wiring—we are seeing more content added. I was in China last week. It is amazing—with LiDAR and what they are doing with their architectures that are becoming very complex around features. It is a balance. We are working with alternative materials and alternative designs. We see a combination of those applications. When we think about the next level of architecture, where we have done a nice job is on the electronics capabilities that we have, and we keep announcing these new programs. They are very unique to our capabilities and put us in a good position to be a leader in that area within the new architecture. James Albert Picariello: Got it. That is super helpful. I really appreciate that color. And then just to clarify on the tariff recovery reversal, the February outlook embedded a full-year revenue reduction of $385 million, and now it is a $285 million year-over-year reduction, but you are keeping your revenue range intact. Is that just better FX predominantly that is a positive offset to that year-over-year hit? Jason M. Cardew: Yes, James, it is primarily FX and the pass-through on commodities, particularly copper. That is where the biggest impact is in terms of the copper price change from our original guidance and the pass-through mechanisms that we have in place. Then to a lesser extent, foam chemicals and other commodities that are on these pass-through mechanisms. That, in addition to FX, is largely offsetting the impact of the reduction in revenue due to the tariff accounting. Operator: Our final question today comes from Emmanuel Rosner from Wolfe Research. Please go ahead with your question. Emmanuel Rosner: Great. Thank you. Hi there. A question on the longer-term potential for E-Systems, in particular margin. One of your larger competitors just became an independent company as opposed to being part of a larger one, and that has put a pretty big spotlight on the fact that they are very profitable with very solid margins, with a goal to improve those by another 200 basis points over three years. To what extent is there a similar opportunity for Lear Corporation? Is there a different business mix or reasons why you could not get there? What are some of the structural differences and what is the potential for Lear Corporation? Raymond E. Scott: We just took business from that big competitor and won it at a competitive price, and we are going to make fair returns when we look at returns. We can compete with anyone and we can generate very similar returns. As I have mentioned before, we have had some operational challenges that we have been working on, particularly in Mexico and particularly around EV. We did a great job of winning significant business in EV, and we have been working through the volume reductions both commercially and operationally. The operation turnaround led by Nick and the team down in Mexico has done a great job. We have really good business within E-Systems. We had some pockets that we had to clean up that were within our control. The business we are winning is accretive, and we believe that is on pace to continue to get us good returns in E-Systems. We do not see anything inhibiting us from growing our margins. That is why we put net performance on there. We are confident that we will continue to expand our margins in E-Systems. There is a pace to it because we have some programs that are lower from an assumption standpoint with volume or inflationary costs that we did not completely catch up with commercial negotiations. But I have not felt this good about E-Systems and the operational performance and what we are doing until really this last quarter. I feel good where we are at with E-Systems, Emmanuel. We can compete against anyone out there, and we have proven it—at a good return. Nothing prohibits us except for some of the operational things I touched on that we have to stay focused on and continue to clean up. Jason mentioned that we are operating at a much better level. We still have room to continue to improve. We are not there yet. That is going to continue to improve our margins. Another thing that maybe was an Achilles’ heel was our ability to grow. Well, we are growing. We had $1.4 billion of awards last year in E-Systems after we pivoted away from the North American EV decline. That was a great year. And now we crushed it—more Chinese awards than we had all last year in E-Systems—and we have a great pipeline right now. Jason M. Cardew: The only thing I would add to that is they do have a scale advantage. You have to also look at the portfolio of programs. You may recall when our E-Systems business was at its peak performance, we had a large, 2 million-unit program globally that allowed for a unique scale advantage and higher margins. I think they may enjoy a similar phenomenon that skews the margin profile a little bit. But as Raymond mentioned, we are super excited about the combination of continued net performance of 80 basis points a year and then getting back to growing the top line after digesting what happened with EVs in North America and the decision that we made to exit certain products. As you get into 2027 and 2028, you start to see that inflection from these new business awards starting to exceed the impact of the wind down of the products we exited. When you take net performance plus the effective volume/mix/backlog wind-down as a number, that is when you see a meaningful move higher in E-Systems margins. Emmanuel Rosner: That is great color. One quick follow-up. On growth over market. With the backlog improving and some of these new things launching later this year, what would be your best guess on when growth over market could turn more positive for Lear Corporation? Timeline. Jason M. Cardew: If we look at the full year for Seating, we are expecting positive growth over market this year, and E-Systems is negative primarily because of the build-out of the Escape, Corsair, and Focus weighing on the top line. As the year progresses, our growth profile improves, particularly in China. We had negative growth over market in the first quarter in China, which was largely driven by Seating. E-Systems actually had positive growth over market in the first quarter in China. As we look at the balance of the year, the first quarter for our China growth over market is the trough, and it improves based on our volume assumptions and the backlog improvements that we highlighted. That improves throughout the year. We feel really good about how that market is playing out for us, and for the full year, we think we are pretty close to neutral in China on a growth-over-market basis. After last year being negative—certainly the way we exited last year—that is a positive development. The momentum is even more important because it is not just this year. As you look out to next year and beyond, we see an opportunity to grow in line with that market and to have a revenue base that more closely resembles the underlying market share of the customers in that market. Raymond E. Scott: Thanks, Emmanuel. You are welcome. Okay. Tim, that is it. Just for the team, again, thank you. We talked about coming out this year with momentum, and we definitely have it. Your hard work keeps reinforcing what that momentum looks like in a quarter. It was a great quarter, great performance. Thanks to the team around the world. The growth opportunities and the contract wins were incredible. I appreciate all the hard work. We have a lot of work to do and a lot of things that we are focused on that we can control, as you know. But we have great momentum, and so let us keep it—keep the focus, keep the momentum going. Thank you for a great quarter. Operator: And with that, ladies and gentlemen, the conference call has concluded. We thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning. My name is Katie, and I will be your conference facilitator today. Welcome to Chevron Corporation's first quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I will now turn the conference call over to the Head of Investor Relations of Chevron Corporation. Please go ahead. Unknown Speaker: Thank you, Katie. Welcome to Chevron Corporation's first quarter 2026 Earnings Conference Call and Webcast. I am the Head of Investor Relations. Our Chairman and CEO, Michael K. Wirth, and CFO, Eimear P. Bonner, are on the call with me today. We will refer to the slides and prepared remarks that are available on Chevron Corporation's website. Before we begin, please be reminded that this presentation contains estimates, projections, and other forward-looking statements. A reconciliation of non-GAAP measures can be found in the appendix to this presentation. Please review the cautionary statement and additional information presented on slide two. With that, I will now turn it over to Michael K. Wirth. Michael K. Wirth: Thank you, and welcome to your new role. This quarter, Chevron Corporation delivered solid performance driven by disciplined execution and a resilient portfolio. Despite market volatility and heightened geopolitical tensions, our people remain focused on safely delivering the reliable energy the world needs. Our approach remains consistent. Maintain capital and cost discipline, generate strong cash flow, and deliver superior shareholder returns. Chevron Corporation’s fundamentals are strong. We have a world-class portfolio of upstream assets with peer-leading cash margins, and we are carrying strong momentum into the second quarter, with U.S. production over 2 million barrels of oil equivalent per day, Gorgon and Wheatstone LNG running at full rates, 1 million barrels of oil equivalent per day, and U.S. refineries operating at record crude throughput. The unique combination of Chevron Corporation’s industry-leading refining complexity and our diverse waterborne equity crudes from TCO, Guyana, the Permian, Venezuela, and Argentina creates opportunities for value capture through integration. Our high-quality upstream and downstream portfolios delivered significant integration benefits during the quarter. We maintained strong supply into tight markets and maximized margins across products, including fuel oil, sulfur, and other secondary products which saw significant price dislocations. We continue to optimize flows across our value chains to maintain high utilization and reliable supply into the market. In the second quarter, we expect global equity crude throughput to more than double year over year to 40%. In Asia, we anticipate over 80% refinery utilization. Moving to Venezuela, we continue to leverage our deep expertise and long-standing position to create an option for the future. Two weeks ago, we announced an asset swap with PDVSA. The agreement increases our position in the Orinoco. Ayacucho 8 expands our contiguous acreage position with PetroPR, offering operating and development synergies along with long-term growth potential and optionality. PetroIndependencia is a joint venture we have been in for more than 15 years, where we have increased our equity stake to 49%. Current operations are running smoothly. We are still in debt recovery mode and expect Venezuela to continue to represent 1% to 2% of cash flow from operations. This transaction is expected to improve resource depth and integration upside, supporting potential growth into the future. Now over to Eimear P. Bonner to discuss the financials. Eimear P. Bonner: Thanks, Mike. For the first quarter, Chevron Corporation reported earnings of $2.2 billion, or $1.11 per share. Adjusted earnings were $2.8 billion, or $1.41 per share. Included in the quarter was a $360 million charge related to a legal reserve. Foreign currency effects decreased earnings by $223 million. Organic CapEx was $3.9 billion in the quarter, consistent with historical CapEx trends of lighter spending in the first half of the year. Inorganic CapEx was approximately $200 million. We expect to finish within full-year capital guidance. Adjusted first-quarter earnings were $440 million lower than last quarter. Adjusted Upstream earnings increased due to higher realizations, lower DD&A, and favorable OpEx and tax impacts. Adjusted Downstream earnings decreased primarily due to unfavorable timing effects, which were partly offset by higher refining margins. Unfavorable timing effects totaled around $3 billion for the quarter, reflecting a steep rise in commodity prices in March. The effect was evenly split between inventory valuation and mark-to-market accounting on paper derivative positions linked to physical cargoes. We anticipate approximately $1 billion of the paper positions to unwind in the second quarter, with the majority of related cargoes delivered in April. Looking forward, we would expect additional timing effects when prices are rising, and further unwinds when prices are falling. Chevron Corporation generated cash flow from operations, excluding working capital, of $7.1 billion in the quarter. This includes unfavorable impacts from special items and timing effects totaling approximately $3 billion. Adjusted free cash flow was $4.1 billion for the quarter and included a $1 billion loan repayment from TCO. Share repurchases were $2.5 billion, in line with guidance. Working capital was impacted by sharp commodity price increases as well as a build in inventory. Consistent with historical trends, we expect an increase in working capital in the first half of the year and a release in the second half, the extent of which will be primarily driven by prices. Over the period, more than $5 billion in commercial paper was issued to manage liquidity and general business needs. About half has already been paid down in April, and we expect these short-term balances to decline further throughout the second quarter. First-quarter 2026 oil-equivalent production increased by approximately 500 thousand barrels per day compared to 2025. This reflects the integration of legacy Hess assets in addition to continued organic growth across the portfolio. The conflict in the Middle East had a limited impact on production in the quarter, with less than 5% of our portfolio located in the region. In the Partitioned Zone, we are operating at near minimum rates to manage storage. In the Eastern Mediterranean, both Tamar and Leviathan are operating at full capacity. During the quarter, we continued to execute key expansion projects, completing the offshore scope for both the Tamar optimization project and the Leviathan third gathering line. Let me close by reinforcing that despite changes in the external environment, we are executing our plan with discipline, consistent with our long-standing financial priorities. This disciplined approach gives us resilience during periods of volatility, and the ability to invest and return cash to shareholders through the cycle, all while ensuring we maintain a balance sheet built for the long term. Chevron Corporation’s business is strong, and our 2026 guidance is unchanged. Capital spending and production outlooks are consistent with previous guidance, and we are on track to deliver our $3 billion to $4 billion structural cost reduction target by year end. This consistency underpins our 2030 targets shared November 9, including over 10% growth in adjusted free cash flow and earnings per share and 3% improvement in ROCE, all at $70 Brent. These are not aspirational goals. They are grounded in assets that are operating today, a more efficient organizational model, and continued capital discipline. I will now hand it back. Unknown Speaker: That concludes our prepared remarks. Thank you, Mike and Eimear. As a reminder, additional guidance can be found in the appendix of the presentation, as well as in the slides and other information that is posted on chevron.com. We will now open the call for questions. We ask that you please limit yourself to one question, and we will do our best to get all of your questions answered. Katie, please open the lines. Operator: If your question has been answered or you wish to remove yourself from the queue, please press 2. If you are listening on a speakerphone, please lift your handset before asking your question to provide optimum sound quality. Again, if you have a question, please press 1 on your touch-tone telephone. Our first question comes from Neil Singhvi Mehta with Goldman Sachs. Neil Singhvi Mehta: Janine, you know, Mike, I would love your perspective on the current conflict in the Middle East and if you could share how you think about this in the context of your four-decade history in oil and gas and how significant of a moment this is. What do you think the long-term implications are of the current conflict? And I know at the Analyst Day in November, we talked about a flat nominal $70 Brent as a mid-cycle planning assumption, but does this event change the way you think about mid-cycle pricing? Michael K. Wirth: Thank you, Neil. This is clearly a very significant disruption to the global energy system. It is a scenario that we have thought about and included in some of our planning exercises for many, many years. It is early to have firm conclusions about how the energy system will change in the long term. I do think there will be changes, but we have to see how things play out over the coming weeks, hopefully not longer than that, as this comes to some sort of a resolution and the energy system begins to be reconstituted and reach some new equilibrium. I think that new equilibrium will look different than what we have known before, but I could not argue with a lot of confidence that I could describe exactly what that looks like. One thing you can expect from us is consistency. You will see capital and cost discipline no matter what. You will see us invest in highly competitive assets with scale and longevity, no matter what—assets that are low on the cost curve. You are going to see us invest to drive strong returns and free cash flow, and maintain a strong balance sheet so we can create predictable and growing shareholder distributions. We have great visibility through 2030. Eimear just reiterated our guidance, and we have assets online now that deliver predictable, visible cash flow growth for the balance of this decade, and we have a full hopper for beyond that. The things that Eimear talked about—consistency, discipline, the strength of our portfolio operating today—are all characteristics that will underpin our strategy going forward. As we see how this is resolved and what the energy system begins to look like post-conflict, if we want to fine tune that at all, we will come back and talk to you about it. It is early for anything concrete other than to reiterate the things that in my 44 years have stood us in good stead through unexpected events and cycles. Thank you. Operator: Thank you. We will take our next question from Arun Jayaram with JPMorgan. Arun Jayaram: Mike and Eimear, it feels like one of the key themes from the print is the opportunity for Chevron Corporation to optimize margins from the refining system as well as your increased exposure to waterborne crudes post the Hess merger. I am looking at slide four and wondering if you could help us think about the value-capture opportunities and maybe the experience in 1Q. How should we think about this integration favorably impacting your go-forward earnings power? Michael K. Wirth: Thanks, Arun. As part of the organizational changes we made last year, we set up a global enterprise optimization team. They have the remit across all of the upstream and downstream to be sure that we are getting maximum value out of the entire set of assets, and we are integrating where it makes sense. They did a really nice job in the last quarter of keeping our system operating at high degrees of utilization and capturing good margins through volatility. Our portfolio provides options to move things around in times like this. Our refineries in Asia are all in various types of ventures. We expect those to run over 40% Chevron Corporation equity crude in the second quarter, much higher than under normal market conditions, and probably much higher than we will see in some of the other refining assets in that region, because we have the ability to direct equity flows to those refineries at a time when access to crude is very important and very difficult. In the U.S., we are operating over 50% equity crude throughput, some refineries much higher than that. We used the Jones Act waiver to move crudes from the Gulf Coast around to the West Coast. In Asia, in the first quarter, we ran CPC Blend, Mars, and WTI, all in our GS Caltex refinery in South Korea. For reference, when I used to run our downstream business, we were about 15% equity crude into our refining system and 85% crudes from the market. As I said, we expect to be over 40% in Asia, north of 50% and much higher at some refineries in the U.S. That is a significant change from our history. At a time when margins are likely to move back and forth across the value chain, whether in the upstream or the downstream, we are going to be able to capture those with a much higher degree of confidence. Importantly, in a world that is getting very tight on products, we are going to keep our assets very full and be able to provide significant supply into markets that dearly need it. We are not going to quantify the value that we are capturing, but I think you will see it flow through in the numbers. It is meaningful and continuing already into the second quarter and likely beyond. Thank you. Operator: Thank you. We will take our next question from Devin J. McDermott with Morgan Stanley. Devin J. McDermott: Good morning. Thanks for taking my question. Eimear, in your prepared remarks, you highlighted Chevron Corporation’s long-standing and consistent financial priorities. I wanted to build on that a bit and get your latest thinking on capital allocation at higher prices and the balance between shareholder returns, building cash, and growth. You left the buyback range unchanged quarter over quarter, which makes a lot of sense. On the growth spending side, what would you need to see to shift spending, maybe add some capital in the Permian and move away from the plateau back toward growth in that asset? Eimear P. Bonner: Thanks, Devin. It comes back to staying consistent with our four financial priorities and being really disciplined through volatility. Today, we are not changing any of our capital allocation framework. We are not changing ranges, and we are happy with where we are. To recap: first, growing the dividend. This year, we grew it for the 39th consecutive year. Second, investing in the business in the most capital-efficient way. Our budget is $18 billion to $19 billion for the year, and we are on track. Our capital performance is really strong. With that capital, we are going to grow 7% to 10% production this year, so we are reconfirming that growth. Third, the balance sheet. It is in great health and will get stronger with higher cash generation. Fourth, the buyback, staying within the $2.5 billion to $3 billion per quarter range. With only eight weeks into the conflict, as Mike said, it is too early to have a different view on the fundamental outlook around price or to see whether it is structurally changing. When it comes to capital allocation, we are comfortable with where we are, and we are staying consistent and disciplined. Thanks, Devin. Operator: Thank you. We will take our next question from Doug Leggate with Wolfe Research. Doug Leggate: Thank you. Good morning, everyone. Mike and Eimear, I wonder if I could follow up on Devin’s question and ask for a little bit more color around two specific assets. You had some changes in Venezuela, Mike. My understanding is that has been essentially recycling cash flow to maintain the business and pay down legacy debt. Are you at a point now where the fiscal terms have changed, the security situation is different, and you would be prepared to incrementally put more capital to work? I would ask the same question of the Permian, where you had a growth story, then stabilized it. In both areas, there might be a call for incremental oil production longer term, and you are in a strong position to deploy capital if you did. So it is a capital increase question, but specific to those two assets. Michael K. Wirth: Doug, number one, we are operating now, as I mentioned in my prepared remarks, with TCO greater than 1 million barrels a day, the Permian solidly above 1 million barrels a day, the Australian LNG facilities running at full capacity, and the Gulf of Mexico. The big pistons in the engine are firing, and as we come into the second quarter, we have tremendous momentum across the system. Production in the second quarter is expected to be higher than in the first. Eimear reiterated 7% to 10% production growth guidance for the year. We have strong growth in the business right now, and we have a portfolio that presents options. As Eimear said, it is early into this conflict to be making big changes. We do not know how things will be resolved. You could build a scenario where things get resolved quickly, the strait reopens, and we get back into a market that is well supplied. You can build another scenario where this goes on, the market is tighter, and it looks different on the other side. We are not going to make rash or immediate changes to a system that is running at a high degree of capital and operating efficiency today. It is really important to stay focused on reliability and safety at a time like this. Specific to Venezuela, your understanding is right. We are still recycling cash flow. We still have debt to recover. We are recovering at a faster rate in this kind of price environment, and there are indicators of positive developments in the country, but there are still questions. Fiscal terms are not clear. There are ranges they have indicated for taxes and royalties. There are still things that need to be addressed relative to dispute resolution, etc. We will continue to operate in the mode we are in now, which has yielded some growth over the past couple of years and in fact this year. We need to see further progress before we would put more capital to work. We have a lot of resource there and could grow it. In the Permian, we are running to deliver strong free cash flow right now. We could accelerate and begin to grow it again, but I do not know what the future looks like. The value we are seeing in improved asset reliability and reduced loss production to downtime is very real, and we get that because we are so focused on it. A quick shift to more production growth might dilute that focus. We will update you over time if our view changes. For now, it is steady as she goes. Operator: We will take our next question from Stephen I. Richardson with Evercore. Stephen I. Richardson: Thank you. Mike, I was wondering if you could talk a little bit about the exclusivity agreement with Microsoft on the power projects. You have been at this for a while with a different type of counterparty in a different industry. Could you update us on time to clarity on contracts, FID, and those items? Michael K. Wirth: It has been reported—and we have confirmed—that we are in exclusive discussions with Microsoft right now. We are very pleased to be in those discussions with such a high-quality customer. It is a company we know well. They have been a partner of ours for a long time, our primary cloud provider, and a key technology provider to us for many years. We have a deep and very good relationship. The project we are advancing in West Texas is progressing well. We have submitted an air permit. We have secured not only the large turbines that we have talked about before, but also small block generation that is useful in early scale-up and for reliability. We have selected an EPC who is doing engineering work. We have agreed with a water provider, etc. We are advancing the project with a lot of pace, and we are beginning to take delivery on turbines this year. Subject to definitive agreements—which we are negotiating—we will move towards FID later this year. We expect to deliver a project with speed and scale that is differentiated. We will remain disciplined on returns. The negotiations thus far look like we can find a place to meet where Microsoft’s expectations on power prices and our expectations on return on investment can both be satisfied. We will likely have more to say on the next call. Operator: Thank you. We will take our next question from Biraj Borkhataria with Royal Bank of Canada. Biraj Borkhataria: Thanks for taking my question. I wanted to follow up on Venezuela. The situation is evolving quite quickly. At the start of the year, comments from the U.S. administration were essentially around all the companies not looking backwards at the receivables balance and looking forward. More recently, you and some of your peers have been talking about the potential to get some of that paid back. How should we think about a reasonable timeframe to assume you get your couple-billion-dollar receivables balance back? Michael K. Wirth: Biraj, we came into the year with, in round numbers, something close to $1.5 billion in a receivable. The rate at which that gets paid down is a function of price, and we are receiving it faster this year than last year. I think we will still carry some sort of balance as we get to the end of this year, but much lower than where we are at present. I think that would probably be fully paid off at some point in 2027. Subsequently, we would update you on the model for cash distributions going forward. By the time we get to 2027, some of the open questions I referred to—tax, royalty, contract terms, etc.—are likely to be clarified, and we will be able to give more guidance on potential capital investment. In any scenario, we remain the advantaged incumbent with people on the ground, operations, supply chains, and contract resources that put us in a very good position to be a big player there, presuming we see further progress. Operator: Thank you. We will take our next question from Sam Margolin with Wells Fargo. Sam Margolin: Good morning. Thank you for taking the question. In the near term, there are extraordinary things happening. Localized shortages could start to become an issue in some of the places that you operate. Chevron Corporation is exposed to these kinds of idiosyncratic market and volatility events, not just in operations but also in the way you manage the supply chain. In the context of the timing effect in 1Q and the derivatives exposure, has anything changed, or are you adjusting your operating posture within this highly volatile environment? Michael K. Wirth: Sam, it is an unusual environment. We have experience working in unusual environments. In 2020, we saw the inverse with the collapse of demand and excess supply. In 2022, we saw a version of this when the conflict in Ukraine began. We have a playbook to deal with these things. You work on optimizing supply into these markets, look at financial exposures and counterparty circumstances, and manage risks. The timing effects that were reported are the kinds of things you expect in a market like this and the kinds of things we have seen before. There was a big run-up in crude over the course of the quarter. Things that normally do not really appear relative to derivatives become very evident in a market like that. In a market that goes the other way, you see those effects reverse. I would not overreact to anything in our numbers. We are very focused on supply in the markets. In Asia, where there are clearly near-term stresses, we are working to keep our refineries running at what I would argue is the highest degree of utilization out there because we can direct crude into those refineries. We can take crudes that would normally go into our U.S. refineries—we have good substitutions—and move other crudes we have access to into Asia. We are very sensitive to trying to maintain supply into tight markets and to implications for customers and counterparties. It is a dynamic situation, but we have an organization that is very experienced in managing through these unpredictable and dynamic markets, and I am very confident we can manage those exposures well. Operator: Thank you. We will take our next question from Betty Jiang with Barclays. Betty Jiang: Good morning, Mike and Eimear. Thank you for taking my question. I want to ask about TCO. In your prepared remarks, you mentioned that TCO is producing above 1 million BOE per day, so that is above nameplate capacity and coming back from disruptions in 1Q. Can you speak to where that asset is performing, what is driving that outperformance, and maybe the debottlenecking opportunities? While on this topic, could you give us an update on the renegotiation contract conversations? Michael K. Wirth: Sure, Betty. TCO returned to full service in March following repairs on the electrical system in February, and there were some adverse weather dynamics in the Black Sea in early March. We have two out of the three single-point moorings available at CPC, with the third one later this year. With two, we can handle full flow on the pipeline. The pipeline is running full. The plant is running full. We have done a lot of maintenance work over this last period, and we expect the plant to be near full availability for the remainder of this year. You mentioned the debottlenecking work we did late in 2025. We have that running in its new configuration. Early performance has been very encouraging. We do not have enough run time yet to give specific guidance. We need more operational data, but you can expect an update on the next call. At times like this, when the market signals are to run assets as strongly as possible, that is what is happening at TCO. We continue to see the benefits of a centralized control center optimizing all the different generations of processing capability and finding white space to squeeze more production through those assets. It is a very complex optimization, and we have new tools to do that in ways we never had before. On the concession, we are making good progress in the discussions. We are working closely with all partners in the venture and the Republic. Technical and commercial teams have been established, and all partners and government representatives are actively participating. This has ensured we keep everyone aligned and proceeding on the same path. It is moving along, and at some point later this year, we will give you an update. This is a venture creating enormous value for all stakeholders—partners and the Republic—over the last 33 years. We are looking for a solution that will continue that history. Final point on TCO overall: our guidance of $6 billion in free cash flow this year at $70 Brent is unchanged, and that accounts for the operational issues in the first quarter and what we are seeing today. At higher prices, we will see stronger than that. Thanks, Betty. Operator: We will take our next question from Lucas Oliver Herrmann with BNP Paribas. Lucas Oliver Herrmann: Thanks very much. Touching on the LNG business briefly, the market is tighter. How much flex do you have across your portfolio to take advantage of arbitrage or other opportunities that may be emerging, and how much production is not effectively committed? Michael K. Wirth: Thanks, Lucas. We ended last year with an LNG portfolio of about 16 million tons per year, the majority out of Australia. We have 40 Tcf of resource and access to strong and growing demand in Asia. Globally, our portfolio is about 80% long-term oil-linked contracts and about 20% exposed to the spot market. We like that over time. Coming into this year, with expectations for length in the LNG market, people would have said that is a good place to be. When spot prices get very strong, you would like to have more spot, but we have to look our way through cycles. Our oil-linked contracts have a lag, so they do not show a lot of the current market environment in the first quarter. You can expect in subsequent quarters that you will see that flow through into pricing on about 80% of our volume. The 20% sold under spot contracts is seeing the kinds of prices you have observed. We just sold our first U.S.-based cargo, and that will grow by 2030 to another 4 million tons per annum, taking us up to 20. That cargo was sold into Europe on spot-based prices. Our portfolio is running very strongly—Wheatstone and Gorgon at full rates, same in West Africa. We are seeing the benefits of this, with the proportions as described. Operator: Thank you. We will take our next question from Manav Gupta with UBS. Manav Gupta: Good morning. I wanted to shift to chemicals. Globally, we are seeing naphtha crackers run dry because there is not enough naphtha. Your portfolio is very U.S.-centric, with a bit in Korea at GS Caltex, but mostly capacity is in the U.S. We are hearing pushes for a $0.20 per pound polyethylene price hike. We ended fourth quarter at record low historic margins, but February could be over mid-cycle. Can you talk about that and how you benefit? Michael K. Wirth: Sure, Manav. Our exposure to petrochemicals is primarily through Chevron Phillips Chemical, and also some through GS Caltex in Korea. CPChem is tilted toward ethane-based cracking in North America and some in the Middle East. GS Caltex’s liquids cracking is derived from its own refining flows and is not reliant upon naphtha supply out of the Middle East. We have seen strong price moves, particularly in the olefins chain, which is where most of our exposure is. Those price moves are predominantly here in the second quarter, so you do not see much of that in the first quarter. Chain margins have significantly improved from very low levels last year to what now are likely better-than mid-cycle chain margins. For assets up and running in parts of the world where you are cracking advantaged feedstock—certainly North America ethane fits—you should see pretty good margin capture in those businesses. Operator: We will take our next question from Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Hi, good morning. I wanted your latest thoughts on the Bakken—whether initiatives to lower costs have given you more conviction that it is core in your portfolio, and whether higher oil prices have increased interest from others in owning that asset. Michael K. Wirth: The Bakken assets have been running well. We have said you should expect to see a couple of hundred thousand barrels a day production there at a plateau. First quarter was a little bit below that, primarily due to weather effects. We brought down the rig count, running three rigs now versus four previously. We are drilling longer laterals, and we think we can sustain production that way, fully utilize existing infrastructure, and drive strong free cash flow. We are applying best practices from our portfolio and bringing in some from Hess, like we did from Noble and PDC. This is a more liquids-weighted position in shale, and with strong liquids pricing, it performs very well. We have had interest from others since we announced and closed the deal. We want more operating data and to really understand the asset. We underestimated the quality of the DJ when we acquired Noble; thankfully, we did not sell it quickly. Here, we want to fully appreciate the value we have in the Bakken. For example, we are testing advanced chemicals to improve recovery in the Bakken—things we have been doing in the Permian and DJ. Early response looks good. To the extent we can improve recovery and value on that asset and do some things that are not available to others, we should be able to drive more value than a buyer potentially could. It is performing very well. We are in no hurry to do anything other than improve it. In due course, like every asset, we ask how it fits for the long term, but it is premature to ask that today. Operator: Thank you. We will take our next question from James West with Melius Research. James West: Good morning, Mike and Eimear. I wanted to dig in on your Eastern Mediterranean assets. Given the conflict near that region, those assets are much more valuable at this point. As we think about Leviathan, Tamar, which you operate, and Aphrodite, which you are involved in, how are you thinking about those assets going forward, given the need for natural gas in the region for energy security and other reasons? Michael K. Wirth: Broadly, I agree. We have liked these assets from the start. That is why we are investing in expanding production at both Tamar and Leviathan, making good progress on those projects, with some ramp-up this year of another 600 million cubic feet per day of production on a 100% basis, and a longer-term expansion of Leviathan underway—we took FID in January and are excited about that. We have begun FEED work at Aphrodite. This is high-quality, clean, biogenic gas. Demand in the region continues to grow. Supply reliability everywhere is a priority. The markets we are feeding are growing, and the quality of the resource is very high. The quality of the assets—credit to Noble—continues to impress us as we look at expansions and the way they were engineered and designed. We view the Eastern Med as an area with growth potential. We have exploration activity there. Think of it as a big gas hub with a lot discovered and more to be discovered. We are pleased with our position and you can expect us to continue with exploration and development opportunities over time. Operator: We will take our next question from Bob Brackett with Bernstein Research. Bob Brackett: Good morning. You mentioned that Chevron Corporation has a playbook to deal with supply shocks. Governments also dust off playbooks during supply shocks. What policies are helpful during a supply shock, and which are perhaps unhelpful? Michael K. Wirth: You are right, Bob. There are policies that are helpful in responding to a circumstance like this, and those that are not. Broadly, we have a supply challenge in the world, so policies that encourage, enable, and facilitate the ease of supply are helpful. Examples: releases of strategic reserves put oil into the market that would not otherwise be there. In the U.S., the waiver of the Jones Act allows ships that otherwise could not trade to move supplies from where they exist to where they are needed. Relaxing specifications can enable movement of products that are needed and otherwise could not be moved. Another example is the use of the Defense Production Act to enable some offshore California production to come into service and get into the market. We are working with the operator of that asset to get it to our El Segundo refinery to meet local needs. California is where the supply pinch is being felt first and most acutely, and it has flowed through to the street. A number of actions have been taken that are very positive in creating supply and flexibility in the system. Actions that can be unhelpful are price caps, which distort signals to use energy efficiently and can discourage the creation of supplies, even if well intended. Export bans can constrain supplies that would otherwise flow to where they are needed and make the situation worse. Taxes on profits generated during periods like this historically do not generate as much revenue as advertised and can send unhelpful signals about future investments, slowing the supply response in the medium term and creating future vulnerabilities. We are engaged with governments around the world to encourage policies that help respond to the situation and to caution about those that may not help. A company like ours, with a large, diverse portfolio, is not overly exposed to a potential bad policy decision in any particular market because of our broad footprint. Thanks, Bob. Operator: We will take our next question from Phillip J. Jungwirth with BMO. Phillip J. Jungwirth: Thanks. A lot is going on in the world right now, but I wanted to ask about U.S. climate litigation because that has been an overhang. We might get some clarity with the Supreme Court taking up the issue with the Colorado case. How much do you think this could settle the question around state versus federal jurisdiction and advance the climate debate in the U.S.? Michael K. Wirth: We are not a party to that litigation, Phil, so I cannot comment too specifically. We are party to another case that was just heard by the Supreme Court and concluded that a case that had been heard in state court really should be removed to federal court. The principles are somewhat analogous. This is a matter for federal courts to decide in our view. In fact, it is truly a matter for elected officials to decide and establish climate policies that appropriately reflect public sentiment and national interests. Cities, counties, and states are not the appropriate places for climate policy to be established nor for climate issues to be subject to litigation. We are hopeful that the case that makes it to the Supreme Court provides some clarity at the federal court level. We have seen mixed views come out. This is a matter that would benefit from clarity from the highest court in the land. Thanks, Phil. Operator: We will take our next question from Nitin Kumar with Mizuho. Nitin Kumar: Back in November, you gave us an update on your exploration program setting up the company beyond 2030, including potential options in new countries. Given the events in the last eight weeks, any change to the pecking order of those priorities or anything you are prosecuting faster to get oil to market? Michael K. Wirth: No, it really has not changed. Exploration is a longer-cycle activity. We have a diverse portfolio; that is valuable in current circumstances. We have some opportunities in the Middle East region, but we also have a number of opportunities outside the Middle East that we are highly interested in. The world needs energy supply long into the future, so we need to continue to look for resource around the world. We are pleased with the portfolio we have built and with new talent that has joined the company. We have a different model for making decisions now and are using new technologies to improve both cycle time and success rates. You can expect those things to continue. We have increased our financial commitment to exploration as well. This is a discussion over the next number of years. If we are not changing activity levels in the Permian in response to the last few weeks of disruption—a place where you do have shorter-term levers—then something like exploration, which is longer cycle, does not get affected by this in the short term. Thank you. Operator: We will take our next question from Jason Daniel Gabelman with TD Cowen. Jason Daniel Gabelman: Thanks for taking my question. You have guided to your equity affiliate distributions being at about 70% of the full-year guide by the end of 2Q. I am assuming some of that is related to higher oil price. Is the relationship between equity distributions and oil price linear? Do you have a rule of thumb to help the market think about the potential upside as a result of what we are seeing? Eimear P. Bonner: Yes, Jason. As Mike talked about, we are coming into the second quarter with very strong momentum in our affiliates—starting with TCO back at full rates and testing the upside of capacity. CPChem is also contributing, and Angola LNG is full. Those are examples of tailwinds and strong momentum. That is why we were able to increase our affiliate distribution guidance today. It is over $2 billion more relative to the first quarter because of the confidence we have in performance. Another thing I would mention is TCO has already changed its distribution schedule and is now giving us dividends monthly. We already have the first in the bank in April. Those actions, coupled with operational momentum, are why the guidance is raised. The guidance is at $60 Brent, so there is a lot of upside depending on how prices unfold. Thanks for the question. Operator: Thank you. We will take our final question from Geoff Jay with Danielle Energy Partners. Geoff Jay: Hi, everyone. A follow-up to Bob Brackett’s question about California specifically. There has been a lot written about its reliance on imports and its low inventory levels. As an operator of refineries in the state, have there been other relief valves? Has the Jones Act helped? Have there been other operational changes to ensure that market is adequately supplied? Michael K. Wirth: You referred to a couple, and I will as well. The ability to bring new production offshore from Platform Hidalgo (Sable field) onshore and make sure that is getting into the California market—California oil through a California pipeline to a California refinery to California customers—was not happening just a few months ago. Same thing with the Jones Act. We can bring crude oil or products from the Gulf Coast that are needed in California. There are special specifications you have to hit, so maybe blend stocks come around. We are very sensitive to our customers in California and the circumstances there. You are well aware of what California’s policies have delivered to the state, which is an oil industry in decline—upstream production and refining—where we have seen a couple of refineries shut down this year. That has constrained supply capability. At a time when the world is feeling these constraints, California is reliant upon supplies from other parts of the world which may be needed to keep their own economies going. It is a real dilemma for the state. We are doing everything we can to meet our supply obligations there, but it does point out the vulnerabilities that have been created in California as a result of decades of poor energy policy. Okay, Katie. It sounds like that was the last person in the queue. Is that correct? Operator: That is correct. No additional questions in queue at this time. Unknown Speaker: I would like to thank everyone for your time today. We appreciate your interest in Chevron Corporation and your participation on today’s call. Please stay safe and healthy. Katie, back to you. Operator: Thank you. This concludes Chevron Corporation's first quarter 2026 earnings conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. First Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would like to remind everyone that this conference call is being recorded on 05/01/2026, 11:00 AM Eastern Time. I would now like to turn the conference over to Candace Brule, Senior Vice President, Capital Markets and Corporate Affairs. Please go ahead. Candace Brule: Thank you, operator. Good morning, and welcome to Hudbay Minerals Inc.'s First Quarter 2026 Results Conference Call. Hudbay's financial results were issued this morning and are available on our site at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Events section of our website, and we encourage you to refer to it during this call. Our presenter today is Peter Gerald Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lei, our Chief Financial Officer, and Andre Lauzon, our Chief Operating Officer. Please note that comments made on today's call may contain forward-looking information and this information, by nature, is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+ and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. I will now pass the call over to Peter Gerald Kukielski. Peter Gerald Kukielski: Thank you, Candace. Good morning, everyone, and thank you for joining us on today's call. We have had a great start to the year, achieving several key operational, financial, and growth milestones. Hudbay Minerals Inc. delivered another quarter of record revenue, record adjusted EBITDA, and record adjusted earnings in the first quarter. This was driven by steady operating performance, our focus on cost control, and the continued benefit from margin expansion with our unique mix of copper and gold exposure. Our leading operating cost performance resulted in record low consolidated cash costs in the first quarter, which contributed to continued strong free cash flow generation. With the strong performance in the quarter, all our operations are on track to achieve 2026 production and cost guidance. Building on our commitment to prudent balance sheet management, we ended the quarter with over $1 billion in cash and cash equivalents, benefiting from $420 million received from Mitsubishi for their initial cash contribution on closing of the Copper World joint venture transaction in January. Our enhanced financial flexibility has positioned us well to continue advancing the development of Copper World, reinvest in high-return opportunities at each of our operations, and de-risk the Cactus project upon completion of the acquisition of Arizona Sonoran to deliver attractive growth and maximize long-term risk-adjusted returns at each of our operations for stakeholders. Slide three provides an overview of our first quarter operational and financial performance. The first quarter demonstrated strong operating performance with higher mill throughput across the three operations compared to the previous quarter, delivering consolidated copper production of 28 thousand tonnes and consolidated gold production of 62 thousand ounces. We achieved record quarterly revenues of $757 million and record adjusted EBITDA of $422 million in the first quarter. Cash generated from operating activities was $211 million, remaining relatively consistent with the fourth quarter as a result of favorable changes in non-cash working capital. First quarter adjusted net earnings were a record of $159 million, or $0.40 per share, reflecting higher realized metal prices and strong cost control across the operations resulting in higher gross profit margins. During the first quarter, we continued to demonstrate industry-leading cost performance, delivering record low consolidated cash costs of negative $1.80 per pound of copper and sustaining cash costs of $0. This incredible cost performance was partially driven by higher gold byproduct credits, reflecting the benefits of Hudbay Minerals Inc.'s unique commodity diversification. Turning to Slide four, Hudbay Minerals Inc. has delivered several quarters of significant free cash flow generation as a result of steady operating performance, expanding margins from strong copper and gold exposure, and our cost control efforts. With our enhanced balance sheet and diversified free cash flow generation, we are well positioned to fund our attractive growth pipeline. Our cost control efforts are focused on navigating emerging external cost pressures such as higher fuel prices and short-term labor challenges. We have not experienced any disruption to fuel availability and have been able to mitigate the cost pressures through initiatives to further improve throughput and enhance operating efficiencies. We are well insulated from external cost pressures due to our diversified platform with significant byproduct credits from gold production and the polymetallic nature of our ore deposits. While most of our revenues continue to be derived from copper, revenue from gold represents a meaningful portion of total revenues, with 39% of gross revenues from gold in the first quarter. After accounting for our sustaining capital investments but before growth investments, we generated $102 million in free cash flow during the quarter, bringing our trailing twelve-month free cash flow generation to $400 million. As mentioned earlier, we ended the first quarter with over $1 billion in cash and cash equivalents, and as of March 31, our total liquidity was $1.4 billion. Our net debt at the end of the quarter was nearly zero, bringing our net debt to EBITDA ratio to its lowest point in more than a decade. Consistent with our prudent balance sheet management and focus on cost of capital, following the quarter, we repaid our outstanding 2026 senior unsecured notes on maturity on April 1. We used a combination of cash on hand and a $272 million draw on our low-cost revolving credit facilities. After giving effect to this repayment, Hudbay Minerals Inc.'s total liquidity decreased by $473 million to $957 million. This continues to provide us with significant financial flexibility as we advance Copper World towards a sanctioning decision later this year. Turning to Slide five, the Peru operations continued to demonstrate steady operating performance with production and costs in line with expectations. The operations produced 21 thousand tonnes of copper, 9 thousand ounces of gold, 530 thousand ounces of silver, and 380 tonnes of molybdenum during the first quarter. Production of copper and gold was lower than the fourth quarter due to the depletion of the higher-grade Pampacancha ore in late 2025. Mill throughput levels averaged approximately 90.7 thousand tonnes per day in 2026, achieving a new quarterly record. The team's efforts to increase mill throughput align with the Peru Ministry of Energy and Mines regulatory change allowing mining companies to operate up to 10% above permitted levels. On March 6, Hudbay Minerals Inc. received a permit approval to increase annual mill throughput capacity to 31.1 million tons (29.9 million tonnes), setting a new base for the 10% permit allowance. We continue to advance the installation of pebble crushers later this year to further increase mill throughput rates in 2026, and we are on track to achieve 2026 production guidance for all metals in Peru. First quarter cash costs in Peru were $0.70 per pound of copper, a 23% increase compared to the fourth quarter due to lower byproduct credits, offset by lower profit sharing, lower power costs, and lower treatment and refining charges. Cash costs in the quarter outperformed the low end of the annual guidance range as a result of strong operating cost performance and temporarily higher gold byproduct sales from Pampacancha despite emerging external cost pressures. We are well positioned to achieve the full-year cost guidance range in Peru. During the quarter, Constancia was recognized as the safest open pit operation in Peru during the National Mining Safety Contest for our performance in 2025. This reflects our company's unwavering commitment to safety and validates Constancia's compliance with the highest operational safety and regulatory standards. Moving to our Manitoba operations, on Slide six. The first quarter demonstrated strong operational agility in mitigating lower equipment and labor availability at the Lalor mine while continuing to prioritize gold ore feed for the New Britannia mill. This strategy successfully maintained strong gold production in the first quarter, supported by higher mill recoveries compared to 2025. Our Manitoba operations produced 48 thousand ounces of gold, 2.5 thousand tonnes of copper, 5 thousand tonnes of zinc, and 213 thousand ounces of silver in the quarter. Production of gold was higher than in the fourth quarter due to higher gold recoveries and higher mill throughput, while all other metals were lower primarily due to lower grades. Production in 2026 is expected to be higher than in 2025 due to grade sequencing and higher ore output from Lalor. With solid operating results in the first quarter, we are on track to achieve 2026 production guidance for all metals in Manitoba. The Lalor mine hoisted an average of 3.9 thousand tonnes of ore per day in the first quarter, strategically prioritizing gold zones to secure optimal feed for the New Britannia mill. Total ore mined was lower than the prior quarter because of lower effective utilization of equipment due to reduced workforce availability. This was offset by successfully onboarding nearly 80 new employees as recruitment and upskilling of employees are underway to increase proficiency of frontline employees. The New Britannia mill averaged approximately 2 thousand tonnes per day in the first quarter and benefited from continuous improvement initiatives to unlock future throughput capacity. Gold recoveries of 90% at the New Britannia mill reflect ongoing optimization efforts. Similarly, the Stall mill achieved improved gold recoveries of 73% in the first quarter, reflecting process optimization and enhanced gold recovery initiatives. The 1901 deposit delivered 11 thousand tonnes of development ore in the first quarter. The team continues to advance haulage and exploration drift to further delineate the ore body and support ongoing infrastructure projects. Looking ahead, we plan to prioritize exploration definition drilling, ore body access, and establish critical infrastructure at 1901 in preparation for full production in 2027. Manitoba gold cash costs in the first quarter were $4.08 per ounce, outperforming the low end of the guidance range. We are well positioned to achieve our 2026 cash cost guidance range. In British Columbia, we continue to focus on advancing our multiyear optimization plans, achieving significant milestones in both mining productivity and project permitting in the first quarter, and remain on track to deliver the benefits of the stripping program and unlock higher-grade ore later this year. As shown on Slide seven, Copper Mountain produced 4.1 thousand tonnes of copper, 5.2 thousand ounces of gold, and 43 thousand ounces of silver in the first quarter, in line with our guidance and planned mine sequencing. Production was supported by a higher mill throughput, offset by lower grades compared to the fourth quarter. We remain on track to achieve our 2026 production guidance expectations for all metals in British Columbia, with higher production expected in the second half of the year as mill improvements take effect. Mining activities reached a record total material movement of over 25 million tonnes in the first quarter driven by an optimized mining sequence in the Main Pit and increased contributions from the North Pit. This ramp up was supported by the successful commissioning of a new production loader in January. To further bolster the equipment fleet and add to this momentum, a new shovel has been recently commissioned. Drilling throughput benefited from the completion of the second SAG mill and the mill optimization initiatives implemented in late 2025, resulting in increased mill throughput in 2026. The second SAG mill achieved increased throughput in the quarter and averaged 10 thousand tonnes per day in March. The primary SAG mill continues to operate under a reduced load and is being rigorously monitored prior to the head replacement scheduled for late June and into July. The mill remains on track to achieve its permitted capacity of 50 thousand tonnes per day in 2026. British Columbia cash costs were lower than the prior quarter, delivering cash costs of $2.41 per pound of copper as a result of higher gold byproduct credits and resolving the unplanned maintenance downtime issues experienced in the prior quarter. First quarter cash costs were within the guidance range and despite emerging external cost pressures, we remain on track to achieve 2026 cash cost guidance in British Columbia. During the quarter, the New Ingerbelle project reached a major milestone in February with the receipt of the Mines Act and the Environmental Management Act amended permits from provincial regulators. The New Ingerbelle project supports continued copper production, increased gold production, and further mine life extensions. The project is designed to access higher-grade mineralization while improving operational efficiency with a stripping ratio approximately three times lower than current mining areas. With these permit approvals, we are advancing critical infrastructure required for the expansion. This includes the construction of an access road, a bridge across the Similkameen River, and the development of an east haul road link to New Ingerbelle with existing operations. A large drill program was initiated during the first quarter at New Ingerbelle to improve resource definition and expansion. We are pleased to receive the news this week that the B.C. government has added the New Ingerbelle project to the province's list of priority resource projects. This list highlights the acceleration of major projects that strengthen economic growth, support resource development, and create jobs and long-term value. Turning to Slide eight, we announced our annual mineral reserve and resource update along with an improved three-year production outlook during the quarter. We extended Snow Lake's mine life by four years to 2041, maintained Constancia's mine life to 2040, and extended Copper Mountain's mine life by two years to 2045. Consolidated copper production is expected to average 147 thousand tonnes per year over the next three years, representing a 24% increase from 2025. This growth is driven by higher expected copper production in British Columbia from the mill throughput ramp up in 2026, higher grades in British Columbia in 2027 from the completion of the accelerated stripping program, and higher expected mill throughput in Peru starting in 2026. Consolidated gold production is expected to average 243 thousand ounces per year over the next three years, reflecting continued strong production in Manitoba and the expected contribution from New Ingerbelle in British Columbia starting in 2028. We have already made significant progress in advancing many of our corporate and strategic objectives so far this year, and we anticipate many more key catalysts to come from our portfolio of long-life assets in Tier 1 jurisdictions, as shown on Slide nine. Our prudent balance sheet management, strong financial flexibility, significant free cash flow generation from strong exposure to higher copper and gold prices, and continued margin expansion has positioned us to be able to advance generational growth investments across the portfolio. In Peru, we will deliver higher mill throughput in the second half of the year as we complete the installation of two pebble crushers, which will grow copper production in 2027 and 2028. We also continue to progress exploration plans in Peru, including at the Maria Reyna and Caballito properties, to provide long-term growth potential at Constancia. In Manitoba, we continue to advance optimization initiatives and exploration efforts to demonstrate an enhanced production profile and expanded mine life. Exploration activities are underway at the 1901 deposit as we advance towards production in 2027, and an expanded exploration program at Talbot is focused on upgrading mineral resources to reserves and expanding the deposit footprint at depth. In British Columbia, we expect to continue to see operational improvements in the second half of the year as we complete our optimization initiatives and advance this operation towards its free cash flow inflection point later this year. Following the receipt of the New Ingerbelle permits earlier this year, we have commenced construction of critical infrastructure for the development of the deposit to access the higher-grade mineralization and drive further cash flow growth starting in 2028. We have also launched the largest exploration program at New Ingerbelle to further increase mine life extension potential. On Slide 10, during the first quarter, we made significant steps towards enhancing our United States copper growth pipeline. At Copper World, as I mentioned earlier, we announced the closing of the Mitsubishi joint venture transaction establishing a long-term strategic relationship with a premier partner. The initial $420 million in cash proceeds will be used to directly fund the remaining pre-sanctioning costs and the initial project development costs following a sanctioning decision later this year. Feasibility activities at Copper World are well underway, with the DFS progressing above 85% completion at March and remaining on track for completion in mid-2026. In March, we announced the acquisition of Arizona Sonoran, establishing a major copper hub in Southern Arizona with the addition of the Cactus project to our existing Arizona business. This transaction further strengthens our position as a premier Americas-focused copper company, enhances our U.S. growth pipeline, and creates significant operational efficiencies and regional synergies with the staged development of Copper World and Cactus. The transaction has received strong shareholder support and is expected to close in 2026. We have also commenced pre-feasibility study activities at our Mason copper project in Nevada. We expect the study to be completed in 2027. While Mason is not expected to come into production until after Copper World and Cactus, its larger production base will position it as the third-largest copper mine in the U.S. As we continue to advance all of these attractive growth initiatives across the portfolio, we remain committed to prudently allocating capital to the highest risk-adjusted return opportunities to deliver significant value for stakeholders. Concluding on Slide 11, our focus on demonstrating continued operational excellence while prudently advancing our many organic growth opportunities will deliver significant copper production growth. Over the next three years, we expect to increase production by 24% through attractive brownfield investments while continuing to advance our attractive U.S. pipeline to meaningfully expand annual copper production levels. By the end of the decade, we expect to increase our annual copper production by more than 70% to approximately 250 thousand tonnes with Copper World. And with the staged development of Cactus and Mason to follow, we have a pathway to 500 thousand tonnes of copper by the middle of the next decade. The most compelling part of this industry-leading copper growth profile is that our growth assets are low risk, low capital intensity projects located in some of the best mining jurisdictions in the world, and we have the team, the balance sheet, and strong financial plan to deliver this pipeline. This is largely driven by a diversified operating platform with significant exposure to complementary gold and our expanding margins. I have no doubt that our continued focus on delivery and execution will continue to drive significant value for all our stakeholders. And with that, we are pleased to take your questions. Thank you. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Our first question is from Ralph Profiti with Stifel Financial. Please go ahead. Ralph Profiti: Thanks, operator, and good morning. Thanks for taking my question. Peter and Eugene, there has been a lot of work being done at Copper World on long-lead items ahead of the definitive feasibility study. Do you have a goal for how much of the revised budget, by the time sanctioning does come, will be locked in, contracted, and committed? I am trying to get a sense of how much work can be done ahead of time to manage inflationary pressures. Peter Gerald Kukielski: Thanks, Ralph. Great question. We certainly will lock in a significant amount of the equipment. For example, we already have pricing on fleet. We have the opportunity to lock in fleet pricing right now. We have pricing from vendors for primary equipment that we are going to procure, and we are ensuring that we have space in the production facilities right now. I would say between the issue of the DFS and FID, we will lock in pricing on all of that equipment. Andre, any comments you might have in addition? Andre Lauzon: Yes, I agree on long-lead and there are also some critical path items that we have been moving along. We started construction of our waterline, taken some initial blasts, and we are pioneering our haul roads as we speak. Those are already in our budget for the year. Like Peter said, the big ones are already in place. Ball mills, SAG mills, all those costing items are coming forth. Eugene Lei: Ralph, if I could just add one more point. You will recall that when we announced the joint venture transaction last August, we increased the 2025 budget for long-lead items. We did not just react to this today. We have been thinking about this for well over a year. We have been placing orders and getting ourselves ready for the FID decision well over a year in advance. Ralph Profiti: Great. That is very helpful. And maybe as a follow-up, a point of clarification, Peter, on the LSIB judicial review. This is a process that is actually tied to the regulatory government process itself and sits outside of Hudbay Minerals Inc.? Are you needing to have a legal strategy around this to preserve the 2028 timeline for New Ingerbelle? Peter Gerald Kukielski: Yes, great question, Ralph. In March, the LSIB submitted an application for review of the regulatory decision to grant the permit amendment. We remain very confident in the integrity and the robustness of that regulatory process that led to the issuance of the permit amendment, and we believe that the court will uphold the decision. At the same time, we remain committed to working with the LSIB in a respectful and constructive manner to try to resolve their concerns through the mechanisms that were agreed to by the parties in the participation agreement. Their issue is not with us, it is with the government, and we have a constructive relationship with them and will continue to ensure that we continue to drive that relationship. Ralph Profiti: Great. Thank you for that clarity and for your answers. Operator: The next question is from George Eadie with UBS. Please go ahead. George Eadie: Yes, hi, thanks for the call today. Following up on that question from Ralph, on the Copper World CapEx, Peter and Eugene, how much can you lock up in the next twelve months or so in terms of dollars? Are we talking 20% to 30% of the CapEx spend you can fix in that period? Is that a reasonable estimate? And we have seen a zinc project nearby this week materially lift CapEx, and while part of that is scope change, how can we get meaningful conviction that in twelve months you can avoid that risk? Eugene Lei: Lots of careful planning. We have had a lot of time to think about this project over the years, and the feasibility study for a similar project was completed a decade ago. We also have a certain amount of equipment already in storage and obviously not subject to cost inflation. In terms of the actual percentage in dollars, we are still working on the final estimate in the DFS. We do not know that number yet. We have been very clear that we expect there to be some cost inflation and escalation related to the final CapEx number from the pre-feasibility number that was released three years ago. As you know, there has been inflation, but that three-years-ago number was post the biggest wave of inflation post-COVID. So we are not expecting a blowout in terms of capital. We are approximately 85% done with the feasibility study. We will release that likely in the third quarter, midyear as expected, with an FID to follow. We do not have any further clarity or any guidance on the actual CapEx number at this moment. Peter Gerald Kukielski: I would add, George, that we are following an integrated project delivery system, which incorporates a number of the contractors and engineers in the overall project management structure. So the development of the estimates that we have will, in no small measure, include their estimates of their own contributions. The constructors and engineers we are using have actually participated in several of the projects that have been developed in the U.S. recently, and they will have deep insight into the evolution of costs over the last couple of years in any case. That will be reflected in the definitive feasibility study. Andre Lauzon: To the original question around percentages, it is tough, like Eugene said, but we do have insights in terms of the fleet. If you recall from the pre-feasibility study, the fleet is 10% to 15% of the overall cost, and the numbers that we are receiving are in line with our estimates. That is a good sign to start. You will recall this project is one of the lowest capital intensity projects in the copper space. It is not subject to some of the larger cost flows we have seen in the sector. It is not at altitude and is about 26 miles from Tucson, so some of the inherent infrastructure challenges that have plagued other builds do not apply to this project as much. We are confident there will be a very robust economic case for this project, as evidenced by Mitsubishi joining at the PFS level a few months ago. George Eadie: Okay, yes, that is helpful, thanks. Pivoting slightly, at Cactus, when will we get an updated PFS with Hudbay Minerals Inc.'s overlay post-transaction closing? Could that be by year-end, or is it still going to be some time next year? And what is the latest on the permit amendments too, please? Andre Lauzon: Sure. I will take that. The vote is still to come in a couple of weeks. We are quite excited about the project and the teams. We are very pleased with the quality of the teams currently working for Cactus and excited for them to be part of ours. The next step, once the vote goes through, is to sit with the teams and regroup. There are lots of synergies with Copper World and our view of the acquisition. Getting their understanding as well will go into next year. It is not a year-end thing. Realistically, it is into 2027 for sure. In terms of permitting, the teams are progressing permitting at site and having discussions locally with the county. The permitting and the revisiting of that is on track and moving forward, and we are supportive. The synergies include looking at fleet; we just completed negotiating a large fleet for Copper World. Once we go through closing, there will be opportunities for Cactus when we look at it altogether. But end of the year would be rushed; it is definitely into next year. George Eadie: Okay. Thanks, guys. All the best. Operator: The next question is from Fahad Tariq with Jefferies. Please go ahead. Fahad Tariq: Maybe just any color on input cost pressures or supply constraints that you are seeing? I do not think I saw anything in the presentation or in the press release. If you could comment on that, that would be helpful. Thanks. Eugene Lei: I can take that. I assume, Fahad, you are referring to current fuel and oil prices and the like. From Hudbay Minerals Inc.'s standpoint, we are fairly well insulated from these emerging cost pressures. As you saw, we held costs very well in the first quarter and, while prices for oil were not yet elevated, our operations are minimally affected. In Peru, about a $10 increase in the price of oil per barrel is about a $0.04 cash cost increase per pound of copper. In B.C., given the heavy stripping that we are doing, that is a little higher, about $0.10 per pound produced. If you think about oil today and, for example, current prices were to hold, oil is about 50% higher than our original budgeted amount for the year, and that would result in about a $45 million hit to cash flow if oil prices were to persist at this level for the whole year. We have a natural hedge of gold in our portfolio that more than insulates that cost. Gold is about 20% higher than what we budgeted for the year, and if these gold prices were to hold for the rest of the year, the impact of that would be close to $200 million. So, in terms of the net effect, what we have with the gold that we produce in the portfolio is a natural hedge against larger cost inputs like oil. We feel very well positioned. Peter Gerald Kukielski: And, Fahad, I would also add that one of our primary cash flowing assets, which is Manitoba, is largely insulated from the effects of oil prices since we use very little oil in Manitoba at all. Most of our underground equipment is electrically driven or battery driven in any case. Fahad Tariq: Okay, great. That is really clear. And then switching gears to the growth profile, can you remind us in terms of the sequencing between Cactus and potentially Copper World Phase 2, how you are thinking about that assuming those permits happen at some point and you are in a beneficial situation of being able to select between the two? Peter Gerald Kukielski: For sure. It makes absolute sense to progress Cactus in sequence with Copper World because there are a lot of synergies between the two projects. As Andre mentioned, we would continue with updating the pre-feasibility study of Cactus, move from that into definitive feasibility, and get all the permits in place so that once Copper World Phase 1 is in production, we would be able to phase the construction of Cactus and bring that online subsequent to Copper World. For Phase 2, we would not want to apply for permits until Phase 1 is in operation because we do not want to get things mixed up. It will take several years to get the permits for Phase 2, so it makes absolute sense to progress Cactus, and then Phase 2 would come in after Cactus. Andre Lauzon: And Cactus is a little different than Copper World. At Copper World, a lot of CapEx is around building a facility and infrastructure. At Cactus, it is more of a stripping exercise leading into building an SX-EW plant. It is very low risk in terms of execution of moving material. It is about purchasing the fleet and executing the plant. So, as Peter said, there is a timing element and it almost naturally fits. Operator: The next question is from Dalton Baretto with Canaccord Genuity. Please go ahead. Dalton Baretto: Thanks. Good morning, guys. Staying on the sequencing theme between Copper World Phase 1 and Cactus, given what has been going on with sulfur and sulfuric acid pricing, demand for U.S.-made cathode, and the timing of the sequencing, has anything changed in your thinking as it relates to the feasibility study around the Albion facility? Peter Gerald Kukielski: Great question. Nothing has really changed. The DFS is a continuation of the PFS, pretty well the same. Andre Lauzon: What we could do is, during the update of the PFS for Cactus, take a look at the sequencing or the timing for the development of the Albion facility. That will be something that we look at as part of the Cactus PFS rather than the work that we are doing on Copper World right now. To build on that, the other project in Manitoba where we are looking at getting the gold out of the Flin Flon tails is progressing quite well with the studies. There is still more to go, but one of the byproducts there is also sulfur—molten sulfur and sulfur products. There is lots of optionality in our portfolio to produce sulfur that would benefit the Cactus project, where ultimately what you are trying to get is acid for the heap leach. Whether it is advancing Albion, as you suggest, or producing a lot more gold in Manitoba and doing the other, we will evaluate all those at the right time. Dalton Baretto: Understood. And then once the feasibility study drops midyear, outside of the financing package, what are some of the other gating items to get you to FID? Peter Gerald Kukielski: Obviously, getting our partner on board. The partner is already on board in many respects, but they have their own internal approval process that we need to respect. There will be some time between the completion of the definitive feasibility study and the final investment decision in respect of what our partner needs. Andre Lauzon: They are actively working with us. We are meeting with them. They absolutely do not want to be a barrier. We are all aligned on rock in the box and hitting that first production. They have been really great to work with, and we do not see any barrier to spending the money. Eugene Lei: The $420 million that they deposited in January at close is being used to advance the feasibility study and will be the first capital spent when we FID this project. Andre Lauzon: We do not see the FID being a barrier to rock in the box and first production. All the allowances we have made and the critical path items we are focusing on are keeping us on track. Dalton Baretto: Great. Thanks. And finally, Peter, can you comment on some of the political developments in Peru right now and whether that is translating into any form of social unrest? Peter Gerald Kukielski: The social landscape has been complicated since the unrest we saw last year. With the federal elections underway right now, there may continue to be periods of heightened social unrest. The general election was held on April 12, and from the initial voting, there is not yet a clear result of who the second candidate is. The first candidate, as everybody knows, is Keiko Fujimori. By mid-month, it probably becomes clear who the second candidate is. Frankly, federal elections do not really impact Hudbay Minerals Inc., as we have seen many different presidents since we started operations ten years ago. What has been constant in those years has been the stable fiscal regime, which we do not expect to change. We have seen left-wing presidents, right-wing presidents, and everyone in between. Peru is a leading copper production nation globally, and the new president will recognize the importance of mining to the country. It will be business as usual for us. We have no concerns with respect to the upcoming election. I do not think it will result in heightened unrest. There may be bouts of it, but we are well positioned to deal with it. Operator: The next question is from Stefan Ioannou with Cormark Securities. Please go ahead. Stefan Ioannou: Hi, can you hear me okay? Maybe following on the Peru theme. In the slide, you mention preparing for Maria Reyna and Caballito exploration. I assume that involves more local social considerations. Is there any update on when we might be able to put a drill rig in the ground there? Peter Gerald Kukielski: There are no changes to the remaining steps in the permitting process, which includes the government’s Previa process with the local community. With the election underway, that process is delayed. There are community elections later in the year. We think once those elections have been held, we will move forward towards getting the permits. Permits are delayed, but we think we are coming to the end of that period of delay as we move past the general election and the community elections, and then we probably see some movement towards the end of the year. Stefan Ioannou: Okay, great. Thanks very much. Operator: The next question is from Matthew Murphy with BMO. Please go ahead. Matthew Murphy: Hi. I wanted to ask about the labor balance at Lalor. You mentioned it a few times. Some challenges in Q1—maybe you can elaborate on what you are seeing and how you are addressing it? Andre Lauzon: Sure. There have been some challenges. They are not new; we have gone through this before. We saw a bit of a peak toward the end of Q1, and we are working through it now. We are bringing more people into the organization, and that takes a little time to train—more of a medium-term fix. In the very short term, the team is looking at the 1901 ore body, which we have been developing ourselves, and we have a lot of skilled employees there. The team is working on contracts with a mining contractor for that isolated area as a nice fit, and then we will redeploy our resources into the shortfalls within the mine. There are several initiatives underway, but those are the main ones. We have this in hand. It is something we have done before. It is just a blip, and we are working through it. Peter Gerald Kukielski: And, Matt, we were straightforward in the results release that we remain on track to achieve the annual production guidance ranges in Manitoba regardless of any labor issues and ups and downs that we might see. The team has it well in hand. Andre Lauzon: We will still be within production and cost guidance, even with those extra costs. Matthew Murphy: Got it. Okay. Thank you. Operator: The next question is from Lawson Winder with Bank of America Securities. Please go ahead. Lawson Winder: Thank you, operator, and good morning, Eugene and Andre. Thank you for today’s update. Could I ask about capital return? In light of the recently revamped capital return framework and the stronger balance sheet, and considering the growth capital needs and the buyback renewal approval, can we consider the probability that Hudbay Minerals Inc. might be more active in the buyback in 2026 as a higher probability than in 2025 when the buyback was not acted upon at all? Eugene Lei: Hi, Lawson. I can take that question. We look at this holistically, and the capital allocation framework was meant to provide us, beyond that 3P plan, the way to advance the company. With the framework, we are able to do three things: fund the development of Copper World, reduce debt with a goal of less than 1x net debt to EBITDA through the life cycle of the build, and fund generational investments in brownfield projects at each of our operating sites. Given the progress we have made on the balance sheet, we are able to consider shareholder returns well ahead of our goal to be a meaningful dividend payer with the development of Copper World. We started thinking about that earlier this year with the capital allocation framework, and the first step was increasing our dividend. It was a nominal increase, but it was the first dividend increase we have had in our history. We would like to ramp into that if we have the opportunity and if these prices were to hold, while making generational investments and providing shareholder returns. The NCIB was put in place as good housekeeping, as a tool to smooth market volatility. It is something we want to be able to access at the right time. We are not committing to any set dollar amount of share buybacks at this time. We do not think that is the right way to set our capital allocation priorities, particularly during the year of sanctioning at Copper World. If we have the opportunity to have excess capital at the end of the year, we can relook at the dividend and see if we can enhance that as part of the whole capital allocation framework. Peter Gerald Kukielski: I would also add that we want to have all options available to us, but right now the most important thing for us is delivery. I am confident that the culture of consistent operational and financial delivery that we are building will ensure we are the gold standard in the copper space, as we referred to in our release. Lawson Winder: Thank you. One other follow-up on capital return: I am not entirely clear on the potential spending at Mason. You are advancing plans to initiate a pre-feasibility study. Can you remind us what you think you are going to spend in 2026 on Mason? Could that change? Is there a range, or is it fixed? Eugene Lei: We are starting that process, and approximately $20 million is allocated to advancing Mason this year. That will be expensed, as it is not yet in reserve. That is essentially a fixed budget number. There is not much we can increase that by in terms of moving ahead. We are starting the pre-feas and that will take the better part of a year or two. Andre Lauzon: It is mostly studies—studies, some drilling, some geotech, hydrology. Lawson Winder: Okay. Fantastic. Thank you all very much. Operator: The next question is from Analyst with Haywood. Please go ahead. Analyst: Thanks. Peter or Andre, following on the discussion with respect to sequencing in Arizona, do you feel comfortable giving a date in terms of production start for Copper World, for Cactus, and for Phase 2, just to give us a broad sense of what this is going to look like over the long term? Peter Gerald Kukielski: Sure. Copper World targeted dates will be released with the DFS, but it is pretty well mid-2029 for rock in the box. Cactus would be sometime after that. As Andre said, Cactus is more an earthmoving effort than anything else. We have to move rock, do some stripping, develop the heap leach piles, and then build an SX-EW plant. There could be concurrent activity on mining between one and the other, but it remains to be seen during the PFS update what that will look like and the actual sequencing. Andre Lauzon: We are not slowing down Cactus studies. We will move those forward as fast as we can. Depending on where we are with Copper World, metal prices, and all that, we could start stripping—things that are very straightforward—while we are doing detailed engineering. We want to keep that optionality open. Analyst: Understood. On overlap, if you start in mid-2029 at Copper World, would you consider a start-up at Cactus within 18 to 24 months of that start-up, or do you need longer lead time? Andre Lauzon: That is possible and reasonable. Pre-feasibility is roughly a year and feasibility is another year. Layer on concurrent permitting updates. One thing we do know is you have to strip rock, and at the right time that costs money. How Copper World is going, where metal prices are, and permits in hand will drive timing. We are not slowing anything with Cactus. We want everything ready as fast as possible. It is optionality for us. In the next five years, we could potentially triple copper production and Cactus is a key part of it. Peter Gerald Kukielski: In terms of Phase 2, we will apply for permits pretty quickly once Phase 1 is up and running. The question is the duration of permitting. It will certainly take longer to permit Phase 2 than to bring Cactus into production. Phase 2 is not a massive effort, and there are nice surprises in Phase 1 that will come out. Analyst: And finally on New Ingerbelle, what are the implications of bringing New Ingerbelle on in 2028 from a production perspective? Peter Gerald Kukielski: For gold, it is basically more gold and mine life. It is roughly double the gold grade of what we are currently producing. Andre Lauzon: There is some stripping that goes along with it, but it is a great cash flow generator for us, particularly at these metal prices, and with about a third of the stripping ratio of current areas. Eugene Lei: The average gold production with New Ingerbelle essentially doubles from about 20 thousand ounces of gold per annum to about 40 thousand ounces per annum. It would be a very nice complement to the consistent copper production, and the mine life of New Ingerbelle on a reserve basis today is ten years. We started drilling at New Ingerbelle and expect to convert a lot of the inferred, so we are likely to see something much closer to double that mine life as we continue to drill and convert that resource. Analyst: Alright. Okay. Thanks. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Candace Brule for any closing remarks. Candace Brule: Thank you, operator, and thank you, everyone, for participating today. If you have any further questions, please feel free to reach out to our Investor Relations team. Thank you and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Greetings, and welcome to the Quaker Houghton First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Director of Investor Relations. Mr. Dalhoff, you may begin. John Dalhoff: Thank you. Good morning, and welcome to Quaker Houghton's First Quarter 2026 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, April 30, 2026. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe. Joseph Berquist: Thank you, John, and good morning, everyone. We delivered a strong first quarter with organic volumes up 3% year-over-year, resulting in our third consecutive quarter of adjusted EBITDA growth. Our performance was driven by new business wins in all regions, highlighted by double-digit organic volume growth in Asia Pacific, where we continue to gain traction across the region. Adjusted EBITDA increased 5% compared to the prior year, building on net share gains that enabled us to outperform our end markets, which we estimate were down approximately 1% in the quarter. Gross margins improved from the fourth quarter, increasing 150 basis points sequentially and 40 basis points year-over-year. The sequential improvement in margins was bolstered by higher utilization of fixed assets and improved operational performance. Market conditions remain soft overall, with pockets of incremental industrial gains tempered by weak automotive production. The hostilities in the straight of our moves are creating inflationary pressure on raw materials and input costs. But so far, it has not had a significant direct or indirect impact on demand. Strong commercial execution from our team and contributions from our recent acquisitions helped offset the underlying sluggish markets, enabling us to deliver organic volume, revenue and EBITDA growth in the quarter despite headwinds and volatility. Turning to the first quarter results. Net sales increased 8% year-over-year, fueled by net share gains of 4% at the top of our target range, along with the contribution from recent acquisitions. This marks the 10th consecutive quarter of net share gains, while our end markets have been consistently sluggish. Organic sales volumes in Asia Pacific grew for the 11th consecutive quarter. While our business in China continues to grow above end market rates, we are also achieving outsized growth in emerging markets such as India, Thailand and Vietnam. Operating margins have expanded in the region as we are benefiting from recent organic investments in localized manufacturing. In EMEA, organic volumes grew 2% in the first quarter as new business wins outpaced persistently tough end markets. Volumes in the Americas declined slightly year-over-year, driven by a lingering customer outage, tariff uncertainty and weather-related disruptions. Despite these challenges, March had the highest volume in the Americas in the last 16 months, signaling improved momentum as we exited the quarter. EBITDA margins declined 50 basis points year-over-year, primarily because of higher SG&A expenditures related to acquisitions, foreign currency and incentive compensation. I would like to provide more color on the ongoing conflict in the Middle East and how we are managing its impact on our business. Immediately after the conflict began, we established an executive level task force to monitor developments, assess potential impacts and coordinate our response. Our top priority was to ensure the safety of our more than 4,700 employees, particularly those living and working in the region. We also took swift action to confirm supply continuity to customers in the affected region. Since then, the task force has remained actively engaged, tracking conditions closely and addressing emerging pressures. From a business perspective, we have proportionately low direct sales exposure to Middle East countries near the conflict area. Our sales to North Africa and the Middle East in 2025 were less than 2% of total company net sales. While first quarter results were largely insulated, we expect higher raw material and shipping costs in the second quarter. To address this, we implemented pricing actions across all regions with some taking effect in April. There will be a typical lag between rising costs and price realization, which we expect will create temporary gross margin pressures in the second quarter. Based on the actions we have taken and additional increases planned for this quarter, we expect to recover margins within 1 to 2 quarters. Meanwhile, we are committed to ensuring products reach our customers without disruption. We have not yet seen a meaningful impact on customer demand, but a prolonged conflict could begin to influence broader economic activity, including forward demand and further cost inflation. With this backdrop, we are focused on what we can control. Today, we are announcing the launch of a new transformation program that will reduce cost and complexity across the organization, optimize our manufacturing network, strengthen sales and technical capabilities and simplify global processes. We will pace investments over the coming months to unlock productivity in a disciplined manner. The first phase is underway through a comprehensive business process review focused on finding cost opportunities and improving master data management. The program will fundamentally change the way we work, and we are looking to modernize the employee and customer experience. In the first quarter, we took steps to streamline our executive leadership structure to sharpen customer focus and accelerate decision-making. This program is central to achieving adjusted EBITDA margins at or above our target of 18%. We expect to exit this year with approximately $10 million in new run rate savings. Over the next 3 years, we see a clear path to delivering at least $20 million to $30 million of sustainable structural cost improvement with much of that target already identified. We have a clear line of sight to a robust set of initiatives, giving us confidence in our long-term transformation path. This new program complements actions that are already underway. The closure of our manufacturing facility in Dortmund, Germany remains on track, and we are beginning to realize the associated financial benefits. We continue to expect approximately $2 million in cost savings from the closure in 2026 and $5 million in annual run rate savings beginning in 2027. We also recently announced the planned closure of our manufacturing facility in Songjiang, China, which will coincide with the start-up of our new facility in Zhongjuang later this summer. Production from Songjiang will transition to the new site as it comes online, enabling more efficient operations and enhanced capabilities. This modern facility will strengthen our ability to serve customers across Asia Pacific and manufacture recent portfolio additions more competitively at the local level. Turning to the outlook. Our view on macro trends is consistent with prior expectations. End markets declined modestly in the first quarter as expected. And while we still continue to predict flat end market conditions for the full year with normal seasonal improvement and a slightly better demand environment in the second half, we expect sequential volume and revenue growth in Q2, driven by seasonal improvement and wrap effect of new and recent business wins. Visibility through the first part of the quarter indicates steady demand. At the same time, we anticipate temporary gross margin pressure related to higher input costs stemming from the Middle East conflict, which is expected to push gross margins below our target range in the second quarter. The situation remains dynamic due to the prevailing market uncertainty. We expect these gross margin headwinds to be temporary, lasting no more than 1 to 2 quarters. Our current estimate is that second quarter gross margins will be 200 to 300 basis points below quarter 1 on a sequential basis. Through pricing actions we are taking, we expect to fully recover gross margins within our target range of 36% to 37% as we exit the year. With the rapid raw material cost escalation in recent weeks above what we experienced at the end of the first quarter and the ongoing uncertainty of the situation, we are in the process of implementing further price increases, which we expect will be in place before the end of the second quarter. We are recovering the cost impact from inflation in a responsible way and collaborating with our customers to successfully navigate the complexity of the current situation. As mentioned previously, the company is also taking action to improve our cost structure. Our long-term earnings profile continues to be resilient. Our local-for-local operating model and deep customer relationships differentiate us and enable new business wins. As a result, even amid heightened uncertainty, we continue to expect revenue and adjusted EBITDA growth in 2026, assuming no significant further deterioration in our end markets because of the Middle East conflict. In closing, I am incredibly proud of our team and their consistent execution in a challenging environment. We are making substantial progress across key priorities, including pursuit of new business, cost structure optimization, while also diligently executing our strategy to create long-term value for our customers and shareholders. With that, I will turn the call over to Tom to walk through the financials in more detail. Tom Coler: Thank you, Joe, and good morning, everyone. First quarter net sales were $480 million, an 8% increase from the prior year. Organic volumes increased 3%, driven by global net share gains of 4% across all regions, with Asia Pacific being the largest contributor. Acquisitions contributed an additional 4% to net sales, primarily related to Dipsol, which will become part of our organic base beginning in Q2. We also had a 4% benefit to net sales from favorable foreign currency translation, primarily due to the euro strengthening against the U.S. dollar. Partially offsetting these items was unfavorable selling price and product mix, which was 3% lower than the prior year associated with lower index pricing, regional and geographic mix. As expected, gross margins improved on both a year-over-year basis as well as sequentially to 36.8%, near the high end of our target range. This was driven by product margin improvement and more favorable manufacturing absorption. On a non-GAAP basis, SG&A increased approximately $16 million or 14% in the first quarter compared to the prior year. This increase was primarily due to acquisitions and the impact of foreign currency. Excluding these items, organic SG&A was approximately 6% higher in the first quarter, mainly due to higher incentive compensation and accelerated depreciation related to our corporate headquarters and lab consolidation in the Philadelphia area. We delivered $73 million of adjusted EBITDA in the first quarter, while adjusted EBITDA margin of 15.1% declined year-over-year due to higher SG&A costs. Switching now to our segment results. Our Asia Pacific segment continues to be a growth engine with organic net sales increasing in 10 of our 11 last quarters and new business wins far exceeding the high end of our total company target range. Asia Pacific sales in the first quarter increased 25% year-over-year as the impact of our acquisition of Dipsol complemented organic volume growth of 10% and a favorable foreign currency impact of 3%. These drivers were partially offset by unfavorable price and mix, which declined 2% in the quarter. Segment earnings in Asia Pacific increased approximately $8 million or 32% in the first quarter compared to the prior year. This was driven by higher top line growth as well as improved product margins and more favorable manufacturing absorption. First quarter net sales in EMEA increased 10% year-over-year, partially due to favorable foreign currency impacts. Higher net sales from organic volume growth and the impact of acquisitions were offset by lower selling price and product mix. Segment earnings in EMEA increased approximately $2 million or 9% in the first quarter compared to the prior year. First quarter net sales in the Americas were in line with the prior year as favorable impacts from our acquisitions and foreign currency were offset by lower organic sales volumes and selling price and product mix. Lower volumes were attributable to a continued customer outage, regional tariff uncertainty and weather impacts early in the quarter, while lower selling prices were primarily the result of our index contracts as raw material costs declined in the quarter compared to the prior year. Segment earnings in the Americas decreased approximately $5 million or 8% in the first quarter compared to the prior year. This was driven by higher SG&A related to selling expense and incentive compensation as well as unfavorable product mix that negatively impacted margins. Turning to nonoperating costs. Our interest expense was $10 million in the first quarter, which was consistent with the prior year and the past few quarters. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding noncore and nonrecurring items, was approximately 28% in the first quarter, which is slightly lower than the prior year and in line with our expectations for the full year effective tax rate in the range of 28% to 29%. And in the first quarter, our GAAP diluted earnings per share were $1.13 and our non-GAAP diluted earnings per share were $1.63, a 3% increase over the prior year due to improved operating performance. Cash generated from operations was $4 million in the first quarter, increasing from a use of cash of $3 million in the prior year. The first quarter is typically our lowest from a cash generation perspective due to incentive compensation payments, working capital investments and the seasonality of our business. The improvement over the prior year was primarily the result of better operating performance and lower cash restructuring costs, which totaled $4 million in the first quarter. Capital expenditures in the first quarter were approximately $11 million, primarily related to the construction of our new facility in China. We anticipate capital expenditures to increase in the remaining quarters as we complete construction in China and finalize the build-out of our new corporate headquarters in Pennsylvania. We still expect full year 2026 capital expenditures to be approximately 2.5% to 3.5% of sales. During the first quarter, we paid approximately $9 million in dividends. We remain focused on our capital allocation priorities and balancing investments for growth with returning cash to shareholders, and we'll continue to weigh opportunistic share repurchases in a prudent manner that optimizes shareholder value. In April, we announced that we entered into an amended credit agreement in which we extended our nearest debt maturity by almost 4 years from June 2027 to April 2031, while also increasing our revolving credit facility availability by approximately $300 million and improving our overall credit terms. The amended agreement also provides us with the right to increase the revolving credit facility by approximately $331 million for additional liquidity. The improvement in our credit terms and increased availability under this new agreement reflects the strength of our balance sheet and are clear indicators of the underlying health of our business and the durability of our cash flows. The new agreement provides increased financial flexibility that will allow us to execute our strategy, achieve our capital allocation priorities and continue investing in growth. We delivered strong first quarter results, continuing to gain share and driving organic volume growth despite ongoing macroeconomic and geopolitical challenges. With a strengthened balance sheet and increased financial flexibility, we are well positioned to continue executing our strategy and creating value for shareholders. With that, I will turn it back over to Joe. Joseph Berquist: Thank you, Tom. We are executing a clear set of priorities to strengthen the business, simplifying how we operate, enhancing our capabilities and putting the right cost structure in place to support sustainable growth. With that, we would be happy to answer your questions. Operator: Our first question comes from the line of Mike Harrison with Seaport Research Partners. Michael Harrison: I wanted to start with just kind of the raw material picture. I think you did a good job kind of articulating the expectation of 200 or 300 basis points of margin pressure next quarter. But maybe just give us some details on what you guys are seeing in terms of raw material costs. I assume that the biggest pressure you're seeing is in crude-based materials, but maybe comment also on what you're seeing. I know we're just getting past an oleo chemical spike, and I think some of those materials also continue to be kind of volatile. And also, if you can cover whether you're having any issues with raw material availability in any parts of the world. Unknown Executive: Yes. Thanks, Mike. Good question. So talking about the general situation. If you think about our raw materials, there's really 3 buckets, right? It's base oils, it's additives and then it's oleochemicals. And right now, as is typical in an inflationary environment like this, everything sort of keys off of what's happening with crude oil, right? And so all 3 of those buckets are higher. In the sort of when hostilities broke out, as I mentioned just a few minutes ago, we put a task force together that day, right, that Saturday, we started looking at what impacts this is going to have on supply, first of all. and then also cost. And I think from a supply standpoint, to your last part of your question, we've been very fortunate to not have any issues. I think the flexibility of our supply chain, the fact that we have this local-for-local approach and really as one of the leaders in the space, I think our relationships and our ability to get product around the world is very good. Overall trend in those 3 buckets or raw materials in general, what we had thought sort of the increase was going to be toward the end of Q1, I would say in the recent weeks, that has gone up more. So we put an increase out at the end of Q1. Some of that became effective in April, more will become effective here in May. And we've already started on another round of price increases just because the cycle is pretty inflationary right now. Will that go further? I personally have my own thoughts on that. I don't believe so. But it all depends. If it does, I think as we did in the past, we have pretty good ability to go out and get pricing, but there is this lag. And so our view of is, as I said, we think it's going to be somewhere between 200 basis points, maybe a little bit more than that. We have index agreements as well. And those index agreements tend to adjust on a quarterly basis. So that's why there's that lag. It's just not something that we can go out and press a button and do immediately. Michael Harrison: All right. Very helpful. And then I wanted to ask about the new transformation program that you guys announced in the press release and in your prepared remarks. Kind of what was the genesis of this program? And maybe just give a little bit more detail on what kind of actions you're taking that are beyond what you got -- the actions that you've announced with previous cost programs that are, I believe, still in mid-flight. Unknown Executive: Yes. We've sunset or I mean I guess there's a few lingering things with prior cost programs. But this is a new program. And the genesis of the program really is, I believe our EBITDA margins need to be above 18% and pushing 20% eventually. And we're in the sort of mid-teens space right now. And I've been in the role now for about 18 months. And I think visibility overall to how the company is operating, some things that kind of jump out to me are spans and layers. We had maybe added some layers of management that weren't there before. One of my philosophies was to bring the decision-making closer to the customer. I really would like to have our culture be one of working managers or hands-on working managers. So -- so just some general like bringing clarity to the org structure and looking at areas where there's redundancy, maybe there's a little bit of load. We've addressed that and are addressing that. I mean this is also about Mike, there's tremendous complexity still lingering from when Quaker and Houghton came together in 2019. That was a huge transformational deal. And while we've integrated very well, we've had great customer retention, and we're able to aspire our customers, I think -- there's also the reality that our master data is a little messy that creates a lot of inefficiency, that creates a lot of manual work. We looked at our business processes and just certain things like how we process intercompany charges amongst ourselves and how many times our customer service people have to touch an order before it gets to the customer; it's really inefficient. And so the key thrust of this is around business process optimization and making sure that we have a Quaker Houghton way of doing things, tied very closely to that is our master data. And we have a very good line of sight to where that's going. And actually think that there's efficiency that's at the end of that process that will -- we can start to leverage things like AI and shared services type program. to make the business more competitive. This is not a reaction to what's happening in the Middle East. This is something that I feel we need to do. It's the right thing to do for the business. We've got to be more efficient. We got to have a more modern employee and customer experience. And it's time to kind of bring the company forward and so we can really start to take advantage of a more modern set of tools. Michael Harrison: That makes sense. And then I guess last question for now is just -- as always, I'm trying to get a little bit of a sharper view on how you guys are thinking about EBITDA for the next quarter? You mentioned the gross margin pressure. Typically, you guys would see some seasonal improvement in EBITDA, but it sounds like maybe that could be completely offset by gross margin pressure. So is it fair to say we're probably looking at an EBITDA number in the second quarter that's pretty similar to what you guys just reported in Q1? Unknown Executive: Mike, I think that's fair. I do think the volume aspect of this surprisingly, in the market that we're in, you would think as volatile as it is, our volume is very strong. So I feel -- I do feel confident that second quarter volumes will sequentially improve, that even where I sit today, I would expect year-over-year improvement. There's visibility to our order book. There's visibility to business that we've won and sort of the wrap effect of that, what's in the pipeline. I mean we have a couple of parts of our business where we're actually adding labor to boost up some of our off shifts to keep up with demand. So the demand aspect of it is very good. And we're putting price in. That price will not all be in, in the second quarter, and there's another phase coming. But I do think from a volume perspective, we expect it to be better and seeing some of that normal seasonality that you see but there will be the slide of gross margin. And I think the math would say we're going to be within range, right, of where we landed in Q1. Operator: Our next question comes from the line of Jonathan Tanwanteng with CJS Securities. Jonathan Tanwanteng: I was wondering if you could talk about the expanded credit agreement you did recently and your thoughts maybe on capital allocation from here. Did you update that? I know that it was becoming current, but the expanded size, did you do that to accommodate your expected operational organic growth? Or did you see more of an opportunity maybe to do share repurchases or M&A here? Maybe just give us a little more color on the opportunities that you see going forward and how you're addressing that? . Tom Coler: Yes. John, this is Tom. I'll share some thoughts on that. I would say, first and foremost, the update to the credit agreement was really about an opportunity to extend maturities, right? So we were going current here in June of this year with maturity of our existing facility in June of 2027. So this gave us an opportunity to extend that out to April of 2031 and add some additional years with respect to the facility. It does add additional capacity for us to really continue to be flexible and use all the available tools from a capital allocation standpoint. We continue to be focused on investing in growth, both from an inorganic standpoint as well as organic growth, things like our new plant in China. And then I think, as I said in my prepared remarks, we continue to weigh how we deploy capital for growth as well as return capital to shareholders through opportunistic share buybacks and continue to pay dividends and those sorts of things. And so I think it's a combination of extending our maturities, some additional capacity, which gives us more flexibility from a capital allocation standpoint. We also improved terms as part of this refinancing of the facility and we have a great and supportive bank group that enabled us to accomplish those things in terms of the maturity and the additional capacity in the improved terms. Jonathan Tanwanteng: Got it. And maybe just to be a little more focused here, do you see opportunity just given the market volatility, whether it's in your own shares or in potentially acquiring tuck-ins or larger players? . Unknown Executive: Yes. I'd say, John, yes to both, right? I think we have done -- it's been a couple of quarters since we've done anything meaningful on share repurchase. But we're not going try to do that. Balance sheet is in a good position. So if the opportunity presents itself, we expect we will do that. I would also say that the M&A pipeline as always, remains active. There are a number of sort of bolt-on tuck-in type of opportunities out there that we think will give us more things in the portfolio that we could sell to our existing customers and those types of deals have been very accretive for the company in the past. And part of our strategy -- it will be part of our strategy going forward. So I would say yes to both questions. And we're really happy we got the financing on it. When we got it done and that the terms and additional flexibility that came with it. Operator: Our next question comes from the line of Laurence Alexander with Jefferies. Daniel Rizzo: It's Dan Rizzo on for Lawrence. A couple of things. As you aim for your 18% to 20% EBITDA margins, once I guess, some of this volatility may be kind of subsides and your restructuring is in place, how should we think about incremental margins kind of in the mid-cycle? I mean it's obviously increasing. I was wondering how we should kind of -- how we could quantify it. Tom Coler: Yes. Dan, it's Tom. Thanks for the question. I think as we're thinking about driving towards that 18% plus EBITDA margin. I think our assumptions relative to our targeted gross margin range remain consistent in that 36% to 37%. I think what you heard us talk about in our prepared remarks and some of Joe's comments is really around this opportunity from a transformational and restructuring program to focus on cost and complexity reduction with respect to our G&A functions, our manufacturing and sledging network. And so as we look out over the next couple of years, where we see some leverage is really as we think about SG&A as a percent of sales, those G&A functions and driving some of that cost and complexity out of the business. And that's really the pathway towards that 18% as well as volume growth and continuing to work around net share gains and some of the things that we've been able to successfully execute. Daniel Rizzo: I'm sorry, did you mention that I not hear what the cash cost of the plan is, the new plan? Tom Coler: No, we didn't mention anything specific about the cash cost of the plan. I think the -- what I said was we will pace this out over time. So for instance, we're not planning to put a big new ERP system in, right? So it's not going to be a huge outlay. I think what's typical here is 1 to 1.5x to achieve the types of synergies that we're looking at. So we're not planning any sort of extraordinary type of investment to get there, Dan. Hopefully, that answers that question. Daniel Rizzo: No, that does. That's helpful. And then my final question. So you guys have done a good job, obviously always of increasing market share. But you have a lot of new products from Houghton and Dipsol. I was wondering how much of your share growth is increased sales to existing customers versus going into like kind of different customers? And how that kind of breaks out? Tom Coler: It's a really great question, Dan. -- it's much easier to go in and what we say is grab a share of the wallet versus opening up a new door with someone that you don't have a relationship with. So proportionately, most of the gains that we're getting are coming from share gain within existing customers, growing that share of wallet, right? It's the customer who may be buying a lubricant from us that we could sell them, grease, specialty grease, fire resistant hydraulic, finishing -- metal finishing type of chemical. So it's really the majority -- high majority is coming from that growing with existing customers, new parts of the portfolio. Daniel Rizzo: That's very helpful. Operator: Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Yes, sorry about that. I hope you guys are well. Congrats on the quarter. I guess, I understand the couple of hundred basis points of gross margin compression, maybe that you're expecting for Q2 because of the lag in pricing for us. I would have 2 questions. So first off, do you expect to fully recover that in the second half, which -- and does that imply that you have to actually price above inflation? And then secondly, I know you guys were successful in recouping inflation in the last inflationary cycle in '22, '23, and you were able to price seemingly above inflationary levels. . But is the demand picture now maybe slightly choppier or less robust and would make that a little bit more difficult or take longer to recoup those margins? Or how should we think about that? Tom Coler: Yes. No, good question, Arun. Thanks for those. I would say, the goal overall is we have these target gross margin ranges. I've talked about the 18% EBITDA, and we're pretty committed to that, right? So that would imply in this type of environment that you've got to stay ahead of inflation a little bit. That being said, we volume to make sure we retain and we don't have a lot of churn and we can continue to stack the wins and the growth that we're seeing going forward is also part of it. About 1/4 of our pricing is on index. So it takes away a lot of the emotional aspects of this. Our customers, I think, understand the situation that we're in right now. And we've also said, look, if things recess. In the cost side, we will act accordingly. And we're not trying to gorse them in any way, we're trying to be very responsible about it, as I said previously. The demand environment right now, surprisingly, is very strong. And will that change? It's possible it will in any type of inflationary environment like that, it could happen but through, say, the first 4 months of the year and visibility to where we are with our demand currently, we're not seeing that. We think will be okay. And then the margin question specifically, we do think by the end of the year that we would get back into the 36% to 37% range. And that's our goal. Arun Viswanathan: Okay. Great. And then I guess a follow-up, maybe I can just ask about the volumes. You said that the volume environment is -- the demand environment is quite strong. Maybe you can just kind of describe that a little bit more in detail because is it steel utilization rates are really holding up and aluminum maybe as well, automotive? Maybe you can just touch on some of the end markets. And also regionally, it seems like, obviously, Asia Pacific has remained relatively strong, and you're benefiting from some wins. But North America and Europe, are you also seeing some improvement? Or how should we think about that? Tom Coler: Yes. No. Look, I think the main takeaway here is we're really punching above our weight. And let's focus on Asia because -- the results are very, very strong, double-digit volume growth. I mean, that's against a backdrop of industrial production actually declined in China in the first quarter and we've seen light vehicle builds really in all regions down between 2% and 4%. So we are outperforming the markets that we're in. We've seen some improvement on the metal side, steel and aluminum production, that can, at times, be a precursor that automotive is going to swing back, right? -- end of Q1, I think, as I mentioned, North America seemed to pick up and little bit in North America will drive our Americas segment? And then typically, as you head out of Q1 in areas like Asia, you put the Lunar holiday behind you and you get into normal seasonality patterns. And I think they had a tough first part of the year, China especially, but areas outside of China; India, Vietnam, Thailand, actually, they had pretty good performance. And so that offsets a little bit what's happening in China. So all in all, like as we head into the second quarter, as I said, I think this sort of normal seasonality returns. That's what it feels like right now. And then us taking share, consistently taking share above market, we would expect that would continue into the year. Operator: Our next question comes from the line of David Silver with Freedom Capital Markets. David Silver: Yes. Good morning. Thank you. a couple of questions. I have a couple of questions. First one, tactical, second one, maybe a little bit longer term. But on the tactical one, and I apologize in advance that this sounds very naive. But I'm leaning on your long experience on the commercial side, Joe. And I'm sure that your company has a very detailed playbook for operating in conditions such as the one we're facing now with volatile feedstock cost pressures. And I'm just kind of scratching my head and I'm saying, why not a surcharge, I guess? In other words, something that can be pegged to something clearly visible to both sides. It might halt some of that 200 to 300 basis point erosion on the way up and the customer gets the assurance that when the relevant cost pressure abates that the pricing that persisted before this will quickly return. But I'm sure your company has a long playbook. Maybe if you could just share some of your thinking about how quicker typically goes about recouping cost pressures in fast-moving markets, such as the one here. Tom Coler: Yes. No, good question. So we do use surcharges. That is something that we do -- and really, you're able to put some of that in immediately, especially when it comes to things like freight. Other parts of the business, I mean, we have to go in and really show the data to the customer. just as our suppliers come to us, we push back and say, well, why is this going up? And I'm going to shop it around and that happens when we talk to our customers as well. So I think the nature of how we in our relationship. We're not a commodity, right? We are really kind of embedded in these plants. We're sitting in the morning meeting. We are part of the really -- become part of their operations in some cases. So we have to bring the data. We have to give them justification. And a lot of times, we have to give them options about what we're going to do about it, right? Can we do something to offset it in other ways through service or bundling a product. So it's a laborious process, but it's also very, very necessary. I think if you're going to have long-term trusting relationships with your customers, that's really the only way we can kind of approach it. We would love to be able to be more efficient and quicker with these things, but it's extremely volatile. And then you run into these situations where every Friday, something changes, right, and have to kind of adjust to that as well. But I think over the long term, David, our goal is to get back to this target range gross margin. That's something that we've always done and have also been pretty open about the fact that it does take us a quarter or two lag to catch up. David Silver: Okay. Great. I have a longer-term question or a question about a longer-term topic. But one of the trends that's going to become increasingly apparent, I guess, over the next couple of years, we'll be reassuring and onshoring of heavy industry here. So with your global footprint, I'm guessing that Quaker has about as good a view on automakers and primary metals activities that might be showing up in the U.S. from some offshore companies. And I was just wondering, does Quaker have a playbook currently to maybe capture a little more than your share of this new investment coming to, let's say, the United States. Is there a process? Do you have to qualify 12 or 18 months in advance? Just -- what is the playbook that Quaker is developing to maybe take full advantage of the coming wave of large investments in automotive and other kind of heavy industry assets here? Tom Coler: Yes, great question. We do have a playbook. And I think that playbook is pretty consistent regardless of what region new capacity is coming online. Look, we are seen as the industry leader. We participate in industry technical groups and forums. And when -- and we maintain relationship with the mill builders in the equipment suppliers. And so when a new installation comes on and you rightly point out that there's a lot of investment in North America right now. We generally know about it in the early phases. We try to be involved on the front end in the design of those systems and more often than not when new capacity comes online, we're the incumbent supplier. So that is something that is part of our playbook. How do we make sure that, that's a valuable approach for our customers. We have our own CNC machines. We have a pilot rolling mill in the company, and we can really do some things on the front end to test and ensure that we're going to have success when they start these mills up and that's something that's really important. I think the other aspect of this is there's been a shift, right? I mean if you look at metal production in China, I think more steel is made there than the rest of the world combined. And when you look at the trends just in the past few years, automotive production in China is starting to really take off. And you're seeing the Chinese brands be more prominent in Africa and Southeast Asia and even in Europe and not so much here yet, but -- but we've always said we're kind of agnostic of where it gets me. And I think just my point is, as that part of the business grows, I think we're very pleased with our ability to kind of grow in a differential way right now in that part of the world. That's something that's been very intentional. David Silver: Okay. Great. I appreciate all the color. Operator: Our next question comes from the line of Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: I apologize if you already addressed this, but I was wondering if you could talk about the potential for demand destruction or disruption at your customers and what you planned for in your scenario analysis as you consider what would happen if you run or the mid compute was extended. Have you talked to your customers about them? And what contingencies might be and what your earnings profile and the revenue profile might look like if that would happen? . Tom Coler: Yes, John. I mean, look, we talk to our customers every day about that. We're watching that as closely as we can. I think it's a tough thing to predict. I would say right now, there's an equal chance that this thing is prolonged or not prolonged. There's -- I would also say there's an equal chance that there is going to have some impact on demand that could be very, very disruptive or it's going to have no impact, right? And so when we talk about our sort of our model and how we're looking at the year, I'm basing it upon what the most -- the information I have today, which is, as we head into -- we're now well into the second quarter, visibility on what we have, I'm not seeing that sort of catastrophic demand disruption on the horizon. We're not hearing that from our customers, so we're not expecting it at this point. Is it possible it happens? Absolutely. The longer this thing goes on, and the higher inflation goes, it's not necessarily good for anyone's business, right, if that continues. But I think we can't necessarily bake that scenario in although, as I said earlier, there's probably an equally likely chance that happens or it doesn't happen right now. So based upon that, our outlook is kind of like with all the information we have today, the best thing we know and looking at all the empirical evidence we have, we're not seeing that yet. So we didn't bake that into our guide. Operator: And we have -- there are no further questions at this time. I would like to turn the floor back over to Joe Berquist for closing comments. Joseph Berquist: Thank you. Yes, we, again, really appreciate the interest in Quaker Houghton. I want to thank all of our employees for what they continue to do in these really volatile times and especially our employees that were impacted in this -- the region close to the conflict and the amazing work that they've done to keep our customers supplied. So -- appreciate the questions. If there's any follow-up, don't hesitate to reach out to John Dalhoff, and we'll be happy to answer any additional questions you have. Thanks. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, everyone. Welcome to Shenandoah Telecommunications First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Lucas Binder, VP of Corporate Finance for Shentel. Lucas Binder: Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the first quarter of 2026. Our results were announced in a press release distributed this morning. In addition, we filed our Form 10-Q with the SEC. The presentation we will be reviewing is included on the Investor page on our investor.shentel.com website. Please note that an audio replay of this call will be made available later today. The details are set forth in the press release announcing this call. With us on the call today are Ed McKay, President and Chief Executive Officer; and Jim Volk, Senior Vice President and Chief Financial Officer. After the prepared remarks, we will conduct a question-and-answer session. I refer you to Slide 2 of the presentation, which contains our safe harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements. Additionally, we provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements. With that, I will now turn the call over to Ed. Go ahead, Ed. Edward McKay: Thanks, Lucas. Good morning, everyone, and thank you for joining us today. Starting on Slide 4, I'll share some of our first quarter highlights. During the quarter, we released 22,000 passings to sales, bringing our total Glo Fiber expansion markets passings to 449,000. We added approximately 6,000 Glo Fiber net customers in the first quarter, a 9% improvement over the prior year period, and we now serve a total of 94,000 customers. Our Commercial Fiber business also delivered a strong quarter with 196,000 in sales bookings and revenue growth of 4.7% year-over-year. Collectively, these results demonstrate the excellent momentum we continue to see in our fiber businesses. We were also pleased with our first quarter financial results. Consolidated revenues and adjusted EBITDA grew 4.8% and 15% year-over-year, respectively, and we remain on track to deliver positive free cash flow in 2027. Turning to Slide 5. We highlight our integrated broadband network that spans more than 19,000 fiber route miles across 8 states with over 700,000 total broadband passings. As shown on the map, all planned Glo Fiber markets have now been launched, and our primary focus is adding passings in our existing Virginia, Pennsylvania, Maryland and Ohio markets. We remain on track to complete our Glo Fiber expansion in 2026, reaching 510,000 passings. On Slide 6, our sales and marketing team continues to drive strong growth across our Glo Fiber expansion markets. And during the first quarter, we added approximately 6,000 new customers and nearly 7,000 total video, voice and data revenue-generating units. Our 5-year price guarantee rate card introduced in the second half of 2025 is gaining traction, supported by the expansion of our door-to-door sales channel. Over the past 12 months, we have added more than 23,000 new data customers, more than 26,000 total RGUs as well. Total Glo Fiber revenue-generating units surpassed 110,000 in the first quarter, up 31% compared to the prior year. Moving to Slide 7. First quarter construction was strong with over 22,000 passings added, bringing the total to more than 449,000. Coupled with the continued increase in homes passed, penetration rose to 20.9%, a 30 basis point increase over the fourth quarter and 150 basis point increase year-over-year. Penetration trends across our Glo Fiber cohorts are shown on Slide 8 and reflect blended penetration rates for both residential and small and medium business passings. We are expecting data penetration rates of approximately 37%, 5 to 7 years after launching the market, and our most mature cohorts launched in 2019 and 2020 have now exceeded this with an average penetration rate of 37.5%. In addition to providing the fastest speeds in our markets, we continue to focus on providing outstanding local customer service. As shown on Slide 9, our average monthly churn was 0.92% in the first quarter, which continues to be among the best in the industry. Broadband data average revenue per user for the first quarter was stable sequentially and year-over-year at more than $77. We continue to have success selling up the rate card with nearly 82% of our new residential customers in the first quarter, selecting speeds of 1 gig or higher, including 18% choosing 2-gig service and 5% choosing 5-gig service. Our commercial fiber business is highlighted on Slide 10. In the first quarter, incremental monthly sales bookings exceeded 196,000, driven by strong demand from wireless carriers, wholesale customers and school systems. Our service delivery team installed 167,000 in new monthly revenue during the quarter and the acquired Verizon backlog that drove elevated installation activity in 2025 is now substantially complete. Average monthly compression and disconnect churn remained very low at 0.4% in the first quarter, reflecting exceptional support from both our network operations center and sales team. Turning to Slide 11. We show our operating results for our incumbent broadband markets. At the end of the first quarter, we served more than 111,000 broadband data customers. Data, voice and video RGUs totaled more than 156,000 at year-end, down 4% year-over-year, primarily due to video customers moving to online streaming services. Total broadband passings in our incumbent markets stayed steady compared to the fourth quarter, and we expect to complete 1,800 additional government-subsidized incumbent grant passings in 2026, primarily in West Virginia. As shown on Slide 12, the recently constructed subsidized passings represent a strong growth segment for our incumbent markets with data penetration exceeding 40% within 6 quarters of a neighborhood launch. Average penetration in our 2023 cohorts is over 52% with the oldest cohort reaching 71%. We've already achieved an aggregate penetration of 37% across 23,000 subsidized passings. Moving to Slide 13. Monthly broadband data churn was stable sequentially and up modestly year-over-year at 1.46% for the first quarter. The slight uptick in churn was due to promotional activity from satellite competition in some of our most rural markets without a fixed Wireline competitor. In these markets, we implemented a speed increase late in the first quarter, providing customers with higher speeds at the same price to better differentiate our service from satellite offerings. Across approximately 1/3 of our passings where we face another fixed broadband competitor, our rate card strategy of offering greater value with higher speeds at the same price continues to be effective at mitigating churn. As expected, broadband data ARPU declined 1.6% from a year ago to $82, driven by the addition of new customers with more aggressive pricing in our competitive markets. I'll now turn the call over to Jim to walk you through our first quarter financial results. James Volk: Thank you, Ed, and good morning, everyone. I'll start on Slide 15 with financial results for the first quarter. Revenues grew 4.8% to $92.2 million, driven by another quarter of strong Glo Fiber expansion market revenue growth of $6.4 million or 34.6% due to a 33.7% increase in data subscribers and stable data ARPU. Commercial Fiber revenue grew $900,000 or 4.7% year-over-year, driven primarily by growth among existing customers in the enterprise and carrier verticals. Incumbent broadband markets revenue declined $2.2 million, primarily due to lower video revenue from a 14.6% decline in video RGUs as customers switched to streaming video services and to a lesser extent, lower data revenues due to a 1.6% decline in data ARPU from a more aggressive rate card in competitive markets. RLEC revenues declined $800,000, primarily due to lower DSL revenue from a 28% decline in DSL RGUs and lower government grant support revenues. Approximately half of the decline in DSL RGUs was due to customer upgrades to our broadband service. Adjusted EBITDA grew $4.1 million or 15% to $31.7 million, driven by $4.3 million in revenue growth and slightly higher operating expenses. Adjusted EBITDA margins increased 300 basis points to 34.4% in the first quarter of 2026 as compared to the first quarter 2025 due to a combination of high incremental margins in Glo Fiber, fewer lower-margin video customers and a favorable true-up related to a government grant. Turning to Slide 16. We reiterate our annual guidance for 2026. We expect revenues of $370 million to $377 million, adjusted EBITDA of $131 million to $136 million and CapEx net of grant reimbursements to be $220 million to $250 million. Moving to Slide 17. We invested $75.8 million in capital expenditures in the first quarter 2026 and collected $11.5 million in government grants for net CapEx of $64.3 million. CapEx declined 16% compared to the first quarter of 2025 due to completing 91% of the incumbent broadband markets government subsidized builds to unserved areas in 2025. We have also completed construction of 88% of our target Glo Fiber passings as of March 31 and expect to complete the Glo Fiber expansion by the end of '26. I'd now like to update you on our liquidity and debt maturities on Slide 18. As of March 31, we had $707 million in outstanding debt and $636 million of net debt. We have no debt maturities until 2029. Total available liquidity was approximately $195 million as of March 31, consisting of $44 million of cash and cash equivalents, $27 million in restricted cash, $18 million available under the VFN, $68 million available under the RCF and $38 million remaining reimbursements available under government grants. In addition, the company has over $117 million of VFN commitments that are not available to draw as of March 31. We expect the available VFN capacity to reach the commitment levels with continued growth in the secured fiber network revenues from the ABS entities. In summary, as noted on Slide 19, we have 3 catalysts converging that we expect will lead us to generating and growing positive free cash flow in 2027 and beyond. low double-digit adjusted EBITDA growth rates driven by our fiber businesses, declining capital intensity as we exit the construction phase of our business plan and declining cost of capital after refinancing our debt in 2025. Thank you. And operator, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from Hamed Khorsand with BWS Financial. Hamed Khorsand: First question is just, are you seeing any changes or challenges in adding subscribers given the competitive nature that you're talking about in your markets? Edward McKay: In our Glo Fiber markets, we're not. Our net adds were up 9% over the first quarter of 2025. So we're very pleased with our progress there. We did mention in our incumbent markets, we did see a little bit of churn to Starlink with some of the promotional offers they launched in the first quarter. But other than that, we're on plan as expected. Hamed Khorsand: Okay. And then as far as the change of goes ending your construction phase and going into more of a subscriber growth phase here, are you going to be increasing marketing expense? Or is this -- should we expect just CapEx to decline and it's just going to be incremental here to cash flow? Edward McKay: Yes. I would expect marketing expense to be similar and the primary impact will be the decline in CapEx. Operator: Our next question comes from Christian Schwab with Craig-Hallum. Christian Schwab: Yes. Congratulations on the solid results. On your ASP on the Glo Fiber business and the recent areas and trends of moving from just not just 1 gig speed or higher at 82%, but having people want 2% and 5%. Do you think those trends are sustainable over a multiyear period? And do you have any target expectations for customers' needs for higher speeds at 2 gigabytes, excuse me, and above as your penetration rates go to your target levels on the fiber that's been laid in the last few years, meaning your blended ASP at $77, I think in most markets, your 1 gig product is priced around $65. So do you see ASP trends in that business increasing over time? Or is it too early to tell? Edward McKay: I'd say medium term, we are offering 5-year price guarantees on the higher speed tiers. But longer term, I think there's opportunity there. And we were very pleased with the speed mix in the past quarter. The demand is out there for those higher speeds, and we do think that's sustainable going forward. Christian Schwab: Okay. Fantastic. And then on the commercial fiber business, could you just remind us what your growth objectives are there and how you see that market over a multiyear time frame doing for you? And the potential for you to add additional subscribers? Edward McKay: Well, I'll start, and then I'll pass it over to Jim. One opportunity we do see is with the data centers moving out to our more rural areas, we think that's an additional opportunity for incremental revenue. We're really not playing in the hyperscalers space today. There have been several data center announcements in our markets. We think we certainly have the opportunity to win our share of those services, and that would be additive to our current revenue. And I'll let Jim talk a little about the growth projections. James Volk: Yes, Christian, we're generally expecting mid-single-digit revenue growth rates from the commercial business over like a 3- or 4-year period. It's important to note, this is a little bit of a lumpy business. Some of the larger deals like what Ed mentioned that we're working on, on the hyperscalers and some of the carrier business tends to be a little lumpy. But we do have -- each quarter, we're adding more enterprise customers along the way as well. But yes, we think there's a nice growth opportunity here in the mid-single-digit growth rates. Christian Schwab: Great. And then a follow-up on the data center for clarity. Can you just remind us of the miles of fiber that you have and the connectivity potential that you have in data center so people can understand maybe potentially a little bit better why data center customers would be coming to you? Edward McKay: So 19,000-plus route miles of fiber in total. Our fiber network stretches from Chicago all the way to the Washington, D.C., Ashburn, Virginia area. We get major markets in between like Columbus, Ohio, like Pittsburgh. And we have many unique fiber routes. So as these data centers move out further from the metropolitan areas, seeking areas with land and power, we believe we have the opportunity to take advantages of those unique fiber routes that we have and gain some of that business. Christian Schwab: Can you give us an idea what the revenue potential would be not this year, but over a multiyear time frame, given that trend as data centers move out a little bit away from metro into rural areas that might want to take advantage of your 19,000 fiber miles. Can you give us an idea of the revenue potential, not an estimate, but maybe an aspiration or goal that you guys may have for that market? James Volk: Yes, Christian, I think it would be a little premature to get into revenue expectations. But I can tell you, there is about 20 data centers being either built or being built close to our fiber in the 8 states that we operate in. So not clear to me whether all of them are actually going to get built. But if they do get built, we think we're in a prime position to win some business. Operator: [Operator Instructions] Our next question comes from Vikash Arlaka with New Street Research. Vikash Harlalka: There's a lot of concern among broadband investor base around pricing power and broadband ARPU growth for the industry. Do you think that broadband businesses have pricing power today? Or are we entering a period of deflation for the business? And then I have a follow-up. Edward McKay: So I'll say in our Glo Fiber business, we're expecting fairly flat ARPU in the near term. I think over time, we do gain that pricing power. And then our incumbent business, we mentioned earlier, as we've seen some competition in our markets, we have seen a slight decline in ARPU there. So it's -- I think it's a bit of a mix depending on which business you're looking at. James Volk: Add to that. In our incumbent business, about 2/3 of the passings, we are the only fixed wireline provider. So we do think we have some pricing power there as well. Vikash Harlalka: Got it. That's helpful. And then I just wanted to go back to your comment about increased competition from Starlink during the quarter. It sounds like the competition was mainly because Starlink had some promotions. And so did you lose customers on the growth add side or churn or both? And do you see this competition as continuing from here? And if so, what's your plan on addressing this increased competition? Edward McKay: So we only saw the impact in the most rural areas of our incumbent broadband market. We saw really no impact in Glo Fiber and no impact in the majority of our incumbent passings. So what they started offering in the first quarter was $15 off for 4 months as a promotion. But I think the biggest factor was they offered free equipment. It was previously $350 , so we'll see how long this lasts. They could be offering these promotions in preparation for a potential IPO later this year. But we have the ability to increase speeds. So we've done that. Late in the first quarter, we increased speeds significantly in our rural incumbent areas. Most of those customers that left were on legacy rate cards. So we've given those customers more value for the same price, and we think that will help mitigate. Operator: Our next question comes from Christian Schwab with Craig-Hallum. Christian Schwab: Yes. Just a quick follow-up on that. Just on the Starlink promotion in your most rural market, these are very slow speeds. Can you just quantify a little bit more clarity around your commentary to compete with Starlink, how you increased -- give us an idea of what speed you were operating at to what speed you can move customers to compete with Starlink because this really isn't the competition for fiber at 1, 2 and 5 gig speeds. Edward McKay: Yes. So in all of these markets, we have the ability to offer gigabit speeds. And I think it was a -- customers were looking for a potentially lower-priced alternative. But when you compare our pricing to Starlink's pricing, after that promotional discount expires, we're actually favorable from a pricing standpoint and a speed standpoint. So we'll see how long these customers stay on Starlink. We certainly think we have the opportunity to win some of those back as well. Operator: Thank you. I would now like to turn the call back over to Ed McKay for any closing remarks. Edward McKay: Thank you for joining us today. We look forward to updating you on our progress in the future quarters. And operator, that concludes our call. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Piper Sandler Company's First Quarter 2026 Earnings Conference Call. Today's call is being recorded and will include remarks by Piper Sandler management, followed by a question-and-answer session. I'll begin by turning the call over to Kate Winslow. Please go ahead. Kathy Winslow: Thank you, operator. Good morning, and thank you for joining the Piper Sandler Company's First Quarter 2026 Earnings Conference Call. Hosting the call today are Chairman and CEO, Chad Abraham; our President, Deb Schoneman, and CFO, Kate Clune. Earlier this morning, we issued a press release announcing Piper Sandler's First Quarter 2026 financial results, which is available on our website at pipersandler.com/earnings. Today's discussion of the results is complementary to the press release. A replay of this call will also be available at that same website later today. Before we begin, let me remind you that remarks made on today's call may contain forward-looking statements that are not historical or current facts, including statements about beliefs and expectations, and involve inherent risks and uncertainties. Factors that could cause actual results to differ materially from those anticipated are identified in the company's reports on file with the SEC which are available on our website at pipersandler.com and on the SEC website at sec.gov. Today's discussion also includes statements regarding certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. The non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release issued today. I will now turn the call over to Chad. Chad Abraham: Thank you, Kate. Good morning, everyone. Thank you for joining us. We posted a strong start to the year, generating first quarter adjusted net revenues of $470 million, our tenth consecutive quarter of year-over-year growth, a 20% operating margin and adjusted EPS of $1. Corporate Investment Banking achieved a first quarter record with revenues of $324 million, up 30% year-over-year due to robust corporate financing activity as well as solid contributions across advisory services. . Our Healthcare franchise produced an exceptionally strong quarter, setting a new high watermark in terms of revenues. Results were driven by our medtech and biopharma teams as well as meaningful contributions from Healthcare IT and Services, 2 areas where we have invested in strengthening our capabilities. Within U.S. medtech M&A, we rank as the top adviser based on number of announced deals. Our Financial Services group also registered a strong quarter as they closed several significant bank M&A transactions. We ranked as the #1 adviser in U.S. bank M&A based on deal value announced during the quarter. Our Insurance and Asset Management subsectors also contributed to the strong performance. Advisory revenues were a first quarter record of $251 million, up 16% year-over-year due to the strong performance from Healthcare and Financial Services, and contributions from our Services and Industrials and Energy teams. For the quarter, we ranked as the #2 adviser in U.S. M&A based on announced deals under $2 billion and ranked #3 based on announced deals under $5 billion. In addition, our non-M&A advisory teams remain active and are a growing component of our performance. Our Debt Capital Markets Advisory business recorded a strong start to the year and was a meaningful contributor to this growth. Our deep product expertise, trusted relationships with market participants and close collaboration with our industry teams continue to deliver consistent, high-quality execution for our clients. We are also seeing positive momentum within our Private Capital Advisory Group, where we are leveraging our sponsor relationships and sector expertise to grow market share. As market conditions evolve, we continue to benefit from our broad industry coverage and comprehensive product capabilities. Looking ahead, our industry and product teams are busy advising clients and pipelines remain strong. However, the timing of these transactions may be influenced by market conditions. We expect second quarter advisory revenues to be similar to the first quarter. Turning to Corporate Financing. The equity underwriting market was resilient during the quarter despite the volatility with the fee pool up 73% year-over-year, driven mainly by the Healthcare sector. Corporate Financing revenues for the quarter for $73 million, up 122% from the first quarter of last year. We completed 36 equity, debt and preferred financings raising $14 billion for corporate clients. Activity was led by our Healthcare team, which served as bookrunner on all 23 equity deals they priced during the quarter. Our absolute and relative outperformance was driven by strong equity issuance for biopharma companies. In this sector, we ranked as the #2 investment bank based on the number of book-run deals. Over the last decade, we've built a scaled biopharma platform with deep expertise and products across banking, research, capital markets and sales, positioning us to capture share and drive strong results. As we look ahead, we expect second quarter corporate financing revenues to decline from a strong first quarter. Shifting to talent. We finished the quarter with 192 investment banking managing directors, the highest number in firm history. Development of our internal talent, along with identifying talented partners to join our platform, continues to be a priority as we strengthen our product and sector teams. During the quarter, we promoted 6 of our bankers to Managing Director, and we hired 3 MDs that strengthen our advisory capabilities in Healthcare, IT, European Life Sciences and Upstream Energy. Let me close with a few final points. While the near-term macroeconomic environment remains uncertain, our core strategy is unchanged. We remain focused on advising clients with deep expertise and providing a comprehensive suite of capital market solutions. We are committed to expanding our platform for continued growth while delivering strong margins to our shareholders. With that, I will turn the call over to Deb to discuss our Public Finance and Brokerage businesses. Debbra Schoneman: Thanks, Chad. I'll begin with an update on our public finance business. We generated $24 million of Municipal Financing revenues for the quarter, down 9% year-over-year. Revenues were balanced between our governmental and specialty businesses. During the first quarter, we underwrote 98 municipal negotiated transactions, raising $3 billion of par value for our clients. As we look ahead, our pipelines are strong with clients looking to access the market. We anticipate that second quarter revenues will improve modestly from the first quarter, aligning with the typical seasonality of this business. Turning to our Equity Brokerage business, higher volatility drove increased trading volumes in response to geopolitical events, resulting in record first quarter revenues of $60 million, an 11% increase from the prior year. Performance was broad-based across our trading desks, including our derivatives desk as clients increase their hedging activity. Our platform offers clients many execution and payment channels to take advantage of our differentiated research and trading capabilities. Looking ahead, our results will continue to be correlated with market volatility and trading volumes. We expect our second quarter revenues to decline from the record first quarter levels. While volatility helped our Equity Brokerage business, it negatively impacted our fixed income business. As the quarter progressed, the day-to-day volatility during March significantly reduced our regular-way client activity. We were able to mitigate this reduction by completing balance sheet restructuring trades in conjunction with the closing of bank M&A transactions. We produced fixed income revenues of $50 million in the first quarter, up 6% from the prior year period. The diversification of our product capabilities and client relationships, coupled with our capital-light model, provided a level of resiliency to our results. The near-term fixed income outlook remains challenging. We've experienced a slow start to the second quarter as ongoing geopolitical developments are keeping many clients on the sidelines. Now I will turn the call over to Kate to review our financial results and provide an update on capital use. Kate Clune: Thanks, Deb. My comments will address our adjusted non-GAAP financial results which should be considered in addition to and not a substitute for the corresponding GAAP financial measures. As a reminder, we affected a 4-for-1 forward stock split of our common stock on March 23, and our common stock began trading on a split-adjusted basis at the start of trading on March 24. All share and per share amounts discussed on the call have been retrospectively adjusted to reflect the impact of the stock split. For the first quarter of 2026, we generated net revenues of $470 million, operating income of $94 million and an operating margin of 20%. Net income totaled $72 million and diluted EPS was $1. Net revenues for the first quarter of 2026 declined from the seasonally strong fourth quarter of 2025, but increased 22% over the first quarter of last year. The year-over-year growth was driven by a 30% increase in Corporate Investment Banking revenues. Advisory Services delivered the strongest first quarter on record and Corporate Financing activity was robust. In addition, our Equity Brokerage business achieved strong results. Margin expansion remains a strategic priority as we continue to scale our platform. Current quarter operating income grew 37% over the first quarter of 2025, outpacing our year-over-year revenue growth of 22%. Turning to expenses. We reported a compensation ratio of 61.6% for the quarter, an improvement of 90 basis points from the first quarter of last year, driven by increased net revenues. This improvement in our ratio reflects our continued commitment to exercising operating discipline, while balancing employee retention and investment opportunities. For the first quarter of 2026, non-compensation expenses were $86 million, up 15% over last year, in part due to an $8.5 million litigation-related expense taken during the quarter. This expense relates to the pending settlement of the California lawsuit originally filed in 2014, specific to variable rate demand notes within our Municipal Finance business. Excluding the $8.5 million litigation expense, non-compensation costs for the quarter increased 4% year-over-year driven by higher underwriting expenses associated with increased corporate financing activity and were 16.6% of net revenues. This ratio reflects an improvement of 300 basis points from the first quarter of last year as we continue to drive leverage from higher revenues. Moving to income tax expense. For the first quarter of 2026, our income tax expense was reduced by $7 million of tax benefits related to the vesting of restricted stock awards, which resulted in an income tax rate of 23.4%. Excluding these benefits, our effective tax rate was 30.8%. Now finishing with capital. Our consistent operating discipline and capital-light approach continued to result in strong cash generation to deploy in order to drive shareholder returns. During the first quarter, we returned an aggregate of $171 million to shareholders, which included dividends totaling $101 million or $1.45 per share paid to shareholders through our quarterly and special cash dividends. It also includes repurchases of approximately 884,000 shares of our common stock were $70 million, which offset a significant portion of the share count dilution from this year's annual grants. Lastly, I'm pleased to announce that effective today, the Board approved a quarterly cash dividend of $0.20 per share, a 14% increase from our previous quarterly cash dividend. The dividend will be paid on June 12 to shareholders of record as of the close of business on May 29. We are pleased with our start to 2026 and remain focused on driving long-term growth and further elevating the durability of the platform while generating best-in-class returns. With that, we can open the call up for questions. Operator: [Operator Instructions] We will now take our first question from James Yaro with Goldman Sachs. James Yaro: Chad, I'd love to just get an update from you on whether the upward sloping trend of activity in bank M&A has slowed at all in your opinion or continues? And then maybe to the degree you could also comment on the recent rate vol in the forward curve in particular and whether that should have an impact on the Bank Hedging business and Fixed Income? Chad Abraham: Okay. Well, why don't I take the first question, James, and I'll let Deb take the second one. But on bank M&A, we had a good Q1 with a significant amount of closings. I would say on the announced bank M&A, I do think it's a little slower than we anticipated. We announced a couple more transactions this week. So I would say we're seeing decent volume on some of the smaller transactions, just haven't seen the pace we were seeing on a little bit of the larger transactions. Just as a reminder, that happened a little bit last year, and it picked up as well. So we'll have to see. Debbra Schoneman: Yes. And then on your question relative to hedging activity with banks, our derivative desk has been incredibly busy relative to conversations. We've seen some increased actual activity of transactions being completed. But I think one of the things that you see is when there's volatility while you might naturally think, boy, there should be a lot of hedging, it also makes it challenging to determine how they want to position given that volatility. So definitely, a lot of activity going on there, but nothing that's necessarily outside of the norm. James Yaro: That's super helpful. Maybe just on the equity capital market side. You talked about strength in Healthcare. That's obviously been 1 of the 2 sectors alongside Industrials that has performed very well so far this year. I'd love to just get your sense on based on your backlogs, how sustainable you think the equity capital markets activity could be? And specifically, as it relates to the Healthcare business, which is driving a lot of that, I believe? Chad Abraham: Yes. So it was a good quarter for the market, but it was a particularly good quarter for us just with market share. That happens sometimes with -- if we have a handful of larger fees. Obviously, we specifically said in the commentary we thought capital markets would be down. It's just hard for us to maintain sort of that super outsized market share performance in Q2, but that market remains open and especially how biotech trades. Sometimes that market trades just differently than the overall market. So we feel pretty good about that backdrop, but do not think that, that first quarter market share is sustainable. . Operator: We'll next go to Steven Chubak with Wolfe Research. Steven Chubak: Absolutely. Yes. So I wanted to start with unpacking some of the comments around the Advisory outlook. You mentioned Advisory fees should be down sequentially, not surprising given the choppy macro. I was hoping to get some perspective on which sectors you're seeing the biggest slowdown in deal activity. And based on your current visibility into the backlog, just how long do you expect this moderation or let's call it somewhat of an air pocket to persist? Chad Abraham: Yes. So obviously, in our commentary, we said Advisory would be similar. So I would say I think it sort of depends on the sector. We obviously talked about banks and with announcement volume down in Q2 -- or Q1, obviously, that has some impact on the go forward. We had a spectacular Q1 in parts of Healthcare and Medtech that are sort of hard to repeat. So some of that is just relative to our own performance. But I would say, in the overall market, especially on the sponsor side, while I think sponsors pitch activity has been good. I think the question is how quickly do they launch and do they transact? And so while I don't think there's any real panic, there's also not tremendous urgency. So I think it's -- I think the market is fine. I don't think it's accelerating. And those 3 combinations of things probably drove our commentary. Steven Chubak: Understood. I mean with regard to sponsors, it certainly feels like Waiting for Godot. Maybe just to switch gears and focus on the Software side, just given Technology has been a meaningful contributor to your M&A business historically, we're all hearing of emerging concerns on AI disruption, the SaaSpocalypse, was probably good to speak to your outlook for Software M&A and the willingness of these corporates to consider inorganic growth or even consolidation amidst some of the growing AI fears? Chad Abraham: Yes. So obviously, for us, Technology is one of the areas we've been investing heavily in, but on a historic basis, it's out of our 7 history teams, one of the smallest. So I think on a relative basis, we will be impacted less. But no question, we will be impacted. We actually had a decent Q1 in Technology up from last year. And what I would say with the Software transactions, I think I think the market's slowly figuring out where is the real disruption going to be, where does sort of the data and vertical expertise really sort of find its way through in the new tech market, but there is no question, especially on the larger deal side, things are going to be slower, folks are going to be cautious, valuations are down and valuations are down versus prior financing levels, which makes it hard to transact. I do think that -- we've seen that in other tech cycles. We will see that work its way through the system. And then like you said, just with AI and technology shifts for the survivors, that will probably accelerate other activity. But that's going to take a while to take -- to work out. So I think our expectations are fairly cautious for our Tech and Software business this year. Operator: We'll next go to Devin Ryan with Citizens Bank. Devin Ryan: Want to stay on Advisory and maybe talk a little bit about some of the non-M&A businesses. Obviously, it sounds like private capital is continuing to gain steam. We're still hearing restructuring is relatively active. Can you talk about kind of contribution that you're seeing from non-M&A? And then just more broadly, how that impacts kind of the outlook as you look out over the next year or even 2? Chad Abraham: Yes. Sure. We had a good Q1 in non-M&A. Obviously, we've got the major pieces of that DCM advisory, restructuring and then private capital advisory. For us, sort of the real bright spot in Q1 is even after a good end of the year, our Debt Capital Markets Advisory business had a very good Q1. I would say, restructuring and private capital were fine, but the outsized performance was driven by Debt Capital Markets. I do think relative to private capital advisory now that we're kind of 1.5 years into our acquisition, I'm pretty encouraged by what we're seeing on some of the continuation and other transactions as we've now closed a few, and we have -- and frankly, we have a few more, and it's really across all of our industry teams, which I think -- which is good for us to see. And over time, I think that's going to be more and more of a contributor for us. Devin Ryan: Got it. Maybe one for Deb here. On fixed income revenues, you mentioned kind of resiliency with balance sheet restructuring trades with the bank closings, but 2Q started slowly with clients on the sidelines. Can you just help us understand kind of the moving parts of that? Is that bank M&A, was that interest rates? Is that just market volatility? Just trying to think about what needs to change to kind of bring people off the sidelines? Debbra Schoneman: Yes. I think the biggest thing that needs to change is just volatility needs to come down. Some vol is great for trading businesses, but it's been too extreme, and I think part of that's rate, part of that just is looking at what's happening in the geopolitical environment. So I would say that's the biggest thing that we just need to see some sustained reduction in just volatility in the marketplace relative to the bank restructurings, and that's going to follow the closings of M&A transactions. So that's just something to watch there. And as Chad talked about a little bit of a slowdown in some of the announcements. This is an industry-wide phenomenon, actually. That does ultimately impact our opportunities in, say, the next quarter to be able to have more of those. So I think -- let me know if there's anything else I can add color on there, but I think those are the biggest components. Devin Ryan: Yes. That's great. Maybe if I could just squeeze one in to get Kate involved. Just on the comp ratio and kind of the outlook, obviously, I appreciate the year is still somewhat uncertain, but you started the year with nice revenue growth, some comp leverage, I think, down 90 basis points from the beginning of 2025. So how are you thinking about the ability to drive -- you've been incredibly consistent on the comp ratio, which is great. But like the ability to continue to drive leverage from here off of a better jumping off point for 2026 relative to 2025? Debbra Schoneman: Thanks, Devin. So we're now sort of consistently at the low end of the range that we had previously guided to, which was 61.5% to 62.5%. So pleased with that progress. And also pleased with the leverage we were able to drive in the first quarter, given the improvement in the top line revenue number. That being said, we do have a highly variable comp model, which has allowed us to be as consistent as we have been through the cycle. So while we'll certainly look to drive leverage where opportunities present of certain parts of our comp expense base, that leverage could be a little bit more modest than perhaps you'd see elsewhere. And we're also always looking for additive investment opportunities. So it's a bit of a balance. But we intend to continue to operate within the low end of the range or just below as we have for the first quarter here for the rest of the year. Operator: [Operator Instructions] We'll next go to Mike Grondahl with Northland Securities. Mike Grondahl: Chad, if we think about your Advisory pipeline, there's probably traditionally some activity as you go from winter to spring some inflows, a little bit of outflows. Can you comment at all how winter to spring activity happened this year? Did it kind of stop recently with the war? I'm just trying to get a sense of how different the activity was this year versus more normal years? Chad Abraham: Yes. Thanks, Grondy. What I would say is Q1 is always a challenge for us because it's just seasonally down. And then especially, we had such a just -- Q4 is always good, but last Q4 was really, really strong. So you never know exactly how that's going to impact Q1 pace. So I think the fact that on a relative Q1 basis it was a record, and it was so good. I think we were especially excited just given that was off of a really strong I do think the combination of those 2 quarters, you're always looking at what you're adding and what you're taking. And I think that, that probably drove some of our commentary about why we thought advisory would be similar in Q2. But other than that, nothing sort of extraordinary there. Mike Grondahl: Okay. And then -- what do you think the markets need to see to kind of get back on an upward slope. Is it the Iran war? Is it lower oil prices? Is there -- if you had to call out 2 or 3 things, what do you think it is? Chad Abraham: Yes. I mean, it's hard to just talk about the whole market. I mean, honestly, our -- each of our sort of segments is driven by certain things. I mean in our Energy business now, things are rock and they've got a lot of interesting things going on. We talked a little bit about it. I think in bank land, one of the things that's pretty important is just what's the starting point of stock prices. They're down a little bit and that's not a perfect time to transact. And then just, yes, relative to the sponsor business, I think it's just going to be some stability. It's not like we're not transacting, but sort of a -- and there's really 3 decision points for sponsors. And April is always our heaviest pitch month, and that's true today. So we know what's coming, but then there's a decision point of do you launch before the decision point of do you transact. And so I think it's just certainty of close. And so do we get some resolution on a global macro and do people feel like they're going to hit their valuation points. And we'll learn a lot in the next couple of months here. But the good part is, I think people are at least confident enough in sponsor land to do the pitch, start the process, but there'll be another big decision point this summer about do we launch. Operator: And at this time, we have no further questions. I would like to turn the call back over to Chad Abraham for closing remarks. Chad Abraham: Thank you, Margo, and thanks to everyone that joined us this morning. We look forward to updating you on our second quarter results this summer. Have a great day. Operator: And this does conclude today's call. We thank you for your participation. You may now disconnect.
Operator: Good morning, and thank you for holding. Welcome to Aon plc's First Quarter 2026 Conference Call. [Operator Instructions] I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time. It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. For information concerning these risk factors, please refer to our earnings release for this quarter and to our most recent quarterly or annual SEC filings, all of which are available on our website. Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon plc. Please go ahead. Gregory Case: Thank you, and good morning, and I appreciate you attending our first quarter earnings call. I'm joined today by Edmund Reese, our CFO. The presentation, which Edmund will reference during his remarks is available on our website. We started 2026, the final year of our 3x3 Plan, with strong momentum. Our first quarter results reflect continued strong performance, consistent execution and progress against the strategic priorities we defined more than 2 years ago. We're operating with discipline, investing deliberately and delivering differentiated value for clients, reinforcing confidence in our ability to produce sustained organic growth, margin expansion and long-term value creation. Today, I will focus on three areas. First, I will describe the external landscape and the forces shaping client demand. Second, I will highlight how our execution of the 3x3 Plan is translating into performance, including how advanced analytics and AI are increasing value and opportunity. Finally, I will highlight our results and share some perspectives on our outlook and how we see the year unfolding as we continue to build momentum. Let's start with the external landscape. Now more than ever, our clients are operating in an environment defined by volatility, complexity and rising stakes. Geopolitical uncertainty, economic pressures and cyber risk are converging with rapid technological change. These dynamics are increasing interconnection across risk, capital and workforce planning. With the ongoing conflict in the Middle East, we're working closely with clients, both in region and globally to help them build resilience and continue to operate and grow in a highly uncertain market. In this environment, the value of making better decisions has never been more evident or urgent. Capital is more selective. Boards and regulators are demanding stronger governance, transparency and resilience, and management teams are focused on protecting against downside risk while enabling growth, improving capital efficiency and supporting workforce sustainability. As a result, clients demand outcome-based advice in addition to transactional solutions, and they're looking for partners who can help them understand the risk and people challenges, design bespoke programs and execute consistently across geographies. This environment increasingly rewards firms that can integrate data, analytics and deep expertise to help clients make decisions with clarity and confidence. These trends align directly with Aon's strategic investments, client mix and innovative capabilities. On the topic of strategic execution and the 3x3 Plan. Execution against our strategy remains strong and disciplined. The 3x3 Plan continues to sharpen focus, align investment and drive accountability across the firm. It accelerates progress behind Aon United, integrating capabilities across Risk Capital and Human Capital and scaling them through Aon Business Services, or ABS. Through ABS, technology and advanced analytics are embedded enablers of our strategy, combining proprietary data, advanced analytics and expertise to design, place and govern bespoke risk and capital solutions. This combination creates a strong competitive advantage that technology alone cannot replicate. We established ABS nearly a decade ago and deliberately stepped up our investment beginning in 2024 to embed AI and advanced analytics across the firm. These investments are delivering results, materially improving productivity and execution for clients. By year-end, we expect to have invested approximately $1.3 billion in talent and technology, enhancing productivity and strengthening our ability to better diagnose risk, design integrated solutions, access capital efficiently and execute consistently for our clients. There are several proof points and performance milestones worth highlighting. First, on client segmentation and revenue quality. We compete on client outcomes, resilience, capital efficiency and workforce effectiveness, not transactions. The vast majority of our business serves global, large and middle-market clients with complex risk, capital and workforce needs. In these segments, value is created through expertise, proprietary insight and seamless execution. Meanwhile, less than 2% of our revenue is derived from SME and Personal Lines segments. This client mix translates into strong revenue quality, with the majority of our revenues recurring and embedded in ongoing client needs. Our Health and Wealth businesses together account for approximately 34% of firm revenue. Within those businesses, roughly 80% is highly recurring and anchored in regulatory and mission-critical activities, including annual valuations, pension administration and asset-linked revenue in wealth and annual benefits, broking and advisory and health. Project-based consulting, where our advice is differentiated by proprietary data and technology is less than 10% of firm-wide revenues. Our continued investment to enhance these capabilities, including in our Radford McLagan Compensation Database, instrumental in supporting workforce transformation, reinforces how deep expertise and proprietary data translate into higher value outcomes for clients. Second, on expanding the addressable market. We previously highlighted insured risk as a percent of GDP declining over the last 3 decades. Embedding AI into advanced analytics and modeling are making insurance more relevant by accessing new capital. This narrows the gap between economic loss and insured loss and increases the importance of firms that can design, place and govern complex programs. A clear example of this dynamic is digital infrastructure, where AI computing is driving unprecedented global investment in data centers. These assets introduce complex construction, operational, catastrophe and cyber risk that exceed traditional insurance solutions. Our data center life cycle insurance program, which we recently increased capacity by another $1 billion to $3.5 billion, allows our firm to lead as a market maker, bringing together the sort of coverage, large-scale capacity and capital solutions across the full life cycle of these assets. This is a growing source of demand directly linked to AI adoption, where our integration, data and expertise create a meaningful advantage, positioning Aon as a strategic partner of the clients, leading to opportunities to win new business and deepen relationships. Here, again, our investment and progress in AI-embedded analytics is allowing us to expand beyond the $4.6 trillion of traditional reinsurance capital to access the $250 trillion capital pool that includes private equity, sovereign wealth and pension funds. Third, on innovation embedded within our core brokerage model, Aon Broker Copilot illustrates how, through large language models and predictive capabilities, we can more efficiently embed advanced analytics directly into revenue-generating workflows and transform the manual placement process. The platform draws on decades of proprietary quoting, pricing and trading data to provide real-time insights to brokers as they negotiate complex placements. Further, we're extending these capabilities across the value chain. Aon Claims Copilot improves claims advocacy by consolidating data across geographies and lines of business, enabling better preparation, monitoring and negotiation. As a result of our advocacy over the last decade, we've been able to overturn and partially recover nearly $10 billion of financial value for claims that were initially denied. Claims Copilot strengthens our advocacy efforts and leads to even better outcomes for clients. This represents outcome-driven application of data analytics and expertise, not automation for its own sake. In addition to supporting revenue growth, our investments are improving how the firm operates. For example, we're seeing substantial productivity gains across invoicing, certificates of insurance and policy administration. And these gains are increasingly measurable. For example, a 50% reduction in cycle time from 22 to 11 days for invoicing and 70% reduction in invoicing work, a 95% reduction in handle time and certificates of insurance from hours to less than 5 minutes and a 95% reduction in time in policy checks from 48 hours to 30 minutes. As a result of these improvements, colleague capacity is being redeployed toward higher-value advisory and client-facing activities, fully reflecting our belief that winners in the application of AI will lead with a world-class people strategy to grow today and into the future. Critically, AI-driven productivity creates operating leverage. By lowering unit costs and reinvesting those gains into differentiation and growth, we're expanding margins while increasing the value we deliver to clients. Consistent with our long-term philosophy, productivity gains are intentionally reinvested to strengthen differentiation, accelerate innovation and deepen client relationships while still supporting margin expansion. This flywheel of higher value growth, operating leverage and disciplined reinvestment underpins our confidence in durable value creation for shareholders. Turning briefly to results. Our first quarter performance reflects strong execution across the firm. We delivered 5% organic revenue growth, continued to expand adjusted operating margin, realized strong growth in adjusted earnings per share and generated significant free cash flow. In particular, Q1 highlights the fourth consecutive quarter at or above 6% organic growth in Commercial Risk, reinforcing the impact of deliberate investments we've made and the value delivered through our innovative solutions. Additionally, our balance sheet remains strong and flexible. As Edmund will discuss in more detail, we continue to execute a balanced capital allocation strategy in the first quarter with programmatic M&A and substantial capital return to shareholders through stepped-up share repurchases and our dividend. Finally, we recently announced a double-digit dividend increase for the sixth consecutive year. Looking ahead, we are reaffirming our guidance for 2026 and remain confident in our long-term outlook. The external environment continues to reinforce demand for our solutions. Our strategic priorities are clear and our execution remains constant. We believe the net effect of technology adoption is an expansion of our addressable market. Insurance and risk management becomes more relevant as analytics improve decision-making, alternative and private capital expand available capacity and clients seek integrated outcome-based solutions. Because Aon is uniquely positioned to source capital, integrate capabilities and govern in complex risk and human capital issues for clients across the globe, we expect to grow faster than the market and increase share over time. In closing, Aon is well positioned strategically, operationally and financially. We're delivering differentiated value for clients in an increasingly complex world and translating that value into strong performance and long-term shareholder returns. To our 60,000 colleagues around the world, thank you. Thank you for your continued commitment to our clients, each other and our Aon United strategy. Now I'm pleased to turn the call over to Edmund for his comments and perspective. Edmund? Edmund Reese: Thank you, Greg, and good morning, everyone. Before getting into the details of our first quarter results, I want to clearly anchor today's discussion on the fundamentals that define our performance and momentum as we advance through the final year of the 3x3 Plan. Over the past several quarters, we've been very intentional. First, establishing strategic clarity through our communication, then demonstrating disciplined execution, reflecting in consistently strong financial performance. As we move through 2026, our message remains consistent. The fundamentals of our business are strong, resilient and evident in our results. First, we have high confidence in the structural advantages of our business, exceptionally deep client and industry relationships, proprietary data and analytics and integrated service and global capabilities, all of which are difficult to replicate and, importantly, position us to deliver increasing value over time, particularly as AI accelerates the shift from transaction-based models towards insight-led decision-making. These advantages support sustained economics tied to value delivered, high retention and recurring revenue streams, existing and new, and they underpin our ability to sustain mid-single-digit or greater organic growth and generate returns through the cycle. Second, our confidence is substantiated by our consistent execution. Quarter after quarter, we continue to deliver sustainable organic revenue growth, expand margins through operating leverage and convert earnings into strong free cash flow. The choices we've made, investing in revenue-generating talent, scaling Aon Business Services, expanding Aon client leadership and building a leading middle-market platform, are collectively working together to generate higher-quality growth that is capital-light, margin accretive and resilient across market conditions. Third, our strong execution positions us with significant financial capacity and flexibility. During the quarter, we recognized the unique market conditions and opportunistically deployed $500 million to repurchase shares at prices we believe represent a compelling discount to intrinsic value. With consistent free cash flow generation, a disciplined balance sheet and leverage within our target range, we also remain well positioned to supplement organic growth with high return inorganic investments, ensuring that capital allocation continues to enhance long-term shareholder value. And finally, when you step back and collectively connect these attributes, durable competitive advantages, consistent execution, differentiated performance and disciplined capital allocation with significant financial flexibility, the implication is clear. These are the characteristics that, over time, result in value creation. Our focus remains on the inputs we control: strategy, including growth investment in AI-embedded tools, execution and disciplined capital allocation. As we deliver, we look forward to the outputs, including market recognition of the quality and durability of our financial model. With that context, let's turn to our first quarter results. On Slide 5, you see the first quarter results. Organic revenue growth was 5% for the quarter and total revenue increased 6% year-over-year to $5 billion. Adjusted operating margin expanded by 70 basis points and reached 39.1%. Adjusted EPS was up 14% to $6.48. And finally, we generated $363 million in free cash flow, up 332%. Let's get into the details of these results, starting with organic revenue growth on Slide 6. Organic revenue growth was 5% in the quarter, in line with our mid-single-digit or better guidance. This performance reflects the impact of our strategic investments in hiring across priority growth areas, combined with the increasing contribution from our analytical and advisory capabilities. In Commercial Risk, organic revenue growth of 7% marked the fourth consecutive quarter of growth at 6% or higher. Results reflected meaningful contributions from both North America, where growth was double digit, and EMEA as well as strong performance in our core P&C business. M&A closed deal activity accelerated during the quarter, and M&A services provided an incremental lift to organic revenue growth. In addition, our MGA businesses across both large and middle-market clients contributed positively, supported by continued client demand for specialized underwriting solutions. Finally, construction grew at a double-digit rate and remains a contributor to growth as our data center revenue pipeline is on pace to be 3x higher than last year, reinforcing our confidence in sustained mid-single-digit or greater growth in 2026. In Reinsurance, 4% organic revenue growth was driven by growth in treaty placements and double-digit growth in facultative placements. Treaty growth reflected 10% to 15% rate pressure that was more than offset by continued strong new business activity, including the addition of new logos. Insurance-linked securities were a smaller contributor in the quarter but continued to grow at a double-digit rate with outstanding volumes reaching $61 billion. Looking ahead to the second quarter, our data points to further rate pressure at April 1 renewals with rates down 15% to 20% in both the U.S. and Japan, partially offset by roughly 10% higher demand. Importantly, we continue to expect full year organic revenue growth in line with our mid-single-digit or greater growth objective, supported by a strong second half, driven by continued growth in international facultative placements and growing demand in our Strategy and Technology Group Solutions. Health Solutions grew 4% in the quarter. Our core Health and Benefits business, representing approximately 75% of the Health revenue delivered strong mid-single-digit growth across both EMEA and APAC, partially offset by slower discretionary spend in Talent Solutions, reflecting ongoing pressure that extended through the first quarter of 2026. Looking ahead, the demand for our analytics and advisory capabilities is increasing as employers navigate rising health care costs, manage transitioning workforces and focus on delivering better outcomes for their employees. With that demand building and the core business performing well, we continue to expect full year organic growth in Health to be within our mid-single-digit or greater objective. And finally, Wealth generated 1% growth driven by regulatory and valuation-related work in EMEA and market performance impact on NFP asset-based revenue, partially offset by softer advisory demand in the U.S. We expect mid-single-digit growth in Wealth for Q2 as the pension risk transfer market in the U.K. remains strong with Aon as the market leader. Turning to the key components of our Q1 organic revenue growth on Slide 7. Aon has a consistent track record of generating new business that contributes 9 to 11 points to organic revenue growth, and that continued in Q1. In the quarter, new business contributed 9 points to organic revenue growth, supported by both new client acquisitions and expanding mandates with existing clients. Our investment in revenue-generating talent in high-growth areas like construction and energy continue to deliver measurable impact. Our 2024 and 2025 cohorts contributed 75 basis points to Q1 organic revenue growth, and we expect momentum to build as these cohorts season. We've noted in the past that our data analytics and capabilities make us a destination of choice. And despite ongoing competitive pressures for talent, we continue to expect to expand our revenue-generating population by 4% to 8% in 2026. Q1 '26 retention remains strong in the mid-90s, improving 20 basis points over last year, led by Commercial Risk and Reinsurance as deeper Enterprise Client Group engagement and ABS-driven insights enhance client value and relationship depth. Net new business contributed 5 points to organic revenue growth in the quarter. Net market impact, which captures the impact of rate and exposure, contributed 1 point to organic revenue growth and was delivered in line with estimates despite a softer pricing environment in P&C and Reinsurance. Rate-driven pressure in Reinsurance following 1/1 renewals was offset with higher limit and expanded coverage in Commercial Risk, further reinforcing that growth is primarily driven by business investment and client demand and remains largely uncorrelated with pricing cycles. And one final point on revenue. First quarter fiduciary investment income was $55 million, down 18% from the prior year, as higher average balances were more than offset by the lower interest rates. On Slide 8. Q1 adjusted operating income was up 8% to $2 billion, and adjusted operating margins expanded 70 basis points to 39.1%. Through ABS, we are structurally lowering our cost base by reducing technology costs, standardizing and automating processes, including the integration of NFP and embedding AI into our development and operational workflows. These actions are not only driving margin expansion but also creating durable capacity for investments that support sustainable top line growth. Restructuring savings were $25 million in the quarter, contributing 50 basis points to adjusted operating margin. We remain on track to deliver $100 million of savings in 2026, advancing toward our goal of $450 million in total savings by 2027, with 2026 marking the final year of our restructuring investment. Moving to interest, other income and taxes on Slide 9. Interest income was $12 million in the first quarter and up $7 million over last year, driven by interest earned on proceeds from the sale of NFP Wealth. Interest expense came in at $179 million, $26 million lower than last year, primarily due to lower average debt balances. We expect Q2 '26 interest expense to be approximately $180 million. Other expense was $15 million lower than last year, driven by lower noncash pension expense and the remeasurement of balance sheet items. We estimate Q2 '26 other expense to range between $15 million and $20 million. Finally, the Q1 effective tax rate was 20.3%, 60 basis points lower than Q1 '25, reflecting the geographic mix of income growth and the favorable impact of discrete items. Our full year tax outlook remains unchanged at 19.5% to 20.5%. Turning now to free cash flow and capital allocation on Slide 10. We generated $363 million of free cash flow in the first quarter, reflecting strong operating income growth. This is a strong start to the year, and we continue to expect double-digit free cash flow growth in 2026. Turning to capital on the right-hand side of the slide. Our strong free cash flow growth enabled us to continue to execute our disciplined capital allocation model, balancing investment for growth with capital return to shareholders. As Greg mentioned, in April, we increased our quarterly dividend by 10% to $0.82 per share, marking the sixth consecutive year of double-digit dividend increases and reflecting the cash-generating strength and durability of our business and financial model. We also remained active in M&A and allocated $349 million toward high-growth tuck-in acquisitions in middle market that align with our strategic priorities and return thresholds. The largest use of capital in the quarter was shareholder return. In total, we returned $662 million to shareholders, including $500 million in share repurchases, a significant step-up from the average $250 million per quarter over the prior 8 quarters. As I noted earlier, we were proactive and leaned in the market conditions, repurchasing shares at prices well below the firm's intrinsic value. And that conviction is grounded in the fundamentals of the business, driving strong performance today and also informed by the investments we are making to drive future growth in talent, AI-embedded analytics and scalable platforms, which we believe increase the long-term earnings power and terminal value of the firm. Taken together, these actions reflect the consistent application of our balanced capital allocation model, maintaining our leverage objective, consistently growing the dividend and executing our disciplined approach to high-return M&A and returning excess capital to shareholders, ensuring capital allocation continues to enhance long-term shareholder value. I'll conclude my prepared remarks on Slide 11 with a few thoughts on our financial objectives and 2026 guidance. The first quarter 2026 performance reflects a start to the year that is right in line with our expectations and reinforces the strategic choices we have made to drive sustainable growth. Accordingly, we are reaffirming our 2026 full year guidance for mid-single-digit or greater organic revenue growth, supported by continued new business wins, the compounding contributions from our revenue-generating hires and accretive growth in middle market. We delivered 70 basis points of margin expansion in Q1, and we are seeing the benefits of efficiency gains from our scalable ABS platform and continued progress on our restructuring objectives. As a result, we are reaffirming our expectations for 70 to 80 basis points of margin expansion for the full year. The combination of organic growth and margin expansion supports our outlook for strong earnings growth in 2026, and with high conversion of those earnings into cash, positions us to deliver double-digit free cash flow growth for the year. Our strong capital position affords us the financial flexibility to actively deploy capital across multiple avenues, supplementing organic growth with strategic M&A while also executing opportunistic share repurchases. We have substantial financial capacity to pursue our high-quality M&A pipeline, and we remain firmly on track to deliver at least $1 billion in share repurchases for the year. As we move to Q&A, I want to emphasize that the performance you are seeing is the result of deliberate decisions. Our organic investments as part of the 3x3 Plan, $1.3 billion in talent and the AI-embedded capabilities that enable that talent to bring faster, deeper insight to clients as well as our inorganic actions are all intentionally aligned to deliver consistent earnings and free cash flow growth. We are already realizing productivity improvements today, and we are reinvesting those gains back into capabilities that both expand what we can deliver for clients and how efficiently we deliver it. In a world where technology increasingly enables and amplifies differentiated insight, advice and outcomes, this reinvestment cycle is critical. When executed well, it expands the addressable market by making risk transfer more relevant and increasing insured risk as a percentage of GDP, while also unlocking incremental AI-enabled opportunities to gain share with existing and prospective clients. Our investment leadership here strengthens our long-term growth profile, reinforces our conviction in the firm's growing terminal value and supports long-term value creation for shareholders. So with that, let's open up the line for questions. Kerry, back to you. Operator: [Operator Instructions] And our first question will come from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, I was hoping if you could just provide a little bit more color on just the contributions from data centers to organic growth in the quarter. I know Edmund said, I think it was 3x the level this year than last year. But hoping just to size it a little bit to get a sense of the contribution to organic in Q1 and expectations for the next few quarters of the year. Edmund Reese: Elyse, thanks for joining. Great question. I will hit data center in particular, but the important point in this question is our Commercial Risk business and how broad-based the growth was. Data center, just real pointedly, was a part of the double-digit construction in our business. But again, the growth in Commercial Risk was broad-based. So I just have to highlight that in a lower rate environment, Commercial Risk has been 6% or better for the last 4 quarters. And we're not surprised with the strength in Commercial Risk because the results reflect what I just said in the script there, our intentional strategic decisions. So it was broad-based with strength in the U.S. double digit, with EMEA achieving strong growth in the core P&C business. New business itself in Commercial Risk was over 12 points of contribution. That's very much supported by the priority growth hires in construction, where data center shows up as a component of that. Retention was 50 basis points higher in Commercial Risk for the quarter. That's our analyzers helping with RFPs. We have a whole suite of them now rolled out in the U.S. and EMEA. And again, the net market contribution in Commercial Risk was still positive despite pricing pressure in property. And I'll also emphasize just again, to your point, the priority growth areas. Double-digit growth in construction, that's wins and pipeline in data centers. So we had wins that were higher this year and a pipeline that is giving us confidence in the outlook for the year, but it wasn't the key driver of growth. I also mentioned M&A in that. Again, the growth was strong there as well, but we still would have been at these fourth consecutive quarters of 6% growth with or without that, just again, emphasizing how broad-based the growth was. And I'll just point out one other item, Elyse, that the synergies that we are getting from NFP, particularly as we utilize our facilities like Aon Client Treaty in London, is just another contributor to the growth here. So we're going to continue to focus and invest in these drivers of growth, our talent and our technology. We believe those investments, including in construction and data center hires, hires who are focused on that, those are the things that will sustain new business growth and continue the strong retention that we have. Gregory Case: And I think really, Elyse, what Edmund, I think summarized there very, very well is the broad-based piece. And we remain incredibly excited about the data centers. But it's really very much we're at the beginning of the beginning with tremendous promise ahead, and we're very well positioned. Elyse Greenspan: And then my follow-up question is on capital. I recognize you guys leaned into a buybacks in the Q1, but you left the target for the year at $1 billion plus. You obviously could have raised it. Is it just -- are you waiting to see how the M&A pipeline develops? Is it a function of what happens to your stock price? Obviously, there's been more volatility, right, within the brokers subsequent to the end of the Q1. So just trying to understand the desire to lean into buyback and also continue to pursue your M&A strategy. Edmund Reese: Yes. Another important topic, Elyse, so thank you for raising it again. And even on this one, I have to step back as well because I have to begin with just reiterating how pleased we are with the free cash flow generation in the quarter and the continued execution of the capital allocation model, right? I mentioned in the script that we're right in line with our leverage objective, actually a little bit better in this quarter. I think we came out at 2.7. Our objective is at least 2.9 there. We announced a double-digit increase in the dividend. We're investing in middle market. And as you just mentioned, we're taking advantage of the market opportunity as well and returning capital to shareholders. So the question just really has me come back and anchor in our capital allocation model, which we're executing with discipline here. As we go through '26, I mean, you hit on a few things there. We are going to continue to look at the pipeline for M&A. I mentioned earlier that we have strong criteria and thresholds that have to be met strategically, financially. You know that we look at M&A that can be above 10% revenue after owning it for a year, that have IRRs that are at least 20% and allow us to continue to have our market-leading ROIC in it. That's what we evaluate, and there continue to be opportunities in middle market and select international markets like Japan and EMEA and even LatAm that we are looking at. So we have the flexibility with our strong balance sheet to pursue those M&A. If they don't meet the criteria, then we won't have a lazy balance sheet. I continue to use that terminology, and we'll return the excess capital to shareholders. So for now, I think it is prudent for us to stick with our at least $1 billion in the year. Obviously, $500 million in the first quarter is a great start that gives us confidence in that number, and we'll see how the year plays out. Operator: And our next question will come from Andrew Andersen with Jefferies. Andrew Andersen: On expanding mandates versus truly new logos, can you maybe just talk about what the mix was this quarter and how that has been trending versus last year? I would think expanding mandates is better for margins near term, but perhaps that's not the case, and would be particularly interested in CRS. Edmund Reese: Yes. This is a key, key topic, new business growth. I mentioned in the script there, 9 to 11 points, as we've shown in the Investor Day and continue to produce, is what the objective is. So another quarter of 9 points. And it's a great question. If you look back over '25 or even '24, I mentioned during Investor Day that it's been split about half and half between new logos and expanding with existing clients. And you see some movement quarter-over-quarter in the different solution lines, but it's about equal. And then Commercial Risk, in particular, on your question, 12 points of contribution in the quarter from Commercial Risk. That's a strong item. That was both, again, an equal mix between the new logos and expanding with our existing clients there in the quarter. So it's typically going to be balanced across each, and we're looking to pursue each as we deploy Enterprise Client Group, right? We have a whole focus on this, and Greg can speak up on the Enterprise Client Group, really expanding with our existing clients, increasing the relationship with the senior executives, the HR leads, the CFOs of the organization. That allows us to deepen the relationships and retain those clients. So we're seeing that in both. New logos, I called out in the script also, was a strong driver for Reinsurance as it helped us offset some of the rate pressure there as well. So I think a strong quarter from that standpoint. Andrew Andersen: And there's been some broader industry discussion around broker commissions and fee levels. How are you thinking about this dynamic in the context of the value that you're delivering? And where do you see these trending? Gregory Case: Let me say, Andrew, just step back and think about kind of what's going on in the market overall, we see real opportunity. When you think about sort of how this plays into AI and all that we might talk about further on this call potentially as questions come up, but real opportunity. By the way, this is opportunity based on client need. It is interesting how the question gets positioned sometimes, and it takes a view of a zero-sum game between insurance markets and advisers. But really, we should be asking the question on whether the risk industry overall is going to be led greater value for clients. And if we can meet this ever-increasing, ever-higher bar, it suggests a positive movement, and that's exactly where we are. In a world where risks are increasing, volatility is getting greater, the need for better solutions is very high, we are incredibly well positioned to deliver not just insights, but access to capital, which includes the traditional markets and alternative markets. So from our standpoint, we see a meaningful opportunity ahead with AI as a catalyst, driving and enhancing our strategy. Again, AI is not a strategy. Our strategy has been unbelievably strong and well proven. AI is a catalyst for it. And we do what Edmund described in his comments. We expand addressable markets. We've got greater access to those markets. We've got the ability to add even greater value as those markets expand, and that suggests stronger performance. But really, Andrew, to be clear, the ultimate arbiter of truth here is clients. They decide. And we're really well positioned to add greater value. And in doing that, it creates greater opportunity for operational improvement. Operator: And moving next to Rob Cox with Goldman Sachs. Robert Cox: First question just on the Middle East. Can you just talk about how the Middle East conflict showed up in Aon's results this quarter? And maybe if you have any ideas you could talk about the potential to see claims inflation from the conflict later on this year? Gregory Case: Maybe to start overall, Rob, just a general view on the Middle East. Generally, and how it's impacting kind of our clients around the world and certainly, obviously, in region. And I want Edmund to talk specifically about the results in the Middle East and sort of how that's played into the overall performance in the quarter. Listen, our first and foremost focus is on our colleagues and our clients sort of in region and supporting them and reinforcing all that they're going through. As we think about broad-based, obviously, the Middle East is not a tremendously substantial part of our business, but it's important for clients around the world. It will have overall implications. And from our standpoint, we'll see how things evolve. But right now, uncertainty is what we work toward on behalf of clients. It's how we serve and support them. And so whatever form that takes, however long this lasts, we'll be there, and it will have implications on overall operating performance. But so far, it's very much in development mode. But specifically in the quarter, Edmund, do you want to comment on that? Edmund Reese: Yes. Greg, I actually just want to start with what you just said, like our focus is on the colleagues and clients. But if I do move to the performance there. The headline growth for us, Rob, in the region was actually double-digit growth. You got to keep in mind that our Middle East business, as Greg just said, not a substantial part of our overall business, but over 50% of it is Health. Those renewals happened actually before the conflict and that escalation -- before the conflict escalated. So it's pretty locked in. Commercial Risk in the Middle East was one of the largest growers in our portfolio. You can imagine, with increasing risk in the region, that actually creates more demand for us to be able to help clients, as Greg said in his opening remarks, move through that. And the Reinsurance business in that region, 70% of it is done on 1/1 renewals. So again, we had strong growth there as well. Greg's point is the right one. It's a small part of our portfolio. We're very diversified. And as you heard me say, our strength is broad-based. Now if we continue to see an escalation or a prolonged conflict, that could have some impact that seeps into the broader impact on economy. But again, if that happens, our clients actually need more of our services. So we'll continue to monitor development closely, but we remain focused now on our clients and colleagues. Robert Cox: That's super helpful. And I just wanted to follow up on the risk analyzers. Edmund, I think you attributed some of the retention gains in Commercial Risk to the risk analyzers. I'd imagine it's also contributing to new business. How are you actually measuring the benefits from the risk analyzers? And can you just give us some color on adoption usage compared to the past in the various businesses? Edmund Reese: Yes. We've -- our team, led by our COO and our business partners have really been rolling out our risk analyzers. And Greg said it earlier, and I'm sure he will emphasize that. Where we started here was with Commercial Risk. And we've started to roll some of this out into Health, and we're starting to see some of that benefit in core health and benefits. But the Commercial Risk area is where we're seeing the business. And what I talked about, as I said, we've rolled it out. We're on later versions in the U.S., sort of mid-game in EMEA and rolling out in the other regions as well. But it is very clear and measurable to look at the impact of when we use the analyzers and when we don't use the analyzers. And we look at win rates, we look at renewals, and we look at new business from it. Again, it is the first place. The priority hires and the analyzers, if I had to boil it down the 12 points of contribution in Commercial Risk to two things, talent and technology, our hires in the priority growth areas and the analyzers coming through across property, across D&O, across cyber. And now Greg in his script mentioned us rolling out Broker Copilot as well, which is helping us bring insights on pricing, trading data to our clients very quickly as well. So if I had to attribute that new business to two things, it would be those two items. And we're able to measure it very well. But Greg, any comments from you on that? Gregory Case: No, I think you've covered it well. I do want to -- just for context, Rob, back up, and it isn't just the analyzers, right? This is a very measured approach we've taken over a number of years to answer a very straightforward question. How do we address increasing client need. And so the analyzers are a direct response to that, driven by client need. We can do the analyzers because we've got the raw data, the quantity, the quality, how we've ingested it and curated it. We've got the analytic capability, and then we have an organizational structure. When you think about Risk Capital, Human Capital, it doesn't exist anywhere else. And that allows us to take very high-quality talent, the best in the world, as Edmund described, and really make sure we're aligned to deliver this. And so it's not just the analyzers. It's also the service component, what we do on certificates and ad hoc certificates, a whole range of things, invoices. So it is revenue driven and service driven. And then, obviously, it creates -- we have efficiency then that Edmund described before, which means we can reinvest back into that capability. And the reason that's important is it highlights the versions. Don't miss that point. We're on like Version 10 or more of the property analyzer. And across the suite of analyzers, we continue to evolve them. We're about to attend the RIMS Conference. We're going to come away with 15 ideas that are go into a next iteration, and we've got the machine that can just keep innovating to do that. But the real punchline here is we're making a difference, and they're making a difference because they matter to clients on revenue, how they help build their businesses and make decisions and how they run their businesses around service. Operator: And our next question will come from Mike Zaremski with BMO Capital Markets. Michael Zaremski: First question, focusing on the really nice commercial risk organic. Just want to make sure we shouldn't get over our skis given we know that 2Q is one of the biggest property quarters in the industry. So when you think about the net market impact, Edmund for 2Q, in the last 2Q it decelerated fairly materially from 1Q. Should we be kind of keeping that in mind as we think about the rest of the year or just the near-term 2Q is maybe a governor on how excited we should be? Edmund Reese: Well, there's two parts to your question that are important to highlight. One is, you're right. We are running this firm on an annual basis, and not on a quarterly basis. And so we think about the guidance as full year annual guidance because there could be movement within the quarters. Setting that aside, on net market impact, the second part of your question, which I think is important, the guidance, as you know, is 0 to 2 points of contribution from that as the quarters have moved through the end of '25 and into this quarter, despite the pressure that we see, whether we're talking about Commercial Risk in P&C or even in Reinsurance. We've been at roughly 1 point or slightly higher, and that continued in this quarter. That's what we expect throughout the rest of the year, including Q2. It's just important to highlight here that it's not -- that could have an impact, 0 to 2 is still how you should be thinking about it. But more importantly is the growth in GDP, the business investment that we're having right now because that's the pricing piece that we're talking about in the net market impact. And the diversity of the products, the diversity of the geographies, I just talked about the broad-based growth in Commercial Risk. Those are the things that allow us to grow at mid-single digit or better in any pricing environment, and that's where we focus on. So even in this quarter, it's not new, right? Property was down 15% in this quarter. Casualty, like mid-single-digit growth. D&O, a little bit of an uptick in price there. Cyber at low single-digit rates. We have these micro markets on pricing, but we take actions to help our clients take advantage of these markets, help them increase their limit, increase their coverages. And those are the things that allow us to still have the mid-single-digit growth. Greg? Gregory Case: And Mike, I don't miss -- I hear your point on over our skis. We've taken in a very measured, methodical approach year-over-year-over-year period. But you would observe the 4 quarters that Edmund described in Commercial Risk, observe the fact that we, in our 3x3 Plan, have really laid out a series of capabilities defined by clients, driven by serious, serious industrial strength content and content behind them. And we focused initially on Commercial Risk and across the U.S. And what Edmund just described is a very broad-based 7% organic against whatever pricing environment. We didn't qualify it on that. It doesn't matter. It's helping clients succeed, winning more clients, doing more with them, keeping them longer, all those things with it. And the team was phenomenal. They delivered 7%. I think you described double-digit North America. And so this is a pretty unique progress. We don't get excited about it. We just stay focused on client need, and we've got to deliver for the year. But you ask yourself, did we increase probability of the mid-single digit or greater, you should feel good about that progress with that context. Michael Zaremski: Yes. Definitely, even seeing the net margin impact not move much over the last many quarters has been a great result. Just lastly, real quick. In your prepared remarks, you talked about driving productivity improvements. Clearly, a lot of GenAI technology adoption that's being accelerated across your firm. Do you envision a future where Aon's productivity per employee could accelerate to much higher levels than historical levels? Or too soon to know? I guess I asked because one of your broker peers did offer kind of a very long-term North Star about productivity improvements that could be fairly material. Gregory Case: Yes. Listen, this is probably worth a little bit of time since it's come up so much. And I'd really like to offer a couple of thoughts, and then, Edmund, I want you to jump in here, too. This is so fundamental to our firm. Look, on this whole topic of kind of the impact of AI, is it productivity? Is it -- what is it going to be? And how is it going to play out? First, we want to be clear on our position here. We're incredibly excited about the possibilities of AI to reinforce, and we mean reinforce our strategy. It's not our strategy, reinforce our strategy, accelerate it and strengthen it. And we mean over the next 5 years, and we mean equally important over the long term. And we also want to be clear, the capability, we've been doing this for multiple years now. It's already being seen. You saw it in the quarter. And it's going to be seen more over time. And we're going to deliver for clients now and increase long-term value for Aon. And again, our view has developed over time. I mean, we restructured our firm over many years to address this Risk Capital, Human Capital, ABS, how we deliver from an integrated client standpoint. And we also were clear on, look, this comes from our -- how do we do this? How can we pull it off? People can talk about it. We can pull it off because of the data, the raw quantity, the quality, how we've ingested it, how we changed that over time, how we curate it. The analytics, Mike, that come with it and how we model and what we do with it. The analytics are interesting. But when they become a suite of analyzers with the sort of service capabilities that have been introduced and refined 10 or 15x, that's when it becomes powerful. That can only happen with Risk Capital and Human Capital, which is why we're pretty excited about this. And I will come back to look, it's all driven by a few principles. One is literally what do clients need? How is it changing over time? And these responses that we've driven are all around revenue enhancement and driving that piece first and foremost, service enhancement second, and then productivity, which is why we've said, listen, you're not going to get success here in AI without an absolutely world-class people strategy out in front driving this. And that's what we're seeing. And the analyzers from client demand have actually changed the way clients think about what their businesses -- how they evolve, their risks in their business. What we've done on the service side as well. But if that's the client piece, the other piece to your question is really around value and what are the economics of that, the operating results of that. And frankly, greater value, as I described before, is greater margin potential. But then it also has to be continuous. So that's got to be durable. So I would just say, look, from our standpoint, we have our North Star. We're driving toward it. It's really delivering. And we see greater, greater opportunity to have an impact. To go back to Elyse's first question, one of them are in areas that are on the net new, which is data centers. Just beginning. But we're positioned unbelievably well because of all the work we've done. So we're pretty excited about the potential here and see it developing over time and see real opportunity. We don't see this as a defend the house. We see this as a true build the house opportunity. But Edmund, I'd love you to talk a little bit about the value part of this and the durability part of this. Edmund Reese: Yes, absolutely. And your question, Mike, is on the value part and the impact on the economics. Greg just talked about the demand of it. There's the economics, which I think have an impact today. And the third part is the durability of it, the ongoing benefit, how we will perform better. And that's the compelling part of it. We are operating and you're seeing it in our results, today. It's not just margin, though. It's in the new business growth. And I think our compensation there is tied to the outcomes, as Greg talked about earlier, as we help clients with capital, so we help them with workforce, as we help them improve their resilience. It shows up in retention. We had NPS up 10 points, something that I don't think I mentioned earlier here. And the analyzers I have mentioned are improving the RFP rates. And then it's showing up in your question, the margin improvement. Greg gave some stats earlier on claims, certificates of insurance, invoicing, policy management, all those things are lowering our unit costs, and we had talked earlier about 5% to 15% productivity improvements. Those things are happening right now, and we're doing it in a way that still allows us to bring value to our clients. So that's number one. The economics of it are showing up top line and bottom line and in our results today. The important point is that the performance builds over the coming years, right? Like you see multiyear tailwinds from this. Our work in data center is a great example of that. Our work on workforce solutions is a great example of that as well. So our insights and our capabilities are going to help us expand this market. Our content and the investments are going to help us gain share in this expanding market. And as we continue to lead in the investment and get these productivity improvements, we will reinvest, which creates this virtuous circle loop, which at the end of the day, just means that more durable business, a more scalable business and a more valuable business, more valuable business over the long term as we bring this value to clients. Operator: And we'll go next to Bob Huang with Morgan Stanley. Jian Huang: So my question is really also related to the Middle East, but not really Middle East. As we think about the Middle East conflict, the elevated energy price should have a fairly notable impact on GDP in Asia. I understand the Middle East contribution to you is probably small, but the Asia contribution probably is not. As we think about Asia growth slowdown due to energy prices, can you maybe help us understand the impact on organic growth guidance throughout the year, think about the inflation impact and things of that nature? Gregory Case: I'll start overall, Bob. We want to come back and, again, governing thought, reaffirm exactly where we are on mid-single digit or greater from a growth standpoint. We're looking now across the world, see all that you're looking at as best we can. And our view has been single digit or greater. So start with that overall governing thought. And then I just want to highlight a point that Edmund alluded to earlier around ambiguity and uncertainty. Pieces that create challenges in one area create opportunities in other areas. We've seen it countlessly. I mean, I think about even now in the Middle East, which, again, as Edmund described, is not a big part of our business, has done unbelievably well, helping clients understand the situation and really protect themselves as they also think about growth. APAC, Asia, tremendously important for us, still, on a relative basis, not a massive part of the overall firm, but fairly important. And we get your point on the energy side, but frankly, it's going to create other opportunities. Clients trying to decide how to navigate that environment. And that's what we do. We're going to help them do that, which is why you kind of come back to the form might change. The form might change. What we do might change. It may evolve. But our ability to help clients succeed in an uncertain environment has never been greater and is continuing to strengthen, and it's why we come back to that affirmation. But what else could you add to that, Edmund? Edmund Reese: Greg, I don't have much to add to that except like that shows up in the results, right? Our international markets are really leading the growth in many of our individual solution lines. And as that mix changes, we feel good that, that continues to be the opportunity where we can help the clients, which shows up in our results. So not much to add to that. Jian Huang: Okay. Really appreciate it. My last question is about the AI expense, right? So on your press release, you talked about, there's an $8 million increase in IT expense. As we think about AI expense, it's variable expenses, it's token-driven, prompt-driven on the input cost side. Going forward, like as you build out more AI capabilities, how should we think about that overall expense? Is that all essentially factored into the margin guidance? Is it -- as you have a higher and increased utilization of AI, can you just help us with that a little bit? Edmund Reese: It's a great question. And the short answer is yes. It is factored into the margin guidance. Again, me and our COO, our Chief Operating Officer and I talk about this all the time. We are model agnostic. We're building our own models, Broker and Claims Copilots are great examples of that, but we're also working with all the big names you know in the space. And in fact, that comes back to our organizational readiness. Me, Greg and the leadership team just spent some time actually tiering our organization from who needs the basic tools that have less need for tokenization and who needs the tools that are experts. Zone 1, 2 and 3 is sort of how we frame it. So we're super focused on who's going to be using it. Again, our focus is top line growth and productivity. So we want to equip the organization on both of those areas to build the things that help us with top line growth and get the productivity while being conscious of the cost. When I come to the cost, clearly, we have it baked into the $1.3 billion investment that we did as part of the 3x3 Plan. And you've astutely and rightfully called out the tech development part of our income statement, where I would say probably half of what you saw, nearly $600 million in 2025, is connected to AI as well. Obviously, there's a tech infrastructure part of that, but a significant component is the tech dev completely focused on AI. But again, it's our commitment to those investments that highlight our leadership in the space. We factor that in, those costs and the reinvestment of productivity improvements from that in our overall guidance here. Gregory Case: And maybe one observation I'll just add to that, Bob. As you think about the mechanics of literally how we thought about the investment, the cost, as Edmund described it, maybe Simon, our COO and how they discussed it, and it is really an intricate discussion. These are all critically important. So understand sort of how we look at that. But the real breakthrough here is not just cost efficiency, right? The real breakthrough is delivering client value. Literally, it's the revenue part of this and the service part of this. So it's more revenue, better retention of that revenue, all these things factor in. And this is where we want to absolutely -- this is where we've got to get yield to get return, not just efficiency. So again, back to some of the earlier questions on the call around sort of the zero-sum game that everything boils down and gets smaller and smaller. For us, it's bigger and bigger with opportunities. That is a revenue conversation. That's a productivity conversation that's beyond efficiency. And this is where we have seen some breakthroughs. This is really what's led to a lot of our work to accelerate not just taking cost out. We've done that before and continue to do that. But we're truly helping clients do things they couldn't have done before. Operator: And we'll go next to Cave Montazeri with Deutsche Bank. Cave Montazeri: So you started investing in ABS over 10 years ago. And I think until recently from the outside, really felt like it was primarily a margin expansion story. But now, and you've mentioned that several times on the call today, it really looks like we're seeing the tangible impact on organic as well, and we can really see the flywheel effect that you guys are talking about. Now others have noticed and everyone now wants to be a bit more like you guys, can build their own version of ABS. How important is it for you to have that first-mover advantage? Because as more of your peers implement their own version of ABS, will those efficiencies and better analytical tools become commoditized? Or is there like a real moat to being early and that others will always be playing catch-up because you keep on investing and getting better at ABS? Gregory Case: Listen, I really appreciate the question, and it is the question of the day in terms of sort of when you think about some of the evolution, I would really start and emphasize, again, this starts with client need, how it's evolving over time and how we respond to it. We're responding to client need. That's the strategy. Again, AI is not a strategy. Serving clients in a more effective way as their risk increase, that's the strategy. And if you think about what's required to do that, this is where we come back to -- we have been -- it's taken a long time. It's hard to pull this together. And it isn't just the analytics and the data. By the way, that's critical. You don't have the raw quantity and then turn it into quality in a way you can ingest it, curate it, you don't have anything. So that's taken a long time. By the way, ABS was doing cost and that for us, so important. We had great Reinsurance data. We had great Commercial Risk data, great Health data. But they weren't connected. Now we've got them connected in a way that we've not ever seen before. The analytics of that result in these capabilities. But also to be clear, this isn't about analytics. At one level, it's about organization. It's about alignment, Risk Capital and Human Capital. We broke our firm down organizationally and rebuilt it to connect the dots around Risk Capital. This is Reinsurance and Commercial Risk. So imagine Reinsurance contend and insight ingested into a Commercial Risk decision process. This is a massive, massive change in terms of sort of insight for clients. So for us, the organizational change, absolutely important. The analytics and ABS, absolutely important. And then the way we go to market. Edmund described it before around Enterprise Client and a connected global firm, that sounds trivial, but it's powerful. Clients should not be negotiating or trying to understand Aon. We should understand them and bring the integrated firm. If we bring the integrated firm, Aon client leadership with capabilities that never existed before, Aon Business Services, driven by a set of analytics not seen before. That's what for us is the wow. And if we can do that, that's a revenue-driven engine. And we're just going to keep investing in that engine and driving that engine. And the outcome, and don't miss this part that Edmund described. This is about not just in the next 5 years' performance. This is as you think about our terminal value, if you want to look at it that way, this is a bigger market. Data centers are a bigger market. Solving cyber is a bigger market. And then the way to serve that market requires real expertise, new expertise, which means if you've got it, you're going to win more share. And if you win more share, you're going to create more value. And value means you have the opportunity to deliver for clients and for shareholders on margin. You can do both. So that's our mission. That's our view. And we feel fortunate we made progress. But to be clear, we got to hammer down. We see the opportunity here for the clients, and we're going to keep driving it. Cave Montazeri: And then my follow-up question was on the personal lines exposure that you said was less than, I think, 2% of premium. Could you kind of remind us like how that came about? Is that something that kind of you want to keep, that's core to Aon or that your clients ask for? Gregory Case: Just a quick overview. Just first of all, personal lines, this is complex at some level. The piece we serve, this is higher net worth individuals, sometimes tied into businesses, really trying to think about what they're up to. We're working hard to support that. So I don't want to dismiss that as not complex, but it's a very small part of what we do. It's less than 2%. Sometimes it comes with the businesses overall. So put it in context, I understand it's not priority, but it's also important. Yes, Edmund, go ahead. Edmund Reese: Yes. And the way that we've sort of -- the majority of our personal lines business has come as part of the acquisitions that we've been doing over the past decade, right? We've done over 150 acquisitions. And you actually see us continue to have active portfolio management where we look to focus on our core, the higher-growth core businesses. You've actually seen us have cash from dispositions. It was over $730 million in 2024. That comes from the disposition of the personal lines business as we continue to go through our portfolio hygiene here. So that's why it's at that percentage, and I would say, continuing to shrink as we move forward here because we're super focused on our core Risk Capital and Human Capital business. Operator: And thank you. I would now like to turn the call back over to Greg Case for closing remarks. Gregory Case: I just wanted to say thank you to everyone for joining the call. We appreciate it, and look forward to the next quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Atmus Filtration Technologies Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. To ask a question, simply press star then the number one on your telephone keypad. And if you would like to withdraw that question, again, star one. Thank you. I would now like to turn the conference over to Todd Chirillo, Executive Director of Investor Relations. Todd, please go ahead. Thank you, Krista. Todd Chirillo: Good morning, everyone, and welcome to the Atmus Filtration Technologies Inc. First Quarter 2026 Earnings Call. On the call today, we have Stephanie Disher, Chief Executive Officer, and Jack Kienzler, Chief Financial Officer. Certain information presented today will be forward looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on this call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmos.com. Now I will turn the call over to Stephanie. Stephanie Disher: Thank you, Todd, and good morning, everyone. Today, I will provide an update on our first quarter results and share details of our progress executing our four-pillar growth strategy. I will also provide updates to our outlook for 2026. Jack will then speak to our financial results and segment performance. I want to begin by recognizing Atmusonians for their ability to navigate continued challenging market conditions, all while delivering strong financial results to start the year. Our global team remains focused on solving our filtration challenges and delivering on our four-pillar growth strategy. During the first quarter, we completed the acquisition of Cook Filter, which represents our first step toward advancing our strategy to expand into industrial filtration. This establishes our industrial air filtration platform and expands our portfolio into commercial and industrial HVAC and high-growth end markets including data centers and health care. We have made significant progress integrating Cook Filter into the Atmus Filtration Technologies Inc. organization. We have exited over 50% of the transition services agreement and expect all remaining integration activities to be completed early in the third quarter. The combination of Cook Filter’s deep industry experience with our filtration expertise and footprint, along with a strong cultural alignment, will provide benefits for all stakeholders. With the acquisition, we will report on two business segments in 2026: Power Solutions, which serves global on-highway and off-highway equipment markets, and Industrial Solutions, where the Cook Filter acquisition will be reported. Now let me provide an update on our capital allocation strategy. During the first quarter, we returned $12 million of cash to shareholders, consisting of $7 million of share buybacks and $5 million of dividends. We have $62 million remaining on our share repurchase authorization and expect share repurchases to be $20 million to $40 million in 2026. Behind our strong performance is our people, and I want to take a moment to provide some insight into how the culture at Atmus Filtration Technologies Inc. is driving momentum in the overall business. As I have shared previously, we have developed and embedded the ATLAS Way as a way of working, which incorporates our purpose, our values, our behaviors, and our strategy. As part of the ATLAS Way, we are committed to being learning oriented. Embracing a learning mindset will enable our growth strategy and support the scaling of our operation. During 2026, we continued to invest in building future generations of leadership for Atmus Filtration Technologies Inc. At an executive level, we launched our second cohort of our executive development program. This program is focused on building executive leadership capability over two years. Additionally, we launched our leadership foundations program focused on developing frontline leaders with foundational leadership skills grounded in our Atmus Filtration Technologies Inc. values. We have 200 managers and supervisors currently in the program and anticipate all frontline leaders to complete this by 2027. I am inspired as our leaders around the world participate in these programs and develop both personal and professional skills to lead our organization. Now let us turn to our four-pillar growth strategy. Our first pillar is to grow share in first fit. We continue to win with the winner by growing our long-term partnership with leading global and regional OEMs across a broad range of applications. Recently, we announced the opening of a new state-of-the-art laboratory facility at our Compare Brands location, reinforcing our commitment to advancing filtration technology and reducing testing lead times for our customers. This modernized testing facility strengthens our global laboratory network and allows us to work collaboratively with our customers. Our second pillar is focused on accelerating profitable growth in the aftermarket. We have partnered with leading global and regional OEMs who continue to grow their aftermarket business and expand market share. These OEMs trust our industry-leading products to solve their filtration challenges and protect what is important. Additionally, we are expanding our product coverage in independent channels with new distributors. This allows us to provide our industry-leading Sweetgard and Cook Filter branded products to our customers in their desired service channel. Our third pillar is focused on transforming our supply chain. We have established a strong distribution network that has enabled us to enhance the customer experience. We have raised our delivery and on-shelf availability metrics to all-time highs, ensuring our customers have the right product when and where they need them. Our fourth pillar is to expand into industrial filtration markets. The execution of our first acquisition with Cook Filter enables us to unlock operational, commercial, and growth synergies through the alignment of Cook Filter’s leading industrial air filtration brands and our advanced technology capabilities in filtration media. As we continue to review a robust pipeline of opportunities, we will focus on industrial air to build a platform of scale and create value through targeted bolt-on acquisitions. While our primary focus is industrial air, we will remain opportunistic in evaluating industrial water and liquid filtration assets, with the goal of identifying an anchor investment that can serve as the foundation as we build out our broader industrial platform over time. As demonstrated by the Cook Filter acquisition, we remain focused on executing a disciplined approach to develop opportunities which deliver long-term shareholder value. Now let us discuss our first quarter financial results. Sales were $478 million, compared to $417 million during the same period last year, an increase of 14.6%, largely driven by the acquisition of Cook Filter. Adjusted EBITDA was $95 million, or 19.8%, compared to $82 million, or 19.6%, last year. Adjusted earnings per share was $0.69 in 2026, and adjusted free cash flow was $33 million. Now I will discuss our market outlook for 2026. The conflict in the Middle East introduces uncertainty to the outlook for the year. This includes uncertainties regarding impact on input costs, our ability to sell products in the Middle East, and broader macroeconomic impact. At this stage, we have not incorporated adverse impact into our guidance associated with the Middle East conflict, but it is an ongoing risk factor that we will continue to monitor. Now let us turn to our outlook for the Power Solutions segment. In the aftermarket, overall freight activity remains muted, and we expect the market to continue at current levels and be relatively flat year over year. In our first fit market, customers have indicated strengthening activity as the year progresses, related to cyclical market recovery and prebuy activity ahead of 2027 U.S. regulatory changes. Our outlook for heavy- and medium-duty markets in the U.S. is now expected to be in a range of up 5% to up 15% compared to 2025. In our Industrial Solutions segment, we continue to expect favorable market conditions, and we anticipate the market to contribute 1% to 4% of growth. We expect share gains to deliver an additional 1% to 2% of growth, and overall pricing is expected to provide approximately 1% of revenue growth. As we noted last quarter, some tariff pricing implemented in 2025 will not carry into 2026 due to changes in the status of global trade agreements, implementation of offsets, and the actions we have taken to mitigate tariff impact. Based on tariffs in effect as of April 30, we expect the impact of tariff pricing to be flat relative to 2025 on a full-year basis. We will continue to be nimble and adjust pricing as necessary should the tariff environment change, and we expect to remain price-cost neutral. The U.S. dollar is expected to weaken year over year and provide an approximate 1% revenue tailwind. In summary, our expectations for Power Solutions total revenue will be in a range of $1.79 billion to $1.85 billion, an increase of approximately 3% at the midpoint from the prior year. In Industrial Solutions, we expect revenue to be in the range of $155 million to $165 million, which includes revenue from January. Taken together, we expect total company revenue to be in a range of $1.945 billion to $2.015 billion, an increase of 10% to 14% compared to 2025. We are maintaining our full-year adjusted EBITDA guidance of 19.5% to 20.5%. As noted, the conflict in the Middle East is expected to put pressure on commodity prices throughout our supply chain, most notably in petroleum-based components such as plastics. Should this occur, we would expect to recover these inflationary costs; however, there may be a timing lag for recovery. Lastly, adjusted EPS is expected to be in a range of $2.75 to $3. Before I turn the call over to Jack, I want to thank our team members around the world for delivering a strong quarter and for your continued focus on our customers. Now I will turn the call over to Jack. Jack Kienzler: Thank you, Steph, and good morning, everyone. Our team delivered strong financial performance in 2026 even though we continued to experience uncertain global market conditions. Sales in the first quarter were $478 million compared to $417 million during the same period last year, an increase of 14.6%. Power Solutions delivered sales of $439 million compared to $417 million in the prior year, an increase of 5.4%. The increase was primarily due to favorable foreign exchange of 4% and higher pricing of 2%. Volume was down slightly year over year. Industrial Solutions sales were $38 million, resulting from the acquisition of Cook Filter. Gross margin for the first quarter was $137 million compared to $111 million in 2025. The increase was primarily due to incremental contribution from the acquisition of Cook Filter, increases in pricing, the cessation of one-time separation costs, and the favorable impacts of currency, partially offset by higher logistics and duties costs, higher manufacturing costs, along with lower volume. Selling, administrative, and research expenses for the first quarter were $59 million compared to $55 million in the prior year. The increase was primarily due to people-related expenses and information technology consulting. Joint venture income was $8 million in the first quarter, compared to $9 million in the prior-year quarter. The decrease was primarily due to a $3 million expense in our India joint venture related to a benefit obligation remeasurement driven by recent labor law changes. Other income was an expense of $7 million compared to income of $1 million in 2025. The increased expense was primarily due to the Cook Filter acquisition, consisting of $6 million in transaction costs. Excluded from adjusted results are one-time costs related to the integration of Cook Filter, which for the full year 2026 are expected to be in the range of $3 million to $8 million, along with approximately $6 million of transaction costs. Additionally, we will exclude intangible asset amortization resulting from the Cook Filter acquisition, which is expected to be in a range of $10 million to $15 million. Adjusted EBITDA in the first quarter was $95 million, or 19.8%, compared to $82 million, or 19.6%, in the prior period. Adjusted EBITDA for Power Solutions was $86 million, or 19.6%, compared to $82 million, or 19.6%, last year. Industrial Solutions adjusted EBITDA was $8 million, or 21.9%. Adjusted earnings per share was $0.69 compared to $0.63 last year. Adjusted free cash flow was $33 million this quarter, compared to $20 million in the prior year. Now let us turn to our balance sheet and the operational flexibility it provides to execute on our growth and capital allocation strategy. We ended the quarter with $210 million of cash on hand. Combined with the full availability of our $500 million revolving credit facility, we have $710 million in available liquidity. Our strong liquidity provides us with operational flexibility to effectively manage our business and to execute growth opportunities. Our cash position and continued strong performance, along with inorganic growth from the acquisition of Cook Filter, has resulted in an estimated net debt to adjusted EBITDA ratio of two times for the last twelve months ended March 31. I want to echo Steph and thank Atmusonians around the world for all of their hard work and dedication to deliver a strong start to 2026. Our disciplined execution of our four-pillar growth strategy, underpinned with a strong balance sheet, will allow us to continue to drive growth and create long-term value for all of our stakeholders. We will now open the call for questions. Operator: Thank you. We do ask that you limit yourself to one question and one follow-up. For any additional questions, please requeue. Your first question comes from Quinn Fredrickson with Baird. Please go ahead. Quinn Fredrickson: Yes. Thank you. Just wanted to start off with a question about pricing. It seemed to come in a bit stronger than you were expecting in 1Q, but it sounds like you have not changed your expectation for the full year at 1%. First, can you confirm that is accurate? And if so, can you unpack why that would be the case, given it sounds like input costs are moving up? Jack Kienzler: Absolutely. Thanks, Quinn, for the question. Overall, I would say our pricing expectations for the full year remain 1%. As we highlighted when we initiated our guide on our last call, part of what you are seeing there is the evolution of tariff dynamics. And so as we talk about that pricing figure of 1%, it is holistic, including both base pricing actions that we took in January, for example, as well as tariff pricing. And as we move through the year, that tariff pricing will reflect the evolution of the tariff dynamics. As you compare year on year, you have different puts and takes as tariffs went up and down relative to specific countries. As we had highlighted, we do expect the first quarter from a year-over-year comparison to be our strongest pricing quarter, and then as tariffs change, and as Steph alluded to in her comments, we expect the full-year impact from tariffs to be essentially flat year over year. In terms of input costs, and whether or not we will be taking price actions for that, as we stand here right now, we are keeping a vigilant eye on those costs. As we noted, we will certainly look to recover those costs either through different things we can do in our supply chain or through pricing. As you know, base pricing is generally done at the beginning and the middle of the year. We would not expect necessarily similar dynamics to what we employed for tariffs to counter those input cost headwinds, and so that is the inherent timing lag that may exist should input costs become a dynamic this year. Quinn Fredrickson: Thank you. That was helpful. And then second question would just be on share gains. Any estimate on what that contributed in the quarter? And then any update to the 150 basis points that you are guiding to for the year? Stephanie Disher: Great. Thanks, Quinn. Let me get started on that one. Stepping back, we are really pleased with the performance in the quarter. It was strong growth. We saw 14.6% growth in the quarter. We were very happy with Industrial Solutions, about 6% growth in the quarter, so a very good start to the acquisition of Cook Filter, and a shout out to that team who performed very well. If I look at Power Solutions, 5.4% growth year on year. That was made up of, as Jack just discussed, 4% in FX and 2% in price, with volume overall slightly down. There is a mix in there of market conditions and share and some other one-time impacts that we experienced in the quarter also. We saw the market was down year on year. First fit was 8% down in our numbers, and aftermarket slightly down. If you start to unpack some of the specific one-time impacts we saw, the Middle East impacted our ability to deliver to our customers in the Middle East in the month of March. That impacted us by about $4 million in sales, about 1%. That was because we could not deliver to our customers for a period of time because of restrictions in the supply chain. We have mitigated those impacts and are now able to overcome that. Obviously, the Middle East conflict is an ongoing challenge, and we continue to monitor it and seek to mitigate those impacts, but in the quarter, it was a 1% impact that we are not expecting to continue. We also saw some stocking dynamics across the world, some within Latin America and Southeast Asia, that we expect are timing. Overall, share was about in the middle of that 1% to 2% level, right on top of the guide and where we are seeing it. That gives us confidence to continue to maintain our guide through the year. In addition, we are seeing positive inflection in the first fit market. We have already seen that coming through in our build rates and orders from customers. That gives us confidence in the second half guide underpinned by a recovery in first fit markets. Quinn Fredrickson: Appreciate all those details. Thank you. Operator: Your next question comes from the line of Joseph O'Dea with Wells Fargo. Please go ahead. Joseph O'Dea: Hi, good morning. Can you unpack Middle East uncertainty a little bit more just from both a revenue and cost consideration perspective? Based on what you see on current market prices, how do you think about the potential cost headwinds there? And then also, you talked about a little bit of supply chain disruption in the quarter, but stepping back, what you see as a potential demand response to ongoing conflict and a revenue impact that you consider? And then I have a follow-up on Cook Filter and aftermarket distribution. Stephanie Disher: Good morning, Joe, and thanks for the question. The Middle East is an ongoing uncertainty for all of us. We have been just over sixty days in the conflict now, and I am certainly in no position to predict how long that continues. The way I am thinking about the impact of the Middle East on our business really is in three key areas. The first of those is input cost pressures. We could see increases in costs related to inflationary pressures or supply shortages. We see the biggest impact for us there in plastics, or petroleum-based products. Right now, we are not seeing a lot that is already impacting or is baked into our forecast. We are really monitoring this as a risk at this point, but we expect to see some pressure on cost as the year plays out. Jack spoke to that. We will obviously look to mitigate those, but there may be some lag here in the second half on pricing, depending on how the conflict continues. The second dimension that may have an impact on our business is our sales in the Middle East. For context, our sales in the Middle East were $38 million in 2025, so about 2% of our overall revenue. We did see a $4 million impact in the first quarter. We are not expecting that to continue through the remainder of the year, but, obviously, we are watching to see how the conflict continues to evolve. And then the third piece, which you rightly pointed out, is the broader business confidence impact on global demand. It is very difficult to predict that. Obviously, our aftermarket is heavily weighted towards economic activity and freight activity around the world and particularly in North America. At this stage, we do not see the conflict having an impact on that, but we continue to monitor business confidence and the projection we are getting from our customers as to the outlook. At this stage, we think that the view of a flat outlook on aftermarket markets year over year still holds. Joseph O'Dea: Those are helpful details. Thank you. And then on Cook Filter and with respect to your pillar of accelerating profitable growth in the aftermarket, any color on how different the distribution network is there and some of the work that is underway or opportunities that you have identified in the near term to go after some of that aftermarket opportunity? Stephanie Disher: Great question. As I alluded to, I am really pleased with the start of the acquisition of the Cook Filter business. They had a strong quarter, 6% revenue growth in the quarter, and we are progressing very well with the integration. We expect to wrap up integration early in the third quarter, and I am very pleased with how that is beginning. The team is very focused on share gains in their markets and orienting the focus of their growth towards higher-growth end markets. There are some similarities between the distribution channel strategies. Our overall broad coverage of products across a very broad distribution network holds across both our Power Solutions business and our Industrial Solutions business, and some of our industrial broad-based distributors that we have signed up in recent times do have coverage across both segments. We will look to leverage the synergies across those distribution channels. Right now, we see plenty of opportunity with the Cook Filter business continuing to target its growth strategy and orienting towards higher-growth end markets, and doing the integration well. Joseph O'Dea: Got it. Thank you. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Please go ahead. Tami Zakaria: Hi. Good morning. Thank you so much. I wanted to revisit the volume comments you have made. For Power Solutions, volume was slightly down against a down number last year. Do you expect volumes to turn positive later in the year in any quarter, maybe driven by aftermarket or first fit due to prebuy? How are you thinking about volume in Power Solutions through the rest of the year? And a follow-up on Cook Filter growth versus market. Stephanie Disher: Good morning, Tami, and thanks for the question. Yes, we do expect volume to grow quarter over quarter through this year. The second quarter is a stronger quarter for us, and then we see the first fit dynamics in the third and fourth quarter starting to come in. We talked about the heavy-duty and medium-duty market adjustment to being 5% to 15% up year over year. We expect that to be all second-half loaded. We are starting to see that progress through the second quarter. We have also already seen increases in build rates, and we will start to see that trend up through the second quarter and through the second half. From a share perspective, we see the 1% to 2% share gain as being about the right balance for us throughout this year. We still see a path to how we will deliver that. With the aftermarket, aftermarket was challenged in the first quarter. We continue to see it operating pretty flat year over year, which is the assumption underpinning our guide. Overall, that leads you to a volume growth environment through 2Q and the second half. Tami Zakaria: Understood. That is very helpful color. On Cook Filter, I think I heard you say 6% revenue growth. Is that all organic? If it grew 6% and you are saying the market would grow 1% to 4%, was share gain 200 to 300 basis points in the quarter? And do you expect roughly 6% growth year over year for the rest of the quarters in the year? Stephanie Disher: We have given a pretty wide range on Industrial, and I appreciate that. It is a smaller number, so as we find our way here, you will give us some grace. Our full-year guide is a growth of 1% to 8% with a midpoint of 4%. If I look at the first quarter performance, it is right where I would expect it to be at about 1% price, 2% share, and about 3% market growth. We expect that market growth to be around that level. I would still position it around the midpoint of 4% for now, but that is the range we are suggesting for Industrial. Operator: Thanks, Tami. Your next question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead. Bobby Brooks: Hey, good morning, team, and thank you for taking my question. Now that you have had Cook under the hood for a little longer than three months, I would be curious to hear what are the most compelling cross-sell or growth opportunities you see that are directly arising from your ownership, and then, secondly, opportunities on the cost or manufacturing side? Stephanie Disher: Thanks, Bobby. Let me outline how I am seeing the opportunity of Cook Filter, and then I will ask Jack to talk through the integration activity and the supply chain cost opportunities. Firstly, I am really happy with the first quarter performance. When you do due diligence of an acquisition, obviously we were very thorough, but you then get to work out exactly what is under the hood. Here is what I would say is the opportunity. This was really a market step for us and about expanding into new markets. We really want to support fully the Cook Filter business to do what they do well. They have a very clear plan to continue to expand their share at this 1% to 2% rate with their customers. They have strong, favorable market conditions, and we expect continued growth at a higher rate than our Power Solutions business into the future. Strategically, we want to direct the team’s opportunities around products, customers, and channels to higher-growth end markets. That includes data centers and health care, and there is also a very strong and robust set of opportunities across the broader industrial and commercial HVAC. That is how I would describe the growth strategy. Very pleased with how we have started. Jack, can you comment on the cost and synergy perspective? Jack Kienzler: Thanks, Steph, and thanks, Bobby, for the question. First, I would echo Steph’s comment. We continue to be very excited about the acquisition of Cook Filter. We are really pleased to see a strong cultural fit between the two organizations, which makes collaboration all the more possible. First-quarter performance also demonstrates the margin accretion that the business can deliver to our overall portfolio and the overall potential for the business. On integration, we have made significant progress. Fortunately, we gained a lot of experience through our separation from Cummins, and that has really served us well as we now integrate this business and they go through their own separation from the prior parent. We have completed about half of the TSAs and are on track to complete the integration by early in the third quarter. As I shift to synergies, it has been great to see the teams come together and share learnings between the two organizations, not only on the cost synergies that we outlined when we highlighted the $4 million of potential—things like supply chain procurement savings, etc.—but also other potential growth areas that Steph was alluding to, where we can use our media expertise or some of our product know-how, or, likewise, use their product know-how and products to complement sales upside into each other’s end markets. We are excited about the future. As you know, it is early days—close occurred in January—so we are excited about the potential, and we will certainly update you all as those opportunities come to fruition. Bobby Brooks: Absolutely. Really appreciate the color. And then maybe for Jack, any outlook on tariff recoveries or just how to be thinking about that playing out this year, if so? Jack Kienzler: Thanks, Bobby. First, just to reiterate, our overall approach to tariffs remains unchanged. We will continue to pursue all of our available avenues to mitigate tariff exposure, minimize the impact on our customers, and our overall objective remains unchanged to be price-cost neutral. There has been some evolution from a tariff perspective, so let me give some color. As you all know, effective in early April, the Section 232 steel and aluminum tariffs went into effect. I would just say that there is an immaterial number of our products that qualify under that category, really because most of our products are already qualified under the Section 232 tariffs around heavy-duty and medium-duty products. There is not really an incremental change there for us. Because they qualify under the prior heavy-duty and medium-duty Section 232, the USMCA exemption that we have been availing ourselves of is still valid and something we can take advantage of. Overall, from a refund standpoint, as you all know, a refund mechanism has been established using the CAPE system as of mid to late April of this year. Like other companies, we expect refund requests will be fulfilled once the mechanism is fully operational. These refunds, to our understanding, will be provided in phases, and we are following the normal steps with respect to filing our claim based upon their classification and the status of the entries. I would just say that the timing of those refunds and corresponding treatment in the market in terms of how those ultimately flow through is still highly uncertain, but we will certainly keep you updated as we gain more clarity there. Bobby Brooks: Appreciate the color. Operator: Next question comes from the line of Andrew Obin with Bank of America. Please go ahead. Operator: Andrew, I am sorry. We are having a hard time hearing you. David Ridley-Lane: Oh, sorry about that. This is David Ridley-Lane on for Andrew Obin. Question on the potential impact for you from higher diesel prices. As you are thinking about your commodity and freight, if you snap the line today and assume that diesel prices remained constant, what kind of drag or year-over-year headwind would you be facing? And a quick follow-up on aftermarket performance in the quarter. Jack Kienzler: Yes. Overall, I would say, David, from an input cost perspective, we are monitoring it. That is one of many dynamics that flow through not only directly to us in terms of freight costs, etc., but also to end users in our space who are navigating higher input costs and a challenging freight dynamic overall. Right now, in terms of the impact of those costs, again, as Steph said, we are more in the monitor phase and would expect to react to those in terms of pricing or other supply chain maneuvering to offset. Our guide, as stated, really is in more of a watch-and-see mode on those just now, and we will continue to update that as we move through the year. David Ridley-Lane: Got it. The other question I had, just real quickly, was on the aftermarket performance this quarter. I know you quantified the Middle East headwind, so that was a point overall. You also mentioned some destocking in LatAm and Southeast Asia. I just want to better understand: was this a surprisingly light quarter for aftermarket, and any thoughts you have on reasons why or what you have seen maybe in April? Was there a little bit of recovery? Thank you. Stephanie Disher: Thanks, David. The first quarter is always a little challenging for us. There are some dynamics between fourth quarter and first quarter, and we see this in North America a little bit. If you look at published results of our customers, you see this reflected as well—there is some stocking up at the end of the fourth quarter, and then you see some timing impacts of that into the first quarter. So I think there is some impact there in the first quarter. We do see improved volume performance throughout the year. In aftermarket, the second quarter is the strongest quarter for us, and then we see the tailwinds on the first fit side in the second half. Hopefully, that gives you some additional insight. David Ridley-Lane: Thank you very much. Operator: We have no further questions in our queue at this time. I would now like to turn the conference back over to Todd Chirillo for closing comments. Todd Chirillo: Thank you, Krista. That concludes our teleconference for the day. Thank you for participating and for your continued interest. Have a great day. Operator: Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to the Perella Weinberg First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to turn the call over to Taylor Reinhardt, Head of Communications and Marketing. Taylor Reinhardt: Thank you, operator, and welcome all. Joining me today are Andrew Bednar, Chief Executive Officer; and Alex Gottschalk, Chief Financial Officer and Chief Operating Officer. Before we begin, I'd like to note that this call may contain forward-looking statements, including Perella Weinberg's expectations of future financial and business performance and conditions and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those discussed in the forward-looking statements and are not guarantees of future events or performance. Please refer to Perella Weinberg's most recent SEC filings for a discussion of certain of these risks and uncertainties. The forward-looking statements are based on our current beliefs and expectations, and the firm undertakes no obligation to update any forward-looking statements. During the call, there will also be a discussion of some metrics, which are non-GAAP financial measures, which management believes are relevant in assessing the financial performance of the business. Perella Weinberg has reconciled these items to the most comparable GAAP measures in the press release filed with today's Form 8-K, which can be found on the company's website. I will now turn the call over to Andrew Bednar to discuss our results. Andrew Bednar: Thank you, Taylor, and good morning. Today, we reported first quarter revenues of $149 million, down 30% from our record first quarter last year. These results don't align with the current state of our business. Client dialogue is very strong. Our announced and pending backlog at quarter end was at a 2-year quarterly high, and our overall pipeline continues to grow. Furthermore, we continue to build scale with the recently announced acquisition of Gleacher Shacklock. The M&A market is active and overall volumes are strong, but the activity is concentrated and driven by a record number of mega cap transactions. We were involved in 2 of the 12 transactions in the quarter valued at $15 billion or above. Everything we do is taking more time. We advise on larger and more complex situations, and it's taking longer to get the mandate, longer to announce and longer to close. The environment, whether it's macro, geopolitical, sector-specific, is all making clients deliberate more, and this is natural and it's healthy. Clients are not walking away from transactions, but they are being careful, and that is adding to the time to completion. Restructuring and liability management remained active in Q1, though revenue contribution softened coming off a record 2025 that saw a number of large deals completed in the period. We are rebuilding the pipeline, but the ramp from initial mandate to revenue recognition does take time. We have to be there for our clients in every market through thick and thin. We are not changing our view on our opportunity. The relationships and the revenue potential are there. It is just a question of time to conversion. Based on where our transactions sit today, we expect our revenue to be meaningfully back half weighted this year. Now let me spend a minute on our recently announced acquisition of Gleacher Shacklock. Europe has always been a meaningful part of our business, and the U.K. is the largest advisory market in Europe. But historically, we have not had the presence there that matched our brand. Gleacher Shacklock changes that overnight. They are one of the most respected independent advisory firms in the U.K. with 20-plus years of trusted relationships with FTSE 250 corporates, sovereign wealth funds, pension funds and sponsors. They bring us five partners, two of whom are still in ramp mode. And with access to our global platform, we expect their productivity to multiply once we combine. Importantly, Gleacher Shacklock operates with the same values as we do, trust, integrity and teamwork. And like us, they put clients first. The Gleacher Shacklock team has built something very special, mirroring what we have built, a firm known for deftly guiding clients through complexity and one where repeat clients are a significant part of the business. I look forward to welcoming the entire team to our firm later this year. In the last 12 months, we have added exceptional talent across the firm, launched our private funds advisory business through the Devon Park acquisition and now have further invested in our European business with Gleacher Shacklock. We continue to build a platform that can perform across cycles and one that today is broader geographically and by industry and product than it has ever been, and we are attracting world-class clients and exceptional bankers to our platform. We do expect that our results will be more variable as we continue to build scale, but our direction is clear, and I'm very confident in our future. Before I turn the call over to Alex to review our financial results and capital management in more detail, I want to take a moment to congratulate Alex on her expanded role, which now includes serving as Chief Operating Officer of the firm. Since becoming CFO in 2024, Alex has had tremendous impact on our firm and helped keep us focused on our mission. I have no doubt that in this combined role, she will help drive more growth, greater discipline and better results. So congratulations, Alex. This is a very well-deserved promotion. Alexandra Gottschalk: Thank you, Andrew, for your kind words and confidence in me and our team. I'm excited for this new chapter. Now turning back to earnings. Our first quarter revenues of $149 million included just over $10 million related to closings that occurred within the first few days of the second quarter, which in accordance with relevant accounting principles were recorded in the first quarter. Our adjusted compensation margin was 79% of revenues for the quarter, above the intended 67% indicated on our fourth quarter call. The 79% reflects the impact of a lower revenue denominator against a higher non-bonus compensation base compounded by the timing of RSU vesting's from prior stock-based compensation awards, which was concentrated in the first quarter. Excluding the bonus decrease in the current period, compensation expense increased year-over-year due to higher cash compensation and equity amortization from investments in new hires and higher headcount. As revenues build through the year, we expect the comp margin to moderate and come in line with our historical target range by year-end. This is the same dynamic we experienced in the first quarter of 2024. Our adjusted non-compensation expense was $37 million in the quarter, down 24% versus a year ago, a direct result of prudent cost management, which we expect to sustain through the year. Our prior guidance of a single-digit percent decrease in full year non-comp expense versus 2025 remains our best estimate at this time. Turning to capital management. In the first quarter, we returned nearly $64 million to equity holders through dividends and RSU settlements. At the end of the first quarter, we had 71 million shares of Class A common stock and 22 million partnership units outstanding. We ended the quarter with $78 million in cash and no debt. This morning, we declared a quarterly dividend of $0.07 per share. With that, operator, please open the line for questions. Operator: [Operator Instructions] We'll take our first question from Alex Bond with KBW. Alexander Bond: Just wanted to start maybe specifically on what you're seeing in the large-cap strategic backdrop on the M&A side at the moment. It seems, for the most part, like large corporates have been willing to look through geopolitical concerns and AI fears. And even in the case of AI, maybe that's potentially spurring some further activity in that area. It would just be great to get your thoughts around that space more broadly, especially in light of your commentary around the extended deal time lines. Andrew Bednar: Yes. Sure, Alex. Thanks for the question. We're seeing great activity in that segment of the market. And I think that's evident in the number of announcements broadly in the market. We're tracking broadly ahead of last year. There were about 72 transactions last year above $10 billion. I think we're on pace for 80-plus this year. That part of the market is very strong. Strategics are looking through war and other sort of aspects of geopolitical mapping that's changing and other issues that may be starting to affect the consumer. I think these long-term large transactions are still very much in vogue. Part of it is also a very accommodative administration. And so I think that's also putting some pressure on people to transact on a little faster time line versus historical norms. So we feel very good about that market. We'd like to be in more of those deals always, and that's what we aspire to, but that part of the market is very, very healthy, Alex. Thanks for the question. Alexander Bond: Great. That's helpful color. And maybe as a follow-up, just on the revenue expectations for the full year. I think back half weighted certainly makes sense given what we can see in the pipeline and some of your commentary in the prepared remarks. But I wanted to ask specifically around the second quarter. Maybe any color you could share just some of the near-term pipeline and if we should expect that the second quarter to look relatively similar to the first quarter from a revenue standpoint. Andrew Bednar: Yes. As you know, Alex, we don't provide revenue guidance for the year for any specific quarter. I don't think, though, that as we look at our particular mix of transactions, the announcements and the time lines to close, we don't see a lot of closing risk in our pipeline, which is always good, but we do see the timing issues are very prevalent. So I think this will be a progression through the year. I don't see a quick reversal coming in the next period, but we see a really good progression through the year and similar to what we were facing when we look at our 2024 results, we had our lowest quarter in Q1 '24 as a company, and then we ended up having a record full year. But trying to predict when those things happen during the course of the year is always very hard. But we do believe it will be very back-end weighted just given the nature of the pipeline that we have and what you guys are seeing also in Dealogic, you can track that as well. Operator: Our next question will come from Brendan O'Brien with Wolfe Research. Brendan O'Brien: To start, I just wanted to touch on Europe. There's some interesting dynamics playing out in that market at the moment. On the one hand, obviously, more exposed to energy shock driven by the conflict in the Middle East. But on the other, there's clearly a push towards deregulation that's more favorable to large-cap M&A. Just want to get a sense as to what you're hearing and seeing in the region at the moment and whether you see potential for this fee pool to outpace that in the U.S. Andrew Bednar: Yes, Brendan, I think you've described the situation on the ground very well. I think that the impact of this war is very uneven. And I think it's been widely reported that Europe is particularly vulnerable to the energy price shock that's occurred. And I think they have to grapple with that and likely have some impact and long-term implications for the consumer through Europe. But there's something else going on, which is a reimagining of Europe's position in the world, and that has started back now 1.5 years ago. And that has led to a very significant change in defense budgets, for example, and rethinking regulation across border within Europe, which has paved the way for some larger scale transactions and things that historically once may have been unimaginable that are now becoming in the frame as a possibility. So those are good dynamics for our business. Generally, when we have more accommodative regulators, that's a good thing. And when we have a change to the circumstance and sort of reimagining of a region, that's also positive. So we are seeing an increase in dialogue, an increase in the art of the possible there. I think that's good for our industry. We are optimistic about our investment in the U.K. Obviously, we feel very good about that. Otherwise, we wouldn't have done that. That's a very large market around -- if you look at the other European markets, the U.K. fee pool is the largest. I don't think it will outpace the United States. The United States is the largest M&A market. It's the largest fee payer market. I don't see Europe catching up to that. But for the better part of the last decade as European contribution to overall M&A fee pool and M&A activity has been historically low. We've all talked about not just me, but others in the industry, how that is an anomaly and should catch up. It hasn't, but it certainly has the opportunity now with the changes that are afoot to catch up to its historic contribution. Brendan O'Brien: That's helpful color. And then for my follow-up, I guess, on the energy side of the equation, you guys obviously have a really strong business in the oil and gas space or energy space broadly. I just want to get a sense as to how the increase in oil and gas prices has impacted the willingness of energy companies to transact and whether that's driving increased activity levels or pipeline? Andrew Bednar: Historically, when you have oil prices above $90, it makes the transaction dynamics quite challenging for M&A. So usually, we see a cessation of activity, which we have seen. I think there's only been eight transactions in energy announced all year. And I think there's only three above $1 billion, which kind of be in our sweet spot. So it's a very, very, very limited market right now. I mean we are in the midst of the war. We are in the midst of what many have described as the most significant oil shock to our world. And so it's not, I think, surprising that the activity now is lower in M&A and many of these companies are very, very focused on operations. Now we've had some exceptions to that with Shell's acquisition earlier this week. Now that's in natural gas, which largely has been flat to even somewhat down since the beginning of this war on February 28. So that's a quite different market. Generally, the discussions are very, very active about what happens when the fog of war lifts. I don't think the cessation of activity is indicative of long term. I think it will be temporary. I think there will be quite a bit of consolidation when we get some of the fog lifted and prices sort of settle back down to what people can then plan for a long-term mid-cycle price deck in terms of transacting. But that fog of war definitely has an impact on everyone's energy business. I think everybody is down, and we're seeing the same thing. Operator: Our next question will come from Devin Ryan with Citizens Bank. Devin Ryan: I want to come back to the advisory outlook. Obviously, you cited the remark announced and pending backlog at a 2-year high. It'd be good if we get some maybe quantification or even characterization on how some of the other kind of early forward-looking indicators are tracking, whether that's mandates or even customer engagement metrics and whether those are also growing, or those at 2-year highs or how you would kind of frame the leading indicator for business? Andrew Bednar: Yes. Look, the things that -- I know investors and analysts have to look at the quarterly results, and those are important, but they don't really tell us a lot about the future of the business. That's what I'm focused on and what my teams are focused on. So I look at the client engagement level in M&A is up, I look at our overall pipeline, it is up. Importantly, within that overall pipeline, the amount of pipeline that's actually engaged. So there's a signed engagement letter that is also up. I mentioned announced and pending in my upfront remarks that we're sitting at an 8-quarter high. So that's, I think, encouraging as well. And I think importantly, we'll have another period of time here where we just have phenomenal repeat clients. Our repeat clients are paying some of our highest fees. I mean that is true and, I think, a time-honored strength -- indication of the strength of our franchise. And so I like all of that. That all looks very, very good. I think where we have some challenges is just on scale. When you look at 150 or so fee events, you have a couple of things at the top of that list that shift, and that's going to affect the quarterly results, which, again, I always find hard to predict. And I just look at the strength of the overall business, which I like what I see. We've got 23 partners that are still ramping. We've got to always look carefully at our investments. We're constantly assessing our partnership and how we think about covering clients. We're continuing to be very deliberate there. But generally, all those KPIs, Devin, are quite strong and in some cases, have never been stronger in our history. Devin Ryan: And then kind of interrelated on the comp ratio, I know the first quarter is a bit of just a math equation. And obviously, the revenues in the year are going to be more back half weighted, which we can see. How should we take kind of signal in the first quarter accrual? Is there anything to read there? Or is that just primarily the math of the fixed cost? And then just talk more broadly about timing to get back to more of a normal range? Like what type of environment do we need to be in to get there? Andrew Bednar: Yes. I think as you said correctly, it is math, #1. As Alex said, there are a couple of seasonal items that don't repeat around RSU vesting and around some of the investments and the timing of prior investments and when those payments get made. So we have things that just don't appear as we move through the year. And then we build revenue, and that's when we build the bonus pool. So -- we've seen this before, again. We've seen it in 2024, where we had a comp margin in Q1, which was obviously not our target, and we ended up in around target. We're going to end up in around target, and we're not going to depart from what we've historically said. We'll get back to on target for a 67% accrual as we get through the year. It's not going to reverse, as I said to Brendan's question earlier, maybe it was Alex, but we won't reverse it entirely as we go to Q2. It's just a progression through the year. And the most important thing is that we're building the ANP. And as long as we're building the ANP, we're in good shape for the future. But the short answer is it's not saying anything about -- there is no return to any environment. That's not the issue. It's just timing. We'll stay on target for the comp ratio. Devin Ryan: Great. Okay. I guess just the quote the last line. On the -- if I can just squeeze one more in here on Gleacher Shacklock, obviously, we follow them over time. I know it's not a huge acquisition, but I think a well-known brand and really kind of presence in the U.K. where PWP has always had a strong European platform, but U.K. has been a little bit light. So -- at least relative to other parts of Europe. So can you maybe talk about adding these 5 partners, how you think about kind of the contribution potential partner productivity relative to Perella today, how that potential could evolve over time, just having more capabilities with a more scaled platform? Andrew Bednar: Sure. Yes. As I said in my upfront remarks, I mean we're really excited about this transaction. We're adding terrific partners. They think like us, they operate like us. They focus on clients the way we do. We're really kindred spirits, and we feel like this is plug and play. They have a lot of limitations on revenue because they do only one thing. And while we don't do 100 things like a money center bank, we do more than one. And so we think adding our restructuring capabilities, our debt advisory capabilities and shareholder activism capability as well as continuation vehicles will allow the Gleacher team to now provide more service to their clients. In addition, they are very, very focused on the U.K. takeover market, but also across Europe, but having our capabilities across Europe as well as into North America also gives them a greater dialogue with clients. So while today, they may have a bit -- they may be a bit under our targets for partner productivity, we're very confident that they'll reach and exceed them as we get this combination completed. Operator: Our next question comes from James Yaro with Goldman Sachs. Divyam Harlalka: Divyam here. I'm speaking on behalf of James. Could you please speak to the impact of a steeper yield curve and fewer rate cuts on sponsor M&A? And when do you expect the long-awaited sponsor recovery to take off? Andrew Bednar: Yes, not seeing a big change to the sponsor activity level. It's roughly been about one-third of our business. I think the long-awaited return may take a little bit longer. It's a little bit rate driven, but also when you really do some subsurface work on the S&P 500, you go below the top 7 and anything around AI, multiples are actually quite a lot lower in many, many industries than where they were in '21 and 2022 when a lot of these transactions by sponsors were affected. And so it's still not the ripest of conditions for a lot of sell-side activity. And now you have the circumstances around AI and SaaS that just has a lot of people on sort of pause and doing more work to figure out the investments they're making, whether they are AI-proof or whether they are part of the AI story rather than part of the AI demolition story, which obviously is not where you want to be as an investor. So I think we saw, as I said in the last 2 calls, we've seen a very significant increase in our pitch activity with sponsors. Sponsors seem to be lining up a number of assets. We continue to see sponsors wanting to talk about potentially monetizing some of their holdings. On the buy side, it's been a bit slower, but there are pockets of activity. But I think this is just a pretty steady market right now, and I'm not seeing like a floodgate type dynamic with sponsors. I just see a very steady market. They've got a lot of capital deploy. They will deploy it. They have assets that they will sell for their constituents and their -- in particular, their LPs. We'll see that continue. I think it's a fine market where we are with rates with where they are. And I don't think they need to see rate cuts to continue to be active. Divyam Harlalka: That was helpful. Just one follow-up from my side. Could you contextualize the outlook for restructuring ahead and any potential upside risks from private credit and software over here? Andrew Bednar: Yes. So I think the cyclical moves in restructuring have largely abated, like the amplitude is much, much lower than historically it has been in restructuring. It's just a steady business now. And I think it's growing as clients see the value of bringing on an adviser to manage through debt maturities and maturity walls and amend and extend and covenant reworks, things like that and liability management exercises. So I think those trends are quite good for the industry, and we feel very good about that. I think bankruptcies have gotten very, very expensive. I think there's a movement to try to avoid bankruptcies. There's some sort of pre-wiring in credit agreements that's designed to avoid that process. So I wouldn't expect that we're going to have a huge wave of bankruptcy going forward, but you don't really need that to continue to serve clients, continue to address their needs and along the way, generate revenue for our firm. So we feel good about that opportunity. As I said, our pipeline is -- we're in build mode on that pipeline after coming off a record year. And I think the software complex will absolutely see increased activity. Again, I don't think you see bankruptcies overnight. Software companies are still performing quite well. And so they have the revenue and cash flow. The issue is going to be refinancing and then new issuance in connection with transactions, which has been a bit more quiet in the current period. But again, that will change because you do have maturities and you will have capital to deploy, and there will be transactions in and around software as you start to see these valuations reset. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Andrew Bednar for any additional or closing remarks. Andrew Bednar: Okay. Thank you, operator, and thank you, everyone, for joining today. Thank you for your continued support as we build our business and looking forward to seeing everyone on the next call. And I also want to thank all of our Perella Weinberg teammates around the world that are continuing to work every day and very, very focused on our clients. And so I wanted to make sure that they hear my expression of gratitude for that. And again, look forward to seeing everyone on our call in a couple of months. Thank you. Bye-bye. Operator: This concludes the Perella Weinberg First Quarter 2026 Earnings Call and Webcast. You may disconnect your line at this time and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing second quarter fiscal year 2026 results. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead. Peter Goldmacher: Good afternoon. Welcome to Dolby Laboratories Second Quarter Fiscal Year 2026 Earnings Conference Call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO; and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2026 third quarter and full year outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today, including, among other things, the impact of macroeconomic events, supply chain issues, inflation rates, changes in consumer spending and geopolitical instability on our business. A discussion of these and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned Forward-Looking Statements as well as in the Risk Factors section of our most recent annual report on Form 10-Q. Dolby assumes no obligation and does not intend to update any forward-looking statements made during this call as a result of new information or future events. During today's call, we will discuss non-GAAP financial measures. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings press release and in the Interactive Analyst Center on the Investor Relations section of our website. With that, I'd like to turn the call over to Kevin. Kevin Yeaman: Thanks, Peter, and thanks to everyone joining us on the call today. Revenue and non-GAAP earnings for the quarter came in consistent with the expectations we provided on the call last quarter, and we are maintaining our full year guidance. Robert will share more details on the financials in a few minutes. Dolby occupies a unique position across the creator content platform device ecosystem. We continue to strengthen our position, creating growth opportunities across existing and new business areas. Over the last few quarters, we have made great progress, bringing more Dolby content to more content platforms. Top-tier social media companies are increasingly recognizing the value of streaming content in Dolby Vision. Meta has adopted Dolby Vision for content streamed on iOS for both Instagram and Facebook, and Douyin in China has enabled Dolby Vision for content on both iOS and Android. In music, over 90% of the artists featured on Billboard's Year-End Top 100 artists for the last 3 years are creating music in Dolby Atmos. At the Grammys, Dolby Atmos was well represented in all major categories, including all nominees for best new artists. In sports, more and more content is available in Dolby. Just this quarter, the Super Bowl and the Winter Olympics were available in Dolby Vision and Dolby Atmos. The T20 Cricket World Cup in India and the 2026 Formula 1 season streaming on Apple are available in Dolby Vision. HBO Max is streaming a wide variety of sports content in Dolby Atmos and Dolby Vision. And while not exactly sports, they also stream NASA's Artemis II mission in Dolby Vision. And Peacock is also streaming sports in Dolby Atmos with plans to begin streaming in Dolby Vision. We also continue to expand further into mass market TV. Amazon recently announced that it has added support for Dolby Vision to its ad-supported tier. And TV Azteca, the second largest mass media company in Mexico, announced that it will bring Dolby Atmos to free-to-air broadcast. And finally, in the cinema, all of the top 30 grossing films domestically for calendar 2025 were in Dolby Atmos and Dolby Vision. And all major category winners at the Academy Awards in March and the BAFTAs in February were in Dolby Atmos and Dolby Vision, including F1, the movie, Sinners and One Battle After Another. All of this is simply to say high-quality content matters and more content in Dolby means more reasons to adopt Dolby Atmos and Dolby Vision across end markets and devices. And it was another big quarter for automotive. At the Beijing Auto Show last week, BMW announced Dolby Atmos support in the 7 Series globally and the iX3 in China. Just 2 weeks before that at the Paris Auto Show, BYD launched its Denza line with Dolby Atmos, BYD's first car with Dolby Atmos in the European market. Also this quarter, Lexus announced their first Dolby Atmos-enabled cars and NIO expanded its Dolby Atmos adoption to the Firefly, a compact EV sub-brand for Singapore and Thailand. There is a broader shift across the automotive industry where the vehicle is now a place for high-quality entertainment, and we continue to benefit from this trend. Turning to mobile. The progress we are making in music and with social media platforms continues to strengthen our value proposition across mobile devices. Dolby Vision capture and playback and Dolby Atmos are included across Apple's lineup, including the 17E, their latest iPhone starting at $599 that was launched this quarter. Xiaomi announced its flagship Redmi Note 15 Pro series with Dolby Vision, Dolby Vision capture and Dolby Atmos. Vivo released the X300 Ultra with Dolby Vision as well as their iQOO 15 Ultra, a gaming-focused sub-brand that has both Dolby Atmos and Dolby Vision. We continue to perform well in high-end phones, and we're excited that Douyin is now fully supporting Dolby Vision on Android, which should help us continue to work our way further into mid-range Android phones. Moving on to the living room. As I mentioned earlier, our momentum in sports content is an important driver for new TV sales. In addition, we're excited about the first Dolby Vision 2 TVs coming to market by the end of this fiscal year. Hisense, TCL and Philips have announced plans to release a wide range of Dolby Vision 2-enabled TVs globally with Peacock and Canal+ committed to delivering content. We expect Dolby Vision 2 to increase ASPs and drive deeper adoption into TV lineups. In addition to driving growth from the adoption of more Dolby technology on more devices, we are beginning to generate revenue from content platforms as content platforms are increasingly competing on experience, not just access to content. The video distribution program, the patent pool that licenses imaging patents to content streamers continues to bring on additional licensors, including this quarter, Sharp and SK Planet, bringing the total to 40. These new licensors bring important patents and validation to the pool, which generates incremental momentum. The licensee pipeline is strong. With Dolby OptiView, we are bringing value to sports content platforms that are seeking to increase fan engagement with real-time personalized experiences. Our wins this quarter include Genius Sports, a leading data technology and broadcast partner that serves the global sports betting and media ecosystem. This win reinforces Dolby OptiView's positioning in the sports ecosystem where partners prioritize fan engagement and real-time experiences. In the U.K., William Hill is now using Dolby OptiView to deliver horse racing, providing consistent low-latency content across its online platforms in time-sensitive live workflows. At the NAB Show in Las Vegas this month, our vision for the future of live sports experiences resonated strongly with many of our key customer prospects. We are excited about the potential for Dolby OptiView. Wrapping up, we continue to strengthen our position across the entertainment ecosystem. We have momentum across our key growth drivers for Dolby Atmos and Dolby Vision. We're excited about our opportunity to drive growth beyond devices with the video distribution program and Dolby OptiView. All of this gives us confidence in our opportunity to drive long-term growth. And with that, I'll turn it over to Robert to cover the financials. Robert Park: Thank you, Kevin, and thanks to everyone joining us on the call today. Revenue for the quarter came in at $396 million, which was within the guidance we shared last quarter. Non-GAAP earnings per share was $1.37, also within the range of guidance. Licensing revenue was $372 million and products and services revenue was $23 million. We generated approximately $93 million in operating cash flow, repurchased $65 million of common stock and have approximately $142 million remaining on our share repurchase authorization. We declared a $0.36 dividend, up 9% from our dividend a year ago and ended the quarter with cash and investments of approximately $675 million. GAAP operating expenses in Q2 include a $2 million restructuring charge related to actions initiated last year. Detailed licensing performance by end market can be found on our IR website. As a reminder, end market growth rates are typically smoother on an annual basis as the timing of recoveries, minimum volume commitments and true-ups can drive quarterly volatility. In terms of end market performance for the quarter, it's worth noting that Broadcast was up 26% year-over-year due to the large recovery we mentioned on the last call, and mobile was down 6% year-over-year due to timing of deals. We still expect both broadcast and mobile to be up mid-single digits for the full year. Turning to guidance. We are maintaining our full year guidance. Overall, we are pleased with our performance to date, and things are generally tracking as expected. We expect fiscal '26 total revenue to range from $1.4 billion to $1.45 billion. Within that, licensing revenue is expected to be between $1.295 billion and $1.345 billion. We are targeting non-GAAP operating expenses between $780 million and $800 million. This guidance implies operating margin improvement of between 50 and 100 basis points on a non-GAAP basis. We continue to expect non-GAAP earnings per share to be between $4.30 and $4.45. Our expectations for foundational and Dolby Atmos, Dolby Vision and imaging patents full year growth rates are unchanged from what we communicated last quarter, with Dolby Atmos, Dolby Vision and imaging patents growing roughly 15% and comprising nearly half of our licensing revenue. We continue to expect foundational revenue to be down slightly. We also expect end market growth rates for the full year to be similar to what we communicated last quarter, with growth in other primarily driven by Dolby Atmos adoption in auto, the video distribution program and Dolby Cinema, partially offset by lower gaming. Growth in mobile and broadcast is driven by adoption of Dolby Atmos and Dolby Vision, growth in imaging patent programs and higher recoveries. We expect CE to be roughly flat and declines in PC primarily due to lower unit sales. Now turning to Q3. For Q3 fiscal '26, we expect revenue to be between $295 million and $325 million. Within that, we expect licensing revenue to be between $270 million and $300 million. Gross margins should be approximately 88% on a non-GAAP basis, and we expect non-GAAP operating expenses to be between $200 million and $210 million. Non-GAAP earnings per share is expected to be between $0.56 and $0.71. In summary, the business remains healthy, and we are encouraged by the progress we're making across our key growth initiatives. Our financials remain solid with organic revenue growth, high gross margins, expanding operating margins, healthy cash flows and a strong balance sheet. With that, we'll open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Vikram Kesavabhotla of Baird. John Rigatti: This is John Rigatti on for Vikram Kesavabhotla. I guess, first, if you could just talk about your consumption-based revenue streams that you've referenced over the last couple of quarters. I think you noted those should get to about 10% of revenue in the next 3 years. What should the shape of that ramp look like? Should we think about that kind of equal parts over the next 3 years? Or is that more back-end weighted? And then I have a follow-up. Kevin Yeaman: Yes. Thank you. Well, we're really pleased with the progress with both Dolby OptiView and the video distribution program. As you know, Dolby OptiView, we're focused on creating live sports experiences that are tailored to the fan, where unlike broadcast where everyone sees the same thing, streaming technology enables us to customize what each viewer sees. And that's the promise of streaming, and we're yet to -- the world is yet to get there in sports. And at NAB, we were previewing our sports intelligence platform, and that platform uses AI to analyze viewer preferences, match them to what's happening in the action. It enables you to create a story that really resonates for each viewer. And so we were demonstrating this across motor, racing, football and other sports. We also showed how we can use AI to generate highlights, reformat content to fit any screen size, shape and deliver it to whatever device a viewer happens to be watching on. And of course, it's Dolby OptiView. So all this is done -- it's essential that this is done at very low delay and synchronized at the same time for all the users. So these were resonating really strongly. We've got a growing roster of customers, NFL, NASCAR, sports information, solutions or services rather. And this quarter, we're excited to add Genius Sports. So each of them are really in the early stages of rolling out what we have for Dolby OptiView today, but they're also really engaged in where we're going with the future, and they're looking for a company like Dolby who has decades of experience that they can trust to really move into this future. And the video distribution program, we've seen a lot of these pools come together, and we're really pleased with the way this one is coming together. We announced it at the beginning of this year. We brought on 40 licensors. That's what brings together the value proposition. We brought on half a dozen licensees, and we expect that to continue to grow through the year. John Rigatti: Great. And I guess just the second one on memory pricing. I mean those dynamics have been pretty well documented. I think last quarter, you said kind of PC and mobile were the two end markets that were maybe most exposed to some of those dynamics. I guess just an update on what you're seeing on the memory pricing front, if you're seeing -- kind of what you're seeing as far as any impact on demand there, how that's factored into the guidance? And then outside of maybe mobile and PC, are there any other end markets where that's a particularly notable driver? Kevin Yeaman: Yes. Of course, we're watching that very closely as we are all the macro factors, memory pricing, volatility in oil prices and how that might affect supply chain, consumer sentiment readings, all of which we're watching very closely. And yes, memory pricing where we see from an end market point of view, where customers are most -- seeing the most impact on that is in mobile and PC, less so in areas like TV, where memory isn't as much of the BOM. And like a lot of companies, like many of the banks said in their earnings, we're seeing all these macro factors on the one hand. But on the other hand, we've not seen a significant impact to our business to date. We, of course, update all of our guidance to reflect what we're learning from our customers, what we're seeing from industry analysts. We do have a diverse set of end markets, and we're diversifying our revenue streams. So where we saw minor adjustments in some areas, we had other areas that we're doing well to offset that. And so we feel good about our guidance for the year. Operator: Your next question comes from the line of Patrick Sholl of Barrington Research. Patrick Sholl: Maybe just following up on that last question. Like just in your discussions with customers, has there been any indication in terms of like SKUs that they're prioritizing within some of their devices on those that might be impacted on the memory prices? Kevin Yeaman: Yes. So yes, thank you. If we focus on mobile, again, we do see a trend towards them wanting to, first and foremost, take care of the high end. And that benefits us as it relates to Dolby Atmos and Dolby Vision. But -- and this really varies by customer in terms of how they're approaching this, whether they are planning to raise prices, how that affects device volumes. But again, we haven't seen a significant impact to date. And remember that most of our mobile business is through minimum volume commitments, and we're just over halfway through the year. So we have pretty good visibility. And so that moderates the impact of kind of where they're going. And -- so to date, no adjustments worth noting to the extent we have minor changes, it's offset by strength in other areas. Patrick Sholl: Okay. And then on auto, can you provide any greater detail on, I guess, like market penetration in some of the early adoption markets, I guess, maybe specifically like in China? And I guess, maybe percentage of like the new car market in there that you're a part of and how you expect that to maybe roll out across other markets? Kevin Yeaman: Yes. It was a big quarter for automotive, as I said in my remarks, we are getting pretty high penetration of having brought on board a lot of the premium lines. We still have a long way to go in getting those to market and the revenue growth that's going to come from that. We also have begun to see good progress kind of moving deeper into lineups. One that I didn't mention in my remarks is that in China, the Hyundai IONIQ was launched with Dolby Atmos, and that's significant because that's a 4-channel, 8-speaker implementation. So that's a hardware footprint that would be quite normal for a mass market car. So we're really pleased to see that. So we're continuing to bring on new customers, BMW, Lexus. We have very high -- a lot of penetration in China, and we're increasing progress outside of China with the wins we announced this quarter. And we're also seeing progress with the Chinese companies expanding outside of China. So one of the things I mentioned is that at the Paris Auto Show, BYD launched its Denza line with Dolby Atmos. And so BYD has been a customer of ours, but that's the first car of theirs for the -- outside of China with Dolby Atmos. Operator: [Operator Instructions] Your next question comes from the line of Ralph Schackart of William Blair. Ralph Schackart: Kevin, I think you just mentioned that Hyundai had a 4-channel Atmos implementation in China. Can you just remind us when that product was launched? And then maybe kind of building on that, what are the implications for Hyundai or other kind of mass market vehicles to expand outside of China with a similar implementation of the Atmos. Kevin Yeaman: Yes. So that was announced very recently. I don't have the exact date, Ralph, I can get back to you on that, but that was very recent. I think it was announced at the Beijing Auto Show, which is just a couple of weeks ago. So we were at CES demoing the 4-channel implementation, which was really looking to show manufacturers the difference we could make at the mass market level. So we're excited to see this first launch. Obviously, we will work with each of our partners then to expand into different lines and different geographies. And we feel good about the pipeline and that we can continue to drive Dolby Atmos further into these lineups. Ralph Schackart: Great. And then I think on the call, you had mentioned in the prepared remarks, Douyin is adopting Dolby Vision. And then maybe kind of more broadly with that announcement and then your previous announcement with Meta also adopting Vision with all its properties or across some of its properties, maybe sort of an update how that might be steering some of the conversations with prospective mobile OEMs. Kevin Yeaman: Yes. Thank you. So China is where, as you know, we have -- is really where we began with Dolby Vision and -- well, started with Apple. And then on social media platforms, we've had enormous success in China. And the significance of what I said about Douyin is they started a couple of quarters ago with iOS, and they've now completed rolling out Dolby Vision content across all of Android. And I also talked about a few of the wins we had in China with Xiaomi, with Vivo. So we continue to bring on new partners. And with Instagram and Facebook adopting here in the U.S., we do see that increasing the pipeline for Dolby Vision and Dolby Vision capture across mobile devices. And it also gives us an opportunity as we form these relationships to really earn their trust that we can help them achieve what their priorities are as it relates to audio-video experiences, and that feeds our innovation pipeline and creates new opportunities to -- new growth opportunities in the future. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day and thank you for standing by. Welcome to the Q1 2026 Emergent BioSolutions Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Frank Vargo, Vice President, Treasurer. Frank Vargo: Good afternoon, everyone, and thank you for joining us as Emergent discusses its operational and financial results for the first quarter of 2026. As is customary, today's call is open to all participants. It's being recorded and is copyrighted by Emergent BioSolutions. In addition to today's press release, a slide presentation accompanying this webcast is available to all webcast participants. Turning to Slide 2. During today's call, Emergent may make projections and other forward-looking statements related to its business, future events, prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statements speak only as of the date of this conference call, and except as required by law, Emergent does not undertake to update any forward-looking statements to reflect new information, events or circumstances. Investors should consider this cautionary statement as well as the risk factors identified in Emergent's periodic reports filed with the SEC when evaluating these forward-looking statements. During today's call, Emergent may also discuss certain non-GAAP financial measures that include adjustments to GAAP figures to provide additional transparency regarding the company's operating performance. Please refer to the tables included in today's press release. Turning to Slide 3. The agenda for today's call includes remarks from Joe Papa, President and Chief Executive Officer, who will provide an update on the company's leadership in public health preparedness, business performance and key highlights. Rich Lindahl, EVP and Chief Financial Officer, will then review the first quarter 2026 financial results and provide an update on full year 2026 guidance. Joe will conclude with a discussion of the company's key catalysts for growth, followed by a question-and-answer session. Finally, for the benefit of those who may be listening to the replay of this webcast, this call was held and recorded on April 30, 2026. Since that time, Emergent may have made announcements related to topics discussed during today's call. With that, I would now like to turn the call over to Joe Poppa. Joe? Joseph Papa: Thank you, Frank, and good afternoon, everyone. Welcome to our first quarter 2026 earnings call. This is Joe Popa, and I'm joined today by Rich Lindahl, our Chief Financial Officer. Let's turn to Slide 5. Our aspiration at Emergent is to be the leader in solving public health threats around the world. Over the last 25 years, we have built what we believe is the most diverse biodefense product portfolio in the world. Our medical countermeasures address anthrax, smallpox, mpox, Ebola, Botulism and complications from smallpox vaccination, alongside the leading branded naloxone franchise with our NARCAN Nasal Spray, which has a decade of trusted brand leadership. We believe in our unique position within the industry to demonstrate just how public-private partnerships are critical to national security. Turning to Slide 6. Since implementing our multiyear transformation plan in 2024, we have stabilized and rightsized the company in order to provide Emergent with a strong foundation for future growth. 2026 marks a pivotal year of our transformation as we invest in high-growth opportunities. I'm pleased to note that this process is now well underway. We are focusing on segment revenue growth and improved operating performance. We are generating strong cash flow for continued investment in internal R&D and quality capabilities. We have identified product acquisition opportunities that address unmet medical needs and have the potential for sustainable long-term revenue growth. Debt reduction will remain a priority for us. In 2025, we reduced our net debt levels by approximately 22%, and we have planned for further improvement on our balance sheet and credit ratings. Collectively, these activities are about putting in place the foundations for creating sustainable long-term value creation. Let's move to Slide 8, we'll take a look at our first quarter highlights. Thanks to the great efforts of our Emergent team our first quarter results are evident in both our top and bottom-line performance. We reported first quarter revenue of $156 million, which exceeded the high end of our guidance range and was ahead of internal expectations. Adjusted EBITDA came in at $36 million, also above our internal expectations, representing a 23% margin. It's driven by continued efforts to deliver a lean and operationally efficient customer-centric business model. For example, net working capital improved by over $100 million since Q1 2025. We improved our cash balance by $11 million versus the prior year to $160 million, and our total liquidity increased to $260 million. Our strong cash position enabled the repayment of $110 million in debt last year. On the capital allocation side, we continue to create value. In April, we announced the refinancing of our prior term loan, which enabled us to secure a more favorable interest rate. We also amended our revolver to $50 million and established a new delayed draw term loan facility for $75 million. We also continued our share repurchase program, buying back $9 million in shares in the first quarter. Since the start of the share repurchase program in 2025, Emergent has repurchased approximately $34 million of shares. Turning to our business performance. Overall, MCM performed very well, reflecting increased global demand and strategic diversification in our international markets, which now represent 37% of our total MCM revenue. We received four contracted product orders in the quarter. With respect to the naloxone business, we continue to maintain the share leadership. We command a competitive pricing strategy and recently launched our newest product offering, the NARCAN Nasal Spray carrying case and a multipack configuration, both of which are already performing very well in the first month of launch. We believe on Slide 9, the world is an increasingly dangerous place and public health preparedness in the face of potential threats is critical. We are proud of our long-standing partnership with the government of Canada. And in Q1, we announced a $140 million multiproduct agreement. We also executed $54 million legal award with ASPR and approximately $21.5 million delivery order to supply BioThrax to the Department of War. Our MCM business represents an important driver of our future growth. And with the added flexibility from our recent financing, we see multiple opportunities to acquire high-growth and complementary products to our MCM portfolio. Our mission on Slide 10 to protect to save lives is answered every day with the work we do to drive access, awareness and availability of life-saving naloxone. We are in lockstep with U.S. public interest customers, the Canadian health officials, retail customers and all the communities in need. We're keeping pulse on the staggering overdose death rates and ensuring our best efforts to help combat the thousands of lives lost each month. We believe over-the-counter access to NARCAN should be more publicly accepted and normalized, just as other life-saving emergency tools are like defibrillators or fire extinguisher for that matter. Just in the news this week, this national intention on opioid settlement funds of over $50 billion, which supports state, local municipalities, tribes and other entities to help turn the tide in the detrimental effects of the opioid crisis. The produced settlement alone released over $5 billion for the state for education and naloxone purchase. There's a tremendous amount of work left to be done to expand access and awareness to naloxone and to ultimately bring the number of overdose deaths down to zero. Federal state programs also continue to support naloxone funding and services through the SOR and substance use block grants. We just announced a new awareness effort with naloxone, NARCAN for professional baseball player, Davis Schneider. Davis Schneider shares his personal story in his late brother's honor. Our goal is to raise the awareness of NARCAN and help save lives from opioid poisoning, so no more families feel the same heartbreak. Additionally, we recently announced a partnership with British Columbia to supply NARCAN Nasal Spray for the province's take-home naloxone program. This order called an additional investment of CAD 18 million by the government of British Columbia. In the U.S., the U.S. public interest channel performed in line with our expectations for the quarter. U.S. FDA approved our NARCAN Nasal Spray carrying case and multi-pack options, delivering on our promise to offer new line extensions to patients and customers. We will continue to engage the public across the country, especially in college campuses with our ready-to-rescue campaign to help drive adoption where young adults made the efforts. Since 2016, Emergent has delivered more than 100 million doses of NARCAN Nasal Spray to people, communities and businesses across the U.S. and Canada to help save lives for opioid poisonings. On Slide 11, we are pleased to share that part of our durable and sustainable footprint we are now expanding our Canton manufacturing site in Massachusetts. Our new strategic partnership with Substipharm Biologics enables us to restart the manufacturing of the Canton facility to support the Japanese encephalitis vaccine. Emergent entered into a U.S. distribution agreement with Substipharm to support the product opportunity with the U.S. government following U.S. FDA approval. This opportunity establishes our new approach to external manufacturing partnerships, moving beyond a fee-for-service CDMO approach to one that allows us to share the product's potential success. In addition, just yesterday, we announced a second strategic manufacturing partnership with SAB Biotherapeutics to advance their type 1 diabetes autoimmune candidate. This work will be led by our Winnipeg team. We're excited for the ability to partner with such a dynamic company. Let's hear from Rich, who will run through our financial results. Rich? Richard Lindahl: Thank you, Joe, and good afternoon, everyone. Thank you for joining our call today. We started fiscal year 2026 with a strong first quarter with revenue exceeding the top end of our guidance. We've also advanced key strategic priorities and improved our cash and liquidity position versus the prior year. Execution of our 2026 turnaround plan is well underway as we work toward our near-term financial and operational goals, building on the stabilization and rightsizing actions completed over the last two years. We also expect the refinancing announced two weeks ago to provide strategically important balance sheet flexibility, lowering interest costs, extending maturities and adding access to incremental capital to support both operational execution and our longer-term growth initiatives. Turning to Slide 13. Our first quarter results were in line with our expectations and reflect continued progress on execution. Total revenue for the first quarter of 2026 was $156 million, which came in above the high end of our prior Q1 revenue guidance of $135 million to $155 million. As a reminder, on our last earnings call, we pointed out that our 2025 results benefited from a large international order that we do not currently expect to repeat in 2026. That order contributed approximately $60 million of revenue and $50 million of adjusted EBITDA to our first quarter 2025 results and significantly influences the year-over-year comparisons of these metrics. Beginning in 2026, we are adding back non-cash stock compensation to our adjusted EBITDA. This is consistent with our peers and provides a more comparable view of profitability on a cash basis. It also aligns with the covenant calculations under our new debt agreement. In the first quarter, adjusted EBITDA and adjusted EBITDA margin were $36 million and 23%, respectively, reflecting the quarterly revenue profile. Adjusted gross margin was 52%, reflecting the fixed -- high fixed cost nature of our operations. We also maintained strong cost discipline. Operating expenses were $57 million in the first quarter of 2026, down $10 million year-over-year, and R&D spend declined by about 1/3 compared to the first quarter of 2025. Total revenue was $156 million, supported by a solid contribution from naloxone as we continue to maintain a market leadership position. The MCM portfolio performed above our expectations, driven by U.S. government order timing and shipments. International MCM revenue was 37% of total MCM revenues in the quarter, representing continued strong demand and diversification beyond the U.S. government. On Slide 16, we highlight the sustained improvements across our quarterly financial metrics. Liquidity and cash both improved by $11 million year-over-year, and we reduced net debt by $122 million or approximately 22% versus the first quarter of 2025. As a result, we continue to see improvement in our net leverage ratio, which was 2.4x adjusted EBITDA at 1Q '26 versus 2.7x at the first quarter of '25. This level gives us meaningful financial flexibility as we evaluate capital allocation priorities to further strengthen our long-term growth profile. This observation provides a good segue to our April 2026 debt refinancing transaction, which is highlighted on Slide 16. Also noted there, we decreased our total term loan debt by $100 million versus the first quarter of 2025. And we increased finance capacity with the addition of a new fully committed delayed draw term loan of $75 million. As Joe noted earlier, the April 2026 debt refinancing was an important milestone for Emergent. First, it strengthens our ability to preserve liquidity to support ongoing operations and advance long-term strategic initiatives. Second, it lowers our interest expense, freeing cash flow that can be redeployed into value-creating investments that support growth. Finally, it meaningfully extends our maturity profile and improves covenant terms. Taken together, these actions help establish a stronger financial foundation to support durable long-term growth. Turning to capital allocation. We have several strategic growth priorities in place for 2026, growing international MCM, internal R&D investments and business development. Continued debt management will remain an important part of our turnaround in 2026. As noted, the April 2026 refinancing provides us with meaningfully greater financial flexibility and supports our long-term strategic growth plan. As a reminder, we have a $50 million share repurchase program through March 31, 2027, and we continue to utilize it, repurchasing 900,000 shares for $9 million during the first quarter of 2026. As of the end of the first quarter, $46.5 million of authorized repurchase capacity remains available under this program. At current valuation levels, we believe disciplined repurchases can be an attractive way to create shareholder value, and they reflect our confidence in Emergent's long-term prospects. One final note on our March 31 balance sheet. We previously disclosed that $50.4 million of contingent consideration could be owed to Ridgeback Bio in the second quarter of this year, assuming continued progress under our contract with BARDA. As we now expect those conditions will be met, we have reported that amount as an accrued acquisition obligation under current liabilities. On Slide 19, we highlight our revenue and profitability guidance. We are maintaining our full year total revenue guidance of $720 million to $760 million. Commercial revenues are expected to be flat to slightly up with volume offsetting anticipated price adjustments, and we expect NARCAN to maintain its leading market share. MCM revenues are consistent with prior guidance of flat to slightly down with a significant contribution from international sales. Adjusted gross margin is expected to be between 45% and 47%, reflecting product mix and expected pricing dynamics. We are updating our adjusted EBITDA guidance to account for the non-cash stock compensation add-back, and we, therefore, expect full year adjusted EBITDA to be in the range of $155 million to $175 million. And for the second quarter, we expect total revenue to be between $170 million and $185 million. In summary, we have fully commenced the turnaround phase of our multiyear plan, and we are executing with focus and urgency. We delivered solid revenue and profitability in the first quarter, in line with our internal expectations. Our term loan refinancing extended maturities out to 2031 and enhanced our financial and operational flexibility. We also returned capital to shareholders through share repurchases during the quarter and $46.5 million of authorized repurchase capacity remained available through March of 2027. And with that, I'd like to turn the call back over to Joe for a 2026 business outlook update and closing remarks before we go into Q&A. Joe? Joseph Papa: Thanks, Rich. Moving to Slide 21. Let me now walk through what we see as the key growth drivers we have, both near term and strategic. We entered 2026 with a stronger cash and liquidity position, further reinforced by the April refinancing. We are well positioned to invest in sustainable long-term growth via four levers: organic growth through internal R&D investments in TEMBEXA, Ebanga, and Raxibacumab; number two, line extensions for NARCAN; number three, growing the MCM business internationally; and number four, accelerating business development opportunities like projects such as KLOXXADO, like now we just announced the Japanese encephalitis vaccine and more for the future. Moving to our pipeline assets on Slide 22. TEMBEXA, Ebanga, and Raxibacumab are all approved with incremental development programs underway. As I previously mentioned, we look forward to serving as the distributor of the Substipharm Biologics Japanese encephalitis vaccine for the U.S. government opportunity following FDA regulatory approval. Finally, we're pleased to share that just this week, ACAM2000 received Singapore Health Sciences Authority expanded approval to include PO. On Slide 23, to close, Q1 2026 has been a steady and successful continuation of the turnaround efforts in these past two years. We believe we have made significant headway and now have the opportunity to pursue growth both organically and inorganically. We have successfully stabilized the business. We have divested non-core assets. We have dramatically reduced our debt while returning capital to shareholders. Today, we are investing for segment revenue growth, investing in promising internal R&D pipeline, expanding our international MCM footprint and pursuing accretive external opportunities all through a position of improved financial strength. All the while, we are committed to patient safety, quality and compliance across the operations. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Jessica Fye with JPMorgan. Jessica Fye: I had a question on your longer-term perspective on the naloxone franchise. I know you talked about that business being like flat to slightly up for 2026. How should we think about it taking like a -- maybe like a several year time horizon? Joseph Papa: Sure. Thanks for the question. The way we're looking at NARCAN is a couple of things that are happening. Number one, we're excited about our ability to launch new innovations with NARCAN. We do have just the launch opportunity that we have with the carrying case. We think that's perfect for college campuses. We also looked at the multipack. We think the multipack will be a more efficient way to deliver the naloxone NARCAN for especially high-volume users. We do think there's still some significant upside internationally, especially in Canada. And we're also looking at the Q2, Q3 as being an upside from where we are in Q1 simply because of the seasonality of our business. We know that like, for example, Q2 is the fiscal year-end for about 70% of the states. So, we think there is some upside there in the near term. And so, there's always going to be a little bit of seasonality. Beyond that, though, clearly, getting to the longer-term part of your question, we do think the market is going to continue to grow because unfortunately, there's still so many deaths that are occurring because of opioid overdoses. So, we do expect to see continued dollar spent there by the federal government. We saw that in 2026 budget for the U.S. government, the SOR grants and the other grants that are coming from the federal government has either increased or at least stayed stable. So, there's continued bipartisan support for this area of overcoming opioid overdoses. So we do expect that. And then on top of that, the other reason we expect the volume to go up is just simply the class action settlements by large pharma companies are about $50 billion all that, we think, especially now that Purdue just settled this week, I guess it was, with about $5 billion of their settlement funds coming in. Those funds are to be directed towards things like educational programs of states and local municipalities and/or the use or purchase of procurement of naloxone. So, we think for those reasons, the market will grow. We expect to hold on to the leading market position. We're going to stay competitive on pricing. So, we can't exactly say where pricing is going to go. But that's the reason why we said for the full year, flat to up slightly, and that's how we're looking at the future. Volume growth, we'll continue to be market leader. And then obviously, we'll have to be competitive on price. And that's really how we've talked about the future. Volume growth, hold market share and expect to be competitively priced, and that's how we're thinking. So thanks for the question. Jessica Fye: Yes. And then maybe switching to the MCM business as you kind of drive the international side there. Can you just remind us how to think about the margin you keep on international MCM sales and kind of how that compares to the U.S. legacy MCM business? Joseph Papa: Sure. Well, I'll start, Rich, you may want to add to it. I guess the first and foremost thing is that one of the things that we've agreed to, especially with the current administration is that we offer a most favored nation pricing type of arrangement to the U.S. government. So, our price has to be by agreement with the U.S. government. We have to give them the lowest price which means by definition, our prices for other countries around the world will be slightly higher, depending on the product, of course. So, we think that, obviously, as we develop more international business will help us as well on the gross margin. As I said, this year, for the first quarter, about 37% of our MCM revenue came from international. So, we think that's a big powerful part of how we're thinking about what's happening on the margin side. But Rich, anything you want to add? Richard Lindahl: Yes. I think logically, Jess, the fact that we're offering the U.S. most favored nation pricing, and therefore, we have higher prices on the international MCM business, that drives higher margins. And so, you should assume that the international sales are above the average for the MCM segment in total. Joseph Papa: Operator, next question. Operator, are there any more questions? Operator: Your next question comes from Raghuram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Firstly, I wanted to ask about the tie-up with SAB and if we should be thinking about this as an indication of interest in the type 1 diabetes space strategically or if this is really more of a contractual business arrangement and not indicative of a broader strategic shift? Secondly, I was wondering if you could comment on the evolving geopolitical situation generally and how you see that potentially driving international demand for MCM products under the Emergent banner? And lastly, I was wondering if at this juncture, you could comment on the scope and footprint of the manufacturing operations at Emergent and if you feel that those are optimally rightsized for the company going forward? Joseph Papa: Okay. I'm going to try to make sure I get all of them, but please remind me if I'm missing any, Ram. First, on SAB, we're delighted to partner. They're a great company. They have a specific area of focus on the diabetes side. What we're focused on really is our technology and the technology that we have in Winnipeg that is perfectly situated to help them to advance their product. So, we view it as very much an alignment of our capability and what we had in Winnipeg with what they're looking for. And it was really -- it wasn't as much disease category as it was an alignment around our technology, what they are looking for and how we can quickly expedite their operations and their products. So, it was really more of a technology than it was a therapeutic area approach. The second question, I think, is really about the international and what's happening out there and what we refer to as increasingly dangerous world. And you know, you've seen it in your reports. It is a more dangerous world that we live in. And I think the world has very appropriately worried about the risk of nuclear weapons, and we hear about every day in the news. But one of the things that we believe, and I think you might also believe is that while nuclear weapons are absolutely a terrible risk, the risk of bioterror is maybe as risky, if not worse, in the sense that nuclear weapons will be terrible, devastating to a location or whatever could happen. However, bioterrorism once it get started, it's very difficult to stop. So -- and it's perhaps even easier to do a bioterrorist activity in terms of the speed at which you can do it and the cost at which you can do it than it is nuclear weapons. So we believe it's a dangerous world. We believe bioterrorism could -- once it gets started, it can be devastating to society. And that's why we think it's really important to continue to work with the U.S. government and other governments around the world to make sure that everyone is prepared for these types of risks as we think about the future because one bad actor gets their hands on anthrax spores or smallpox and the results can be devastating. So that's really -- we certainly think the world is more dangerous and what we have to be prepared for it. The last question on the manufacturing footprint. We've streamlined our footprint to be clear. However, we still have the ability to source all of our products, our existing products and our ability to ramp up our Canton facility, we think is a great opportunity to bring some additional drug substance capabilities for very difficult products. We have the ability there to work with live virus and Category B live viruses there. So, bring drug substance capability and bring that capability into the U.S. And we look around the country to see who else has that kind of capabilities, not a lot of it. So, we think having some additional capabilities for the U.S. is important. It's important for this particular product, but it's also going to be important for other development candidates and/or products that the U.S. government, BARDA, Strategic National Stockpile are looking for. So we do think expanding the footprint and bringing Canton back online with additional capacity and expansion is an absolutely worthwhile endeavor, and we're delighted to get started with that as we speak. I think I got three -- all three of them, but did I leave anything out, Frank? Okay, I'll take that as we got all of it. Operator, do we have any other questions? Operator: Yes, we do. Your next question comes from the line of Rishi Parekh with JPMorgan. Unknown Analyst: Most of my questions have been asked, but just out of curiosity, as you think about all the international opportunities that you're working on, is there any way to quantify what the backlog of those opportunities look like as they try to or attempt to leverage your technology? And how should we just think about that margin potential as you continue to ramp on that backlog? Joseph Papa: Sure. So do we have ongoing discussions on international opportunities to bring additional products to the market on the MCM product? The answer is absolutely yes. Those are ongoing discussions. It's a little bit harder to answer the backlog question because some of those projects take six months, some two years. I mean there's a process that we get involved with. But there's no doubt there's incremental interest for some of our products. So for example, in Europe, there used to be another manufacturer of an anthrax vaccine. Our knowledge is that, that manufacturer is no longer operating. So anybody who is looking for an anthrax vaccine, in many ways, Emergent is a place to go for it. So we do think there are some developing opportunities. We're working on continuing to reinforce those. And we're doing it not just in Europe, we're doing in the Middle East, we're doing in Asia. We're really trying to make sure that wherever the demand is, wherever countries look at this risk of bioterrorism, biodefense, we're going to be there with our products. And as I said earlier in the presentation, we have the leading portfolio of products, whether it's in smallpox, whether it be a vaccine for smallpox, therapeutic for smallpox, whether you need vaccine for anthrax or a therapeutic for anthrax, whether you need something for botulism, something for Ebola, we've got it. So we're looking to continue to work with all those governments around the world in terms of making sure we have products that we're working through our backlog as we've answered before, anything that we sell outside the U.S., by definition, is going to have a higher price and therefore, a higher margin since the relative cost will be the same. So, we're excited what that means. And the fact that normally, our business on international for MCM historically has been in the mid-teens as a percentage of business. The fact now that we're operating in the first quarter at about 37%. I think last year was about 34% by recollection. You can see that we're making good progress with this international expansion footprint that we put in place in 2024 and 2025. Operator: Your next question comes from the line of Alex Kelsey with Wells Fargo. Alex Kelsey: Rich, I think I missed it when you were talking about the accrued acquisition obligation. Can you just mention again what exactly that's related to? And then maybe more importantly, is that a cash outflow that we should expect in 2026? Richard Lindahl: Yes. Thanks for the question, Alex. That relates to the Ebanga program. And so this is under our acquisition of the rights to Ebanga from Ridgeback Bio. Once we were awarded the BARDA contract back in 2023, we disclosed that part of that arrangement was ultimately a payment to Ridgeback Bio, assuming that we continue to make progress under the contract, and that's going to be a cash outflow in the second quarter. Joseph Papa: Alex, thank you for the question. Operator, any additional questions? Operator: And at this time, I'm showing no further questions. I would now like to turn it back to Joe Papa for closing remarks. Joseph Papa: Thank you, operator. Thank you, everyone, for joining us on the call today. I'd like to thank all of our investors, customers and employees for your strong and continued support of our company, and we look forward to providing further updates throughout the year. Thank you, and have a great day, everyone. Thanks for joining us. Have a great day, everyone. Operator: Yes. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Greetings. Welcome to the Federated Hermes Q1 Analyst Call and Webcast. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company. You may begin. Raymond Hanley: Thank you, and welcome to all. Thank you for joining us. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes; and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Saker Nusseibeh, CEO of Federated Hermes Limited; and Debbie Cunningham, our Chief Investment Officer for Money Markets. During today's call, we may make forward-looking statements, and we want to note that Federated Hermes' actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris? John Donahue: Thank you, and good morning. I will review Federated Hermes business performance, Tom will comment on the financial results. We ended Q1 with record assets under management of $907 billion led by gains in equity and money market strategies. Equity assets closed Q1 at a record high of $101 billion. During Q1, equity assets increased by $2.9 billion or 3% from year-end driven by $2.2 billion in net sales. Gross equity sales reached a record high of $9.1 billion in Q1. Equity sales results continue to be led by our MDT fundamental quant strategies, MDT equity and market-neutral strategies together had a record $5.8 billion of gross sales and over $3.5 billion in net sales in Q1. For the second quarter through April 24, these MDT strategies had net sales in combined funds and SMAs of $687 million. Now looking at Fund performance rankings as of March 31, 7 of 9 MDT fund strategies are in the performance quartile of their Morningstar categories for trailing 3 years. We also had net sales in 32 equity fund and SMA strategies during first quarter, including, of course, a variety of MDT offerings and the ASX Japan Fund and the strategic value SMA. MDT's offerings were mid-cap growth and large cap growth plus 5 others. Importantly, for our global efforts, the MDT U.S. Equity UCITS fund launched in June of '25 has seen strong demand from clients outside of the U.S. Net sales in this strategy were $177 million in the first quarter, and the fund has grown to about $800 million in assets. Looking at overall equity fund performance at the end of the first quarter and again using Morningstar data for trailing 3 years, 51% of our equity funds were beating peers and 30% we're in the top quartile of their category. For Q2 through April 24, combined equity funds and SMAs had net sales of $606 million. Now turning to fixed income. Assets ended Q1 at just under $100 billion, down $329 million from year-end. Fixed income had Q1 net redemptions of $422 million. However, we had $25 million fixed income funds and SMAs with net sales in the first quarter, led by 3 Ultrashort Funds, Total Return Bond Fund, the collective and the fund combined short-term income and our core ag and core+ SMAs. Regarding performance at the end of the first quarter and using Morningstar data for trailing 3 years, 41% of our fixed income funds were beating peers, 21% were in the top quartile of their category for Q2 through April 24, combined fixed income funds and SMAs had net redemptions of $214 million. In the alternative private markets category, assets decreased slightly in Q1 compared to year-end as the impact of FX rates offset net sales of $82 million. The M2 MDT Market Neutral Fund and recently launched ETF combined for $341 million in net sales. Positive net sales were also achieved in trade finance strategies. We held the final close of our European Direct Lending 3, the third vintage of our European direct lending fund in the first quarter. The fund raised $780 million. For reference, EDL 1 raised $330 million, EDL 2 raised $700 million. We are now in the market with global private equity co-invest fund, the sixth vintage of the PEC series. To date, we've closed on about $300 million. PC 1 to 5 raised approximately 400 to 600 each and PCV raised about $500 million. We are also in the market with the European real estate debt fund a new pooled European debt fund. As previously announced, on April 9, we completed our acquisition of an 80% interest in FCP Fund Manager LP, a privately held U.S. real estate manager. The acquisition added $3.2 billion of managed assets at closing in April. SCP brings U.S. multifamily housing expertise complementing our long-standing U.K.-based real estate capabilities. Across our long-term platform, we began the second quarter with about $1.1 billion in net institutional mandates yet to fund into both funds and separate occurrence. Approximately $1.4 billion on a net basis is expected to come into private market strategies, including direct lending, private equity and trade finance. Fixed income is expected to have net sales of about $1.1 billion with a core plus win of about $1.8 billion partially offset by about $800 million redeeming from a government bond strategy. Equity strategies are expected to have net redemptions of about $1.4 billion with net global equity expected redemptions of $3 billion, which offsets MDT's additions of $1.7 billion. The global equity redemptions are mainly sub-advised assets from an institutional client who notified us of their intention to internalize the management of these assets. We continue to have a strong relationship with this client in the EOS part of our business. The client has made a strategic decision to internalize, not driven by performance, which has generally been ahead of benchmark. Moving on to money markets. We reached another record high at the end of Q1 for total money market assets, which increased by $2 billion to reach $685 billion, reflecting seasonal patterns, money market separate accounts increased by $8 billion. Money market fund assets decreased by $6 billion in Q1 compared to the year-end total. Market conditions remain favorable for cash as an asset class. In addition to the appeal of relative safety and periods of volatility, money market strategies present opportunities to earn attractive yields compared to alternatives like bank deposits and direct investments in T-bills and commercial paper. Our estimate of money market mutual fund market share, including sub-advised funds was about 6.9% at the end of Q1, down from 7.0% at the end of 2025. Now let's have a little discussion on digital assets and what we're doing there. We are focused on this area as an infrastructure evolution, not a speculative asset class. We are working on digital initiatives designed to enhance distribution efficiency settlement speed, transparency, operational automation and global reach while maintaining regulatory fiduciary and governance standards. Importantly, digital structures must enhance access, efficiency and integration into modern treasury portfolio and collateral workflows. They must operate within regulatory frameworks preserve investor protections and provide valuation integrity. Through deep engagement with our operational partners, we are well positioned to properly evaluate governance, ownership representation transfer restrictions and risk management implications of tokenized funds as we build out our digital capabilities. While we are initially prioritizing products aligned with our core strength in liquidity management, we, of course, expect over time to see digital products develop for ETFs or other mutual funds, private market vehicles across many or all market classes. The firm's digital initiatives include the upcoming launch of our money market management digital treasury fund which is expected to support both traditional and on chain distribution. The initial reserve shares class will provide a nontokenized genius compliant structure geared to institutional investors and stablecoin issuers seeking high-quality reserve assets. We are also developing an on chain share class intended to place official books and records on the blockchain infrastructure once a fully digital transfer agency model is available. This dual-track approach offers flexibility between traditional custody and fully on chain models. So we have selectively engaged with regulated digital asset intermediaries focusing on tokenized funds as regulated financial instruments. Initial use cases emphasize cash on chain liquidity solutions with a longer-term view towards supporting additional asset classes as market structures evolve. As we have previously mentioned, we are participating in the launch of a collaborative initiative between BNY and Goldman Sachs that will involve mirror tokenization of money market fund shares to improve transferability collateral utility and real-time ownership tracking of money market fund shares. We are also expanding digital engagement beyond U.S. money markets towards a global strategy. In the U.K. and Europe, we are exploring digital sterling liquidity products and assessing tokenization for broader regulated fund distribution. We are participating in tokenized offerings where Federated Hermes funds are used as the underlying assets rather than being directly tokenized. This includes our alliance with racks, the first FCA-regulated digital Securities Exchange to offer tokenized access to a UCITS money market fund. The platform enables professional investors to hold beneficial ownership tokens across multiple blockchains and excess money market liquidity directly on chain. We are exploring similar partnership opportunities. Finally, looking at recent asset totals as of a few days ago, managed assets were approximately $902 billion including $668 billion in money markets, $107 billion in equities, $101 billion in fixed income, $22 billion in alternatives, private markets and $3 billion in multi-asset. Money market mutual fund assets were $487 million. Tom? Thomas Donahue: Thanks, Chris. For Q1 compared to the prior quarter, total revenue decreased $3.9 million or 1%. Fewer days resulted in $10.5 million of lower revenue. Q4 revenue included $8.2 million of real estate development fees. Higher Q1 money market average assets provided $8.3 million of higher revenue, while higher equity average assets added $5.6 million. Total Q1 carried interest and performance fees were $388,000 compared to $1.6 million in the prior quarter, approximately $283,000 of the Q1 fees were offset by compensation expense. Q1 operating expenses increased by $5.4 million or 2% from the prior quarter, due mainly to seasonally higher compensation and related expenses of $8.5 million higher incentive comp expense of $3.5 million and higher distribution expense of $3.4 million from higher average fund assets. Transaction costs from the FCP acquisition were about $1.5 million in Q1 compared to $1.3 million in Q4, nearly all in the professional service fees category. Now looking ahead to Q2. Additional FCP transaction and related costs incurred in Q2 already include $4.2 million in purchase price treated as compensation and related expense and $4.6 million of primarily FCP lender consent fees recorded in professional service fees. For a total estimated transaction-related EPS impact of $0.11 for Q2. Also for Q2, we expect that FCP will add approximately $12 million in revenue and $11 million in operating expenses including a preliminary estimate of $3.8 million of intangible asset related expense for Q2. Now back to Q1. In the other expense line item, the Q1 decrease was mainly due to [indiscernible] in Q1 compared to Q4. The effective tax rate was 26.1%. We estimate the tax rate to be in the 25% to 28% range for 2026. At the end of Q1, cash and investments were $645 million. Cash and investments, excluding the portion attributable to noncontrolling interest were $607 million. We often talk about our desire to use free cash flow of the business to drive value over time for our shareholders in 3 primary ways: acquisitions, share repurchases and dividends. All 3 of these methods have been utilized in a meaningful way so far in 2026. During Q1, we purchased 1.2 million shares of FHI stock for $66 million. In April, we used $216 million in cash and $23.1 million in FHI Class B stock for the initial purchase price of the SCP controlling interest acquisition. For payment in May, the FDI Board of Directors declared a dividend of $0.38. The quarterly dividend increased $0.04 up nearly 12% from the previous call [indiscernible] our 113th consecutive quarterly dividend. [indiscernible], we would now like to open the call up for questions. Operator: [Operator Instructions] Your first question for today is from Ken Worthington with JPMorgan. Kenneth Worthington: Chris, you spent a lot of time thinking about digital cash. A couple of questions on this. What portion of your existing clients today do you think care about and will utilize digital money market funds versus traditional cash product structures over time. And if you think out about -- think out about a decade what portion of the entire cash market do you think cares about tokenized money market funds versus other forms of tokenized cash? John Donahue: Out 10 years is pretty tough to see. Right now, it's a very low percentage of the clients that are asking for demanding or wanting these tokenized products. And so what you see with us and with others is a grand effort to get ready for tomorrow. If you want to say you're feeling us protecting our franchise, you're right. If you want to say you're feeling us with a little fomo in it, you're right. This is not the usual customer demand. We got to have a type deal. But over time, as you see the digitization of things catching on, we are going to be there. So over 10 years, I think it would be a routine deal but it's really hard for me to say how much it would be. And I would let Debbie offer her get as to 10 years. Deborah Cunningham: Wow, for 10 years, that's a long time. That's visionary, which I'm generally not. And to add to what Chris was saying, I mean, if you build it, they will come, that's sort of the attitude now with that historically as sort of a premise success has followed. So I don't know, maybe probably less than 25% of retail customers. But I think from an institutional customer standpoint, you're looking at something that maybe is in the 25% to 50% utilization. Once all the comfortability is there with the fiduciary aspects of it that Chris was mentioning at the beginning. John Donahue: And I suppose this one more, Ken. And that is that, remember, the basic product is nearly liquidity of [indiscernible] However, all the fancy stuff works. That's [indiscernible]. And the next thing is if they don't have fundamental trust in the whole thing, then it doesn't work. So you got to work on those 2 things. in addition to all of the toys that are being created. Kenneth Worthington: Great. I think what you're doing is great, just whatever my 2 cents. On the $3 billion, Chris, you mentioned on the global equity withdrawal, I don't think you mentioned timing. This is the timing of that? And how do the fees on that mandate compared to, say, like the new MDT audit wins? John Donahue: Okay. That's probably a Q2 departure and the fees on that were lower than the average bear. Is that what you're asking? Kenneth Worthington: Yes. Perfect. Operator: Your next question is from Bill Katz with TD Cowen. Robin Holby: This is Robin Holby on for Bill Katz. Could you remind us of the time line on SCP's next fund launch and the demand for real assets that you're currently seeing from LPs? Thomas Donahue: Yes. Robin, this is Tom. The fund launch, so they're investing in Fund V right now, and I think they're at about 30% invested. So they've got a figure out what's the right timing, what's the best timing in order to continue to invest that and they won't start Fund VII until they're well down the path to finishing Fund VI. So that will be maybe midyear in 2027. And on the STP transaction, I just wanted to correct the number. I said on the purchase price that was treated as compensation, I think I said $4.2 million, it's $6.2 million. That will come in the second quarter. So also on since we closed, we had [indiscernible] here and our team of product marketing and a bunch of other people getting geared up and studying and preparing for the launch of Fund VI and we're pretty excited about it, even though it's some time down in the future. Robin Holby: Great. And then as a follow-up, could you speak to the demand for MT's ETF suite? Are the ETFs attracting a new customer? Or is it much of -- or is month of the demand coming from existing customers that like the ETF wrapper? John Donahue: Well, since we go through intermediaries, we're using a lot of the same intermediaries, but we're expanding that footprint through more RIAs, which are very attentive to the ETF. So it is a combination of old intermediaries, new intermediaries, the underlying clients who are actually the owners, we don't see that much. But what we are seeing is a bigger push for what we call portfolio construction or PCS, where you're seeing our intermediary clients wanting to see how these things fit, how they work and how they make solutions. And so that's another overlay in a more general answer to your question. Operator: Your next question for today is from Patrick Davitt with Autonomous Research. Unknown Analyst: Debbie, last quarter, you suggested that money fund organic growth could be a bit lower this year. It's tough to tell what's going on in money funds the last couple of months, obviously, given the tax loss. So with more signs the Fed could be unfold all year, I'd be curious to get your updated thoughts on the potential more rotation into the asset class from either retail or institutional or both, given that change in outlook? Deborah Cunningham: Sure. Thank you. It hasn't changed much. I mean we've seen double-digit growth in the high teens and then in the lower teens in both 2024 and '25, '26 I, in my opinion, is going to be more in the single-digit growth area. But I do think it's something that a safe haven standpoint and from just a general utilization with yields in the 3 government yields, $3.72 to $3.75-ish area, prime yields, $3.86 to $3.90. With tax-free, taxable equivalent, you're still looking depending upon what -- whether it's state tax free or just federally tax-free, yields in the 4%, 5% and 6% from a taxable equivalent standpoint. So those are real long-term returns in a very, very large product. So I think the growth will continue. I think it probably -- we find new use cases as some of these digital product innovations are rolled out for the funds. And I think that the traditional as well as new clients into the asset class will grow just not as quick as it has in the '24 and '25 time frame. I mean at assets reaching -- it depends on who you're looking at, whether it's Crane, iMoney [indiscernible], but somewhere in the $7.5 to $8.2 trillion range as a peak. I think that continues to grow steadily over the $8 trillion range. But the larger it gets the more -- obviously, the percentage growth, even if it's the same dollar amount, starts to go down. Unknown Analyst: Okay. That's helpful. And then it looks like the money funds had a really strong day yesterday, the last day of the month. So curious if the AUM number you gave would include that or not? Unknown Executive: No. The AUM number we gave would have been as of Wednesday, actually. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Ray Hanley for closing remarks. Raymond Hanley: That concludes our call, and we thank you for joining us today. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the Invesco Mortgage Capital Inc. First Quarter 2026 Earnings Call. Participants will be in listen-only mode until the question and answer session. At that time, to ask a question, press the star followed by the one on your telephone keypad. As a reminder, this call is being recorded. Now I would like to turn the call over to Greg Seals in Investor Relations. Mr. Seals, you may begin the call. Greg Seals: Thanks, operator. To all of you joining us on Invesco Mortgage Capital Inc.’s first quarter 2026 earnings call, in addition to today’s press release, we have provided a presentation that covers the topics we plan to address today. The press release and the presentation are available on our website, invescomortgagecapital.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital Inc. is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Again, welcome, and thank you for joining us today. I will now turn the call over to Kevin Collins for his comments. Kevin Collins: Good morning, and welcome to Invesco Mortgage Capital Inc.’s first quarter 2026 earnings call. I will provide a few comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q&A are our President, David Lyle, and our CFO, Mark Grexson. I am very excited to assume the role of Chief Executive Officer of Invesco Mortgage Capital Inc., and I would like to thank and congratulate our retiring CEO, John Anzalone, for his 17-year tenure with the company. John began his service as our CIO at the time of our IPO back in 2009, and he spent the past nine years as CEO, leading the company through a range of market environments and its transition more recently to an agency-focused strategy. John, please know our entire team is grateful for your leadership. I would also like to congratulate Dave on his recent appointment as President. Dave, Brian, and I have all worked very closely with John since IVR’s inception, and we are looking forward to building on our positive momentum alongside Mark, our CFO. Importantly, we share a commitment to disciplined investment management, consistent performance, strong governance, and expanded investor engagement. We believe our current team, capital structure, and investment portfolio are well positioned for the future. Looking ahead, we are excited to leverage our core competencies in Agency RMBS and Agency CMBS to continue delivering attractive outcomes for our investors. In addition to our team’s long track record and experience managing residential and commercial agency mortgages, we benefit from the insights of the global investment manager, which inform our views on macroeconomic conditions, interest rate dynamics, policy developments, and broader market risks. Our deep counterparty relationships enhance our ability to source, finance, and hedge attractive investment opportunities, and we believe these advantages differentiate us from our peers. Our entire management team remains committed to fully leveraging the resources and capabilities of Invesco. During the first quarter, we operated in a more volatile market environment, following the strong recovery in agency MBS valuations experienced in 2025. Financial conditions tightened as rising geopolitical tensions, higher energy prices, and renewed inflation concerns drove increased interest rate volatility and pushed U.S. Treasury yields higher across the curve. Short-term yields rose more sharply than longer-dated yields, largely reflecting a pullback in expectations for near-term monetary policy easing. At the same time, inflation expectations moved higher, with 2-year TIPS breakevens rising to approximately 3.25% by quarter end, up from about 2.3% at the beginning of the year. These dynamics weighed on risk assets broadly and resulted in higher-coupon RMBS underperformance relative to Treasuries, although our Agency CMBS investments performed well during the quarter. The benefit was outweighed by increased Agency RMBS risk premiums and notable swap spread tightening. Against this backdrop, book value declined by 7.9% to $8.08 at quarter end, which, when combined with our dividends of $0.12 per month, resulted in an economic return of negative 3.2% for the quarter. In the context of evolving market conditions, our economic debt-to-equity ratio increased to 7.5 turns as of quarter end from 7 turns at the beginning of the year, largely reflecting the decline in book value per share and our more constructive outlook on Agency RMBS as we entered the second quarter. At quarter end, our 7.3 billion investment portfolio consisted of 5.2 billion Agency RMBS, 1.2 billion Agency TBA, and 900 million Agency CMBS, and we maintained a sizable balance of unrestricted cash and unencumbered investments totaling 493.1 million. Earnings available for distribution declined modestly from $0.56 in the fourth quarter of last year to $0.55 in the first quarter. As of quarter end, we hedged 96% of our borrowing costs with interest rate swaps and U.S. Treasury futures. Entering the second quarter, agency mortgages have performed well as risk sentiment improved and interest rate volatility moderated. While near-term inflation concerns remain elevated, they have eased somewhat, with 2-year TIPS breakevens now below 3%, suggesting a modest stabilization in inflation expectations. As a result, our book value has improved by approximately 2% since the end of the first quarter. Looking ahead, we believe a further reduction in geopolitical tensions would likely provide additional support for risk assets. From a supply and demand perspective, Agency RMBS net issuance should remain manageable. The GSEs continue to provide steady demand, and bank participation is likely to increase. We have also taken steps to strengthen our capital structure, including actions that reduced our preferreds to approximately 20% of our total equity, which has reduced costs and benefited returns for common stockholders. We have taken steps to deepen alignment with investors, including transitioning this year from quarterly to monthly dividend distribution. We have received positive feedback that our capital structure positions us competitively within the sector and that our monthly dividend approach better aligns the cash flow needs of income investors while providing important monthly touch points regarding our key financial metrics. With that, I will now turn the call over to Brian Norris to discuss the portfolio in more detail. Brian Norris: Thanks, Kevin, and good morning to everyone listening to the call. I would like to begin by congratulating John on his well-deserved retirement, and Kevin and Dave on their newly appointed roles. The four of us have worked closely together for nearly 20 years, including the almost 17 years since IVR’s IPO in June 2009. I am very excited for John as he enters the next phase of his life, and I would like to express my sincere gratitude for his immeasurable contributions to IVR over the past 17 years. These transitions illustrate the advantages of our relationship with Invesco, our external manager, given the vast resources and deep bench from which our team benefits. Kevin and Dave bring a wealth of experience, consistency, and familiarity to their new roles, and I have no doubt that they, along with Mark and I, have all the resources necessary to continue the strong momentum that IVR has enjoyed in recent years. I am extremely excited for the future of IVR as we embark on the next chapter in our company’s leadership. Turning to financial markets on Slide 4, interest rate volatility moved notably higher during the first quarter as expectations for near-term monetary policy shifted amid concerns regarding AI’s impact on employment in February to the inflationary impact of the conflict in the Middle East in March. The 10-year Treasury yield traded in a 50 basis point range, closing at a low of 3.94% on February 27 before closing sharply higher at 4.43% on March 27 and finishing the quarter at 4.32%. As depicted in the chart on the lower left, two cuts to Fed funds were anticipated for 2026 at the beginning of the year. Those expectations were largely priced out in March amid escalating oil prices and a robust economy that showed little sign of impact from the conflict. This led to a flattening of the yield curve as 2-year yields ended the quarter 32 basis points higher while 30-year yields increased just 7 basis points. Positively, as shown in the upper right chart, repo markets for our assets have been remarkably stable despite broader market volatility, with financing readily available and spreads over 1-month SOFR remaining within a tight range. Slide 5 provides more detail on the agency mortgage market. The sector enjoyed a strong start to the quarter as the positive momentum from 2025 carried over into the new year, aided by low interest rate volatility, a steeper yield curve, and supportive supply and demand technicals. Although the GSEs had been adding to their retained portfolios throughout the second half of 2025, the announcement of a 200 billion mortgage purchase program on January 8 ignited a sharp response as investors rushed to get ahead of the program, leading to significantly higher valuations and lower mortgage rates in a matter of days. However, the move tighter in spreads faded the rest of January and into February as further details on the program were scarce, yet the prescribed presence of the GSEs as a buyer in the market was a clear indication that the supportive supply and demand technicals are on even stronger footing in the coming months and quarters. As interest rate volatility increased in February and March, agency mortgage performance continued to wane, but the resulting underperformance was much more orderly than in previous episodes of market stress in recent years. Lower coupons fared best in this environment, outperforming Treasury hedges for the quarter despite the volatility. Meanwhile, higher coupons lagged throughout the period, initially due to investor concerns on prepayment risk given the administration’s focus on mortgage rates, and subsequently because of their elevated sensitivity to interest rate volatility as compared to lower coupons. Positively, pay-ups improved during the quarter, offsetting some of the underperformance of higher coupons relative to lower coupons, given increased investor demand for additional prepayment protection and premium dollar-price bonds. We continue to believe that owning prepayment protection via carefully selected specified pools, particularly in premium-priced holdings, remains an attractive opportunity for mortgage investors and helps mitigate convexity risks inherent in agency mortgage portfolios. In addition to the GSEs, bank and overseas demand also improved in the quarter, providing additional support for the sector, while money managers and mortgage REITs were also steady contributors. The supply and demand technicals improved the economics for the dollar roll market, with most coupons enjoying attractive implied financing rates. Although this dynamic faded for conventional coupons in the latter half of the quarter, dollar rolls on production coupon Ginnie Mae TBA remained quite attractive, with implied financing rates well below 1-month SOFR. Slide 6 details our Agency RMBS investments as of March 31. Our portfolio increased 19% quarter-over-quarter as we invested proceeds from common stock ATM issuances. We sold our modest allocation to 6.5% coupons early in the quarter as efforts to reduce mortgage rates increased prepayment risk in our holdings, while purchases were primarily focused in 4.5% through 5.5% coupons. The decline in our 6% allocation was a result of paydowns and the overall growth in the portfolio, as we had limited trading activity in that coupon during the quarter. Agency TBA securities represented the majority of our purchases in the quarter as we sought to benefit from the attractive environment in the dollar roll market, ultimately increasing our allocation to approximately 17% of the total portfolio. Despite the increase in our TBA allocation, our total portfolio continues to benefit from significant prepayment protection, with over 80% of the portfolio allocated to securities with some form of prepayment protection via over 5 billion of specified pool Agency RMBS and nearly 900 million of Agency CMBS. We continue to favor specified pools with lower loan balances given their superior predictability of future cash flows, while we remain well diversified across collateral stories, with limited changes during the quarter. Leveraged returns on Agency RMBS hedged with swaps remain attractive, with the current coupon spread to a 5- and 10-year SOFR blend ending the quarter near 165 basis points, 25 basis points wider than year end and equating to levered gross returns in the high teens. April’s outperformance has since narrowed the spread by 10 basis points, with levered returns remaining attractive in the mid to upper teens. Slide 7 provides detail on our Agency CMBS portfolio. Risk premiums tightened meaningfully in January, consistent with Agency RMBS spreads, and also proved resilient amid the sharp increase in interest rate volatility in the latter half of the quarter, only modestly widening in February and March. Our Agency CMBS position performed in line with expectations, providing stability in times of stress and outperforming Agency RMBS across the coupon stack for the quarter. Despite the lack of new purchases, we continue to believe Agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Leveraged gross returns are in the low double digits and remain consistent with lower-coupon Agency RMBS, while financing capacity has been robust as we continue to fund our positions with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation to the extent the relative value between Agency CMBS and Agency RMBS is attractive, in order to provide additional stability to the portfolio, recognizing the overall benefits as the sector diversifies risks associated with Agency RMBS. Slide 8 details our funding and hedge book at quarter end. Repurchase agreements collateralized by our Agency RMBS and Agency CMBS investments decreased from 5.6 billion to 5.3 billion, as most of our purchases during the quarter were in Agency TBA, while the total notional of our hedges increased from 4.9 billion to 5.1 billion. Our hedge ratio increased from 87% to 96%, primarily due to the increased allocation to Agency TBA. The composition of our hedges remained weighted toward interest rate swaps, with 81% of our hedges consisting of interest rate swaps on a notional basis and 65% on a dollar-duration basis. Swap spreads tightened during the quarter, creating a modest headwind in performance. Despite the recent tightening, we remain comfortable maintaining the majority of our hedges in interest rate swaps, as we believe swap spreads are relatively tight and offer an attractive hedge profile relative to Treasury futures. To conclude our prepared remarks, the sector experienced a more challenging environment in the first quarter as a supportive trend of moderating financial market volatility reversed amid escalating geopolitical tensions. While higher-coupon agency mortgage valuations recovered a portion of their first-quarter underperformance in April, developments in the Middle East conflict will continue to drive interest rate markets in the near term, leaving the sector somewhat vulnerable to headlines and further bouts of increased volatility. Positively, the supply and demand environment for the sector is at its most supportive in a number of years, with money managers, mortgage REITs, banks, overseas investors, and the GSEs providing more than enough demand to absorb net supply, both organic and runoff from the Fed balance sheet. This supportive environment has resulted in, and should continue to result in, reduced spread volatility from the levels experienced in recent years, reducing the risk of a more significant or more protracted dislocation. Lastly, our liquidity position remains ample, providing substantial cushion to withstand additional market stress while also allowing sufficient capital to deploy into our target assets as the investment environment improves. While we view near-term risks as balanced, we believe agency mortgages are poised to perform well as geopolitical tensions moderate and their impact on the U.S. economy becomes more clear. Thank you for your continued support of Invesco Mortgage Capital Inc. We will now open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1. You will be prompted to record your name. To withdraw your question, you may press 2. Again, press 1 to ask a question. One moment, please, for our first question. Our first question comes from Marissa Lobo with UBS. Your line is open. You may ask your question. Analyst: Thank you, and good morning. On the equity issuance this quarter, can you speak to the timing of those raises and how you are thinking about future ATM activity? Kevin Collins: Yes, sure. We raised nearly 134 million net of issuance costs in Q1 through our ATM. Those were timed pretty steadily throughout the quarter. Our capital structure is now well positioned to support IVR’s long-term success, but we do plan to selectively access the ATM to raise common stock when it provides a clear benefit to our shareholders. We continue to think that the ATM is the most efficient mechanism for raising capital. Lastly, I would emphasize that responsible growth reduces our fixed cost per share and improves liquidity in our stock, all of which we think are beneficial for the company. Analyst: Got it. Thank you. And just on risk management, can you speak to some of the decisions that were made for the portfolio during the volatile period in March, and would you describe upcoming periods of volatility as a trading opportunity or a reduction in your risk-taking? Brian Norris: Good morning, Marissa. The improved environment for agency mortgages that we have seen over the past 10 to 11 months gave us more comfort that the volatility we saw in March would pass and that mortgage valuations or spreads would be much less volatile than, for example, what we saw last April and in previous episodes. We were able to raise ATM throughout the first quarter, which allowed us to absorb some of that volatility as well. We did not sell assets as a result of the increased volatility, and we were able to invest and put money to work at wider levels as that volatility occurred. Operator: Our next question comes from Jason Weaver with JonesTrading. Your line is open. You may ask your question. Jason Weaver: Good morning, and congrats to Kevin and David on the elevations, and thanks to John on his transition after a long tenure. First, I was curious about the plan for the TBA position. Is this a structural, hold part of the portfolio, or more of a placeholder for rolling into specified cash pools over time? Brian Norris: Hey, Jason. Good morning. TBAs certainly have a place in the portfolio structurally. Right now, because they are so attractive, our allocation is at the higher end of what we would be comfortable with. Naturally, our inclination is to own more specified pools, as that is a more durable return profile, but we are very comfortable with where TBA dollar roll markets are, and we think it is quite attractive. At least in the near term, our plan is to keep that allocation where it is. In addition, agency TBAs offer increased liquidity for the portfolio, allowing us to shift leverage as we see fit in a very efficient manner. So structurally, they do have a place in the portfolio as long as they are not punitive from a return perspective. Jason Weaver: Thanks. I see the swap book maturity termed out a bit, particularly in the five-year bucket. Was that largely a function of rolling down from the shorter duration 6.5% into the 5% to 5.5% coupons? Brian Norris: The swap maturities were rolling down the curve themselves. Moving from 6.5s into lower coupons would actually require us to extend hedges, and that was done through a mixture of both Treasury futures and swaps. We tend to own a bit more longer-duration Treasury hedges than we do in swaps, with a lot of our swaps at the front end of the curve. Jason Weaver: One more, if I may. Do you have an updated book value quarter-to-date? Brian Norris: We are up about 2% since the end of the quarter. Operator: Thank you. Our next question comes from Doug Harter with BTIG. Your line is open. You may ask your question. Doug Harter: Thanks. Following up on the risk-reward, how are you thinking about the range we are likely to be in for spreads, and how should we think about the risks that we either break out on the high end or the low end of that range? Brian Norris: Hey, Doug, and welcome back. Mortgage spreads, particularly relative to swaps, are quite attractive. They are not quite as attractive as they were in previous years when volatility was much higher, but in the current environment, they are attractive. We could see a little bit of further spread tightening. That could come from wider swap spreads as opposed to necessarily tighter mortgage spreads versus Treasuries, because from a mortgage-to-Treasury basis, valuations are fair to slightly tight. In the mortgage-to-swap basis, there is some room for compression. Operator: Thank you. Again, if you would like to ask a question, please press 1. Our next question comes from Trevor Cranston. Your line is open. You may ask your question. Trevor Cranston: Thanks. Can you talk about how the GSEs performing as a backstop buyer of MBS impacts your thinking on leverage, and if having a lower level of downside risk equates to being willing to run at a higher leverage level going forward? And then I have a follow-up on hedging. Brian Norris: Sure, Trevor. Good morning. In March, we did see Fannie Mae come in and act as that backstop; they added, I believe, 18 billion in March alone. The GSEs added about 35 billion to their retained portfolios in the first quarter, and they still have about 117 billion left under their current cap. While they are much more opportunistic than the Fed during times of QE, and more selective on coupons and collateral stories, they certainly helped absorb a lot of the volatility in March. That reduces spread volatility and gives us more comfort. We did let leverage drift higher in March without selling assets because we felt more comfortable in this environment, and we will continue to be that way. The outperformance in April has brought leverage back down closer to where we were at the beginning of the year, which is probably a more normal long-term run rate for us, and we feel very comfortable from a liquidity and risk perspective there. Trevor Cranston: On the hedge portfolio, you mentioned that a lot of the longer-tenor hedges are in the Treasury bucket currently. How do you think about the balance between swap spreads being more negative further up the curve and potentially using longer-dated swaps to capture some of the negative swap spreads versus the liquidity of using Treasury hedges on that part of the curve? Brian Norris: Definitely, swap spreads for us, particularly in the 30-year portion of the curve, are quite negative, near negative 80 basis points, whereas in the front end like 5s and 10s they are more like negative 30 to negative 45. Longer-dated swaps are more attractive from a negative spread perspective, but you also get a lot of spread duration out there, so modest changes will add more volatility to the portfolio. Given that mortgage spreads versus swaps across the curve are still very attractive, we are more comfortable reducing swap spread volatility by hedging with swaps at the front end of the curve, call it between zero and ten years, as opposed to going out as far as 30 years. We do own some 30-year swaps, but to the extent that we hedge out there, it is mostly in Treasury futures. Operator: Thank you. I will now turn the call back over to management for closing remarks. Kevin Collins: With no other questions, we appreciate everyone’s interest in Invesco Mortgage Capital Inc., and we look forward to future engagement. Operator: Thank you. That concludes today’s conference. We thank you for your participation. At this time, you may disconnect your line.
Operator: Good morning. My name is Didi, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners, Inc. Quarterly Conference Call. The slide presentation for this call is available in the Relations section of the Virtus website at investors.virtus.com. This call is being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period and instructions will follow at that time. I will now turn the conference to your host, Sean Rourke. Sean Rourke: Thanks, Didi, and good morning, everyone. Welcome to Virtus Investment Partners, Inc. discussion of our first quarter 2026 financial and operating results. Joining me today are George Robert Aylward, our President and CEO, and Michael Aaron Angerthal, our Chief Financial Officer. After their prepared remarks, we will open the call for questions. Before we begin, I will refer you to the disclosures on slide two. Today's comments may include forward-looking statements, which involve risks and uncertainties described in our news release and SEC filings. Actual results may differ materially. We will also reference certain non-GAAP financial measures. Reconciliations with the most directly comparable GAAP measures are available in today's news release and financial supplement on our website. Now I would like to turn the call over to George Robert Aylward. George? George Robert Aylward: Thank you, Sean, and good morning, everyone. I will start today with an overview of the results we reported this morning, then Michael Aaron Angerthal will provide more detail. Although the first quarter was challenging from a net flow perspective, reflecting our meaningful exposure to quality-oriented equity strategies, which have remained out of favor, we had several areas of strength during the quarter that were overshadowed, and we also advanced key growth initiatives. Key highlights of the quarter included an 8% increase in sales, with growth in U.S. retail funds, separate accounts, and global funds; positive net flows in several strategies, including high-conviction growth equity, multi-sector fixed income, listed real assets, and event-driven; positive net flows in ETFs and global funds; expansion into private markets with our investment in Keystone National Group; and continued return of capital, including $10 million of share repurchases. We remained active in broadening our product offerings to meet evolving client demand and expand our growth opportunities over time. The investment in Keystone on March 1 added a differentiated asset-centric private credit capability, and our sales teams are actively focused on expanding distribution of their compelling strategies to retail and institutional clients. Keystone focuses on senior secured amortizing fixed-rate financings backed by tangible assets. We believe their approach offers attractive stability and defensive characteristics to investors seeking a private credit allocation or a broader income-oriented solution with a different risk profile than many traditional direct lending vehicles. Keystone expands our private market capabilities, which also include those of Crescent Cove, as well as our overall alternatives offering, including managed futures and event-driven strategies. We continue to launch attractive actively managed ETFs, including an emerging markets dividend ETF from our systematic team, a real estate income ETF from Duff & Phelps, and a growth equity ETF from Silvant. We expect to continue to be active in developing and introducing new products over the upcoming quarters. Looking at our first quarter results, assets under management were $149 billion at March 31, down from $159 billion due to net outflows and market performance. Total sales increased 8% to $5.8 billion, with a 26% increase in sales of equity strategies, in large part from some of our strategies that do not have a quality orientation. By product, we had higher sales of U.S. retail funds, retail separate accounts, and global funds. Retail separate account sales increased 19%, with higher sales in each month of the quarter, and on April 1 we reopened the SMidCap Core strategy that had been soft closed in 2024. Total net outflows were $8.4 billion, and across products the outflows were almost entirely driven by equities. I would note that the majority—over 80%—of the net outflows were in the first two months of the quarter, as net outflows improved significantly in March. Looking at flows across asset classes, the equity net outflows largely reflected the continued style headwind for quality-oriented strategies, including a meaningful institutional global equity redemption and the previously disclosed rebalancing of a lower-fee retail separate account model-only mandate to a passive strategy. Fixed income net flows were essentially breakeven for the quarter, as positive net flows in multi-sector, convertibles, and preferreds were offset by net outflows in investment grade and leveraged finance. Multi-asset strategies were also essentially breakeven, while alternatives strategies had net outflows of $400 million, primarily driven by managed futures. In terms of what we saw in April, as previously mentioned, overall trends improved over the course of the first quarter, and April flows were more similar to March. For U.S. retail funds, both sales and flows improved in April over March, and ETF sales and net flows were at their highest levels since September. For retail separate accounts, while we do not have as much transparency given a large portion is model-only, we do anticipate better flows in the second quarter and are pleased to have recently reopened the SMidCap Core strategy. On the institutional side, known wins actually modestly exceeded known redemptions for the first time in a long time, though as always institutional flows can be very lumpy and hard to predict. Turning now to our financial results, the operating margin was 24% and reflected the impact of seasonally higher employment expenses. Excluding those items, the operating margin was 30.3%. Earnings per share as adjusted of $5.38 declined from the fourth quarter primarily due to $1.26 per share of seasonal employment expenses. Excluding those items, earnings per share as adjusted declined 6%. Turning to investment performance, as we have previously discussed, recent performance reflects our overweight to quality equity. However, we did see improving relative performance in the first quarter in our equity strategies. Fixed income and alternative strategies have consistently strong performance with 78% and 71%, respectively, beating benchmarks for the three-year period. Over the longer ten-year period, 54% of our equity, 73% of our fixed income, and 71% of alternative strategies beat their benchmarks. In terms of our balance sheet and capital, we ended the quarter with cash and equivalents of $137 million, other investments of $269 million, and $200 million of undrawn capacity on our revolving credit facility. Cash was lower sequentially, as the first quarter of each year is our highest period of cash utilization. In addition to first-quarter seasonal expenses, cash usage included the $200 million closing payment for the Keystone investment and $23 million representing the majority of our remaining revenue participation obligation. During the quarter, we repurchased approximately 73 thousand shares for $10 million and paid our quarterly dividend. We continue to have financial flexibility to balance capital priorities of investing in the business, returning capital to shareholders, and maintaining appropriate leverage. And with that, I will turn the call over to Michael Aaron Angerthal to provide more detail on the financial results. Mike? Michael Aaron Angerthal: Thank you, George. Good to be with you all this morning. Starting with our results on slide seven, assets under management: our total AUM at March 31 was $149 billion, and average assets declined 4% to $158.2 billion. Our AUM continues to be well diversified across products and asset classes. By product, institutional accounts were 33% of AUM, U.S. retail funds represented 27%, and retail separate accounts, including wealth management, represented 25%. The remaining 15% consisted of closed-end funds, global funds, and ETFs. Within open-end funds, ETF AUM increased to $5.4 billion, up $200 million sequentially on continued strong net flows and up 58% year-over-year. We are also well diversified by asset class with broad representation across domestic and international equities, including mid-, small-, and large-cap strategies, and fixed income offerings diversified across duration, credit quality, and geography. With the addition of Keystone during the quarter, which added $2.3 billion of AUM, alternatives now represent over 12% of assets, up from 9.7% last quarter and 9% a year ago. Turning to slide eight, asset flows: total sales increased 8% to $5.8 billion, up from $5.3 billion in the fourth quarter. The increase was led by sales of equity strategies, which increased 26%, with growth broadly across domestic, international, and global equity. Reviewing by product, institutional sales were $1.2 billion versus $1.4 billion last quarter, with higher equity and multi-asset sales offset by lower fixed income and alternatives. Retail separate account sales increased to $1.4 billion from $1.2 billion in the fourth quarter, primarily due to a 30% increase in sales in the intermediary-sold channel across strategies. Open-end fund sales increased 11% to $3.1 billion and included $600 million of ETF sales. Open-end fund sales were higher in equities, fixed income, and multi-asset strategies, with much of the increase in equity sales in style-agnostic and growth strategies. Total net outflows were $8.4 billion compared with $8.1 billion last quarter, and, as previously mentioned, the outflows improved meaningfully in the last month of the quarter. Reviewing by product, institutional net outflows of $3.2 billion were again primarily due to redemptions of quality-oriented global equity strategies. Retail separate accounts had net outflows of $3.9 billion, which included a $1.4 billion redemption of a lower-fee model-only account that we previously disclosed. Open-end fund net outflows of $1.3 billion improved from $2.5 billion last quarter and included positive net flows in fixed income and global equity. For closed-end funds, which include Keystone's tender offer fund, we reported modestly negative net flows. I would point out that while Keystone's fund had positive net flows for the quarter, our results reflect just one month of their sales but a full quarter of redemptions, given the fund's quarterly tenders take place in March. ETFs continued to deliver solid growth, generating $300 million of positive net flows and sustaining a strong double-digit organic growth rate. Turning to slide nine, investment management fees as adjusted were $163.5 million, down 3% due to lower average AUM, partially offset by a higher average fee rate. The average fee rate was 41.9 basis points, up from 40.6 basis points last quarter, and included approximately 0.6 basis points of incentive fees from one month of Keystone. We believe an average fee rate of 43 to 45 basis points is reasonable for the second quarter, reflecting a full quarter of Keystone. As always, the fee rate will vary with market levels and asset mix. Slide 10 shows the five-quarter trend in employment expenses. Total employment expenses as adjusted of $116.2 million increased 11% sequentially, reflecting $11.4 million of seasonal employment expenses related to the timing of annual incentives, primarily incremental payroll taxes and benefits. On the more comparable year-over-year basis, employment expenses declined 3%. Excluding the seasonal items, employment expenses also decreased on a sequential basis. Employment expenses were 58.3% of revenues as adjusted, with a sequential increase primarily due to the seasonal expenses. Excluding those items, employment expenses were 52% of revenues, higher than the fourth quarter largely due to lower revenues. For modeling purposes, it is reasonable to assume employment expenses as adjusted will be in the 51% to 53% range as a percentage of revenues, and at the high end of that range in the second quarter, primarily due to the decline in equity assets under management. And as always, results will vary with flows and market performance. Turning to slide 11, other operating expenses as adjusted were $30.6 million, up modestly from $30.2 million, in part due to the addition of Keystone during the quarter. For modeling purposes, a quarterly range of $31 million to $33 million is reasonable going forward to reflect the full-quarter impact of Keystone. In addition, keep in mind that our annual Board of Directors’ equity grant occurs in the second quarter and is incremental to the outlook. Slide 12 illustrates the trend in earnings. Operating income as adjusted of $43.8 million decreased from $61.1 million in large part due to seasonal expenses. Excluding those items, operating income decreased 10%, primarily due to lower average assets under management. The operating margin as adjusted of 24% compared with 32.4% in the fourth quarter. Excluding the seasonal employment expenses, the operating margin was 30.3%. With respect to nonoperating items, interest and dividend income declined by $1.4 million due to a lower cash balance reflecting the timing of the Keystone investment and seasonal cash obligations. Noncontrolling interests of $1.4 million were modestly lower than the prior quarter. Looking ahead, for modeling purposes, we believe that a reasonable range for noncontrolling interests will be $4 million to $5 million, which factors in a full quarter of Keystone. Turning to income taxes, as we recently announced, beginning with this quarter’s results, we updated how we reflect income taxes in our non-GAAP presentation and have recast the relevant line items in prior quarters. Over time, through acquisitions, we have built a significant intangible tax asset that generates meaningful economic tax benefits. Given the size of this attribute and our expectation of realizing the benefit, we believe it is appropriate to reflect it in earnings. For context, the tax benefit represented about $2.64 per share of earnings in 2025. For the first quarter, our effective tax rate of 14% was lower sequentially by approximately 400 basis points due to the impact of the amortization tax benefit on a seasonally lower level of pretax income. Beginning with the second quarter, an effective tax rate of 14% to 15% would be reasonable to expect. Net income as adjusted was $5.38 per diluted share, which included $1.26 per share of seasonal expenses, compared with $7.16 in the fourth quarter, and declined 16% from the prior year primarily due to lower average AUM. Slide 13 shows the trend of our capital, liquidity, and select balance sheet items. On March 1, we completed the 56% investment in Keystone for $200 million. As a reminder, there is up to $170 million of additional consideration over two years, a meaningful portion of which is subject to achievement of revenue targets. The estimated fair value of the deferred payments is recorded on the balance sheet as contingent consideration. Contingent consideration at March 31 totaled $126 million, with a sequential increase reflecting the addition of the Keystone deferred payments, partially offset by the payment of the majority of our remaining revenue participation obligation, which was $23 million. As previously discussed, our transaction with Keystone includes increasing our ownership to 75%, with the equity purchases taking place during years three through six after closing. The estimated value of those purchases is recorded in redeemable noncontrolling interest, which increased to $131 million at March 31. The remaining 25% of Keystone is reflected in the manager noncontrolling interest liability, which totaled $152 million, the majority of which represents Keystone equity held by Keystone employees that will be recycled to future generations. Cash and equivalents at March 31 were $137 million, down from December 31 due to the payment for Keystone, seasonal employment expenses, and return of capital. In addition, we had $269 million of other investments, including seed capital to support future growth opportunities. Return of capital to shareholders in the first quarter included our quarterly dividend and the repurchase of 73 thousand 463 shares of common stock for $10 million. Gross debt at the end of the quarter was $448 million, up from $399 million at December 31 due to a $50 million draw on our revolving credit facility. Net debt was $311 million, or 1.1 times EBITDA. As a reminder, we typically prioritize repayments of amounts drawn on our credit facility over the short term. And with that, let me turn the call back over to George Robert Aylward. George? George Robert Aylward: Thank you, Mike. We will now open the call for questions. Didi, would you open up the lines, please? Operator: Thank you. To ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Our first question comes from Crispin Elliot Love of Piper Sandler. Crispin Elliot Love: Thank you. Good morning. I appreciate you taking my questions. First, in the release and also on the call, you called out the 26% increase in sales of equity strategies. Can you dig into that a little further? Was that partially buying the dip in the quarter, especially the March improvement in flows? And then any specific areas—value or growth—would be helpful. And has that continued in April? George Robert Aylward: Sure. While we have highlighted that the majority of our equity AUM and strategies have a quality orientation from the managers that have grown the business over the years, we have other strategies that do not have those same orientations. Many of them were a little smaller and had not previously been areas where we had seen significant growth. Those have been the strategies that we have continued to focus on and to find additional opportunities for. We were very pleased with some of our strategies, which include high-conviction strategies, more style-agnostic strategies, and other growth strategies. We have recently made these available in SMAs, increased our focus on other wrappers, and launched some ETFs that are not tied to our quality-oriented strategies. Those have been the big drivers of the increase in equity sales. We hope that will continue. We still fully believe that the quality-oriented strategies will come back into favor as well, but we have been focused on other strategies and capabilities that have been smaller and are now growing. Our hope is to continue to make them available, particularly in retail separate accounts, and, very recently, to make them more available in ETFs. Mike, anything you would add? Michael Aaron Angerthal: I think you hit on the key points. We are starting to see contribution on the top line from some of those managers, and they have experienced growth. Obviously, it has been overshadowed by some of the larger managers who have a quality orientation, but we are seeing that growth. We called it out in the intermediary-sponsored retail separate account platform. As George mentioned, we have seen expanded access at some of our key distribution partners, and that is benefiting the top line. We are pleased to see that. Crispin Elliot Love: Great. Thank you, Mike. The second question is on net outflows. They remain elevated, especially over the last few quarters. Curious on the longer-term trajectory—what needs to be done for that to improve, first on a macro level and then on a micro level? On the micro side, it looks like you are making some progress on strategies outside of the quality orientation, but how do you get closer to more neutral over time? And I appreciate the comments on the improvement in March and April—just thinking more on a longer-term broad basis on flows. George Robert Aylward: Sure. I will start by reiterating that the largest percentage of the outflows—and we highlighted two specific large mandates that drove that—were in the earlier part of the first quarter, and that March, and as we have indicated, April, have been at significantly lower levels than January, February, or the fourth quarter. We view that as positive. There are a couple of factors. For the quality-oriented strategies, as the cycle eventually turns, we see that as a good opportunity. We do believe that certain investors, particularly institutional investors, are cognizant of how out of favor growth equity and quality-oriented equity are, and may view this as an opportunity because, inevitably, at the turn of the cycle is usually when many managers, including ours, have generated some of their better performance. We see that as an opportunity. Separate from that, over the last year, we have spent considerable time creating wrappers and enhancing our sales efforts on those other strategies from the first question—for investors not interested in quality orientation in particular—by offering more of our style-agnostic, other growth, and other differentiated strategies. We have started to see traction. It is nice to see those levels of growth. Those managers have compelling investment performance, and we are increasingly making them more available. Separate from that, we recently completed the Keystone transaction, and as I indicated in our talking points, our wholesaler force is very excited about offering that very differentiated strategy. We think there is a great opportunity for that to be utilized in different portfolios. We definitely see that as another area of continued opportunity to raise additional assets, which would complement what should eventually be the return of higher demand for quality-oriented strategies. We also highlighted the strategy that had been closed; one of the reductions in our flows over the last few quarters since 2024 was the absence of having sales in that closed strategy. We are pleased to have that strategy reopened. Our quality-oriented strategies include some of our best-selling strategies; it is just that outflows are greater than inflows at this point. We want to increase inflows, and opening that strategy up will be helpful. Operator: Thank you. As a reminder, to ask a question, please press star-1-1. This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Aylward. George Robert Aylward: Thank you very much, and thank you everyone for joining us today. We certainly encourage you to reach out if you have any further questions, and have a great day. Thank you very much. Operator: That concludes today’s call. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NPK International Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star two. I would now like to turn the call over to Gregg S. Piontek. Please go ahead. Gregg S. Piontek: Thank you, operator. I would like to welcome everyone to the NPK International Inc. First Quarter 2026 Conference Call. Joining me today is Matthew S. Lanigan, our President and Chief Executive Officer. Before handing over to Matthew, I would like to highlight that today’s discussion contains forward-looking statements regarding future business and financial expectations. Actual results may differ significantly from those projected in today’s forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. Our comments on today’s call may also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website at npki.com. There will be a replay of today’s call available by webcast within the Investor Relations section of our website at npki.com. Please note that the information disclosed on today’s call is current as of 05/01/2026. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to our President and CEO, Matthew S. Lanigan. Matthew S. Lanigan: Thanks, Gregg, and welcome to everyone joining us on today’s call. We are very pleased with our strong start to 2026, which played out in line with our expectations discussed on last quarter’s call. Despite the typical pause in customer projects around the year-end holidays, rental activity accelerated throughout the quarter, with total rental and service revenues setting another quarterly record at $52 million, a 4% sequential and 20% year-over-year increase. Product sales demand also remained robust, contributing $23 million to first quarter revenue. Off the back of our solid execution, we delivered $22 million of adjusted EBITDA in the quarter, representing a 4% sequential and 14% year-over-year improvement. We are also very pleased with our first quarter cash flow, delivering $21 million of cash flow from operations and $5 million of free cash flow while also expanding our rental fleet by 4%, repaying our revolving credit facility, and using $3 million to fund share repurchases. Overall, Q1 once again demonstrated our consistent strong execution, which we believe is a direct reflection of our commitment to our key strategic priorities. As highlighted last quarter, a key component of our organic growth strategy is our manufacturing capacity expansion effort. Having substantially concluded our project evaluation, our board of directors recently approved our plans to increase our production capacity by approximately 50% from current levels. We expect to invest $40 million to $45 million over the next five quarters to complete this project, with the goal of bringing the additional capacity online by mid-2027. We are confident that this expansion, along with our continuing debottlenecking initiatives, will support our growth and composite matting market share gains for the foreseeable future. With that, I will turn the call to Gregg for his prepared remarks. Gregg S. Piontek: Thanks, Matthew. I will begin with a more detailed discussion of our first quarter results, then provide an update on our operational outlook and capital allocation priorities for the remainder of 2026. As Matthew touched on, the first quarter results were in line with our outlook commentary on our Q4 earnings call and reflect the continued momentum in our end markets. It is worth noting that 2026 followed a similar pattern to early 2025, with a seasonal lull in project activity around the year-end holidays, then picking up steam as we progressed through the first quarter. Rental revenues grew 27% year-over-year, reflecting 12% organic growth combined with a $4 million contribution from the Grassform acquisition. Service revenues grew 7%, with substantially all of the increase coming from the acquisition. Total rental and service revenues were $52 million in the first quarter, achieving another all-time quarterly high, improving 4% sequentially and 20% year-over-year. Product sales activity also remained robust, benefiting from continuing demand from utility companies, generating $23 million of revenues in the first quarter, an 8% improvement from the first quarter of last year. Looking at revenues by geography and sector, our U.S. revenues increased 9% year-over-year to $66 million, including 17% growth in rental revenues, with the utility sector driving the substantial majority of our growth. U.K. revenues more than doubled year-over-year to $9 million in the first quarter, primarily reflecting the Grassform contribution. Turning to gross profit, the first quarter gross margin was 36.2% compared to 37.7% in the fourth quarter and 39% in the first quarter of last year. The modest sequential gross margin compression primarily reflects the effect of lower rental fleet utilization early in the quarter attributable to the timing of large-scale projects, partially offset by improvements in pricing, while the year-over-year decline also reflects the continuing impact of the cross-rental costs discussed in previous quarters. It is important to highlight here that our cross-rental fleet provides flexibility to support our large project activity and meet our customer commitments, while also helping limit inefficient transportation. First quarter SG&A expenses totaled $13.2 million compared to $15.4 million in the fourth quarter and $11.7 million in the first quarter of last year. The first quarter result includes $12.5 million from our legacy business along with $700 thousand associated with the Grassform business. As highlighted last quarter, the fourth quarter results included $1.8 million of acquisition-related transaction costs and severance. Income tax expense was $3.6 million in the first quarter, reflecting an effective tax rate of 26%. Adjusted EPS from continuing operations was $0.12 per diluted share in the first quarter compared to $0.13 per share in the fourth quarter and $0.12 per share in the first quarter of last year. Turning to cash flows, operating activities generated $21 million of cash in the first quarter, including $22 million from net income adjusted for noncash expenses, slightly offset by $1 million of cash used by a net increase in working capital. Net CapEx used $16 million, which includes nearly $15 million of net investment into the rental fleet expansion. We also used $3 million to fund share repurchases. We ended the quarter with total debt of $11 million and total cash of $7 million, for a net debt position of $4 million. Additionally, we have $148 million of availability under our bank facility, providing us with ample financial flexibility to continue executing on our strategic growth objectives, including our manufacturing expansion. Now turning to our business outlook, as disclosed in yesterday’s press release, our customers remain highly constructive on the near- and longer-term outlook for utilities and critical infrastructure spending. With the benefits of our first quarter results and near-term expectations, we have raised the range of our full year 2026 outlook, now anticipating total revenues of $310 million to $325 million and adjusted EBITDA of $92 million to $102 million. The midpoint of our range reflects 15% revenue growth and 28% adjusted EBITDA growth over 2025. Our revenue guidance continues to reflect double-digit organic rental revenue growth along with the contribution from the Grassform acquisition, while product sales remain relatively in line with 2025 levels. In terms of CapEx, outside of the manufacturing expansion project, there are no other changes to our investment expectations for 2026. We anticipate total net CapEx of $75 million to $90 million for the year, including $30 million to $35 million of current year spending for the manufacturing expansion project along with $35 million to $45 million targeted for rental fleet expansion. This level of investment is expected to grow our DuraBase rental fleet by a low- to mid-teens percentage, supporting our organic growth and also displacing a portion of cross-rent assets currently deployed on projects. As for the near-term outlook, we expect to deliver 20% year-over-year growth in rental and service revenues in Q2, which includes the benefit of double-digit organic growth combined with the effect of the Grassform acquisition. On the product sales side, we expect Q2 revenues will be fairly in line with prior Q2 levels. Q2 gross margin is also expected to be roughly in line with the prior Q2 result, though it remains dependent on the timing of project completions and fleet redeployments for a few large-scale projects. In terms of SG&A, we expect to remain near the $13 million quarterly level in the near term. For taxes, we expect our effective tax rate will remain relatively in line with the Q1 level for the full year 2026. We entered the year with roughly $40 million of NOLs and other tax credit carryforwards, which, when combined with the accelerated deductions for capital investments, are expected to significantly limit our cash tax obligations for the next several years. As it relates to our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet and our manufacturing capacity expansion, as well as strategic acquisitions, while also remaining committed to returning a portion of free cash flow generation to shareholders through our disciplined share repurchase program. And with that, I would like to turn the call back over to Matthew for his concluding remarks. Matthew S. Lanigan: Thanks, Gregg. With a strong start to the year, we remain committed to our strategic priorities and executing to our 2026 plan we laid out last quarter. To that end, our primary focus continues to be the scale-up of our rental platform, which generates the highest long-term returns for our business. Our strategy includes a combination of geographic expansion and market share growth in the U.S. and U.K. We remain confident that the strong momentum in these markets will support our continued fleet and operational expansion throughout the year, though the quarterly cadence remains dependent on project timings, particularly the large-scale projects. We remain committed to making the necessary investments to support our growth, investing a substantial majority of 2026 cash flows into the expansion of our DuraBase composite mat rental fleet, which we expect to grow by a low- to mid-teens percentage in 2026, while also advancing our manufacturing expansion project, which will increase our production capacity by roughly 50%. Our second focus area remains on driving organizational efficiencies across the business. As we work through the significant transition to our new ERP system implemented in the first quarter, we now seek to leverage the enhanced system capabilities to drive further improvements while also making the necessary investments to drive sustainable long-term revenue growth for the company. On balance, we expect our approach will help limit SG&A spending growth and drive continued improvement in our SG&A as a percentage of revenues. With respect to the conflict in the Middle East, we continue to monitor its impact on both our own and our customers’ supply chains, and we have not seen any meaningful impacts to date. We are tracking our raw material supplies closely and expect our work over the last several years to diversify our supply base will provide a useful counterbalance to any short-term cost movements. In addition, as Gregg mentioned earlier, our cross-rental fleet capacity provides some offset to our internal transport charges associated with fleet movements between projects, and we are ensuring our direct sales pipeline maintains commercial flexibility to pass through impacts where practical. And our final priority is the allocation of capital beyond our organic requirements. With a strong balance sheet and a disciplined approach, we remain committed to our share repurchase program while also continuing to evaluate core strategic and organic opportunities that increase our market coverage, value, and relevance to customers in key critical infrastructure markets. With robust market outlooks in our served geographies, a clear strategic focus, and a pristine balance sheet, we are confident in our ability to deliver another strong year of profitable growth in 2026. In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business, including their commitment to safety and compliance, and our customers for their ongoing partnership. We will now open the call for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We request you limit yourselves to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Aaron Michael Spychalla with Craig-Hallum. Your line is open. Aaron Michael Spychalla: Good morning, Matthew and Gregg. Thanks for taking the questions. Maybe first from me, can you talk about the pipeline in a little bit more detail? What have you been seeing from greenfield versus brownfield projects? Are you starting to see any pickup from some of the high-voltage projects that are starting to come to the market? Matthew S. Lanigan: Aaron, I will take that one. I think at this point, answering the second part of your question first, it is still a little early for some of the larger, higher-voltage projects. We are expecting to see them a little later in the year, so most of the activity we are seeing right now is outside of that range. When I look at the split, where we left it last year in terms of pipeline build year-on-year, I think that is holding pretty well. We are seeing very slight growth in our emerging territory quoting activity, which is great to see the investments in that commercial front end starting to pay off. So I would say, generally speaking, our pipeline remains as robust as where we left it last quarter. Some timing issues here in the first quarter that we touched on on the call really kind of driving that first quarter, but still very optimistic for the rest of the year. Aaron Michael Spychalla: Alright, thanks for that. And then color on the capacity expansion. As we are hearing more of your customers talking about multi-decade CapEx cycles for utility transmission, can you talk about how long of a growth runway the expansion provides you and the potential to add additional capacity either in Louisiana or at a new location over time? Matthew S. Lanigan: The answer is going to be a function of how fast the market wants to grow. We see this plan giving us plenty of capacity through the end of the decade, and then beyond that, it is worth noting we have plenty of room in our Louisiana facility if we wanted to colocate everything there, and we also have the ability to look for alternate sites. So I feel pretty good about our ability to grow our capacity in a timely fashion to meet market demand, Aaron. Operator: Your next question comes from the line of Laura Maher with B. Riley Securities. Your line is open. Laura Maher: Hi, Matthew and Gregg. Thanks for taking the question. My first question is, with the additional CapEx in mind, are you anticipating maintaining the same returns that you are currently generating? Matthew S. Lanigan: I would expect no change in the overall expectation. Obviously there is a bit of a step change in terms of the investment in the asset base, but over time we should continue to gain operating leverage on our asset base and provide a tailwind to our return on invested capital. Laura Maher: Great, thanks. And then you mentioned improved pricing. Can you frame the magnitude of rental rate increases and whether you see room for further pricing? Matthew S. Lanigan: I would frame it in low single digits, Laura, and I think what we are seeing is a little bit of tightness in the market, so we would expect to be able to hold that and maybe add to it moving forward in the year. It is a little early for that, but we are encouraged with what we are seeing so far. Operator: Your next question comes from the line of Min Cho with Texas Capital Securities. Your line is open. Min Cho: Good morning. Thank you for taking my question. It sounds like as utilization remains strong that you are going to continue to prioritize rental fleet additions over product sales. Do you feel like your capacity is sufficient right now to support both at least through this year? Matthew S. Lanigan: I think we touched on that last quarter. We feel comfortable that we can meet both, and I do not think we have been in a position yet where we have had to prioritize one over the other. We have been able to meet both. As Gregg touched on, we have a cross-rental fleet that we can utilize, which has been helpful in offsetting any transportation inefficiencies, and with the price of diesel now rising with the conflict in the Middle East, we are using that to help offset it, but we feel comfortable that we can meet what we see in the foreseeable future. Min Cho: Excellent. So how should we think about revenue and EBITDA progression through the rest of the year relative to the first quarter, given seasonality, continued cross-rental usage or displacement, as well as CapEx timing? Matthew S. Lanigan: I would expect there will be some front-loaded elements associated with the procurement of equipment for the manufacturing expansion, so that will be a little more loaded up than Q2 and Q3. As far as the revenue and EBITDA cadence, EBITDA will follow revenue as we are holding a pretty consistent EBITDA margin. For revenue cadence, the back half of the year still has that natural seasonality in Q3. We framed up expectations for Q2. Q3 typically pulls back a bit from Q2, and then rebounds and surges from there into Q4. Operator: Your next question comes from the line of Analyst. Your line is open. Analyst: Hi. This is Brandon Rogers on for Gerard J. Sweeney. Thanks for taking my questions. In terms of the wood-to-composite matting conversion, where would you estimate composite matting stands as a percent of the overall market, and do you see the pace of conversion accelerating or remaining stable? Matthew S. Lanigan: Thanks. We still see roughly a quarter of the market in total being composite at this point based on our analysis. The market share shift is going to be a function of the pace of growth. If the market keeps growing as strongly as it is now, we would expect that percentage to hold, as everybody is keeping up with the growth rate, with maybe a point or two of relative share shifts. Analyst: Thanks. And then one more for me. Utility spending has accelerated. Your manufacturing capacity plans target a 50% increase by mid-2027. Is there anything that could delay this timeline, or is there any likelihood that the investments required to complete the expansion are more than your estimated $40 million to $45 million? Matthew S. Lanigan: There are always some movements in project timings and budget estimates. We feel pretty good about the range we have provided and the timing. We have been planning this for a while. Unforeseen things may happen, but we feel confident that we are going to be able to deliver this within the timeframe and the budget that we have put forward. Operator: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of William Joseph Dezellem with Titan Capital. Your line is open. William Joseph Dezellem: Thank you. A couple of questions. Following up on your remarks about the large high-voltage projects, they have not yet begun, but you see them beginning later this year. Does that imply an acceleration of your growth rate in 2027 relative to 2026? Matthew S. Lanigan: It is a little early to piece it all together, but what we have called out on previous calls is these high-voltage lines are going to have a large amount of requirement to fulfill them—heavier equipment, larger equipment to get those lines installed. We see that as a net increase in matting requirement. Logically you would say yes. How that fits in with the rest of the project activity and what we can service, we will need to look at as we get closer to 2027, but these are encouraging trends for sure. William Joseph Dezellem: Great, thank you. And then relative to the acquisition comments, when do you anticipate that Grassform will be fully integrated, which I am presuming is the point that you would be willing to seriously entertain the next acquisition? And when that time comes, what are you structurally looking for with that next acquisition? Help us understand the characteristics that you are looking for and what you would be trying to accomplish. Matthew S. Lanigan: Thanks. We would expect to have substantially most of the integration completed within the next three to six months. An ERP conversion—we will look to roll them onto our ERP system—may put a little bit longer tail on that. When we bought the business, our focus was not to distract them with a lot of integration activity; it was to let them run. They are a very well-run business, and we did not want to get in the way with integration activities, which is why that timeline may seem a little longer than you might have expected. So far that is going well for us. With respect to future acquisitions, it is pretty clear relative to our strategy: if there are markets where we can accelerate composite market share relative to a timber incumbent, and we think that an acquisition will accelerate that relative to what we could do organically, that is when we would look to seriously kick the tires on something to acquire. From there, you have your normal structural pipeline factors in terms of the leverage of the company, the strength of the management team, the quality of the contracts that they have, etcetera—all of those normal diligence items that you would expect. I hope that addressed your question. Operator: I will now turn the call back over to Gregg S. Piontek for closing remarks. Gregg S. Piontek: Alright. That concludes our call today. Should you have any questions or requests, please reach out to us using our email at investors@npki.com. We look forward to hosting you again next quarter. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde plc First Quarter 2026 Earnings Call and Webcast. 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. I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir. Abby, thank you. Juan Pelaez: Good morning, everyone, and thanks for attending our 2026 First Quarter Earnings Call and Webcast. I'm Bob Bedaez, Head of Investor Relations, and I'm joined this morning by Matt White, Chief Financial Officer. Today's presentation materials are available on our website at littie.com in the Investors section. Please read the forward-looking statement disclosure on Page 2 of the slides and note that it applies to all statements made during this teleconference. Reconciliations of the adjusted numbers are in the appendix to this presentation. Matt will provide some opening remarks. I'll give an update on Linde plc's first quarter financial performance, and then Matt will finish the updated outlook, after which we will wrap up with Q&A. Now turn the call over to Matt. Matthew White: Thanks, Juan. Good morning, everyone. The Linde plc team delivered another solid quarter against a challenging economic backdrop. EPS of $4.33 grew 10%. Operating margins reached 30%. And return on capital remained at a healthy level of 24%. The high-quality compounding growth of our company no matter what the environment is a testament to the unwavering commitment of all 65 employees to create shareholder value. And given the recent geopolitical volatility, it may be helpful to provide a brief update by end market, which you can find on Slide 3. As a reminder, the top half shows consumer-related end markets, at approximately one third of sales, while the bottom half represents industrial-related markets for the remaining two thirds. The growth rates reflect price and volume but exclude FX or M&A. Starting at the top, health care at 16% of global sales grew 1% year-over-year. We provide gases, equipment, and services to medical institutions such as hospitals, and direct to the home. Normally, a resilient market like this should grow in line with demographic trends, or low- to mid-single-digit percent. And while we are experiencing those growth rates in most countries, the US home care business has been relatively flat. In late 2025, a new US health care policy resulted in less services for a specific piece of equipment which is reflected in the current run rate and will continue for the next several quarters. Aside from this particular issue, the rest of health care is performing as anticipated while providing a resilient balance to the more cyclical markets. At 9% of sales, food and beverage grew 5% from broad-based strength. The largest contributor is the US beverage business, where we continue to see increased customer need for new services and applications. In addition, traditional bottling and food freezing growth remain quite strong, especially in North and South America. Overall, food and beverage has grown mid- to high-single digits over the last several years, and is expected to remain a steady contributor. Electronics increased the most at 10%, primarily driven by continued investments in advanced chips to support AI. The growth is heavily weighted toward the US, China, and Korea, since our substantial electronic sales in Taiwan are excluded as a nonconsolidated 50% joint venture. As both the scale and industrial gas intensity continue to expand in this sector, Linde plc remains well positioned. We are currently investing more than $1 billion of the project backlog for ultra-high-purity plants, which will support the most advanced fabs in the world. And there is more to come, as we have a high degree of confidence in adding substantial new projects to the backlog this year. Moving to industrial end markets, you can see growth across the board, which supports the notion we are starting to lap more difficult comps after years of stagnant industrial activity. Chemicals and energy, representing 22% of sales, increased 3% as growth in Americas and APAC more than offset contractions in EMEA. Americas was driven by higher activity hydrogen and nitrogen in US Gold Coast refining, and Latin American upstream energy. While APAC increases primarily came from our recent investments in the Jurong Island integrated complex. EMEA continues to experience negative volumes primarily from on-site customers shifting production to more competitive assets outside Continental Europe. It remains to be seen what the longer-term effects could be for the Middle East conflict. But so far, it appears activity is relocating to more feedstock-advantaged assets in Americas and, to a lesser extent, APAC. And while we are on this topic, think it is worth providing a brief update on our helium business. Helium was in oversupply for a few years, 2025. But recent events have created acute global shortages. Linde plc sources from a very broad based since supply chain constraints are a recurring challenge. Therefore, we are currently well positioned despite some of the recent outages. Given our business is largely contracted, the priority is to meet existing customer commitments. After that, we still anticipate excess molecules allowing us to pursue new, multiyear contracts with high-quality customers. Therefore, I do not anticipate significant spot sales this year since we are focused on securing long-term agreements. Returning to the end market slide, metals and mining grew 3%. Similar to chemicals and energy, the entire growth is coming from Americas, as both APAC and EMEA are relatively flat. A combination of better industrial activity and protectionist policies from US to Latin America have supported local metals production over imports. Furthermore, we are seeing renewed competitiveness from customers of more gas-intensive integrated blast furnaces when compared to EAS, primarily from constraints associated with cost-effective SCRAM, and electrical infrastructure. The last industrial end market of manufacturing grew 5%. Half of the increase came from aerospace activity in the United States, primarily supporting space vehicle production, testing, and launch. As this venues continues to see strong double-digit percent growth, we will isolate aerospace as a separate end market when it consistently exceeds 5% or more of global sales, which will be a function of the frequencies, size, and propellant type of future space launch. Excluding aerospace, the remaining end market grew low single-digit percent, as strength across the Americas, especially in the US, was partially offset by continued weakness in EMEA, while APAC slightly improved over last year. Within the US, packaged gases grew mid-single digit and hard goods double-digit percent, which aligns with the recent favorable US production statistics. In Hargus, growth was balanced between consumables and equipment, and driven by energy, construction, and general metal fabrication. EMEA activity was softer, from continued weak industrial activity including direct and indirect impacts from the Middle East conflict. And in APAC, we experienced moderate volume growth driven by China and Southeast Asia. In summary, the portfolio is doing what one would expect. As geopolitical events shift production around the world and secular growth trends drive concentrated investments, our business units continue to adapt and capture their fair share. And while no one can predict how the next few months will play out, let alone the next few years, I am confident the lending team can navigate the volatility and continue to deliver high-quality compounding growth. And I will turn the call over to Juan to walk through the financial results. Juan Pelaez: Matt, thank you. Please turn to Slide 4 for our consolidated results. Sales of $8.8 billion were up 8% year-over-year, and flat sequentially. Versus prior year, foreign currency was a 5% tailwind driven primarily by the strengthening of the euro. Net acquisitions contributed 1% from attractive roll-ups we have been executing globally. This quarter alone, we signed nine more bolt-on acquisitions. Primarily in the Americas. Which will continue adding to future EPS growth. Underlying sales increased 3% versus last year, 2% higher pricing, and 1% higher volumes. Volume increase was driven by the project start-ups, primarily in APAC. Both Americas and APAC continue to see base volume growth but it was mostly offset by EMEA, due to the weaker economic activity in the region. Sequentially, underlying sales were flat as higher pricing was offset by lower volumes, mainly in APAC and EMEA. The lower volumes were driven by seasonal factors, especially in APAC, followed by EMEA where we continue experiencing weaker trends in the industrial end markets. Price continues to drive underlying sales growth, highly correlated to local inflation levels. Recall that actual price increases are higher for the combined packaged and merchant gases, which represent roughly two thirds of total sales. Operating profit of $2.6 billion increased 8% year-over-year and resulted in a margin of 30%, similar to prior year. Sequentially, margins improved 50 basis points, driven by management actions and pricing and cost productivity that more than compensated for seasonal volume declines. We expect management actions to continue to support profit growth and margin expansion for 2026. EPS of $4.33 was 10% over prior year, or 5% when excluding the effects of currency translation. We finished the quarter slightly above the top end of the guidance range due to better effects as the business performed as anticipated, considering the many challenges globally. Operating cash flow was $2.2 billion, 4% higher than prior year. Capital expenditures were $1.3 billion, and as a result, our free cash flow was $900 million, which we used primarily to pay dividends and repurchase shares. The CapEx of $1.3 billion was roughly split between base CapEx and project backlog. Have in mind that base CapEx is primarily maintenance and all other growth investments not meeting our stringent backlog definition, for example, current investments to serve commercial space. In this quarter, we started up 10 projects from the sale-of-gas backlog, mostly in Americas and APAC, with investments of approximately $300 million. Furthermore, we signed five new projects that added $100 million to the sale-of-gas backlog, which ended the quarter at $7.1 billion. Industry-leading return on capital ended the quarter at 23.8%, a reflection of capital discipline, consistent earnings growth, and good backlog execution. Slide 5 provides further details on quarterly management. The operating cash flow trend can be seen to the left, with the most recent quarter of $2.2 billion. Note, the first half of the year is weaker due to the seasonality of cash payment timing for interest, taxes, and incentives. For 2026, we anticipate a similar trend as last year. To the right of the slide, you will find a pie chart that demonstrates the balance across investing into the business and returning capital to shareholders. Disciplined capital allocation is a hallmark at Linde plc and is something that differentiates us from others. During the quarter, we raised the annual dividend by 7%, making it 33 consecutive years of dividend growth with an average growth rate of 13%. We also repurchased $800 million of stock during the quarter, while reinvesting almost $1.5 billion into the business. Our cap allocation model remains consistent across all environments. In periods of uncertainty and volatility like today, a fortress balance sheet is critical, not only to maintain stability, but also to capitalize on growth and share repurchase opportunities as they arise. Thank you. I'll now turn the call over to Matt, who will wrap up with the guidance update. Matthew White: Slide 6 provides the updated 2026 guidance. Starting with the second quarter, we anticipate EPS in the range of $4.40 to $4.50, or 8% to 10% growth. This includes a 1% currency benefit but, consistent with prior quarters, assumes no economic improvement at the midpoint. For the full year, we are updating to a new range of $17.60 to $17.90, or 7% to 9% growth. Like the second quarter, this includes a 1% currency tailwind, and assumes no economic improvement at the midpoint. Also note, both ranges do not include any improvements in the helium business versus the February guidance. So any incremental volumes or price would be upside. And when compared to the prior guidance, we raised the bottom by $0.20 from increased confidence in the overall business resiliency. However, we left the top at $17.90 because it is still early to signal increased optimism. There are a lot of things happening in the world right now. And I would like a few more months before considering a top-end raise. Overall, we had a decent start to the year, but remain guarded until we see more clarity on current geopolitical events. We will now open the call for questions. Operator: Thank you. And 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 are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is 1 to join the queue. And our first question comes from the line of Laurent Favre with BNP Paribas. Your line is open. Laurent Favre: Yes. Good morning, guys. Thank you. My first question is on margins. You mentioned a strong improvement in the Americas, and I was wondering if you could talk about, I guess, the big moving parts of why, while Europe was flat, Asia down. Is it helium? Is it the rapid cost inflation in March which created the temporary squeeze? Any help there would be very helpful. And as a follow-up, you mentioned that you would disclose spaces when you get to 5% of the group, which is about $1.7 billion. And I think recently or on the prior call, you mentioned that you thought sales in commercial space would get to about $1 billion by the end of the decade. So I am just wondering, I mean, are you now thinking that we may get to $1.7 billion by the end of the decade? It is a big change. Matthew White: Sure, Laurent. I'll start with, and we said this last time, but I just want to reiterate it again this time. On a full-year basis, we feel pretty confident we are not only going to raise margins for the full year 2026, but probably at the upper end or even above our traditional range that we tend to talk about of 40 to 60 basis points. Now stating that on the full year, you are always going to have some moving parts within the quarters. I think when you think about Europe, clearly, the volume is a bit of a drag. You know, I think within EMEA as a whole, we mentioned on the call between a combination of the overall weaker industrial environment, weaker chemicals environment, add to it both direct and indirect impacts from the current Middle East conflict, you know, we are just not seeing the volume recovery there. But I could tell you we are not happy with the performance. The business team is taking actions to improve that. They know that. So I expect to see some improvements there in Europe. With APAC, you know, we did mention on the backup slides, we had about half of the sales growth was a sale of equipment. But, actually, it is equipment that is connected to long-term merchant contracts and electronics. So that does come with future contracted merchant sales. But that will tend to be a little bit lower margin on average. It is a kind of a one-off. But also, as you know, Q1 is traditionally weaker in APAC just given some of the seasonality effects. So I expect APAC to kind of get back up to the 29-type percent margins we saw year as the team there continues to work towards improving that. So some of it is timing. Some of it is just a little bit of some effects on the volume. But, on the full year, we fully expect to not only raise margins, but probably the top end or above. And, again, this is all ex pass-through, up or down, as you know, which is just more optics on the margin and no real effect of profit dollars. So, Laurent, I mean, I'll start with look. We feel very good about our positioning to support the space economy as that develops. Clearly, in the US, you are seeing that much more rapidly with the private commercial space sector. But even across outside the US, we are definitely seeing acceleration in those efforts. Controlling the customer, that is going to be their determination on launch. But it is like I mentioned on the call, it is going to be a function of frequency, size, and propellant type. And what that means, you know, I think frequency is self-evident, how many launches occur. With size, it could be dramatically different. Much larger rockets and much larger booster systems can use orders of magnitude higher of propellant. As you can imagine, something, for example, the largest rockets out there versus smaller ones, you could see 10x difference on fuel and propellant. And then the fuel or propellant type is important because while we supply oxygen for the oxidizer and nitrogen for densification, there are really three types today you will see, which is either kerosene, methane, or hydrogen. Obviously, we supply hydrogen. We do not supply the other two. We would do only sale of equipment for things like LNG. And so if you do see more hydrogen-based rockets, that could also accelerate the growth for us depending on the fuel type used. So we feel pretty good about it. You look at the ambition on getting satellites and constellations in space today. You look at the existing population and what needs to be replaced in low Earth orbit roughly every five years. I think it continues to bode well for launch. And not only the major players, but there is more room for maybe some new players that can be supporting the demand out there to get more constellations in space. So we will see where it ends up. I think it will all be a function of the launch cadence. But we feel quite good about our positioning to supply that when it happens. Operator: And our next question comes from the line of Patrick Cunningham with Citi. Your line is open. Patrick Cunningham: Hi, good morning. Thanks for taking my question. I guess, first, as you think of maybe the longer-term implications of this crisis, it seems like there is probably a heightened focus on energy security, deglobalization. So I am curious as to how you are thinking about the potential for how potential conventional energy and energy transition projects should trend as a result? Got it. And just on European, you know, sort of outlook, how should we think about on-site volumes and potential earnings upside for the balance of the year? I think despite some of the feedstock and energy challenges, we have heard some more advantaged or flexible refining and pet chem assets running a bit harder sort of month-to-date. So how do you square that with sort of the outlook? What are sort of the puts and takes in terms of mix there as well? Matthew White: Yes. Thanks, Patrick. I mean, the natural reaction is exactly like you stated. Right? Energy independence will be more accelerated. You know, one can argue we have already been deglobalizing as a global economy and this may have accelerated some of that. But energy security continues to get a lot of highlight and spotlight when you see these supply-type shocks that occur. But my opinion, ultimately, it still comes down to economics and ability. So while renewable energy will continue to be an area of high interest, it is still going to require government intervention. It will require some support, sponsorship, potentially some kind of subsidies as we have seen in certain geographies. And so I think without that, it is hard to see that happen on its own as we have seen. But, time will tell. I think as far as other hydrocarbons, I absolutely believe you will see more of that. You know, clearly, with other LNG and areas that are probably less of concern, countries, you could see areas like oil sands of Canada become more interesting. Again, just given that the exploration risk is almost nonexistent. They know the product is there. It is just more of a logistics challenge to get it seaborne or to get it, you know, piped to where it is needed. So I just think that some of the more traditional areas will get another hard look given the uncertainties in the hydrocarbon space. I do think you will get renewed interest in renewables, but, again, without the support of government to help that on everything from right of ways to land to permitting to bridging some of the economics, it will be hard to see that accelerate at a clip that people want it to. I think we do have some on-site that are running well that you could argue are state champions or regional champions. But on the flip side, we have definitely seen some shift production. Right? And they are shifting into some of the assets we supply in other geographies, primarily in Americas. You know, I do think part of it also in Europe right now, in my opinion, you have a bit of a challenge with some of the uncertainties, right, around energy policy, around some of the environmental policy. Clearly, there is a lot of imports and not just on the base material sides, but on the finished goods sides as well. And so at this point, it is hard to see how all of those factors will create any significant change without some catalyst. You know? And whether that catalyst is some type of restrictive import policy or more clarity on the environmental policy, clearly, with the IAA, that could help. I think it just needs that that money needs to find its way on the ground. If it does, that could help turn some of that around. So that is, to me, what we just need to see. If we see a catalyst there of some significant type, it should help. And it could be anywhere from maybe some import restrictions to the IAA hitting the ground. But aside from that, it is hard to see a major shift. Operator: And our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open. Vincent Andrews: Thank you, good morning. Matt, circling back on the space side of the equation and the idea of getting to that 5% of sales. Do you have the capacity you need to get there, or should we be anticipating some type of capacity increase, maybe it is in different geographies? And would you do that in concert with customers, or would you do that on your own and make it more of a merchant business? How should we be thinking about it? Matthew White: Yeah. Sure. I think it is really in concert with customers. My opinion, you have several launch providers that are doing a variety of different engine testing, you know, that could do static testing, gimbal testing, whatever they are doing. And the locations they want to do that could very well be different than where their pad is where they will launch. Once they start migrating to more frequent launches, which can migrate from, you know, wet dress rehearsals all the way to full launch, you are going to want to make sure logistically you are as close to the pad as you can be. So from my perspective, you know, we are working with the major launch providers and also a lot of the up-and-coming providers to make sure that we have the capacity and the contractual relationships to support them and their ambition. And the way it kind of works is, you know, in the early stages, you are probably going to do longer logistics hauls when it is more infrequent and intermittent. And then as they get on to a better cadence, then you start talking about new requirements contracts in supporting a more stable launch cycle that you put closer. And so you eliminate the logistics costs, which obviously makes their costs lower on the propellant. So it is a combination. It will be sale of gas. It also could be some sale of plant. We do both. We support. It is very similar to what you would see in the large on-site where at times we have sold plants and sell a gas, and we would literally run the system of all the plants. So I think that is what you are seeing. And as you can imagine, there are some very specific areas where the launch sites are concentrated, given FAA regs and what you need to do around that for the airspace. And so that is where we have a very strong capacity today, and we are working to secure more contracts with our customers for the future launch needs. Operator: And our next question comes from the line of Duffy Fischer with Goldman Sachs. Your line is open. Duffy Fischer: Yes. Good morning, guys. By far, the most incoming questions I am getting on you guys is around helium. And I know you guys talk about it being kind of a small part of your business, but in the last supply shock we had with Russia, you did see pricing start to roll into some of the contractual business. I guess, how do you see this supply shock playing out differently than what the Russian supply shock did? And how long would the strait have to be closed before you would start to see some of that pricing roll through your contractual business? Matthew White: Sure, Duffy. Yeah. Maybe I can level set it with, you know, what are we seeing in helium in the first quarter? So I'll start with our helium business depending on the time, we are anywhere from 85% to 90% contracted on our customer base. So that is kind of a starting point. And when I look at Q1 year-over-year, our global helium sales for the most part were roughly flat. And what we saw was a couple percentage decline in pricing year-on-year and a couple percentage increase on volumes year-on-year. Now as you know, with the Iranian conflict, it sort of happened two thirds into the quarter. So one can roughly argue you had kind of two months before and one month after, based on the date. And what we saw, we have been seeing the pricing rise on the average pricing. So even though we are a few percent below, pre and post that, there is a difference. And likely, that price will continue to go up and roll its way through. I fully would anticipate that to happen throughout the year. Separately, our volumes are up, and we have actually already secured some long-term agreements. I fully expect we will secure more long-term agreements. That is our priority. And that is how I would see that play out. Now when you think about the helium situation, you have two sort of distinct issues happening at once. You obviously have the strayed over moose with Cutter and their inability to get product out and also the question of how much capacity is out for multi years based on damage. Separate and distinct, you have this Russian issue going on, which is probably a little more political in nature. We do not take Russian supplies, as you can imagine, but that is having an effect primarily on the Chinese market. That one could fix itself much quicker, as you could imagine. And so that one, we will see how long that lasts. But I think, either way, you know, the way we build the guidance just did not want to take a view either way. We just left it as we had it. But when opportunity presents itself both on pricing and volume, that will be incremental. And that is something we will get above how this is guided today. Operator: And our next question comes from the line of David Begleiter with Deutsche Bank. Your line is open. David Begleiter: Matt, on electronics, I know you are expecting a couple of large contracts this year. Are they still in progress for 2026? And just on Woodside, there has been some confusion, some conflicting news stories. Can you level set us as to where you stand on that project and what is embedded in 2026 guidance? Matthew White: Yeah, David. So consistent with how the prepared remarks, we have a pretty high degree of confidence that we will be announcing some here shortly. And when I think about the project backlog itself for sale of gas, we are sitting a little over $7 billion right now. And I would look to these being added. And based on some timing of some other projects, I would fully expect us to have a higher backlog by end of year based on this. Higher than the $7 billion and could potentially have an eight handle on it, based on this. So we feel pretty good about that. And that is something I expect in a few months we will be able to lay out there. Sure. Yeah. I think, David, you may recall in prior conversations, we described this project and other very, very large projects like it. They tend to phase in how they start up. You will start up pieces and phases. And, originally, our expectations were that we would be bringing nitrogen on mid this year, and then the ATR and what is called the TNS for the sequestration back end of this year. And the reason was so they could make gray hydrogen as soon as possible, and then convert it to blue by end of year. And on the nitrogen, we still fully expect that. So that would be a pro rata, so to speak, startup on the backlog this quarter. But on the ATR and the TNS, that has slipped a few months into essentially Q1 of next year. You know, the construction and subcontractor environment in the US Gold Coast remains challenging. So and we have had some delays there. But I rest assured the team is 100% focused on this to get this up as fast, as safe, and as reliably as possible. So that is our focus, but this slip has caused a little bit of that. So my expectation in that project is you will have a small portion contributing to the startup this year through the atmospheric side of it. And then the hydrogen and TNS side will kick into probably Q1 of next year. Operator: And our next question comes from the line of Josh Spector with UBS. Your line is open. Josh Spector: Yes. Hi. Good morning. I was wondering if you could talk about the overall volume landscape across kind of the two major areas here between Asia and then Europe and the Americas. I mean, understanding your guidance is kind of no economic improvement, but just the geographic location of your assets relative to where there is disruption, it would seem like there is probably some volume benefits on the Americas and Europe side versus Asia. I would be curious, one, is that right, or is there more disruption in Asia that makes it kind of even? Then also, if you can comment just in your North America specifically, are you seeing any kind of benefits from what we have seen from positive PMIs the last few months? Thanks. If I could just also quickly clarify a prior question. Is that when you have talked about commercial space getting to $1 billion, my understanding is that was more commercial space launch. You have another $600 million plus in commercial aero that is more of the coatings business. So your prior comments were more that maybe you get to that 5% in 2030 time frame maybe. And then maybe your comments today about some of the disclosures, maybe you can get there sooner than expected. Is that the right interpretation, or do I have it wrong? Matthew White: Yeah, Josh. So let me start with the first part. Definitely, we are seeing improvements in Americas. On the dislocation or shifting of product, we are seeing some contraction in EMEA. And both Continental Europe. Now we have a very, very small Middle East business, but as you can imagine, that is most impacted as a percentage basis. But Continental Europe itself, we also saw some drag there. And then APAC for us is relatively neutral to slightly positive. So when you kind of break those three down, in Americas, as I mentioned on the prepared remarks, we are seeing not only benefits in the US Gulf Coast refining. I mean, you think about refining in the US Gulf Coast, you tend to have very high Nelson complexity. You have ability to use a variety of slates of crude. And so given where the three one spreads have gone, given their ability to manage some of the crude spread, I think they are in a very, very strong position. And a lot of their product is supplied via the continent, and so they can take advantage of that, and we have seen that. We have also seen Latin American upstream improvements, given the price of seaborne Brent. It just makes it more attractive for them to produce. So we have clearly seen that. In EMEA, you have seen, as we mentioned, some of the chemicals was one of our weaker performing chemicals and energy, as we have seen some reduced volumes on that front. APAC, you know, I think with APAC, there is probably it is a tale of two stories in the sense that, you know, certain countries are very negatively impacted, but we really do not supply them. When you think about Japan or certain industrial markets maybe in Korea, where they rely on seaborne delivery for some of their hydrocarbon chains, that is very negatively affected. Right? Whether it is NASA or LNG or oil. But we are really not supplying many of those. We have no presence in Japan. On the flip side, coal-to-x, you know, coal to chemicals or coal to something, in China is actually performing better. And we are seeing that. We have several customers that are c-to-x customers within China. They do have an advantage in this scenario. So the simple way I think about it is, you know, if your feedstock is coming on a ship, it is probably a tough scenario for you. But if it is land-based, right, either a pipeline or maybe even a rail car, you are probably in a little bit better position. And that is kind of how I would say we are seeing it play out today. As far as the PMI, yeah. That was kind of per the prepared remarks. You know, our hard goods business is up double-digit percent right now. The US package business. Our packaged gases are up mid-single digit. And, really, where we are seeing that strength is on some of the construction energy side, which you can imagine plays a little bit to some of the hyperscaler constructions and things you are seeing on that front. And so I think that continues to be good. Metal fabrication continues to be strong. So we have really seen that pickup across. And then on the hard goods, it is really split between consumables and equipment, which is a healthy split. I think you are absolutely seeing that positive benefit from the US PMI prints. No. I think you are right, Josh. I mean, look. I have used the word aviation within aerospace. And, yes, aviation is a very different animal. That is for primarily jet engines. That business is doing quite well. Addition. But you know, the one that is always the same, never give a number in a year. Right? But I think we put something out there to give us enough room to do it. But we feel quite good on not just our propellant launch infrastructure and capability, but even when you get to things like electric propulsion, for positioning of space vehicles on things like xenon, krypton, argon. And so when you add all the opportunities together, yeah, I think feel pretty good about our ability to grow this business quite well. And, really, like I said, it will just be a function of the space line. But you are right that any of those numbers fully exclude aviation or anything to do with land-based pieces around jets or jet engines. Operator: And our next question comes from the line of Matthew DeYoe with Bank of America. Your line is open. Matthew DeYoe: Morning. European energy prices clearly up from pre-conflict levels, and I know it gets passed through on on-site. But how are you managing market, merchant and package pricing? Is this going to be something where you go out with structural price or you surcharge? Is it not enough inflation yet to be pushing price more in Europe than normal? And if you are, what should we think about as being kind of the year-over-year price traction for the EMEA market come, like, April? Matthew White: So, Matt, the way to think about it is, is it a sustained increase in energy, or is it a volatile up and down? Right now, so far, it has been volatile up and down. When it is volatile up and down, it is surcharging. That goes up. That goes down. And that is what we are seeing. When you see a sustained long range, it eventually then it becomes price. And it starts to work its way into the overall inflation of the market. You know, 2021 was an example—2022, I should say. In early 2022, as that evolved throughout the year, you saw a more sustained impact to inflation that worked its way through the entire economy. It started as surcharges. It eventually became price. Right now, it is just surcharges. But if it does stay sustained and you start to see it show up in a lot of the major basic inflation metrics, then it does find its way in the price. That is the way I would characterize it today, and time will tell how that plays out. Operator: And our next question comes from the line of Michael Sison with Wells Fargo. Your line is open. Michael Sison: Hey, guys. Good morning. You know, this, I guess it is going to be, what, the third or fourth year of no economic improvement for industrial demand. I cannot imagine the Iran conflict is going to help that move in the right direction. So just curious, what do you think this sort of needs to happen as it seems like overall, there has been some impairment for industrials? And what do you think needs to happen to get that overall globally to improve over time? And then a quick follow-up for chemicals and energy. You know, sales were up 3% in the first quarter on Slide 3. What do you think the run rate of that is heading into 2Q? I would imagine March was much stronger than the other two months, given the conflict. Just curious where that segment is sort of moving into this quarter. Matthew White: Well, Mike, I think some level of stability always helps. Right? When you think about industrial demand, at least in my opinion, it tends to be large items, nondurable or durable goods. Nonresi infrastructure. And to embark on those kinds of projects, they usually require financing. They usually require a long-range view on a return profile. They usually require some form of government engagement support. And so right now, it has been a little volatile. It has been volatile in the macro. One can argue in certain micropolitics and microeconomics it has been volatile in certain countries. And so I think that has been part of the challenge. Additionally, you know, the service economy, the consumer has been pretty resilient over the last few years, which has held GDP up. If that changes, I think that could actually ironically bode well for industrials. Because then there could be more call to action to support injections into economies. You could argue that IAA to some extent is that. Right? You have seen continued lagging in Europe. And they have made determination they need to inject capital into the economy. And that capital tends to be more industrial intensive. Now it has to reach the ground. It has to have clarity around its use and its ability to be deployed. But that is kind of the type of catalyst. And, look. I think the Americas and the US especially has been a little bit of an indicator that to some extent, certain placed protectionist policies can work. I mean, we have seen it in the metals. We have seen it in some other areas. Yes. It brings some confusion initially, but the US has seemed to bounce back. And so we all know there is excess capacity in certain markets in the world. We kind of know where it is coming from. And so I think it is really a function of who is making the capacity for what. So we will see. I think right now, though, the Americas, we continue to feel pretty bullish on and the trajectory it is on. And as I mentioned, I think with EMEA, it really is going to come down at some catalysts to try and change that trajectory. And APAC is fine right now. I think APAC is—we are seeing certain geographies do better than others, clearly. But our Chinese business is very stable. India is growing. And we will just have to see how the rest play out. It is led by the Americas, as mentioned. And really have not seen any reason that that should decline or abate. I think the strength is still there and is still anticipated. And the comps, as I mentioned, definitely get a little easier here on out. It starts to lap, as we mentioned, a couple years of some industrial stagnant conditions. We will see, but I feel pretty good it will remain positive throughout the year, and we will have to see how much it remains positive. Operator: And our next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open. Jeff Zekauskas: Thanks very much. In your commentary on the Americas for the first quarter, you talked about weakness in chemicals and energy end markets, and, you know, I assume that that will strengthen. So as a base case, should volume of, you know, 2% year-over-year move up to, I do not know, three or more in second quarter? And, you know, are there also pricing opportunities because energy and chemicals are better? And then secondly, your other income in the quarter was $63 million versus $26 million a year ago. What happened there? And was the currency benefit in the quarter about 3% on EPS or maybe $80 million pretax? Or do you have a different number? Matthew White: So, Jim, I think with chemicals and energy, yeah, we are better in Americas but weaker in EMEA, as mentioned. I think this is mostly on-site. So the pricing will just be a function of the annual escalation, which the contract would state. That being said, we are seeing some more merchant activity for upstream oil, primarily Latin America, which offers an opportunity for further volume expansion. So I feel pretty good about the Americas' position, competitiveness, and capability in chemicals and energy. You know, as mentioned before, it has been on a good trend, and I would expect that to continue. And, recall, there were a little bit of some normal weather aspects that happened in Q1, which could always dampen it a little bit. And you get through that Q2. So we feel pretty good about what we could see in Q2 on those trends. And, again, it always comes down to my mind to the same basic situation, which is the lowest-cost suppliers in this environment tend to win in these times of supply shock stress. And when you think about a lot of the assets in Americas, with their advantaged feedstock, their infrastructure, their capabilities, the complexity they can handle, they tend to be some of the lowest cost and best producers in these environments. And so I feel pretty good about how they will perform looking forward and especially in the near term. Okay. So let us just take the second question first. On FX, the simple way to think about it is just take whatever we put in the sales variance. So in this case, we had the 5% globally, and that pretty much drops all the way down. That is sales, that is SG&A, that is operating income, that is EPS. Because of the way our business is structured, it is very localized. And so our exposure to sales on translation is quite similar to our exposure to costs. So 5% would be that impact. As far as other income, yeah. You know, in the last few years, other income has been anywhere from $100 million to $200 million. I would expect this year for the full year, we will be on the lower end of that range. And to sort of characterize what is there. Right? It is operating income. It is part of operations. But we tend to put things there that usually are settlements, could be time lags, could be gains, losses on sales of things. So we put it there generally to isolate it so it does not get embedded into the sales and cost of goods sold from a trending perspective. So in this particular quarter, we had a gain on a sale. It was a cash gain. It was a real gain. But that basically created that. I do not expect very much in the next couple quarters. Hence, why I think the full year will probably be in the lower end of the range from the last couple years. Operator: And our next question comes from the line of John Roberts with Mizuho. Your line is open. John Roberts: Thank you. Could I ask if Sanjeev is not available today? Or is this the new format for the earnings calls? I am a little confused about EMEA. I thought the shortages from the Persian Gulf conflict were so severe that Europe was actually going to have to run at higher rates. Even though it is higher cost, we are going to need most of the latent capacity in the world to run higher. And so it sounds like you are still expecting it to be soft in June in EMEA. Matthew White: So, John, yeah, if you may recall in the past, we have always kind of alternated, and sometimes Sanjeev would be on or Steve would be on or not, and Sanjeev would kind of evolve to that. So now he is not on today, but he will definitely be on in a future call. Well, let us start with, as you know, the guidance of what we said is no economic improvement at midpoint. So that is just the baseline based on the guidance. So if you take that and extend it out, what it is implying is what we are seeing in Q1 just continues going forward. Whether or not it improves, we will see. But from what we experienced in our EMEA in Q1 on the on-site chemicals and energy on a year-over-year basis, we saw a decline based on the effects from those operating assets of the— John Roberts: Okay. Thank you. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is open. Kevin McCarthy: Yes. Thank you, and good morning. Matt, just to follow up on the volume discussion. If I look at your Americas number of plus two, I think that is the best that you have posted since 2022, which is coincidentally when we tend to think of the onset of the industrial recession, certainly in the chemicals industry anyway. So, you know, I am listening to you today talk about hard goods up double digits, energy and chemicals trending for the better. Do you have enough confidence to say we are now on the cyclical upswing, or do you think there is too much war-related uncertainty and potential for an oil shock to start playing offense, if you will, in the Americas? And then, wanted to follow up on helium as well. I guess my simple question would be how much incremental volume opportunity do you think may be available again, through long-term contracts that you are pursuing? Maybe you could speak to your flexibility on sourcing and how much of an inventory cushion you may be able to take advantage of here. Matthew White: So, Kevin, I always remain a little guarded. Right? I think I need to. But I sort of think about it as, you know, we have an engine here with a few cylinders. Right? And one cylinder is Americas, one is APAC, and one is EMEA. And we are not running on all three cylinders. So while the Americas both results and trend, I think, are positive, we are just not seeing that in EMEA, for example, today. So I think to see a true, what I view, global recovery, I would like to see all three running in the same direction. But time will tell how that ends up. But I feel in the Americas and, like you mentioned, the packaged gases, what we are seeing on some of the competitiveness in the US Gulf Coast, that does include commercial space, as you know. We expect that to continue to post some pretty good numbers. As far as are there offsets to that or not elsewhere in the world, that is the challenge that we need to see to kind of break out of this and start to see global positive buy. So I will say, you know, the global basis, while we showed 1% global volume, which is mostly our project backlog contribution, we did turn positive on base volumes. It is just not positive enough to round to 1% but it has started to turn positive. So we will see if that trend continues and actually breaks out and rounds to a positive base volume. But right now, you are seeing puts and takes around the world. And we will see if the comps lap to where that could be positive. Well, I mean, we feel good about our source. And we feel good about our capability to not only meet our current customer contractual commitments, but that we would have some excess molecules and assets to be able to deliver to future, new customers. As far as how much, it is really just going to be a function of the extension of this situation and where it goes. But we will be, you know, selective. We want to make sure we get the right kind of contracts that make sense with the right kind of customers that we know will make that commitment to supply. So time will tell. I mean, we have already been able to sign a few new long-term commitments. And we will just have to see how it plays out over the next several quarters. Operator: And our next question comes from the line of Laurence Alexander with Jefferies. Your line is open. Laurence Alexander: So good morning. Two quick ones. Just first, are you seeing in any regions or significant delays in projects where you are seeing kind of the CapEx decisions at least get delayed, even if the underlying production rates are fairly stable? And secondly, if customers have to shut down capacity because of outages because of feedstock supply issues, whether government-mandated or just they cannot get the molecules, your contracts do not give them any adjustment for that. I mean, they still need to pay you the same rate or pay the full exit penalty. Is that correct? Matthew White: Okay. So first on the delays. Just to segregate now, in our backlog, no. No concern. Right? What is in our project backlog right now is moving forward as expected. No concerns on that front. As far as potential new projects to be signed with customers' willingness to go to FID, essentially sign a contract, it depends on the end market. You know, I would say, as you imagine, electronics, commercial space, you are seeing a continued very strong push to move forward with projects and investments. I think when you get to the more traditional industrial markets, it is really geographic specific right now. I think in the US, there are a lot of interest for future investments. I think places like India, you are seeing some good positive views, but in other parts of the world, not so much. So that is more of a geographic specific. You know, as far as contracts, I mean, what it gets to is force majeure language. You know, this has been something you focus on heavily in any contractual business. We have worked and tested our force majeure language over many, many decades. Economic is not a force majeure as you can imagine. And so this is something that we always will work with our customers in these scenarios. But when we build these assets, you know, we do not benefit when things go great. And in the same token, we do not take the downside when they do not. So from that perspective, we are well protected against any type of economic force majeure or other aspects of that. But it is really, you know, something that is going to be a contract-by-contract review. Operator: And our final question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open. Arun Viswanathan: Great. Thanks for taking my question. Congrats on the results. Just a quick question on the earnings algorithm. So if I heard you correctly, it sounded FX was maybe 5% contribution to Q1 of that 10% that you saw. You are guiding to 7% to 9% for the year. So do you expect FX would continue to play that contribution for the year's EPS? And if you do fall short of your 10% goal, at what point is there other actions you would consider getting up there? Maybe increased buybacks or, you know, management actions or anything else that we should consider? Thanks. Matthew White: Arun, I think with the algo, as you well know, we have the management actions. We have the capital allocation. We have the macro. If you just take the macro in isolation, yes, we put a 1% FX tailwind in the assumption. I will say, and as you probably well know, you know, we base this number on sort of the first-of-month forwards, which is about a month old. Right now, spots are better. The foreign currency strengthened since that time. So that would provide FX upside if these spots remained. But we can set that aside. You know, as far as the management actions and the capital allocation, look. We know we need to get back to that 8% to 12% range excluding macro. I think we had a little bit of a drag, as you know, with helium for a period of time. We have about percent or so drag just on the engineering business from its timing of projects, which is really more just a function of what is done as internal projects that is capitalized versus external projects for a profit. And so we have got to get through those two, and I think that can get us back into that 8% to 12% range. So we will see. You know, right now, it is 7% to 9%, kind of range we have out there. And we have got to work through to get higher than that. Right? And we know that. And so that is how I would think about it. But the algo is still intact. And we will take incremental actions if we need to bridge this further to help get us back to that double-digit EPS growth. Operator: And that concludes our question-and-answer session. I would now like to turn the call back over to Mr. Juan Pelaez for any additional or closing remarks. Juan Pelaez: Abby, once again, nice job. Thank you, everyone, for participating in today's call. If you have any further questions, please feel free to reach out to me directly. Matthew White: Have a great day. Operator: And, ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Cerus Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to Tim Lee, Head of Investor Relations. Please proceed. Timothy Lee: Thank you, and good afternoon. I'd like to thank everyone for joining us today. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at ir.cerus.com. With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Vivek Jayaraman, Cerus' Chief Operating Officer and incoming President and Chief Executive Officer; and Kevin Green, Cerus' Chief Financial Officer. Cerus issued a press release today announcing our financial results for the first quarter ended March 31, 2026, the company's recent business highlights and outlook. You can access a copy of this announcement on the company's website at www.cerus.com. I'd like to remind you that some of the statements we'll make on this call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results, including our 2026 product revenue guidance and our expectations for product gross margin, non-GAAP adjusted EBITDA performance, P&L leverage and our government reimbursed R&D expenses and corresponding revenue, expected future growth, the potential for us to achieve GAAP profitability, the availability and related timing of data from clinical trials, our mission to establish INTERCEPT as the global standard of care, anticipated regulatory submissions and milestones, commercial expansion prospects, projected market opportunities for the INTERCEPT Blood System, including for ISC demand expectations with respect to our group purchasing agreement with Blood Centers of America and our multiyear agreement with the French National Blood Service, our potential platelet opportunity in Germany, the anticipated impact of tariffs and ongoing inflationary pressures and related regulatory effects of our business and other statements that are not historical facts. These forward-looking statements involve risks and uncertainties that can cause actual events, performance and results to differ materially. They are identified and described in today's press release and our slide presentation and under Risk Factors in our Form 10-Q for the quarter ended March 31, 2026, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On today's call, we will also be discussing non-GAAP adjusted EBITDA, which is a non-GAAP financial measure. Non-GAAP adjusted EBITDA should be considered a supplement to and not a replacement for measures presented in accordance with GAAP. For a reconciliation of non-GAAP adjusted EBITDA to net loss attributable to Cerus Corporation, the most comparable GAAP financial measure to the extent reasonably available, please refer to today's press release and the slide presentation available on our website. We will begin today with opening remarks from Vivek, followed by Kevin to review our financial results and lastly, closing remarks from Obi. Now it's my pleasure to introduce Vivek Jayaraman, Cerus' next President and Chief Executive Officer. Vivek Jayaraman: Thank you, Tim, and good afternoon, everyone. We appreciate you joining us today. At Cerus, our mission is clear: to expand access to safe blood for patients around the world. As we enter 2026, we are focused on delivering against that mission while executing on 3 core priorities: driving sustainable double-digit growth, advancing innovation, and strengthening our financial foundation. Our first quarter results reflect disciplined progress across each of these areas and reinforce our confidence in the path ahead. 2026 is off to a great start with strong first quarter results and increasing confidence in our sales outlook for the full-year. In the first quarter, product revenue, which reflects our core commercial business was $53.7 million, up 24% compared to the first quarter of 2025. This performance was driven by continued strength in our global platelet franchise and also accelerating demand in our U.S. IFC business. Based on our better-than-expected start to the year as well as our growing conviction in the underlying demand for INTERCEPT, we are raising our full-year 2026 product revenue guidance to $227 million to $231 million. In addition, we are raising full-year IFC revenue guidance to $22 million to $24 million. This updated guidance represents total year-over-year product revenue growth of 10% to 12% compared to 2025 and approximately 30% to 40% for IFC. From a top line perspective, North America accounted for nearly 70% of first quarter product revenue as our U.S. platelet franchise continues to serve as a foundation of our overall business. We are deeply grateful to our key customer partners, like the American Red Cross, who continue to place their trust in INTERCEPT. First quarter North American platelet volumes and treatable doses increased 6% and 9%, respectively, when compared to the first quarter of 2025. This gain outpaced the overall historical market growth rates. Looking forward, we anticipate further platelet penetration as we continue to expand adoption among blood centers and hospitals. A key enabler of this growth is our group purchasing agreement with Blood Centers of America, whose members represent approximately half of the U.S. blood supply. Since the agreement took effect on January 1, we have been focused on execution, educating members through targeted engagement, supporting implementation and expanding both existing and new customer relationships. We are already seeing early signs of traction, including increased activity at existing Cerus customers and new agreements to adopt PR platelets at BCA members who have yet to utilize INTERCEPT. Internationally, our EMEA business delivered another strong quarter, led by performance in France and Belgium. We continue to view the region as an important contributor to both near and midterm growth. The recently signed multiyear contract with the French Blood Establishment or EFS, enhances visibility into our forward outlook. We are deeply grateful to EFS for their continued trust in INTERCEPT. France was the first country of scale to fully adopt INTERCEPT to safeguard their platelet supply, and this contract renewal is a strong confirmation of the value they see in INTERCEPT. In Germany, progress on the INITIATE study continues to build the clinical and operational foundation for broader adoption over time. While we remain encouraged by the global opportunity, we are also navigating near-term challenges in certain regions. In the Middle East, ongoing conflict has created logistical complexities that may impact shipment timing. That said, we are actively managing the situation and believe that potential disruptions can be mitigated by strength in other parts of the business. Importantly, we remain confident in our long-term growth prospects in that region, and these near-term challenges were considered when deciding to increase our product revenue guidance for the full-year. Innovation remains central to how we expand access to safe blood and drive long-term growth. A key example is the continued successful rollout of our next-generation INT-200 illuminator across international markets, where we are seeing encouraging adoption and operational performance. Domestically, we are on track to submit our PMA for the INT -100 to the U.S. FDA this quarter, which represents an important milestone in bringing this technology to the U.S. market. Innovation is also evident in our U.S. IFC franchise, where demand continues to increase, supported by a growing number of blood centers manufacturing IFC, deeper utilization within hospitals and increasing awareness of its clinical and logistical advantages, particularly the highly valuable combination of immediate availability of fibrinogen alongside 5-day post- shelf life. As with our platelet franchise, we are seeing a marked increase in ISC engagement and adoption from BCA member blood centers under our new agreement. As a result, ISC demand in the first quarter measured by therapeutic dose equivalents increased approximately 120% year-over-year with revenue growth approaching 90%. We are seeing a continued shift towards kit-based sales, which supports both operational efficiency and long-term margin expansion. Taken together, these results reflect a business that is executing with focus, expanding access to safe blood, delivering sustainable double-digit growth, advancing innovation and strengthening our financial profile. While there is much work to be done, we are encouraged by the progress we are making and confident in the opportunities ahead. At the end of the day, the most important point to note is that we were able to meaningfully expand access to safer blood in the first quarter of 2026. Thank you for your continued interest in Cerus. I'll now turn the call over to Kevin to review our financial results in more detail. Kevin Green: Thanks, Vivek. You've just heard Vivek speak to 2 of our 3 pillars: growth and innovation. Today, I'll focus my comments on our third pillar, financial strength. First quarter financial tables are included in today's press release. As such, I'll focus most of my comments on key takeaways and insights. In addition to the 24% product revenue growth that Vivek mentioned, total revenue, which includes government contract revenue, increased 23% compared to the prior year results. By geography, product revenue growth was broad-based with both North America and EMEA reporting year-over-year gains of 20% or more. In EMEA, demand for our platelet product was the primary contributor, driven by both increased kit volumes and pricing discipline. As reported, EMEA revenues grew by 28%. Of that reported growth, favorable foreign currency exchange rates benefited EMEA revenue by approximately 11%. On a consolidated basis, FX provided a benefit of approximately 3% when compared to Q1 2025. In North America, growth was led by higher U.S. IFC sales as well as increased demand for platelet kits in both the U.S. and in Canada. Speaking to IFC, which at this point is exclusively a U.S. product, first quarter revenue was $5.7 million compared to $3 million during the first quarter of 2025. Switching now to government contract revenue. Reimbursement for government-related R&D expenses increased year-over-year. As I noted on our Q4 earnings call, we still expect full-year government-related R&D expenses and the corresponding reimbursement, which we recognize as government contract revenue to taper this year compared to 2025. Turning away from the top line to gross margin. Our first quarter gross margin was 52% compared to 58.8%. We call that first quarter 2025 margin is an unusually tough comp and was artificially high by approximately 2% due to a onetime true-up from the capitalization of inventorable charges and the nonrecurring release of previously accounted for favorable variances. With that said, the factors that we forecast to be headwinds in Q1 have proven to be slightly less impactful than we originally predicted. Nevertheless, these headwinds have been persistent, and we expect that to be the case for the remainder of the year. These referenced headwinds include inflationary pressures with shipping and fuel costs expected to persist, the impact of foreign currency exchange rates and the ongoing tariffs. Given the current trends, we continue to believe 2026 gross margin will be in the low 50s range, although we may see some relief should our assumptions on external factors prove conservative. Moving down the income statement. Operating expenses for the first quarter declined 7% compared to the first quarter of 2025. One of our key areas of focus supporting financial strength is disciplined control of operating expenses while growing revenue. To that end, SG&A expenses were largely consistent with the prior year, reflecting our ongoing focus to drive revenue growth without the need for proportional incremental investments in SG&A. R&D expenses declined year-over-year due in part to lower development costs of the INT-200 as we approach our planned U.S. PMA submission. Importantly, as you can see from this slide, Cerus funded development programs have been trending down as a percentage of total R&D expenses. Similar to SG&A, we've been making a concerted effort to generate leverage by focusing relatively more R&D spend on government-reimbursed initiatives compared to those that Cerus funds. Let's now turn to the bottom line and non-GAAP adjusted EBITDA results. For Q1 2026, GAAP net loss attributable to Cerus continued to show year-over-year improvement to a modest level of $1.6 million. As an organization, we are committed to not just growing non-GAAP adjusted EBITDA, but achieving GAAP profitability. On a non-GAAP basis, adjusted EBITDA for the first quarter totaled $4 million and marked our eighth consecutive quarter of posting positive adjusted EBITDA. We continue to match the strong commercial results with disciplined expense management and deliver the inherent leverage in our business. Looking ahead, for the balance of 2026, we expect to deliver our third consecutive year of positive adjusted EBITDA results. Turning to the balance sheet and associated cash flows. We ended the first quarter with cash and equivalents of $80.4 million compared to $82.9 million at the end of 2025. Cash used from operations was $3 million compared to $800,000 during the same period of the prior year. Cash used during the first quarter was primarily tied to working capital investments, specifically increased inventory levels in support of the expected revenue growth as suggested by our increased guidance. With all of this said, this progress has resulted in a stronger business. Since 2019, product revenue has grown at a compound annual rate of 18%. We've used that growth to expand patient access to INTERCEPT in new geographies and to continue investing in our new wave of innovation, including INTERCEPT fibrinogen complex, the new INT-200 device and INTERCEPT red blood cells. At the same time, we've managed the business with discipline. Since 2019, operating expenses have increased by less than 3% annually, demonstrating the operating leverage in our business as we continue to scale. As a result, net loss has narrowed meaningfully during the period from 2019 to now, and our adjusted EBITDA has consistently grown over the last few years. Accordingly, we have line of sight into GAAP profitability. With that, let me turn it over to Obi for his closing comments. William Greenman: Thank you, Kevin, and good afternoon, everyone. I want to thank all of you for joining us today for what will be my final earnings call as Cerus' President and CEO. As I reflect on 15 years in this role and more than 30 years with the company, I do so with deep gratitude to our shareholders, to our blood center partners, to our employees and to the clinicians and patients who have believed in our mission. The advocacy for our pathogen inactivation technology from our largest and longest-term blood center customers like the French EFS, Canadian Blood Services, the Swiss Red Cross, One Blood and especially the American Red Cross mattered meaningfully over the company's 35-year-old history. From the beginning, our vision has been to make INTERCEPT the global standard of care for transfused blood components and to establish Cerus as a leader in transfusion medicine innovation. When I became CEO 15 years ago, Cerus was still in the early stages of translating that vision into broad clinical and commercial impact. Earlier in 2006, when we took back the global commercial rights to INTERCEPT from Baxter and built our European organization to commercialize the platform in Europe and beyond, the clinical experience with INTERCEPT amounted to fewer than 10,000 platelet units transfused. Today, INTERCEPT is available in more than 40 countries. We have secured 4 FDA PMA approvals in the United States, established INTERCEPT as the standard of care in multiple markets, including the U.S., France and Switzerland and shipped kits equivalent to treating more than 22 million blood components. That is meaningful progress for Cerus and more importantly, it's meaningful progress for patients and healthcare systems around the world. Yet, the underlying need remains as compelling as ever. Safe and available blood is one of the fundamental requirements of modern health care. Patients undergoing cancer treatment, trauma care, complex surgery, childbirth and chronic transfusion support all depend on blood products that are both safe and ready when needed. That is the mission we share with our blood center customers every day. It is also why our work has impact far beyond our company, advances in blood safety and availability strengthen care delivery across the global health care system. Today, Cerus is better positioned than at any point in our history to help meet that need. We have built a global commercial footprint, a maturing INTERCEPT portfolio designed to address all major transfused blood components and an organization with the experience and discipline to execute. While we have made meaningful strides towards making INTERCEPT the global standard of care, I believe the opportunity ahead remains substantial. That is especially true as we advance the INTERCEPT red blood cell program. 2026 is an important year for the RBC program with major regulatory and clinical milestones ahead in the second half. The Phase III RedeS study, which includes the broader chronic transfusion experience required for an FDA PMA has completed enrollment and is expected to read out in the fourth quarter. As a reminder, the RBC program previously met its primary endpoint in the Phase III ReCePI study and the acute transfusion data from that study were included in the CE Mark submission, which is now under French ANSM competent authority review for potential approval in Europe. We believe INTERCEPT red cells remains one of the most important opportunities in blood safety and success there could materially expand both our clinical impact and our long-term growth potential. For those of you who have followed Cerus over the years, you know that transfusion medicine is careful and slow to adopt innovation. One of the defining moments in Cerus' history was the FDA's 2019 guidance on reducing the risk of transfusion-transmitted bacterial infections with an implementation deadline in October 2021. That guidance helps accelerate INTERCEPT adoption in the U.S. and influence many other markets that look to the FDA as an important benchmark. It was a reminder that durable change in the field is possible and that when regulatory standards evolve, the impact on patient care can be significant. We have built a strong foundation that supports an enduring company, a clear mission, differentiated technology, deep customer relationships, global regulatory and commercial capabilities and a pipeline with meaningful growth drivers still ahead. That foundation is what gives me such confidence in Cerus' future. Over the last 3 decades, we have built an exceptional team united by the opportunity to protect the blood supply and help ensure that life-saving transfusions are available for patients when they are needed most. For many of us, this mission has always been personal. We remember the devastating impact that HIV and hepatitis had on the blood supply in the 1980s and 1990s, and we were determined to help create a different future, one in which transfusion-transmitted infections would pose far less risk in the face of new pandemic threats and blood centers and hospitals would be better equipped to serve patients safely and reliably given the positive impact of INTERCEPT on blood donor deferrals. It has been the privilege of my career to help build Cerus into a lasting purpose-driven company, and I am very pleased to pass the baton to Vivek. He is a bold, team-first leader who will build on the strong foundation we have established, continue advancing our patient-first mission and lead Cerus through its next phase of growth, innovation and value creation for all stakeholders. With that, let me turn the call over to the operator for questions. Operator: [Operator Instructions]. The first one comes from the line of Josh Jennings with TD Cowen. Joshua Jennings: Congratulations, Obi, on moving into your next chapter. It's been a long resilient run by you and you're leaving the company in a position of strength here looking at these 1Q results and being on the cusp of some RBC approvals globally. We'll miss you, but congratulations, Vivek, on your new CEO seat. I'd like to start just with -- just asking about guidance. It seems like the uptick is -- or it looks like the uptick is being driven mostly by IFC strength, but also by INTERCEPT platelet strength. Maybe just talk about the outlook for the U.S. INTERCEPT platelet franchise versus OUS INTERCEPT platelet franchise and where you're seeing more upside relative to the outlook at the beginning of the year. William Greenman: Yes. Thanks a lot, Josh, and thanks for the kind comments to start. Vivek, do you want to handle that question? Vivek Jayaraman: Yes, I'd be happy to. Josh, echoing of these statements, thanks for the kind words, very much appreciated and certainly appreciate your continued interest in our story. The thing that's most encouraging to me about Q1 results is that the strength of the performance is really broad-based, both globally and across product category. You're right to point out that IFP performed quite well and was a significant part of our revised upward guidance. As you also correctly pointed out, platelets is a big component of that as well. If you recall, late last year and earlier this calendar year, we pointed to the BCA agreement in the U.S. and the opportunity to have effectively a hunting license in about half of the U.S. market where relatively speaking, PR platelets were underpenetrated. We saw good progress in the first quarter in that section of the market. We also saw strength with platelets internationally as evidenced by what Kevin spoke to in terms of strength in our EMEA organization. Then we also highlighted the renewed contract with the ESS. As we think about the outlook for the balance of the year, we see continued solid platelet growth in both geographies, continued expansion in the U.S. under the umbrella of the BCA agreement as well as continued adoption, both in growth areas internationally, but then also in some of our core markets where we're seeing a recommitment for customers. Really, there's a lot of enthusiasm coming out of first quarter results and the general qualification of demand in the marketplace. Joshua Jennings: Maybe just clearly, the BCA agreement is bearing early fruit here that may get stronger over the course of the year. Just within U.S. IFC and BCA blood centers, I think you commented, Vivek about marked increased demand from BCA blood centers. Any way you could just build out, provide a little bit more detail and whether you're seeing kind of new IFC customers coming on and how that outlook drove the guidance uptick for the IFC franchise. Vivek Jayaraman: Yes, of course. Yes, certainly happy to provide a bit more color there. There are multiple factors at play, Josh, as I'm sure you can appreciate. The first is we're actively in the process of moving our historical production partners under the BCA agreement. As we do that, they're able to take advantage of the resource sharing model that BCA utilizes. Their outlets in terms of potential both blood center customers and ultimately hospital customers continue to grow. In addition to that, we've had BCA members who weren't previously IFC manufacturers reach out to us and initiate the process of beginning IFC manufacturing. Then fundamentally, as we've talked about previously, as we transition from selling the finished therapeutic to the kits to blood centers, that enables us to leverage and partner with the sales and marketing channels up to blood centers, thereby significantly expanding our reach and our ability to engage with more hospitals. All of those factors come together and effectively create an environment where we're just reaching out to more hospitals, engaging a broader number of clinicians about IFC, and that's all occurring while the data we collect and the user experience on the product continues to grow. It's been really encouraging, but still very much early days. I mean we're proud of the Q1 results and the outlook, but I'll remind you that we're still single-digit share in terms of market penetration. There's a tremendous amount of upside in this market. Joshua Jennings: Congrats on a strong start to the year. Operator: Our next question comes from the line of Bill Bonello with Craig-Hallum. William Bonello: I also wanted to say congratulations to Obi and Vivek. In terms of questions, so you gave some timing on the expected regulatory catalysts. I'm wondering if you could maybe give us some sense of the time line from the events that you talked about today until we reach revenue generation and maybe some of the key milestones along that pathway to commercialization. William Greenman: Yes. Thanks for the question, Bill. I presume you're talking about red cells and not the INT-200, which we will be filing for PMA imminently here in the United States. William Bonello: Talking about them both. William Greenman: Well, I'll start with red cells, and I'll let Vivek cover INT-200 because we're also really excited about that. For the near term, the milestones through the remainder of the year, we clearly are very focused on the ANSM review of the red cell program, and we're happy to announce this week, we actually completed our recertification audit with TUV. That's exciting. We have 2 additional milestones for the CE Mark. One is the ANSM review and then ultimately, an audit of the manufacturing facility. Then as far as the pathway to ultimate revenue there, we would -- once we have an anticipated approval of the red cell CE Mark, we move into sort of an early launch of that product with an iteration of the device to ultimately improve the overall scale-up and operational efficiency of processing red cells. That's still a few years out, but the goal right now is to just focus on getting that CE mark so that we can launch the product. Vivek, do you want to cover the INT -200 in the U.S.? Vivek Jayaraman: Sure. I'd be happy to. Thanks for the question, Bill. As we indicated earlier, we're moving towards a submission to the U.S. FDA, PMA submission for the INT -200 device this quarter, in the second quarter of 2026. We would anticipate a launch in the first half of '27. I anticipate similar to what we're experiencing in international markets that there'll be a lot of enthusiasm for that launch. It's clear evidence of our commitment to innovation in this space, which I think differentiates us from a lot of our peers, and it will serve ultimately as the device foundation for the U.S. market. hat is an upcoming catalyst and one that we're very excited about given the positive receptivity to the Illuminator in international markets. William Bonello: Just as a follow-up to that, maybe just give us some thoughts on sort of the implications in terms of business, whether it's penetration or pricing or simply this being an enabler of retention in terms of launching that INT -200. Vivek Jayaraman: There's a significant market in the U.S. with respect to our installed base of illuminators, and that will be an area of focus for us there. Beyond that, as we think about de novo growth opportunities, as I mentioned earlier in response to Josh's question, there are some customers in the U.S. who have yet to begin their journey with us in terms of adoption of the INTERCEPT technology and part of that process will be equipping them with Illuminator that will be the -- most likely the INT-200 device. While we're not providing specific product level guidance in terms of our device placement, what I can say is a significant enabler in terms of serving as the underlying foundation for our business. Beyond that, too, as we think about, as we stated before, the sort of demonstrated investment in innovation and commitment to continuing to advance research and device development in this space, we're positioned very uniquely relative to our industry peers in this area because we continue to invest in R&D research and ultimately bring products to market that meet customer needs and enhance their operational efficiency. We're very much looking forward to introducing that product, and you'll hear more about our plans for U.S. commercialization certainly post-submission of the PMA and then as we approach our launch date. Operator: [Operator Instructions]. Our next question is from Mark Massaro with BTIG. Mark Massaro: Obi, it's been great working with you, and congrats as you transition into the Chairman role and Vivek, congrats on your well-deserved promotion to CEO. All right. Moving into the business, I wanted to get a better sense on the guidance because when I look at the IFC business, you grew 90% in Q1 here. The 2026 guidance for IFC has been raised to approximately 30% to 40%. I'm just trying to get a sense about the seasonality of this business. It looks like in Q3 last year, it was down sequentially. I recognize there's probably lumpiness as you roll this out. Can you just walk us through the assumptions as to just the delta between the really strong growth in the start of this year and your full-year growth outlook for IFC? William Greenman: Yes. Thanks for the question, Mark, and thanks for the comments to start as well. Vivek, do you want to cover that? Vivek Jayaraman: Yes, I'd be happy to. Mark, thank you for the kind words about the org transition, much appreciated. You're right to point out that the business is a little bit lumpy as we're in this early growth stage. I just want to emphasize that our conviction around continued growth and the fact that it's still we're a single-digit market share player and feel that there's a tremendous amount of headroom. I don't want any of that enthusiasm to be lost as we talk about some of the specifics about the current position itself. I'll remind you that a year ago, there were some anomalies in terms of our posted results. If you recall, we deferred from an accounting standpoint, some revenue recognition in the second quarter as we were sort of starting the process of transitioning from a finished therapeutic sale to a kit sale. That transition continues and really, we're driving towards being fully kit sales ideally by the end of this calendar year. That may bleed a little bit into 2027. We've been talking about really unit volume from the standpoint of therapeutic dose equivalents as opposed to the revenue growth. You'll see that current transition -- you'll see that transition accelerate through the balance of 2026. That was part of what's factored into the guidance for the full-year. Obviously, we took it up pretty significantly from original guidance of $20 million to $22 million for the full-year now to $22 million to $24 million. Underlying growth remains strong. There'll probably be some period-to-period idiosyncrasies just given that transition and the nature of our business model. As we think about blood centers manufacturing IFC, hospital starts, some of the things that we're paying attention to, all of those trend lines are pretty strongly positive. Hopefully, that gives you a little bit more color. Certainly happy to answer any more questions about the IFC business as you have them. Mark Massaro: Maybe switching gears to red blood cells. I think I heard you talk about the transition to ANSM, and it seems like we're now getting close. I think you're on the clock. As we put these pieces together, I think you've talked about a readout in Q4 of '26. Would it be reasonable to think that CE Mark could occur shortly after that -- the readout time period? I'm sort of coming in somewhere between either late Q4 or first half of '27, but I just wanted to get your sense on the timing of CE Mark. William Greenman: Yes. Thanks, Mark. I think right now, it's probably safe to assume that it will be in the first half 2027 approval time line, just given that we don't know what questions ANSM will ask and the time line for our responding to those questions. I think that's the timing you should be looking at. I mean I think we'll have a lot more clarity through the year-end. I think specifically as we think about our Q3 earnings call, not only will there be the Phase III RedeS study readout in that time frame, but also some increased clarity around the ANSM timing. That's the way I think you should think about it. Mark Massaro: Then I know probably not core to the thesis or anything, but I figured I would ask if you're still planning to pursue regulatory approval for platelets in China and maybe any update on that process? William Greenman: Yes. Thanks, Mark. Yes, Vivek, do you want to cover that? Vivek Jayaraman: Yes, I'd be happy to. Mark, it's a great question. We absolutely continue to be excited about the opportunity in the China market. In fact, we will be meeting with our joint venture partner, ZBK, at the upcoming ISCT meeting, which is scheduled to take place in Kuala Lumpur in mid-June, and so part of what we're continuing to refine is our strategy to collect in vitro data that's requested in the Chinese market for resubmission to the NMPA. In parallel with our continued channel checks and clinical engagement, it sort of continues to validate the excitement for and the need for pathogen activation in that marketplace. It's probably an opportunity that will realize in terms of revenue generation towards the latter part of this decade, but it's very much a market opportunity that we're working in partnership with ZBK under our joint venture agreement to advance. Operator: Thank you. Ladies and gentlemen, this will conclude our Q&A session and conference for today. Thank you all for participating. You may now disconnect.
Operator: Greetings, and welcome to the Civeo Corporation First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Anyone requiring operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Regan Nielsen, Vice President, Corporate Development and Investor Relations. Please go ahead. Regan Nielsen: Thank you, and welcome to Civeo Corporation’s first quarter 2026 Earnings Conference Call. Today, our call will be led by Bradley J. Dodson, Civeo Corporation’s President and Chief Executive Officer, and E. Collin Gerry, Civeo Corporation’s Chief Financial Officer and Treasurer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain anything other than historical information, please note that we are relying on the safe harbor protections afforded by federal law. These forward-looking statements speak only as of the date of our earnings release and this conference call. We undertake no obligation to update or revise these statements except as required by law. Any such remarks should be read in the context of the many factors that affect our business, including risks and uncertainties disclosed in our Forms 10-K, 10-Q, and other SEC filings. I will now turn the call over to Bradley. Bradley J. Dodson: Thank you, Regan, and thank you all for joining us today on our first quarter 2026 earnings call. I will start with some key takeaways for the quarter and summarize our consolidated and regional performance. After that, Collin will provide further financial and segment-level detail, and I will conclude our prepared remarks with our outlook for 2026. We will then open the call for questions. There are four key takeaways from the call today. First, we delivered a strong start to 2026, outperforming our expectations. For the quarter, consolidated revenue was up 20% and adjusted EBITDA was up 78%. Revenue growth was driven by a mixture of improved occupancy across the Canadian assets in both the oil sands and LNG markets, continued growth in our Australian Integrated Services business, contributions from acquired villages in Australia, and improvements in our mobile camp fleet utilization. We also benefited from foreign currency improvements. This was all complemented by strong incremental margins in Canada as a result of the cost reduction initiatives that we took last year. The second key takeaway is we continue to execute on our disciplined and balanced capital allocation strategy, returning capital to shareholders while enhancing Civeo Corporation’s financial flexibility. Third, we remain confident in the revenue trajectory of the business as a whole and are raising the lower end of our revenue guidance. The midpoint of the revised guidance implies 8% revenue growth for the year. Our confidence stems from continued momentum in the Australian Integrated Services platform and an increasingly robust bid pipeline from North America asset and service deployment. As of today, we are actively bidding on projects with total contract values in excess of $1.5 billion, which is the strongest we have seen to date. While much of this growth is dependent on customers reaching final investment decisions, which is outside of our control, we are excited about the opportunities that these present for later in 2026 and going into 2027. The last key point: the cost impacts of the ongoing conflict in Iran and associated dislocations with global energy and raw materials trade will likely have an impact on our margins. Australia is highly dependent on normalized global seaborne energy trade for diesel and other fuels. As a result of this and the potential associated impact on inflation, energy prices, and the impacts of those variables on our customers’ activity, we are anticipating temporary inflationary impacts to our adjusted EBITDA. Thus, we are maintaining our initial guidance of $85 million to $90 million of adjusted EBITDA for 2026. I will start with some operational results for the quarter. On a consolidated basis, our first quarter results reflect strong year-over-year growth, with revenues increasing 20% and adjusted EBITDA increasing 78% compared to the prior-year period. In Australia, performance was strong for the first quarter, supported by the full quarter contribution from the villages we acquired in May 2025, as well as continued revenue growth in our integrated services. In Canada, we delivered strong year-over-year improvement with higher occupancy across key lodges and meaningful margin expansion. Importantly, this reflects both improved activity levels and the continued benefit of structural cost improvements we implemented last year. From a macro perspective, our operating environment remains dynamic. Commodity prices, including oil and metallurgical coal, have been volatile, and customer spending remains disciplined in both Australia and Canada. We are focused, therefore, on maintaining our flexibility as conditions continue to evolve. In Australia, met coal prices are currently in the $230 per ton range, which is up approximately 25% from the second half of last year. Last quarter, we were optimistic that healthy commodity prices would drive higher occupancy in our villages in 2026. However, the ongoing disruption to global supply chains as a result of the war in the Middle East has likely shifted the timing of any such uplift into 2027. On the oil side, prices are undoubtedly higher. Activity levels have not changed, as our customers’ planning requires much longer-term perspectives in terms of improved oil prices to adjust their activity levels. Said differently, there is too much uncertainty in the oil market for our customers to change spending plans at this time, and as such, cost discipline remains their priority. From a timing perspective, we will likely see a deferral of turnaround activity in Canada from what normally occurs in the second quarter into later in this year. Turning to capital allocation. During the quarter, we repurchased approximately 500,000 shares, representing approximately 4% of Civeo Corporation’s shares outstanding at year-end 2025. We have now completed approximately 96% of our current authorization and remain committed to completing it as soon as practical. As a reminder, upon the completion of this current authorization, we have an additional authorization in place for repurchase of up to 10% of the company’s outstanding shares. We amended and extended our credit agreement also during April, increasing the company’s total revolving capacity and extending the maturity of our bank agreement to April 2030. This further enhances Civeo Corporation’s liquidity and provides additional flexibility as we evaluate capital deployment opportunities going forward. Stepping back, before I turn it over to Collin, I want to reiterate my tremendous confidence in Civeo Corporation’s future. The bid pipeline in North America is robust, with levels of inbound inquiries for beds and services that I have not seen since the oil sands days of the early 2000s. Like then, this demand is highly project dependent, meaning dependent on positive final investment decisions. However, unlike the 2015 to 2020 time frame when North America growth almost exclusively depended on one major LNG project, this time it is especially exciting given the variety and volume of different projects. While we recognize growth will not be linear, we are confident in our ability to weather the changes as they arise, just as we are navigating today’s energy dislocation. I am confident that our values of service, quality, and excellence coupled with our world-class asset base and asset availability position Civeo Corporation well for the opportunities ahead. What we do best is take care of people. If the industry demand materializes to even a fraction of what is outstanding today, there will be a lot more people for us to take care of. This is an exciting time for Civeo Corporation. We are more confident than ever in our actions, positioning, and prospects for growth and value creation. With that, I will turn it over to Tom. E. Collin Gerry: Thank you, Bradley. Thank you all for joining us this morning. Turning to the income statement, today we reported total revenues for the first quarter of $172.7 million compared to $144 million in 2025, an increase of approximately 20%. Net loss for the quarter was $3.8 million, or $0.34 per diluted share, compared to a net loss of $9.8 million, or $0.72 per diluted share, in the prior-year period. During the quarter, we generated adjusted EBITDA of $22.5 million compared to $12.7 million in 2025, an increase of 78%. Operating cash flow in the quarter was negative $9.7 million, primarily reflecting expected seasonal working capital outflows in the first quarter. The year-over-year increase in revenue was primarily driven by higher activity levels in both Australia and Canada, including the contribution from the villages we acquired in May 2025 in Australia and higher occupancy across key lodges in Canada. The year-over-year increase in adjusted EBITDA was primarily driven by higher occupancy and improved margins in Canada, as well as increased contributions from the Australian villages acquired in May 2025. Looking at Australia specifically, first quarter revenues were $123 million, up 19% from $103.6 million in the prior-year quarter. Adjusted EBITDA was $21.8 million compared to $19 million in the prior-year period. The increase in revenues was primarily driven by the contribution from the villages acquired in May 2025 as well as continued growth in our integrated services business. These gains were partially offset by modest softness in portions of the legacy owned village portfolio. The increase in adjusted EBITDA was primarily driven by the contribution from the acquired villages, partially offset by modest softness in portions of the legacy owned village portfolio. Australian billed rooms in the quarter were approximately 676,000 compared to approximately 626,000 in 2025. Our daily room rate for Australian owned villages was $83 compared to $75 in the prior-year period, with the increase primarily reflecting the strengthening of the Australian dollar relative to the U.S. dollar. Turning to Canada. First quarter revenues were $49.6 million compared to $40.4 million in 2025. Adjusted EBITDA was $5.2 million compared to negative $0.8 million in the prior-year period. The year-over-year improvement was driven by higher occupancy across key lodges, as well as the continued benefits of cost reductions implemented during 2025. Canadian billed rooms totaled approximately 434,000 compared to approximately 359,000 in the prior-year quarter. Our daily room rate was $99 compared to $93 in the prior-year period. Now I will turn to our capital structure. As of 03/31/2026, total liquidity was approximately $68 million. Total debt was $215 million and net debt was $199 million, resulting in a net leverage ratio of approximately 2.2 times. As Bradley mentioned, during the quarter, we amended and extended our credit group, increasing total revolving capacity to $285 million and extending the maturity to April 2030. This enhances our liquidity profile and provides additional flexibility to support both shareholder returns and potential high-return growth investments. Turning to capital allocation. Capital expenditures for the quarter were $4.1 million compared to $5.3 million in the prior-year period and were primarily related to maintenance. During the quarter, we repurchased approximately 500,000 shares at an average price of $28.06, or approximately $14.4 million. We will continue to take a disciplined and opportunistic approach to capital allocation, balancing shareholder returns with maintaining flexibility to support the business. As we think about the market in front of us today, we are seeing opportunities to deploy capital at attractive returns and will prioritize preserving dry powder to pursue those while maintaining a strong balance sheet and a balanced approach to shareholder returns. With that, I will turn it back over to Bradley. Bradley J. Dodson: Thank you, Collin. I would now like to turn to our outlook for 2026. For the full year 2026, we are raising the low end of our revenue guidance to $675 million to $700 million from our prior range of $650 million to $700 million. This increase reflects continued momentum in the Australian Integrated Services platform and continued recovery in our Canadian business. While we are encouraged by the strong start to the year and the underlying revenue trajectory of the business, we are maintaining our adjusted EBITDA guidance of $85 million to $90 million for 2026. This reflects the impact of higher input costs, particularly diesel, as well as broader inflationary pressures associated with ongoing disruptions in the global energy markets. In addition, customer focus on cost continues to influence activity levels and the timing of certain projects. As a result, despite the improved revenue outlook, we are maintaining our adjusted EBITDA guidance and we feel that is appropriate at this time. We also continue to expect capital expenditures in 2026 to be in the range of $25 million to $30 million. I will now provide additional color on our expectations by region. In Australia, from a macro perspective, metallurgical coal prices remain at healthy economic levels. However, the recent increase to diesel prices has driven customers to focus more on cost efficiency, which has tempered what we might otherwise have expected in terms of incremental upside to our initial occupancy guidance. As a result, activity levels continue to reflect a more conservative operating posture by our customers, similar to what we would have expected in a sub-$200 per ton met coal environment. Importantly, we have not experienced any material operational impact from diesel supply dynamics to date. While diesel prices have moderated some, we expect these dynamics to continue to limit near-term upside in activity levels relative to what we had initially contemplated when establishing our guidance range for 2026 and may delay any meaningful upside in occupancy. Based on current customer discussions and our contracted room nights, we continue to expect generally stable occupancy across our owned village portfolio through the balance of the year. In our Australian Integrated Services business, we continue to see a solid set of growth opportunities as we advance towards our goal of A$500 million in annual services revenues by 2027. In Canada, we are encouraged by the strong start to the year with improved occupancy and continued benefit from the structural cost actions implemented during 2025. As we look to the remainder of the year, we are continuing to refine our expectations around Canadian turnaround activity. At this point, we are seeing some activity that we had previously expected would occur in the second quarter shift to later in the year. As a result, we expect a more back-half-weighted cadence of activity relative to our initial expectations, though overall activity levels remain consistent with our full-year outlook. We also began mobilization under our previously announced contract supporting correctional facilities in Ontario in April, and we are pleased with the early execution on that contract. Importantly, this award represents a meaningful milestone for Civeo Corporation, marking our first integrated services contract in Eastern Canada and our entry into a new end market. We believe this is a strong proof point for the scalability of our integrated services platform in North America. We are actively pursuing additional opportunities to build on this momentum, further expanding and diversifying our revenue base. More broadly, oil sands activity remains stable, though customer focus on cost discipline continues to influence commercial dynamics across the region. Looking ahead, we remain encouraged by the level of business development activity tied to North American infrastructure projects. Our team continues to see strong engagement across LNG, power, and data center-related projects, and we believe that we are well positioned to capture these opportunities as they progress. Civeo Corporation is well positioned to capitalize on opportunities that a potential infrastructure construction boom represents. We have 2,500 mobile camp rooms strategically located in Western Canada in both Alberta and British Columbia that are immediately ready to deploy. We also have the ability to redeploy approximately 7,000 of our oil sands lodge rooms for the appropriate infrastructure project. Given their location and configuration, which were purpose-built for colder climates, these are best suited for projects in the Northern U.S., Canada, and Alaska, where transportation from Alberta and British Columbia will be less of a factor. As the U.S. market for workforce accommodations absorbs and fully utilizes existing capacity, our assets will become even more attractive than new-build assets. That said, these projects remain dependent on final investment decisions, and we continue to expect that any meaningful financial contribution will occur in 2027 and beyond. Overall, our outlook reflects a strong start to the year combined with a continued focus on disciplined execution and maintaining financial flexibility while positioning the business for long-term value creation. We will now open the call for questions. Operator: Ladies and gentlemen, to ask a question, please press star then 1 on your telephone keypad, and a confirmation tone will indicate your line is in the queue. You may press 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Stephen Gengaro with Stifel. Please proceed. Stephen Gengaro: Thank you, and good morning, everybody. Bradley, hey. Hi. How are you, Bradley? So when we think about the U.S. market, and in Canada as well, one of your competitors—at least one of the big accommodations players in North America—just lost a bunch of capacity, and it seems like the data center demand is extremely strong and the supply is extremely low. So I am curious how you are thinking about that opportunity. Anything you can share on traction of maybe mobilizing assets in the U.S. market and starting to gain traction in that market? Bradley J. Dodson: In terms of the U.S. market and both data center opportunities as well as adjacencies to data centers around power, we continue to be extremely active in terms of bidding into those markets. As I made comments in the materials, all of our available assets are in Western Canada. So proximity to where the assets are now helps our bidding posture, because transportation costs to move assets into where the customer needs them is a material portion of delivering a room ready for occupancy. So where I was alluding to, we continue to be, we believe, better positioned in the Northern U.S. and Canada and Alaska to redeploy those assets. In terms of overall activity, it is as busy as we have seen it. I mentioned we have 2,500 mobile camp rooms. We have bid those out multiple times, and we are seeing increased interest in our multistory lodge rooms to be redeployed as well. Stephen Gengaro: Thanks. And have you seen from customers yet— I might have asked you this last quarter—any kind of concerns about availability? We are seeing it clearly on the power side around data centers, and pricing becomes less important than access to power; in your case, accommodations. But are you seeing any of that concern from your customers yet? And if not, do you think it is close? Bradley J. Dodson: I think you summed it up well at the latter part of your question. I think it is an incredibly dynamic market right now. And as we have in our IR deck, we see 35,000 to 50,000 room demand across North America, and right now there is not that much capacity. So I would say that it has not tipped over into that fear of availability broadly. There is certainly—with certain customer projects, particularly on the U.S. side of things—expediency, being able to meet time frames and for first beds, is more important than price, although price continues to be a consideration. So having available assets has a lot of value today. And to your point, the market is starting to tighten up, and concerns about availability are starting to come out in customer conversations. Stephen Gengaro: Thanks, Bradley. And then maybe just one more, and this might be a little bit harder. If we go back in time and you built out the oil sands—and I forget the exact numbers—but if you needed 1,000 folks to construct the facility and develop the asset, the operating personnel was something less than that—I do not know if it is 50% or 60%—I do not remember correctly. But when your account business seems to be pretty baseload right now, when you think about these other opportunities, is there any way to think about that dynamic? Like, if you deploy 2,000 rooms, there is three, four, five years of demand, and then the operating side is X, or is it too early in the process to get that set? Bradley J. Dodson: Let me frame it this way. The opportunity set in North America right now is construction-related. Construction work is great. It does have a finite life. I see the next three to five years, with the current bidding pipeline or opportunity set, looking strong for three to five years. But to your point, whether it is a data center, an LNG facility, an oil sands mine, or a pipeline, once construction is complete, there is not a need for accommodations. So construction work is great. It is a great shot in the arm. We have an opportunity set, as we said in our prepared comments, that is as large by a factor of two or three as we have seen since the early 2000s. And it is going to be construction-related. So it is deploy assets and earn a return on those assets, and then, should the construction projects start to space out, we could see a longer-than-three-to-five-year period of demand for accommodations in North America for construction. And that would be favorable for longer-term utilization, particularly the mobile camp. Stephen Gengaro: Right. Thank you. Everything seems to be extending longer than we think, which is a positive, but that is great color. Thanks for taking the questions. Operator: The next question comes from the line of Stephen Michael Ferazani with Sidoti and Company. Please proceed. Stephen Michael Ferazani: Hi, good morning. This is Alex on for Steve. Thanks for taking questions. You alluded to this in the prepared remarks, but maybe I could follow up a little bit just for clarity on how much of the strong Canadian 1Q performance you would attribute to customer timing, aka pull-forwards? Bradley J. Dodson: I would say very little was a pull-forward. There was one in the first quarter. A customer had an unexpected situation, which added some occupancy during the quarter. April has started off pretty strong; we are done with April, but April was a pretty strong start to the second quarter. What we tried to allude to in the prepared comments was: look, oil has gone from $60 to $65 to, at times, close to $100. That is great for our customer base. They are focused on producing as much as they can into that price dynamic, which has two implications. One, Q2 and Q3 are usually the time period in Canada when the customers do planned annual maintenance. As we mentioned in the comments, we see that likely pushing out into later in the year, as opposed to being stronger in the second quarter, as they focus on production. It also has them continue to be focused on cost containment, because they are not making—other than trying to push production—changes to spending activity as if it is a $90-per-barrel market. Stephen Michael Ferazani: Very helpful context. And then one more from us on Australia. You know, you have continued to report strong and growing Australian services revenue. Could you talk a little bit about what the labor market is like there now—any challenges with staffing, or any room to expand? Bradley J. Dodson: Labor availability continues to be a struggle across our Australian business. Our HR team down there is hyper-focused on recruitment and retainment. It is one thing to get people hired; it is another thing to keep them in the business long term. Labor availability and therefore cost—because we have to use temporary labor when we do not have a full complement of full-time employees—are something that we are focused on. We are recruiting—one of the tough positions for our business is your head chef at each location. We are recruiting foreign chefs to come in and work rotations for us, and that has helped some. But we are still not to the labor cost that we would like to have there. Stephen Michael Ferazani: Understood. Thanks for taking ours. Operator: And the next question comes from the line of David Joseph Storms with Stonegate Capital Partners. Please proceed. David Joseph Storms: Sorry about that. I wanted to hold on Australia for a second here. We have talked in the past about $200 met coal being an important benchmark. I know you mentioned the challenged cost environment. Can you help us maybe understand a little better about how that push and pull looks now? Is $225 or $250 met coal a better benchmark going forward in the current environment? Or maybe just help us understand the push and pull there? Bradley J. Dodson: It really depends customer by customer—both their inherent cost structure as it relates to production costs as well as where their balance sheets are. I think where you are headed is generally correct. The old $200 is probably $225 in this market. The other factor that you have to keep in mind from a customer standpoint—it is not a factor for us, and I will explain why—is that they sell their commodities in U.S. dollars, and they have largely all Australian dollar costs. So diesel costs are more impactful to our customers’ cost structure than they are to ours, coupled with if the Aussie dollar continues to appreciate, for instance, against the U.S. dollar, our customers will have effectively a cost structure increase without a revenue increase because it is Aussie dollar costs and U.S. dollar revenues. For us, we are naturally hedged. We are all Australian dollar revenues down there and Australian dollar costs. So the concern really is how do fuel prices impact customer activity levels. I would say it is early on. We have had effectively two months, and I expect that Australia will continue to see inflationary pressures for the balance of the year. David Joseph Storms: Understood. That is great color. Circling back to the U.S.—and recognize that this is maybe a bit of a crystal ball question—but you mentioned there is a large volume of different types of contracts that could be gained in the U.S. between LNG, power, data centers. When you are looking across that universe, is there maybe a field or a geography or a type of contract that you would expect to drop first, maybe in early 2027, or are they all just super different and kind of hard to judge? Bradley J. Dodson: We always have to go off what our customers tell us the timeline is. And I think embedded in your question is: do we think that they are going to hit the timeline? These are major investment projects, which historically have always had a tendency to push to the right. We continue to believe that there is a fair amount of work that will be let in 2026, so that will be announceable in 2026 but may not—as we said in our prepared comments—materially hit us financially until going into 2027–2028. The FID time period as we understand it now, the time to mobilize, the time to first meals and first beds—some of it could hit in 2026, but as we sit here on May 1, that has to hit pretty soon. Mobile camps can typically be deployed within 90 days and start earning money, but if it involves multistory, that is going to take longer. David Joseph Storms: Understood. Appreciate that. And then maybe just one more. You have mentioned some of the turnaround activity in Canada being pushed out due to commodity prices. Just looking across your customers, is there a potential for that to be pushed out again further should commodity prices remain elevated, or is there maybe a hard backstop in Q3, Q4 that would require customers to bring in that turnaround activity? Bradley J. Dodson: It is a tough question to answer. It is always possible for turnaround work to be pushed out. It is always a variability. Even when you do not have the dislocations we are experiencing today—even in a more normalized market—customers can have various idiosyncratic reasons to either accelerate or defer turnaround work. I think we feel good about what is embedded in our guidance. Canada is going to face a smoother year this year in terms of the cadence of occupancy than we would historically have seen. The rule of thumb that we have given the market in the past multiple times was that 60%–65% of annual EBITDA for us would happen in Q2 and Q3, largely driven by turnaround activity ramping up in Canada. I would say this year it is going to look a lot more smooth—just flatter throughout the year—as it relates particularly to Canadian occupancy. David Joseph Storms: Understood. I think very fair answer. Thank you for taking my questions, and good luck in the next quarter. Operator: The next question will come again from the line of Stephen Gengaro with Stifel. Please proceed. Stephen Gengaro: Thanks. Two follow-ups. One, to the question you just answered. When we think about the difference between the high end and low end of guidance, is that primarily related to the turnaround activity? Bradley J. Dodson: It would be turnaround activity. It would be inflationary pressures—in Australia more so than Canada—and then, to a prior comment, it would also be if a project kicks off this year. We have won a little bit of work for our mobile camp business, which we had budgeted for later in the year. That speculative amount of work that we had budgeted, we feel much better about now. That project will kick off here in the next 60 days. That work is in Alberta. So I would think it is Canadian turnaround activity, Australian inflation, and whether we get any benefit from infrastructure projects that are won this year that may mobilize this year, and then, as I mentioned, set up for a stronger 2027. Stephen Gengaro: Great. Thank you. And the second question—I am not sure if you can answer this directly—but when we think about the types of projects you are bidding on in North America in aggregate, Canada and U.S., are there types of projects that would tend to be longer term in nature, and how do you balance the term of the contract versus maybe something which could be a little more profitable for two or three years versus a longer-term relationship and/or contract? Bradley J. Dodson: The term of deploying assets for a construction project is a material consideration, and obviously we would prefer to win work that has a longer duration. I would say generally what we are seeing today is two- to four-year projects. Some are a little bit longer, but I have not seen a lot that are over five years. So these are construction projects, and the need for accommodations is typically in that two- to four-, two- to five-year time frame. Stephen Gengaro: Great. This is very helpful color. Thank you, Bradley. Operator: Thank you. Ladies and gentlemen, this concludes the Q&A session. I would like to hand the call back to Bradley J. Dodson for closing remarks. Bradley J. Dodson: Thank you so much, and thank you, everyone, for joining the call today. We appreciate your interest in Civeo Corporation, and we look forward to speaking to you on the second quarter earnings call, which we expect to happen late in July. Have a good day. Operator: This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, 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 Bio-Rad's First Quarter 2026 Results Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Ruben Argueta, Bio-Rad's Head of Investor Relations. You may begin. Ruben Argueta: Thank you, Regina. Good afternoon, everyone, and thank you for joining us. My name is Ruben Argueta, Bio-Rad's new Head of IR. It's a pleasure to join the team and be with you here. Today, we will review the financial results for the first quarter ended March 31, 2026, and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Jonathan DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I would like to remind everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC, where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined generally -- under generally accepted accounting principles. In addition to excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference. With that, I will now turn the call over to our Chief Operating Officer, John DeVicezo. Jonathan DiVincenzo: Thanks, Ruben, and welcome to the team. Good to have you here, and good afternoon, everyone. Thank you for joining us. In the first quarter, our teams executed within a dynamic operating environment. We reported Q1 results within our revenue guidance as we navigated several external pressures, most notably associated with the ongoing conflict in the Middle East. This region has been one of Bio-Rad's fastest-growing markets for several years. We haven't highlighted this in the past, but in 2025, the region represented over 9% of our Diagnostics segment, primarily driven by our blood typing franchise. The conflict substantially reduced our first quarter 2026 revenues and depending upon the timing of resolution, will be a significant headwind for revenue and margin for full year 2026. Despite the macroeconomic headwinds, our teams remained focused on executing our strategic initiatives, accelerating innovation and driving further efficiencies across the organization to increase competitiveness. In Life Science, reported net sales were flat, reflecting mixed end market conditions. Academic demand remained constrained, particularly in the Americas, where our customers' budgets have been significantly impacted by changes in funding. While NIH funding increased modestly year-over-year, our voice of customer pulse surveys indicate that behind the scenes, there continues to be considerable disruption, and we continue to see a lag between funding approvals and purchasing activity. In biopharma, we are seeing early signs of stabilization. Early-stage biotech remains cautious. However, activity among later-stage companies is more robust, and we expect gradual improvement through the year. On the commercial side, ensuring that we capture our fair share of demand in a constrained market requires our sales organization to work differently. We have sharpened the focus of our commercial teams on segment level prioritization, directing coverage towards customers with active funding, accelerating conversions from our existing installed base and competing aggressively where competitive displacement opportunities exist. Our digital PCR product area continues to be a strategic differentiator. In the quarter, ddPCR instrument revenue grew 24% over prior year. This is an encouraging leading indicator since new customers typically drive consumable pull-through within 6 to 12 months of purchase and installation. The new QX700 platform is driving both competitive wins and conversion from qPCR, supported by an extensive assay menu and expanding publication base. And ahead of schedule, the team now has enabled over 99% of our digital PCR assays to be available on the new QX700 series, which is driving instrument growth. Looking ahead, we continue to expect a measured recovery in Life Science led by biopharma. In Clinical Diagnostics, we delivered modest reported growth of just under 2%. As I mentioned earlier, performance in the culture -- quarter was impacted by geopolitical disruption in the Middle East, which affected both demand and logistics. While this creates near-term challenges, we expect eventual market normalization once the conflict is resolved. Outside of this region, the segment performed as planned. In particular, demand for our quality systems and immunohematology franchises showed signs of strength. From a margin standpoint, Diagnostics was adversely affected by a disproportionate share of supply chain cost pressures. And in light of these continuing supply chain challenges, we understand the need to rationalize manufacturing capacity and network. We are also addressing these challenges through focused actions in procurement and manufacturing. Turning to our operational priorities. We are executing against a clear agenda focused on improving agility, resiliency and efficiency across the company. In our efforts to become more agile, we are increasing flexibility in our manufacturing footprint. During the quarter, we began manufacture of select life science instruments in China for China, improving responsiveness to local market demand and allowing us to feed in tenders while minimizing tariff exposure. This initiative is indicative of how we are using efficient capital deployment to build operational capabilities for long-term business continuity. In R&D, we have reengineered our innovation engine to deliver improved return on investment. Following our portfolio prioritization decisions, we are concentrating investment in areas with the strongest commercial potential. As I mentioned earlier, one example of this prioritization is the fact that 99% of our digital assays are now supported on the new QX700 platform, again, ahead of plan. As we prioritize our projects, we -- our focus areas are expanding into high-growth clinical applications, leveraging our ddPCR technology, advancing our digital PCR portfolio, including our next-gen system and oncology assays and embedding AI capabilities to accelerate development and enhance platform performance. While it is early, this focus allows us to deliver more consistent, higher-quality growth over time. So in closing, we are executing with discipline in a challenging environment. We are making progress on the operational actions within our control, improving supply chain capability, strengthening execution and focusing investment where it matters most. We remain confident these actions will translate into improved financial performance over time. And with that, I'll turn the call over to Roop. Roop Lakkaraju: Thank you, John, and good afternoon. I'd like to start with a review of the first quarter 2026 results. Net sales for the first quarter of 2026 were approximately $592 million, which represents a 1.1% increase on a reported basis versus $585 million in Q1 of 2025. On a currency-neutral basis, this represents a 4.2% year-over-year decrease and was driven by lower sales in both Life Science and Clinical Diagnostics segments. Sales of the Life Science segment in the first quarter of 2026 were $229 million, essentially flat compared to Q1 of 2025 on a reported basis and a 4.3% decrease on a currency-neutral basis, primarily driven by ongoing challenges in the academic research market, particularly in the Americas. Currency-neutral sales decreased in the Americas and EMEA, partially offset by increased sales in Asia Pacific. Our ddPCR portfolio was essentially flat in Q1 due to softer biopharma consumables as customers shift their R&D priorities despite the instrument growth. The year-over-year instrument growth that John noted, we believe is a strong indicator of our market share gains, especially considering the current market conditions. Finally, the Stilla acquisition is on track to be accretive by midyear. More importantly, the QX700 is contributing to both revenue growth and margin expansion. Life Science ex process chromatography revenue increased 1% year-over-year and decreased 3.1% on a currency-neutral basis. Consumables revenue in academic and biopharma research was down 3.9%, reflecting the challenging academic research funding environment. Our process chromatography business, as expected, experienced a year-over-year currency-neutral decline of 13%. Sales of the Clinical Diagnostics segment in the first quarter of 2026 were approximately $364 million compared to $357 million in Q1 of 2025, an increase of 1.9% on a reported basis, a decrease of 4.1% on a currency-neutral basis, primarily driven by revenue declines from our EMEA region as a result of the regional conflicts in the Middle East. The regional conflict affected demand and execution of logistics for our diagnostics products, resulting in an $11 million impact to the business in the quarter. As a result of the ongoing challenges within the Middle East, this will have a continued effect on our business for the remainder of 2026. Consolidated gross margin was 52.3% for both the first quarter of 2026 and 2025. On a non-GAAP basis, first quarter gross margin was 53.1% versus 53.8% in the year ago period. The lower Q1 gross margin was due to several factors, including unfavorable manufacturing absorption as a result of the decreased Middle East revenue, which contributed to margin pressure by 40 basis points, higher instruments versus consumables mix, which adversely affected margin by 30 basis points, higher freight fuel surcharges by 20 basis points and FX by 20 basis points. SG&A expense for the first quarter of 2026 was $212 million or 35.9% of sales compared to $209 million or 35.7% in Q1 of 2025. First quarter non-GAAP SG&A spend was $211 million versus $192 million in the year ago period. The increase in SG&A expense was primarily due to foreign exchange impacting -- impact resulting from a weaker U.S. dollar on our international cost base, partially offset by lower restructuring costs. Research and development expense in the first quarter of 2026 was $63 million or 10.6% of sales compared to $74 million or 12.6% of sales in Q1 of 2025. First quarter non-GAAP R&D spend was $65 million versus $60 million in the year ago period. Q1 operating income was approximately $34 million compared to operating income of approximately $24 million in Q1 of 2025. On a non-GAAP basis, first quarter operating margin was 6.6% compared to 10.8% in Q1 of 2025, reflecting the lower gross margin year-over-year. The change in fair market value of equity security holdings and loan receivable primarily related to the ownership of Sartorius AG shares contributed $562 million to our reported net loss of $527 million or $19.55 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of the Sartorius shares was $51 million or $1.89 diluted earnings per share for the first quarter of 2026 versus $71 million or $2.54 diluted earnings per share for Q1 of 2025. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $1.565 billion compared to $1.541 billion at the end of 2025. Inventory at the end of Q1 was $771 million, up from $741 million at the end of 2025. For the first quarter of 2026, net cash generated from operating activities was $108 million compared to $130 million for Q1 2025. Net capital expenditures for the first quarter of 2026 were approximately $30 million. Depreciation and amortization for the first quarter was $41 million. Free cash flow for the first quarter was $78 million, which compares to $96 million in Q1 of 2025 and represents a free cash flow to non-GAAP net income conversion ratio of 153% for the first quarter of 2026. During the first quarter of 2026, we repurchased 176,000 shares through our buyback program at a total cost of approximately $48 million. Since Q1 of 2024, we've spent $542 million to repurchase 2.1 million shares at an average price per share of approximately $261. Moving on to our non-GAAP guidance for 2026. We have decided to adjust our 2026 guidance. As John mentioned in his comments, the Middle East, which represented the fastest-growing region for us over the past few years, was again expected to contribute growth in 2026. As a result of the ongoing conflict in the region, we are seeing continued demand softness, challenges getting product to our channel partners and into end customers. Once the conflict resolves, we believe that infrastructure rebuild will be prioritized. And ultimately, when the region is stable, the Middle East will return to a double-digit growth area for us. Our updated guidance is currency-neutral revenue growth for the full year to be between minus 3% and plus 0.5%. The Life Science segment year-over-year currency-neutral revenue growth is expected to be between minus 3% and minus 1% due to continued challenges in academic funding with an adverse impact from the Middle East conflict in the high single-digit millions. We are still modeling a modest biopharma recovery. For the Diagnostics segment, we estimate currency-neutral revenue growth to be between minus 3% and plus 1%. We project mid-single-digit growth for our quality controls business. We are assuming that the remaining Diagnostics portfolio ex quality controls is expected to decline between negative mid- to low single digit. Full year non-GAAP gross margin is projected to be between 53% and 54% due to the lower revenue, which is reducing our fixed cost absorption and higher freight rates. Full year non-GAAP operating margin is projected to be between 10% and 12%. We estimate the non-GAAP full year tax rate to be approximately 22%. As a result of the lower revenue and operating profit, we've updated our 2026 full year free cash flow estimate to be in the range of approximately $290 million to $340 million. Regarding share repurchases, we will continue to be opportunistic. And as of March 31, we have approximately $237 million available for additional buybacks under the current Board authorized program. I'll now turn the call over to Norman. Norman Schwartz: Great. Thank you, Roop. As you've heard from John and Roop, we are operating in a challenged and challenging environment. However, underlying the market noise, I think we continue to make progress on many fronts. In the last 24 months, for example, we've strengthened our management team and how we operate as a company. To me, this is a team with deep operational experience. And I think it is reflected in the rigor, the discipline and consistency in current decision-making and in implementation. We see that in our portfolio decisions where we're focusing investment and making the choices necessary to bring quality products to market more quickly and to improve returns. We see that in our operating model, building capabilities like our In China, For China initiative to improve responsiveness to local demand and allowing us to participate in local tenders in a cost-effective manner. And you see it in our M&A with a focus on disciplined strategic opportunities where we can create value for our customers, the company and shareholders. So we do see M&A as a key lever for us in our longer-term strategy to accelerate top line growth and margin expansion. And I would say here, our focus has shifted from early-stage opportunities to companies with demonstrated revenue and margin profiles, businesses where we can leverage our capabilities and scale to accelerate growth in attractive markets. I think here still is a good example of this approach, strengthening a core platform with a scalable, commercially proven business. In terms of size, today, our target acquisition is companies within the $100 million to $500 million revenue range with complementarity to our current business. We're not, at the moment, focused on anything transformative. In short, I think we see our strategy as disciplined, targeted and accretive. And finally, we always get the question on Sartorius. And so I thought maybe I'd just take a moment to reiterate our position. Fundamentally, we continue to be thoughtful, disciplined stewards of the asset. The Sartorius position is monetizable and provides us with optionality, which we evaluate with the same rigor we apply to every capital decision we make. That said, our focus is really running, growing and positioning Bio-Rad for market leadership and maximizing long-term shareholder value. And every capital allocation decision, including Sartorius, comes from that vantage point. Overall, if I think about where we are today, our end markets in Life Science and Diagnostics, although challenged in the near term, are durable and resilient. And I think we're well positioned as a market leader in a number of segments. In the meantime, we continue building on the operational discipline required to deliver consistent revenue growth and mid-teens operating margin in the near term. So that's all from me. Operator, now I think we'll open up the line for questions. Operator: Our first question will come from the line of Jack Meehan with Nephron Research. Jack Meehan: I wanted to start just to get a little bit more color on the Middle East. This has come up on a few of the earnings that have been reported so far, but it seems like the impact was a little bit more prominent for Bio-Rad. I was wondering if you could just share like why that might be the case either in terms of the exposure to the region or how that might have impacted your logistics? Just color on like exactly how it played out would be helpful. Jonathan DiVincenzo: Yes, Jack, it's John. Thanks for joining us. As we said on the call, the fact that it's been a fast-growing region for us, we've been very successful in our Diagnostics business, winning a number of tenders across the countries in the region in the last number of years. It gets to a scale where it's 9% of the Diagnostics business, mid-single digit for the company and whole. So I think the exposure we had maybe a little different than some of our peers based on our strength and our wins there. And just as things kind of emerged, the channel kind of certainly slowed down. I mean we obviously still had revenue there, but we did not meet the revenue numbers that we had. We expected solid high double-digit growth in that region. So it was just kind of a bit of a break there for us. And I think as we project forward, it'd be great if the conflict was resolved here soon, but it will take some time for the region to recover, and that was kind of the thinking behind the new guide that we've expressed. Jack Meehan: Got it. And yes, obviously, unfortunate situation. I did hear kind of reiterated kind of the ambition to get up to the mid-teens operating margins in the near term. Can you just talk about like the cost actions that you're planning to take to kind of draw a line under earnings and get -- obviously, there's things that are out of your control, but what can you do to protect and grow earnings in this environment? Roop Lakkaraju: Yes. Jack, I appreciate it. This is Roop. I'll maybe start on that question. I think there's a number of things that we have under evaluation. We've already begun to tamp down discretionary spend and these sort of things. But I think more broadly, if this sort of impact continues, then obviously, it's going to be a more meaningful impact, which is reflected in our guide and therefore, more significant actions. I think the other piece of this that Norman mentioned about reaching that mid-teens. Part of what we're evaluating is just overall, considering the continued challenges that seem to be arising, whether that's tariffs last year and now Middle East conflict, which arguably can't be predicted to this magnitude. There are some structural things that maybe we need to be thinking about and how we run the business. And so those are the types of things we're looking at without getting into too many specifics at this time, which I think is a little bit early. But it's kind of all functional areas in how we operate and how we execute, so we can be more efficient and effective and being more nimble in this environment. Jack Meehan: Got it. And maybe one final one is unrelated, but just on the China diagnostics business, there was an update during the quarter from the NHSA around not VBP, but new strategies around cost containment. Any color on how you see that playing out? Any updates on the region there? Roop Lakkaraju: Yes. Maybe I'll start again. And to date, we're not seeing anything impacting us in terms of what our folks on the ground are seeing from China. Obviously, it's something we'll continue to monitor and evaluate, but nothing currently that we're anticipating. Operator: Our next question will come from the line of Brandon Couillard with Wells Fargo. Brandon Couillard: It'd be helpful if you could just maybe share any color on 2Q, 3Q revenue phasing. You do lap a tougher comp in the second quarter. And are you kind of assuming that a fairly normal sequential seasonality for the business off of the 1Q base from here? Roop Lakkaraju: Yes. I appreciate the question, Brandon. So let me talk about the phasing from a Q1 to Q2. Obviously, Q1 is typically our low quarter. That will be the case here in 2026. From a phasing standpoint, we see about a 5% lift from Q1 to Q2, and then it lifts a little bit from there just slightly into Q3, which has not been the case. Q2, Q3 has been relatively flat in the last couple of years that I've been here. And then Q4 is expected to jump up again from that Q4 tending to be our seasonally strongest quarter. In terms of the drivers of those, obviously, the Middle East, we pulled out specific revenue or most of the revenue associated with certain countries that are affected directly by the conflict. Obviously, Middle East is more broad than that in terms of additional countries that we've left unaffected. The other piece of it, though, more specifically to the Q2, Q3, Q4 increase in revenue over time, it's through other areas of our business and other regions. So specifically quality controls based on batch releases are going to be strong in Q3 and Q4 this coming year. Our blood typing business in other regions has some uptick in Q3 and Q4. So there are some very specific drivers that allow us to get to that kind of phased increase of revenue as we get through the year based on other parts of our business. Brandon Couillard: Okay. That's really helpful. One on the ddPCR business. So if I'm doing my math right, were consumables down something like low double digits in the quarter? It wasn't really clear what was driving that. And last quarter, you talked about the QX700 maybe driving some share gain versus your main competitor there. And for qPCR, has there been any acceleration in the cannibalization of qPCR because your main competitor still seems to be growing pretty nicely in that market? Jonathan DiVincenzo: Yes. So Brandon, it's John. We are pretty pleased with the kind of the results of the instrument sales, both for QX700, but also for our legacy 200 systems -- QX200 systems as well. So -- the consumables, which is the majority of overall the business was soft in the quarter, a combination of academic and even some on the biopharma side. So to answer your question, that's just a matter of what projects are going forward and when. We did have pretty strong growth in the first half of last year in consumables and probably just absorbing some of that growth this year. But the equation here is growing our installed base. And we feel like we're growing our installed base, both by taking share within qPCR as well as competitively holding our own as we look at our win-loss analysis, et cetera. So I think if anything, it is the healthiest we've been in our ddPCR portfolio in quite some time, both because of the portfolio itself and the breadth of the offering that we have as well as the increase in both the assays that we're developing and the number of publications, which seems to be on an accelerating trajectory. So we feel really strong that we're certainly holding our own. And in many cases, we are taking share from qPCR. And competitively, I think our team feels pretty good, and our pipeline is larger today than it's been since I've been here. Roop Lakkaraju: I'll just add one additional piece, Brandon, to your specific question on the change, and you're spot on in terms of low double digits. Brandon Couillard: Okay. Great. And last one for Norman. You guys did help but notice, I felt like your comments around M&A priorities there towards the end of your prepared remarks, a little bit more detail than I think you've kind of shared in the past. Should we interpret that is an indication that the pipeline is full and maybe there's something more actionable over the relative near term? Norman Schwartz: No, I think for me, it's just explaining that part of the strategy. I think that the focus is on continuing to develop the business, growing the organic business. And this is another piece of the puzzle, which is M&A. So it's just diving a little bit in on a piece of the strategy. Operator: Our next question comes from the line of Tycho Peterson with Jefferies. Tycho Peterson: Maybe just starting on R&D. You are spending 12%, which is relatively high versus peers. Can you maybe just help us think about -- you've talked about bringing products to market faster, getting better ROI on those dollars. Just talk a little bit about what we can expect from that? Any metrics you can put around that? And is R&D a source of leverage over time as well for you guys? Jonathan DiVincenzo: Certainly is. And if anything, it's kind of a foundational growth opportunity for us. And whether it was through COVID or some pretty large bets we were making in diagnostics side, we've reset the bar on the projects that we're working on. We've kind of redirected some of our resources. But maybe more importantly, Tycho, a disciplined approach to the life cycle of our existing portfolio, looking at ways to really make an impact, as I said, applying AI into some of the imaging and other platforms we have and a couple of bets that are kind of new to the world bets. And I think it's just a comprehensive management and governance of that investment. As you said, it's a pretty high investment. If anything, we have even more in life sciences rather than diagnostics compared to some of our peers, and we need a better return. And I think over time, maybe we've become more efficient and we're not investing at that level. But today, it's kind of all hands on deck to get a very, very robust innovation pipeline going and to really see the fruits of that labor. Tycho Peterson: Okay. Follow-up on 2Q, Roop, I'm hoping you can kind of clarify. I think there's been a little bit of confusion. Are you seeing kind of down mid-single-digit core? Is that what you're implying here given the sequential comments you made? Roop Lakkaraju: I apologize. I missed the first part in what area? Tycho Peterson: I am asking for clarification on your 2Q comments. I think people are getting to kind of down 5%, down 6% organic. Is that the right number? Roop Lakkaraju: Yes, that's not an unreasonable number. We're going to see and revenue will pick up a little bit. Gross margin, we'll see that tick down just a tad in Q2. And quite honestly, it's specific to freight because we had effectively 1 month of freight due to the Middle East conflict. Now we've got 3 months of freight. We've got mitigating actions that we're working through, but not sure that they're going to have the level of impact starting in Q2. It will have some. But in Q3, Q4, we'll see a bit more of that. But Q2 is a revenue increase, slight dip in gross margin and then that flows through. Tycho Peterson: Okay. And then I guess just on the actions, how much of this is a wait and see on the backdrop here if things get better? I mean, overall, you're back to 2018 levels on operating margins. Can you maybe just talk about your commitment to actually driving those higher? And how much of this is timing related watching the backdrop here in the near term? Roop Lakkaraju: Maybe I'll start, and I'll have Norman jump in. I'll just speak to -- obviously, there's near-term actions that we're taking. As Norman talked about more broadly, and I'll turn it over to him. I think we are factoring the Middle East conflict to be transitory, not permanent. I think it's hard to predict exactly when that ends. And so we wanted to give that color from that standpoint, knowing that we then need to evaluate the broader business. Norman Schwartz: Yes. So I think that certainly, we are -- we've been working on making the business more agile in these kinds of environments. And I think that's -- our focus really is we can't control the -- kind of what's going on in these environments that we just have to kind of work on what we can control, which is improving our kind of operations and our capabilities. And when the markets return, I think we'll be in very good shape. Roop Lakkaraju: And maybe the last thing to add, the fact that Norman was explicit in that manner, you can be assured that it's a focus for us in terms of driving that operating margin expansion in the near term, as he said. Operator: Our next question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Maybe more on the process chrom business. Can you just talk about performance and visibility there? We've heard some noise from some of that more concentrated vaccine exposure, some customers lowering ordering patterns down the line. Are you seeing any changes in process chrom? What's the right way to think about the pacing of that as we go through this year and the recovery path? Roop Lakkaraju: Yes. So Patrick, from a process chrom standpoint, it's actually played out. Q1 played out as expected. We are mindful of kind of staying close to our customers as part of understanding order patterns, demand patterns, these sort of things. We're not necessarily seeing any change in inflection for the rest of the year at this point in time. But that is something that we're keeping a pulse on, if you will. And I think in the last call, Norman kind of mentioned -- yes, go ahead, John. Jonathan DiVincenzo: Sorry, just the fact that certainly, there is a little bit of concentration today in our revenues. However, we have several hundred projects we're working on from early-stage clinical trials to later stage and preparing for commercialization. So we're projecting forward how do we bring a little more stability by broadening out the revenue sources across. And some of that is with existing customers that have been successful and they have new molecules coming to market and now there are new customers. But there's quite a bit of transparency in where we're building out process method development and participating in molecules that could be pretty exciting in the future. But time will tell. These are things that don't happen in weeks, months or quarters over a period of years, but we feel good that we're bringing some balance and spreading, if you will, out the revenues to various molecules that come to market. Patrick Donnelly: Yes. That's helpful. And then I think it was last quarter, Norman had mentioned the path back to mid-single-digit growth for process chrom maybe next year is still a little subdued in the low single. Is that still the right way to think about it? Just any updated thoughts on the path to recovery there? Roop Lakkaraju: Patrick, really apologize. You're a bit muffled. So would you mind repeating that? Patrick Donnelly: Yes, sure. It was just on the path back to recovery of process chrom. I think last quarter, Norman mentioned maybe it's a low single-digit number next year on the path back to mid-single. Is that still the right way to think about it and just the visibility you guys have? Roop Lakkaraju: I think that's still the right answer. Yes. Patrick Donnelly: Okay. Great. And last one on the PCR, digital PCR side in particular. Are you seeing any changes competitively in the market? Just an updated thoughts on growth outlook for that business would be helpful. Jonathan DiVincenzo: I think as I mentioned earlier, Patrick, we feel really confident. Our commercial team is working quite strongly with our marketing teams. We have a number of new assays that are being built out to our portfolio as we transition to this broader portfolio. I think that the teams have -- they're in a position today where they feel like they have a broad set of solutions, the right solution for the right customers and customers are, I think, receiving the new portfolio very well. So we still have more R&D projects to work on to expand what we have today. And I think that compared to a year ago, we are in a much better position maybe than we were starting 2025. Operator: Our next question will come from the line of Dan Leonard with RBC. Daniel Leonard: I have a follow-up question on the guidance, and I think this -- it touches a thread that we've been speaking to earlier in the call. But the reduction in the margin forecast suggests that the decremental margins on lower revenue are pretty severe. So can you clarify whether there's any offsetting actions you're taking today? Or are any potential offsets something we should stay tuned for in the future? Roop Lakkaraju: Dan, great to have you on the call and chat with us. So we've got near-term actions that we are in process of having put in place and evaluating further. I think in terms of broader evaluation of things, stay tuned for that as we continue to work through the different aspects. Jonathan DiVincenzo: Yes. I think there are things like increased fuel costs and logistics costs, which we've absorbed at this point in time, which you really see the impact. And we have to decide whether there are appropriate surcharges or ways to mitigate some of the additional costs we have. So it's a pretty comprehensive board that we have of things we can do to improve our margins in light of the conflict and overall challenges. Daniel Leonard: Okay. That's helpful. And then my follow-up question. Can you elaborate a bit more on your assumptions for the biopharma end market? It sounded like you were more optimistic in that market. Jonathan DiVincenzo: Yes. Again, we think of biopharma kind of in 3 different segments. Obviously, the large pharmaceutical, biopharmaceutical companies that are, I think, in pretty good shape and our portfolio looks good there. When you get to the smaller biotechs, but they have molecules in Phase III clinical trials, they're doing pretty well. There's still some softness in the early-stage biotechs. I think as we tried to elucidate in our comments that there's still some concern there that even though they may or may not be funded, they're still quite conservative in their spending. So it's -- across that spectrum, there's good strength and other areas where it's softer than we'd like it to be. Operator: And there are no further questions at this time. I will now turn the call back over to Ruben Argueta any closing comments. Ruben Argueta: Thank you for joining today's call. As always, we appreciate your interest and look forward to connecting with you soon. Thank you. Operator: Ladies and gentlemen, that 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. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Welcome to the Dominion Energy, Inc. First Quarter 2026 Earnings Conference Call. At this time, each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. I would now like to turn the call over to David McFarland, Senior Vice President, Investor Relations and Treasurer. David McFarland: Good morning, and thank you for joining Dominion Energy, Inc.’s First Quarter 2026 Earnings Call. Earnings materials, including today's prepared remarks, contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent Annual Report on Form 10-K and our Quarterly Report on Form 10-Q, for a discussion of factors that may cause results to differ from management's estimates and expectations. This morning, we will discuss some measures of our company's performance that differ from those recognized by GAAP. Reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measures, which we can calculate, are contained in the earnings release kit. I encourage you to visit our Investor Relations website to review the webcast slides as well as the earnings release kit. Joining today's call are Robert M. Blue, Chair, President and Chief Executive Officer; Steven D. Ridge, Executive Vice President and Chief Financial Officer; and other members of senior management. I will now turn the call over to Steven. Steven D. Ridge: Good morning, everyone. Since the conclusion of the business review over two years ago, we have remained steadfastly focused on three top priorities. First, consistent achievement of our financial commitments. Second, continued achievement of major construction milestones for the Coastal Virginia Offshore Wind (CVOW) project. And third, constructive achievement of regulatory outcomes that demonstrate our ability to work cooperatively with regulators and stakeholders to benefit both customers and shareholders. As we will discuss today, we continue to demonstrate success against these priorities as we build our track record of high-quality and consistent execution. Turning to first quarter results, as shown on slide 3, we are off to a strong start to the year with first quarter operating earnings of $0.95 per share. First quarter GAAP results were $0.69 per share. As a reminder, a summary of all adjustments between operating and GAAP results is included in Schedule II of the earnings release kit. We are affirming all financial guidance provided on our fourth quarter earnings call including operating earnings, credit, dividend, and long-term growth guidance. We continue to guide to annual earnings growth at the midpoint of our 5% to 7% range with a bias, starting in 2028, toward the upper half of the range. Our confidence in that outlook reflects disciplined financial management, attractive business fundamentals, and the strength of our growing regulated investment profile. First and foremost, this is about our customers and meeting their needs affordably and reliably. We are monitoring catalysts that could enhance and/or extend our long-term growth rate. We continue to see incremental opportunities to deploy regulated capital on behalf of customers, most recently supported by legislation in Virginia to expand grid-scale energy storage targets. House Bill 895 and Senate Bill 448, which are now signed into law, require that we petition for 20 gigawatts of short- and long-term storage projects by 2045, a significant increase from the current requirement of 3 gigawatts by 2035. We will reflect this new multiyear opportunity, as well as other regulated investment opportunities, in our capital update early next year. And as Bob will discuss in his prepared remarks, we expect increasing clarity later this year around the opportunity to recontract Millstone. Turning to data centers on slide 4, we now have over 50 gigawatts of data center capacity in various stages of contracting, including approximately 10.4 gigawatts of capacity contracted under electrical service agreements. Since our last update, we continue to see accelerating and durable demand from our differentiated, high-quality, low-risk data center customers. Large load provisions ensure those customers will fund the infrastructure required for their growth, protecting existing customers from cost shifts and mitigating stranded cost risk. Quickly on the financing plan and credit. Year to date, we have issued approximately $1.2 billion of common under the ATM, leaving $400 million to $600 million for the remainder of the year, consistent with our Q4 call guidance. As mentioned previously, there is no change to our credit-related targets. Full-year 2025 and Q1 LTM FFO-to-debt metrics are both above 15%, demonstrating our commitment to credit strength. And we continue to derisk CVOW as we achieve major milestones such as first power in March. In closing, we are off to a good start to the year, aligned with our guidance and capital plan, and confident in our ability to execute. Our financial plan strikes the right balance of appropriately conservative, but not unreasonably so. With that, I will turn the call over to Bob. Robert M. Blue: Thank you, Steven. I will begin with safety on slide 5. Our employee OSHA injury recordable rate for the first quarter of the year was 0.42, which remains well below the industry average. Safety is our first core value, and we are continuing our efforts to drive to zero workplace injuries. I will start our business updates with the Coastal Virginia Offshore Wind project on slide 6. The project is now over 75% complete, and as Steven mentioned, in March, we achieved a very significant milestone with the delivery of much-needed power to customers. General fabrication and installation continue to proceed very well. We have now completed installation of all 176 transition pieces that connect the monopile foundations to the turbine towers. All three substations are installed, and commissioning is proceeding as planned. Deepwater export cables are installed, and inter-array cable installation is on track. All of the remaining cabling is now fabricated, and the majority has landed in Virginia. And we are making excellent progress on turbine fabrication. Over 86% of towers, approximately 69% of nacelles, and about 45% of blades have been fabricated. This progress tracks well relative to our schedule. With regard to wind turbine generators, we are seeing materially positive improvements in the installation cadence as shown on slide 7. We affirm our previously communicated timeline for project completion, with the majority of turbines expected to be placed in service by 2026, and the remainder in early 2027 prior to June. As of this morning, we have completed nine turbines. During the first quarter, we successfully calibrated our procedures and equipment and navigated winter weather. Since then, we have been able to ramp the installation rate markedly, including averaging approximately two days per installation for our last four turbines, which supports our existing timeline for project completion. We continue to see paths to optimize the process resulting in improved installation times. In addition, we are moving into better weather windows for the next several months. Please note the current project budget includes turbine installation schedule contingency for weather delays through July 2027 as needed, including Charybdis charter costs. I will also reiterate our general rule of thumb: if the project extends beyond July 2027, we estimate that each additional quarter to complete turbine installation would add between $150 million and $200 million to the project cost, a portion of which would be allocated to our financing partner. We will continue to include data from additional installation iterations in our quarterly updates. As shown on slide 8, the project budget now stands at $11.4 billion, which is approximately $100 million lower than our last update. We have updated the budget to reflect changes in tariffs as a result of recent judicial and administrative actions. Unused contingency stands at $123 million. Looking forward on project costs, we are monitoring the potential of two recent events. First, certain regional transmission projects were captured in both the PJM transition cycle, which resulted in network upgrade costs allocated to CVOW, and the subsequent broader RTEP award package. As a result, we would expect the overall network upgrade cost allocated by the PJM transition cycle across all generation queue projects, including CVOW, to be reassessed and reduced. Second, recently updated steel and aluminum tariffs, which are pending additional information from suppliers and guidance from the applicable agencies. As shown on slide 9, the project's cost sharing and risk sharing continue to work as intended to protect customers and shareholders with no change to either levelized cost or customer bill impacts. CVOW remains one of the most affordable sources of energy for our customers. Our updated analysis indicates that the project is expected to generate fuel savings of approximately $5 billion for customers during the project's first ten years of operations. Taking a step back, an all-of-the-above approach to energy supply, including CVOW, is critical to ensuring continued reliability amidst real-time growing demand in our service areas. Building new energy generation is a core competency of ours, as demonstrated in recent years with our successful development of thousands of megawatts of renewable generation, as well as combined-cycle plants in Greensville, Brunswick, and Warren County. We continue to advance the development of new generation capacity consistent with our update last quarter. In addition to producing much-needed energy for our customers, these projects will be an economic benefit for Virginia, generating thousands of new jobs, billions of dollars of economic investment, and meaningful local tax revenue. Turning to slide 10, I will reiterate that we view customer affordability as central to our public service obligation, and accordingly, we have a long record of maintaining competitive rates, which continue to compare favorably to the national average. Even while executing one of the largest regulated investment programs in the sector, we expect our customer bills will continue to grow at rates comparable to inflation over the long term, demonstrating disciplined capital deployment and our regulatory construct working as intended. We recognize, though, that customers are feeling the pressure of higher costs for housing, groceries, and other essentials including their electric bill. We have a number of programs designed to help our customers manage their bills, including budget billing, energy savings programs, and financial assistance programs such as EnergyShare. Late last year, we also launched a new online platform to put all our programs in one place so customers can more easily find the best options to meet their needs. In addition to providing tools to help manage payments, we are also working to ensure fair and reasonable rates. For instance, the commission approved our recently proposed large load provisions in the 2025 biennial to ensure that our smaller customers are not at risk of subsidizing our largest customer classes nor be left with stranded costs. We also plan to pursue fuel securitization in Virginia for unrecovered fuel costs to minimize the rate impact on customers. We work continuously to improve the efficiency of our operations while meeting high customer service standards and reliability needs. In recent years, we have driven out costs through improved processes, innovative use of technology, and other best practice initiatives. On the technology front, we are focused on implementing technology initiatives that accelerate our mission, and we have recently deployed a range of AI tools. For example, in our contact center, AI enables clear visibility into customer needs at scale and real-time insight into customer sentiment, allowing us to respond with greater precision and efficiency. Looking ahead, we are intently focused on ensuring our service is not just reliable, but that it remains affordable as well. Now I will turn to other business updates as shown on slide 11. In South Carolina, DESC’s electric rate case continues to progress. Staff and other intervenors filed their testimony on March 31. We filed our rebuttal testimony on April 21 and expect surrebuttal testimony on May 5, consistent with the procedural schedule. Hearings are scheduled for mid-May, and we expect a decision in late June with rates effective in July. Yesterday, we filed an electric rate case application and testimony for Dominion Energy North Carolina to support the approximately $400 million investment placed in service by the company attributed to North Carolina since the 2024 rate case and ensure that we can continue to provide safe, reliable, and cost-effective service to our North Carolina customers. We expect a decision in February 2027 with interim rates effective December 2026, subject to true-up and finalization in March 2027. Recall, DENC represents about 4% of the company's investment base. Finally, on Millstone, I will start by noting Governor Lamont's comments last week highlighting the hundreds of millions of dollars that the current Millstone contract has saved customers, which is now resulting in a material customer bill reduction in Connecticut. In March, the facility submitted its bid in the Connecticut Department of Energy and Environmental Protection's zero-carbon energy request for proposals. Per DEEP's published schedule, solicitation decisions are expected in the second quarter, with negotiations with the local state utilities to begin in the third quarter. Contracts will be submitted to the Connecticut Public Utilities Regulatory Authority for approval thereafter, the timeline for which is up to 180 days. In addition to state-sponsored procurement, we continue to evaluate the prospect of supporting incremental data center activity as well. We remain focused on achieving a constructive outcome for the facility, and we will continue to provide updates as things develop. With that, let me summarize our remarks on slide 12 by reiterating where Steven began the call: with a focus on our top three priorities—consistently achieving our financial commitments, continued on-time achievement of major construction milestones for the Coastal Virginia Offshore Wind project, and achieving constructive regulatory outcomes that demonstrate our ability to work cooperatively with regulators and stakeholders to deliver results that benefit both customers and shareholders. We are 100% focused on execution. We remain committed to delivering reliable, affordable, and increasingly clean power for our customers. With that, we are ready to take your questions. Operator: We will now open the call for questions. If you would like to ask a question, please press the star key followed by the one key on your touch-tone phone now. Our first question comes from Nick Campanella with Barclays. Your line is open. Nicholas Joseph Campanella: Hey. Good morning. Thanks for taking my questions. Steven D. Ridge: Good morning, Nick. Nicholas Joseph Campanella: So I just wanted to ask on the HPE 896 that you brought up on the battery side. Can you just talk about what is embedded in the plan currently for battery storage, what your recovery mechanisms would be for this new opportunity, and then when you think about supply chain, labor, the company's own balance sheet capacity, what does that enable in terms of a gigawatt installation run rate? And what could we expect here if you have any thoughts? Thanks. Steven D. Ridge: Yeah, Nick. Great question. So the $65 billion five-year capital plan, which we produced as part of the Q4 call in February, already includes about $2 billion, or about 3%, related to battery storage, subject to regulatory approval. And what the recent legislation means for us is that, in order to achieve the updated targets, we are going to need to work diligently to accelerate the ramp of that capital. Things to watch going forward: there is going to be a State Corporation Commission technical conference this year on the topic; we will, of course, update our IRP in the fall to reflect our most recent thinking on the ramping of the battery storage; and then we will update our capital plan in line with our normal cadence on the fourth quarter call. General rule of thumb, a gigawatt overnight installed, including transmission, network upgrades, etc., we put into the $2.5 billion to $3 billion per gigawatt range. Obviously, the increase to 20, which includes short and long term, represents a meaningful opportunity over a long period of time. So we are excited about the opportunity. We already are working on the pipeline for this. As mentioned, with the $2 billion in the plan, this gives us an opportunity to potentially accelerate that. We will provide those updates and would recommend folks pay attention to those public data points that will happen later this year. Nicholas Joseph Campanella: Okay. Looking forward to it. And then maybe just moving to CVOW, two questions there. I just wanted to clarify, the PJM upgrade costs—are they included or not in the figures you are putting out there today, or is that still downward pressure? And then how are you thinking about the potential 232 steel tariffs? Thanks. Steven D. Ridge: Yeah, Nick. Another really good question. Today's mark does not reflect the potential for certain transmission costs that were allocated to CVOW being potentially reallocated, and Bob mentioned the process whereby that occurs and why that might occur. So that would be something to watch as we move forward into the year. And then on tariffs, we are also taking a mark on that, which is we are awaiting some additional interpretive guidance from the agencies. We are evaluating with our partners, many of whom are the importer of record, to completely finalize that. We estimate that has the potential to be in the approximately $200 million range, which, as I mentioned, would have the potential of being offset by some of the reallocation of transmission costs. We do not have exact precision on how those two will balance; they seem to be generally in the same area. Those are the two things to watch going forward. Thank you. Operator: We will take our next question from Shar Pourreza with Wells Fargo. Your line is open. Shahriar Pourreza: Hey, guys. Good morning. Robert M. Blue: Morning. Shahriar Pourreza: So just real quick on Millstone. Obviously, you highlighted Governor Lamont recently touted the savings generated for ratepayers by Millstone. How much headroom do you have to recontract at higher prices? Maybe just elaborate a little bit further on the alternative paths you may have outside of the DEEP process. This is obviously something we are all monitoring given the affordability rhetoric and Connecticut necessarily has not been very open to data centers. Are we talking about a virtual deal here? Thanks. Robert M. Blue: Hey, Shar. First of all, it is great that we can talk about Millstone with you again. You are right, we are very pleased with the Governor's comments. Commissioner Dykes also talked about the value of the existing PPA. Just as a reminder, we are currently contracted for a little more than half through August 2029. The process at Millstone today in Connecticut would be for procurement after the expiration of the existing PPA. There is not, in that process, a limit on how much could be potentially contracted with the state. As we have talked about in the past, other states in New England have also expressed an interest, and we are certainly happy to work with them as well, because they recognize the value of Millstone the same way that we do. As to data centers, we continue to have some interest from data centers to contract there, but I want to reiterate what we have said in the past, which is our view is any outcome there needs to have the support of stakeholders in Connecticut. We think that is the smart way to pursue it. What is in front of us right now is this RFP, and we will continue working on that. Shahriar Pourreza: Got it. Appreciate it. Thanks for that, Bob. I have been waiting years for you to answer my question. And then just on nuclear, on the topic, obviously Dominion in the past has really focused on SMRs, but there seems to be momentum building from a consortium of utilities looking to build new AP1000s with some cost inflation protections from the off-takers being the hyperscalers and maybe some backstop from the U.S. government. Would you be willing to participate in this consortium and an AP1000? What are the puts and takes on SMRs versus the AP1000s? You do have an early site permit with North Anna. Just curious there. Thanks. Robert M. Blue: Yeah, Shar, we do have an early site permit at North Anna, and we have also been exploring SMRs. Stepping back, as we have talked about before, we are in a very pro-nuclear state in Virginia—I think arguably the most nuclear-friendly state in the U.S.—and you can see that from the support of the Governor. Both Senators Kaine and Warner have expressed support for nuclear. The General Assembly a couple of years ago passed legislation allowing us to recover some costs for nuclear project development. We filed with the SCC and got an approval for that. We have a lot of the nuclear supply chain here, the nuclear Navy here, and the units at Surry and North Anna. As we think about nuclear development in any sense, we are going to continue to be guided by three principles that are resolute: first, any structure has to address first-of-a-kind risk—so if we are talking about SMRs, we need to address that; second, it has to address cost overrun risk so that our customers and our shareholders are not bearing that burden; and third, we need to protect our balance sheet and our business profile. We will continue to investigate and explore alternatives on the nuclear front, but we are going to be guided by those principles, and we will continue to work with policymakers. Shahriar Pourreza: Got it. Appreciate it, guys. Fantastic results. See you in a few days. Operator: We will move next to Paul Zimbardo with Jefferies. Your line is open. Paul Zimbardo: Hi. Good morning, team. Thanks for having me on. Robert M. Blue: Morning, Paul. Paul Zimbardo: Thank you. First, on PJM—obviously, you have a unique position in PJM—just thoughts on the backstop procurement, the auction feature, and if there are any ways that you can accelerate generation or spread the cost more broadly across PJM? Overall thoughts on that process? Robert M. Blue: Yeah, Paul, thanks for that question. We support PJM's effort to develop a backstop auction or process to get additional capacity for load-serving entities that are not developing generation or lack a state-regulated framework to do that. We are different—we are vertically integrated—so it does not change our existing process. We do not expect a change to our plan. We have an integrated resource plan that is designed to meet policy goals in Virginia and the incredible demand growth that we are experiencing, and that includes, as you know, incremental generation. It is also important to note the difference between the DOM Zone, which we serve as a transmission operator, and our load-serving entity that we serve from a generation standpoint. We will take a look at the process that PJM ultimately finalizes, but the plan that we have is through our state-regulated utility, vertically integrated, and we are going to need to build generation to serve load in Virginia regardless of the outcome of the PJM process. Paul Zimbardo: Very clear. And then if I could follow up on the battery bill, the successful one there. Any way to frame the cadence of that? Should we think about the megawatt deployment target as ratable or more back-end loaded or front-end loaded? Any shaping would be useful. Steven D. Ridge: Yeah, Paul. We probably do not have great guidance on how to model exactly what that cadence will look like. We will take steps to start accelerating that spend, which we recover via a rider mechanism in Virginia, as quickly as we possibly can. So I think there will be some upward bias in our five-year capital plan associated with that. Then in the 2030s, you will likely see a higher run rate associated with that. I would say stay tuned for the IRP because that will show where the model selects those installations coming in. Operator: We will move next to Steve DeBrissey with RBC Capital Markets. Your line is open. Steve DeBrissey: Hey, Bob and Steven. Thanks very much for taking my questions. Just had a quick one. You talked about—we have talked about the battery storage—but you added on slide 3 the line monitoring catalysts that could enhance or extend the growth rate. Can you talk a little bit about what that means and what the buckets are? Presumably, it is storage, Millstone, potentially an acceleration of data center activity, but which of those could either drive an enhancement or an extension, and how are you thinking about adding that language to the slides? Steven D. Ridge: Thanks, Steve. I am glad you noticed that language. It was pretty deliberate. As we mentioned in the script, first and foremost, our growth is about meeting our customers' needs quickly, affordably, and reliably. We feel like we have positioned the company to be ideally situated to meet accelerating needs across generation, transmission, and distribution. That is why fortressing our balance sheet as part of the business review was so critical as we saw the need for incremental capital coming. You have seen this trend reflected in our most recent Q4 call update. The most recent was an increase of 30% over the five-year plan, and the one before that was about 15% higher than the prior. We continue to see opportunities to deploy regulated capital to serve our customers, and the battery storage legislation is just an example of that, but it definitely expands beyond that across other forms of generation, transmission opportunities, and broadly distribution. Certainly, battery storage is a potential catalyst. More generally, regulated capital across other applications is a catalyst that we see in the potential five-plus-year plan. And you correctly ascertained Millstone, which we view as a potential for another win-win for customers. We will be in a position to share more on that later this year. We feel like we have been appropriately conservative in our plan around Millstone, and to the extent that we are successful in finding a win-win for customers, that would have the dual benefit of continuing to hedge that exposure for Connecticut customers—much like the first contract has done—and also potentially recognize the increased value across nuclear capacity in the United States. Steve DeBrissey: Great. That is helpful. And then on the Millstone point, I think previously we have the very visible DEEP process. Can you talk about potential interest from surrounding states and if there are any formal processes, and if you would be willing to contract more than the 50% that you have done historically? Robert M. Blue: Yeah. The answer to the second question is yes, we would be willing to contract more than the 55%. Other states do not have a formal process in place the way Connecticut does, but we have certainly been talking to them, and they have expressed interest. Operator: Next question from Misty Galois Crowdell with Mizuho. Your line is open. Anthony Crowdell: Hey, thanks for taking my questions. Just a couple here. On the CVOW installation cadence, you are averaging about two days per turbine on recent installations. What gives you confidence this pace is sustainable as you move through the project? Robert M. Blue: Great question, Anthony. Let us take a step back for a second. We have been building projects on time and on budget for a long time—whether it is Cove or the combined cycles we built in 2010 or big transmission projects. Building infrastructure well is one of our strengths. For CVOW, we got first power to the grid in March, which was in line with the original timeline. That was a big milestone. As for turbine installations, we noted upfront we have been able to ramp installation productivity meaningfully. If you think about some of the other parts of this project—transition pieces or monopiles—when we started off, those were modest. I think we did four monopiles in May 2024, the first month we were doing those; we did something like 13 transition pieces in January 2025, which was the first month we did those. Then by the time you got to the end, we were doing 21 monopiles in a month and 38 transition pieces. So a really dramatic improvement as we went along. We are seeing that same dynamic playing out here where we start with a measure-twice-cut-once approach that we have learned in doing big projects over the years. That rate is accelerating. We have a lot of opportunities to optimize that process more. We also started in the winter—the worst weather months. Now that we are in the summer, that will give us more opportunities to refine our process and improve cadence. Taking all that together—the productivity progression and improving weather windows—that is what gives us confidence in hitting the timeline. Most important, three things: one, it is the fastest source of new power for our customers; two, it is the most affordable option; and three, we have great confidence in our financial plan to be durable and resilient as we work through construction. Anthony Crowdell: Great. And if I could just throw in a follow-up on the balance sheet. I believe the target is above 15%. As the CVOW construction winds down, I think rate base investment accelerates. Are there any key risks that you would highlight to maintaining above the 15%? Steven D. Ridge: No, Anthony. We put out a financing plan as part of the Q4 call that is 100% supportive of maintaining that cushion, which we think is adequate in order to safeguard from unintended headwinds that we may face. I am really pleased with where the balance sheet is as a result of the business review. As I mentioned earlier, pleased with where we printed in 2025 over 15% and LTM above that as well. Take everything together, and we are in great shape on the balance sheet. We are already at that cushion level. It is not a situation where we are ramping over time to get there. Operator: We will move next to Richard Sunderland with Truist Securities. Your line is open. Richard Sunderland: Hey. Good morning. Thanks for the time today. Circling back to that slide 3 commentary and the addition at the bottom—appreciate the buckets and what are some of the pieces there—and you have already expressed a bias on the growth rate. But thinking more about how these opportunities aggregate, is it still about working in the range of that 5% to 7% growth, or do you see the potential for structurally higher growth over time? Steven D. Ridge: That is a very clever question, Rich. I think we have said it exactly as we want to say it, which is our plan is appropriately conservative—not unreasonably so—but we are focused on building a track record of successful high-quality execution quarter after quarter, year after year, with the strength of the balance sheet. We feel very well positioned with the tailwinds we have to be in a position to monitor catalysts that will enhance or extend our long-term growth rate range. Richard Sunderland: Very clear. Thank you. And then, on the battery side, I am curious on the long-duration component. How do you think you might address that? Any thoughts on technology and timing? Any opportunity there around long duration in the next five to ten years, or is that more going to be in the out years? Robert M. Blue: A little early on giving specificity on that. We have a couple of pilots on longer-duration storage underway right now evaluating technologies. As a result of this legislation, we will continue to ramp that up, explore more opportunities with more vendors, but we are not in a position to identify specifics on that today. Operator: We will move next to Carly Davenport with Goldman Sachs. Your line is open. Carly S. Davenport: Hey, good morning. Thank you for taking my questions. I just had a quick follow-up on Anthony’s question on the cadence of the turbine installation. I know you mentioned the pace has picked up as you have honed best practices. Should we think about that two days per turbine as the target, or are there identifiable items that could get you toward maybe that day to day-and-a-half range that has been quoted for some other projects? Robert M. Blue: We are always interested in getting that number down, and we will continue to push for that. The main message is the really impressive improvement that the team has made each time with the pace they have been able to install. There is obviously a limit on that curve, but we are going to continue to push our way down that curve. We will update on installation cadence on every call and will have an opportunity to talk about the ways that we have improved. I expect we are going to continue, like we did with monopiles and transition pieces, to get the pace faster as we go along. Carly S. Davenport: Got it. That is super helpful. Thank you. And then just on the data center pipeline, I know you are uniquely positioned in PJM. Are you seeing any shifts in terms of the cadence of load development or progression through your pipeline due to some of the broader uncertainty on the constructs in PJM governing pricing of capacity and cost allocation? Robert M. Blue: No. We continue to see incredibly strong demand for new data centers in Virginia. We noted in our prepared remarks we have added commitments in all stages of contracting since December. That interest has not waned at all in recent months. So, short answer is no detectable change. Operator: And one moment. I would now like to turn the call to Bob Blue for closing remarks. Robert M. Blue: Thanks, everyone, for taking the time to join the call today. Please enjoy the rest of your day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.