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Unknown Speaker: [inaudible] Operator: And welcome to UMH Properties, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. It is now my pleasure to introduce your host, Mr. Craig Koster, executive vice president and general counsel. Thank you. Mr. Koster, you may begin. Craig Koster: Thank you very much, operator. In addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited first quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q, are available on the company's website at umh.reit. We would like to remind everyone that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's first quarter 2026 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. In addition, during today's call, we will be discussing non-GAAP financial metrics. Reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics, as well as the explanatory and cautioning language, are included in our earnings release, our supplemental information, and our historical SEC filings. Having said that, I would like to introduce management with us today. Eugene Landy, founder and chairman, Samuel Landy, president and chief executive officer, Anna Chew, executive vice president and chief financial officer, Brett Taft, executive vice president and chief operating officer, James Lykins, vice president of capital markets, and Daniel Andy, executive vice president. It is now my pleasure to turn the call over to UMH Properties, Inc.’s President and Chief Executive Officer, Samuel Landy. Samuel Landy: Thank you, Craig, and good morning, everyone. We are pleased to report solid operational results for the quarter, which we expect to continue to grow throughout the year. Normalized FFO for the first quarter of 2026 was $0.23 per share, as compared to $0.23 per share last year. Our earnings per share were impacted by increased interest rates and increased investment in rental units and expansion lots that are not yet occupied. Additionally, we faced seasonal headwinds which impacted our sales volume and increased our community operating expenses. During the quarter, occupancy improved meaningfully, same property NOI grew by 7%, and home sales revenue was stable. These gains were partially offset by higher interest costs associated with refinancing debt, bringing expansion lots online, adding rental homes, and the seasonal impact on home sales and operating expenses which together moderated earnings per share growth. Normalized FFO per share came in essentially in line with last year's first quarter, reflecting the strength of our core rental business offset by those financing and seasonal pressures. As we continue to fill rental homes and generate increased sales profits, our earnings should increase in the quarters to come. We have invested in rental homes, expansions, and acquisitions for which we currently incur interest expense but which will later become accretive to earnings. The fundamentals of our business remain strong, with growing occupancy and improving community operating results. We are tightening our NFFO guidance range to $0.98 to $1.04 per share, or $1.01 per share at the midpoint, compared to our previous guidance of $0.97 to $1.05 per share. UMH Properties, Inc. continues to experience strong demand throughout our portfolio of quality manufactured housing communities. This demand is being translated into increased occupancy rates and improved community operating results. During the quarter, overall occupancy improved by 184 units to approximately 88%. This increase was the result of the conversion of 166 homes from inventory to revenue-producing rental homes and an increase in occupancy of our existing rental homes. Additionally, sales of manufactured homes increased by 6% to $7.1 million for the quarter. This increase in sales includes the sales at Honey Ridge which is owned through our joint venture with Nuveen. We continue to execute our long-term strategy of driving organic growth across our high-quality manufactured home communities. This organic growth translates to increased property values and, over time, increased earnings. Rental and related income grew to $59.5 million for the quarter, representing a 9% increase over last year. Sales for the quarter were $7.1 million, including the sales at Honey Ridge, representing a 6% increase over the first quarter of last year. Our same property results continue to demonstrate the effectiveness of our long-term business plan. We generally acquire underperforming communities with vacancies and in need of capital improvements. Our team and our platform have proven time and time again that we can preserve and increase the supply of affordable housing while delivering solid and sustainable operating results. In the first quarter of 2026, we delivered same property revenue growth of 7.6% or $4.1 million and same property NOI growth of 7.1% or $2.3 million. This growth in same property revenue and same property NOI was driven by site rent increases of 5% and the increase in occupancy of 412 units over last year. Our expenses elevated as a result of the bad winter as well as an increase in real estate taxes. This increase in community NOI substantially increases the value of our communities and our portfolio. We can realize this increase in value through our refinancing efforts, which generate additional capital to invest in our platform. Our occupancy gains continue to be driven by the successful implementation of our rental home program. During the quarter, we added and rented 166 new homes across our portfolio, including those in our joint venture communities, bringing our total rental home inventory to approximately 11,200 units with a 94.6% occupancy rate. Our home rental program continues to operate efficiently with a turnover rate of approximately 20%. Our expenses per unit per year are approximately $400. Our capitalized turnover costs vary, but we are generally able to increase rents to earn 10% on any additional investment in rental homes. We are well positioned to fill 800 or more new rental homes this year. We currently have 80 homes on-site and ready for occupancy, 400 homes being set up, and 160 homes on order. The 480 homes that are on-site have already been paid for and, once occupied, each home increases revenue and starts to earn our expected return on investment. Our home sales business also performed well, despite the challenging winter, generating a 6% increase from $6.7 million in gross sales in the first quarter of 2025 to $7.1 million for the current quarter, including contributions from our new Honey Ridge community, our joint venture with Nuveen Real Estate. During the quarter, we financed 63% of our home sales, including sales at Honey Ridge. Our notes receivable portfolio continues to perform well. We have acquired and developed communities in strong locations which should allow us to further increase our gross sales and sales profitability in the coming quarters. On the expansion and development front, we plan to develop 300 or more sites in 2026. Over the past four years, we have developed an average of approximately 200 sites per year. Expansions greatly increase the value of our existing communities. A larger asset generally operates with better margins as a result of economies of scale. We currently have $45 million invested in 600 vacant, well-located expansion sites that have been developed over the past few years. These sites will allow us to grow home sales revenue and community operating income. These sites have been paid for, so each site we occupy will increase revenue with limited additional investments. The interest is already being expensed. Additionally, these expansion sites are well located and have the potential to greatly increase our sales and sales profits. As we fill our recently developed sites, our earnings can grow substantially. Expansions and development require patient capital but lead to strong returns over time. We will continue to work on expanding our existing communities in addition to exploring the highest and best uses of our vacant land. UMH Properties, Inc. is well positioned to capitalize on the progress we have made on our investments over the past few years. We have well-located communities that are experiencing strong demand, which should result in increased occupancy, revenue, and sales. Our communities in the Marcellus and Utica Shale areas continue to experience strong tailwinds as a result of the additional investment in these areas. Additionally, we are starting to see more interest in the leasing of our oil and gas rights, which can result in additional revenue. We have built a best-in-class operating platform that continues to produce results year after year. The fundamentals of our business remain strong. There is pent-up demand for affordable housing, and our product serves that need in each market that we operate in. Our quality income stream is derived from our 24,000 families that have chosen to make UMH Properties, Inc. communities their home. This income stream has proven resilient through all economic cycles. As we move through the stronger spring and summer selling seasons, we remain confident in our ability to deliver full year normalized FFO per share growth in the mid-single-digit range which, if coupled with our current dividend yield, can easily drive a double-digit total return for our investors. Our communities are well positioned, our balance sheet is solid, and our team continues to perform at a high level. Overall, these accomplishments demonstrate the resilience and growth potential of our business model. I will now turn the call over to Anna Chew, our CFO, to review our financial results in more detail. Anna Chew: Thank you, Sam. Normalized FFO, which excludes amortization and nonrecurring items, was $19.4 million or $0.23 per diluted share for the first quarter of 2026 compared to $18.8 million or $0.23 per diluted share for the first quarter of 2025, resulting in a 3% increase on a dollar basis and remaining flat on a diluted per share basis. Rental and related income for the quarter was $59.5 million compared to $54.6 million a year ago, representing an increase of 9%. This increase was primarily due to acquisitions made in 2025, an increase in same property occupancy, the addition of rental homes, and an increase in rental rates. Community operating expenses increased 10% during the quarter. This increase was mainly due to the acquisitions made in 2025 and an increase in payroll and related costs, real estate taxes, and water and sewer expenses. Our community net operating income, or NOI, which is our rental and related income less our community operating expenses, increased 8%. Our same property results continue to meet our expectations. Same property income increased by 8% for the quarter, and despite the 8% increase in community operating expenses, community NOI increased by 7% for the quarter from $32.6 million in 2025 to $34.9 million in 2026. As we turn to our capital structure, at quarter end, we had approximately $760 million in debt, of which $554 million was community-level mortgage debt, $28 million was loans payable, $102 million was our 4.72% Series A bonds, and $76 million was our 5.85% Series B bonds. Total debt was 99% fixed rate at quarter end with a weighted average interest rate of 4.92%. The weighted average interest rate on our mortgage debt was 4.75% at quarter end, compared to 4.18% at quarter end last year. The weighted average maturity on our mortgage debt was 5.9 years at quarter end and 4.2 years at quarter end last year. In this volatile interest rate environment, the weighted average interest rate on our short-term borrowings was 15 basis points lower at 6.35% at the current quarter end as compared to 6.5% at quarter end last year. At quarter end, we had a total of $325 million in perpetual preferred equity. Our preferred stock, combined with an equity market capitalization of over $1.2 billion and our $760 million in debt, results in a total market capitalization of approximately $2.3 billion at quarter end. During the quarter, we issued and sold 66,000 shares of our Series D preferred stock under the 2025 preferred ATM program at a weighted average price of $22.51 per share, which generated gross and net proceeds after offering costs of $1.5 million. The company also received $2.4 million including dividends reinvested through our DRIP. During the quarter, we did not sell any shares of our common stock under the September 2024 common ATM program. From a credit standpoint, we ended the quarter with net debt to total market capitalization of 31.2%, net debt less securities to total market capitalization of 30.1%, net debt to adjusted EBITDA of 5.5 times, and net debt less securities to adjusted EBITDA of 5.3 times. Interest coverage was 3.1 times and fixed charge coverage was 2.1 times. From a liquidity standpoint, we ended the quarter with $37.4 million in cash and cash equivalents and $260 million available on our unsecured revolving credit facility, with a potential total availability of up to $500 million pursuant to an accordion feature. Our unsecured revolving credit facility expires in November, and we are currently working on a renewal of this facility. We also had $183 million available on our other lines of credit for the financing of home sales and the purchase of inventory and rental homes. Additionally, we had $26.4 million in our securities portfolio, all of which is unencumbered. This portfolio represents only approximately 1.2% of our undepreciated assets. We are committed to not increasing our investments in our REIT securities portfolio and have, in fact, continued to sell certain positions. We are tightening our NFFO guidance range to $0.98 to $1.04 per share, or $1.01 per share at the midpoint, compared to our previous guidance of $0.97 to $1.05 per share. We are well positioned to continue to grow the company internally and externally. And now let me turn it over to Gene before we open it up for questions. Eugene Landy: Thank you, Adam. UMH Properties, Inc. continues on our mission to provide the nation with high-quality affordable housing and doing so while generating strong and growing returns for our shareholders. We have made immense progress over the years building a great portfolio of manufactured housing communities that our existing tenants and our new tenants are proud to call home. We improve our communities by upgrading the collective communities through infrastructure projects, the addition of amenities, security best practices, and further through the expansion of our communities. We are proud to say that each asset we own is in better condition today than the day we bought it. Over the company's history, we have experienced several economic cycles across our portfolio, and the manufactured housing industry has performed well throughout all of them. Our communities have strong demand in times of economic prosperity and in times of recession. While interest rates have fluctuated over the past few years, our communities still experience strong demand, have experienced growing occupancy, and sales and collections have remained strong. Our earnings have been impacted by rising interest rates; completion of expansions and adding to the rental inventory triggers added interest expense and seasonal fluctuations in sales and operating expenses. We believe that we are poised for meaningful earnings growth this year, and as such, we have tightened our guidance. Housing is a bipartisan issue with bipartisan support. There is pending legislation that will strengthen the manufactured housing industry. The pending legislation has the potential to improve the availability of financing for our tenants through changes to the Title I program as well as remove the requirement that a manufactured home has to be on a permanent chassis. We have already made substantial progress through the innovation of single and multi-section duplex homes. Additionally, we are hopeful that as we develop more communities, local municipalities will see the benefits of manufactured housing and ease burdensome regulatory requirements that have made getting entitlements nearly impossible. Your major in the manufactured housing industry are in an exciting time with many possibilities. We have positioned the company to benefit from these changes and anticipate substantial growth of the company and our earnings in the near future. Thank you again for joining us today. Operator, we are now ready to take questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. Please press star and then two to withdraw your question. At this time, we will pause momentarily to assemble the roster. The first question will come from Gaurav Mehta with Alliance Global Partners. Please go ahead. Gaurav Mehta: Thank you. Good morning. I wanted to ask you on your same property NOI and some of the comments around the impact of winters on the same property expenses. So, on a normalized basis, do you still expect to deliver same store NOI in high-single-digit and low-double-digit range as you mentioned on the last earnings call? Brett Taft: Yeah. Sure. Brett here. As you mentioned, it was a tough winter. Pennsylvania, Ohio, Indiana, New York, even Tennessee had deep freezes and extended periods of below-freezing temperatures, which obviously impacts our water and sewer. It impacts our maintenance overtime dealing with freeze-ups. We had a lot of snow and a lot of snow removal-related charges. So, overall, community operating expenses were up 8.2%. I do want to point out that last year our community operating expenses in the first quarter were also elevated, about the 7.5% range. So this year was a little bit higher, but largely in line. We are very happy with the occupancy growth and the revenue growth we were able to produce in the first quarter. And as we go throughout the rest of the year, we expect that expense growth to moderate. We have always pointed out that we expect expenses to grow in the 5% to 7% range. Nothing changes there, and we are absolutely confident in our ability to deliver high-single-digit same property NOI growth. Samuel Landy: One of the things we think about, like, why is somebody short 3 million shares of UMH Properties, Inc.? And I do not know what they see or think they see that we see differently. Our 3,240 vacant sites represent incredible opportunity to increase sales and rental revenue, and that will come to the bottom line. And, to me, it is reasonable to believe, someday in the near future, we will sell 320 homes in a year at a $150,000 average price and gross $48 million in sales. So we remain incredibly optimistic, but, obviously, somebody else is pessimistic. Gaurav Mehta: Thanks for those details. As a follow-up, I want to ask you on the home sales. In the earnings press release, I think you talked about expectation of sales growth as we go into peak selling season. Just wondering if you could comment on the trends that you saw in April for home sales. Brett Taft: Yeah. The trends in the portfolio look very good. Including Honey Ridge for the first quarter, sales were up year over year. Again, we are absolutely impacted by the cold winter and everybody's ability to move. Our April sales were very strong. They are coming in at about $3.5 million, so we are very happy with that. Our pipeline remains in good shape. We have got a lot of inventory that is now ready for sale or just about ready for sale at a lot of the expansions that we have recently opened. And as Sam mentioned at the call, we have got several hundred expansion sites built over the past few years that should all generate increased sales in the second and third quarter. I do also want to point out that our New Jersey communities and some of our Eastern Pennsylvania communities were impacted by the winter, but we are expecting and we are seeing a very strong sales pipeline at those locations. Sales in the second quarter of last year were about $10.5 million. We are on track through April. Obviously, there is a long way to go, but we remain confident in our ability to grow sales in the second quarter and year over year. Operator: The next question will come from Craig Kucera with Lucid. Please go ahead. Craig Kucera: Good morning. There is a pretty significant swing in your marketable securities portfolio. Not much of an impact on a net basis, but can you give us some color on what was going on there? Anna Chew: Yes. Hi, Craig. It is Sarah. We had written off one security, and if you think about it, it was already written down in our unrealized gain and loss line. So we just physically wrote it down. We moved it from the unrealized to the realized. So that is all it was. Craig Kucera: Okay. That is helpful. Changing gears, are there any critical materials sourced from the Middle East that are a component for manufactured housing development? Or maybe aluminum or plastics, or are most of those materials sourced elsewhere? Samuel Landy: At this moment, I have heard about supply has, you know, remained no issues and no material increases. What do you think, Brett? Brett Taft: Yeah. Same point here. The main thing that I follow there is the backlog we are seeing from our manufacturers. While they have increased a little bit, I think generally we are still able to get homes in that six- to eight-week range, with limited price increases. I mean, there are some price increases, but overall, it is a pretty stable home ordering environment. We are comfortable with where we are. And if anything changes, we will get back to you. And we believe in the long-term efficiencies of factory-built houses, that the factory-built homes will, in comparison to all other forms of housing, reduce the cost per house based on efficiencies of manufacturing. Craig Kucera: Got it. And just one more for me. I mean, it was a quiet quarter from a capital raising perspective. You worked down your cash balance. Last year, you funded yourself primarily with debt. How are you thinking about funding the 2026 budget? I mean, is that mostly line of credit? I know you have got about $38 million in mortgages that are maturing, but just curious to get your thoughts on that. Anna Chew: Well, it all depends on our capital needs. As we always say, we always need about $120 million to $150 million on an annual basis to do our business plan. We do plan on refinancing about $38 million in mortgages. When we refinanced last year, we were able to take out $100 million in additional capital. Now that will not happen again this year because, again, there are fewer mortgages that are coming due. However, we do have approximately 60 communities that are free and clear. We have on hand about $40 million. We have an unsecured line of credit of $260 million, which with an accordion feature will go to $500 million. We have a rental home line. We have a notes receivable line. So, all in all, we believe that we will be able to obtain the capital necessary. And again, it all depends on our share price. It all depends on the market. What the interest rates will be when we need that capital. Eugene Landy: We have to understand that UMH Properties, Inc. is a unique company. We have a mission statement we really believe in. The nation needs housing. There is a shortage. The government's recent figures were 10 million units. We used to figure they need 6 million units. So 4 million units, whatever the number we have to reach to beat that shortage, we are not doing it. There will be fewer homes built in 2026 than there were in 2025. But that is not the case with UMH Properties, Inc. Our mission statement is to provide housing. We believe we have a definite advantage in the housing we have. We build houses in factories and ship them to communities. We have to create the communities. We have to have the capital to do it. And we are using every means we can to expand the company, and we plan— we have units that we want to build in Tennessee, in Florida, in New York. So we are constantly seeking ways to profitably grow this company. And it is important to the company because, in the long run, investing in housing is a good investment. And it is something the nation needs. Okay. Thank you. Operator: The next question will come from John Massocca with B. Riley. Please go ahead. John Massocca: Starting on the regulatory front, how does the removal of the chassis requirement rules impact UMH Properties, Inc., if at all? Samuel Landy: It is not complete yet, but as we have gone to duplex homes, there never used to be such a thing as a one-bedroom manufactured home. In apartments, you did one-bedroom, studio, two-bedroom, three-bedroom, four-bedroom. Manufactured housing was two-, three-, and four-bedroom. Now the duplexes give us one-bedrooms, which there is substantial demand for, and allows us to obtain two rents from one lot, which can increase revenue. The removal of the chassis will allow two-story homes. And those two-story homes will allow bigger families to occupy the same size lot, the 5,000 square foot lot. And there is additional potential that those two-story homes could be duplexed. So two-story is a really big deal. Manufactured home communities are built for HUD code houses, and the municipality has to allow whatever the HUD code allows. So this will allow two-story homes in the communities and can be a really big deal depending on location. Eugene Landy: You build 2,000 square feet of homes instead of 1,000 square feet on the same piece of land. It is a very, very important development. When you buy a community that is older, it gives us a means of taking out these older homes and putting in twice as much space, so the space is more valuable. This is a change that is going to help every manufactured home community in the country. And it is going to help the residents because we can provide new and improved housing in the spaces where we had older and obsolete housing and put a better product in. So it is really a major change for the industry. And I would really like to thank you for that question. John Massocca: Does it impact the cost if somebody is not on the ground? Does it impact the cost of installation of new homes and the pace at which you can add new homes to existing communities, or is the removal of the chassis not really changing that per se? Samuel Landy: Removing the chassis allows the house to be at ground level, which is very appealing to 55 and older who do not like walking up steps. So that helps there. Removing the chassis reduces the cost of each unit by $3,000 or more, but then there are increased setup costs which will be worked out over time. Efficiencies will develop in setting up the houses. We have always found setting up 10 homes as opposed to one home at a time, you can save money because you have all the crews ready to do everything, and you can reduce the cost per house. So I assume it will be the same thing when you get rid of the chassis. In the beginning, there will be inefficiencies. There will be added cost of setting up homes without chassis, but eventually that will get worked out. John Massocca: And then is there anything else you are seeing on the regulatory front that could change here near term, especially in terms of maybe financing for manufactured homes? Samuel Landy: Exactly. We have more than $100 million in loans outstanding. We have more than 11,000 rental homes. Many developments are occurring that could make it more favorable for people already renting homes or others to purchase our rental units or purchase additional houses, or for outside finance sources such as Fannie, Freddie. And then, you know, I am learning about in Pennsylvania there are government programs. People may want to do these loans, and if they do the loans, homes we already sold where we have the loan, somebody could refinance and pay us off. That would be cash to us. We could be selling the rentals under a Title I program or other programs, which would be cash to us. So everything you read about in The Wall Street Journal pertaining to improving credit scores, finding other ways to determine people's credit, that will increase loan approvals. That is beneficial to us. Title I is beneficial. It is 3% down. They are going to increase the loan limits. Fannie and Freddie are trying to do more on the affordable housing front. So all of these things factor in to help increase our sales, sell off existing loans, and sell rental homes. John Massocca: Maybe switching gears a little bit. As I think about some of your assets in the Southeast, they tend to be a little bit more value-add purchases, especially with some of those not being in the same store pool. How are you thinking about the pace or the potential pace of lease-up at those assets as we come into peak leasing/selling season? Unknown Speaker: Yeah. So for the OZ fund properties, one in Georgia and one in South Carolina. Both of them have really great demand. The one in Georgia right now, the leasing pace has been around four or five homes a month, so I think we will keep doing that. The one in South Carolina, we have an incredible waiting list. Every home we have set up there is full. Right now, there is a north section that we are trying to get expansions and approvals for. It looks like we will be getting that. So we will have info there, and we are going to come out with a video showcasing what we are doing in the current OZ fund and in the South, and it will really give you investors a really great view of the positive impact we have made there, the housing supply we have increased, and the level of demand in the Southeast. South Carolina, I think, is the fastest-growing state in the US, and we have done a really good job filling everything we can fill right now, and we are going to keep expanding there. John Massocca: That is it for me. Thank you very much. Operator: The next question will come from Richard Anderson with Cantor Fitzgerald. Please go ahead. Analyst: This is Jeffrey Carr on for Rich. Just wanted to ask about same property occupancy. It looks like it ticked up about 110 bps from last year to 89%. In your view, what is the kind of realistic ceiling or target that you might have for occupancy across the portfolio? And are there any markets that you feel like have the most room to run from this point? Brett Taft: Great question, first of all, and we are very happy with what we have been able to accomplish. I think, but I am not positive, this is a peak of same property NOI as long as I have been here. So it is nice to get there, and it is really a function of going out, purchasing properties, we know what the problem was when we purchased them, we made the improvements to the communities, we make them nicer and safer places to live, and then we start to implement the rental home program. Just to add some color there, we currently have 430 homes on-site. Some of them are ready for occupancy. Some of them we are working on getting ready for occupancy. That is all low-hanging fruit that should allow us to continue to grow occupancy into the second and third quarters. I do not see any reason why in the near term, call it the end of the year, we cannot get above 90%. I think that is a very realistic goal. You have always got some move-outs and some home removals that go along with some of these homes, so it does offset the occupancy growth a little bit, but by and large, we have done the majority of that work, and I do expect a lot of occupancy upside here going forward. As far as regions that are doing very well, Ohio has really led the company over the past few years in occupancy growth, and the good news is we still have quite a few vacant sites at some of our communities that are the best performers. We expect that to continue. Pennsylvania actually had a pretty slow first quarter, but I think that was largely impacted by the winter. And when we are out there working with our community managers and our regional managers, we are expecting a nice uptick in occupancy there. Indiana has always been solid, and we have got some nice expansion sites that we are filling at a pretty rapid clip. And then I just cannot leave Tennessee out because Tennessee, albeit a smaller portion of the portfolio, always has very strong demand and always fills quite a few sites. The issue in Tennessee is we ran out of sites, but the good news is we have been developing expansion sites. We have got about 50 sites left at our Holiday Village expansion. We are about to complete the next phase of our Duck River expansion, which in the short term will give us 40 new lots to fill. And then we just built 55 units at River Bluff, which is adjoining Allentown. On top of that, we have another 100 units that were just completed at Memphis Blues. So really, throughout the portfolio, demand is strong. I would just add that New York really does have a very seasonal impact of the weather up there. Our occupancy in New York right now has rebounded, and we are in very good shape up there. So, you know, I hate to say we are doing well everywhere—actually, I love to say we are doing well everywhere—but, really, across the board, we are seeing strong demand, and we are filling a lot of units. Eugene Landy: Just to give an example, when the mayor of Memphis has said that they need 10,000 affordable homes, and the only people building that there right now are UMH Properties, Inc., and we are expanding there rapidly. And we have a lot of extra land. We plan to buy some more land. I do not know when the third section is—we are going to the fourth section. Memphis is a sleeper. We did very well picking Nashville. Now I think Memphis is going to be an excellent area to develop affordable housing. Analyst: Great. Thank you. And just as a follow-up, can you walk us through the puts and takes on interest expense for the rest of the year? Just wondering if Q1 is the peak or if we should expect this level to persist throughout 2026. Anna Chew: I believe that it is pretty much the same that we will expect throughout the year. I do not believe that we will have any big increases in interest or big decreases at this point. Eugene Landy: Important to note, if I remember the numbers right, which I think I do, $600,000 of the increased interest expense is from refinancing at a higher rate. The rest of the interest expense is from adding rental units and building lots, which cannot possibly earn money until they are occupied, and they are now at this moment becoming occupied, and will become occupied throughout the year. So, to me, you have the maximum interest expense without revenue that you will have during the year. Brett Taft: Yeah. That is generally correct. I just want to point out that last year we had about $117 million in debt that was refinanced. It was at 4% at the time that it was being paid off. That increased to about 5.65% on average, which increased the interest cost on that batch by just over $2 million, if I remember correctly. On top of that, we did increase the mortgage debt, so that was another $4 million in interest, and then we did the Israeli bond. So that is why interest is elevated. Anna Chew: But we do not believe that there will be any large fluctuations throughout the rest of the year. Analyst: Okay. That is all for me. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks. Samuel Landy: Thank you, operator. I would like to thank the participants on the call for their continued support and interest in our company. As always, Eugene, Anna, Brett, and I are available for any follow-up questions. We look forward to reporting back to you in early August on our second quarter 2026 results. Thank you. Operator: The conference has now concluded. 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Operator: Hello, and welcome to the LyondellBasell Teleconference. At the request of LyondellBasell, this conference is being recorded for instant replay purposes. [Operator Instructions] I would now like to turn the call over to Mr. David Kinney, Head of Investor Relations. Sir, you may begin. David Kinney: Thank you, operator, and welcome everyone to today's call. Before we begin the discussion, I would like to point out that a slide presentation accompanies the call and is available on our website at investors.lyondellbasell.com. Today, we will be discussing our first quarter results, while making reference to some forward-looking statements and non-GAAP financial measures. We believe the forward-looking statements are based upon reasonable assumptions and the alternative measures are useful to investors. Nonetheless, the forward-looking statements are subject to significant risk and uncertainty. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in the presentation slides and our regulatory filings, which are also available on our Investor Relations website. Comments made on this call will be in regard to our underlying business results using non-GAAP financial measures, such as EBITDA and earnings per share, excluding identified items. Additional documents on our Investor website provide reconciliations of non-GAAP financial measures to GAAP financial measures, together with other disclosures, including the earnings release and our business results discussion. A recording of this call will be available by telephone beginning at 1 p.m. Eastern Time today until May 31 by calling (877) 660-6853 in the United States and (201) 612-7415 outside the United States. The access code for both numbers is 13746217. Joining today's call will be Peter Vanacker, LyondellBasell's Chief Executive Officer; our CFO, Agustin Izquierdo; Kim Foley, our Executive Vice President of Global Olefins and Polyolefins; Aaron Ledet, our EVP of Intermediates and Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. With that being said, I would now like to turn the call over to Peter. Peter Z. Vanacker: Thank you all for joining today's call as we discuss our first quarter results, and thank you, Dave. As some of you know, Dave Kinney is retiring after a decade leading Investor Relations and nearly 35 years with the company. I am sure you will all join me in congratulating Dave for his significant contributions to the company and wishing him well in retirement. Succeeding Dave is David Dennison, who brings nearly 30 years of industry experience to the role across planning, commercial and strategic functions, including most recently in the Circular & Low Carbon Solutions business. I am confident you will find David to be another great partner as our new Head of Investor Relations. Before we turn to our performance, I want to acknowledge the human impact of the tragic ongoing situation in the Middle East. The suffering and trauma of war is catastrophic for all involved, and our thoughts are with those affected. Our first priority is the continued safety of our people, and we have already executed on protocols to protect our employees and contractors in the region. This situation in the Middle East has materially disrupted global energy and petrochemicals markets. We expect the impacts will extend beyond the end of the year with much of the world's petrochemical capacity constrained or shut down. LYB's U.S. and European production capacity is a critical resource for filling the global gap in supply for our essential products. Supported by our operational excellence and the work from our value enhancement program, we are increasing production to meet this demand. At the same time, we remain focused on executing our strategy. Our portfolio transformation has reached another significant milestone with the sale of four European assets. While increased cash generation and profitability will improve our credit metrics, we are maintaining our discipline on capital expenditures. And we are undertaking deliberate actions to further streamline our fixed costs and underpin our ability to generate attractive value during both cyclical highs and lows. With that being said, let's take a moment to review LYB's safety performance with Slide #3. Safety remains foundational to how we operate. Our year-to-date total recordable incident rate of 0.13 is among the best in our sector and reflects the commitment of our employees and contractors. Turning to Slide 4. The Middle East conflict and its unprecedented effects on energy prices and global logistics has shifted the paradigm for petrochemicals. At the high end of the cost curve, naphtha-based producers in China and Southeast Asia have faced sharply higher costs driven by the compound impact of higher crude prices, the loss of sanctioned crude discounts and weak co-product values. In addition, pre-conflict, approximately half of Asia's imported crude came from the Middle East. The war has impacted security of supply for Asian crude and petrochemical feedstocks, leading to lower production and a substantial reduction of exports from the region. At the low end of the cost curve, U.S. ethane economics have improved, strengthening the cost advantage of LYB's U.S. Gulf Coast assets with low-cost raw materials and increased production to serve increased global demand. In Europe, higher prices are now offsetting higher energy and feedstock costs as imports from the Middle East and China decline. And while this chart focuses on ethylene, we find similar dynamics in play across nearly all LYB products. Clearly, we are operating in a dynamic environment where dramatic changes are possible within short time periods. Our global operational and marketing network has already yielded valuable insights, which have enabled us to rapidly adapt to the changing environment. These insights inform our position that the impacts from the war will be long-lasting. We believe the geopolitical risk premium for crude oil will persist even after a resolution to the current conflict, and discounts for sanctioned crude are unlikely to return. Both of these impacts should durably steepen the global cost curve relative to pre-war conditions. Across feedstocks and petrochemicals, physical damage from the war and accelerated shutdowns will require time and resources to repair. And some older, smaller and less economical plants under evaluation for potential rationalization may not restart at all. This could provide a lasting benefit to supply and demand balances. Of course, we are mindful of the potential for second order impacts like demand destruction for discretionary spending, especially if oil prices remain at recent highs. But we remain confident that our cost-advantaged asset base and deliberate execution will enable LYB to continue to generate value through the cycle. Now let's turn to Slide 5 as we discuss the tangible steps we are taking to execute on our strategy to build a more resilient LYB. Over the past 3 years, we have executed on significant portfolio transformation. This included ceasing refining operations, closing our Dutch PO joint venture, divesting our EO&D business and the ongoing transformation of our APS portfolio. And as we announced this morning, we reached another significant milestone in our portfolio transformation by completing the sale of four European assets. This transaction sharpens the focus of our capital allocation towards strategic assets that advance long-term value creation for LYB. We extend our gratitude to our friends and colleagues that helped accomplish this transaction. We are particularly thankful for those who are transferring to the new organization for their contributions, professionalism and resilience throughout the process. As they transition to a stand-alone business, we wish them and the new company success in the next chapter ahead. We continue to benefit from our team's vigorous work on the cash improvement plan. We are making progress toward our target of $500 million of incremental cash flow this year, which will bring the cumulative total since 2025 to $1.3 billion. We remain focused on disciplined management of trade working capital, which despite higher volumes and prices was $450 million lower on March 31 than a year prior. We are also continuing to streamline the organization, including our Executive Committee. The effects will flow through the organization over the coming months to create further efficiencies. First quarter fixed costs across the company are already under $50 million lower than first quarter of 2025, including closure costs. And since the end of 2024, we have reduced headcount by approximately 3,000 positions or 15% through the combination of fixed cost reductions and portfolio management, including the sale of our European assets announced earlier this morning. Our initiatives are yielding results and more improvement is underway. Even with our sharp focus on capital discipline, we remain poised to realize future value creation. We're operating our Channelview PO/TBA plant above benchmark rates and modest investment in Hyperzone reliability and acetyls debottlenecks will deliver incremental value. Construction on MoReTec-1 continues as planned and is expected to ramp up towards the end of 2027. Together, we expect these future growth projects will increase our EBITDA by approximately $400 million. In addition, VEP continues to drive down our costs and increase our reliability and productivity. Now let's turn to Slide 6 as we discuss our financial performance. During the first quarter, earnings were $0.49 per diluted share with EBITDA of $615 million. EBITDA improved by nearly 50%, supported by both typical seasonal trends and a significant improvement in market conditions during March. Cash and liquidity remained robust with balances of $2.6 billion and $7.3 billion, respectively, at quarter end. I will now hand over to Agustin to discuss our financial performance in more detail. Agustin? Agustin Izquierdo: Thank you, Peter, and good morning, everyone. Let me begin with Slide 7 as we outline our cash generation. Over the past 12 months, LyondellBasell converted EBITDA into cash at a rate of 111%, well above our long-term target of 80%. This performance reflects our laser focus on optimizing working capital and benefited from the timing of tax payments. In the second quarter, we expect higher prices and operating rates will result in an intentional build of working capital to capture market opportunities. As Peter mentioned, in the first quarter, our cash balance was $2.6 billion, and our available liquidity remains robust at $7.3 billion. Now let's turn to Slide 8 and review the details of our first quarter capital allocation. We consumed $269 million of cash in operating activities. This was expected and consistent with normal patterns for the first quarter. It also reflects the very low inventory levels we accomplished at the end of 2025 and our intentions to profitably capture higher prices and increase demand from the market in 2026. During the quarter, we funded $269 million of capital investments. We took proactive steps during the first quarter to protect our investment-grade balance sheet. Our Board approved a 50% reduction in our quarterly dividend to rebalance our capital allocation and improve financial flexibility. As a result, we returned $224 million to shareholders through dividends in the first quarter. With the change in outlook for 2026, we currently expect both our effective and cash tax rates for the year will range between 15% to 20%. Despite the highly fluid macro environment, our capital allocation priorities remain consistent. We are committed to our investment-grade balance sheet as the foundation of our disciplined capital allocation framework. With the sale of four European assets, we have reached a milestone in our portfolio transformation. And while we have several attractive projects ready for investment, we will only move forward when the balance sheet and outlook is more secure. Regardless of the more favorable outlook for 2026, our near-term focus will remain on continuing to invest in safe and reliable operations to execute our cash improvement plan, to strengthen our investment-grade balance sheet and repay the 2026 and 2027 debt maturities we prefunded in 2025. Now let's turn to Slide 9, and I'll provide a brief overview of our segment results. Our business portfolio generated $615 million of EBITDA during the first quarter. Profitability improved across most businesses, led by stronger polyolefin margins and volumes, partially offset by reduced technology licensing activity. With that, I will turn the call over to Kim. Kimberly Foley: Thank you, Agustin. Let's turn to Slide 10 to discuss the performance of Olefins and Polyolefins-Americas segment. During the first quarter, O&P-Americas EBITDA was $327 million, double the prior quarter. In polyethylene, integrated margins improved due to favorable feedstock costs and successful contract price increases for polyethylene in both January and March. In March, export prices for polyethylene significantly increased as global production was impacted by the Middle East conflict. These benefits were partially offset by the impacts of winter storm Fern and the higher gas prices earlier in the quarter. Our first quarter operating rate for the segment was approximately 85% with our crackers running at approximately 95%. During the first quarter, North American polyethylene sales for the industry increased by 6.5% year-over-year, while inventories fell by 7.6%. March domestic and overall sales volumes for North American polyethylene industry were the strongest since 2020. In the second quarter, we expect higher margins and volumes given the global supply tightness. Our order books are strong with April orders for polyethylene 20% above pre-war averages. We have announced substantial price increases to capture this momentum, including a cumulative $0.50 per pound in polyethylene across April and May in addition to the gains realized in the first quarter and $0.10 per pound polypropylene spread increases in both months. With ongoing supply constraints, North America is positioned to move from net importer to net exporter to meet stable global demand for polypropylene. We are focused on maximizing operating rates to meet the gap in global supply and expect 90% utilization of our nameplate capacity across the segment during the second quarter. The hard work in our value enhancement program and cash improvement plan is starting to add value through higher productivity and reliability at lower costs. Moving on to Slide 11. Earlier, Peter showed the dramatic impact of the ongoing war in Iran on the ethylene cost curve. And here, we outlined the direct and indirect effects of the war on the production of ethylene, polyethylene and polypropylene. In the Middle East, production has faced three principal challenges during the conflict. First, some plants have been hit directly, immediately impacting production with time to repair and restart unclear. Secondly, feedstock availability has been challenged, impacting plant operating rates or ability to operate at all. And thirdly, for plants where the normal route to market included passage through the Strait of Hormuz prior to the conflict, these plants have faced logistical bottlenecks resulting in the increased cost and time to market and in some cases, reduced operating rates. Production in Asia has been primarily impacted by reduced feedstock availability. In China, which sources as much as 50% of its crude and substantial share of its naphtha from the Middle East, we hear the government has instructed refiners to prioritize limited feedstock availability towards the production of transportation fuels instead of chemicals. Ethylene cracker operating rates have steadily declined over the course of the conflict. Overall, this has meant that more than 20% of the global capacity for ethylene, polyethylene and polypropylene is currently impacted by the ongoing conflict as shown in the red bars on the chart. This dwarfs the expected capacity additions this year and takes each of these markets from oversupplied to tight. These production impacts have led to higher prices to incentivize additional production from regions with stable supply, principally North America and Europe. LYB's portfolio is optimally positioned to take advantage of these commercial opportunities with 90% of our PE capacity and 70% of our PP capacity within North America and Europe. Lastly, I wanted to highlight that although the outlook is more positive than we expected earlier in the year, we remain mindful of the second order effects of higher prices. A structurally short market is usually resolved through demand destruction, which we see no evidence of currently or higher production. History has shown packaging demand remains robust in such scenarios. Demand for durable goods has already been consistently at a low level since 2022, and prices are still well below peak levels in 2021. We remain watchful and we will adapt to how the market develops. We are confident that our actions to grow and upgrade the core, which has driven significant portfolio transformation, will continue to generate value in a range of macroeconomic scenarios. With that, let's turn to Slide 12 as we review the results of the Olefins and Polyolefins-Europe, Asia, International segment. We reduced our first quarter EBITDA loss to $6 million, driven by higher volumes, improved reliability and lower fixed costs. While higher raw material prices pressured cracker margins during the first quarter, product pricing began to catch up during March and higher volumes and improved utilization rates are improving our fixed cost coverage. Our Middle East joint ventures operated largely as planned during the quarter. While the region represents a relatively small portion of our global capacity, these cost-advantaged assets remain an important part of our portfolio over the long term. After the end of the quarter, LYB reached an important milestone in our portfolio transformation with the completion of the sale of four European assets. We are now better positioned with increased resilience and greater flexibility to capture market upside by leveraging a greater proportion of low-cost capacity. Looking ahead to the second quarter, polymer margins are improving as our team passes through higher costs for energy and raw materials. Feedstock costs are likely to remain dynamic as the market adapts to the ongoing conflict. We are seeing improved regional demand in Europe due to lower imports from the Middle East and China. We are increasing our operating rates to approximately 80% across the segment during the second quarter. And with that, I'll turn the call over to Aaron. Aaron Ledet: Thank you, Kim. Please turn to Slide 13 as we look at the Intermediates and Derivatives segment. In the first quarter, segment EBITDA sequentially increased to $224 million, driven by stronger volumes supported by improving market conditions, partially offset by unplanned downtime at our La Porte and Bayport facilities in Houston. Margins strengthened in propylene oxide with improved adders and increased demand for glycols into deicers. In oxyfuels, results declined during the quarter to reflect typically low winter seasonal demand and margins. Margin pressures for oxyfuels were compounded by higher butane costs in Europe with improving oxyfuels prices amid Middle East tensions providing only a partial offset towards the end of the quarter. Unplanned downtime at our Bayport PO/TBA asset beginning in March reduced EBITDA by approximately $40 million in the quarter. Crude oil remains the single largest variable affecting oxyfuel margins. As a rule of thumb, a $1 change in crude oil prices translates to roughly a $20 million annualized impact on oxyfuel earnings, assuming full production and all other factors remain constant. Historically, oxyfuel margins in the U.S. and Europe have been comparable. However, this year, we are seeing a divergence. In the U.S., butane and methanol prices have increased far less than crude. In Europe, butane prices are near record highs relative to crude, compressing margins. Additionally, the outage at our Bayport PO/TBA facility has temporarily limited our ability to fully capture the favorable U.S. market environment. In acetyls, we saw improved seasonal demand as we move through the quarter. However, this improvement was more than offset by unplanned downtime due to a delayed restart of the La Porte acetyls assets following winter storm Fern. Despite this, the methanol business continued to run throughout the quarter, providing a stable earnings contribution that underscores our benefits from the integration across the I&D portfolio. Overall, underlying demand trends and market fundamentals continue to improve, positioning the segment for favorable performance during the second quarter. In oxyfuels, we expect meaningful margin improvement in the second quarter from stronger seasonal demand and reduced supply from the Middle East and China. The Bayport PO/TBA asset is expected to restart toward the end of the second quarter with an estimated earnings impact of approximately $25 million per week while down. Taken together, these elements position us well for improved oxyfuels margins in the coming quarters. In acetyls, volumes and margins are expected to improve following the La Porte asset restart, supported by seasonal demand recovery and tight global supply. Across the segment, we are targeting approximately 75% operating rates during the second quarter. I will now turn the call over to Torkel. Torkel Rhenman: Thank you, Aaron. Please turn to Slide 14 as we review results for the Advanced Polymer Solutions segment. First quarter EBITDA was $58 million. APS volumes increased across most business, driven by typical seasonal demand. Our customer focus continues to deliver tangible results, contributing to volume momentum. Margins declined given rising raw material costs following the start of the Middle East conflict. Looking ahead, we expect soft near-term demand in automotive and other durable goods markets. We expect higher costs for raw materials, energy and logistics to persist, and we are proactively passing these higher costs along our value chain. Nonetheless, we expect contractual limits on pricing velocity will pressure margins over the near term. Despite the changes in macro environment, we continue to transform our APS segment to a customer-centric growth business. Our focus on customer centricity, cost, productivity and portfolio changes over the past couple of years has contributed to the continued earnings improvement as seen by the 55% increase in EBITDA in 2025 and now a 26% improvement year-over-year for the first quarter. We are confident the work we are doing will profitably transform the APS business and enable us to achieve our long-term goals. With that, I will return the call to Peter. Peter Z. Vanacker: Thank you, Torkel. Please turn to Slide 15, and I will discuss the results for the Technology segment. First quarter EBITDA of $18 million was lower than our prior guidance due to declining licensing activity with slower global polyolefins capacity growth and lower catalyst sales volumes following shipping constraints associated with the Middle East war. We expect improved results in the second quarter as revenue from timing of shipments are recognized and licensing revenue milestones increase. As a result, we estimate that the second quarter Technology segment results will be only slightly lower than our fourth quarter 2025 results. Let me share our views on our key regional and product markets on Slide 16. Ongoing supply disruptions across multiple value chains were tightening availability and supporting improved pricing and margins. These dynamics are favoring regions with stable access to energy, raw materials and logistics, where LYB and other producers are being called on to fill the gap in global supply. In North America, pricing initiatives are supported by improving seasonal demand, increased emphasis on security of supply and rapidly rising export prices with margins reinforced by the U.S. cost advantage. In Europe, higher costs are being offset by higher product prices, supported by increased demand for local production as imports from the Middle East and Asia decline. With fewer imports entering the region, profitability is improving. In Asia, feedstock disruptions continue to constrain supply, forcing lower operating rates. While capacity additions in China persist, prolonged shutdowns and technical issues with restarts could accelerate capacity rationalization across the region. Within packaging markets, demand remains resilient, supported by essential needs for food, health care and nondurable consumer goods. Demand in building and construction remains muted amid broader macro uncertainty. Inflationary pressures from the war are likely to delay potential benefits from lower interest rates and the inevitable recovery in durable goods demand. In automotive, global production is expected to decline slightly year-over-year with additional risk tied to the ongoing Middle East war only offset by modest growth in South Asia and South America. Finally, in oxyfuels, geopolitical volatility is driving price and margin upside in the U.S. As we conclude today's call, I would like to acknowledge that throughout the first quarter, our team continued to make smart decisions to successfully navigate a rapidly changing environment. We maximize commercial opportunities with discipline, agility and a clear vision to position LYB as the leader in our industry and deliver lasting value for all our stakeholders. Now with that, we're pleased to take your questions. Operator: [Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank. David Begleiter: Peter, the consultants have a pretty sharp erosion of polyethylene price increases in the back half of the year. I suspect you differ with that forecast. Can you talk to why that you think they were probably being too bearish on PE prices in the back half of the year? Peter Z. Vanacker: Thank you, David. Good question to start with. I think 4 weeks ago, nobody expected or predicted that we would get a $0.30 per pound price increase for polyethylene and a $0.07 per pound spread increase for polypropylene. Just I continue to be a bit skeptical, I mean, about those outlooks. Anyhow, if you look at our view, and we said it in the prepared remarks, we see that this disruption is not to be measured in quarters. It's probably going to be multiple quarters, definitely not months. It's a very large shock that we are experiencing. It's very global. It's driven by both asset impacts and logistics. And these things normalize very slowly. Preference as we hear, will be given, first of all, if you talk about the supply disruptions to crude oil, then after that, fertilizers, I mean, for food. And how fast will that actually move, I mean, to petrochemicals remain to be seen. So our view that we continue to have is that there will be a sustained geopolitical risk premium that will continue to steepen the cost curve. And even after a resolution, the market may retain a higher risk premium for crude. Steeper global cost curve can persist also versus the pre-war conditions. As you know, physical damage is not something that can be recovered very quickly. So from that perspective as well, I mean, restart timing is uncertain. Rerouting logistics, as I talked about, I mean, the common view that we currently have in the market is until that rerouting logistics will be somehow stable is probably going to be more like, I don't know, 9 months, 12 months. And then in addition to that, if you have all these outages, these outages can become permanent. They can eventually also accelerate, I mean, the rationalization. So with regards, I mean, to more specific polyethylene pricing, let me hand over to Kim. Kimberly Foley: So Peter, thanks for kind of sharing the view of the impacts of the shock effect. I think the other thing to remind everybody is we've got -- we yesterday got confirmation on the $0.30 in April. We've got $0.20 out there in May. If you think about history and you look back at kind of peak pricing in 2021, the pricing there was still $0.10 to $0.15 per pound higher. So in 2021, those pricing -- that pricing could clearly go through the economies. I think it can again, as we go forward. And without any correction to the supply-demand imbalance, I'm not sure why pricing would go down, as Peter alluded to in his opening remarks. So I politely disagree with the consultants. Operator: Our next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: Maybe just on I&D. I guess if you could walk through any of the structural changes you've seen from a cost curve and supply and demand standpoint given the conflict? And then just related, if the conflict persists and the Bayport turnaround does wrap up, where would you anticipate operating rates and margins to trend in the back half? Aaron Ledet: Yes. Thank you for the question. I would start by saying, generally, we have pricing power across the board in almost all of our products. We've seen, as examples in methanol pricing, it's doubled in the last 3 months from $300 a ton to $600 a ton really across all regions. And you take that through the acetyls chain. We've seen acid pricing up 50% over that same time frame. We've seen VAM pricing up 100% over that same time frame. So as I said, we've got pricing power really across the board from an acetyls perspective. Cost curve in acetyls, relatively flat in both acid and VAM. But when you look at our methanol cost curve, U.S. natural gas pricing is the lowest across all regions right now. So obviously, it's -- we're advantaged in that spot. When I shift over to the PO business, both of our technologies, we actually just ran the cost curve last month. Both of our technologies, PO/TBA and POSM are in the first quartile of the cost curve. So it obviously puts us in an advantaged position. As you heard in my planned remarks, we currently plan to run our capacities at 75% utilization in the second quarter. A lot of that is due to the unplanned downtime in Bayport. As that site gets back up and running towards the end of the quarter, we do expect to run closer to 95% to 100% full rates. Peter Z. Vanacker: And I think one may say, I've been there, I mean, at Bayport about 10 days ago. And what I witnessed is all hands on deck. People are working very diligently, different work streams so that we get the site back up and running latest by the end of Q2. Isn't it, Aaron? Aaron Ledet: That's correct. Yes. Operator: Our next question comes from the line of Duffy Fischer with Goldman Sachs. Patrick Fischer: Two questions maybe on OP Americas. So if the situation in the Middle East persists, it seems like we're consuming more molecules every day than we're producing today. What happens if we have to try to price polyethylene to destroy demand? I don't think we've ever done that. How high do you think that needs to go to balance supply/demand? And then the second one is, other than the starting point was lower for polypropylene versus polyethylene, how are you seeing those two chains play out relative to each other? Is one benefiting from this more than the other? Peter Z. Vanacker: Duffy, good question. And before I answer the question, I mean, on OPAM and how high does the polyethylene price actually have to go before you see demand destruction, let me remind everybody, I mean, that the vast majority of polyethylene is going into consumables. A lot of that, as you know, is going into packaging. So if you go in a market environment, just like we have seen, I mean, in the pandemic and during the financial crisis in 2008, 2009, behavior of people changes. So people don't go as much to restaurants, but they consume at home, which means more packaging. That's one element. So not necessarily because one goes into a recession, that leads, I mean to destruction of demand for polyethylene. Secondly, it continues to be, I mean, the lowest cost alternative and most efficient alternative compared, I mean, to other materials if you want to package or if you want to produce piping, et cetera. And let's not forget, these other alternatives also get more expensive in the current market environment. So with that, Kim? Kimberly Foley: Yes. I'd just make a couple of other comments. We've had at least 3 years, maybe 4 years of, I'd say, tempered durable demand. And so you've got pent-up demand for durables. You saw these pricing levels pull through for polyethylene for sure in 2021. And then when you talked about -- you asked the question about polypropylene. Polypropylene price today is $0.60-ish, call it, lower than it was in 2021. So you have a lot of pricing power there, and we are well positioned to capitalize on that. From a polypropylene perspective, between the Middle East production and then think of the LPG that feeds some of the PDH units in the Asia region, probably 70-plus percent of that market is impacted right now. So I think the sleeping giant will be polypropylene as this continues to progress. Peter Z. Vanacker: And talking to a lot of my friends, I mean, in Europe, I see already that their behavior is starting to change. So instead of taking a weekend trip somewhere or taking a long holiday, I see that they are thinking about, oh, so we not refurbish -- so we not stay at home, take a shorter holiday locally, a couple of day trips. We've seen that behavior in 2021 as well as we came out of the pandemic. So quite a lot of moving elements that we have here that I think one should consider. Operator: Our next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: The export price of polyethylene is maybe $1,640 a ton and the price of polyethylene in Asia is maybe $1,285 a ton, so at least from our point of view. So maybe Asia is lower by $350 a ton. Why is that? And naphtha values in Asia have really jumped from about $600 a ton to $1,100 a ton, but we really haven't seen that kind of raw material inflation echoed or covered in the polyethylene prices. Can you give us an idea of what's going on? Kimberly Foley: Jeff, I'll take that question. I think there's a couple of different components to that. From a China perspective, they have a much bigger built-in pricing buffer than a lot of the other regions. They had significant crude inventories coming into pre-war. You've heard anything from 4 months to 6 months. So let's just generically call it 5. You also have different buying behaviors and you have different inventory positions throughout. So let's walk through some of that. Many of the sites are integrated refineries that are processing the crude, naphtha to naphtha crackers to polyethylene. So that inventory today, 2 months into this war is still crude that was bought at a discount to $60 pre-war. Then you've got coal to olefins production, which sets the floor for the pricing in China. Coal price hasn't changed significantly throughout this, similar to kind of North American ethane. So you've got the floor being set by the lowest cost production, which is CTO. You've got relatively low-priced crude flowing through those crackers. And then you've got inventory that they had in the system. When this -- when the war first broke out, you saw their pricing increase. And then recently, you've seen their pricing hold or decrease as they're depleting the inventory that they have on hand, selling it to other parts of Southeast Asia. So their buffer, the way they operate their system is slightly different than the rest of the world, but they are not exporting to regions that we are competing with in North America or in Europe. Peter Z. Vanacker: And maybe enhancing a little bit from a more conceptual point of view, Jeff, in especially what we are all waiting for on the outcome of the anti-involution measures. We continue to see that focus on replacement of old assets instead of newly developed projects. You saw the results in Q1 of our technology business. This is the lowest since, what, 15 years that we have seen in terms of demand, I mean, for licenses. We've also seen that some priorities are changing. So even projects that already have been approved by the NDRC for the previous 5-year plan, priorities are changing and targets for the replacement of the old assets is 2028, 2029. That's what we hear, I mean, on the ground. Which, as a consequence, of course, could also mean reducing availability of cash for new projects, which again explains why we don't see a lot of demand, I mean, for new licenses. So it has definitely not disappeared because at those price levels in China, you see that the operations are running in crackers and polyethylene at lowest technical capacity. And you see that players that are not integrated eventually have idled, have shut down their capacities. So that's the picture on polyethylene. On polypropylene, it's even more stringent because a lot of PDH/PP plants, it's about 50%, Kim, of the capacity? Kimberly Foley: Correct. Peter Z. Vanacker: Yes, that is currently not operating. Operator: Our next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent Andrews: First of all, congratulations to Dave Kinney on a great run. Best wishes in your retirement. If I could ask you, Peter, on EAI. You're bringing operating rates up, which I assume means you're expecting profits. And then you've sold the assets and that's going to improve the cost structure. So what level of profitability and you can give us a wide range, would you expect for the second quarter as you see markets improve, your production levels come up, maybe you're selling out of some inventory as well? So how should we be thinking about EAI in 2Q and maybe 3Q to the extent you can comment that far? Peter Z. Vanacker: Yes. Thanks, Vincent. And of course, also thanks for your congratulations, I mean, to Dave. It has been quite a run in my 4 years working with him together. So on EAI, I mean, let me first, I mean, focus here then on Europe. Everybody saw that we closed during the night. So early morning, Houston time on Velogy, the sale of our four assets. If I put that a bit in context as well with regards, I mean, to the contribution that, that part of the business portfolio has made to the overall LYB. Well, pretty much the numbers. It was small or even negative in 2025 and even in Q1. The focus, of course, for us strategically has been that we really have the right portfolio moving forward, the portfolio in Europe that helps, let's say, on increasing our mid-cycle EBITDA margins. I remember once I have shown a slide in an earnings call with historic mid-cycle EBITDA margins globally for LYB of around 18%. And then with all the portfolio measures increasing that to 21-plus percent, which is quite attractive. Now this helps, of course, by doing so because we can pull our CapEx to the assets that really have mid-cycle margins, above mid-cycle margins, much more profitable assets. Which, as a consequence, means a reduction in the scope of Velogy for us, LyondellBasell of about EUR 110 million per year in CapEx. And what we have said in the past as well a reduction in fixed costs directly related to that scope of about EUR 400 million per year. And if margins -- what we wish, of course, also to the new owner of the business, if margins continue to go up in Europe, we have, remember the potential of an earn-out of about -- of EUR 100 million as well. Of course, we still will have a very interesting but more differentiated portfolio of products in Europe with an ethylene capacity, which is a bit more than 1 million tons, 1.5 million tons of polyethylene capacity and a bit more, I mean, on polypropylene capacity. And into that global concept, we also have the investments in Saudi Arabia at the West Coast in our polypropylene joint venture, where we continue to work on the second phase to expand and double the capacity of that joint venture. So moving forward, with a different portfolio, we should be able over time, including that, of course, our MoReTec investments, we should be able over time to again have very attractive mid-cycle margins in Europe and not having a business approach whereby margins are being diluted. Kimberly Foley: Maybe just to make a couple of quick comments. Europe typically sees 25% import on the polymer side. With the problem with the Strait of Hormuz, they're not seeing that. So the supply/demand is very tight, continues to give you pricing power on the polymer side. The wildcard, as everybody has alluded to, is the price of feedstocks. So for example, some people have asked us pre-call, why we're only operating 80% in Europe because we want to make sure the decisions that we make in Europe are based on sound integrated margin pull-through. And in some cases, we also face the same challenge that others do about the monomer availability at an affordable price point to run through some of our smaller assets that are nonintegrated at the moment. So we continue to see positive momentum. And just as a rule of thumb, $100 per ton increase on an annualized basis is about $280 million. Operator: Our next question comes from the line of John Roberts with Mizuho Securities. John Ezekiel Roberts: In the APS segment, how long do you think it will take to get your pricing to get spreads back with the underlying polyolefin cost increases that are being passed through there? And will the tightness in the polyolefins market at all tighten the engineered plastics industry as well? Torkel Rhenman: For the non-contracted business, we have aggressively moved and we see actually a pretty good acceptance of the price increases because the whole market is moving up. So it's really the contracted, and some of those are monthly and some of them are quarterly. And it's mostly the quarterly part where there is a delay. What we see in our segment is actually market demand is surprisingly strong and we see some movement in particularly packaging and durable goods where demand is strong in the Western world, so Americas region and Europe. From what we see is that basically, our customers demand is strong because there's less import of finished goods coming in from Asia as well as from plastics films, packaging films, that's helping our customers with actually pretty strong demand. And we'll see how long that lasts, but that's a positive sign in terms of the market for our business. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Yes. I'd echo my congratulations to Mr. Kinney, very much appreciate your partnership over the years and best of luck to you. My question relates to O&P-Americas. If we look back at history, that business earned quarterly EBITDA between $1.5 billion and $1.6 billion at the last peak in the middle quarters of 2021. And so my question would be, is that sort of level in your mind, realistic or unrealistic in today's environment if the conflict were to persist? Maybe you could compare and contrast what you're seeing today versus what you saw back then. Peter Z. Vanacker: Let me start with a couple of comments on your very good question, Kevin, and then hand over also to Kim to give you a little bit more details on this. Well, Kim already said, I mean, that we have now a settlement of $0.30 per pound settlement into consideration. Then we're still in terms of margins, $0.10, $0.15 per pound in terms of pricing -- sorry in terms of pricing, we're still $0.10 to $0.15 per pound below what we have seen in 2021. But it's only $0.10 to $0.15 per pound. So that means as a consequence, with the price increase announcements that we continue to feel very strong about for the next month, we would get on that level or above that level of 2021. Now that is just the pricing element. If you look at it from a margin perspective, then, of course, we know that the margins are going up because ethane is currently much lower than it was at the end of last year, beginning of this year. Which, of course, also has to do with the fact, I mean, that there is such a huge demand, I mean, for natural gas. So you see that the spreads actually are going up. So as a consequence, I would say, sure. I mean nothing is impossible if you look at what is currently going on, and we alluded to the fact that polyethylene is very robust also in inflationary scenarios. Kim, anything you want to add? Kimberly Foley: I'll just go back to a couple of the comments that I made earlier to try to connect a few of the dots. I think as it relates to North American polyethylene margins, what we see is -- and CMA's forecast is similar. This is where we do agree with the consultants, that mid-cycle margins will be there in the second quarter. So if you go back and look at 2021 mid-cycle margins for PE, yes, I think we're going to be in a very similar situation. I also said earlier that in 2021 that we had a $0.60 higher price of polypropylene. So I think it really depends how much polypropylene runs up. I don't think it will run up as fast as polyethylene has, but I do think the spreads will continue to increase. So I would look at those two components differently when you're trying to look at how we performed in 2021 versus how we might perform in 2026. Operator: Our next question comes from the line of Frank Mitsch with Fermium Research. Frank Mitsch: And I need to come clean, Mr. Kinney. On the PPG call, I told Vince on the occasion of his retirement that he was the best IR ever. But to be frank, it was always you. So best wishes, my friend. I'm sure we'll stay in touch. Aaron, I want to come back on the I&D operating rates for the second quarter. You said 75% given the outages that you have. But you said that you're going to end it at 95% to 100% when you get everything back up and running. So is that sort of the run rate that we should be expecting in the third quarter as you see -- as you can look out into the future? And then also for the first quarter, I think you guys guided to 85% operating rate in I&D. And I was curious as to what that actually came in at given the outages. Aaron Ledet: Yes. Thanks for the question. And I guess I have to be careful about what I promised in these calls, 95% to 100%. Obviously, anything that we have available to us, we're going to be running full. We still have some limitations at our La Porte site in the acid unit that's limiting us to get to full rates. But obviously, once Bayport is back up and running, we will be running everything that we have at full capacity moving forward. So 95% to 100%, I wouldn't necessarily use that, but we will be running at benchmark rates across the board. Operator: Our next question comes from the line of Mike Sison with Wells Fargo. Michael Sison: Congrats to Dave as well. In terms of polypropylene, you've talked about it a couple of times. It's -- margins have been not a lot for the last couple of years. Is that business or can that product line turn positive? And you used to generate a good amount of EBITDA for polypropylene. How do you think that shapes up this year if the pricing outlook sort of holds? Peter Z. Vanacker: Yes. I mean, the possibility, of course, I mean, we -- Kim said it, I mean, we have the biggest upside. I mean, the sleeping giant. We have the biggest upside on the polypropylene side. And the market dynamic has completely changed. Normally, I mean, the cash cost curves in polypropylene are very flat, I mean, between the different regions. But of course, now that is changing the dynamic that we are having in the United States, where, as you know, we have a lot of our assets. Normally, polypropylene stayed in the markets where it was produced. But now, of course, there is a lot of demand because of the loss of propane to Asian polypropylene producers, a lot of demand, I mean, globally to export polypropylene, which, of course, uplifts, I mean the markets -- the margins, I mean, in the markets. Kim? Kimberly Foley: No, I would agree with you, Peter. I think we've been operating polypropylene in Europe and in the U.S., call it, 70% to 75% for the last 2 years. So you've got a 20% -- 15% to 20% operating rate improvement opportunity as well as spread. So the longer this goes on, the better. Peter Z. Vanacker: And I think approximately what, 70%? Kimberly Foley: From a polypropylene perspective. Peter Z. Vanacker: I think probably what, 70% of supply is impacted by the Strait of Hormuz closure? Kimberly Foley: Directly or indirectly, absolutely, yes. You've got the volume, you lose out of the Middle East plus the LPG feed to the PDH. Operator: Our next question comes from the line of Josh Spector with UBS. Joshua Spector: I just wanted to ask a comment about licensing revenue and technology. I mean I know you've been at a low level for some time here, and you've kind of highlighted there's been little activity in terms of looking at new projects, but your near-term outlook comment says that you expect that to increase. So is that a lag of just some existing kind of maybe discussions coming to fruition? Or are you seeing actually more interest in certain of the product chains about adding more capacity now? Peter Z. Vanacker: Yes. Thank you, Josh. I mean it is a lag, yes. So it's simply because of some milestones that are being accomplished and therefore, on the licensing. So not the catalyst sale, but on the licensing. Q2 should be better than Q1, as I said in the prepared remarks. But it is definitely not related to having a higher demand. I said it before, demand is historically at the lowest level. We see projects that already were progressing, let's say, around a couple of milestones that are now, as they call it, I mean, in the reserved status. So they're not moving forward. They're being looked at again. And all that will delay, let's say, the investments from already, let's say, last year low licensing, the year before, we saw reduced licensing. So all that will come to fruition then in, let's say, 2, 3, 4 years from now. That means that there will not be a lot of investments that will come on stream. Operator: Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Vanacker for any final comments. Peter Z. Vanacker: Thank you again for all the thoughtful questions. The events of the past 2 months have transformed the global cost curve for petrochemicals and created a massive gap in supply for LYB's essential products. While we all look forward to peace and the normalization of traffic through the Strait of Hormuz, the economic and logistical impacts of this conflict will persist many quarters beyond the eventual end of the disruption. And of course, at LYB, we're ramping up our cost advantaged U.S. capacity to address the global supply gap for both domestic and export customers. In Europe, we're passing through higher costs for energy and raw materials so that local production can once again profitably serve local customer needs. And our global polypropylene capacity, as we alluded to before, the sleeping giant within LYB is increasingly needed to serve global demand. You can be confident LYB will remain focused on our strategic priorities and long-term value creation in this dynamic environment. We hope you all have a great weekend. Stay well and stay safe. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and welcome to the Piedmont Realty Trust, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Laura Moon, Chief Accounting Officer with Piedmont Realty Trust. Ma'am, the floor is yours. Laura Moon: Thank you, operator, and good morning, everyone. We appreciate you joining us today for Piedmont's First Quarter 2026 Earnings Conference Call. Last night, we filed our 10-Q and an 8-K that includes our earnings release and unaudited supplemental information for the first quarter of 2026. Both of these documents are available for your review on our website at piedmontreit.com under the Investor Relations section. During this call, you will hear from senior officers at Piedmont. Their prepared remarks, followed by answers to your questions, will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements address matters which are subject to risks and uncertainties, and therefore, actual results may differ from those we anticipate and discuss today. The risks and uncertainties of these forward-looking statements are discussed in our supplemental information as well as our SEC filings. We encourage everyone to review the more detailed discussion related to risks associated with forward-looking statements in our SEC filings. Examples of forward-looking statements include those related to Piedmont's future revenues and operating income, dividends and financial guidance, future financing, leasing and investment activity and the impacts of this activity on the company's financial and operational results. You should not place any undue reliance on any of these forward-looking statements, and these statements are based upon the information and estimates we have reviewed as of the date the statements are made. Also on today's call, representatives of the company may refer to certain non-GAAP financial measures such as FFO, core FFO, AFFO and same-store NOI. The definitions and reconciliations of these non-GAAP measures are contained in the supplemental financial information, which was filed last night. At this time, our President and Chief Executive Officer, Brent Smith, will provide some opening comments regarding first quarter 2026 operating results. Brent? Christopher Smith: Thanks, Laura. Good morning, and thank you for joining us today as we review our first quarter 2026 results. In addition to Laura, on the line with me this morning are George Wells and Alex Valente, our Chief Operating Officers; Chris Kollme, our EVP of Investments; and Sherry Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions. From a macro perspective, the U.S. office market continued to recover in the first quarter of 2026 as supply-demand fundamentals began to stabilize across markets. JLL reports that leasing activity was up 7.6% year-over-year and net absorption positive for a third consecutive quarter, primarily driven by large occupiers. The demand for office space continues to be very resilient despite office using employment being down 2% from 2022 levels according to the Bureau of Labor Statistics. The phenomenon of strong leasing amid a stagnant workforce demonstrates what our customers are telling us. Large businesses are bringing their employees back to a compelling office environment that builds culture, collaboration and creativity, and we continue to believe that demand for the top quartile of the office market will remain resilient despite the prospect of limited growth in office-using jobs. On the flip side, supply growth remains extremely low compared to historical levels, with total inventory declining by 9 million square feet during the first quarter and the national development pipeline at its lowest level on record. These trends reinforce landlord leverage, particularly in high-quality assets, where rents continue to escalate. Vacancy is increasingly concentrated in aging, financially constrained buildings with 10% of office buildings now comprising more than 60% of national vacancy. Looking ahead, muted job growth and a higher for longer interest rate outlook remain headwinds for longer-term demand growth. However, structural supply contraction combined with limited new development are expected to underpin rate resilience and intensify competition for high-quality office space. Against that backdrop, Piedmont is well positioned for the next phase of the office cycle for several reasons. First, portfolio quality. We've renovated 90% of the portfolio since 2020 and our amenity-rich hospitality-driven Piedmont PLACEs are leasing at record high rental rates. Second, Piedmont has leased over 80% of the portfolio since the pandemic, meaning our customers have already rightsized their office space for the modern workforce. Third, our service model, recognized in the top 5 by Kingsley, is keeping our customers happy, generating 60% to 70% renewal rates from existing tenancy. More recently, the portfolio is approaching 90% leased and inclusive of our out-of-service assets has generated more than 480 basis points of absorption in the last 12 months, equating to almost 750,000 square feet of absorption during that time period. Finally, the average tenant size across the approximately 16 million square foot portfolio is 17,000 square feet, which speaks to our customer and industry diversification and provides a mitigant to large corporate downsizing. As a result of the leasing success in 2025, Piedmont has a signed, but not occupied pipeline of leases equating to over $42 million of annualized rent. The strategic repositioning of the Piedmont portfolio, along with the substantial leasing that we've accomplished over the past 12 months are translating into higher economic occupancy and mid-single-digit same-store cash NOI growth and meaningful earnings growth. The operational performance of the portfolio has led to an increase in our 2026 outlook. Core FFO by $0.01 and same-store NOI, cash and GAAP by 100 basis points, which Sherry will touch on more in a moment. Also fueling our growth are the leasing spreads we're achieving on second-generation space, regularly double digits on a cash basis and high teens on a GAAP basis, inherently driving cash flow and earnings higher as leases expire. And finally, our balance sheet continues to strengthen, driven by the aforementioned leasing uplift in cash flow and EBITDA, along with a unique opportunity to refinance our near-term debt maturities at accretive financing spreads relative to the expiring rates. We believe these factors position Piedmont for consistent annual core FFO per share growth over the next few years. Turning to our quarterly results. We witnessed a continuation of the elevated demand that we've experienced in the latter half of 2025 with tour and proposal activity at levels above historical averages. During the quarter, we executed over 430,000 square feet of leasing and most importantly, 2/3 was related to new tenancy. Our customer pipeline remains robust with over 700,000 square feet of leases, either already executed or in the legal stage, thus far in the second quarter. As I noted earlier, strong customer demand driven by the flight to quality is giving Piedmont the opportunity to push rents to record levels across our portfolio. In fact, more than half our portfolio experienced an asking rate increase of 15% or more in 2025. And even more exciting is that our rents still remain 35% to 40% below new construction pricing. So there's little impediment to pushing rental rates further. Despite strong fundamentals for the office sector, the headlines have been filled with the topic of AI and prognostications of what it will mean to the national workforce. We appreciate the concern that AI could impact office using employment growth over time. But what we're seeing today is that robust demand is concentrating in high-quality, well-located, amenitized space, and that's exactly where our portfolio is positioned. Even if some roles are redirected as AI adoption evolves over the coming years, companies will still need collaborative environments to build culture, serve clients and innovate. So we're simply not seeing any cracks in our customers' demand and our leasing pipeline remains incredibly robust. Lastly, before I turn it over to George, I wanted to mention that we're also particularly excited about several operational recognitions during the first quarter. Galleria Towers in Dallas won the CoStar Impact Award for Redevelopment of the Year in Dallas Fort-Worth market. And as I alluded to earlier, Piedmont was recognized as an Elite 5 participant in the annual Kingsley survey for the office sector, which rates landlords on their performance based on tenant feedback. These accolades serve as further evidence that our modern, redeveloped amenity-rich Piedmont PLACEs, combined with our hospitality-infused service model are recognized by our customers and peers as the premier office experience. With that, I'll hand it over to George for further details on first quarter operational performance. George? George Wells: Thanks, Brent. We've been experiencing persistent demand for several quarters now. And once again, the Piedmont platform delivered exceptional operating results for the first quarter. Leasing velocity continued at a strong pace with 50 transactions completed for over 430,000 square feet. Like last year, new deal activity was a dominant theme accounting for roughly 70% of total volume and a meaningful portion of that volume is expected to translate into 2026 GAAP rent recognition as commencements occur over the balance of the year. Average new lease size was approximately 11,000 square feet, reflecting a good mix of small, medium and large clients and the weighted average lease term for new transactions was approximately 9 years. Expansions exceeded contractions for the seventh straight quarter and largely to accommodate clients' organic growth. Our retention rate remained high at approximately 70%. The portfolio continues to post robust leasing economics, delivering 11% and 18% roll-ups this quarter on a cash and accrual basis, respectively. Our average accrual based roll-up over the last 8 quarters is an impressive 17%. Additionally, the portfolio generated an impressive 11% same-store NOI growth, driven primarily by the burn-off of free rent. As Sherry will discuss in a moment, the strong cash flow growth, along with recent leasing success has helped push earnings and same-store cash NOI outlook for the year higher. Leasing capital spend was $5.18 per square foot per year, materially lower than our trailing 12-month average of $6.20, driven from modest concessions associated with several renewal and sublet to direct deals. Additionally, leasing commissions were also lower than historical trend this quarter as a result of greater number of leases that were direct deals without a broker. Net effective rents increased to $22.03 per square foot, up almost 5% from the previous quarter, and we anticipate further rental rate growth supported by strong demand for high-quality space and little to no new development in our submarkets. These encouraging first quarter metrics signal that Piedmont is off to a strong start for 2026. Next, I'd like to highlight notable market activity and progress on our key expirations. Dallas led all markets during the first quarter, closing on 14 deals for 123,000 square feet with new transactions accounting for a majority of that amount. Also in Dallas, we've agreed to extension terms with Epsilon at our Las Colinas Connection project for roughly half of its current footprint and our pipeline for backfilling the balance of that space is deep and at improving rents. Atlanta was our second most active market with 12 deals for 88,000 square feet. Our local team signed an 11-year new deal with a global accounting firm to backfill another Eversheds floor at 999 Peachtree in Midtown. While our supplemental report shows Eversheds having 180,000 square feet expiring this quarter, we have already backfilled roughly half of that space at 40% cash roll-ups and have strong activity for the balance. At 60 Broad, we announced last quarter that we agreed to terms with the new administration of the City of New York at our 60 Broad Street project for substantially all of that space and that a lease of this size will require other internal city reviews and a public hearing process before the transaction can be fully executed. The city is steadily progressing to conclude our lease. However, it's likely that the process will not conclude until later this year. Our redevelopment projects posted another strong quarter of deal flow with over 100,000 square feet of new transactions signed, increasing the lease percentage from 62% to 76% at quarter end. Including leases executed in the second quarter or in the legal stage, the out-of-service portfolio is greater than 80% leased. We anticipate placing 222 Orange Ave back into service in the second quarter, and we continue to be confident that the remainder of the out-of-service portfolio will reach stabilization around the end of the year. Looking ahead, our leasing pipeline remains robust and now has over 700,000 square feet in the legal stage for the second quarter. Outstanding proposals have jumped from 1.8 million square feet last quarter to 2.4 million. Our supplemental report shows 9% of leases expiring in 2026 with the vast majority of that occurring in the second quarter and relates to the Eversheds, Epsilon and New York City leases, each of which I just reviewed. Aside from those 3 leases, there are negligible expirations remaining for 2026. As a result, we remain comfortable projecting that we will end the year within our previously released year-end lease percentage guidance of 89.5% to 90.5% for our total portfolio, including both our operating and our out-of-service redevelopment portfolios. I'll now turn the call over to Chris Kollme for his comments on investment activity. Chris? Christopher Kollme: Thank you, George. Capital markets have shown improving liquidity so far this year as evidenced by the strongest first quarter office sales volume since 2020, and we continue to seek ways to optimize and elevate our portfolio. As I have previously stated, we have 2 land parcels under contract, one of which is in the Las Colinas submarket of Dallas, and that deal went hard this quarter. The buyer still has several extension options. However, we anticipate this transaction will ultimately close later in 2026 and will generate approximately $12 million in net sale proceeds. The other land parcel is still in the midst of a lengthy rezoning process. So the timing there is much less predictable, and we expect it to close in the first half of 2027. In addition to the obvious financial benefits of these 2 land sales, we are also excited about the additional retail amenities that these transactions will ultimately provide for our adjacent office projects. We continue to actively evaluate and underwrite potential acquisition opportunities. But over the last couple of years, we have redirected and prioritized our capital towards other accretive uses such as funding our tremendous leasing volume, reinvesting in our core assets and reducing our debt. We are in the market with some of our other noncore assets. Although it is too early to comment on any specifics, we are optimistic that we will return to a more active capital recycling program later this year. With that, I'll pass it over to Sherry to cover our financial results. Sherry Rexroad: Thank you, Chris. We will be discussing some of this quarter's financial highlights today, but please review the earnings release and accompanying supplemental financial information, which were filed yesterday for more complete details. Core FFO per diluted share for the first quarter of 2026 was $0.36, in line with consensus and consistent with the first quarter of 2025 as higher economic occupancy and rental rate growth were offset by the sale of 2 projects during the year ended December 31, 2025. AFFO generated during the first quarter of 2026 was approximately $23.8 million. From a balance sheet perspective, we had approximately $526 million of capacity on the revolver as of quarter end. And as we've highlighted previously, we currently have no final debt maturities until 2028. We continue to think creatively as we evaluate balance sheet management options to extend and smooth our maturity ladder and continue reducing our interest costs. Our overall weighted average cost of debt continues to decrease. And based on the current forward yield curve, we expect that all of our unsecured debt maturing for the remainder of this decade could be refinanced at lower interest rates and thus be a tailwind to FFO per share growth. As Brent noted, we are narrowing and increasing our 2026 annual core FFO guidance by $0.01 to a range of $1.49 to $1.54 per diluted share, an increase of over $0.10 per share at the midpoint over 2025 results. We are also increasing our same-store NOI, cash and GAAP guidance range by a full percent from 3% to 6% to 4% to 7%. Please note that this guidance does not include any speculative acquisitions, dispositions or refinancing activity. We will adjust guidance if and when those types of transactions occur. With that, I will turn the call back over to Brent for closing comments. Christopher Smith: Thank you, George, Chris and Sherry. Despite the ongoing noise in the office sector, Piedmont remains focused on leasing our portfolio of recently renovated, well-located hospitality-inspired Piedmont places with the quality space becoming harder to find and the cost of new development at all-time highs, we believe our portfolio offers a cost-efficient alternative to new construction, and we will be able to continue to drive meaningful leasing volume, rental rate increases and same-store NOI growth as 2026 unfolds. With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions. Operator? Operator: [Operator Instructions] Our first question is coming from Anthony Paolone with JPMorgan. Anthony Paolone: My first question relates to your comment about half the portfolio seeing a -- I think it was a 15% increase or more in rents, and I think it was 2025. I'm just wondering how specific is that to assets versus markets? Like maybe if you can give us a little bit more depth on like where that all occurred or where it didn't perhaps. Christopher Smith: Sure, Tony, and thanks for joining us this morning. So as we talked about, we did move rate materially, particularly from an asset perspective over the course of 2025, driven by a lot of absorption that we talked about earlier in the call as well, about 750,000 square feet. So markets and assets, certainly from a market perspective, the assets around our projects are not necessarily achieving what we are. I'll take the Northwest submarket in Atlanta, for example, our Galleria project there crossed over $40 a foot. Today, we're asking over $50 a foot, and that all occurred over the course of '25, while the rest of the submarket relatively stayed flat. And I would say Midtown Atlanta, also an example of where we continue to push rates at those meaningful levels. Frankly, all of Dallas would also incorporate that. Some of our suburban assets in Minneapolis, where we've renovated would also incorporate a really meaningful uptick in rental rates over the course of the year. And then finally, our downtown Orlando projects as well, would all encompass that. And we're seeing continued activity now in our Northern Virginia submarket, not nearly to that degree, but we're starting to see the same effects in those markets I just mentioned occur there as well. And it's really related to, again, that high-quality space, that top quartile market, particularly in which we play in, has continued to have meaningful absorption and seeing large blocks of space continue to be pulled off the market, and that has allowed us to continue to meaningfully move rates across those assets, if you look at the supplemental that are 90% plus or more leased. Anthony Paolone: And then maybe second question, Chris, I think you mentioned being in the market with a few assets for sale. And I know you don't want to give too many specifics, but maybe any sense of order of magnitude dollar-wise that we could see on the disposition side this year? Christopher Smith: I'll take that. This is Brent again, Tony. So as you noted, we do -- as Chris noted earlier, we have about $30 million under contract, $12 million is hard and in the held-for-sale bucket, and we do expect those to close in third quarter and the rest will happen in early '27. As Chris noted, we're marketing one building and evaluating a few others at the moment. And we're looking really to harvest value from stabilized assets and improve the overall quality of our portfolio. So looking again to always cull that bottom 10% in an efficient manner. So we'd like to monetize and/or dispose of assets, particularly in the district of Houston are ones we've noted, but also looking a little bit to the future, as we've noted, we'd like to monetize our New York asset upon the conclusion of the New York City lease, although that's likely now in early 2027 event. And given the profile of the assets we do have in the market and what we would recycle, we think we could take those proceeds and put them in likely to initially pay down debt. But on a longer-term basis, we are seeing opportunities in our Sunbelt market that would stabilize would be redeployed on an earnings neutral to accretive basis. But obviously, anything at this point, transaction-wise is likely to occur late in the year, if at all. And there's going to be a limited impact to 2026 earnings if we were to dispose of an asset at this point given where we are in the year. Operator: Our next question is coming from Nick Thillman with Baird. Nicholas Thillman: Maybe, George, just appreciate the commentary on 2026 and the bulk of them discussing those. But as we look at '27, you alluded to 50% to 60% retention. You guys have highlighted the 2 move-outs in Atlanta, but just curious if there's any other notable ones that we should be highlighting. It looks like a decent amount of concentration in Orlando and Minneapolis. So any large tenants to monitor there as well and just expectations on that front? George Wells: Sure. Thanks for joining us. I think before I address that, it's really important to understand the momentum that we saw in 2025 continues to roll into 2026, right? I mean the record leasing that we completed was on the backs of early proposals around 2.4 million to almost 3 million square feet. And though it dropped in the fourth quarter to 1.8 million, we're excited of the fact that it came back to 2.4 million square feet, and that's just providing the tailwinds with these large expirations that are coming up in our submarkets. You mentioned 2027. Yes, it's true, Broadcom and Fiserv in Atlanta will be vacating in the third quarter of 2027. But what we've seen here is that we're going ahead and put into place the Piedmont strategy has worked so well over the past couple of years, right? I mean these properties are modern, they're well amenitized. And when those large users leave, we're going to have the opportunity to put up a building signage for the next prospect that comes along, right? These assets are located in Atlanta. We've had a tremendous amount of success here. Central Perimeter is one of those markets that's the most accessible in all of Atlanta. It's got a long track record of expanding large corporate relocations into the submarket. In fact, we had 3 last year with StubHub, TriNet and AIG, and we expect that to continue. Our pipeline right now is about 300,000 square feet to backfill, those 2 large prospects in Central Perimeter. I think one of the advantages here is that when you look at the supply of large block space for 150,000 square feet or larger, there's only 4 that really we would call the Tier 1, and we own 2 out of 4 those -- 2 of those 4 supply. So we feel pretty good about that. And if you look at our overall track record in terms of what we've accomplished in Atlanta, we're 94% leased today. And I think it gives us the confidence we can backfill that space in a pretty short order. Nicholas Thillman: Yes. I understood the Atlanta. I just wanted a little bit of clarity on maybe Orlando and Minneapolis, in particular, those are some of the more concentrated ones at 27. I was just curious if there's any other notable like 50,000 square foot tenants that we need to monitor on that side and if you've had discussions on that front? George Wells: Sure. We've got one in Minneapolis, a little over 100,000 square feet. It's in a suburb location. We've got some early looks right now. We have 2 or 3 prospects looking for full [ 4 ] more. We've got a great brand in Minneapolis. We've -- I mean what you've seen what we've done in Meridian Crossing right with [indiscernible] 400,000 square feet, and we've got to all of that over the next 15 months or so. So we're not overly concerned about it. And then going to Orlando, we've got one project that has about 100,000 square feet expiring. We actually have 2 prospects that can backfill all of that space right now. Proposals are outstanding. I think we're getting close to -- getting a handshake on the deal. So we're looking good there. Nicholas Thillman: That's helpful. And then just on the 700,000 square foot pipeline, 300,000 of that is the renewal with New York, but are there any other chunkier ones within that, that's late stage or signed to date? Christopher Smith: I'd say -- Nick, this is Brent, and thanks for joining today. I'd say it runs the gamut. It's consistently what we've seen in the past that small users have been there and large users continue to bring their people back and want great space. Obviously, we have less and less larger blocks. So we're going to continue to see less, probably 100,000 square footers, except for some of the noted backfills that George mentioned really aren't until '27 in the first place. And so I'd say it's kind of consistently in 50s and 60s and also the 5s to 15s as well across industries. And I think that is what investors should take away from the robust demand we see is not being impeded from an AI perspective at all. Nicholas Thillman: That's helpful. And then, Brent, just maybe conversations with the Board and status on the dividend. I know there's some talk of potentially starting again to declare dividends next year in '27, but is there any update on that front or sentiment there? Christopher Smith: Of course, the Board reviews the opportunity to pay dividend really every quarter. But as you noted, we said at this point with the dividend suspended, the Board would not really evaluate that again until 2027. I would say until we have the need, i.e., positive taxable net income and see our ability to continue to have excess cash flow. Right now, we're putting a lot in the leasing space, which is obviously generating great returns. But until we see both of those, which depends somewhat on leasing velocity and momentum, the Board is not likely to turn on the dividend. So we will continue to update. Again, probably the first quarter of 2027 will be that opportunity when capital does significantly right now start to wane off and we see excess cash flow. But again, that's up to the Board to evaluate at that point in time. Operator: [Operator Instructions] Our next question is coming from Dylan Burzinski with Green Street. Dylan Burzinski: Most of mine have been asked, but maybe just sort of looking at portfolio lease percentage and where you guys think that can head over time. Just sort of looking at where you guys -- where you guys were at pre-COVID, call it, in the 91%, low 91% range. Obviously, this year, you guys are guiding to sort of 90% at the midpoint. I mean, do you think the portfolio is just structurally different today in that not only in terms of the location and the quality but also benefiting from the flight to quality such that lease percentage can get beyond where it has been historically? Christopher Smith: Thanks, Dylan. This is Brent, and great question. As you point out, we were about 91% leased pre-pandemic. And of course, that had a shift in the marketplace that was pretty substantial. We've recovered almost all of that back, and we're guiding to 90% leased at the end of this year. As we look at our own portfolio, we have a substantial number of assets where we push lease percentages that are well into the 90s, sometimes approaching 100%. So I think to your point, we have seen those assets that perform are generating well in excess of historical 91%, 92% stabilization. And I do believe we can continue to generate roughly 50 to 100 basis points of absorption a year across the portfolio. And so that's reasonable to assume that we could be in the 91% to 92% leased range in a few years, and potentially drive that higher, particularly at the unique amenitized large-scale projects like both our Galleria project, but even those midsized projects like the Meridian and Minneapolis, which we leased up over about the course of 18 months from 0% leased. Those environments are proving out that we can take assets to, again, 95% plus, and that will have a meaningful impact on growth in the portfolio longer term. So I do see, particularly with no construction really coming online to the end of the decade, a good runway push further, but that's just a little too far out to prognosticate. But certainly feel comfortable saying 50 to 100 basis points of absorption over the next few years is achievable. Dylan Burzinski: Okay. Great. That's extremely helpful, Brent. And then I think you mentioned D.C. and Houston being geographies or assets that you guys were looking to monetize. Can we say the same for Minneapolis as some of those assets through stabilization? Christopher Smith: I'd say, Dylan, we continue to want to harvest assets that we've created value and are stabilized to redeploy that into accretive opportunities. So regardless of market, I think we take that lens through the portfolio. You know Minneapolis, we do have a couple of assets that have leased up really well there and have long WALTs, 12-year plus weighted lease through those buildings. We'll let those come online and evaluate the market at that time. Hopefully, it continues to improve. But we have, as you know, created a lot of value with those buildings, and we'll look for ways to either recapitalize or monetize and redeploy those proceeds accretively into another market where we see growth in a similar fashion. So a little too early to tell on Minneapolis, but it's likely that we would reduce our exposure there over time. Operator: As we have no further questions in queue at this time, I'd like to turn the call back over to Mr. Smith for any closing remarks. Christopher Smith: I appreciate everyone joining today. I want to take the opportunity to thank my colleagues and fellow Piedmont placemakers for their hard work and efforts over the past really few years that have resulted in the sector-leading growth that we're witnessing this year. I also want to invite investors to join us at the Wells Fargo Conference next week. If you happen to be attending that and/or in the June NAREIT meeting in New York City, if you want to sit down with management and hear more about the growth story and what's unfolding in the office sector. Thank you, everyone, [indiscernible]. Have a great day. Operator: Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time, and we thank you for your participation.
Operator: Good afternoon, everyone, and thank you for joining the Xenia Hotels & Resorts, Inc. Q1 2026 Earnings Conference Call. My name is Regan, and I will be your moderator today. All lines will be muted during the presentation portion of the call, and if you would like to ask a question, you may do so by pressing star 1 on your telephone keypad. I would now like to pass the conference over to our host, Aldo Martinez, Director of Finance. Please proceed. Thank you, Regan. Aldo Martinez: Welcome to Xenia Hotels & Resorts, Inc.’s first quarter 2026 earnings call and webcast. I am here with Marcel Verbaas, our chair and chief executive officer, Barry Bloom, our president and chief operating officer, and Atish Shah, our executive vice president and chief financial officer. Marcel will begin with a discussion on our performance. Barry will follow with more details on operating trends and capital expenditure projects. And Atish will conclude today’s remarks on our balance sheet and outlook. We will then open up the call for Q&A. Before we get started, let me remind everyone that certain statements made on the call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued this morning, along with the comments on this call, are made only as of today, 05/01/2026, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find the reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in our first quarter earnings release, which is available on the Investor Relations section of our website. The property-level information we will be speaking about today is on a same-property basis for all 30 hotels, unless specified otherwise. An archive of this call will be available on our website for ninety days. I will now turn it over to Marcel Verbaas to get started. Marcel Verbaas: Thanks, Aldo Martinez, and good afternoon, everyone. We are pleased to report strong first quarter 2026 results. We exceeded our expectations across all key metrics. Our portfolio delivered exceptional first quarter performance, driven by strength in both the group and transient demand segments, especially in the month of March. We also saw highly encouraging results at Grand Hyatt Scottsdale Resort as it continues on its path towards stabilization following the completion of its transformative renovation. For the quarter, we reported net income of $19.8 million, Adjusted EBITDAre of $81.4 million, an increase of nearly 12% versus last year, and adjusted FFO per share of $0.63, which was 23.5% higher than 2025. For the first quarter, our same-property RevPAR grew 7.4%, with occupancy increasing 180 basis points and average daily rate increasing 4.8% compared to 2025. Additionally, we continue to benefit from strong growth in non-rooms revenues, as evidenced by our same-property total RevPAR for the quarter growing to $370.13, reflecting an increase of 7.2% as compared to the same quarter last year. Food and beverage revenues increased 6.2% on a same-property basis, reflecting continued growth in banquet and catering revenues as well as our ongoing focus on outlet optimization efforts, while other revenues were up nearly 11% for the quarter. Same-property hotel EBITDA for the quarter was $87.8 million, an increase of almost 18% compared to the same period last year. Significant growth in rooms revenues, a large portion of which consisted of rate growth, combined with disciplined expense management, drove an improvement in same-property hotel EBITDA margin from 27% in 2025 to 29.7% this year, an expansion of 270 basis points. At Grand Hyatt Scottsdale Resort, record revenues and hotel EBITDA were achieved for the first quarter as ramp-up of the overall resort continues. The resort has seen successful execution of occupancy-driven ramp-up that has produced significant transient business volumes to supplement the growing base of group demand. These improvements have translated throughout the operation into record food and beverage outlet, spa, recreation, parking, and miscellaneous revenues. Expenses have grown at a slower pace, as much of the occupancy gains have required relatively limited incremental cost. As a result, the resort’s hotel EBITDA margin improved significantly during the first quarter. While Grand Hyatt Scottsdale was a significant driver of our first quarter outperformance, we experienced broad-based strength across our portfolio of luxury and upper upscale hotels and resorts. Increased group and transient demand contributed to RevPAR and total RevPAR increases in 15 of our 22 markets. In addition to the Phoenix/Scottsdale markets, we experienced double-digit percentage total RevPAR growth in Salt Lake City, Birmingham, Portland, Santa Clara, Santa Barbara, and Houston, indicative of the range of markets and demand segments that contributed to our strong performance for the quarter. Our weakest performance for the quarter on a year-over-year basis was as anticipated, as these properties either benefited from one-time events last year such as the Super Bowl in New Orleans and the presidential inauguration in Washington, D.C., or experienced some disruption due to capital projects—specifically Fairmont Pittsburgh and W Nashville. W Nashville also was impacted by several weather events that negatively impacted performance for the quarter. We continue to benefit from our portfolio’s favorable positioning and diversification as it relates to the various demand segments. Group rooms revenues increased in excess of 7% for the quarter as compared to the same period last year, bolstering our performance. Transient room revenues also grew approximately 7% for the quarter, primarily driven by extremely strong performance in March, as the timing of Easter in early April appeared to compress high levels of corporate transient and leisure demand into the month of March. Now turning to capital expenditures, we continue to expect to spend between $70 million and $80 million on property improvements during the year. During the first quarter, we completed the renovation of the M Club at Marriott Dallas Downtown and the guestroom renovation at Fairmont Pittsburgh, which was completed as planned, with limited disruption, on budget, and in advance of the NFL Draft that took place in Pittsburgh last week with record attendance. On our last couple of earnings calls, we expressed our excitement about the reconcepting of the food and beverage outlets at W Nashville. We are pleased to report that all outlets have opened for business and were completed on time and within budget. The new outlets are tremendous new amenities for the hotel, and initial feedback from customers has been extremely positive. Barry Bloom will provide additional details on our capital, including the Nashville food and beverage reconcepting, during his remarks. Looking ahead to the second quarter, we are encouraged by the continuation of the positive momentum our operators are reporting for April. While calendar shifts related to Easter timing and spring breaks contributed to our outstanding results in the month of March, we estimate that April same-property RevPAR increased nearly 6% as compared to April 2025. The estimated RevPAR growth of over 10% that our portfolio experienced during the combined months of March and April is a reflection of strong demand in our markets when eliminating the impact of the timing of Easter compared to last year, with our largest resorts benefiting a bit due to safety concerns in Mexico and weather conditions in Hawaii. Turning to our outlook for the remainder of the year, given the stronger-than-projected first quarter results, we have raised our full-year 2026 Adjusted EBITDAre guidance by $6 million to $266 million at the midpoint. Our guidance for adjusted FFO per share for full-year 2026 is now $1.94 at the midpoint. This would represent an increase of approximately 10% over 2025. While we are encouraged by our first quarter performance as well as demand trends in April, a significant amount of overall market and geopolitical uncertainty continues to exist as we look ahead to the remainder of the year. As such, we have not changed our outlook for the balance of the year when compared to our previously issued guidance. Atish Shah will walk through all of our current 2026 guidance items in more detail, including our updated views of the anticipated demand lift from one-time events such as the FIFA World Cup and America 250. Although we have not completed any transactions since the sale of Fairmont Dallas last year, we have significantly improved our portfolio through robust acquisition and disposition activity since our listing in 2015. We continue to evaluate potential transactions with an eye towards further portfolio improvements and sustainable earnings growth in the years ahead. The transaction markets and opportunity set appear to be a bit more robust than they have been in the last couple of years, and we will continue to evaluate these opportunities while being mindful of our balance sheet and other capital allocation priorities. While the macroeconomic environment remains fluid and uncertain, we continue to believe our portfolio is very well positioned for continued earnings growth. The quality of our luxury and upper upscale hotels and resorts in top 25 and key leader markets, combined with our experienced operating partners and a favorable supply backdrop for the next several years, provide a solid platform for continued outperformance in 2026 and in the years ahead. I will now turn the call over to Barry Bloom to provide more details on our first quarter operating results and our capital projects. Barry Bloom: Thank you, Marcel Verbaas, and good afternoon, everyone. For the first quarter, our 30 same-property portfolio RevPAR was $205.93, an increase of 7.4% as compared to the first quarter in 2025, based on occupancy of 71.4% and an average daily rate of $288.62. Properties achieving double-digit RevPAR growth as compared to 2025 included Grand Hyatt Scottsdale, RevPAR up 46.2%; Kimpton Hotel Monaco Salt Lake City, up 27.2%; Andaz Savannah, up 16.4%; Hyatt Regency Santa Clara, up 14.7%; Grand Bohemian Hotel Mountain Brook, up 13.9%; and Kimpton Canary Hotel Santa Barbara, up 12%. Growth at these properties was due to a variety of factors, including increased citywide demand, stronger leisure demand in drive-to markets, and one-off major events. Properties with softer performance in Q1 this year included Loews New Orleans, which hosted the Super Bowl in 2025; The Westin Crystal City Reagan National Airport (formerly described as Pentagon City), which lapped last year’s presidential inauguration; and W Nashville, due to poor weather and anticipated disruption from the José Andrés food and beverage relaunch. Looking at each month of the quarter, January RevPAR was $163.59, up 1.4% versus January 2025, with occupancy flat and ADR up 1.4%. February RevPAR was $216.11, up 4.8% compared to February 2025, with occupancy down 40 basis points and ADR up 5.4%. March was the strongest month of the quarter across all three metrics, with RevPAR of $239.08, up 14.3% compared to March 2025, with occupancy up 540 basis points and ADR up 6.5%. Group business continued to maintain its recent strength during the quarter, with group rooms revenue up over 7%, reflecting strength in group business that is expected to continue to improve throughout the rest of the year. Overall for the quarter, group room nights were up 2.5%, with ADR up 4.4%. Business levels grew for each night of the week during the quarter compared to 2025. Occupancy grew by 210 basis points on weekdays and 110 basis points on weekends, with ADR growth of 4.5% on weekdays and 5.3% on weekends. RevPAR on Wednesday nights was up a notable 11% for the quarter. Leisure business during the quarter was consistent across the large resorts in the portfolio, with significant increases at Grand Hyatt Scottsdale and Hyatt Regency Grand Cypress, as well as strength at Park Hyatt Aviara, which lapped a difficult comparison in 2025. At our smaller leisure-focused hotels, leisure business grew significantly at Andaz Savannah, Royal Palms, and Kimpton Canary Hotel Santa Barbara. Now turning to expenses and profit, first quarter same-property hotel EBITDA was $87.8 million, an increase of 17.9%, driven by a total revenue increase of 7.3% compared to 2025, resulting in 270 basis points of margin improvement. Our operators are now able to better control expenses in a more stable occupancy and growing rate environment. For the 30 same-property portfolio, food and beverage revenues increased 6.2% in the quarter as a result of nearly 11% growth in banquets, while outlet revenues declined slightly, primarily as a result of outlet closures at W Nashville during the quarter. Other operating department income, including parking, spa, and golf revenues, grew by approximately 13%. Rooms expenses were well controlled, increasing 2.3% on a per occupied room basis, while F&B profit margin improved by approximately 150 basis points. A&G grew by approximately 4.5%. Sales and marketing expenses remained flat during the quarter, in line with recent trends, as strategies have been refined and focused across the portfolio. Property operations and maintenance expenses grew by just 1.3%, due primarily to lower general expenses, while energy expenses across the portfolio grew over 9% due to significant winter storms, which drove higher costs, especially for gas. Turning to CapEx, during the first quarter, we invested $15.2 million in portfolio improvements. We completed two projects during the first quarter, including the completion of a guestroom renovation at Fairmont Pittsburgh and renovation of the M Club at Marriott Dallas Downtown. More significantly, we reconcepted the food and beverage facilities at W Nashville pursuant to our previously announced agreements with José Andrés Group, which now operates and licenses potentially all of the hotel’s food and beverage outlets. These outlets include Zaytinya, an Eastern Mediterranean concept serving lunch and dinner; Bar Mar, a coastal seafood and premium meat dinner concept; Butterfly, a high-energy rooftop bar with a Mexican-inspired menu; and GloBird, a new pool deck concept with an expanded bar and upgraded food and beverage offerings. All reconcepted outlets opened in the first quarter, with the exception of GloBird, which opened in late April. These projects were completed on time and within budget. These outlets are truly beautiful and significantly upgrade the F&B offerings of the property, with menus ideally matched to the market. Each outlet is off to a great start, and we look forward to sharing future progress with you. Our in-house project management team continues work on two important guestroom-corridor renovations that are expected to begin in the fourth quarter at Andaz Napa and The Ritz-Carlton, Denver, as well as ongoing work upgrading our hotels’ infrastructure through physical plant and facade upgrades at 10 hotels this year. With that, I will turn the call over to Atish Shah. Atish Shah: Thank you, Barry. I will provide an update on our balance sheet and our current 2026 guidance. At quarter end, we had approximately $1.4 billion of outstanding debt, just over three quarters of which was at fixed rates inclusive of hedges. Our weighted average interest rate at quarter end was 5.5%. Additionally, at quarter end, our leverage ratio, as defined in our corporate credit facility, was approximately 4.8x trailing twelve months net debt to EBITDA. We expect our leverage ratio to further decline as Grand Hyatt Scottsdale stabilizes in the next couple of years. Our long-term leverage target is sub 4x net debt to EBITDA. As a reminder, we have no preferred equity or senior capital. During the quarter, we paid off the $52 million mortgage loan at the Grand Bohemian Orlando with cash on hand. We also resized the Andaz Napa mortgage loan with a $6.3 million principal payment in March, thereby bringing the loan back into covenant compliance. In total, 28 of our 30 hotels are free of property-level debt, representing a source of balance sheet strength. Our debt maturities are well laddered, with a weighted average duration of over three years. Our available cash at quarter end was over $100 million, and our $500 million line of credit remains undrawn. As such, total liquidity was over $600 million at quarter end. In April, we paid a first quarter dividend of $0.14 per share. If annualized, our current yield is over 3%, assuming this level of dividend is maintained. Turning next to our current 2026 guidance that we issued this morning, based on the first quarter outperformance, we have raised our full-year outlook. Our overall expectations for the second quarter through year end are roughly in line with where they were when we last issued guidance about two months ago. Specifically, our RevPAR is expected to grow between 2.75% and 5.25% for the full year. This is an increase of 100 basis points at the midpoint. Total RevPAR is expected to grow between 3.75% and 6.25% for the full year. This is an increase of 75 basis points at the midpoint from prior guidance. While total RevPAR growth was healthy in the first quarter, we saw more growth on the rooms side, particularly in the month of March, which is the reason for the larger increase in our RevPAR outlook. Our Adjusted EBITDAre guidance has increased by $6 million to $266 million at the midpoint. The $6 million increase is a combination of a $7 million increase to hotel EBITDA driven by the top line, offset by $1 million of higher G&A expense. As we look ahead, we are seeing strength in transient and group demand across the portfolio, including in many of our urban markets. As Marcel Verbaas and Barry Bloom each discussed, that strength has been broad, and we expect it to continue. Based on our preliminary estimate of April RevPAR, our March–April blended RevPAR increased in the teens percentage range at many of our business transient and group-oriented hotels, such as Hyatt Regency Santa Clara, Waldorf Astoria Atlanta Buckhead, Kimpton Palomar Philadelphia, The Ritz-Carlton, Denver, and The Westin Galleria & Westin Oaks in Houston. Offsetting this higher expectation—and the reason why our remainder-of-the-year outlook has not changed much—is that we are now expecting less of a boost from special events. Specifically, we are trimming our prior expectation of 75 basis points of RevPAR growth from special events to a range of between 25 and 50 basis points. While demand for the NFL Draft in Pittsburgh was strong and we expect America 250 demand to benefit D.C. and Philadelphia, our growth expectation for the FIFA World Cup has come in. Six of our hotels are expected to benefit from the FIFA World Cup, but the degree of benefit varies considerably. Our hotels in Atlanta Buckhead and Philadelphia should do well, but our hotels in Houston, Santa Clara/SFO, and Dallas are less likely to see a strong boost. Given that our assets in Atlanta Buckhead and Philadelphia are smaller than those in the other markets and represent about 5% of our total room base, the benefit is expected to be more limited than previously expected. To provide a bit more color by segment, on the group side there has been wash on the group blocks over the FIFA World Cup event period, such that about half the prior group business booked currently remains on the books. As such, these six properties will be more dependent on transient demand than expected. In terms of occupancy and rates on current definite business—and this is for both group and transient—on game days at the six hotels, less than half of our inventory is booked, with more than half remaining to be booked. Some hotels are loosening restrictions, including minimum length of stay requirements. ADR for the business that has booked is up about 50% versus last year; this is likely to come down as we get closer to the event but is obviously a good sign. In addition, our expectations regarding the days before and after game dates have also come in, as definite business on those dates is a bit softer. Moving ahead to our earnings cadence by quarter, we expect full-year Adjusted EBITDAre to be weighted across the remaining quarters as follows: second quarter in the high-20s percentage range, third quarter nearly 20%, and fourth quarter in the low-20s percentage range. On margins, we are now expecting margin expansion for the full year, which is up from our prior expectation for a margin decline. For the full year, we expect cost per occupied room to grow in the mid-2% range, which is below our prior estimate of 3%. Our operators are doing a better job at managing expenses than expected, and we have confidence that the rate of expense increase that we have experienced over the last several years will continue to decline as we look forward. Our AFFO per share forecast has increased by $0.06 to $1.94 at the midpoint. As projected, this would make for another year of double-digit percentage growth in FFO per share. Our estimates for capital expenditures, income taxes, and interest expense are unchanged. Turning ahead to group room revenue pace for our 30 hotels, our group room revenue pace continues to be healthy. As of the end of the first quarter, group revenue pace for May through year-end is up 6% compared to the same period in 2025. For the full year, group revenue pace is up 9%. Excluding Grand Hyatt Scottsdale, group pace would be about 100 basis points lower for each period, and that reflects several properties across the portfolio having strong pace growth. Group production was solid in the first quarter: first quarter group room revenue production for May through December increased about 5% compared to production for 2025 for that same May through December period. For the May to December period, over 80% of our projected group business for these months is definite. In summary, we are very pleased with the strong start to 2026. Our portfolio is performing well across both group and transient segments. Our balance sheet provides meaningful financial flexibility, and our team and operating partners are executing at a high level. We will now open the call for questions. Operator: Thank you. Our first question comes from the line of Michael Bellisario of Baird. Your line is open. Michael Bellisario: Afternoon. First, I just want to start on the demand front. Can you talk a little bit more about the urban improvement that you saw? Was that business or leisure picking up? Any specific markets or comments to add some color there would be helpful. And then just one more, probably for you here, Barry: the Hyatt loyalty program changes and the different tiering now—what is your take on how that might impact demand and RevPAR for several of your bigger Hyatt resorts that presumably get a lot of redemption business? Thanks. Barry Bloom: I think when we think about “urban,” a lot of that is more near-urban or suburban than truly downtown CBD, and it was across the portfolio. What we saw in the quarter—and we are continuing to see into the second quarter—is improvement in both corporate demand. Weeknights, I talked about Wednesday night RevPAR being up 11% for the quarter, which is very significant. We were pleasantly surprised to see across the portfolio a relatively even mix between what weekdays were up and what weekends were up as well. Those are the things we look at as the primary determinant of how much is being driven by business versus leisure. We have seen growth in both segments. Group, we always knew it would be strong. We had a lot of hope heading into Q1 that negotiated corporate demand would continue at the levels that had been growing in Q4. That certainly continued. We also had, as we all mentioned in our remarks, some higher-than-expected growth in leisure, in particular both in the resort-oriented properties and in our smaller drive-to, leisure-focused properties as well. On the Hyatt loyalty program changes, we are still looking through those, and obviously looking at that on a property-by-property basis. Some of these we had been aware of or anticipating for a while; some of them are changes that we actually had recommended as it relates to our portfolio. We have in our portfolio a couple of large assets that had very low redemption rates, and we would look to the increase in category to change that dynamic, but it is really too early for us to put anything definitive into our outlook. Overall, we view the change as positive for our larger resorts. Operator: Our next question comes from the line of Ari Klein of BMO Capital Markets. Your line is open. Ari Klein: Thank you. Maybe first, just a clarification on the special event changes. Does the 25 to 50 basis points assume any kind of uplift from the World Cup? And then related to that, where do you think the softness is coming from? Is it on the international side, or is it broader based? Atish Shah: Yes. To answer your first question, there is an assumption that we do have some lift from the World Cup. The three big events—the NFL Draft, America 250, and the World Cup—are all factored into the initial 75 basis point lift, and we have reduced that to 25 to 50, but we do still expect the World Cup to be beneficial in all of the markets we have talked about in the past, including those six hotels—just not as beneficial as previously expected. Digging a little bit deeper, the one thing we can see with more accuracy is the group sizing and the group blocks, and, as I mentioned, those have washed. We have about half the level of group on the books for that period than we did several months ago. That is the piece that has washed, so we are more dependent on transient, and that is just more uncertain. That is why we are giving a range, because we are not really going to know that number until we get much closer, and there is definitely going to be some variation in performance based on the actual teams and how that lines up. As regards domestic versus international, I am not sure we have enough data on that at this point. There is still a lot of confidence that these games are going to be big drivers of inbound activity, but we are not quite seeing that yet in the booking activity to date. As we get closer, we want to be very precise about what we are and are not seeing. The bigger story is that we have not adjusted our overall guidance downward. We are seeing business more broadly that is making up for the special events coming down, which frankly gives us a lot more confidence because that is business that is likely more durable and may continue into the fall and into next year, as opposed to one-time event-driven business. Ari Klein: Thanks for that. And then maybe shifting gears a little bit. Marcel, you talked about the transaction market opening up. It has been a few years since you have done an acquisition. When you think about potential acquisitions moving forward, is there any preference to follow a similar pattern of new markets and newly developed hotels, or is it really about the opportunity? Marcel Verbaas: It is really about the opportunity. If you look at some of the most successful acquisitions we did over a five-year time frame pre-COVID, they were branded hotels with good demand segmentation, a solid group component, and in many cases properties that required some initial CapEx—whether a room renovation or common spaces. That is probably where our preference would lie, but it will depend on the opportunity set, and we are not going to limit ourselves to specific markets. As long as it fits with our overall long-term strategy, we are open to adding hotels in markets where we already operate, and we would also be open to markets we are not in yet. Operator: Our next question comes from the line of Austin Wurschmidt of KeyBanc. Your line is open. Austin Wurschmidt: Great, thanks. Atish, just wanted to go back to your comment on the durability of some of the regular-way business and then the upward RevPAR growth guidance revision. So the guidance increase was simply flowing through 1Q, then partially offset by a tweak downward from World Cup contribution, but you did not flow through that regular-way strength of the midweek business you cited through the balance of the year. Is that correct? And then switching gears to the transaction market, as you think about potential opportunities to acquire or transact, how are you thinking about funding? Is there anything across the portfolio you are seeing to reshape the portfolio or sell assets with slower growth or CapEx needs? Anything you are looking to test the waters on to fund future acquisitions? Atish Shah: Not quite. The guidance increase reflects first quarter and a smidge more—that is the change to RevPAR and the change to EBITDA. Even though our expectation for the World Cup has come in, there is other business we are expecting over the course of the year that will make up for that. So the guidance increase was first quarter; any softness we are seeing on the World Cup, we are making up across the portfolio with BT and group. That is what gives us confidence as we look forward, even past this year, because BT and group are the biggest pieces of the pie. On funding and transactions, we have about $600 million of liquidity through cash on hand and our fully undrawn line of credit. That is available as a potential source. We could look at property-specific financing to the extent that is appealing. Marcel Verbaas: And on dispositions, we think about it as a continuation of what we have done throughout our history. We are looking at a few hotels where we may want to potentially sell over the near to medium term when there is significant CapEx coming up and we do not feel we will get the appropriate return. That will be around the margins; we have fine-tuned the portfolio quite a bit over the last several years. Operator: Our next question comes from the line of Analyst of Wolfe Research LLC. Your line is open. Analyst: Thanks for taking the question. Because you have the upcoming renovation at the Andaz Napa, maybe touch on that market and that hotel specifically—how it is performing and the outlook there, given broader Northern California has been performing pretty well so far this year. And a broader, big-picture follow-up: which markets in your portfolio are you expecting to benefit over the next three to five years from the low supply environment? And on the flip side, any markets like Nashville where new supply over the last years is impacting the portfolio? Barry Bloom: Andaz Napa has been a very good performer for us—this year will be our thirteenth year of ownership. It is well located within Downtown Napa, which has experienced tremendous growth over that period in terms of amenities and tasting rooms. The Napa market overall has been a little bit challenged. We think we are at the right price point, offering a high-end product below some of the more resort-oriented assets. The wine business has struggled this year, both on the commercial side—which we play in, serving the wine industry—and leisure. We are seeing renewed strength in leisure in part due to growth coming out of San Francisco. More people being in the city means more people adding pre- and post-San Francisco visits to the hotel. It is an asset we believe in, which is why we committed to this renovation. It was put on hold for a year due to tariff concerns, but it continues to perform well and we look forward to getting it in top shape post-renovation. On markets benefiting from a low supply environment over the next three to five years, we expect continued growth in Northern California—Andaz Napa, Marriott San Francisco Airport Waterfront, and Hyatt Regency Santa Clara. We continue to see growth and recovery in corporate transient demand through the Bay Area, particularly in Santa Clara, which has become one of the hubs given its Silicon Valley location and the AI activity; the hotel is showing remarkable year-over-year growth even excluding the Super Bowl benefit in Q1. Many of our assets are in markets with a lot of protection from supply. In Atlanta and, to a lesser extent, Houston, our quality assets in The Woodlands and Galleria submarkets are well positioned. We feel really good about growth and recovery in Phoenix and Scottsdale, both related to general market recovery and the continued ramp at Grand Hyatt Scottsdale. Marcel Verbaas: As it relates to Nashville, there has been very significant supply added over the past several years. It is not completely ended, but additions have slowed from the peak. That made it tougher in the early going because the market needed to absorb a lot of new luxury supply. We expect that absorption to continue over the next several years. There is still a lot of positive momentum in Nashville on the demand side as well. We feel we will be well positioned to deal with the remaining supply additions. Operator: Our next question comes from the line of Jack Armstrong of Wells Fargo. Your line is open. Jack Armstrong: Hey, good afternoon. Thanks for taking the question. You touched on it briefly, but could you walk us through how you are thinking about the uses of incremental capital right now given where your shares are trading? Are repurchases likely still at the top of the list, or is there more debt you would like to see paid down, or maybe another big ROI project you would like to pursue? And then on the W Nashville, can you talk about how the asset is positioned in that market and when we might see it return to RevPAR growth? Where do you think it will stabilize in terms of earnings and how long will it take to get there? Marcel Verbaas: We take a balanced approach—internal growth, external growth, share repurchases, and debt reduction. You have seen us do all of that over the last several years, and priorities vary based on outlook, opportunities, and share price. The portfolio is generally in really good condition. We have put capital behind the portfolio, completed big renovations, and CapEx is coming down toward a more normalized level. We have paid down some debt, and we feel like we will naturally deleverage over time as Grand Hyatt Scottsdale picks up, so there is not immediate pressure to pay down more, but having more dry powder would be good as we expect the acquisition market to loosen over the next several years. On share repurchases, we bought roughly 9% of the company last year and feel really good about those purchases given where the stock is trading now. We continue to trade below NAV, so it is not off the table. We will balance all of those to drive the strongest returns. On W Nashville positioning, the Gulch has become a more desirable destination even in the few years we have owned the asset. Leisure guests choose the Gulch over the Broadway area. It is an upscale residential-style neighborhood with strong amenities. On corporate, it is the top-tier Marriott choice within the submarket and has captured longer-term consulting-type business. It continues to be a strong leisure destination, and the hotel has figured out how to balance group. The new outlets give us great opportunities in private dining—small groups favor the José Andrés custom banquet menus within the hotel’s environment. Barry Bloom: On the financial side, through the outlets change, we expect incremental EBITDA of somewhere between $3 million and $5 million over time. It will not happen overnight. It is based on greater outlet revenues and profitability and on improving the appeal of the property and attracting the type of customers we discussed. Achieving that incremental EBITDA would get the hotel somewhere in the low $20 millions of EBITDA over time. It is hard to put an exact timeline on it because it needs to build as the property’s reputation grows. Operator: Our next question comes from the line of Analyst of Jefferies. Your line is open. Analyst: Great, thanks for taking the question. I am on for David. I wanted to dive into the state of the union for luxury and upper upscale. We have heard a lot about the K-shaped economy, and some recent commentary suggests some deceleration at the top end. What is your reaction there and any commentary you can provide? Marcel Verbaas: Luxury and upper upscale continue to perform really well, which you can see in our portfolio, which is 100% focused on those segments. We have seen very good growth in group demand over the last couple of years, and while that may level off at some point, we are simultaneously seeing good momentum on the transient side, with business transient continuing to build. The supply backdrop for luxury and upper upscale remains extremely benign for the next several years, which sets up nicely for the industry overall and particularly for our segments. We are seeing strength across demand segments, and currently the higher-end consumer does not seem to be pulling back. We are optimistic that will continue. Barry Bloom: I would add that these properties have a lot of levers to pull for food and beverage and ancillary revenues. We have been able to optimize them over the last couple of years, which speaks well to where the consumer is headed and our ability to keep driving cash flows. We saw a lot of strength in the quarter and subsequent to the quarter—the trajectory looks quite strong. Operator: Thank you so much. That will conclude our Q&A session. I will now pass it back over to Marcel Verbaas for any closing remarks. Marcel Verbaas: Thanks, Regan. Everyone, thank you for joining us today. We appreciate the interest and the questions. It was a great quarter for us, and we look forward to the rest of the year. We look forward to seeing many of you at various conferences coming up. Thank you for being as attentive as you were today after many hotel earnings calls over the last couple of days. We will conclude our call. Operator: That concludes today’s call. Thank you for your participation. You may now disconnect your line.
Operator: Good morning, and welcome, everyone, to the Gates Industrial Corporation Corporation First Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Rich Kwas, Senior Vice President, Investor Relations. Please go ahead. Richard Kwas: Greetings, and thank you for joining us on our first quarter 2026 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, iIvo Jurek; be followed by Brooks Mallard, our CFO. Before the market opened today, we published our first quarter results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC, including our annual report on Form 10-K that was filed in February 2026. We disclaim any obligation to update these forward-looking statements. We'll be attending several conferences over the coming weeks and look forward to meeting with many of you. And before we start, please note all comparisons are against the prior year period unless stated otherwise. Now I'll turn the call over to Ivo. Ivo Jurek: Thank you, Rich, and good morning, everyone. We appreciate your participation on our call today. I will start on Slide 3 with a brief recap of the first quarter. Our team executed well on our business priorities during the first quarter, navigating successfully through firm level of business transition. In particular, our Europe team successfully implemented a new ERP system and achieved higher efficiency rates as the quarter progressed. Exiting the quarter, our Europe business has stabilized, was delivering revenues on par with prior pre-ERP implementation periods, although with still somewhat above normal operating costs. We anticipate our operational efficiency in Europe to stabilize further during the second quarter. On a global basis, our sales dollars and margin rate were broadly consistent with expectations we have outlined in February. Excluding the impact of the anticipated headwinds from the ERP transition, and the 2 fewer working days that affected the first 2 months of the quarter. Overall demand trends improved during the quarter. Core sales growth approximated mid-single digits year-over-year in March. We finished the quarter with a book-to-bill solidly above 1. As we sit here today, and based on our present run rate. We feel good about our core sales growth prospects for the year, absent of any additional potential escalation of the conflict in the Middle East. In addition, we do not anticipate any material financial impact from the recent revisions in Section 232 tariffs. As such, we are reiterating our 2026 financial guidance. Please turn to Slide 4. Our first quarter sales were $851 million, representing a core sales decrease of 2.9%. Relative to our core sales guidance provided in February, we experienced some small incremental distribution inefficiencies associated with the ERP transition, which led to a build of past due backlog as we exited the quarter. We expect to recover these sales in the second quarter, and Brooks will go into more detail later on the call. The European ERP transition and working days relative to a prior year period combined represented approximately a 600 basis point headwind to our core sales. Entering 2026, we experienced a positive inflection in industrial OEM orders, and that trend has continued. Adjusted EBITDA was $177 million, in line with expectations, resulting in an adjusted EBITDA margin of 20.8%, down 130 basis points year-over-year. The decrease was primarily driven by inefficiencies related to the ERP transition and the impact of having 2 fewer working days compared to prior year period. Our adjusted gross margin was 40.5%, down approximately 20 basis points. Our adjusted earnings per share was $0.35 and down slightly. The fewer working days in the quarter, an ERP transition combined to represent a $0.07 headwind to adjusted EPS. Operational performance and a lower adjusted tax rate were modest benefits. On Slide 5, I will cover segment highlights. All year-over-year comparisons were substantially impacted by the ERP conversion as well as the fewer working days. Looking past these items, we saw a very solid trend across both of our segments with noted underperformance in commercial on-highway production, common to both. In the Power Transmission segment, we generated revenues of $533 million in the quarter, a decrease of approximately 2.5% on a core basis, primarily driven by the fewer working days and ERP transition in Europe. The Power Transmission segment realized accelerating order trends during March. Personal Mobility expanded 6%, and our growth rate was affected by project timing as well as the ERP transition in Europe, the region with the largest exposure to Personal Mobility. We anticipate a return to our normalized levels in Personal Mobility starting in Q2. Additionally, the construction end market continued to improve and the ag market is recovering. In the Fluid Power segment, our sales were $318 million, with a decrease in core sales of approximately 3.5%. Fewer working days and the year of ERP implementation, again, contributed to the decline. We realized strong double-digit growth in APAC during the quarter. Broadly, order intake was strong exiting the quarter. I would note that the commercial on-highway was relatively weak in the quarter. That said, North American orders have inflected positively to start 2026. Our data center business continues to perform in line with our expectations, and revenue grew approximately 700% from a low base in the prior year period. I'll now pass the call over to Brooks for some comments on our results. L. Mallard: Thank you, Ivo. I'll begin on Slide 6 and discuss our core sales performance by region. In the Americas, core sales declined approximately 2.6% in the first quarter. 2 fewer working days in our first quarter relative to the prior year period had an unfavorable impact on growth. North America core sales were down a little less than 2%. Excluding the working days impact, North America core sales would have increased compared to the prior year. In EMEA, core sales declined approximately 8.5% year-over-year, most of which was incurred in February. While production outpaced targets, finished goods shipping lag production output in February and through the first part of March. This led to slightly lower-than-expected revenues, of around $4 million, and higher pass-through backlog than normal as we exited Q1. Overall, we were pleased with our improvement through the quarter. We delivered positive core growth in EMEA in March, and that trend has continued through the early stages of Q2. We expect to further improve our distribution efficiencies through the second quarter and exit at normalized levels of shipping output and past due backlog. Our APAC region grew almost 4%, industrial OEM and auto aftermarket, both grew nicely and fueled the performance. Slide 7 shows the components of our year-over-year change to adjusted earnings per share. On a combined basis, the temporary headwinds of the ERP transition and fewer working days represented a $0.07 headwind to adjusted earnings per share. Underlying operating performance contributed $0.02 per share. Other items, including a lower tax rate and share count represented a $0.02 benefit. Slide 8 provides an overview of our free cash flow and balance sheet position. Over the last 12 months, we delivered free cash flow conversion of approximately 101%. Stronger operating cash flow drove positive free cash flow for the quarter. We continue to strengthen the balance sheet, exiting the quarter with net leverage at 1.9x, representing an improvement of approximately 0.4 turns compared to the first quarter of 2025. Our capital allocation approach remains balanced and we repurchased additional shares in the first quarter. In late February, we received a credit rating upgrade from Moody's to Ba2 from Ba3. Our return on invested capital remains strong while incurring margin headwinds associated with the ERP transition and continuing to make investments in our key process and growth initiatives. Turning to Slide 9, we have reiterated our full year 2026 financial guidance. We anticipate core growth to improve over the course of the year. For the second quarter, we are guiding revenue to a range of $905 million to $945 million. At the midpoint, core growth is estimated to be approximately 3.5% year-over-year. We project adjusted EBITDA margin to decline 30 basis points compared to the prior year period, influenced by temporary impacts from the ERP transition and our footprint optimization projects, which we expect to benefit adjusted EBITDA margin performance in the second half of this year. I'll now turn it back to Ivo for closing thoughts. Ivo Jurek: Thanks, Brooks. On Slide 10, let me summarize our key messages. First, our team executed well and showed a great degree of resilience during a period of significant business transition. We delivered slightly better adjusted EBITDA margin than expected and solid free cash flow on a seasonal basis. Our European business is operating as expected, post the ERP transition, and our team is highly focused on driving incremental efficiencies with the new system in place. We have shifted our operational focus to optimizing customer service fill rates to pre-ERP implementation levels, which were at world class. Second, we continue to see improving demand trends across most of our end markets. Industrial OEM orders are gaining momentum, and we experienced good demand trends in April. In EMEA, our revenue is trending nicely, above expectations to start the quarter. As such, we have good confidence in achieving our core revenue growth guidance with where we sit today. Third, we believe our business is in a strong position. We are executing on our footprint optimization projects and anticipate achieving an adjusted EBITDA margin approaching 23.5% in the second half of the year. In addition, our balance sheet is in a strong shape. We announced a small acquisition today, acquiring Timken's Industrial Belt business, which we expect to close in the third quarter. The acquisition augments our part transmission position in North America and should supplement growth moving forward. We intend to remain opportunistic deploying capital to enhance shareholder returns. Before taking your questions, I want to thank all of our global Gates associates for their diligence and efforts supporting our customers' needs and executing on our strategic goals. With that, I will now turn the call back to the operator for Q&A. Operator: [Operator Instructions] We'll take our first question from Michael Halloran at Baird. Michael Halloran: So maybe we just start where you were leaving off there a little bit, Ivo. So it sounds like growth -- core growth would have been positive in the quarter, excluding the ERP and some of the days issues, feels like the trajectory is what you're wanting to see exiting 1Q into 2Q holistically. Maybe just confidence in the sustainability as we sit here today, any areas of concern? What are your customers saying? Just kind of generically help us understand how you think this tracks in the year. Ivo Jurek: Yes, Mike, thank you for the question. Look, we actually had a terrific quarter, taking into account the quantified issues that we highlighted on our Q3 earnings call last year, outlining that we have a major ERP upgrade that we are going to do on basically 24% of the [indiscernible] Company's revenues in a big bang type event, and we have executed in an amazing way. I'm super proud of our Europe team. They have done a fantastic job and the business performed as we have anticipated. The business continues to behave in a very strong fashion. Net of the 2 less selling days than the ERP, we would have been basically up 300 basis points on core, which is right in line with what we have expected for the year and is basically trending towards the midpoint of our annual guidance. April, we have exited in a very strong position as well. The order flow is very solid. We have highlighted on last couple of calls that we have seen a very nice inflection in the industrial OEM order flow that remained throughout Q1 and into April. So as far as I see it today, I feel quite confidently that we are in a very good position to be able to achieve our annual guidance. And we've actually put the business in a position to be able to do really well as as the revenue generation capabilities and the end markets stabilize. So we're in a very good shape. Michael Halloran: Yes. That makes a lot of sense. And maybe just the Timken purchase. Why does it make sense now? What capabilities does it add that you lacked before? And then any sense of size, revenue, profitability, any of that? . Ivo Jurek: Yes. Look, it was very opportunistic. We were approached some time ago about the opportunity to acquire an asset that frankly -- when you talk about around the edges of what you do, this is right front and center of what we do, right? This is highly complementary in nature for us. The business has evolved. I think that there have been some highlights about what that business was about 10 years ago. I think the business has gone through some transitions. We are buying assets in a facility in Mexico that is going to be highly complementary for us. The size, we think that, that business can kind of add maybe $5 million a month in annualized revenue. And so it's highly complementary, and I believe that it will be very accretive to us as we embed it into our operations, and it has the opportunity to continue to accelerate our growth rate. Operator: we'll move to our next question from Jeff Hammond with KeyBanc. David Tarantino: This is David Tarantino on for Jeff. Maybe could you give us a little color on kind of the margin trends if you kind of back out the ERP transition? And maybe give us some color on price costs relative to the increased inputs, particularly around any oil derivative impacts or any tariff impacts you expect moving forward? It looks like the year is kind of playing out in line with expectations overall. L. Mallard: Okay. All right, David. That's a lot to unpack, so get ready. So first, let's start with the with the headwinds, the margin headwinds. As I look at Q1 conservatively, I would say we had at least 200 basis points of EBITDA margin headwinds. At least half of that was associated with the ERP transition in Europe. So that's a combination of lower sales, as we talked about, and then the impact of higher temporary SG&A cost as we move to the hypercare phase of that go-live. Those costs are temporary. They'll come out as we exit Q2. And then the other half is a combination of the footprint optimization kind of cost out that we talked about in the first half of the year as well as the impact of less days, right, just kind of the leverage part of the less days. And so you kind of take that into account we're kind of pushing up towards 23% EBITDA from a one-off perspective. And then I look at Q2, the midpoint, we're at 22.2%, I think -- 22.3% -- 22.2%. And I see we still have about 100 basis points of headwind. Again, about half of that coming from ERP, almost entirely coming from hypercare and increased SG&A. And then the rest really coming around the footprint and cost actions. That should be complete by the end of Q2. And so again, before we get -- start to get any of the savings or anything, we're approaching 23%. And so as I look at those 2 kind of data points and I looked at the 23.5%, that Ivo talked about, in the back half of the year, well, I mean, we feel pretty good. We feel pretty good, getting through the ERP transition, exiting the way we did, [indiscernible] a little core growth in EMEA and then kind of looking at the rest of the business and starting to get a little bit of growth there, we feel pretty good about things. From a tariff perspective, we don't really expect any impact from the 232 stuff. Most of ours was classified as automotive. And so that really doesn't impact us at all. We have a little bit of headwinds, maybe 20 bps of kind of dilution as we priced for tariffs. We're not even counting that though in any of our numbers. We're going to get to where we need to get irrespective of that. From a -- when you think about what's going on in the Middle East and the cost of oil and how that kind of impacts through the enterprise, obviously, that's going to impact things like resins and polymers and compounds. It's going to impact things that have high energy use, like aluminum and steel. You're seeing those go up. And then there's ripple effects to the rest of the P&L. When it comes to pricing for inflation, we're very confident on that, right? We've always been able to price for inflation. We're getting out ahead of that. And we learned some lessons as we think back post-COVID and the Russia-Ukraine conflict, and we're really focused on surety of supply for our customers. In addition, we've done a lot of work around our supply base. So supplier development, alternative materials, different things like that. And we feel like we're in a very solid position in terms of making sure we can take care of our customers, get surety of supply not have any kind of interruptions in the business. And then also, as I said, we know we can price for inflation, and we will make sure we take care of that. In addition, we're sticking by our guidance in the second half, and we feel pretty good about it, okay? David Tarantino: Great. That's really helpful. And then maybe following up on the demand trends. Could you just give us a little bit more color on the underlying demand trends relative to the strong order take you highlighted? How do the current customer conversations track with that initial end market framework provided last quarter? Ivo Jurek: Yes. Look, I mean, I don't think that anything really has fundamentally changed. I mean if there was a change, I would say, maybe the -- particularly in North America, on the highway, order flow has gotten better than where it was kind of exiting 2025. Outside of that, we see pretty solid demand trends across the portfolio. We see good behavior in automotive aftermarket. We feel well about industrial off-highway. I mean, obviously, commercial construction has been quite strong. Ag's been recovering very, very nicely. Energy and resources have stabilized, so that's kind of more still useful around the edges, but we anticipate that there may be an inflection taking into account what's happening in the Middle East. Diversified industrial is in a good place. Auto is soft. Auto is always soft, but it's such a small part of our business, and it is right where we anticipated. So when I take a look at where we sit, we feel the concurrently that the midpoint of our guide for the year is super achievable. Operator: We'll take our next question from Nigel Coe with Wolfe Research. Nigel Coe: And by the way, congratulations on the deal. I think this is your first deal as a public company, right, Ivo? Ivo Jurek: It is. Thank you, Nigel, and it's kind of -- it's a very nice tuck-in transaction that -- it's not even middle of the fairway, I mean, in the middle of your household. Nigel Coe: Yes, it does seem like [indiscernible] glove. Maybe just a bit more details on what you're seeing sort of through April. Number one, given the short cycle nature of your products, I'm just trying to understand why the push from the ERP transition. So I just want to understand how you're recovering those sales because I think we tend to think of a short sort of like won ne and done, it lost doesn't recover. So just want to understand that. And then it sounds like you're seeing recovery in industrial OEM. You mentioned on-highway as an area of cover as well. I'm just wondering if some of the strength you're seeing is really being driven by some of this heavy industry recovery. Ivo Jurek: Yes. A lot to [indiscernible]. So look, why do we feel that we're going to recover the sales in Europe? Because we really -- the way to think about it, Nigel, is that we were live basically in the first week of February. And you have to back flush the system. So no matter what you do, you kind of lose 1 week of activity, and then you fire back your assets, and you restart them. And. So everything was going the way that we've anticipated. We just -- it just took us -- think about it as 1 more day to undone our distribution centers. And we've just simply run out of calendar in March. Europe revenue in March was on par with prior year pre-ERP implementation, so they were fully recovered. And frankly, in the month of April, at the beginning of April, they've recovered the revenue from Q1. So actually, our year of business was up almost double digit in the month of April. So they've had full recovery. They are performing well. We are doing a really good job. The team is just executing in a world-class level. I feel quite well that we have recovered completely and not really lost any revenue. So again, 1 day, and that was nicely recovered. When it comes to these demand trends, I believe that what you see on the heavier industry is more in line with that underlying economy around the large projects that are coming out of ground around the data centers and power gen and power infrastructure and you need lots of construction equipment, earth moving equipment and so on and so forth. And we've anticipated that those businesses were quite weak.for an extended period of time. And I think that you and I discussed that on our Q3 earnings that the outlook has been stabilizing, and we are now starting to actually see the outlook turn nicely positive. And so PMI is above 50%, and that's good for kind of the overall underlying trend. And look, I'm not prepared to declare a victory in here, but I feel pretty positive about the demand trends. Nigel Coe: ISM 52.6%, I think, this morning. So fourth month above 50%, so it's a bit of a trend now. And then just going back to the previous question about the inflation recovery, is there more price coming into 2Q versus 1Q? And then Brooks, the [indiscernible] day headwind in 1Q, does that come back in 4Q to be have some tailwind in the back half of the year? L. Mallard: We have an extra day in Q4. So that's -- as we kind of move through the year, whenever we actually talk about Q4, you'll see it a little bit higher and because of that extra day. From a pricing perspective, you might see a little leak in to the end of Q2, but that's mostly going to be a second half event. So that will evolve over Q2, and we'll give more guidance as we see how things evolve and we start to roll out our Q3 guidance after this quarter. Operator: We'll take our next question from Julian Mitchell at Barclays. Julian Mitchell: Just trying to understand the sort of ERP catch up. So I think you had 3% sort of underlying growth ex-ERP in the first quarter. And then you're guiding for around that rate for Q2 and I think for the second half as well. But just wondered if you might have some ERP catch-up that would push up that underlying growth in the balance of the year from the 3% you did in Q1, particularly as your order trends seem pretty good, and you had a good book-to-bill. So I'm just trying to square those things. So I guess I'd say if you're running at 3% every quarter, underlying, but then you should get a catch-up from ERP, and the orders seem better. Why is it 3% every quarter through the year? Ivo Jurek: Yes. Look, Julien, a good question, right? So the ERP cut shop -- where I was talking about the ERP cut shop, you basically were about a day worse than what we've anticipated. We've lost 7 working days. And so the order returns are very, very solid. We are early in the year. I don't think that it is prudent to be making any adjustments to guidance this early in the year. Of course, when you take a look at the order trends, you would -- and I think that probably [indiscernible], we feel a lot more positively around where we sit for the year, but it's quite early in the year. And we will execute on within our control and manage our revenue generation to deliver on the guidance that we have put forward [indiscernible] done. Julian Mitchell: Got it. And then just my follow-up around price versus volumes in the revenue line. Maybe I missed it, but did you mention what price was in first quarter? And then I think for the year as a whole, you'd guided [ 1 ], [ 1.5 ] points of price. Is that still the case? Or there's a bit extra now because of the higher cost inflation? L. Mallard: Yes. As I said before, Julien, we're kind of seeing how things evolve. We've begun to roll out some price increases and then we're looking at the impact of some other things. And so there will definitely be an evolution of price versus volume as we work our way through the second quarter. But this is all relatively kind of late breaking, and we're still kind of working through some of the numbers. And so I would say stay tuned for the second half of the year, we reiterated our guide. We feel comfortable with our with our numbers, both from a top line and a profitability perspective. And we'll update you on the components of it as we work through how the -- how all this oil increase in cost impacts our numbers, okay? Julian Mitchell: Got it. But in the first quarter, sort of reported price was, what, [ 1.5 ] points or something? . Ivo Jurek: A little bit higher. L. Mallard: Yes, a little bit higher. I mean we have a little bit more tariff pricing in the first half of this year because we kicked that off in the third quarter of last year. And it's a little bit more -- in the original numbers, a little bit more probably see in the first half related to tariffs. Operator: We'll move to our next question from Andy Kaplowitz at Citigroup. Andrew Kaplowitz: One. I think you said Personal Mobility up 6% in Q1. I know affected by ERP I know you've talked about Personal Mobility growing sort of that high 20s to 30% over the next few years. I think you said Q2 returned to more normalized growth run rates in Personal Mobility. So maybe just update us. Is that the case? Can you get back to those rates? And do you still expect '26 to grow at that sort of normalized high growth rate in Personal Mobility? Ivo Jurek: Yes. Thank you, Andy. Absolutely. We've had some delays with a couple of projects that they were supposed to ramp up in Q1. They are ramping up in Q2, and the ERP was an outsized impact because a very significant amount of our revenue base is euro based. And so that drove a pretty meaningful impact to the Q1 growth rate. But as I indicated in the prepared remarks, we certainly believe that the business is going to grow and deliver that mid-20s growth rate as we have committed in our original guidance. Andrew Kaplowitz: Okay. And I think I have to ask you about that other big growth driver, data centers. I mean, I think you said up 700% off a low base. I don't know that probably puts you at, what, like $10 million for the quarter, maybe a little bit more, you tell me. But is there a way to more directly refine what '26 could look like? And then obviously, we're wondering how you fare versus that $100 million to $200 million rate by '28, like, so how's the progress versus that? Ivo Jurek: Yes. Look, we feel very good about where we sit today. I mean, our order intake and billings are strong in data centers and getting a really nice acceleration of penetration. I mean, obviously, it is from a small base last year, but we've started to accelerate our revenue gen and order intake in Q4. We continue to develop a much more wholesome understanding of the infrastructure partners and semiconductor partners, cooling technology and their needs. And look, we continue to drive and tailor our technology for those needs. We are launching new products, those products, we believe, put us at the forefront of the incremental improvements that are needed to facilitate much better liquid clean flow rates to improve the efficiency from the existing infrastructure and b, kind of a leading-edge supplier, kind of the next generation of the chips that -- they are now being developed. So we are kind of building kind of the traditional approach that I have probably demonstrated over the last 10 years. We we go after an application that is exciting and emerging. We've developed a highly specialized knowledge and we tailor our products that will offer differentiated performance, and we build a sustainable, durable revenue stream on a forward-going basis. And I think that our data continues to demonstrate beyond that trajectory and have committed to you all and to our shareholders kind of $100 million to $200 million of revenue by '28. And I believe that we're on the trajectory. Andrew Kaplowitz: So bottom line on track toward that goal in Q1, is how you characterize it? Ivo Jurek: That's correct. Operator: We'll go next to Deane Dray at with RBC Capital Markets. Deane Dray: I'd love to circle back on the Timken deal, and congrats. Ivo, can you just give us some color strategically what this brings to Gates. Is this a product line extension? Because if I look at the SKUs, they're awfully similar. Maybe it's some on the sports equipment side. And does it bring any new distribution partners maybe to the table? I'd like to see the manufacturing facility coming in, but maybe if we could start there. Ivo Jurek: Deane, yes, those are all very good questions. I mean, I would think about it more as kind of industry consolidation more than anything else. I mean, as you know, Gates is the global leading supplier of all types of belts in all sorts of different applications. And this was just another competitor for us that was small and I think the Timken can sell that was not at the front and center of what they wanted to focus on, on forward-going basis, and it is something that is additive to us more across the customer base. I think that the technologies and the type of applications that they participated in and that business participates in, is very, it's complementary, and it's not something that is super new. We will be switching a whole bunch of the portfolio into Gates Constructions, and factories nice to have. So I think that you should just think about it more as a kind of industry consolidation than anything else. They have some good folks there. That's all -- it's nice to bring into our family, and we welcome the employees to Gates organization with open arms. And we just think that it's a good transaction. It's right at the core of what we do, and we feel that we are the right owner and a good steward of that business on a forward-going basis. Deane Dray: Yes. That's really good to hear. And I know we don't have the terms. But based upon the sellers' previous comments about margins, it looks like this is coming in well below the power transmission margins for Gates. So that would suggest there's some nice accretion opportunity. Can you give any color or context there? Ivo Jurek: Yes. Look, I mean, I think that the business is certainly coming in kind of below what our North America or transmission fleet averages. A lot of that business is, frankly, OEM business. So in just a natural way, that's got a little bit lower margins. But for us, again, this is kind of core of what we do. So we believe that we have a significant opportunity to drive margins to be at a company fleet average and that's we just indicated, there's a very nice opportunity to improve profitability on that asset. And it should be a very good transaction for us once we have the opportunity to integrate it in and start running it under the Gates operating system and frankly drive the margins to where they should be. Operator: Our next question comes from Chris Snyder at Morgan Stanley. Christopher Snyder: I wanted to follow up on some of the commentary on the ERP disruption and potential catch up. And I guess, we assume the ERP was a 3-point headwind in the quarter, I guess it would imply about $25 million, $30 million impact. But then I think, Ivo, you said that Europe has fully caught up on the lost revenue in April. So I just want to make sure I'm understanding that right. Like, was Europe a subsegment of that $25 million to $30 million? Just trying to understand how much catch-up there really was there in April. Ivo Jurek: Yes, Chris, thanks for the question. Let me just clarify. We came about $5 million light to the midpoint that we have guided on Q1. So my comment has been more around the $5 million that we came a little bit light on in Q1, that we have fully recovered, not the incremental $25 million that you are stipulating. That is something that we anticipate we will recover as the year progresses. L. Mallard: And that was built into our original guidance, right? And so Ivo was bridging the gap on Q1 versus the balance of the year. Christopher Snyder: Got it. Yes, I felt like the $25 million to $30 million was a lot. So I appreciate that clarification. And then if I could just follow up on data center. It's very nascent for you guys now. And I guess my question is, is this just a nascent market since it's tied to liquid cooling, which is still in the very early stages? Or is there already an established player that's out there in the market that you guys have to go and take share from? Because I think it's understandable why you guys have a right to win there. But then also just the question is, if this market is already developing, why aren't you guys a meaningful share already? But correct me if you already are meaningful share. Ivo Jurek: Yes. Look, I think it is a nascent market, right? I mean I think that we all started to talk about liquid cooling much more profound in about 12 months ago. We have started to quantify our growth rates in that market pretty meaningfully in the second half of the year. I think that our order intake does indicate that we are taking a fair share of the revenue. They are well-established players just like Gates is an established player. That will be competing for the available infrastructure build-out. But there's so many projects that, in our view, there will be room for more players to come in and for everybody to have plenty of opportunity to build strong solid revenue stream as this business becomes mainstream. My sense is we didn't just kind of come up '28 as some random date. I mean we feel that by '28, this should become -- this should transition from emerging applications to mainstream where all data centers will be liquid. Operator: Next, we'll move to David Raso at Evercore ISI. David Raso: With the second half of the year implying organic around 4.5%. I'm curious, the order strength that you've mentioned multiple times for March and April. Can you give us a sense of what the order growth is trending right now year-over-year? L. Mallard: Yes. So look, we -- obviously, order growth is outpacing core growth certainly in Q1 as we saw backlog build kind of across the business. And that's -- I think it's an indication of the industrial OEM strength that Ivo talked about. And so when -- that's really -- as we've going through a little bit of a trough that we've seen on the industrial side, the strength in the industrial OEM business has given us pretty good confidence. And so we had backlog build in Q1. We continue to -- we saw strength in April, which is why we highlighted that. And so orders are on pace to support our core growth number right now. And I'd say also, remember that the second half of the year, there is some -- there's that extra day that we have in the second half of the year that kind of offsets the 2 days in the first quarter. And so that gives you a little bit higher growth rate in the second half. And then also, there's some catch up throughout the year on the EMEA side. And so when we look at it kind of from an overall perspective, we feel like it's pretty evenly paced throughout the year from a core growth perspective. Ivo Jurek: I'm sorry. What I would remind also everybody is that prior year comparisons are a little more difficult, right, because we had big step-up in AR business of the channel win that we had in the first half. So actually, the underlying performance in Q1 was quite good. David Raso: Well, that's -- I was just wondering, are we really seeing orders running above that second half organic growth rate? [indiscernible] bullet just trying to set that up. L. Mallard: I think when you look at the one-offs that I talked about in terms of the extra day, you look at the order rate right now and you look at the trend and kind of and what we've guided to for Q2, again, we feel pretty confident in our guide. And we feel good about where we stand from an orders perspective and a sales perspective. Ivo Jurek: It's really in the year, it's about right, David. L. Mallard: It's very early in the year. David Raso: Yes. Appreciate it. And I think if I heard you correctly about the second quarter, while the guide for the margin is around, I think, 22.2%, do you feel there's still about 100 bps in there of, I guess, ERP drag, if I heard correctly? Is that the right way to think about this? Yes, please go ahead. L. Mallard: Yes, it's about half ERP and half footprint optimization cost out. So it's kind of similar to what it was in Q1 but half. And you progress from 20.8% to 22.2%, you still have 100 bps of headwind. So you're kind of knocking on 23% from an EBITDA perspective when you adjust for the one-off. So again, we talked about the 23.5% target in the second half of the year. We feel pretty good about that. Operator: We'll move to our next question from Jerry Revich at Wells Fargo. Jerry Revich: Ivo, I'm wondering if you could just talk about the difference in demand cadence you're seeing on the replacement market by end market, if you have that type of visibility. We were surprised to hear from somebody else in the supply chain that parts demand and truck applications was really soft in the first quarter. I'm wondering if you're seeing that or if you have that level of granularity and visibility and any other replacement demand trends that you can talk about in terms of cadence would be helpful. Ivo Jurek: Yes. We don't really break out our replacement analysts by end market. What I will tell you is that the aftermarket in Q1 was quite healthy, absent of the 2 things that we have listed it was running at a trend line. So I wouldn't -- I would not be able to tell you that there was something out of ordinary that was not behaving well. Our aftermarket is actually quite okay. And when I take a look at the POS, the POS data was very healthy. So there wasn't any indication of somebody trying to pull demand forward. We didn't see that. I mean, the sales out kind of outpaced our sales in slightly. So everything is -- I see a normal operating conditions, I wouldn't call that as extraordinary, out of line or positive or that it is negative at all. I think it's behaving the way that we anticipated. Jerry Revich: Super. And separately, nice to see the transaction announced this morning. Can you talk about as you look at the M&A pipeline, are there additional opportunities that we should be thinking about over the next 12 to 18 months? What's the range of capital if you do have an active pipeline? What's the range of capital that you think you could deploy beyond the announcement today? Ivo Jurek: Yes. Look, we have a very healthy balance sheet. We spent -- I spent years on trying to get this balance sheet to be durable. We are right in line with what we have committed in our last CMD. We feel that we have a ton of capacity. I think that we are operating the business quite well. We're driving profitability forward. And we believe that there are many opportunities presently our pipeline is very robust. We are doing presently a ton of work on number of assets that would be highly accretive to what we do. Again, front end center to our portfolio, we're not -- we are really not looking anything that would be an extension or a third leg. We don't believe that. That is the most meaningful way to add to our scale. And so we will talk to you as these things develop further, but I would say, yes, there's a very good likelihood of more announcements coming certainly within this calendar year. Operator: And we'll take our next question from Tom Sano at JPMorgan. Tomohiko Sano: Could you share your perspective on business opportunities for Gates and robotics, especially humanoid applications? Based on your discussions with the customers,and your technology services, what is Gates' potential in this space? And are there any specific technology services you see as a key differentiator? Ivo Jurek: Yes. Look, yes, we do see opportunities. There are some nice opportunities that we already participate on today. We have a very nice small scale business in China, in particular, in Japan in robotics. I would not be in a position, frankly, to tell you today whether or not there is some humanoid immunize opportunities very specifically. But we do have a very nice robotics power transmission business with small belts that them perhaps more cost efficient than the alternative technologies. And we believe that it's going to be a small accretive end market as it develops on a forward-going basis. Tomohiko Sano: And just a follow up on the Timken acquisition. Could you talk about expected impact on net leverage following these acquisitions? And how should we think about the capital allocation strategies cleaning the balance sheet, please? Ivo Jurek: Yes, it's a material. I mean it was a super positive purchase price -- opportunistic purchase price that we've acquired this business. Will be not needful on our net leverage. Operator: And that concludes our Q&A session. I will now turn the conference back over to Rich for closing remarks. Richard Kwas: Thanks, everybody, for participating. If you have any further questions, feel free to reach out to me. Otherwise, have a great weekend. Take care. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the AutoNation Inc. First Quarter 2026 Earnings Call. My name is Rob, and I'll be your operator today. [Operator Instructions]. I will now hand the conference over to Derek Fiebig, VP of Investor Relations. Please go ahead. Derek Fiebig: Thanks, Rob, and good morning, everyone. Welcome to AutoNation's First Quarter 2026 Conference Call. Leading our call today will be Mike Manley, our Chief Executive Officer; and Tom Solosec, our Chief Financial Officer. Following their remarks, we'll open up the call to questions. Before beginning, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives constitute forward-looking statements within the meaning of the Federal Private Security Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials and our website located at investors.autonation.com. With that, I'll turn the call over to Mike. Michael Manley: Thanks, Derek. Good morning, everyone. Thank you for joining us today. Now as usual, we're going to provide a fulsome discussion of our results. And in our materials, I think you're going to notice some updates that we hope you will find useful. Obviously, we're very pleased to report that despite a challenging Q1 for the industry, particularly with year-over-year comps, AutoNation delivered its fifth consecutive quarter of year-over-year growth in adjusted earnings per share. This represents a solid first quarter for AutoNation. Now we continue to deliver strong operating performance coupled with excellent consistent cash conversion which enables us to maintain our strategy of deploying capital in a disciplined way to deliver results to our shareholders on a consistent basis. For the quarter, we reported adjusted EPS of $4.69, up from a year ago and as I mentioned, our fifth consecutive quarter of year-over-year adjusted EPS growth. Operating cash flow was also strong. We generated $256 million of adjusted free cash flow, which represents substantial cash flow conversion of adjusted earnings. Now starting on Page 3, where we cover gross profit for each of our businesses. Results were led by after sales, which once again delivered solid mid-single-digit growth despite some year-over-year impact from adverse weather. Same-store gross profit increased 3%, and total store gross profit increased 5% to $593 million, which was a first quarter record for the company. The story underneath this solid total growth in growth gets even more interesting as you tease out the dynamics of the different sources of growth. Underneath that total growth of 5%, internal pay actually declined by 6%. And somewhat expected, I think, due to lower industry volumes. This contraction in internal pay was more than offset from 2 important segments. Customer pay, which grew 8% and warranty-related gross profit, which grew at 7%. Now as always, there is still more for us to do in aftersales, where we believe there is more growth to come, but clearly, this revenue and net income stream is durable, as a recurring nature and is high margin. It's also an important driver of customer engagement and retention. Now moving on, I want to turn to Customer Financial Services. The team delivered another outstanding quarter, posting a first quarter record per unit profit up 6% from a year ago. The team continues to run a value-driven customer-focused process that provides our customers with valuable products and services. Customers purchased on average more than 2 products per vehicle with extended service contracts, again, leading the mix clearly supporting future aftersales revenue and customer retention. Finance penetration also continues to grow with roughly 3/4 of units sold with a finance contract. Now this performance should be read with the added context of the growth in our own finance company originations, which, as you know, deliver a superior return over time, but in the short term, represent a headwind to the record per unit value we just delivered. And Tom, I know you're going to give everyone on the call more details of this dynamic literature. So let's look at new vehicle industry in our results. New vehicle unit sales were down in line with the market. As you'll remember, last year, there was a significant acceleration in demand following tariff-related announcements, which clearly set up a very challenging year-over-year comp. As in the fourth quarter, following the elimination of the BEV incentives, sales declined -- BEV sales declined more than 50% year-over-year and the largest reduction of that was in our premium luxury segment. Now as a partial offset to industry volumes, we just discussed, new vehicle unit profitability improved sequentially, up 5% from the fourth quarter driven by higher per unit profit in both our import and premium luxury segments. Now moving on to used vehicles. I feel we delivered a solid performance in the quarter. We actually achieved our highest used to new ratio in 2 years. Our margins were much more stable, delivering a per unit profitability sequentially higher. Our wholesale performance was also strong. I would say that coming into the quarter, we had a couple of challenges that were hangovers from 2025. Inventory levels that were lower than I would prefer and aging that was slightly elevated. I think the team has made good progress with these challenges, and we now enter Q2 with improved inventory position at a younger average age. Now turning to Slide 4. I briefly touched on our customer financial services performance earlier, but let's turn to our own finance company. AutoNation Finance performed well, generating $9 million of profit in the quarter, which, by the way, nearly equaled the entire profit for 2025. AN Finance generated over $20 million of cash for the quarter, and the portfolio continues to scale and ended the quarter at $2.4 billion, up $1 billion year-over-year. Our funding profile also improved following our second ABS transaction, which closed in January. The operating momentum of AutoNation finance is obviously delivering attractive returns and we are also benefiting from the ongoing customer engagement and valuable consumer insights that come from the business. Now moving on to cash. Adjusted free cash flow was strong again at $256 million. This reflects excellent cash conversion, which Tom will talk through in more detail. Now during the quarter, we deployed approximately $350 million of capital, including $300 million in share repurchases. While we did not acquire any franchises in the first quarter, we do remain active in evaluating opportunities that can add scale and density in our existing markets. Our balance sheet remains strong. Our leverage ratio was in line with the first quarter of last year and remains comfortably within our targeted 2 to 3x range as we maintain our investment-grade rating. The strength of our balance sheet and robust cash flow generation give us significant flexibility to deploy capital, drive shareholder returns and grow earnings per share. Overall, it was a good quarter. strong results. And as I mentioned, the fifth consecutive quarter where we have delivered year-over-year increases in EPS. And now with that Tom, I'm going to hand it over to you. Thomas Szlosek: Okay. Thanks, Mike. Turning to Slide 5, I'll walk through our quarterly P&L. Total revenue for the quarter was $6.6 billion compared with $6.7 billion in the first quarter last year, which benefited from the tariff-related volumes, particularly in premium luxury to talk later. First quarter gross profit of $1.2 billion was essentially flat year-over-year, and gross margin improved 30 basis points to 18.5% of revenue. That was driven by continued mid-single-digit growth in our aftersales business and strong performance in customer financial services. Adjusted SG&A as a percentage of gross profit was 69.8% for the quarter, a bit higher than our targeted range of 66% to 67%. The increase reflects investments in marketing, including upper funnel spending to generate higher quality growth opportunities and build AutoNation brand awareness. We are also making structural investments targeting our customer experience. Lastly, we had unfavorable self-insurance experience in the quarter, including damage related to weather events. We expect SG&A to moderate in subsequent quarters as a percentage of gross profit, but remain above our targeted range, reflecting continued investment, as I mentioned earlier, of the aforementioned strategic initiatives. Adjusted operating income was $312 million for the quarter and was down 7% from a year ago. At 4.8% of revenue, it remains nearly 100 basis points above prepandemic levels. Below the operating line, floor plan interest expense decreased $5 million or 10% year-over-year as borrowing rates moderated and we remain disciplined in our inventory management. Non-vehicle interest expense increased $6 million year-over-year, reflecting higher average balances and a slightly higher blended borrowing rate, reflecting maturities of lower-cost debt. Excluded from our adjusted results, our net after-tax gain of approximately $40 million related to our valuable strategic equity investments in Waymo and TrueCar. Weighted average shares outstanding decreased 2% year-over-year, reflecting $1.1 billion of share repurchases since the end of 2024. Adjusted earnings per share was $4.69 for the quarter. Through strong operating execution and disciplined capital allocation, we've now delivered 5 consecutive quarters of year-over-year growth in adjusted earnings per share, as Mike mentioned. Moving to Slide 6, after sales, representing nearly half of our gross profit, continued its impressive momentum. Gross profit was $593 million, and AutoNation first quarter record. And as Mike mentioned, we saw a modest impact from adverse weather, but still delivered mid-single-digit growth. Our results reflect higher repair order count, higher value per repair order and improved labor productivity. Same-store revenue increased 4% and same-store gross profit increased 3%, while total store revenue and gross profit both increased 5%. Growth was led by customer pay gross profit up 8% and warranty gross profit, up 7%. Internal reconditioning gross profit declined 6% due to lower used vehicle volume. Wholesale and retail parts increased 10%. After sales gross margin was 48.6% for the quarter, roughly in line with the first quarter of 2025. We remain focused on deploying technology to drive additional volume and productivity and on hiring, developing and retaining technicians. These efforts increased same-store franchise technician headcount by more than 3% year-over-year, reflecting improved retention. Growing our technician workforce is key to consistently delivering mid-single-digit growth in after sales gross profit. I'm now on Slide 7, Customer Financial Services. The momentum in CFS continues. After growing 6% for the full year last year, per unit profitability increased another 6% in the first quarter, driven by improved vehicle service contract margins, consistent product attachment and higher finance product penetration. This per unit growth offset the year-over-year decline in unit volume. This performance is even more impressive considering the growth of AutoNation Finance. While AutoNation France is attractive in long-term profitability, it diluted CFS per unit results in the first quarter by approximately $160 million -- $160 per unit, which is a little over 5%. Slide 8 provides an update on AutoNation Finance, our captive finance company and its continued strong performance. As expected, profitability is gaining meaningful traction as the portfolio matures and as we leverage our fixed cost structure across a much larger book. First quarter profit improved to $9 million, up from $0.1 million in the first quarter of 2025 and up sequentially from $6 million in the fourth quarter 2025. During the quarter, we originated approximately $460 million in loans and received approximately $213 million in customer repayments. Our penetration continues to improve AutoNation finance originations were approximately 17% of all deals financed in the first quarter, up from 14% in the fourth quarter. The AutoNation portfolio ended the quarter at $2.45 billion, up about $1 billion year-over-year. The portfolio quality continues to improve. Credit performance metrics strengthened and average FICO scores on originations were 700 in the first quarter. Delinquency rates, 30-day delinquency rates were 2.1% at quarter end, stable as a percentage of the portfolio and in line with our expectations. As we've discussed, we do expect delinquencies to continue to normalize as the portfolio matures, migrating towards the 3% range over time, and our loss reserving methodology incorporates this expectation. Nonrecourse debt funding also improved, reflecting better advanced rates in our warehouse facilities and the benefits of our second ABS issuance for approximately $750 million completed in January. Debt funding as a percentage of the total portfolio at quarter end was 90%, now that's up from 74% a year ago, reflecting lender and market confidence in our portfolio. To close on AutoNation Finance, our compelling offerings are driving strong customer takeup, and we continue to expect attractive returns on equity, as profitability grows and equity investment requirements moderating. Slide 9 provides some color for new vehicle performance. Our unit sales declines were in line with the industry down 9% on a same-store basis and down 8% on a total store basis. Battery electric vehicle unit sales declined more than 50% year-over-year and when combined with tariff-related pull-ins in the first quarter last year, created a disproportionate impact on our premium luxury unit sales, which decreased 16% from a year ago. Domestic and import sales were down mid-single digits. New vehicle profitability again increased sequentially in the first quarter, averaging more than $2,500 per unit, up more than $100 or about 5% versus the fourth quarter. The improvement was driven by higher per-unit profits in our import and premium luxury segment. New vehicle inventory amounted to 46 days of supply, up 8 days from the first quarter of last year and 1 day from the end of December. Turning to Slide 10. As Mike mentioned, used vehicle supply remains constrained, and the team did a great job balancing sourcing, unit volumes and overall profitability. Our used to new ratio increased to 1 in the first quarter, the highest in 2 years. Used retail unit sales decreased 5% on a same-store basis and 3% on a total store basis. Now unit sales in the sub-$20,000 category declined 9%, while vehicles priced above 40,000 increased 7%. This mix shift contributed to a 5% increase in average selling prices year-over-year. Our used vehicle unit profitability increased by more than $150 sequentially to just under 1,600 per unit, reflecting a more optimal vehicle acquisition and reconditioning inventory velocity and usage of enhanced technologies. We had over 25,000 units ready for sale and 32,600 total units in our used inventory at month end, and the aging is in terrific shape. To Slide 11. Adjusted free cash flow for the quarter was $256 million or 155% of adjusted net income. Both of those metrics were improved from the first quarter last year as we continue to demonstrate stronger operational performance, a relentless focus on working capital and cycle times and CapEx discipline and prioritization. Our capital expenditures to depreciation ratio was 0.9x compared to 1.2x a year ago. CapEx was a little light in the quarter, mostly due to timing, and we expect full year spending to be $300 million to $325 million. We continue to focus on driving free cash flow to improve maximum capital deployment capacity. On Slide 12, our strong cash conversion gives us flexibility to invest in growth and drive shareholder value. In the quarter, we deployed more than $350 million of capital, including $300 million of share repurchases. The remaining was spent on CapEx, which is largely maintenance and compulsory spending. Since the end of March, we have made additional share repurchases, bringing our year-to-date deployment to approximately $400 million or around $100 million per month. We have repurchased nearly 2 million shares or 6% of the shares outstanding at the beginning of the year. In our capital allocation decisioning, we also consider our investment-grade balance sheet and the associated leverage level. At quarter end, our leverage was 2.57x EBITDA, almost identical with a 2.56x EBITDA at the end of the first quarter last year and well within our 2 to 3x EBITDA long-term target, giving us additional dry powder for capital allocation going forward. Now I'll turn the call back to Mike before we open the line for questions. Michael Manley: Yes. Thank you, Tom. Just a quick closing from me, reflecting on a strong quarter and what I expect moving forward. I am very pleased about our EPS growth. I think that's something that the team and I were very, very focused on, and I was pleased we were able to deliver it, notwithstanding some of the dynamics in the industry that we've just discussed. Our aftersales business is well positioned. And I think that the market will facilitate growth in that, and we're obviously going to stay focused on our technician recruitment, retention and development. Customer Financial Services continues to deliver strongly for us, very consistent performance. Its profitability is also very consistent. And we know that particularly with AN Finance, it builds strong relationships with our customers for us. And that portfolio continues to scale, improving productivity and profitability and funding. I do expect improvements in our used business over the course of the year as lease returns increase, and the execution continues to improve. New vehicle sales continue to track in line with the broader retail market and as you've seen, unit profitability continues to show signs of stabilization. And during the Q&A, we may get into discussions about forecast for margin. That's fine. We can take questions on that. But I think all of the factors that we've talked about position us from -- particularly from a cash flow perspective, to continue to generate strong cash flow, which will enable us to deploy meaningful levels of capital always with our shareholders in mind. So with that, Tom, if you're ready, let's open up for questions. Derek Fiebig: Rob, if you could please remind participants how to get in queue for the question-and-answer period. Operator: [Operator Instructions]. Your first question comes from the line of Rajat Gupta from JPMorgan. Rajat Gupta: Great. The first one was just that you removed your previous 2026 outlook slide. I'm curious, is that something to do with just what's going on geopolitically and just creating more uncertainty, just trying to understand the reason behind it. And maybe as you offered any guardrails around new vehicle GPU, used vehicle GPU trajectory from here on? I have a quick follow-up. Michael Manley: Rajat, it's Mike. I'll start the answer and then Tom, you jump in. So when we came into 2026, I think we all would agree that we knew that the structural demand, particularly in new and used was certainly there all of the inputs to demand, I think, continued scrappage rates, household formation have continued. But I think we knew that there would be some affordability headwinds coming into the year based upon the developments of last year. And we were forecasting at that time, maybe up to a 5% impact on new vehicle industry. And obviously, that has been compounded from a headwind perspective with the ongoing inflation that we've seen as well as the fuel price movements that we've seen of late. And I think that is going to continue for the foreseeable future. So the way I'm thinking about the industry now is notwithstanding the fact that we're going to see quarter-over-quarter comparisons that are may be uneven this year because of the industry shocks we saw last year. I think the industry will be below that 5% forecast that we originally had coming in until some of those impacts get dissipated. Now whether that is the Iran war is over, fuel prices begin to return, whether that is transaction price movements that may happen or change over the years, interest rate movements. Regardless of what causes it, I think we need to see some movements in those areas for that unmet demand now in the marketplace to start to get released. But sitting underneath that, I think the industry is still large as we saw the volumes that we delivered in Q1, albeit down year-over-year, we're still very, very credible. And any deferred demand usually ends up relatively quickly in the vehicle Parker, and we managed to capture that with our aftersales business as well. And that's why aftersales is typically anticyclical because I expect our aftersales business to benefit now because there's certainly some deferred purchases in new. There's certainly some segments shifting from new to used and the deferred purchases and used as well, and that will find its way into aftersales. And then finally, because your question was quite detailed along and you have to tell me if I've actually answered it. When I think about margins for the year, you may see some margin compression. From our point of view, what's important is that, that drives an improvement in volume because some margin compressions as long as it feeds its way through into average transaction price should stimulate volume. And I'll be very comfortable with that balance, by the way, because I think driving new car volume is important for us over the long term. Tom, do you want to add something? Thomas Szlosek: Yes, quickly. Rajat, just relative to that -- the original thought process, I think Mike said it well in terms of we're facing a different macro environment for very obvious reasons, won't get into us. But if you look at the main tenants in our outlook. I mean, apart from the market, I think all of them are intact in terms of what we're committing to deliver, whether it's customer financial services, sustained performance, the AutoNation portfolio growth after sales, continued mid-single-digit growth, good conversion on cash and just shareholder focused capital allocation, I mean, all those things are still intact and we're committed to. Rajat Gupta: Got it. That's helpful color. And just on the investments, the strategic investments, could you double click on that a little bit? what areas are you looking to go into? How should we think about as a return on that for the business? Any specific areas those are targeted would be helpful. Michael Manley: I'll start and then Tom can finish up. I think there's probably 2 main areas that I would call out as part of this call. When I look back at -- I think one of the benefits that automation has is that we have a national brand. And I think the benefit of that is not truly unlocked yet. And what that means is that we continue to invest with high-quality, but good third-party partners to generate opportunities for us. We're very focused on changing that dynamic. And to change that dynamic, we need to make some more upper funnel investments to be able to grow our brand recognition higher in certain areas than it is today because we will reap the benefits of that over time. Now they will not be immediate. So what you get is you get a dislocation between our investment and our return, and that's what you're seeing to some extent in our financial performance. Obviously, the investments being made. Our expectation is, over time, you will progressively see that return. Now what you won't immediately see is a reversal of that because upper funnel investment is obviously going to continue, but it is measured, it is well thought through, and I think it has a very, very clear end in mind. The second area that we're investing in is obviously in technology. It is an ongoing daily topic of conversation across every business. I think we've made some good investments in technology. Some of it is in an exploratory way at this moment in time. So what we're trying to do is understand do we truly get a long-term sustainable return on investment from those investments. That means you have to make some speculative investments and some of which will pay off hands on million, some of which were not. So you're seeing some elevated costs from that. And again, that will continue throughout the year, but we're very cognizant of the fact that we want to maintain our forecast in terms of our underlying SG&A. And I think the finance teams and our operators really do have that in mind. And in fact, there's an increased emphasis on that because it frees up some headroom for us to make some of these exploratory investments that we're making. But overall, I think, and you can see it in our Q1, we're creating still a very, very credible balance of SG&A to gross. Tom, do you want to add anything? Thomas Szlosek: No, you did well. Operator: Your next question comes from the line of Mike Ward from Citigroup. Michael Ward: It seems like there's a I don't know if it's concerned effort or just a shift towards the more profitable parts of the businesses, F&I after sales financing, and it's almost like the new and used retail is just a feeder to enhance those businesses? Is that the way you're strategically thinking about it? How do you view that trend? Michael Manley: I think you answered your own question there. I like that answer very much. I've got nothing to add to it. Michael Ward: Okay. So that is a concern of effort. And Mike, when you look at the industry, it seems to me when we came out of Covet everybody was set that inventory going forward to be about 20% lower than it had been in the past. It seems to me the industry has gotten even more efficient. How much does that contribute? We've kind of seen a stabilization of the new and used variable grosses. And how much does inventory discipline contribute to that? And do you expect that to continue? Michael Manley: Well, it's a bit of a -- I'm going to give you a bit of a broader answer. So apologies upfront for this because if I want to lean into this kind of discussion on affordability a little bit more because I think that it is what is going to shape the overall industry volume for the foreseeable quarters that are coming at us. We know that if I just take new, for example, average transaction prices are up roughly 40% on us since 2019. But the dynamics in that are quite interesting when you tease it apart. The vast majority of that was covered off by real wage inflation. And in fact, the pass-on effects of average transaction prices have been speculated between 8% and 10%. And I think that, that was what was well, it's creating some of that affordability headwind when we came into this year. Obviously, it was compounded by tariffs, some of that pricing in some form or another being passed on. but we no longer had supply constraint on new vehicles driving up ATPs. That is largely with the exception maybe of 1 or 2 manufacturers completely dissipated now. But you're left with that affordability headwind, which initially was driven by transaction prices and then more recently, a combination of rate and transaction prices. And that's what stays in the market today, and it really has been compounded by what I'm hoping is a relatively short-term shock to the economic environment that we're in at the moment. But notwithstanding that, the industry level, as I mentioned, I think, is still relatively large. So as we go forward, I think for us to release as an industry that pent-up demand, some of those dynamics have got to change. And I think part of that will be this affordability question, whether it's content, or whether it is supply chain changes or whether it is some margin mitigation with the OEMs or us. I'm comfortable with margin mitigation because I think it will translate into volume because I do think that there is a large amount of pent-up demand now in new. It's also translated into us to some extent. I think used will supplier will still be constrained for a period to come as that hole that was created in COVID works its way through the system. But I do think that when some of those input dynamics begin to get released, which some of them hopefully will be happening sooner rather than later, you'll progressively see a release of volume and may see some accompanying margin compression as a result. But as I said, that's a trade we'd be comfortable to make so long as it's done in a disciplined way, and we actually see the volume growth. Does that answer your question? Michael Ward: Yes, it does. And it just seems like the industry becomes more profitable if we stay in this million, $16.5 million range instead of like getting these big peaks and valleys, so lower highs and higher loads. And it seems like it feeds into the more profitable part of the business for AutoNation. Michael Manley: Yes, absolutely. I mean we like very, very much our aftersales capacity because as you said, it is -- it is anticyclical to some extent, but it's stable, it's durable, and it's much, much more predictable. Because the other thing that's happening, of course, is the vehicle park is still continuing to age and an aging vehicle park particularly when new and used vehicle volumes deferred an aging vehicle park just represents an opportunity for us that we are constantly looking to try and try and unlock. So that dynamic is 1 of the great things about a balanced business that we run. Operator: Your next question comes from the line of Alex Perry from Bank of America Unknown Analyst: Congrats on all the progress. I wanted to drill in a bit more on the used vehicle side. How should we be thinking about sort of used vehicle comps and GPUs as we move forward? Inventory seems pretty lean -- how should we think about your ability to sort of drive an improvement in GPUs and same-store sales on the used side? Michael Manley: I think we've got upside on our volume side. I was pleased with our GPUs for Q1. I talked in the past that I think -- and our internal view is that we should be moving towards $2,000 a unit. That to me is something that we've set as a goal for our teams and to understand the different drivers of achieving that. The very first driver is obviously how you source your vehicles. So we're very focused on trying to make sure we source, obviously, from lower cost channels first, but to build up an inventory volume that is sufficient to drive incremental sales for us. As Tom mentioned, we made some progress in Q1, the real forecast for us. The real initiative for us is to keep our progress moving -- and we think that will translate into higher volumes. I do not want that to come with a compression necessarily on the margin because I still think there's some inefficiencies in the used car business that will enable us, even if we reduce ATPs to maintain the margin, whether that is through cycle times, whether that is through a much, much more focused reconditioning or whether that is through hold times. So even if you do see some mitigation in ATPs, I think some of that can be offset and mitigated by improved productivity as part of that value chain. Unknown Analyst: Really helpful. And then just my second one, I wanted to go back to sort of the state of the union right now and how you're sort of thinking about things with all the uncertainty. Are you seeing any sort of change in trend line, any impact through April on consumer confidence related to the war? Just talk to us about how you're sort of seeing the demand trend as we move forward here? Michael Manley: Yes. Well, there's no doubt that we are seeing an impact on it. I mentioned before that the affordability was a a key industry issue for us right now. But I said that wage growth, to a large extent, increased has offset most of the -- well, a large portion really of the increases that we've seen. But there are other effects that sit underneath that. The first one is total cost of ownership is also being impacted by increased insurance costs, which were up roughly 50%. After sales maintenance costs are up as well. But that the issue that I think we're going to face in the short term, that really is driving my outlook of the industry over the, say, coming 1 or 2 quarters is the fact that, that wage inflation that partially offset increases in transaction prices wasn't distributed evenly. I mean, if you were at the top and at the bottom, you got real wage increases. If you were set in the middle, you were largely stagnant treading water. And that middle cohort of of the population really is the engine for us. So the impact that we're seeing in the short term in terms of their household income and the dynamics there in terms of the needs, the must-haves, the staples actually taking a higher level of their disposable income. It will impact our industry and give us some headwind. We've seen that in Q1. It will continue, in my view, into Q2. But those deferred purchases will feed into our aftersales. But that's the dynamic really that we're seeing and where the impact is, in my view, is going to be felt. I do think that some of this. I'm hoping that some of this obviously is short term and can get relieved quickly. But I'm still optimistic that when we look back on this year, the industry is still going to be a healthy one. Unknown Analyst: Incredibly helpful. Best of luck going forward. Operator: Your next question comes from the line of Jeff Lick from Stephens Inc. Jeffrey Lick: I was wondering if you maybe drill down a little deeper on the used and Alex earlier question, Mike. Just in terms of your guys' strategy maybe looking at late model versus 6- to 8-year-old plus your cluster strategy, use of internal auctions. Obviously, one of the largest competitors is going through a little bit of a change and Carvana continues to ramp up. Just curious how you see the used car -- or used car business playing out, especially as it relates to sourcing and whatnot. Michael Manley: Yes. Well, obviously, you saw in our results that are above $40,000 used car business improved, I think it was up over 7%. Tom, correct me if I'm wrong, but it was up over 7% and then our 20% to 40% and below $20 a drop. Some of that was inventory related. There's no doubt about that. But I do think that some of the drivers of that above 40,000 were maybe those marginal new car buyers that from affordability did, in fact, drop into the used car scene. So sourcing vehicles across all of those price band is important for us. And by the way, even if those marginal new car buyers dropped into the used car industry, you can tell from the total used car industry even more deferred their purchases from used cars anyway. So the way that we think about sourcing is it is -- everyone talks about how competitive it is. I think it's been competitive really for the last 5 years and will continue to be competitive. But you've got to be focused on every single channel. The very first channel that we're very focused on is clearly, those vehicles that come to us and trade new or used trade that we can with the right and appropriate amount of reconditioning generate a really excellent used car inventory piece. And that's what our focus is. I mentioned before brand. Brand is super important when you're sourcing vehicles directly from the market it helps cut through all of the noise out there. We have done well in many of our markets with our sourcing through our Web or car activities. I think we can do better, but I do think we need to continue to reposition our brand to more of a top of mind perspective rather than a searched outcome, and that's some of the investment that we're making, but very comfortable also to dip into the auction market. They come at some people think an inflated price. But the reality is if you price them right, you can still get a good turn. So fundamentally, you've got to have the inventory because you can't sell fresh air. You've got to be able to buy it competitively hopefully with a mix that suits the business that you're trying to achieve. But the industry is so broad, we want a balanced portfolio of vehicles between all of those 3 price bands. But as you've seen in our end with this, which is a repetition of how I started, our plus $40,000 sales benefited in the quarter, probably from some of that migration from new. Operator: Your next question comes from the line of John Saager from Evercore. John Saager: On you're annualizing ANS at $36 million a year. The penetration increased from 14% to 7%, [indiscernible] scores are in a good place. Can you just reframe sort of the steady state and where do you think that heads -- if we look out to 2027, do you think that we can continue improving that penetration to higher and higher levels, is something like $50 million an achievable goal? Thomas Szlosek: Yes. Thanks, John. Great question. When you look at where we have been on penetrations -- sorry, when you look at overall originations for AutoNation Finance. Going back to 2024, we're -- we underwrote about $1 billion in sort of our first full year of $1.1 billion, and that went up to $1.8 billion in 2025. We're on a run rate that we think is going to get us north of $2 billion to $2.1 billion in '26, which would be close to 20% growth. So we keep the key is the originations. And that would -- right now, as you said, penetration is 17%. That's of all units that are financed -- if we get to the numbers I mentioned for 2026, I think we'll be pushing 20%. And I don't think we're really calling a limit on what the penetration can be. I mean it's been a steady climb following the originations. But at some point, there's some elasticity there. But right now, I think it's slow and steady growth for us in both penetration and originations. John Saager: Okay. Great. And then on the SG&A efficiency, can you just quantify the impact of stock-based comp in the quarter? Michael Manley: Over probably less than $1 million of incremental expense. Operator: Our next question comes from the line of John Babcock from Barclays. John Babcock: Just first of all, did you guys quantify the impact of the weather on the quarter? Apologies if I missed Michael Manley: Well, we both can answer this one. I don't -- I'm not really -- I don't really entertain discussions about the impact of weather on the business, in the business. I think it's something that tends to happen relatively frequently. So from a -- I know that Tom will have a much more well thought-through answer. I tend to believe that much of it may be just deferred for a short period of time. Some of it you lose as people say. But no doubt, Tom will be able to give you a better flavor than that. I'll try and focus on doing as much business as possible regardless of whether it's raining or windy. Thomas Szlosek: I think Mike is saying that he doesn't allow us to make any excuses for our SG&A performance. When you look at the onetime events that we referred to, they were self-insured type claims activity, more than half of which was weather-related. I'd say the total, including those weather-related impact was roughly $5 million year-over-year, John. John Babcock: Yes. Okay. That's Perfectly fine. And then just on the SG&A side. Obviously, there's been a fair bit of discussion on the call so far about the uncertainty in the market, affordability challenges, the other broader macro headwinds. In light of all that, how are you thinking about your SG&A spending levels? And part of the reason I ask is because over time, the dealers have generally tended to be pretty good about adjusting spending up and down based on how the market is looking. So I want to get your thoughts on that and whether you're comfortable with current spending levels or if you think there might be a time at which maybe you decide to pull back in certain areas. Thomas Szlosek: Yes. Great question. Thanks, John. I'll start it out and then let Mike jump in. The thing that's hidden inside those SG&A numbers that we talked about is some of the productivity that we are generating either through AI or other technology. And if you look, for example, at our compensation for sales personnel, we're up at close to 10 sales per associate in the first quarter of 2026. That number was probably 9 or so a year earlier. And we're doing that with better training better technology emphasis on performance-based incentives. So -- and there are a number of other initiatives when it comes to AI and productivity that we think will continue to allow us to drive down our SG&A. We're deploying AI at scale in our servicing contact centers. and in our back office, we've generated meaningful savings in 2025, close to $5 million, and I expect that to continue into 2026 through digital applications and AI-type applications. So I don't want you to think that we're not focused on it. We do have to make some investments, some incremental investments. I do think they'll start to generate additional growth over time. I also think those investments, some of them dissipate as we get through 2026, particularly the investments on some of the digital enhancements that Mike referred to. I don't -- at this point, we feel like we're on a good trajectory to bring our SG&A at a run rate it starts to approximate our targeted range. towards the first quarter of next year. I think in second quarter through the fourth quarter, we should probably expect us to bring it down 150 basis points from what we saw in the first quarter. If we can avoid some of the calamities that we don't necessarily control. So that's the way I would look at it. Michael Manley: John, I just want to add a piece as well. Obviously, we see a much more detailed breakdown of our SG&A performance than others on the outside of the company are. So if we look at the underlying core SG&A performance of our dealerships, our collision centers and our auctions, and we take out or we give an allowance for the investments that we see as being incremental that will benefit us that's that dislocation between the investment and the revenue that you get that I discussed earlier. I'm comfortable with our SG&A levels. And I see a trajectory that I'm actually pleased with. It's not so apparent for me outside. So the question is, are the investments that we are making that are incremental, truly going to give us a revenue stream in a reasonable time frame to have made them worth the trip. That's something that we are very, very careful to look at that we're really looking to see what benefits we see as a result of those investments. And if we believe they are, we continue to do it. And if we believe that they're not, for whatever reason, we're quick to shut them off. So I think underneath the headline number that you're looking at, there is a good trend in our SG&A in line with discussions that Tom has had with all of you in recent quarters. And I do think that there is a mechanism for us to make sure that we're looking very closely at any incremental investment that we make that it will yield a benefit for the company at some point in the future. Operator: And your final question comes from the line of David Whiston from Morningstar. David Whiston: Just curious if you could give any kind of update on the status and mobile repair adoption? And what are the challenges in getting more consumers to use that service. Michael Manley: Yes. Actually, what we've now done is we have been able to integrate our mobile repair service into our big markets. So we've now we moved their bases into our existing AN USA businesses, which gives them a base, which you need a hub. We found out that having a hub actually helps with our productivity quite significantly because it gives us a start and return point that's much, much more consistent. We slimmed down the number of technicians that we had in that area because the levels of productivity were very, very low because you have to build quite a large consistent base. The integration of those into that business have helped tremendously with that. because there is a residual amount of business that enables us to layer in those more variable trips, those more unexpected trips in a good way, I'd expected to customers outside of the physical locations. We have learned a huge amount about dynamic booking and still learning about dynamic booking and now that I think we have a much more solid base. Our productivity has increased, I think, well. We're now beginning to build layers of business on top of that, so that we can extend the products and services that are remote in a way that doesn't bring our utilization and productivity down to such a level that we're actually not covering our costs. So it is a much more complex business than we anticipated a few years ago when we acquired the business and began building it. I think our skill set has improved tremendously. And I think it now begins to add value, not just to customers who want remote work, but also add value to a number of our business partners as well. Still a lot of work to do in that area, but I'm pleased with what I've seen so far. Operator: And we have reached the end of our question-and-answer session. I will now turn the call back over to management for closing remarks. Michael Manley: Yes, thank you, everybody. Thanks very much for your time on this call, and we look forward to talking to you more about the quarter and also next quarter, Q2. Thank you very much. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to Corcept Therapeutics First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Atabak Mokari, CFO. Please go ahead. Atabak Mokari: Hello, everyone. Good afternoon, and thank you for joining us. Today, we issued a press release announcing our financial results for the first quarter and providing a corporate update. A copy is available at corcept.com. Our complete financial results will be available when we file our Form 10-Q with the SEC. Today's call is being recorded. A replay will be available at the Investors Past Events tab of our website. Statements during this call other than statements of historical fact are forward-looking statements based on our plans and expectations that are subject to risks and uncertainties, which might cause actual results to be materially different from those such statements expressed or implied. The risks and uncertainties that may affect our forward-looking statements are described in our annual report on Form 10-K and our quarterly reports on Form 10-Q, which are available at the SEC's website. Please refer to those documents for more information. We disclaim any intention or duty to update forward-looking statements. Our revenue in the first quarter of 2026 was $164.9 million compared to $157.2 million in the prior year period. We have increased our 2026 revenue guidance to $950 million to $1.05 billion. Net loss was $31.8 million in the first quarter of 2026 compared to net income of $20.5 million in the first quarter of last year. Our cash and investments at March 31 were $515 million. I will now turn the call over to Sean Maduck, President of our endocrinology division. Sean? Sean Maduck: Thanks, Atabak. Demand for our medications continues to increase. We ended the first quarter with a record number of new prescriptions written from a record number of prescribers, which translated to an all-time high for the number of patients receiving our medications. Importantly, we set a record for new patient starts in March and again in April. These figures are outstanding and give me great confidence in the current and future health of our hypercortisolism business. The full impact is not reflected in our revenue for 3 reasons. First, revenue often dips in the first quarter as it does for many rare disease medications because insurance companies impose onerous reauthorization procedures at the start of each year that interrupt patient coverage for a month or 2. We provide patients with free drug to bridge the gap, but our revenue suffers. Second, new patients, whom we are adding at a rapid clip, provide much less revenue when they start treatment than they will later after payer coverage has been secured and they have titrated to their optimum dose. The full revenue impact of patients added this quarter will grow substantially over the next few quarters. Finally, our specialty pharmacy vendor has done an excellent job onboarding the thousands of patients transferred from our former vendor and getting them the medicine they've been prescribed. They have also excelled at servicing new prescriptions written for our medications, the new patient starts I just described. The task that remains is grinding through the insurance prior authorization backlog that accumulated as patients transition to the new pharmacy. This is painstaking work, but it yields steady dividends that will be reflected in our revenue over the coming months. Our new pharmacy vendor's ability to handle large numbers of new patients skillfully is important because I expect demand to increase substantially as physicians adapt their practices to the landmark findings of our CATALYST and MOMENTUM trials. CATALYST showed that 24% of patients with resistant diabetes had hypercortisolism, and that treatment with Korlym led to substantial reductions in hemoglobin A1c, weight and waist circumference compared to placebo. CATALYST results were published in the field's prominent journal, Diabetes Care in December of 2025 and were referenced in the March 2026 American Association of Clinical Endocrinology or AACE, guidance document for the management of diabetes. This is an important step towards increasing the awareness of hypercortisolism by the broader physician community. The recently reported results of our MOMENTUM study showed that 27% of patients with resistant hypertension had hypercortisolism. MOMENTUM's results were featured in an oral presentation at the annual conference of the American College of Cardiology, or ACC, last month. CATALYST and MOMENTUM will transform the practice of medicine. They provide consistent complementary evidence that hypercortisolism is the underlying cause of many patients' difficult to treat diabetes and hypertension. Physicians have begun responding to these findings, but a change of this magnitude takes some time to be fully absorbed and implemented in clinical practice. As medical practices adapt, screening for and treatment of Cushing's syndrome will increase and so will the number of patients receiving our medications. We expect our current Cushing's Syndrome business to grow to at least $2 billion in annual revenue by the end of this decade. When relacorilant is available, growth will accelerate further. I will now turn the call over to Roberto Vieira, President of our Oncology Division. Roberto? Roberto Vieira: Thank you, Sean. The FDA's approval of Lifyorli for the treatment of patients with platinum-resistant ovarian cancer, 3.5 months ahead of its PDUFA date is wonderful news for patients. On behalf of Corcept, I want to thank the FDA's division of oncology for its rigorous and extremely rapid review of our new drug application, which reflected the determination to make available a safe and effective new medication to women with a very difficult-to-treat disease. Our NDA was supported by compelling clinical data. The Lifyorli's pivotal trial, ROSELLA met both of its primary endpoints, delaying disease progression and even more important, significantly extending patient survival. Patients treated with Lifyorli and nab-paclitaxel experienced a 35% reduction in risk of death, a hazard ratio of 0.65 comparing to patients treated with nab-paclitaxel monotherapy. The p-value was 0.0004. No biomarker testing was required to identify these patients. We presented ROSELLA's complete results early this month in our oral late-breaker session at the Society of Gynecologic Oncology, SGO, Annual Meeting with simultaneous publication in The Lancet. As one would expect, oncologists and patients advocacy organizations have responded to this data with great enthusiasm. Lifyorli's efficacy and safety profile make it a powerful treatment option. For those who want to learn more about Lifyorli's clinical characteristics, there is a link to The Lancet article in today's press release. Even though Lifyorli's approval came early, our commercial team was ready to translate our significant prelaunch investments in preparation into execution. Our sales and marketing, medical and market access teams were on board and trained by the time of Lifyorli's approval and its manufacturing and distribution infrastructure was in place. 36 days into our launch, things are going very well. We launched our patient support hub and ensured product availability within 5 days of approval. A wide group of physicians have requested information from our field teams, another indicator of strong interest in Lifyorli. We began seeing enrollments within hours after approval. Prescriptions have already been written by over 200 physicians from all parts of the country, indicating adoption well beyond our study investigators and academic specialists. We are also beginning to see early signs of prescribing breadth with patients coming from multiple physicians in large practices. Lifyorli's inclusion in the National Comprehensive Cancer Network, or NCCN guidelines as a preferred regimen just 15 days after approval will support strong adoption and payer access. Lifyorli's strong early results do not surprise us, given the drug's excellent efficacy and safety profile, the lack of biomarker test requirements and convenient oral administration. We expect Lifyorli only to exceed $1 billion in annual revenue in the United States by the end of the decade, but it is just the beginning of our journey in oncology. I will now turn the call over to Joe Belanoff, our Chief Executive Officer. Joe? Joseph K. Belanoff: Thank you, Roberto, and thank you, everyone, for joining us. Since Corcept's inception, we have explored the potential of cortisol modulation to treat patients with serious diseases. That potential is vast. We have made important advances. It is now established that hypercortisolism is much more prevalent than previously thought and the treatment with a cortisol modulator can benefit many patients. Lifyorli's FDA approval in platinum-resistant ovarian cancer indicates that reducing cortisol activity at the glucocorticoid receptor, GR, may be beneficial in treating a wide variety of solid tumors. And you should know our plans go well beyond hypercortisolism and oncology. In April, we met with the FDA regarding relacorilant's new drug application, its NDA in Cushing's syndrome. Our NDA was based on the positive outcome of our pivotal Phase III GRACE trial with confirmatory evidence from our double-blind, placebo-controlled Phase III GRADIENT trial, our long-term extension study and our earlier-stage development data. Collectively, these results show that patients treated with relacorilant experienced meaningful durable improvements in the signs and symptoms of Cushing's syndrome without some of the serious adverse events associated with the currently approved medications, hypokalemia, endometrial hypertrophy, vaginal bleeding, adrenal insufficiency or QT prolongation. We will provide an update on relacorilant's regulatory path in the near future. I also want to underscore Sean's remarks regarding the importance of the CATALYST and MOMENTUM studies. Their findings are changing medicine. As physicians expand screening for hypercortisolism in patients with difficult to control type 2 diabetes and in those with resistant hypertension, patients whose health has been damaged by previously undiagnosed hypercortisolism will receive more targeted and better care. Increased demand for medications that treat Cushing's syndrome will propel our endocrinology business for years to come. The approval of Lifyorli is an important first step towards realizing the full potential of glucocorticoid receptor antagonism in oncology. Lifyorli works in ovarian cancer by suppressing cortisol's anti-apoptopic effect so that nab-paclitaxel can achieve its full effect. We believe this mechanism has the potential to work with any solid tumor that expresses the glucocorticoid receptor and with any companion anticancer agent. We are currently evaluating relacorilant combined with other anticancer therapies and in a wide variety of solid tumors. The first arm of the BELLA trial is studying the effect of relacorilant plus nab-paclitaxel and bevacizumab in women with platinum-resistant ovarian cancer. Other studies are enrolling patients with endometrial, cervical, pancreatic and platinum-sensitive ovarian cancers. Data from these studies will be NCCN guideline enabling and will inform our future development decisions. The first arm of BELLA will produce results by the end of this year. Our other ongoing oncology trials will produce results by the end of next year. Successful results in these studies would immediately increase the number of patients that relacorilant might potentially help by fivefold. GR antagonism may also augment the effects of immunotherapy. Cortisol suppresses the immune system, blunting the effectiveness of therapies that stimulate an immune response. A treatment regimen combining an immunotherapy agent with a GR antagonist may stimulate a stronger, more effective immune response. We are conducting a Phase Ib study of our proprietary selective GR antagonist, nenocorilant, in combination with nivolumab, a PD-1 directed immunotherapy to treat patients with a broad range of solid tumors. Finally, cortisol activity at the GR stimulates the growth of prostate cancer tumors helping them escape the effects of androgen deprivation therapy. Our collaborators at the University of Chicago are enrolling a randomized placebo-controlled Phase II trial of relacorilant plus the androgen receptor blocker enzalutamide in patients with early-stage prostate cancer to see if adding a GR antagonist can block cortisol-mediated tumor escape routes. Cortisol activity plays a role in the initial development and progression of a serious liver disorder known as metabolic dysfunction-associated steatohepatitis or MASH, which afflicts millions of patients worldwide and is a significant and rapidly growing cause of liver and cardiometabolic morbidity and mortality. Our proprietary selective cortisol modulator, miricorilant, is very potent in the liver. In a Phase Ib study, it rapidly reduced liver fat and improved other important markers of liver health, including fibrosis. The drug was quite well tolerated without the gastrointestinal side effects commonly seen in patients being treated for MASH. Our 175-patient double-blind, placebo-controlled Phase IIb MONARCH study is fully enrolled and will produce results by year-end. Positive results would support advancement to Phase III. Patients with ALS have dysregulated cortisol levels, which is why we believe our proprietary selective cortisol modulator, dazucorilant, may provide a treatment. Results from our 249-patient double-blind, placebo-controlled DAZALS trial of dazucorilant in patients with ALS have been very encouraging. In DAZALS, patients who received 300 milligrams of dazucorilant exhibited an 84% reduction in the risk of death at the 1-year mark compared to patients who received placebo. The p-value for this finding was 0.0009. This benefit persisted into the study's second year with an 87% reduction in risk of death at the 2-year mark. The p-value for this finding less than 0.0001. I want to take a minute to be clear about the benefit dazucorilant appears to offer because it's different from the way most medications targeting ALS are intended to work. Dazucorilant does not appear to prevent functional decline. It prevents early death. There is a common misperception that death resulting from ALS is always coterminous with severe functional decline. That is not the case. Many patients die from complications such as pneumonia and cardiovascular events early in the course of the disease when they still retain significant function and good quality of life. Preventing death during this period, giving back to these patients a good time would be a great benefit. We are currently conducting a small study to see if dose titration can improve dazucorilant's gastrointestinal tolerability. Nonserious GI distress caused most of the discontinuations in DAZALS, an outcome that we think can be avoided. We will incorporate what we learned from our dose titration study into the design of the pivotal trial that we plan to start later this year. To sum up, our Cushing's syndrome business remains on a strong growth trajectory, driven by increasing understanding of hypercortisolism's true prevalence and the need for treatment. Our landmark CATALYST and MOMENTUM studies are causing expanded screening for Cushing's syndrome, more accurate diagnosis and improved care, trends that will drive substantial revenue growth for our existing medications and even faster growth for relacorilant once it is approved. We are proud to have secured our first oncology approval for Lifyorli in platinum-resistant ovarian cancer and have made great progress in a very short time, bringing it to patients. We are confident relacorilant can help patients with earlier stages of ovarian cancer and with other types of solid tumors and in combination with other anticancer therapies. We expect results from our Phase II trial of relacorilant combined with nab-paclitaxel and bevacizumab in patients with platinum-resistant ovarian cancer by the end of this year and from our recently initiated portfolio of oncology studies by the end of next year. Following up on our positive Phase II DAZALS findings, we expect to begin a Phase III trial in patients with ALS later this year. By year-end, we will know the outcome of our Phase II MONARCH trial in patients with MASH and we'll proceed to Phase III if that outcome is positive. The potential of cortisol modulation to benefit patients is immense. We remain deeply committed to converting this potential into meaningful patient outcomes. We thank the patients who participate in our trials, our employees, our clinical investigators and our academic collaborators for being part of this important work. Operator, let's proceed to questions. Operator: [Operator Instructions] Our first question comes from the line of David Amsellem of Piper Sandler. David Amsellem: So just a few. With the updated guidance, should we assume that it's mostly relacorilant contribution? Have any assumptions changed on Korlym. So can you help us just go through that. And then secondly, can you talk to positioning versus KEYTRUDA in practice and how we should think about that? And then lastly, just give us a little bit of color on how nenocorilant differs from rela. And what you see in that molecule that is driving your development decisions there. Joseph K. Belanoff: Thank you, David. Thank you. I think I got all of your questions. Atabak, why don't you take the first question about range? Atabak Mokari: Okay. Great. So David, so at this point, our endocrine business represents the bulk of our guidance range just given where we are with oncology. But in terms of where we -- the updates that we had since last quarter in oncology is obviously, now we have approval. We've published the final ROSELLA results in The Lancet and inclusion in the NCCN guidelines. And as Roberto mentioned, we're really happy with what we're seeing thus far. And to layer on top of that, where Sean talked about, we're really happy with what we're seeing on the Cushing's syndrome side of our business and the strong fundamentals that we're seeing there, we expect to translate to revenue soon. So ultimately, given the strength on both sides, we are confidently raising our guidance range. Joseph K. Belanoff: Thank you, Atabak. And I think the second question is really Roberto's. Roberto Vieira: Yes. So thank you for the question there. I think the first thing for us to think about when thinking about KEYTRUDA and Lifyorli is just to take into account that we only compete in a subset of the market. Lifyorli is approved for an all-comer and KEYTRUDA is approved for a PD-L1 population. When you factor in testing rates, we are talking about something 35% to 40% of patients there. Now when you actually look at the data from our ROSELLA trial, you see the strength of our overall survival data, you see the safety, tolerability of that regimen as well as the convenience. So what we are hearing from physicians is that there is a preference even within that population to actually look into the ROSELLA regimen as being a preferred regimen. Perhaps that is also reflected in the treatment guidelines today, as you see, we have a preferred status. So we feel very confident that our regimen brings benefits to patients. Joseph K. Belanoff: Thank you, Roberto. And let me introduce a person who hasn't spoken yet, Bill Guyer, who runs all of our -- our Chief Development Officer, who runs all of our development activities to make a comment or 2 about nenocorilant. William Guyer: Great. Thank you, David. I mean one thing we've seen related to nenocorilant is that every selective glucocorticoid receptor antagonist that we've studied has unique properties and have shown specific benefits. But we've seen those as they progress through our development program. So continuing our research in new molecules like nenocorilant is definitely worth investigating. We believe nenocorilant has unique properties that will allow us to test even more hypotheses for solid tumors that express the glucocorticoid receptor. In particular, nenocorilant has shown strong activity in animal models in combination with immunotherapy. And so based upon that, we felt that nenocorilant could be a good partner with immunotherapy like nivolumab. But we're going to learn a lot from this Phase I study that will help guide us to rapidly move forward into a Phase II study. And from that study, we'll be able to even better elucidate what those specific attributes are. Operator: Our next question comes from the line of RK with H.C. Wainwright. Swayampakula Ramakanth: Congratulations on the launch of Lifyorli. So the 3 questions that I have, 2 on pipeline -- I mean, 2 on outside of Cushing's syndrome. On the Lifyorli business, what proportion of platinum-resistant ovarian cancer prescribers do you expect to convert to Lifyorli, especially now that you have the NCCN preferred designation. And in general, what does steady-state share of script look like in that. And the second question is on DAZALS. If you think about a Phase III design, what -- should we think about like the 300-milligram dose. And in terms of endpoints and timing of the initiation of that study is question two. And the third question is on the Korlym business itself, glad to note that the pharmacy, the specialty pharma is able to handle all the increased scripts. Are you also looking to add one more specialty pharma so that we don't face the same situation which we faced last year, especially with the momentum that you're getting from MOMENTUM and on CATALYST. Joseph K. Belanoff: Okay. I think I got all of those questions, very good. I think the first one is best answered by Roberto. Roberto Vieira: Yes. So RK, let me -- your question about conversion of prescribers. Let me just go up to the top. We are targeting 5,000 physicians in the U.S. that actually respond to almost 90% of all the volume here. So our expectation is that the very large majority of those will become prescribers that's supported by our market research as we have tested, but also by the very strong uptake. We have been able to capture more than 200 of those within the first month. And we are seeing this coming from community oncology, from gynecology, from academic setting. So from a -- in a very broad and diverse group of physicians from every part of the country. So we have every expectation that these physicians will adopt the therapy. We think that the profile, as we discussed, is very favorable to that because it's very easy to adapt the clinical practice to utilize this drug given the safety profile we have. You asked about the share at steady state. I think that the most important consideration here is that we do have an expectation of becoming market leader in a relatively short time frame. We expect that the drug will be utilized by the majority of patients in different lines of therapy. But really, it's a very attractive proposition for pretty much every patient there given our indication. Joseph K. Belanoff: Thank you, Roberto. I think the second question is Bill's. William Guyer: Yes. Thank you, RK. So related to DAZALS, the 2-year overall survival benefit is highly encouraging and shows consistency of the 300 milligrams. And I think that's the focus, whether it's the 24-week blinded data showed significant benefit of survival to 300 milligrams over placebo. The 1-year data showed survival benefit of the 300 milligrams as did the 2-year data showed benefit for the 300 milligrams. So that's going to be our focus in Phase III. And we've designed a Phase III study that works off the success of the DAZALS trial to replicate those results and confirm that dazucorilant can reduce early death and improve survival. So again, the endpoint would be survival and the focus would be 300 milligrams and would likely be a placebo-controlled trial. And we're working with the top ALS researchers around the world to help guide that study, and they've already commented on our study design. And we've also collaborated with the FDA and EMA and are incorporating their comments into that study, and that will allow us to start this trial this year and enroll patients by the end of this year. Joseph K. Belanoff: Thank you, Bill. And the Korlym questions go to Sean. Sean Maduck: RK, thanks for the question. So I'll start just by saying we're very happy with what we've seen with Curant. They've done a very nice job transitioning our active patient base from our previous vendor and then handling all the new prescriptions that have come in. And again, they've been at an all-time high. So they've been working sort of in 2 places at once as they've been supporting these patients and have done a very nice job. They've scaled as our business have grown, and we know that they can continue to scale with that. That being said, we know that eventually, our business is going to get to a place from a volume standpoint that it's going to be far too much for one pharmacy to be able to handle. So our plan is down the road to expand our network. When we expand and by how many we expand will be driven by what we're seeing from a volume growth standpoint. But as it stands today, I mean, our plan is to bring in some additional support in the fourth quarter this year into the network. Joseph K. Belanoff: Okay. I'm sorry, RK, did you have something question there? Swayampakula Ramakanth: No, no. Actually, I appreciate all the color. Joseph K. Belanoff: Thank you very much. Well, this concludes our call. Thank you very much for listening for the questions. I think it's a very, very exciting time for the company. We're really pleased with what we're seeing both in the endocrinology and on the oncology side. Please look at our press release for all of the things which are going on in development. It really is wonderful to be able to see us really bring forward towards the potential of cortisol modulation as a treatment for very many serious diseases. So thank you. Good evening, and we'll talk to you next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Weyerhaeuser First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Andy Taylor, Vice President of Investor Relations. Thank you. Mr. Taylor, you may begin. Andy Taylor: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's first quarter 2026 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and Davie Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish. Devin Stockfish: Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported first quarter GAAP earnings of $156 million or $0.22 per diluted share, net sales of $1.7 billion. Excluding special items, we earned $77 million or $0.11 per diluted share. Adjusted EBITDA totaled $308 million, a 120% increase over the fourth quarter. These are solid results, and I'd like to thank our teams for their continued focus and operational performance. Through their efforts, adjusted EBITDA improved across each of our business segments compared to the prior quarter, a notable achievement against the backdrop of elevated macroeconomic uncertainty. Before getting into the business results, I'll provide a quick update on previously announced actions to optimize our portfolio. In February, we completed the divestiture of non-core timberlands in Virginia for $192 million. And in April, we received $22 million in proceeds following the transfer of our timber licenses in British Columbia to the buyer of our Princeton Mill. This represents the final proceeds associated with the Princeton transaction. I'll also highlight some recent advancements associated with our Wood Products growth strategy. First, we were excited to preview two new products, AeroStrand and Pro Panel at the International Builders Show in February. We're committed to delivering products that meet the evolving needs of our customers, and these represent the first of many new and innovative products that we intend to introduce over the next several years. Feedback thus far has been overwhelmingly positive, and we expect strong demand for both products as we bring them to market. And finally, we expanded our distribution footprint in the first quarter, opening a new location in Billings, Montana, and announcing a new facility in Gallatin, Tennessee, near Nashville, which will be operational by year-end. Both sites support our strategy for continued growth of Weyerhaeuser's proprietary products in strong and underpenetrated markets. With these new facilities, our distribution network expands to 22 locations. And as we laid out at our Investor Day, we see opportunities for additional growth through 2030. Turning now to our first quarter business results. I'll start with Timberlands on Pages 6 through 9 of our earnings slides. Excluding a special item, Timberlands contributed $57 million to first quarter earnings. Adjusted EBITDA was $120 million, a 5% increase compared to the fourth quarter. In the West, adjusted EBITDA was $58 million, a $13 million increase over the prior quarter largely driven by higher sales volumes and seasonally lower costs. Starting with the Western domestic market, log demand and pricing improved in the first quarter as mills responded to strengthening lumber prices and seasonally lower log supply. As a result, our average domestic sales realizations increased moderately compared to the fourth quarter. Our fee harvest volumes were slightly higher and per unit log and haul costs decreased as we made the seasonal transition to lower elevation and lower-cost harvest operations. Forestry and road costs were seasonally lower. Moving to our Western export business. Log markets in Japan were muted in the first quarter in response to ongoing consumption headwinds in the Japanese housing market. As a result, our customers' finished goods inventories remained elevated and log prices decreased. Despite this dynamic, our customers remain well positioned relative to imported European lumber, which continues to face headwinds in the Japanese market. For the quarter, our average sales realizations for export logs to Japan were moderately lower and our sales volumes were moderately higher, largely due to the timing of vessels. Turning briefly to China. We remain in the early stages of reestablishing our log export program to strategic customers in the region. However, our shipments have been limited to date, largely driven by ongoing weakness in the Chinese real estate sector and the seasonal slowing of construction activity around the Lunar New Year holiday. For the first quarter, we delivered one vessel to China, which was comparable to the prior quarter. Turning to the South. Adjusted EBITDA for Southern Timberlands was $62 million, a $7 million decrease compared to the fourth quarter. Despite improved pricing and takeaway of lumber, southern sawlog markets remain subdued in the first quarter as log supply outpaced demand given drier-than-normal weather conditions. With respect to Southern fiber markets, demand and pricing moderated in the first quarter as mills reduced consumption ahead of spring maintenance outages and in response to lower takeaway of finished goods. On balance, demand for our logs remained steady given our delivered programs across the region, and our average sales realizations were comparable to the fourth quarter. Our per unit log and haul costs were also comparable and forestry and road costs were higher. Our fee harvest volumes were slightly lower in the first quarter. In the North, adjusted EBITDA was comparable to the fourth quarter. Turning now to strategic land solutions on Pages 10 and 11. As a reminder, this is the new name for our Real Estate, Energy and Natural Resources segment. Starting this quarter, we're expanding our disclosure for this segment to three business lines: Real Estate, Natural Resources and Climate Solutions. The new name reflects our broadening scope and growth focus across these businesses, and the new reporting structure enhances the cadence of disclosure for our Climate Solutions activities. In the first quarter, Strategic Land Solutions contributed $169 million to earnings. Adjusted EBITDA was $193 million, a $98 million increase compared to the fourth quarter. This reflects a very strong quarter for the segment, largely driven by the timing and mix of real estate sales and the completion of a $94 million Conservation Easement transaction in Florida. As we discussed last quarter, the conservation transaction conveyed approximately 61,000 acres of Weyerhaeuser Timberlands to a larger wildlife corridor, restricting future development and protecting habitat for a variety of species. Notably, the easement allows Weyerhaeuser to retain ownership of the land for continued sustainable forest management. As for the rest of the segment, real estate markets have remained solid year-to-date, and we continue to capitalize on steady demand and pricing for HBU properties with significant premiums to timber value. For the quarter, our results reflect a sizable increase in real estate acres sold, which is a typical trend for this business in the first quarter. Our average price for real estate sales declined from the record level achieved last quarter, which benefited from several high-value development transactions in South Carolina. Now moving to Wood Products on Pages 12 through 14. Excluding a special item, Wood Products contributed $14 million to first quarter earnings. Adjusted EBITDA was $71 million, a $91 million improvement compared to the fourth quarter, largely driven by an increase in lumber and OSB pricing. Starting with lumber. First quarter adjusted EBITDA was $27 million, an $84 million increase from the prior quarter. The framing lumber composite strengthened in the first quarter as buyers work to replace lean inventories into the spring building season, but face supply constraints from previously enacted curtailments and closures. While this dynamic was felt across the North American market, it was most acute in Southern Yellow Pine, which experienced a significant price increase during the quarter. For our lumber business, average sales realizations increased by 15 -- by 13% compared to the fourth quarter. Our production volumes increased as we return to a more normal operating posture following market-related production adjustments in late 2025. As a result, our sales volumes increased slightly and unit manufacturing costs were lower. Log costs were comparable to the prior quarter. Now turning to OSB. First quarter adjusted EBITDA was $3 million, a $13 million increase compared to the fourth quarter. OSB composite pricing entered the year on an upward trajectory as demand improved slightly leading into the spring building season. By February, pricing stabilized and remained steady for the balance of the quarter. As a result, our average sales realizations increased by 8% compared to the fourth quarter. Our production and sales volumes were slightly lower, largely driven by temporary winter weather disruptions early in the quarter. Unit manufacturing costs were slightly lower and fiber costs were slightly higher. Adjusted EBITDA for engineered wood products was $39 million, a $10 million decrease compared to the fourth quarter primarily due to lower average sales realizations for most products and higher raw material costs, most notably for OSB web stock. Our sales volumes for solid section products increased slightly, while I-joists volumes were comparable to the prior quarter. Unit manufacturing costs were also comparable. Although EWP sales volumes and pricing held up reasonably well, demand was softer than our initial expectations early in the first quarter. That said, we saw a slight uptick in order files in March, and we expect our sales volumes to increase seasonally in the second quarter. Moving forward, demand for EWP products will remain closely aligned with new home construction activity, particularly in the single-family segment. In Distribution, adjusted EBITDA improved by $7 million compared to the fourth quarter, largely due to higher sales volumes. With that, I'll turn the call over to Davie to discuss some financial items and our second quarter outlook. David Wold: Thanks, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on Page 16. We ended the quarter with approximately $300 million of cash and total debt of $5.4 billion. During the quarter, we repaid our $150 million, 7.7% notes at maturity. We returned $151 million to shareholders through the payment of our quarterly base dividend and approximately $10 million through share repurchase activity in the first quarter. Capital expenditures were $112 million in the first quarter, which includes $30 million related to the construction of our EWP facility in Arkansas. As we previously communicated, we anticipate approximately $300 million of investments for Monticello in 2026, and as a reminder, CapEx associated with this project will be excluded for purposes of calculating adjusted FAD as used in our cash return framework. During the first quarter, we generated $52 million of cash from operations. It's worth noting that first quarter is usually our lowest operating cash flow quarter due to seasonal inventory and other working capital build. First quarter results for our unallocated items are summarized on Page 15. Adjusted EBITDA for this segment decreased by $27 million compared to the fourth quarter primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the second quarter are presented on Page 18. In our Timberlands business, we expect second quarter earnings before special items and adjusted EBITDA to be comparable to the first quarter of 2026. Turning to our Western Timberlands operations. We expect steady log demand in the domestic market in the second quarter as mills respond to improving lumber takeaway through the spring building season and build log inventories ahead of fire season. At the same time, log supply is expected to increase as weather conditions improve seasonally. On balance, this should translate to a fairly stable domestic log market. We anticipate our average domestic sales realizations will be slightly higher than the first quarter as price increases in April are expected to hold steady through quarter end. Given seasonally favorable operating conditions in the second quarter, our fee harvest volumes and forestry and road costs are expected to be higher, and per unit log and haul costs are expected to increase as we move to higher elevation sites and in response to elevated fuel costs. Moving to our Western Export Program. We anticipate log markets in Japan and China will remain relatively stable in the second quarter, albeit at reduced levels. As a result, our log shipments and pricing are expected to be comparable to the first quarter. That said, export costs have increased in response to the Middle East conflict. Turning to the South, log inventories were elevated at the outset of the second quarter, and log supply is expected to increase seasonally. As the quarter progresses, we anticipate relatively stable sawlog demand, while fiber demand remains soft in response to spring maintenance outages and lower takeaway of finished goods. On balance, takeaway for our logs is expected to remain steady given our delivered programs across the region, and we anticipate our sales realizations will be comparable to the first quarter. Our fee harvest volumes and forestry and road costs are expected to be higher due to drier weather conditions that are typical in the second quarter, and we anticipate moderately higher per unit log and haul costs, largely due to increased fuel costs. In the North, our average sales realizations are expected to be moderately higher than the first quarter due to mix and fee harvest volumes are expected to be significantly lower given spring breakup conditions. Moving to Strategic Land Solutions, or SLS. We continue to expect full year adjusted EBITDA of approximately $425 million. And given our new segment disclosure framework, basis is now provided as a percentage of total SLS sales and is expected to be between 20% to 30% for the year. Real estate markets have remained solid year-to-date, and we expect a consistent flow of transactions with significant premium to timber value as the year progresses. Additionally, we expect to deliver steady growth from our Climate Solutions business in 2026. For the second quarter, we expect SLS adjusted EBITDA will be approximately $70 million lower and earnings will be approximately $80 million lower than the first quarter of 2026, driven by the sizable conservation unit transaction in the first quarter. We expect this to be partially offset by stronger results from our real estate business due to timing and mix. For our Wood Products segment, we expect second quarter earnings before special items and adjusted EBITDA to be comparable to the first quarter of 2026, excluding the effect of changes in average sales realizations for lumber and OSB. Notably, we expect improved sales volumes across all Wood Products businesses as we get deeper into the building season. This will be offset by higher costs in the second quarter, largely driven by inflationary pressures related to transportation and certain raw materials as well as planned annual maintenance outages at three of our OSB mills. As for product pricing, we're encouraged by the recent upward momentum in lumber. As shown on Page 19, our current and quarter-to-date average sales realizations for lumber are significantly higher than the first quarter average, while OSB realizations are slightly higher. For our Lumber business, we anticipate higher sales volumes and slightly higher log costs in the second quarter. Our unit manufacturing costs are expected to be comparable to the prior quarter. For our OSB business, we expect higher sales volumes and moderately higher fiber costs in the second quarter. Our unit manufacturing costs are expected to increase, largely due to the previously mentioned planned outages and higher prices for resin. For our Engineered Wood Products business, we anticipate higher sales volumes for all products in the second quarter and comparable average sales realizations. Raw material costs are expected to be slightly higher. For our Distribution business, we expect adjusted EBITDA to be slightly higher compared to the first quarter as sales volumes increased seasonally. With that, I'll now turn the call back to Devin and look forward to your questions. Devin Stockfish: Thanks, Davie. Before wrapping up this morning, I'll make a few brief comments on the housing and repair and remodel markets. Starting with housing. After a lackluster 2025, the housing market remains largely stuck in second gear. Based on conversations with our homebuilder customers, the biggest issues continue to be weak consumer confidence and ongoing affordability challenges. And more recently, the conflict in the Middle East has reinvigorated inflationary pressures and elevated uncertainty around the economy. Further, after briefly dipping below 6%, mortgage rates have ticked back up to around 6.3% here recently. Given these headwinds, the spring building season has gotten off to a somewhat softer start than we were expecting at the outset of 2026. However, we're still fairly early in the year. So there's certainly time for the housing market to pick up some momentum, especially if we see a resolution in the Middle East or if mortgage rates trend lower. I'd also note a few positives on housing. First, we did see a much better March starts number than we were anticipating. Plus, we've seen a slight pickup in mortgage applications here recently. Additionally, there have been some positive developments on the policy front with recent executive orders and the potential for bipartisan legislation on housing, which could be an additional tailwind over time. But that all being said, in the near term, I suspect we'll continue to see choppiness in the housing market as consumers navigate ongoing affordability challenges and uncertainty around the economy. Our longer-term outlook on housing fundamentals, however, remains favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to the repair and remodel market. Activity has been steady, but has lacked a clear catalyst, largely driven by many of the same factors impacting the residential construction market. We do expect to see the typical pickup in activity as we get deeper into the building season, and more broadly if interest rates move lower, and we get some improvement in existing home sales. In addition, we think the dynamic around deferrals of large discretionary projects over the last few years, will ultimately serve as a tailwind, particularly as the macro environment improves. But similar to the housing market, a material pickup in repair and remodel activity likely will require an improvement in overall consumer confidence. Putting the near-term uncertainty aside, our longer-term outlook continues to be positive as many of the key drivers supporting healthy repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock. In closing, we delivered solid results across our businesses in the first quarter. In addition, we advanced key growth initiatives in our Wood Products business and made progress on actions to further optimize our portfolio. We're encouraged by the recent increase in lumber prices, and we're well positioned to navigate a range of market conditions, and we remain focused on serving our customers, driving operational excellence and advancing our strategy to accelerate growth and deliver significant long-term value for shareholders. With that, I think we can open it up for questions. Operator: [Operator Instructions] Our first question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is looking at the Wood Products. It's nice to see how the margins there came back specially in lumber. Can you talk about your ability to continue to drive profitability really across your wood products. As you think about the potential for prices to hold maybe flat sequentially, especially with lumber, and how the changes in supply and demand are -- and your positioning relative to that will come into play? Devin Stockfish: Thanks, Sue. I think that's a really good question, particularly with respect to the supply demand dynamic. Obviously, we have been operating in a challenging housing environment over the last several years. And that's put a lot of pressure on pricing across most of our products, and that's true across the industry. One of the things that I think it's really important to understand about our business and the potential for profitability is that -- of course, we would like to see housing improving, and I do ultimately think that will happen for a variety of reasons, and we've discussed that in previous calls. But ultimately, what drives profitability in our business is the supply-demand dynamic across our product lines. And I think you saw a really good example of that in the lumber business in Q1. We would love to see housing starts at $1.5 million. But as you look back over the last several decades, there have been plenty of moments in time where we've made significant profits with housing starts well below 1.5. It really comes down to what is the supply-demand dynamic in each individual product line. As we saw lumber prices really at on an inflation-adjusted basis, historic lows last year, we saw the market respond by shutting down and curtailing mills. And that supply impact is really one of the key drivers for what happened with lumber prices in Q1. And so I think that's just a really important thing to keep in mind is that, yes, we think housing will improve, but ultimately, it's about supply-demand dynamics in each product line. Of course, we've been very focused on all the things that we're supposed to be focused on cost, OpEx, we've layered in innovation. We've got really strong brand recognition, customer support, so we're out there battling every day. We've got a lot of upside as you see pricing improve, and you started to see some of that in lumber in Q1. And certainly, at some point, when we see the housing market really return to a more normalized level, there is just a tremendous amount of upside across our businesses and wood products. Susan Maklari: Okay. That's great color, Devin. And then maybe sticking with Wood Products, it's great to hear the innovation and the new products that you launched the Builder Show this year. Can you talk a bit about pipeline that you have there. And as AeroStrand and some of these other offerings, momentum, what that means just in terms of your ability to drive above-average growth? And as Monticello comes online, how you can fill that volume, and what that will mean for the business as well. Devin Stockfish: Sure. One of the things that we've really been focused on over the last few years is better leveraging the resources and capabilities that we have around new product development, particularly in our Wood Products business. We've always had just remarkably strong wood scientists. We've got some brilliant people here in the wood products space, I would say, arguably, we've underutilized them over the last decade, but we've really ramped up that effort. And the new products that we brought out at the Builder Show, Pro Panel and AeroStrand are really the first big ones that we're bringing to market, but we've got a long pipeline. And at the end of the day, it's really all about how do we serve our customers? How do we solve problems for our customers, reducing costs, improving efficiencies helping deal with all of the issues around weather and code. We're in business to serve our customers. And I think one of the ways that we can do that going forward, and I think really distinguish ourselves in the market is through this new product development. So we've got a healthy pipeline, and we're expecting to continue to bring out new products and, I would say, accelerate that as we move forward. But we're really excited about these two. AeroStrand, in particular, that's based off of our timber strand technology. We're going to have a lot more opportunity as we bring Monticello up next year. And so that's just another example of how broad-based the opportunity set is for that timber strand technology. And one of the reasons we're really just so excited about Monticello coming up next year. Operator: Our next question comes from George Staphos with Bank of America. George Staphos: So I was wondering if you could update us on your view in terms of how tariffs and duties will play out over the course of the year relative to your business, Devin. And then relatedly, just -- it's nice to see lumber pricing higher. And certainly, you had a very, very strong operating quarter across from our vantage point across all your businesses. There's been a little bit of a pullback in Southern Yellow recently. What do you think is driving that? Devin Stockfish: So maybe I'll hit the lumber piece, and then Davie can touch on some of the impacts from the tariffs on the business. From a lumber standpoint, we obviously saw a nice run in Southern Yellow Pine and really across the composite, but mostly in Southern Yellow Pine in Q1. I think that was really driven primarily by two key things. Number one, we just saw a lot of supply come out of the system last year. As we've said over the past couple of years, probably 50-ish mills have been shut down or curtailed. And so part of that was just less supply, and that was against the backdrop of coming into 2026. I think just for risk mitigation, a lot of the dealer networks and customers, generally speaking, were carrying pretty lean inventories. And when we moved into the spring building season, there was just a bit of a scramble to get product. You've seen that level off a little bit here in Southern Yellow Pine. It's been a little volatile over the last few weeks. But ultimately, between treaters and multifamily, I think Southern Yellow Pine should hold up reasonably well going forward. I would note, we've also, at the same time, seen a pretty nice run-up in Douglas fir prices. And so obviously, we benefit there. But ultimately, it's really just about, as I said earlier, supply and demand. And we still, I think, have some opportunity for repair and remodel to pick up a little activity, particularly as we come out of some of the colder months in Northern region. So our view is lumber prices at the aggregate level should hold up reasonably well. There may be a little bit of volatility here in the near term with Southern Yellow Pine. But still view that as an opportunity, particularly as you see less SPF coming into the U.S., that's just an opportunity for Southern Yellow Pine. Davie, do you want to speak to tariffs? David Wold: Yes, sure, George. So with respect to tariffs and how that impacts the kind of the cost and procurement on our end. It's another inflationary pressure. Obviously, we've been living in an environment where there's been some level of inflation, a little bit elevated over the last several years. So it's another thing that our teams have to be focused on. Most notably, that's going to affect us in our CapEx program, whether it be steel and aluminum, thinking about the cost inputs there and a variety of other elements across the supply chain in that realm. But ultimately, we've been aware of the tariffs for well over a year, incorporating that into our capital pipeline and the analysis on how we think about the return profile particular project. So like any other inflationary pressure, it's something that we're dealing with, but our teams are focused on disciplined cost execution, ensuring we can minimize the cost there, and we're still looking to get very favorable returns across our capital program. George Staphos: Davie, I appreciate that. Just on duties, what's your view, Devin and Davie, on where duties may reset come late summer versus where they're at right now? Devin Stockfish: Yes. The preliminary results from the AR7 have dropped the duties about 10%. So if that comes in more or less on track where the preliminary duties were set, that would mean the all-in duties would come down from about 45% down to 35%. So that's both softwood lumber duties as well as the 232 10% tariff. And then that should come in somewhere around August, oftentimes, that gets pushed back a little bit into the fall, but that's the general time frame. Operator: Our next question is from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Congrats on a good quarter. Devin Stockfish: Thank you. David Wold: Thank you. Ketan Mamtora: Maybe to start with Devin or Davie, can you talk a little bit about the inflationary pressures you are seeing and specifically thinking about resin for OSB and in general freight transportation costs. Is there a way to quantify either in some sort of sensitivity or just sort of ways to think about what the potential impact could be. David Wold: Yes. You bet, Ketan, it's Davie. I'll take that one. We are, of course, as you'd expect, we're seeing the impacts of higher energy costs as a result of the conflict in the Middle East in several places across our business. In Timberlands, most notably, that's going to be in log and haul costs, fertilizer, transportation as well as ocean freight for our export business. On the Wood Products side, to your point, yes, we are going to see that in resin and additive costs as well as transportation as we think about getting products to customers. Right now, when you take all of that together across the businesses the headwind on a gross basis is about $10 million a month. But that said, we're able to offset a majority of that headwind. As always, we're focused on leveraging our procurement, logistics expertise, to minimize the cost and really focusing on disciplined execution, but we're also able to share some of those costs with vendors and customers, whether that be through log and haul rates or via the delivery costs that are typically passed along to customers. So the net effect of that that's incorporated into our guidance for the second quarter. Of course, we're going to continue to monitor how the macro environment evolves, while continuing to be focused on disciplined execution and cost control. Ketan Mamtora: Understood. Very helpful. And then just switching to capital allocation. Leverage has climbed to sort of 5%, a little over 5% recognized at Q1 as a working capital use quarter, but to the extent we are in this higher for longer environment thousands remains depressed, you've got Monticello investment this year as well. How are you thinking about, one, just sort of the level of leverage and sort of potential options that you could look at to lower it over time, maybe? And would that involve potentially kind of selling from timberlands? David Wold: Yes. Look, as we've said, maintaining that investment-grade credit rating, that's foundational for us. We're going to leverage, or we're going to manage our leverage to a mid-cycle target and we have a lot of flexibility and levers across a wide range of market conditions. I think just to put this in perspective, we're clearly operating at a cyclical low in earnings, and that's going to impact our trailing leverage metrics, particularly when you think about the very low pricing environment we saw over the second half of last year, that's still heavily weighed on that ratio. So again, that 3.5x net debt to EBITDA target is designed to be evaluated over the cycle, not at the trough. And so when we look at leverage through mid-cycle ends, we remain very comfortable with our balance sheet and expect leverage to improve naturally as that EBITDA normalizes. I mean you can do the math on, it doesn't really take that much improvement from current levels to get back to the the 3.5x target. And then just as we think about the capital allocation priorities for the year and how we're navigating that our approach is really going to remain consistent and disciplined. As you know, we're going to evaluate every dollar that we spend and ensure it's allocated in a way that creates the most value for shareholders. We do have approximately $300 million teed up for Monticello this year as well as we're going to continue to invest in our business on a programmatic basis. specifically to that Monticello [indiscernible], and I think it's worth noting that the timberland divestiture, the Princeton proceeds we received in the first quarter, that alone would offset a significant portion of the expected Monticello spend over the course of 2026. So again, we feel really good about the strength of our balance sheet, the work that we've done over the last several years to strengthen and improve the portfolio, and we've got a lot of levers as we navigate these conditions. Operator: Our next question is from Kurt Yinger with D.A. Davidson. Kurt Yinger: I was hoping to start off on the wood products side. Can you just talk a little bit about demand patterns you saw with home center customers over Q1? And maybe specifically looking at March and April, whether the seasonal pickup that you might typically expect occurred or perhaps is just delayed a little bit and pushed back a little bit later. Devin Stockfish: I'd say, overall, the -- it's a mixed view here. When we talk to our customers, I'd say crossed R&R generally, but that includes home centers as well. There's been different views depending on geography, and I do think you've seen the professional segment holding up better than DIY, probably also seeing a little bit more focus on smaller remodeling projects, which typically use a little less wood. So it's been sort of mixed, I would say it's solid. But certainly, we haven't seen as meaningful a pickup because maybe sometimes you do this time of the year. But nevertheless, we still think we're still in the heart of pair and remodel season, some of the colder areas are really just starting to get into the warmer season, and we have a while to go before the South really dialed it back for kind of mid-summer heat. So again, sort of a mixed story to date on R&R thus far. Kurt Yinger: Okay. That makes sense. I appreciate that. And then on EWP, realizations have come in a little bit the last two quarters. Some folks have kind of talked about a bottoming having been found on price in the last couple of months or so. How would you just describe the market balance today in early Q2. Are there any kind of green shoots you're seeing either from a demand or kind of competitive dynamic perspective? Devin Stockfish: Yes. I mean at a high level, a lot of what's been going on with EWP is really just the story of what's happening with family housing. And as we've said, it's just been a more challenging single-family environment here recently, and that's created some downward pressure on pricing. As we think about seasonally, we are seeing a bit of an uptick as you expect. We've seen order files pick up a little bit as we got into March and April, and so that's certainly a positive. I would say just from a pricing standpoint, again, it's very regional in terms of the dynamic. And so that's sort of how we're managing demand and pricing across our portfolio is really market by market. Ultimately to see a meaningful pickup in EWP demand and ultimately, pricing. I think you're just going to have to see improvement in single-family housing, unlike lumber and OSB, where you see a little bit more R&R demand on the EWP side, it's really residential construction primarily. And so we view it as being stable. As we guided for Q2, we think we're going to see comparable pricing with upside on sales volumes, but that's kind of really where we are right now. Operator: Our next question comes from Mark Weintraub with Seaport Research Partners. Mark Weintraub: Devin, first, just a question on the very strong or what looks to have been very strong cost performance, particularly in lumber, OSB as well in what presumably was an inflationary environment. I mean, by my numbers, and they could be wrong, it looked like your lumber cost per unit were the lowest they've been for several years. Anything that you want to call out to help us understand, and how sustainable that is, or was it more onetime-ish? Devin Stockfish: So overall, Mark, I think this is really just the continuation of the OpEx and cost focus that we've been working on for a number of years. One of the -- obviously, there are some inflationary pressures, particularly with the Middle East. That's going to be a cost headwind that we have to overcome. But what I would say is just given the tougher operating environment, it's just yet another reason for us to be really clamped down on costs. And so I think from a controllable cost standpoint, the team in Wood Products, and this is really true across the whole business, but they have just been very, very focused on every dollar they spend and making sure that we're being just really, really vigilant on the cost side. You combine that with -- as we moved into Q1, we were able to operate at more normalized rates. For the back half of last year, we were operating a little less than we ordinarily would just because of market conditions. When our business can run full, we are in a very, very strong cost position. And so I think it's just a combination of continued vigilance on controllable costs and really operating the mills at normal levels, that really puts us in a good cost position. So there's no reason to think that, that can't continue going forward. Mark Weintraub: Okay. Great. And I'm just curious because I thought I heard you said volumes were a little bit weaker than you had expected, but you were -- but at the same time, you just said you were running full. Did you build some in? I guess we could see this in your financials, et cetera, but had you built inventory in the first quarter, or how do we square... Devin Stockfish: I'd separate that. So I think what I said was really just with respect to the back half of last year, we were operating a little below normal because of market conditions. We did build a little inventory separately on the lumber side and OSB for that matter just because we typically build a little bit of inventory in Q1, just so that we are prepared for the full building season, which is pretty typical. So nothing outside the norm on inventory build. Mark Weintraub: Got you. And then shifting gears, what might you be seeing on like the solar leasing front, et cetera? Obviously, with energy costs having gone up a lot, is that trading any added impetus for people to start having conversations with you? And any color you can give us on how things feel is, we're getting closer to times where some of those options should be coming up for potential exercise. Devin Stockfish: We're seeing some really nice momentum across the renewables business, both in terms of converting leases into operating solar facilities. We've got one operating now. The next one should be operating any day now. We've got three currently under construction. By the end of this year, we could have 4 to 6 under construction. So the pipeline is developing nicely. And I think interestingly, we've just seen a whole lot of activity on the new option front. We've had a whole wave of solar options that we've signed up here recently and even on wind. Now those will come -- the wind will come along a little later just because the time line to put wind facilities up is a little longer. But overall, the interest level in renewables has been very strong this year. Operator: Our next question is from Hamir Patel with CIBC Capital Markets. Hamir Patel: Devin, there were two new OSB mills supposed to start up later this year. Just given the relatively sluggish demand backdrop. Do you think we'll see supply additions being delayed into 27? Devin Stockfish: It's hard for me to speculate on that. I have seen some articles written on delays there, but I don't have any specific knowledge of that. That's really going to be something they'll have to decide against the current market backdrop. I'm not sure I have a whole lot to add there. Hamir Patel: Fair enough. And just the last question I had on your Log Export business, how is the initiatives to grow Southern Yellow Pine exports progressing? Devin Stockfish: It's going really well. Now obviously, the transportation costs associated with the Middle East conflicts are going to be a headwind that we have to move through. But overall, I'm just really pleased with how that's developing, particularly in the India market. We've really gotten some nice traction with the customer base there. I think there's a lot of opportunity to continue to grow that. We're continuing to work on really driving costs out of the supply chain. That's particularly the case with our break bolt program out of the Gulf South, I think we have some near-term opportunity to take out some meaningful costs there, which will just make us even more competitive from a cost standpoint. So we're excited about it. We're looking to grow the India program. And again, we're going to have to overcome some additional costs from a freight standpoint, but I think we can do that. And even beyond India, just the opportunity in Cambodia, Vietnam, Thailand, we've seen some good strong customer interest there. I think ultimately, there may be some opportunity to export into Europe. We've had some initial conversations with some sawmill customers there. So I think there's a lot of opportunity, and we're going after it. Operator: Our next question comes from Anthony Pettinari with Citi. Anthony Pettinari: If I look at Timberland's results in the 2Q outlook, it seems like first half Timberlands EBITDA could be down year-over-year, maybe 25% from the first half of '25. And if you think about kind of big picture earnings improvement drivers for Timberlands going forward, is it just really about lumber recovery flowing through the Western log prices, or do you see kind of meaningful scope to improve log prices in the South or reduce costs or any kind of idiosyncratic items around weather that we should keep in mind? Just wondering kind of big picture as you think about Timberlands earnings improvement really going forward. What are the building blocks? Devin Stockfish: Sure. I'll give you a few comments on that. So first and foremost, what's been happening in the Timberlands business. And I would say this is mostly a Western comment, is with lumber prices being at historic lows, that put a lot of downward pressure on log prices. And you can see that really over the last few quarters. Now we saw log prices start to improve in Q1, and they've continued to improve into Q2, but there's still -- if you look back over the last several years, they're still at relatively low levels. So really, as we think about the near term, particularly as you've seen Doug fir prices going up here recently, that gives us a little bit more room to push log prices in the West. And so I would expect that to happen. It's still a very tensioned wood basket. So I would say, number one, it's been a pricing issue primarily in the West. Number two, from a volume standpoint, if you look back over the last couple of quarters, particularly in the West, but a little bit in the South because of some weather issues volumes have been down a little bit. If you look at 2026 as a whole, what we said is, in the South, volumes will be up slightly, harvest volumes and in the West are going to be comparable. So when you sort of chart that out over the course of the year, there's some upside from a volume standpoint. I'd say the other piece that's really of late been an issue is on the cost side. Obviously, as Davie mentioned, with some of the issues with the Middle East, that has put some incremental cost pressures are, and we're going to have to figure out a way to overcome those. I don't think that is structural going forward. But look, ultimately, if transportation costs are up, we're going to have to find a way to push that through on the price side, and we'll work that. There may be a lag. But ultimately, that's certainly something that we can work through. And I would say even beyond that, when you look out into the future, as we said at our Investor Day, we do think there's a significant amount of volume increase coming in the West. And so it's been a little bit more challenging on the Timberland side over the last couple of quarters, but we certainly see that improving over time. Anthony Pettinari: Okay. That's very helpful. And then just switching gears, with distribution understanding it's not the biggest part of your business. But with the greenfields, is the goal there really to enter new markets where you're not present or underpenetrated or to sell more of kind of high-value EWP and new products. I'm just wondering if you could talk about what you're trying to accomplish with the greenfields versus just leveraging existing distributor relationships? Devin Stockfish: Yes, you hit it. I mean the principal rationale there is we sell currently about 50% of our EWP through our distribution business and what we found in and really trying to dial this into key growth markets and really important building markets is that when we have our own distribution sales force on the ground in those markets, we're able to push more volume and gain market share for our EWP products. So that is the primary rationale. I would say over and above that, there's also opportunity. We obviously sell commodities through our through our distribution businesses as well. And so there's another channel that we can move that product. And the team has done a really nice job building out vendor partnerships with decking and siding, and so there's a sales profit opportunity there, too. But the primary rationale is really to drive EWP sales and growth in markets that we feel like we're currently under-penetrated. Operator: Our next question comes from Hong Zhang with JPMorgan. Hong Zhang: I guess my first question, with the runoff in lumber prices, are you seeing any changes in valuations volumes [indiscernible]? David Wold: Sorry, you cut out there a little bit on -- do you mind repeating that question? Hong Zhang: Yes. With the run-up in lumber prices, are you seeing any changes in valuation or just the amount of product coming to the market when it comes to Timberlands transactions? Devin Stockfish: No, not really. The timberland market really don't change a whole lot quarter-to-quarter, week to week. It's just really more long-term price appreciation. So you don't necessarily see timberland values moving with lumber prices not in the near term. Now obviously, if there was a longer-term structural change in lumber prices, that ultimately could flow through, but you don't typically see that in the near term. Hong Zhang: Got it. And I guess just sticking to the higher lumber prices. Are you seeing any operators that previously shut down mills start to restart the mill in response to pricing. Devin Stockfish: As a general matter, no, once the mill has shut down versus taking extended 2-, 3-week outages when a mill goes through the process of actually closing down and laying off their employees, it's pretty unusual for them to come back. And so we really haven't seen that. I will say around the margins, we've seen it a little bit, and this is really a southern statement. I do think, particularly as you were in the back half of 2025, we saw a lot of mills that were not operating full out. So maybe at a reduced posture, certainly not running over time. And so there was a little slack capacity in the system for mills in many instances across South. You probably have seen a little bit of pickup there as Southern lumber prices have picked up. But I wouldn't say it's significant, at least not from our vantage point. Operator: Our next question comes from Mike Roxland with Truist Securities. Michael Roxland: First one, just on the SLS guide. Based on your 2Q outlook for EBITDA, if I -- what age should be around $320 million, but you're guiding 2026 to $425 million, implying a significant step down into. So realizing that you had some one-off benefits from real estate in 1Q, but you also got to a pretty strong Q2, what gives you the confidence that you could have such a step down in the back half of the year? David Wold: Yes, Mike, thanks for the question. It's pretty typical for us to be fairly front-loaded in our Strategic Land Solutions business. I think if you look at it over the last several years, you'll see that pattern. That's some timing and mix. We -- so as I think about the second half of the year, we'll see a little bit of that mix play out over the second half, but nothing unusual there in terms of the trends that we're expecting as always if we continue to see strong real estate markets, we can look to adjust. But for now, I think that $425 million is a good guide on what we were thinking about for the year. Michael Roxland: Got it. Okay. And then Climate Solutions, you had sales of $100 million -- $111 million in 1Q, a big increase year-over-year, quarter-over-quarter. Davie, what drove that? David Wold: Yes. It's the conservation easement that we pointed out in the first quarter, large transaction, $94 million. So that's the biggest component of that. Michael Roxland: Got it. Perfect. And last question real quick. Just following up on an earlier question in terms of EWP. Margins in EWP are now at about to over 17% in 1Q. It seems like prices may have declined more than you expected. I think you were calling for last quarter, modestly down, price was down about 4% to 5% sequentially. So I'm just wondering I understand the backdrop in find me, but have your competitors been more aggressive trying to drum up business? Or has the competitive landscape changed such that there's increasing competition to drive sales, which has negatively impacted pricing more than you expected. Devin Stockfish: Well, I would say just as a general statement, our competitors are always aggressive in trying to get business. That's no different now than it's ever been. Obviously, when you have housing starts down a little bit relative to where they were a few years ago. There's less pie to go around, so people are battling it out. Where we compete, obviously, we have to be thoughtful about price, no question about that. But I think where we try to compete in the market is we have a service model that I think, is valuable to our customers. We have high-value products. We're continuing to innovate to make sure that we're trying to solve our customers' needs. So we're not necessarily battling it out for the lowest price opportunities. We're trying to serve long-term strategic customers with the value proposition. So the competitive dynamic is tough. It's always going to be tough, and you just have to find a way to win regardless of where you are in the cycle. Operator: Our last question will be from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Just a couple of quick questions. What is driving the strength in Douglas fir prices here recently? Devin Stockfish: Yes. I think we've just seen primarily an uptick in demand coming out of California. We've seen a little softening last year, I'd say, broadly speaking, the California market. That's picked up here recently, and that's a lot of where that Doug fir product goes. And so I think that's been a big driver. And it's -- generally speaking, there's only so much opportunity for supply. You hadn't seen that supply, maybe dial back as much as we've seen in some other geographies. And so there's just not as much incremental supply to meet that demand as it improves. Ketan Mamtora: Understood. Okay. And then just one last one. Are you seeing any signs of increased use of Southern Yellow Pine in new residential construction, I'm thinking about profits and those kind of things. Devin Stockfish: We are. I think there are a few things going on here. First and foremost, there's just a lot less SPF coming into the U.S. today. And that's a function of some long-term trends with beetle infestation, regulatory dynamics that have made it very challenging to make lumber or in Canada. That's also a function of the duty tariff dynamic that we have in place. So there's just overall less SPF coming into the U.S., which creates an opportunity for both Douglas fir, but also for Southern Yellow Pine. I think additionally, at least in the recent past, there was an opportunity because of the delta between SPF and Southern Yellow Pine prices to go out and really market value. But I would say, just broadly speaking, as you look at where supply is increasing, and where supply is decreasing, there's just going to be more Southern Yellow Pine. So that's a trend that is going to continue. I think you've seen probably a little bit more traction here recently, I would say, for Weyerhaeuser specifically, we've been active on that front. We've got some products or warp stable products. That's a really nice transition product for folks that have historically used SPF to move into Southern Yellow Pine. So I think you picked up some momentum there, and I would expect that trend to continue really as we move forward. Operator: There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments. Devin Stockfish: Okay. Well, thanks, everyone, for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to the TPG's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. You may begin. Gary Stein: Great. Thanks, operator, and welcome, everyone. Joining me today are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter; and our President; Todd Sisitsky are here with us for the Q&A portion of this call. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures. We believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the first quarter. We reported a GAAP net loss attributable to TPG Inc. of $123 million and after-tax distributable earnings of $282 million or $0.70 per share of Class A common stock. We declared a dividend of $0.59 per share of Class A common stock, which will be paid on May 26 and to holders of record as of May 11. I'll now turn the call over to Jon. Jon Winkelried: Good morning, everyone. Thank you for joining us. TPG entered 2026 with strong momentum following a record year of capital formation and deployment. Our first quarter results reflect the continued acceleration of our growth objectives across the platform. Our fee-related earnings grew 36% year-over-year and exceeded $1 billion on an LTM basis for the first time in TBG's history. Our after-tax distributable earnings per share grew 46% compared to the first quarter of last year, and total AUM grew 22% to $306 billion. Our capital formation deployment and realization activity, each delivered a step function increase year-over-year, growing 75%, 96% and 103%, respectively. . Our performance this quarter is particularly notable given the complex macro backdrop. The convergence of AI disruption, private credit stress and geopolitical conflict has created significant market uncertainty. However, our business is intentionally built to be resilient through cycles. Our long-duration capital base provides earnings stability and embedded growth, and we've delivered some of our best-performing vintages during periods of dislocation. We view the current environment as an opportunity, and we've never felt more confident in the positioning of our franchise and our ability to successfully execute on our growth drivers. Our clients are leaning in and looking for additional ways to partner with us and the momentum across our business continues to accelerate. Before I review the quarter, I want to provide additional context on 2 areas that are top of mind for our investors. First, the AI transformation and its implications to our investing business; and second, the state of private credit through the lens of our portfolio. I'll start with AI. AI has created significant disruption as well as opportunity across sectors, particularly in software. As we assess the impact of AI, we continue to see meaningful value in certain enterprise software models and the strong performance across our software portfolio reinforces this view. We've evaluated each of our software companies through a framework based on offensive opportunity and defensive risk, and of high conviction that the vast majority are well positioned to benefit from AI. Our software portfolio today is relatively young with an average hold period of approximately 3 years. We are investing significant capital and specialized resources to ensure that these companies take full advantage of the opportunities that AI unlocks. Overall, our software companies continued to deliver strong results and are increasingly leveraging agenetic solutions. This momentum was clearly reflected in the first quarter with aggregate bookings in our TPG Capital and TPG Growth software portfolio growing more than 20% year-over-year. Looking ahead, the impact of AI remains dynamic across industries and will continue to be an important input into our disciplined investment approach. TPG's relationships and differentiated access to leading AI companies gives us real-time visibility into how business models are evolving. These insights directly inform our investment decisions and value creation plans, and we remain highly confident in our ability to continue delivering strong performance for our investors. Turning to private credit. While the asset class has been under heightened scrutiny more recently, our credit portfolios are healthy, and we have strong conviction in the long-term growth outlook for our business. Private credit has become an integral part of the global financing ecosystem, as borrowers with increasingly complex capital needs seek speed, flexibility and execution certainty. Although some retail-oriented credit vehicles are experiencing elevated redemptions in the current environment, Institutional demand for enhanced yield continues to increase. As we look across our credit business, we're seeing accelerating growth driven by several dynamics. First, our strong performance. During the quarter, each of our credit strategies outperformed their respective benchmarks. Our returns remain at or above our targeted ranges, and we continue to maintain very low and stable loss ratios. Additionally, given our de minimis software exposure and credit, our portfolios are well insulated from broader industry concerns. Second, our differentiated credit strategies are resonating with clients who are increasingly looking to diversify their private credit exposure. Our direct lending business, Twin Brook, operates in the lower middle market, which is characterized by strong lender protections and more favorable competitive dynamics. Twin Brooks strategy is built around rigorous underwriting and cash flow lending with no ARR loans or PIK at origination. Its portfolio largely consists of senior secured first lien loans with financial covenants. In addition, as the revolver lender, Twin Brook benefits from an embedded early warning system to proactively identify and manage company-level stress. Third, while private wealth represents a relatively small portion of our capital base today, we continue to experience strong demand for our products in this channel. In the first quarter, TCAP our nontraded BDC reported gross inflows of $193 million and redemption requests of $31 million, representing just 1.3% of total shares outstanding, well below the industry average. TCAP ended the quarter with $4.7 billion of AUM, up 33% year-over-year. Additionally, given our attractive mix of credit strategies and strong performance our clients have expressed interest in a TPG multi-strategy credit interval fund, which we plan to launch next year. And finally, current market dynamics are creating a compelling deployment opportunity in private credit. Having successfully scaled our capital base through 2025, we're well positioned with $19 billion of credit dry powder to execute on a broad range of opportunities. Now I'll review our activity in the quarter. Coming off a record 2025, we raised more than $10 billion of capital in the first quarter, which increased 75% year-over-year. In credit, following last year's positive inflection point, our baseline capital formation has fundamentally re-rated higher, and we raised $4.4 billion in the quarter. Notably in February, we closed our long-term strategic partnership with Jackson Financial which is off to a strong start and tracking ahead of our plan. We received $2 billion of initial commitments into our asset-based finance business, which we've started to deploy. And last week, we closed the Jackson rated note feature in our middle-market direct lending business. Looking ahead, we're focused on continuing to expand our credit capabilities across the return spectrum to reserve our broader base of clients. In private equity, we raised $4.9 billion in the quarter, including $925 million towards a rolling first close for RISE for our Impact Fund. We also raised additional capital for TPG 10 and Healthcare Partners III, bringing total capital raised for these 2 funds to nearly $13 billion including commitments that are signed but not yet closed. In real estate, we recently began raising for our fifth trip opportunistic fund and second, Japan Value Fund and expect to launch our sixth Asia real estate fund in June. Additionally, in our net lease business, we established several new strategic partnerships, raising $1 billion for our fifth fund through April, and we expect to complete fundraising in the second quarter. Within the private wealth channel, in addition to TCAP, we continue to see strong inflows into TPOP, our perpetual private equity product. Across the TPOP strategy, monthly subscriptions increased throughout the first quarter, driving $545 million of inflows and bringing total AUM to $2.1 billion at the end of March, just 10 months after our initial launch. Overall, we remain on track to raise more than $50 billion this year, supported by the strength and stability of our institutional client relationships drives a wider dispersion of performance across the industry we believe we're well positioned to continue taking market share given the differentiated returns we've delivered for our clients. Moving to deployment. We continued our robust pace with more than $14 billion invested in the quarter which nearly doubled year-over-year. In credit, we deployed $5.7 billion of capital, up 42% year-over-year. This includes $2.5 billion in our asset-based finance business, where we continue to expand our market-leading position and home equity-related mortgage finance. We also completed several transactions in equipment finance receivables as well as a new or upsized flow arrangements in both consumer and home improvement lending. In middle market direct lending, despite the macro headwinds, Twin Brook generated $1.8 billion of gross originations in the quarter. Twin Brook's existing portfolio continues to be a powerful source of embedded origination with add-on acquisitions representing approximately 50% of deal flow in the quarter. We also added a dozen new borrowers, bringing our portfolio to more than 310 companies. In Credit Solutions, we're seeing a growing demand for flexible, customized capital solutions as borrowers are increasingly seeking execution certainty amid heightened volatility. Stresses in certain parts of the credit market are creating attractive opportunities to lend to high-quality companies facing balance sheet pressure. During the quarter, our credit solutions team led a $450 million financing for a new joint venture with Xerox to manage and unlock value from certain IP assets. This deal demonstrates TPG's ability to provide creative, liquidity-enhancing solutions to address long-term capital structure needs. Across our private equity strategies, we deployed nearly $7 billion of capital in the first quarter, which represents 2.5x the capital invested in the prior year period. As we've highlighted previously, our approach to investing and portfolio construction continues to be a differentiator for TPG by leveraging our proprietary sourcing engine, deep operational capabilities and extensive experience built a distinctive private equity portfolio. In our 2 most recent TPG Capital Funds, 9 and 10, approximately 2/3 of our investments have been corporate partnerships or carve-outs with meaningful downside protections, including several with put rights. These features provide increased transparency into exit timing, counterparty certainty, and, in some cases, minimum return thresholds, which are particularly compelling in the current environment. Complex corporate carve-outs are a core strength of our platform and have generated strong historical returns for us. Our corporate partners often retain an ongoing equity ownership stake, creating strong alignment and shared incentives around long-term value creation. In March alone, we closed 4 carve-out transactions in TBG Capital. Across our GB secondaries business, our investment pipelines are accelerating as sponsors increasingly use solutions-oriented capital to drive liquidity. We expect industry deal volumes this year to exceed 2025, which was a record year for single-asset CVs. During the quarter, our GP Solutions and Life Sciences funds partnered to close a $3.8 billion continuation vehicle for Curium Pharma, which is a global leader in nuclear medicine and diagnostics. Curium exemplifies the power of TPG's platform as 1 of the few scaled investors in GP-led secondaries with deep health care and life sciences expertise. The deal was sourced and completed through the close collaboration of our investment professionals across 4 platforms and 3 geographies. We believe this is the largest single asset CV ever completed in Europe. Within our Impact platform, the opportunity set continues to expand globally, driven by powerful and evolving market dynamics, rising residential and industrial electricity demand, together with rapid scaling of AI and data centers, is placing unprecedented strain on power systems around the world. At the same time, the ongoing disruption across global energy supply chains, driven by geopolitical conflict is accelerating the push for greater energy independence and security. Against this backdrop, we see a substantial and growing need to modernize and expand critical energy infrastructure and services, and TPG is playing a leading role in meeting these significant long-term capital requirements. In the first quarter, Rise Climate announced the acquisition of Sabre Industries, a leading infrastructure for power utilities, data centers and telecom. Sabre's mission-critical solutions are needed to support the modernization and reliability of Americas electrical grid and to meet the increasing demands of large-scale data center development. Turning to real estate. We had an active deployment quarter across our strategies with $1.8 billion invested. TPG Real Estate closed 6 investments in the quarter, including a high-quality senior housing portfolio as well as a scaled grocery-anchored retail platform. Both are in needs-based sectors benefiting from recession resiliency, and limited supply growth. Additionally, in Asia, we continue to capitalize on differentiated supply-demand dynamics and demographic shifts. We recently acquired a number of office assets in Japan where office fundamentals remain strong with low vacancy rates. We also initiated a multifamily development project in Seoul, and South Korea's rental housing market is undergoing a structural transformation driven by smaller households and rising homeownership prices. Finally, we're off to a strong start for monetizations in 2026 with nearly $9 billion realized in the first quarter, which doubled year-over-year. This included the sales of One Oncology to Syncora and TPG Capital and Intersect's digital power business to Google and Rise climate. These 2 strategic exits were both achieved less than 4 years after our initial investment, generating highly attractive returns and demonstrating the power of TPG's corporate relationships and innovative deal structuring. Before I hand it over to Jack, I want to highlight our continued momentum in launching and scaling new businesses. Organic innovation remains a core tenet of our growth as we strategically expanded into areas where we believe we have a right to win. Over the past 3 years, we've raised approximately $13 billion of capital across our new and emerging strategies, and we expect to meaningfully scale that over time. To share a few highlights. First, in TPG Sports, we raised $1.1 billion for our inaugural fund through the end of April and recently announced our first investment to acquire Learfield, a leading media and technology company powering college athletics. Second, Advantage Direct Lending, our new core middle market direct lending strategy has deployed nearly $600 million of capital across 16 investments through April, and we continue to receive strong investor interest. And lastly, Tika, our growth, our Asia growth equity strategy has built a compelling portfolio across health care and technology, capitalizing on the opportunity set across Australia and Southeast Asia. We expect to complete our inaugural fundraise over the summer. The success of these strategies and other new initiatives is a testament to our long-standing partnership approach and identifying and building next-generation investment opportunities with our largest institutional clients. I'll now turn the call over to Jack walk through our financials. Jack Weingart: Thank you, Jon, and thank you all for joining us today. TPG had a very strong start to the year, driving significant year-over-year growth despite a volatile macro backdrop. I'll begin by reviewing our financial results in the quarter and then provide an updated outlook for the remainder of 2026. We ended the quarter with $306 billion of total assets under management, which grew 22% year-over-year. This was driven by $56 billion of capital raised and $22 billion of value creation, partially offset by $28 billion of realizations over the last 12 months. Our fee-earning AUM grew 23% to $175 billion at the end of March. AUM subject to fee earning growth totaled $45 billion at the end of the quarter. including $33 billion of AUM not yet earning fees, with the largest component coming from our credit platform. Following a very successful credit fundraising period, we're well positioned to deploy capital into an expanding set of compelling opportunities in the current environment. Our credit platform generally earns fees on deployment, and we have visibility into approximately $140 million of annual revenue opportunity as this capital is put to work. We reported fee-related revenue of $557 million in the first quarter, up 17% year-over-year. This was driven by management fee growth of 15% and transaction and monitoring fee growth of 33%. Excluding catch-up fees, management fees grew 3% sequentially and 18% year-over-year. On the capital markets side, our revenue opportunity has continued to grow due to our robust deployment pace as well as the broadening of our capabilities across all platforms and geographies. In the first quarter, we generated fees from 25 different transactions across 9 strategies, demonstrating our continued success in diversifying this revenue stream. We believe our capital markets business will continue to be a significant contributor to our FRR growth over time. Fee-related earnings for the quarter were $247 million, which grew 36% year-over-year. As John mentioned, on an LTM basis, our FRE crossed $1 billion for the first time in our firm's history. This is a significant milestone for TPG and represents a 31% annualized growth rate since our IPO. Our FRE margin was 44.3% in the quarter, which is a 620 basis point expansion from the first quarter of '25. As expected, cash comp and benefits were seasonally elevated in the first quarter due to a $15 million employer tax expense associated with the annual vesting of RSUs. We continue to realize the benefits of greater operating leverage across our firm and remain confident in our ability to achieve a full year 2026 FRE margin of 47%. We generated $68 million in realized performance allocations in the quarter exceeding the $50 million we had previously guided to. This was anchored by the strategic sales of One Oncology and Intersect Power. Looking ahead, while the current market volatility may impact the timing of realizations across the industry, we maintain an active pipeline of liquidity prospects across each of our strategies and expect to continue generating strong DPI for our fund investors. Moving to our balance sheet. We used our revolver to fund $500 million investment in Jackson common stock in connection with the closing of our strategic partnership in February. We subsequently issued $500 million of senior notes and used the proceeds to pay down our revolver. Consequently, our interest expense increased to $26 million in the quarter and as of March 31, we had $2.3 billion of net debt and $1.7 billion of available liquidity to fund additional growth initiatives. The seasonal RSU vesting I discussed earlier also generated tax deductions, resulting in an effective corporate income tax rate of 8.3% in the first quarter. We expect our tax rate to remain in the high single digits to low double digits until we utilize our remaining deductions. Altogether, we reported first quarter after-tax distributable earnings of $282 million or $0.70 per share of Class A common stock. Moving on to value creation in our investment portfolios. In private equity, fundamentals across our portfolios continue to be strong. While valuations for certain companies experienced multiple compression, reflecting broader public market valuation and resets, underlying financial performance remains healthy. Our portfolio companies across our capital growth and impact platforms generated LTM revenue and EBITDA growth in the mid- to high teens, continuing to outperform the broader market. During the quarter, the value of our PE portfolio declined 1%, reflecting generally lower average valuation multiples, partially offset by strong earnings growth. Turning to credit. The performance of our portfolios across strategies continues to be strong, resulting in attractive returns relative to public benchmarks. Our credit platform appreciated 2% in the first quarter and 11% over the last 12 months. Digging a bit deeper, in middle market direct lending we continue to see the benefits of our disciplined underwriting and our focus on the senior most part of the capital structure. Our portfolio has maintained a conservative average loan-to-value of 42% at closing and our borrowers continue to generate healthy organic EBITDA growth. As a result, nonaccruals remain extremely low at just over 1%, and our average interest coverage ratio has held steady at over 2x. Credit Solutions, we continue to deliver significant alpha by providing highly negotiated bespoke financings, focused on senior secured cash pay instruments, often attached to specific assets and collateral. In the first quarter, our second and third flagship funds generated time-weighted net returns of 2.4% and 6%, respectively. Both funds meaningfully outperformed the U.S. high-yield bond index, which was negative for the same period. Our strong performance was driven by broad-based appreciation across our portfolios and the successful monetizations of several positions, including XAI, DISH DBS and Optimum communications. Lastly, in asset-based finance, our portfolios are anchored by strong structural protections and collateral support across our high conviction investment themes. Our first ABC funds net IRR since inception remains in the top half of its target range at 11.6% at the end of the first quarter. Our mortgage Value Partners Fund generated net returns of 1.3% in the quarter, bringing LTM returns to 8.2%, outpacing many broader credit indices with significantly less volatility. Our real estate platform appreciated approximately 2% in the first quarter and more than 8% over the last 12 months. These returns were driven by the continued strength of our data center, industrial and senior living portfolios in the U.S. and hospitality and office investments in Asia. Turning to our fundraising outlook. We continue to expect capital raising to exceed $50 billion this year. Following the $10 billion we raised in the first quarter, we expect our remaining fundraising to be weighted toward the back half of the year, driven by the following: in private equity, first, the completion of our TPG Capital 10 and Healthcare Partners 3 campaigns by the end of the year; second, final closes for our [indiscernible] climate private equity funds, TRC 2 and the Global South initiative. As of the end of April, we've raised $9 billion across the 2 funds and related vehicles, including capital that's been committed but we'll close on a later date. We expect to complete our campaign in the third quarter. Third, continued progress across our climate infrastructure, GP solutions, tech adjacencies, Rise, Sports and Asia growth equity funds. And fourth, initial closes for our next-generation funds for Peppertree and TPG. In credit, I would highlight the following: further commitments from our long-term strategic partnership with Jackson to our middle market direct lending platform. final closes for our sixth Twin Brook direct lending and second asset-based credit drawdown funds, an initial close for our fourth essential housing fund, additional closes for hybrid solutions, continuous fundraising across our evergreen vehicles, including Advantage Direct Lending and the formation of additional CLOs and various SMAs. In our real estate platform, we continue to expect 2026 to mark the beginning of a multiyear major fundraising cycle. This includes the next vintages across our TPG real estate partners, Asia real estate, Japan real estate value and TPG AG U.S. real estate strategies. Finally, I'd like to share some thoughts on Private Wealth and our progress and priorities in the channel. Retail investors remain under allocated to the private markets with less than 5% penetration today and significant runway for future growth over many years. We view the near-term industry headwinds in credit retail vehicles as cyclical rather than structural and continue to see strong demand across the industry in private equity, infrastructure and secondaries, with early signs of renewed interest in real estate as well. At TPG, we believe we are well positioned to grow in the private wealth channel. I spend a meaningful amount of my personal time on our wealth efforts, and the feedback I've received from distribution partners and financial advisers has been overwhelmingly positive. Our differentiated investment style and strong performance are truly resonating and demand continues to grow for TPG's products. As a result, our private wealth inflows in the first quarter grew more than 130% year-over-year. Looking ahead, we see a clear path to accelerating inflows and as we continue to grow with our existing partners and expand our distribution network globally. Earlier this week, in fact, we formally launched TPOP with an important new international distribution partner, which will begin contributing capital in June. And we have several additional distribution partners in the pipeline for TPOP in the coming quarters as we continue to strategically build out our global distribution footprint. In addition to expanding distribution for existing evergreen products, we're actively working on launching new products, including a nontraded REIT as well as a multi-strategy credit interval fund. Similar to TPOP, these funds will provide investors with exposure to the full breadth of our investing strategies across each asset class. Overall, we expect our private wealth franchise to be a significant contributor to TPG's long-term growth. The strong financial and operating results we reported today, including crossing the $1 billion LTM FRA threshold this quarter, are a direct result of our multiyear focus on scaling our investment platforms and driving meaningful operating leverage across our firm. As we head into the balance of 2026, we have clear line of sight into continued growth and margin expansion, and creating meaningful long-term value for our investors. With that, I'll turn the call back to the operator to take your questions. Operator: [Operator Instructions] We will take our first question from Glenn Schorr with Evercore. Glenn Schorr: With so much good stuff going on, forgive me, I'm going to pick up the 1 issue that it can possibly find. So I'm curious if you could help us think through the marks in PE in the quarter. It seemed to be very focused on the 2020 and prior vintage, which is a good chunk of the net accrued. So the question is just how broad are those a few specific names, how broader it is Obviously, we want to know if there's how much software related. And then how you feel about now with the markets up and these these fresh remarks, how you feel that the exit environment is for that piece of the portfolio. Very much appreciate it. Jack Weingart: Glenn, thanks for the question. I would characterize this, as I mentioned in my comments on the call, the overall private equity valuation change during the quarter was really driven by us choosing to take down our valuation multiples consistent with what we saw in the public markets. Like we always do in our valuation process, we take into account multiple factors. We rerun DCF analysis. We do look at public market comps, private market comps, transactions in the company's equity. And overall, I would characterize it as a broad-based decision to reflect market changes during the quarter, which as of March 31, we don't refresh that during the month of April because we value as of the end of the month. Obviously, things have bounced back a bit during the month of April. But we did take multiples down broadly and it was offset by very strong earnings growth. And to give you a little more color behind that, in the TPG Capital portfolio, the overall impact of earnings growth was an increase -- would have been an increase in values by $1.2 billion. The impact of multiple reductions was negative $2.4 billion. So it really was strong earnings growth, offset by broad-based changes in our valuation multiples. In our growth platform, it would have been an increase of $600 million from earnings growth, offset by $1.1 billion of value decline from bringing valuation multiples down. So that's kind of the overall characterization of what drove the changes Obviously, if market conditions continue to improve, will reflect those increasing valuation multiples on [indiscernible]. Todd Sisitsky: Yes. I mean each one of these valuations is also company by company. And Glenn, the thing I just want to make sure I added here, I'm really excited about this portfolio. We move through different cycles. Good markets, bad markets, this is a portfolio across private equity, I think we'd be excited about in any environment. And it's continued to perform very well. It's been very steady quarter-over-quarter. Some of those leading indicators, the software bookings, as Jon mentioned, actually are stronger still. The other thing I just would point out, we had 2 strategic exits in the context of the quarter, which were important, 1 on to Google and on to Syncora. And both of those exits happened at premiums to our marks, so I think our track record of trying to be down the middle, but also great opportunities for upside around strategic exits is pretty consistent. . Operator: Our next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: I was hoping to dig a little bit more into the credit business and how it's positioned for current environment. We've seen accelerating fundraising from you guys there for the last couple of quarters. And to your point, the dry powder remains quite elevated. As you look out into the opportunities that are likely to present themselves in the next 12 months, which part of the credit verticals do you expect to be most active? And are there any implications on the fee rates, we should consider as well because I think those do differ quite a lot by different verticals like I think credit solutions lower. So kind of deployment outlook and the blend of that on the fee rates. Thanks. Jon Winkelried: I think as you can tell from the quarter and our results, deployment opportunities have been healthy. And I think we continue to see that the case as we continue through the year. I would say that just to start with where you ended, looking at our Credit Solutions business, based on what we see going on in the markets overall, the increased volatility, there are areas where there is balance sheet stress in the market. There's much more dispersion in terms of how certain names in the credit markets are being valued. And with the interconnectivity, besides, obviously, the quality of our of our capabilities and our team and credit solutions with the interconnectivity that we have also across the firm, the connectivity with our private equity franchise, what we're seeing is opportunities being sourced on both the credit side of the house and on the equity side of the house that are providing really interesting financing opportunities for us in credit solutions. And I would say the pipeline of opportunities there has never been stronger. And we're trying to do exactly what you would expect you would do, which is to sift through what the opportunity set looks like to find things that are going to be the most interesting to us and that we choose to execute on. You're right that, obviously, that tends to be with it being sort of a value-add part of the market, that obviously tends to be a higher fee construct pool of capital. But I think that overall, I think we're going to continue to see a lot of interesting opportunities there. And I would say that the we feel like we're in a category of very few firms in terms of our capability set there, both looking at historical capability and returns -- and the -- in this environment, as our LPs are looking around for opportunities to deploy capital, where should they be shifting. I mean, I think that -- between the fourth quarter of last year, and the first quarter of this year. The conversations we're having with LPs, I would say, are distinct in the sense that people are really trying to find the areas where premium returns will be available in the market as a result of what's going on. So I would say that the kind of questions that were getting from our LPs is creating an increased focus on people wanting to partner with us to deploy capital in those kinds of opportunities. And then the second area I would say is in our asset-based finance business and in structured credit broadly, I would say if there's an area where I see the opportunity for us, both as a result of both our insurance relationships as well as large institutions looking to diversify exposures, looking to diversify exposures away from EBITDA risk. We continue to see that as a very substantial growth area for us across a number of different verticals in that space, whether -- whether it's whole business securitization, whether it's residential -- the residential mortgage market, nonqualified mortgage market, things like that. So I would say that those are the 2 areas where I would point you to. Operator: Our next question will come from Craig Siegenthaler with Bank of America Securities. . Craig Siegenthaler: I wanted to follow up on a comment you made earlier in the call relating to your software ebook. Jon, you talked about investing significant capital and specialized resources to ensure that these companies take full advantage of the opportunities that AI unlocks. Should we assume that this could include fall investments, and does that mean that Fund X could invest in a Fund VIII portfolio company? And then separate from your existing portfolio companies, what is your appetite to lean into cheaper public software valuation today and take privates over the near term. Jon Winkelried: Okay. I'm going to let Todd take . Todd Sisitsky: First, just on the more specific question. the way that we really -- unless it starts at the outset when we have an investment at the end of a fund life, we do not start to cross and come in from new funds. What we do at the end of a fund cycle is that we maintain reserves in order to be able to support companies for, hopefully, offensive and also for defensive reasons. And so we feel comfortable with the reserves we have and the funds that we have in the ground. I think your broader question is, do you see opportunities? And the answer is yes. We're very selective. There are a series of characteristics of things that we look for in software companies. And from our perspective, we have seen some really interesting opportunities. So if you look at what we've done recently, just to give 2 quick examples and maybe give some color to that. both of what I'm going to describe are sort of following that carve-out and corporate partnership dynamic that has been such a rich area for us as a private equity franchise. The first is [indiscernible] , which is essentially the merger of 2 carve-outs at very attractive multiples for market leaders in the industrial software space, something we've studied for years. It's a software space that's very closely integrated with operational systems and real-world workflows, which makes it quite defensive. And we see a lot of opportunity from an AI application standpoint. These have been companies that really haven't got that degree of focus. And an investment that we have in the table, partner with an ePlus management team. So those were 2 of the carve-outs actually that were completed in March. Another one we just finished carving out, we've owned for about a month [indiscernible] U.K., it's a health care IT business, again, playing to both our strength in software and health care. It's a data asset with a firm perimeter, so clear data mode. It's deeply embedded across the U.K. health care system. Again, that we've owned it for about a month. We've already launched our first AI-based product. Both of these businesses are very defensive. We feel comfortable and excited about the entry multiple and we have great teams to drive them. So we feel like there's a lot of opportunity out there. James Coulter: Jim Coulter, Craig, I just note also that having watched disruption cycles over time, What's interesting to me about this 1 is that the early discussion has been all on defense, which is probably appropriate. But I suspect about 9 months from now, there's going to be a shift in tone to the second question you asked, which is where can firms like ours play offense on AI. I personally believe this will be the most positive weapon that we've seen in a long time in private equity because we are and particularly at TPG, we are change agents, and this is going to be a great opportunity for change. So I suspect we'll be talking about defense for the next 3 to 6 months. By the end of this year, I think we'll probably be talking about offense and which firms can play that in this environment. . Operator: Our next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Maybe just to shift the conversation a little bit back to the impact franchise. I appreciate your comments, Jon, on the need for higher -- with the higher electricity demand, given AI data center build-out, maybe if you guys could comment on how you see this playing out over the next 1 to 2 years, both on the data build-out and also the supply chains that you mentioned that distressed from geopolitical issues and the stress on fossil fuels, and whether you see this as being a reacceleration of the energy transition team? And then how can you position TPG to benefit from that, specifically on deployment? And then also more fundraising within the climate franchise broadly? James Coulter: Thank you for that question. It's Jim Coulter. We haven't touched on this for a few calls, so it's probably a good time to check in because it's been both a fascinating and quite positive period in particularly the climate portion of our Impact platform. As Jon mentioned, fundraising has picked up after what was a natural pause in the middle of last year. and we're over $11 billion now fund cycle versus a fund cycle last time at [indiscernible], and we're heading towards our final closes. But what's more interesting is what's happening on the ground because while the discussion of decarbonization has gone down, maybe crowded out by other concerns, climate has gotten worse and the actual activity has gone up spending was up quite substantially globally. And even in the U.S. last year, as we talk about electricity, over 90% of the electricity addition was renewables, and it should continue in that direction for the next few years. And it's not just about decarbonization, it's obviously about electrification. As you think about energy, Fossil fuels are advantaged for heat renewables are advantaged for electricity. And finally, energy security, the straighter moves may be bad for many things, but it's good for our business here, which is people are concerned about their on the climate side because people are concerned about their energy supply chain and renewables is 1 way to address that around the world. So if you take that into our business, if you look at our last year, in spite of the lower discussion of this part of our business, it was our biggest deployment year and our biggest realization year. And if you look underneath that, you find quite interesting activities of $6 billion data center initiative with Tata, India, $5 billion sale of our digital power business to Google. At the same time, we're launching the largest battery project in the world in California grid services at Pike. So a real pickup, I think, overall in what's happening in the business and a pickup that I think should accelerate in future years. So we have a product that's on the right side of this trend. And frankly, on the right side of carbon, which long term, I think, is a good place to be. And I think that will bode well. Our clients have figured that out also. The private market has figured that out. And it's interesting, the public market has figured that out, lot of discussion in the MAG 7, but the Clean Energy Index absolutely trounce the MAG 7 last year. So this kind of activity level, I think, bodes well for the future with the understanding that these markets are always fascinating complex. Operator: Our next question comes from Ken Worthington with JPMorgan. Kenneth Worthington: So it was a good deployment quarter, transaction fees and capital market fees were strong this quarter. You've got some pretty big deals in pipeline. I think Hologic just closed, Curium, VM, Kinetic. How should we think about some of these bigger deals translating into capital markets and transaction fees as the time comes. James Coulter: Look, as you know, the translation of deal flow into capital markets fees will be deals deal dependent. On larger deals, we're more likely to use the syndicated loan markets, which don't translate quite directly as through to us placing the entire debt capital structure. On logic, we did play an important role, but it was a more broadly syndicated debt capital structure. We do, as I mentioned on the call, we continue to believe that capital markets is a real business that we continue to build. We've built it across the entire firm. We're just starting to see the benefit of that in areas like the credit business. So there's like kind of a long-term growth trajectory to that business, predicting in 1 quarter is hard. We don't have visibility into a quarter like Q4, where we had a massive quarter based on a handful of very concentrated large deals, but we do have visibility and continued long-term growth of that business. Kenneth Worthington: Okay. So nothing to call out for 2Q? James Coulter: No. Operator: Our next question comes from Brian McKenna with Citizens. Brian Mckenna: Okay. Great. So what in you hear from your larger LPs as it relates to the lower middle market direct lending strategy. Performance at Twin broke remains quite healthy and differentiated cap return 2.5% net in the first quarter, 10.5% net last year. So I'm wondering if there's a -- this differentiation is starting to accelerate institutional flows into the strategy. Jon Winkelried: Good question. The answer is yes. I think that -- and I think the performance combined with the fact that we -- 1 of the interesting aspects of the market over the last several years has that just been very little dispersion within the lending space, whether or not you're looking at upper middle market or lower middle market. And it's been sort of very consistent, steady and spreads generally quite compressed in the market. we're starting to see that change. Portfolios are not all acting the same. And as a result of that, we're seeing differences in terms of how we're performing relative to perhaps other pools of capital. And so as a result of that, it goes back to -- I think I mentioned it just briefly before. The conversations that we're having with our institutional clients are all focused on how to think about diversification across the space. And I would say that this -- the dislocation to the extent there's been some dislocation and nervousness about certain parts of the market, I think that has woken up a number of institutional LPs to look at their allocations and think about diversification and what parts of the market haven't they paid as much attention to. And naturally lower middle market is now getting more attention as a result of that. The structure of the business, as I mentioned in my comments, is quite different. In the upper middle market, you're competing essentially -- upper middle market direct lending is competing directly with banks and broadly syndicated loans. Our business does not compete with banks. In our business, we also are usually the only lender or certainly the lead lender. And as I mentioned in my comments, -- we're also controlling the revolving -- the revolver within the context of the relationship. And so that gives you certain advantages in terms of understanding what's going on inside these companies on a real-time basis. So our clients are really figuring this out. And we're seeing quite a bit of interest in the space. and I think it's going to continue to grow. The other thing, I guess, I would say, which is important in terms of the dynamics of the flow is that again, a substantial portion, almost half of our flow is internally generated by the existing portfolio in terms of add-ons. So that's Also, when you think about a risk-controlled way of allocating capital, you know your portfolio, obviously intimately well and have relationships with the sponsor. So as a result of that internally generated flow, the risk dynamics of how we're allocating capital also are slightly different. So I think it's an area where we've got clearly increased interest. You also are seeing the -- on the BDC side, you're also seeing differentiation there now. just by virtue of the flows that I talked about as it relates to TCAP, you're also seeing differentiation in the market there as well. So we're very encouraged by what's happening. Operator: Our next question comes from Mike Brown with UBS. Michael Brown: I believe you guys have exposure to some of the large AI LLM companies in your private equity portfolio, some of which could be candidates for the public markets over time here. Can you maybe just outline where those positions sit from a fund perspective? Is it the growth or maybe tech efficiency fund? And how those are currently marked and maybe how you would think about that realization strategy and pacing if and when some of those companies ultimately go public. Todd Sisitsky: Yes, absolutely. Thanks for the question. we have, as you said, a portfolio of AI focused companies. And they are primarily in our tech adjacency fund in TPOP, they include Anthropic and OpenAI and SpaceX. We have a few other investments that we've been doing a lot of work on that would end up in capital and hybrid. So it actually it's a pretty broad exposure across our private equity platform. And our view is that's been great, not only for the investments, which continue to move in the right direction for us, but also for the connectivity to all of the open AI players, which has been very helpful for us, both in creating opportunities and engaging with our own portfolio companies and building our own expertise. So I think that will continue to be a vibrant part of what we're doing, and certainly helps that we're -- have our team on the private equity side based in San Francisco. . And then on the exit front, I think it's hard to tell. Of course, we're not in control of a number of those companies. So you're reading the headlines won't be that much different -- that different from what we know. I do think that we should expect somewhere between 1 and 3 of the large companies to go public over the course of the next year to 18 months and probably 1 or 2 of those in a shorter time frame. Operator: Our next question will come from Ben Budish with Barclays. Benjamin Budish: I wanted to ask about some of your upcoming fundraising and thoughts on what the sort of distribution environment means. Over the last few years, there's sort of been a increasing trends towards flagship fundraising is taking longer, a smaller first close, bigger final close. Curious near term, it sounds like you've got a pretty good line of sight. But how are you thinking about the potential cadence of the real estate funds, which you indicated are about to come back in size and be raising over the next couple of years, how does LTE appetite look like for that asset class? And what sort of macro factors should we be looking at that will inform whether or not we get back to a more normal fundraising cadence or what we've seen lately the sort of elongated cadence? Jon Winkelried: Well, let me just comment on the real estate part of it, maybe then Jack could give a little color on sort of the kind of pattern of fundraising. But on the real estate front, we've talked now for probably the better part of the last 1.5 years about both the kind of the renewed interest that we're seeing from institutional LPs in the asset class. We've been in a fortunate position in that we've had quite a bit of dry powder in the space. And as a result of that, have been pretty active in terms of taking advantage of opportunities that have been created as a result of the interest rate cycle that we went through and some of the other dislocation factors, whether it was COVID, the dislocation in office, and then obviously, the spike in interest rates. That created a dynamic where there were a lot of assets that were frozen. There were a lot of managers, I think, in the space that basically were kind of handcuffed in terms of their ability to be proactive we have fortunately not been in that position. So as a result of that, the last -- I'd say the last year plus, we've seen some of the best opportunities that we've seen in a very long time. And we see a sort of a structural shift in the market in terms of the competitive dynamic as well as who has capital to solve problems in the space. I mentioned in my comments, a couple of really interesting deployment opportunities that we've had versus things like grocery-anchored retail, where we've made a big investment opportunities that we see in Asia. Japan, as an example, with office and hospitality, we're seeing global opportunities across the space. And as we've begun to roll out our fundraising progress in our opportunistic fund and our Asia fund, our net lease fund I think we see a significant increase in interest across both the high-return opportunistic space as well as what you would think of as kind of income-oriented opportunities in real estate. Jack mentioned briefly in his comments, some the beginnings of what we see as retail demand in the space as well. not surprising that some form of real assets that generate income would be interesting in this environment. So I think we're quite bullish knock wood, that these fundraisers are going to be strong -- we're going to get very strong reception in the market. Jack Weingart: Yes. I was -- alongside real estate, I would think about Pepper Tree the infrastructure business focused on cell towers, where a lot of the same dynamics exist and what we've launched the next-generation fund from [indiscernible] we're seeing equally strong demand there. When I talked in my comments about the back loading of the remainder of our fundraising for the year, I'd say there are really 2 things behind that. One is that most of these -- most or all of the real estate and Pepper Tree fundraising that we're talking about is really going to have closings for the first time in the back half of the year. So that's going to be a natural kind of picker to fundraising in the back half of the year. The other dynamic is the barbell effect in private equity. We continue to see very strong demand. I think you asked about realizations. We continue to be differentiated with LPs in our consistent production of DPI. That's not a limiter for us in demand for investing with us in private equity. We did have an unusually successful start to the TPG Capital campaign with TPG 10 and Healthcare Partners raising over $12 billion last year. The remainder of that fundraising, we have good visibility on, but it's going to have the natural typical barbell effect where the remainder of the capital chose not to come in the first close because they want to come in towards the later end of the close, which will be the back half of this year. Operator: Next question will come from Steven Chubak with Wolfe Research. Steven Chubak: So I wanted to ask on AI risk across the broader portfolio. You spoke of the comprehensive review of the software book, noted the vast majority of the portfolio companies and software arguably beneficiaries of AI. Just wanted to see if you've done a similar review assessing AI risk across the broader private equity portfolio beyond software. And just given the negative PE marks that you noted were largely attributable to changes in multiple versus any signs of deteriorating fundamentals. Whether that change was a function of multiple contraction in the public markets or just internal expectations for EBITDA growth to potentially moderate across the broader portfolio? Todd Sisitsky: Yes. Just to start on the last part of your question, it was distinctively just the public marks coming down and us see like you need to flow those through. As Jack pointed out, that was the end of the quarter was a particularly low point at least recent low point in the market. But it was -- there's no change in our view with the prospects of these businesses. And in fact, again, there are some indicators that feel like they ticked up. To your broader question, we have done a systematic review of the risks in and outside of software. Software does feel like the area that's most exposed to AI. When we look across our private equity portfolio, the TPG Capital business is the 1 with the most software exposure. As we've told you before, we sold everything in TPG 7 a 2015 vintage fund. So there's -- all the software businesses are out of that fund. TPG 9 and 10 is a very -- those are 2 recent portfolios 10s really just being built. We feel very good about those portfolios. The businesses are really well positioned relative to AI. That was a core part of our deal underwriting in all of those cases. So leases with TBG 8. As a reminder, we've now returned half of that fund in cash. And the remaining value of $13.7 billion, I think our work showed us that we had that we would characterize in the mitigate category where we do perceive some material risk from AI. So we're, of course, supporting the companies in the mitigate category. We see a lot of upside in the broader portfolio in that fund. In fact, over 60% of that fund is in what we characterize as outperforming strong momentum. And within that group, we see a number of companies that we do believe have breakout potential of the upside. So in any event, that's how we've done our work as it relates to AI exposure. Operator: Next question comes from Arnaud Giblat with BNP Parabas. Arnaud Giblat: Thank you. Good morning. A question on FRE margin guidance. Given the strong fundraising pipeline you have, deployments and the likely impact on positive development on transaction fees and content core year-on-year this quarter. I'm just wondering how I square this up with your 47% guidance for FRE margins. Is there something to be aware of in terms of cadence of cost growth? I'm just trying to reconcile the potential upside I see here. Jack Weingart: Look, we've been consistent in talking about the fact that we are going to drive FRE margin expansion over time. We are going to keep investing in our business, too. We're going to keep -- we see lots of areas that we've talked about on the call that we're investing behind growth. The other thing I'd point out is assuming we hit our 47% margin target this year, it was 45% last year it was 40 on a blended basis when we closed the Angelo Gordon acquisition and the 45% margin last year add that unusually strong fourth quarter with the transaction and monitoring fees driving FRE margin up to 52%. So 47% margin this year, I think, would be very healthy and would reflect continued operating leverage. Operator: Our next question comes from Bart Dziarski with RBC Capital Markets. Bart Dziarski: Just wanted to ask around the fundraising outlook. So you maintained your sort of $50 million-plus guide gave lots of color on the back half ramp and the products that will drive that. But I wanted to ask more from the client perspective, like -- are there any geographic regions that are driving that? Is it re-ups, share of wallet expansion, new LPs. Would love additional color on that front with regards to fundraising. Jack Weingart: Yes, I'll start. It's Jack. I wouldn't call anything notable in terms of changes in mix. We've got, as you know, a very broad and deep set of institutional clients. and the same geographic mix we've experienced in prior funds. We see about the same in the current set of funds. I mentioned private wealth, private wealth will be a part of that will be a bigger part of it this year than it was last year. but it won't be a main driver. This will still be driven primarily by our large institutional relationships around the world and by our effective success at cross-selling and doing more across businesses with our biggest relationships. Jon Winkelried: The only thing I would add is that we have talked over the course of the last year plus about the growing number of strategic partnerships that we have, large strategic partnerships with institutional clients that have been partners of ours for a long time. And we've talked also about the fact that we continue to see the largest pools of capital in the world wanting to do more with fewer and selecting us as a core institutional partner. And in a number of cases, we have created strategic partnerships where we have, to some extent, I would say, enhanced visibility in terms of their partnership and their intent to partner with us across a range of strategies. And so that also is a growing source of confidence as we go into these -- as we go into periods where, obviously, there's volatility in the world, et cetera. But I would say that, as Jack said, it's not a mix shift, but it's helpful that we're a partner of choice for the largest pools of capital in the world and they want to do more with us. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: I always want to ask about AI. I hope if you could update us on how you're deploying AI across the firm today. where it has meaningfully materially improved your processes? What sort of ROI you're seeing? And if you could talk about some of the use cases that you're looking to put into production over the next 12 to 24 months? . Jon Winkelried: Thanks, Mike. Well, a couple of things. I mean I think we had for a while now, and I think we've communicated this when we have a group of engineers and a team within our tech group that has been developing tools that have been rolled out systematically to the firm built on some of, obviously, the large language models, but customized for what we're doing here at the firm. We have very high engagement across the firm in terms of productivity tools, probably something approaching 80% of the firm now is using -- are using these tools on an active daily basis. So that's obviously a productivity tool, and we're strongly focused on continuing to train people to use those models very effectively. . So we have coaches that are roaming around the firm actually helping people figure out how to be more productive. The second thing I would say is that within our services organization, we are beginning to look at our we're beginning to look at head count, if I can use that term, both on a kind of a human and also agentic basis? And where are there opportunities for us to enhance productivity and in some cases, limit head count growth as a result of using AI agents and certain seats to do functions that we think currently we can do in an accurate and effective and efficient way. And so that's already part of our planning process as we continue to think about our use of the tool. I think the other thing, and Todd alluded to this before, is that we have -- remember, we're -- our firm in many respects, is centered in San Francisco. We are basically walking distance from the large LLM companies. And we have invested in them. We have ongoing important relationships with them which will probably end up creating -- you'll probably see us creating ongoing types of -- ongoing interesting partnerships with a select group of those companies. And so I think we have very good access to understanding how to engage and use the tools and also get the resources, frankly, because resources resources are, in some respects, the scarce commodity right now in terms of engineering talent or people that really understand how to implement enterprise engagements in these models. And I think we feel like both doing that internally here as well as our portfolio of companies is something that we feel we're very well positioned to do Operator: And it appears that we have no further questions at this time. I'd like to turn the call over to Gary Stein for any closing remarks. Gary Stein: Great. Thank you all very much for joining us today. If you have any follow-up questions, please feel free to reach out to the Investor Relations team. Otherwise, we'll look forward to speaking to you again next quarter. Jon Winkelried: And that was Gary Stein. Thanks, everyone. Operator: Ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time, and have a wonderful rest of your day.
Operator: Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the GrafTech's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Mike Dillon, Vice President, Investor Relations and Treasurer. You may begin. Michael Dillon: Good morning, and welcome to GrafTech International's First Quarter 2026 Earnings Call. Thank you for joining us. Joining me on the call are Tim Flanagan, Chief Executive Officer; and Rory O'Donnell, Chief Financial Officer. Tim will begin with opening comments on our first quarter performance and key strategic initiatives. Rory will then provide more details on our quarterly results and other financial matters. After brief closing comments by Tim, we will then open the call to questions. Turning to our next slide. As a reminder, our comments today may include forward-looking statements regarding, among other things, performance, trends and strategies. These statements are based on current expectations that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures, and these slides include the relevant non-GAAP reconciliations. You can find these slides in the Investor Relations section of our website at www.grafech.com. A replay of the call will also be available on our website. I'll now turn the call over to Tim. Timothy Flanagan: Good morning, and thank you for joining GrafTech's first quarter earnings call. While the graphite electrode industry continues to navigate a period of transition, we are starting to see signs of improvement, and GrafTech is well-positioned to capitalize on the recovery ahead. At the same time, geopolitical conflicts are generating macro uncertainty and energy market volatility. Against this backdrop, our priorities remain clear: drive disciplined commercial execution, continue improving our cost structure, maintain strong liquidity, operate safely and position GrafTech for long-term value creation. In all of these areas, we'll continue to take decisive actions to support the long-term viability of our business. To that end, let me provide an update on several of our key strategic initiatives that leverage the commercial, operational and financial progress that we've made over the past couple of years. Starting on the commercial front. For some time, we've been clear that pricing levels have not reflected the indispensable nature of a graphite electrode nor the level of investment required to maintain a stable, reliable supply for the steel industry. That's happened even as steelmakers in the U.S. and Europe have announced cumulative price increases over the past 5 quarters for finished steel products of approximately 50% and 25%, respectively, reinforcing the disconnect between value creation in the steel industry and the pricing environment for graphite electrodes, a mission-critical consumable. In response, we are actively pursuing both market-based and policy-driven solutions as part of our disciplined approach to addressing this condition. On March 26, we announced that we're increasing our graphite electrode prices by a minimum of $600 to $1,200 per metric ton, depending on the region. From a customer's perspective, this represents a $1 to $2 increase or less than 0.5% of the cost to produce a ton of steel. This increase will only apply to volume that was not yet committed as of that date. This price increase represents only a first step to restoring pricing to levels that safeguard regional graphite electrode production and continuity of supply for our customers. And as we remain focused on value over volume, we'll continue to walk away from volume opportunities that do not meet our margin requirements. So still early on, we've been encouraged by our customers' reaction to the price announcement and the reflection of the price increase in recent tenders. As of today, more than 85% of our anticipated volume is committed in our order book, mostly at price points that reflect market pricing at the end of the fourth quarter of 2025. However, we're pleased to see the positive pricing momentum, which will lay a critical foundation as we begin the 2027 price negotiations later this year. To further support these efforts, we are actively engaged in advocating for GrafTech in our key commercial jurisdictions as part of our commitment to fair trade and market stability. In the U.S., this includes our support of trade cases filed earlier this year related to the imports of large diameter graphite electrodes at unfair prices. In April, the International Trade Commission announced the preliminary determination that there is a reasonable indication that the domestic industry is being materially injured by imports from China and India that are being sold in the U.S. at far less than fair value and subsidized by those governments, respectively. As a result of this determination, the U.S. Department of Commerce will continue its investigation. We're very encouraged by these developments and remain confident that the Commerce and that the ITC will complete a thorough investigation and take the necessary actions to address these unfair trade practices. As we assess progress towards constructive pricing and supportive trade actions, we continue to evaluate the level of production capacity we need to maintain and the level of volume we will deliver to the market, reflecting our commitment to take decisive actions and support the long-term viability of our business. We also continue to assess the industry-wide impact of recent geopolitical developments, particularly the effect on key graphite electrode inputs, including oil-based raw materials, energy and logistics. Disruptions in the production and transportation of oil out of the Middle East are having a significant impact on the global oil market. This in turn has translated into higher decant oil prices, the key raw material for petroleum needle coke. While the needle coke market has been relatively flat for the past 2 years, we anticipate that higher input costs and potential disruptions in decant oil availability for certain needle coke producers will provide a catalyst for needle coke pricing. In addition, shipping disruption and rising geopolitical risk continue to reinforce the need for supply chain security. We are beginning to see a shift in sourcing behavior for certain steel producers with an increased focus on regional production and surety of supply to safeguard continuity of their operations. In this regard, we're well-positioned to meet the needs of our customers. Our strategically positioned global manufacturing footprint provides a competitive advantage given its proximity to large EAF steelmaking regions. Further, we have surety of needle coke supply through our vertical integration with Seadrift, which sources all of its decant oil needs from domestic producers. Lastly, regarding the impact of the conflict on GrafTech's cost structure, our efforts over the past several years have created a more agile, more efficient manufacturing footprint that positions us well to control production costs while navigating a dynamic macro environment. We expect incremental improvement through operational efficiencies and disciplined production management. As a result, our current expectation is that we'll achieve a modest year-over-year reduction in cash costs, consistent with our guidance at the beginning of the year. However, the extended duration of the conflict in the Middle East and the resulting longer-term impact on the oil and energy markets remains uncertain. Ultimately, sustained increases in our key input costs will require us to take further action on electrode pricing. Stepping back as it relates to the graphite electrode and needle coke industries, we are seeing an inflection point take shape. The near-term pricing environment is improving and the long-term fundamentals remain firmly intact. Electric arc furnace steelmaking continues to gain share globally, driven by decarbonization trends and structural shifts in steel production. This transition supports long-term demand for graphite electrodes and in turn, petroleum needle coke. We expect further synthetic graphite and petroleum needle coke demand to result from the building of Western supply chains for battery needs, whether for electric vehicles or energy storage applications. We applaud the efforts of policymakers, both in the U.S. and the EU as we begin to develop a joint Critical Minerals Action Plan. This action plan establishes a framework for the 2 trading partners to coordinate policies to ensure supply chain resiliency for critical minerals such as synthetic graphite as they explore potential trade mechanisms, including order-adjusted price floors. Furthermore, there is overwhelming evidence in trade cases across multiple jurisdictions that whether it's to support the establishment of a supply chain that doesn't exist outside of China today or to protect those industries that do, pricing support for materials that are critical for national and economic security are an absolute must. Against this backdrop, GrafTech continues to take proactive measures that seek to capitalize on these emerging opportunities. These include ongoing engagement with the U.S. administration at various levels to help inform and shape critical mineral policies as it relates to graphite electrodes as well as battery materials, within the EU, supporting the ongoing efforts of the European Carbon and Graphite Association as they advocate for stronger European steel and graphite electrode industries and demonstrating our technical capabilities through partnership and engagement with various agencies, research institutions and companies. Let me pivot to our current thoughts on the steel industry trends as context for the rest of our discussion and our performance and outlook. Global steel production outside of China was 212 million tons in the first quarter, up approximately 1% compared to the prior year with a global utilization rate of approximately 67% for the quarter. Looking at some of our key commercial regions using data recently published in the World Steel Association. For North America, steel production was up 2% in the first quarter compared to the prior year, driven by 6% year-over-year growth in the United States. And we're seeing this trend continue into Q2 with the AISI reporting that weekly U.S. capacity utilization rate at 80% for just the second time in the past 2 years. This is a clear signal that EAF steelmaking activity and therefore, demand for our electrodes is gaining momentum in an important commercial region. Conversely, in the EU, steel output for the first quarter remained depressed, declining 3% compared to the prior year. However, as we've noted previously, indicators of a rebound in the steel market have started to appear both in the EU and globally. Turning to the next slide and expanding on this point. In April, World Steel published their latest short-range outlook for steel demand. Globally, outside of China, World Steel is projecting 2026 steel demand to grow 1.9% year-over-year. For the U.S., World Steel is projecting 1.7% steel demand growth in 2026. Along with this demand growth, favorable trade policies are expected to further support U.S. steel production. For Europe, World Steel is projecting a return of steel demand growth in the near-term, forecasting demand growth of 1.3% for 2026. This reflects some of the demand drivers we've discussed in the past earnings calls, including initiatives to increase infrastructure investment, defense spending, representing key steel-intensive industries. In addition, key policy initiatives in the EU are expected to support higher levels of steel production in this important commercial region for GrafTech. Specifically, provisions within the Carbon Border Adjustment Mechanism, or CBAM, implemented in early 2026 will make certain steel imports into the EU less competitive. Further in April, the EU approved the proposal initially made by the European Commission in 2025 to significantly increase trade protections on steel. These new measures, which will be effective at the beginning of July, will cut tariff-free steel import quotas nearly in half, double the above quota duties to 50% and introduce melt and pour disclosure rules to prevent circumvention. All this is expected to boost domestic steel production with some analysts projecting capacity utilization rates in the EU could increase from current levels around 60% to potentially 80% over time. Overall, we continue to project that globally outside of China, demand for graphite electrodes will increase in 2026 with all major regions expected to contribute. GrafTech is uniquely positioned to capture a disproportionate share of that growth. Before I hand the call over to Rory, I want to circle back on one of the key priorities I mentioned in my opening comments, operating safely. Our team continues to do just that, and I want to thank them for their efforts. For the first quarter, our total Recordable Incident Rate was 0.35, a further improvement over the full year rate for 2025. Sustaining this momentum will remain a critical focus as we work relentlessly towards our goal of 0 injuries. But with that, I'm going to turn it over to Rory, who will provide more color on our commercial and financial performance for the quarter. Rory? Rory O'Donnell: Thank you, Tim, and good morning, everyone. Starting with our operations. Our production volume for the first quarter was 29,000 metric tons, resulting in a capacity utilization rate of 65% for the quarter. On the commercial front, our sales volume in the first quarter was 28,000 metric tons, an increase of 14% compared to the prior year. As we remain focused on value over volume, we continue to prioritize business that meets our margin expectations while expanding our presence in higher-value regions, particularly the United States. To that end, we delivered 37% sales volume growth year-over-year in the U.S. for the first quarter. For the full year, we remain on track to achieve our original guidance of a 5% to 10% year-over-year increase in total sales volume, reflecting further market share gains. Of our anticipated 2026 volume, we have more than 85% committed in our order book to-date, which provides good visibility as this is tracking ahead of where we were at this point last year. Turning to price. Our average selling price for the first quarter was approximately $3,900 per metric ton, which represented a 5% decline compared to the prior year and sequentially a 2% decline compared to the fourth quarter. As we take stock of our pricing action, we are encouraged to see that the trajectory of our pricing is beginning to turn. While we continue to operate with disciplined commercial standards, we are encouraged by the positive pricing momentum, which, in addition to our pricing actions, also reflects the improving backdrop in EAF steelmaking, all of which is positioning GrafTech to capture significant long-term value as fundamentals continue to improve. Turning to the next slide and expanding on costs. For the first quarter, our cash costs on a per metric ton basis were $3,848. While above the level reported in the first quarter of 2025, this represented a 4% sequential decline from the fourth quarter. As we have noted in prior calls, we will have periodic quarter-to-quarter fluctuations in our cash cost recognition as a result of timing impacts. However, our underlying cost structure remains significantly improved compared to the prior periods. And we will remain focused on further optimization opportunities, including procurement and production efficiency and cost management across the organization, including in response to the geopolitically driven cost pressures that Tim spoke to. Importantly, we continue to achieve all of this while maintaining our dedication to product quality and reliability as well as upholding our commitment to environmental responsibility and safety. Overall, cost discipline remains a cornerstone of our strategy, and we are pleased with our ongoing progress towards achieving our long-term expectation of cash costs being approximately $3,600 to $3,700 per metric ton. Turning to the next slide and factoring all of this in. For the first quarter, we had a net loss of $43 million or $1.66 per share. Adjusted EBITDA was negative $14 million compared to negative $4 million in the prior year, primarily due to the decline in our average price. Turning to cash flow. For the first quarter, cash used in operating activities was $15 million. Adjusted free cash flow was negative $27 million compared to negative $40 million in the first quarter of 2025 as the prior year reflected a planned inventory build in the first quarter compared to a more neutral impact of working capital in the current year. On a full year basis, we continue to project a modest increase in our net working capital levels, reflecting our anticipated volume growth. As we have noted, to the extent that conflict-driven impacts on the oil and energy markets result in sustained increases in the carrying cost of our inventory, this will need to be reflected in our graphite electrode pricing moving forward. Lastly, regarding CapEx, we continue to anticipate a full year spend will be approximately $35 million, which we believe is an adequate level to maintain our assets at current utilization levels and support targeted investments in productivity capital. Turning to the next slide. We ended the first quarter with total liquidity of $329 million, consisting of $120 million of cash, $108 million of availability under our revolving credit facility and $100 million of availability under our delayed draw term loan. As a reminder, the untapped portion of our delayed draw term loan is available to be drawn until July of 2026, and our expectation remains to draw on this residual portion, most likely by the end of the second quarter. As it relates to our $225 million revolving credit facility, which matures in November of 2028, we had no borrowings outstanding as of the end of the quarter. However, based on a [ springing ] financial covenant that considers our recent financial performance, borrowing availability under the revolver remains limited to approximately $115 million less currently outstanding letters of credit, which were approximately $7 million at the end of the first quarter. More broadly, as it relates to our liquidity position, our pricing actions announced in the first quarter will set the stage for a more constructive pricing going forward, particularly as it relates to 2027 negotiations that are set to begin in the back half of 2026. As a reference point, based on current utilization rates, each $100 improvement in our average selling price would equate to approximately $12 million of incremental liquidity. In conjunction with the other key initiatives that Tim spoke to, it is expected to result in a marked improvement on our financial performance in 2027 and beyond. As such, we believe our $329 million liquidity position, along with the absence of substantial debt maturities until December of 2029, provides a strong foundation from which to execute our strategy, capitalize on improving market conditions and position GrafTech for meaningful long-term value creation. In closing my remarks, I would like to extend my gratitude for the outstanding commitment and hard work demonstrated by our team members worldwide and thank our customers and our investors for their continued partnership. I will now turn the call back to Tim for a few closing comments. Timothy Flanagan: Thank you, Rory. This remains a pivotal time for GrafTech and our broader industry. Near-term demand fundamentals are beginning to improve. Our price increase actions, favorable trade rulings, supportive policy action and strong EAF steelmaking trends from key customers are all reinforcing the pricing recovery thesis. Further, long-term growth drivers, including decarbonization, the continued shift to electric arc furnace steelmaking and the growing demand for needle coke and synthetic graphite are firmly in place. As the only pure-play graphite electrode producer outside of India and China, we remain firmly resolved to support the continuation of these dynamics. To that end, we will continue to operate with urgency, adaptability and the conviction to act decisively in the pursuit of long-term value, all of which will position GrafTech to capitalize on the structural trends that are set to shape the future of our industry and to deliver long-term shareholder value. To that end, I want to sincerely thank our entire team around the world for their remarkable efforts, resilience and commitment during this difficult time. That concludes our prepared remarks, and we'll now open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Bennett Moore of JPMorgan. Bennett Moore: I wanted to start on the cost inflation side. I think all your EU energy needs are covered for this year, but if you could confirm that. And then maybe if you could help frame what sort of inflation you're seeing from decant oil? And has this started to put upward pressure on needle coke? And if not, when do you think we could start to see that flow through? Timothy Flanagan: Yes. Thanks, Bennett. So on the EU energy costs, you're right. We are nearly fully hedged on those. We have fixed price contracts going through the end of the year. So that's a good thing for us. We're happy to have that in place. Moving on to the decant oil question. Just to dimensionalize it, and I think we've talked about this before, decant oil as a percentage of our total production cost is around 25% of it. The pricing that we realize on decant oil is not necessarily directly correlated to just the Brent curve. We price off of other index as well, such as the HSFO and the like. And there's also premiums and discounts applied based on quality and such. So it's dangerous to correlate exactly the forward curve on Brent to our cost of decant oil and needle coke. But I will tell you, I'm very happy to say that we've taken a good look at the futures markets. We've looked at analyst consensus. and we've built that into our cost forecast, which, as you saw in our release this morning, we're maintaining our cost guidance for a low single-digit improvement over 2025. So luckily -- or not luckily, but very prudently, we've managed working capital, which has given us a little bit of a cushion to tolerate some of these headwinds on the decant oil market if those assumptions come true. Again, our supplier diversification and the timing of our purchases is important to managing that cost. So we'll continue to do that. A reminder from our year-end call, we're in the middle of planned major maintenance at our Seadrift facility. So a lot of our oil purchases were brought forward in the first quarter in anticipation of that, so we can exit the turnaround at Seadrift with enough inventory of decant oil to produce. So that's another factor to consider. But we have headwinds as does everyone else. It's dangerous to index right off of the Brent curve if you're looking forward, but we've incorporated all this into our guidance, and we're happy to maintain that previous cost reduction guidance. Rory O'Donnell: And Bennett, maybe I'll chime in on the needle coke market as a whole. I think the oil markets certainly have moved up. And while we source from different things and have a number of constructs that help us keep our pricing in check, I think it is a bit of a proxy for what some of the other decant oil producers globally are experiencing and other needle coke producers are experiencing globally. So I think that combination of higher oil prices at this point in time as well as just the overall supply disruption, right? A number of the needle coke producers source their oil out of the Middle East, the Chinese and some of the Japanese producers. And so that disruption is going to have an impact on the market as well. So I would expect as we get into the second half of the year, you'll see a marked increase in needle coke prices on the merchant side, which, again, being vertically integrated for us helps us out and would expect that market to tighten up quite a bit. Thus far, we haven't seen huge moves. I think we've seen about $175 or $200 increase in the Chinese market for needle coke. And I think that's largely a reflection of people fulfilling already committed tons here early on, but we certainly expect that market to move quite a bit in the back half of the year. Bennett Moore: Great. And then coming to pricing, it's great to hear that momentum is moving in the right direction following the recent hikes. I know you don't want to probably get into the detail of quarterly guidance on pricing, but do you think 1Q could be a trough for the year? When might we start to see it inflect at least directionally higher within your results? Rory O'Donnell: Yes. Thanks, Bennett. I'll give you directional commentary. I won't get into specific levels. But I think we're pleased with where the price increase adoption is at this point in time, right? We're now a little bit more than a month out since we made the announcement of $600 to $1,200 across various regions, and we're seeing success in that in all the regions that we sell into. I will tell you that right now that there's limited volumes that will actually be delivered in the second quarter, and that's just the phasing of when we made the announcement, when our negotiations took place. So probably 90% of the volume that will be impacted by the price increase will happen in the second half of the year. So I wouldn't expect to have a big change in ASP in the second quarter, but would really see that start to materialize in the third and fourth quarter. But again, pleased with where that's at, at this point in time. Operator: Next question comes from the line of Arun Viswanathan of RBC Capital Markets. Arun Viswanathan: So a few questions. So first off, I think I heard you say that your cash costs should be in a $3,600 to $3,700 range. And so if I think about your average price in Q1, which was $3,900, and then maybe I take the midpoint of what you've announced, $900. And so that would get you to $4,800. Is that the right way to think about maybe Q3, Q4 potential pricing? And then given that -- and would you be at that cash cost level, so maybe you could see kind of $1,000 EBITDA per ton range or maybe you can kind of just help us frame what the path to profitability is and what that looks like and maybe a time line, maybe Q3 or Q4? Timothy Flanagan: Thanks, Arun, and let me try to add some clarity to that. So I think it's a fair proxy to take the midpoint of the range because, again, that range is over all of the regions and the jurisdictions that we sell. But let me remind you, when we made the announcement of the price increase, we were approximately 80% committed, right? So the 20% of the sales we have to go would be influenced or impacted by that price increase. And again, we're pleased with where those negotiations are and the uptake we're seeing from customers at those price levels. But you can't just apply it to all the tons. You can only apply it to the incremental tons. But what's really important about this is how it sets up the third quarter and the fourth quarter negotiations and the momentum. I mean this is the first time we've seen in a number of years, quarters, any sort of positive price momentum on the electrode side. And really, that's a reflection of not only just market conditions, but better demand. We mentioned that you saw utilization rates in the U.S. ticked up over 80% last week. I think there's concerns around supply security, just given some of the disruption in the transit markets and just overall geopolitical elements that are going on in the world as well as the cost pressures that are front and center for everybody. So this is really about positioning for that next major round of cost or price negotiations for customers as we head into '27. But certainly, anywhere that we can push pricing here in the back half of the year, we will. Arun Viswanathan: Okay. And if I could just ask a follow-up. So Obviously, there is a lot of electrode production by Japanese producers and Koreans, also Korea is involved and there's a fair amount of needle coke production in that region. So however, we know from following what's going on, on the chemical side there's been massive disruptions and many of those facilities are down. So electrodes have suffered from weak pricing for a little while, and our explanation would be oversupply in the electrode market. But has the conflict potentially -- could it result in maybe some permanent structural reduction of capacity, especially in that region? And could that help kind of the long-term supply-demand balance and pricing power that you expect in electrodes going forward? Timothy Flanagan: Yes. I mean it's hard to say what the conflict is going to do. But I think certainly in the -- what it's going to do to long-term supply and demand balance. I mean, I think it all depends on the extent and duration of the war and the impact. But certainly, as you look at oil inventories globally coming way down and the continuation of the supply disruption, I would expect that you would certainly see a marked or meaningful impact in the second half of the year in terms of not only pricing but potentially supply for those who are struggling to get needle coke and other raw materials that are important to produce electrodes. So it will be yet to be seen what it looks like globally for the long term. But certainly, I think there'll be some disruption in the back half of the year. And again, I think that's why we like our position where we've maintained Seadrift as a meaningful part of our portfolio and the vertical integration that it provides our operations and what we can offer customers from a surety of supply perspective. Arun Viswanathan: Okay. And then just lastly, maybe you could comment on the -- your expected success on these price increases, is it -- do you feel like competitors are in the same boat and are using this as an opportunity -- and are they acting rationally or is there oversupply? And would they use this opportunity more as an opportunity to reclaim share? And I know you guys have been on a multiyear share recovery journey. So where are you on that as well? And do you foresee any headwinds in recovering that share now with increased competitive activity or not? Timothy Flanagan: Yes. Thanks, Arun. And I don't think I can comment or will comment on how other companies or competitors are thinking about their pricing strategies. But what I would say is there have been tenders in the market since we've announced the price increase, and we find those tenders in all of the regions. And we have won more of those tenders than we've lost at this point in time, which would suggest that customers are acknowledging either the value proposition that we're delivering or the essential nature of electrodes to their operations and are willing to pay a higher price to ensure that they get that. So if there are people out there looking at this as a volume player or share grab, I think we're still having success on what we're seeing from a tender perspective. And that's what gives us the positive viewpoint and outlook as we head into the back half of the year and start negotiations again, which are a few months out, but that's probably what I'd say there. I think just for reference, right, if we think about history here, if I'm a steel producer, if we looked over the last 20 years, electrodes represent roughly 1.1% of the selling price of finished steel. Today, that sits at 0.74%. And if we took where finished steel is right now, whether it's in the U.S. or the EU, pricing should be somewhere in the neighborhood of $7,000 a ton. So there certainly is a disconnect in the market. And I think the market participants understand that and see that, and that's why we're having some success on the price increase. Operator: Your next question comes from the line of Abe Landa of Bank of America. Abraham Landa: Maybe just focusing again on this like Middle East conflict, potential exposure, et cetera. Just kind of breaking out more the direct and indirect exposure within the cash COGS. I think you broke out decant 25%. That's helpful, so we don't have to explore that. But maybe between energy, logistics, maybe some other indirect exposure or direct exposure. And then I guess, of that potential exposure, what is fixed? Obviously, it sounds like energy is fixed and what is potentially variable? Rory O'Donnell: Yes. Thanks, Abe. So I would say beyond decant oil, of course, energy, electricity and natural gas are probably the next biggest chunk. I mentioned when Bennett chimed in about the fixed price contracts we have in place for most of our consumption for the rest of the year in Europe. So not a lot of direct exposure there. As far as natural gas goes, same thing in Europe, we have the same type of strategy around that. But between decant oil and the electricity, that's a big, big chunk of our variable costs. So from a fixed standpoint, there's a small amount of things that are exposed to the disruption in that market or the market shock of some of that pricing. But we're pretty comfortable that we have operational strategies, production scheduling tactics and things like that to take advantage of some of the rates that are available to us in other jurisdictions as far as time of consumption, extent of consumption, congestion credits, things like that. So I would say that focusing on the energy costs and our strategies around that as well as the comments I made earlier on our risk mitigation and our estimates around exposure to the oil markets, that covers the majority of that direct or indirect exposure to the impacts of the conflict. Abraham Landa: That's very helpful. And then I know decant is 25%. Do you have like a similar number for electricity and nat gas, kind of like those other elements? Rory O'Donnell: Those 2 together are about 10% to 15%. Abraham Landa: Very helpful. And then kind of continuing on this Middle East conflict theme. I guess within the Middle East, like -- I mean, we've seen stories of steelmaking being disrupted in that region. I mean, are you seeing that kind of reduced demand for electrodes in that market? I know it's a pretty popular market for imports of Chinese, Indian graphite electrodes. Are you seeing disruptions within the Middle East market? And then are you seeing any potential spillover to other markets related to the conflict? Timothy Flanagan: Yes. I think certainly, steel production in that region as well as the accessibility of that region, most of the product that we would sell into the Middle East would go via vessels and the availability of vessels and the cost and the access to that is pretty limited right now. So from our perspective, we're not moving a lot of volume into the Middle East right now. It's not a big market for us relative to the U.S., the European market as well as Japan, Korea and Taiwan. But yes, so not a lot of volume going into that region and certainly seeing a disruption and maybe that presents some opportunity when and if the conflict gets resolved and there's some inventory rebuild that needs to take place. In terms of spillover into other regions, no, I think there's probably been some modest opportunities in Europe for volumes that were otherwise coming out of the Asian market that either because of extended transit times or just supply disruptions as a whole, maybe we've been able to pick up some spot volumes in Europe as a result of that. Operator: Your next question comes from the line of Kirk Ludtke of Imperial Capital LLC. Kirk Ludtke: Just a couple of follow-ups. With respect to the -- you provided a rule of thumb pricing to liquidity. I think it was $100 a metric ton to $12 million of liquidity. What would be -- is there a -- can you put that in terms of EBITDA instead of liquidity? Rory O'Donnell: Yes, I consider that EBITDA impact. It would flow through. So if you're talking -- with our volume growth that we've guided to, it puts you kind of in that $115 million, $120 million range for the year. So that's where the $12 million comes from, $100 times $120, it's $12 million of EBITDA. Kirk Ludtke: Okay, great. And then you mentioned some steelmakers are shortening supply lines. Can you maybe elaborate on that? Is that in anticipation of higher pricing due to some of these trade actions or is that actually concerns about the ability to deliver? Timothy Flanagan: Yes. I think there's a few things going on in the market. First and foremost, transit times, again, have extended by a couple of weeks out of Asia into Europe, and that's providing some opportunity. I think the uncertainty of the market, the markets as a whole have maybe started to have some steelmakers thinking more regionally and trying to buy closer and managing less complex or less involved supply chains. I think both of those are having an impact. But I also think we're seeing a little bit of maybe a wait-and-see game from some steel producers trying to defer purchases. So they're consuming down some of their inventory, thinking that they'll have an opportunity to buy in a more favorable market condition later in the year, which, again, I think becomes a bit of a dangerous game just given the lead time that's needed to build electrodes and some of the demand we're seeing in other regions. So overall, I think market conditions, we're seeing some demand pick up and pretty pleased with where we're sitting right now. Kirk Ludtke: Great. And then lastly, the trade action in front of the ITC seems to be moving in the right direction. Can you maybe talk about the potential timing of that and if it will -- do you think it will come in time for the 2027 price negotiations? Timothy Flanagan: Yes. So the -- that large diameter, so again, it covers imports into the U.S. against the Chinese and the Indians and anything greater than 425 millimeters or 16.5 inches. It's through the initial ITC. It's on the Commerce. Commerce will do their investigation. We would expect that the Countervailing duties ruling could be implied or applied no later than the end of July. And then as we look at the antidumping, which is certainly the larger of the 2 would come in mid-September. And both of those would be in advance of kind of the bulk of the negotiations that will take place in the back half of the year and certainly will have an impact on those negotiations. And just for reference, I think the preliminary margin impact or ask on those was 74% against Indian imports and then 147% against Chinese imports. Kirk Ludtke: Got it. And those 2 are, what, 20% of the U.S. market? Timothy Flanagan: Roughly, yes. Operator: Our next question is a follow-up from Bennett Moore of JPMorgan. Bennett Moore: I wanted to stick with the theme of the trade policy here. And I guess I'm wondering kind of the scenarios you think could play out for negotiations later this year, assuming success on the trade case. Do you view this more as like a market share gain opportunity from the India imports or really more of a price action opportunity? And then maybe if you could also just touch on opportunities in other markets. I think you guys have initiated something down in Brazil, but what about Mexico and elsewhere? Timothy Flanagan: Yes. Thanks. And I think let's start in the U.S. Certainly, it's both a volume opportunity because I think it does impact the desire and the willingness to import those tons. But more importantly, it's a price impact for the broader U.S. market, which certainly is supportive and I think it's just another thing that's changing the momentum and the trajectory of the market as we sit here today. And I think we've long advocated whether it's the U.S. or any of the jurisdictions that we have operations in for fair trade and supporting the operations that we have. So I think there's actions going on in Brazil that I think are taking shape that we'll see some output here on later this year. And yes, but continue to advocate for fair trade across the board as well as supporting the ECGA's efforts in terms of the campaign they have going on right now about supporting the domestic graphite industry in Europe as well as supporting the broader steel initiatives in Europe. One thing that's probably worth spending a second on is what's going on in the broader critical minerals front. So we're taking action on the trade front in the U.S. because that's closest to where we're at right now. But certainly, as the U.S. continues to develop and partners with the EU and the other trading block countries around critical minerals and thinking about how they kind of decouple or break the ties to China in particular, I think that can have a significant impact on the way people think about graphite electrode pricing and anode material pricing, again, both of which are supportive to our business, both as we think about the electrodes as well as the value of the needle coke operation we have now in Seadrift. So that's an area that we're spending a lot of time as well on ensuring that people understand the essential nature of electrodes and the role that electrodes play in the steel production process and how that translates into economic security and National Security. but the same on the anode side, right? And the only way you can start a new supply chain in this environment is to have some sort of price support. So I think as we look out, it seems to make a lot of sense from an overall governmental policy perspective to have a broader trade protection beyond even what's going on with the ITC. Operator: That concludes our Q&A session. I will now turn the conference back over to Tim Flanagan, CEO, for closing remarks. Timothy Flanagan: Thank you, JL. I'd like to thank everyone on this call for your interest in GrafTech, and we look forward to speaking with you next quarter. Have a great day. Operator: That concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Park Hotels & Resorts Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ian Weissman, Senior Vice President, Corporate Strategy. Please go ahead. Ian Weissman: Thank you, operator, and welcome everyone to the Park Hotels & Resorts Inc. first quarter 2026 earnings call. Before we begin, I would like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. Actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements. Please refer to documents filed by Park Hotels & Resorts Inc. with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information such as adjusted FFO and adjusted EBITDA. You can find this information, together with reconciliations to the most directly comparable GAAP financial measures, in yesterday's earnings release as well as in our 8-Ks filed with the SEC and the supplemental financial information available on our website at pkhotelsandresorts.com. Additionally, unless otherwise stated, all operating results will be presented on a comparable hotel basis. This morning, Thomas Jeremiah Baltimore, our Chairman and Chief Executive Officer, will provide an update on strategic initiatives and review Park Hotels & Resorts Inc.’s first quarter performance and outlook for the year, while Sean M. Dell'Orto, our Chief Financial Officer and Chief Operating Officer, will provide updates on our capital investments and balance sheet management along with additional color on guidance. Following our prepared remarks, we will open the call for questions. With that, I would like to turn the call over to Tom. Thomas Jeremiah Baltimore: Thank you, Ian, and welcome everyone. I am pleased to report that we delivered better-than-expected performance in the first quarter with RevPAR increasing 5.5% year-over-year excluding our Royal Palm South Beach hotel, which suspended operations in mid-May 2025 for a comprehensive renovation. I was incredibly impressed by the strong performance throughout the quarter with RevPAR excluding the Royal Palm increasing over 6.5% in January, approximately 3.5% in February, and nearly 6.5% in March. Results were driven by continued strength in leisure demand at our resort properties, where RevPAR increased 7.6% excluding Royal Palm, along with healthy corporate group demand that helped our urban hotels generate over 2% RevPAR growth during the quarter. From a capital allocation perspective, it was another productive quarter as we remain laser-focused on enhancing the overall portfolio quality through the disposition of noncore assets while continuing to unlock embedded value within our core assets through our transformative renovations, and further strengthening our balance sheet by addressing upcoming debt maturities. Following the January disposition of the Hilton Checkers in Los Angeles, we recently sold the 396-room Hilton Seattle Airport hotel, which was on a short-term ground lease, for $18 million, bringing total noncore asset sales for the year to $31 million, or 16 times 2025 EBITDA when accounting for nearly $36 million of CapEx expected for both properties. Together, these transactions reflect the continued execution of our capital recycling strategy and our commitment to improving the long-term growth profile of the company. We continue to make solid progress on the remaining 12 noncore hotels and remain firmly committed to materially reducing our noncore exposure by year end. To that end, we have active marketing campaigns underway on several assets but remain disciplined in our approach to prioritize transactions that improve our portfolio's growth profile and maximize shareholder returns. While the transaction market remains challenging, our track record speaks for itself, having sold or disposed of 52 hotels for more than $3 billion over the last nine years, materially improving the quality and earnings power of our portfolio. Turning to capital investments, we are making significant progress on our comprehensive repositioning of the Royal Palm in Miami. The pace and execution have been exceptional, especially given the scale and complexity of this project. We remain on track to achieve our target completion date by early June thanks to the tireless efforts of our best-in-class design and construction team and all of our partners involved on this project. Miami continues to be one of the strongest hotel markets in the country, and we remain highly confident in the long-term outlook for this asset. We are already seeing strong group demand with the property securing $1.4 million of group business as of the end of the first quarter for 2027 at an average rate of $460. This represents an increase of $108, or 31%, compared to our pace for 2024 at the same point pre-renovation. Looking ahead, we expect returns on invested capital between 15% to 20%, with EBITDA projected to more than double from approximately $14 million to $28 million upon stabilization, or roughly $69 thousand per key, positioning the hotel to be among the most profitable assets in our core portfolio. Turning to operations, the strength of our core portfolio remains evident. Core RevPAR increased 5.4% during the quarter excluding Royal Palm, which represented nearly a 400 basis point drag on core results. Performance was led by strong leisure demand in Bonnet Creek, Key West, and Hawaii, along with a sharp rebound in Southern California driven by improved group and leisure transient demand. In Orlando, Bonnet Creek once again exceeded expectations, delivering approximately 16% RevPAR growth and a 20% increase in hotel adjusted EBITDA over the prior-year period, driven by a 10% increase in transient revenues and a 19% rise in group production supported by large in-house events and stronger average daily rate. Revenues and earnings reached all-time highs with trailing twelve-month EBITDA exceeding $103 million, nearly 60% above pre-renovation levels and $20 million, or 24%, above our projections, meaningfully exceeding our return expectations on our $220 million investment and further underscoring our ability to unlock embedded value across the portfolio. Adding to the property's momentum, our Waldorf Astoria Orlando was recently recognized on Travel + Leisure's list of the top 500 hotels in the world, one of only two Orlando properties to receive the honor. In Key West, performance remained strong at both Casa Marina and The Reach, with RevPAR increasing nearly 9% and capturing meaningful market share during the quarter. Results were driven by increased transient demand and favorable holiday calendar shifts. Like Bonnet Creek, Casa Marina also exceeded our underwriting for the $80 million investment with trailing twelve-month EBITDA of nearly $36 million, exceeding our projections by over $4 million, or approximately 14%. Southern California results significantly exceeded expectations. At the Hilton Santa Barbara, RevPAR increased nearly 23% as strong transient demand helped drive a nearly 13 percentage point increase in occupancy and a 3% increase in ADR. The Hyatt Regency Mission Bay also delivered exceptional performance with RevPAR up 12% supported by continued strength in drive-to leisure demand. Turning to Hawaii, we continue to see a steady rebound in demand following the completion of our comprehensive room renovations for the Rainbow Tower at the Hilton Hawaiian Village hotel and the Palace Tower at the Waikoloa Village that, despite the disruption from historical storm activity, resulted in a combined RevPAR increase of 2% across the two resorts, or approximately 5.4% when accounting for the 340 basis point drag from the storms. Waikoloa Village delivered 6% growth, benefiting from an expanded airline contract and improved ADR following the renovation of the Palace Tower. At Hilton Hawaiian Village, which was far more impacted by the storms, RevPAR increased 1%, or over 4% when adjusting for the storm disruption, driven by higher-rated transient demand in the newly renovated Rainbow Tower. Looking ahead, we remain very encouraged on Hawaii demand trends and expect both hotels to perform at the upper end of our guidance range for the year. Easier year-over-year comparisons, coupled with tailwinds from the completion of our tower renovations at both resorts, should continue to support a higher-rated customer mix. Group performance in the first quarter also exceeded expectations, with portfolio group revenue increasing 5% year-over-year excluding Royal Palm. Growth was led by double-digit gains in Puerto Rico, New York, and our Bonnet Creek complex, driven by a higher-rated group mix and by strong in-house events along with active citywide calendars in Denver and San Francisco. Looking ahead, group trends remain stable, with second-quarter group revenue pace up approximately 4% and full-year pace improving to 3% growth excluding Royal Palm and Hilton Hawaiian Village, which is being impacted by the partial closure of the Honolulu Convention Center. Stronger-than-expected convention demand across several core markets, coupled with the momentum for in-the-year-for-the-year bookings, has driven a greater than 180 basis point improvement in the group revenue pace since last quarter. Longer term, group demand remains healthy, with 2027 pace currently up 5.5% for the core portfolio, reflecting continued confidence in the segment. As we look at the balance of the year, we remain cautiously optimistic based on our first-quarter outperformance and the underlying strength of demand across the portfolio, but recognize the broader macro setup remains uncertain. We continue to believe fundamentals will be supported by a combination of anticipated macro and lodging-centric tailwinds. Fiscal stimulus, including favorable tax policy, deregulation, and potential lowering of near-term interest rates, coupled with easier year-over-year comparisons, favorable calendar shifts, and incremental demand generators such as the World Cup and America's 250th anniversary celebrations, should promote a continuation of the demand growth we saw in the first quarter. That said, growing geopolitical tensions in the Middle East and their potential impact on consumer discretionary spending and business investment sentiment certainly warrant a continued measured approach. Sean will address this more when he talks about guidance. The first quarter was an encouraging start to the year, and I am very pleased with the progress we have made thus far to elevate the quality of our assets and strengthen our long-term growth profile. I could not be prouder of our team's ability to execute in a challenging environment for our business. We remain laser-focused on our strategic priorities: reinvesting in our iconic properties to drive long-term value, advancing the disposition of noncore hotels, and further strengthening the balance sheet through successful maturity extensions and disciplined leverage reduction over time. And with that, I will turn the call over to Sean. Sean M. Dell'Orto: Thanks, Tom. We are very pleased with our first quarter results. RevPAR exceeded $191, up approximately 2% over the prior-year period, or approximately 5.5% when excluding Miami, and over 6.2%, or another 75 basis points, when adjusting for the Hawaii storms that Tom mentioned earlier. Total hotel revenues for the quarter were $591 million, up nearly 2%, and hotel adjusted EBITDA was $152 million, resulting in a hotel adjusted EBITDA margin of approximately 26%. Hotel operating expenses increased 2.6%, reflecting continued cost discipline. Overall, earnings came in ahead of expectations with EBITDA of $143 million and adjusted FFO per share of $0.45. Core portfolio performance remained strong with RevPAR increasing 5.4% to nearly $216 excluding Royal Palm, while gains were partially offset by typical comparisons at both of our D.C.-area hotels following last year's presidential inauguration in addition to a 170 basis point drag on the core portfolio as our Hilton New Orleans Riverside hotel lapped last year's Super Bowl. As Tom mentioned, we continue to make significant progress on our comprehensive transformation of the Royal Palm South Beach hotel in Miami. As we look ahead to the second quarter, we expect the hotel to remain a partial drag on operating results as the property ramps up its staffing ahead of its opening and rebuilds its demand through Q3. Overall, we are forecasting a nearly $3 million loss for Q2, and expect the resort to ramp up quickly over the back half of the year. During the first quarter, we also completed the second and final phase of guest room renovations at both the Rainbow Tower and the Palace Tower, bringing the total investment for Phase Two across both Hawaii properties to approximately $85 million. In addition, we completed the second of three phases of room renovations, totaling more than $30 million, at the Hilton New Orleans Riverside this past January, with the third and final phase scheduled for completion in the fourth quarter of this year. Looking ahead over the balance of 2026, we expect a lower level of capital investment this year, with $230 million to $260 million of planned spend, including the completion of Royal Palm and the launch of the Alethe Tower renovation at Hilton Hawaiian Village. This project will encompass all 351 guest rooms, the tower lobby, its private pool, and the addition of three new keys. Total investment for the project is expected to be approximately $96 million. We expect renovation-related disruption at Hilton Hawaiian Village to have a modest impact in 2026, with the tower's closure expected to have less than a $2 million impact on 2026 hotel adjusted EBITDA and representing just a 10 basis point impact to portfolio RevPAR. Once complete, nearly 80% of the resort's rooms will be newly renovated, significantly enhancing the iconic hotel's long-term competitive positioning. Turning to the balance sheet, our liquidity at the end of the first quarter was approximately $2 billion, including $156 million of cash, plus $1.8 billion of available capacity under our $1 billion revolving credit facility and $800 million delayed draw term loan. With respect to our 2026 maturities, we have made significant progress over the past two months to raise a $700 million floating-rate delayed draw mortgage on Bonnet Creek, which is expected to close this week. The loan was upsized $50 million based on the complex’s strong results and will bear interest at SOFR plus 225 basis points. When combined with the $800 million delayed draw term loan, this $1.5 billion of new debt capital commitments provides us with certainty while also allowing for the flexibility to fund within par prepayment windows closer to the maturities. Accordingly, we expect to execute a partial draw under the delayed draw term loan in June to fully repay the $121 million Hyatt Regency mortgage which matures in July. We then expect to draw the remaining capacity in September along with fully drawing proceeds from the Bonnet Creek mortgage financing to fully repay the $1.275 billion CMBS loan on the Hilton Hawaiian Village, which matures in early November, with additional proceeds to be used for corporate purposes. We are grateful for the continued support of our bank group whose confidence in Park Hotels & Resorts Inc.’s credit profile and the strength of our portfolio has been instrumental in executing these transactions. Their commitment is a clear validation of our balance sheet strategy and underscores our ability to address all 2026 debt maturities in a comprehensive and highly effective manner. Upon completion of these transactions, we will have meaningfully enhanced our financial flexibility, unencumbered the Hilton Hawaiian Village, extended our weighted average debt maturity to nearly four years, and eliminated any significant maturities for approximately two years. On an annualized basis, these refinancings are expected to increase interest expense by approximately $28 million, with roughly $13 million reflected in our 2026 AFFO guidance based on the timing of these transactions. With respect to our dividend, on April 15, we paid our first quarter cash dividend of $0.25 per share, and on April 24, our Board of Directors approved a second quarter cash dividend of $0.25 per share to be paid on July 15 to stockholders of record as of June 30. The dividend currently translates to an annualized yield of approximately 9% based on recent trading levels. Turning to guidance, while we remain mindful of the geopolitical uncertainties and the potential impact of higher oil prices on both business and leisure travel, we were very encouraged by the strength observed in Q1 and solid demand trends continuing into the second quarter. April RevPAR is expected to be flat, but up 3% excluding Miami, with performance led by a continued strength in Hawaii, Bonnet Creek, and Key West, as well as solid spring break leisure transient demand in Santa Barbara. And while we expect performance to modestly soften in May, June looks very strong, driven by strong group demand up nearly 10% and favorable year-over-year comparisons across several key markets, including Hawaii, Orlando, Key West, and New York. Overall, we expect Q2 RevPAR to come in around the midpoint of our guidance range with roughly a 100 basis point drag from Miami. For the year, with Q1's outperformance, we are increasing our RevPAR growth guidance by 50 basis points at the midpoint to a new range of 0.5% to 2.5%, and adjusted EBITDA guidance by $7 million at the midpoint to a new range of $587 million to $617 million, while AFFO increases by $0.01 at the midpoint to a new range of $1.74 to $1.90 per share. It is also worth noting that the recently sold Hilton Seattle Airport hotel was expected to contribute approximately $3 million in EBITDA for the remainder of the year. This concludes our prepared remarks. We will now open the call for questions. Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Floris Van Dijkum with Ladenburg Thalmann. Floris Van Dijkum: Morning. Tom, glad to be on these calls again with you guys. If you can give us a little bit more of an update on the disposition. I think one of the key things I think the market is having some trouble understanding is the quality of the portfolio that is being shielded by, you know, the lower 10% of your assets. If you can talk a little bit about where they are. I know that you have pretty much all of those presumably in the market. What is the status on that? Are you having some detailed discussions? What is the pushback that you are getting from the market? And are you going to hold out for the last dollar on those assets? Thomas Jeremiah Baltimore: Well, Floris, it is great to have you back, and I appreciate the question. If I could sort of frame it for a second, keep in mind, if you think about the remaining 12 assets that we have, we currently have 33 assets in the portfolio. We have sold or disposed of 52 assets, as I said in the prepared remarks, for north of $3 billion. We have 12 assets that we are defining as noncore. Three of those assets obviously rest with the dispute with Safehold, which will, we know, resolve itself, if not this year, certainly next year. The EBITDA from those assets is about $16 million, plus or minus. The remaining nine assets account for about $41 million in EBITDA, and candidly, probably 45% of that relates to one asset in Florida. So we are generally dealing with eight assets that are small. Some have short-term ground leases. Some are joint venture. Some have various challenges. I would say, obviously, the last mile is always the most difficult. I would hope the market would give us credit for the perseverance, the discipline, our ability to reshape the portfolio over the last nine years. We are very confident we are going to make substantial progress this year on those noncore assets. And our collective team are working their tails off. We have work streams underway on all of them. And it is going to be a little lumpy and choppy. I think you will see more reported as the year unfolds. And believe me, no shortage of effort and focus. We realize it is, while a small overhang, it is an overhang. It clearly is less—if you look at the $41 million—certainly less than 5% to 6% of overall EBITDA. But it is a drain when you think about operating metrics. And so we are working hard to get the assets sold as quickly as we can. We are not holding out for the last dollar. But we certainly want to have counterparties who can execute and who can move through the process, and we certainly are always focused on creating value for shareholders. Floris Van Dijkum: Thanks. Maybe a follow-up question on the World Cup. I know that your Royal Palm asset, I think, is opening up in June. Is that a market potentially that could get impacted by the demand for the World Cup? If you can talk broadly about what the impact is going to be or what you are seeing so far. I think everybody is sort of muted on the World Cup impact, but if you can give us a little bit more color on that, that would be great. Thomas Jeremiah Baltimore: Yeah, it is a lot to unpack there, Floris, but I am happy to take it. I think most importantly, if we step back and think about the Royal Palm at 15th and Collins, 393 keys—we are expanding to 404—putting in approximately $112 million. We could not be more excited. We could not be prouder. We had, obviously, a group there. We cannot wait to get more analysts and more investors in. I could not be more grateful to Carl Mayfield, who heads our design and construction team, who is literally spending three or four days of his week in Miami leading. And we also have the lead operator from Davidson who has been on-site since we launched construction last May. As of this morning, we had 417 men and women on-site, and that includes from owners’ reps to general contractor to subs to owners’ teams to operations folks, and we are currently targeting that construction will be substantially complete by early June. What we would call the stocking and training TCO would begin and target sort of in mid-May. You have got a few weeks of testing all the fire alarm and life safety issues that have got to work through, and we are probably looking at a target public occupancy TCO, and hoping for sort of mid-June. So when you think about where that all unfolds as it relates to the World Cup, we have included in our guidance that Sean outlined in his prepared remarks that we have no contribution coming from Miami in that process at this time. So, if we are able to get open, I think the two prominent games in Miami will be July 11 and July 18. We are cautiously optimistic that we should be open in time for those, and that is what we are all working our tails off to make sure that occurs. Again, we do not have anything in the current guidance, so we have been quite conservative in that intentionally just given all of the geopolitical issues and also the complexity of the inspection and regulatory process as we close out the job. But you may recall other projects and the months, and in some cases years. I think this again speaks to the core competency, the leadership that we have at Park Hotels & Resorts Inc., our experience, the extraordinary success that we are having, obviously, at Bonnet Creek and also what we are seeing in Key West. And we feel the same way about Royal Palm as we look out. So we are very, very bullish and excited about this project and think we are going to have tremendous success there over time. Floris Van Dijkum: Thanks, Tom. Operator: Thank you, Floris. Our next question is from Smedes Rose with Citi. Smedes Rose: Hi, thank you. I wanted to ask you, in your guidance it looks like the expense expectations moved up around 40 basis points versus your prior guidance, and I was just wondering what was behind that. Sean M. Dell'Orto: Yes, Smedes. We obviously, in Q1, had some outperformance top line. A lot of that was occupancy-based. So we certainly naturally see, while cost per occupied room was solid—in terms of basically 50 basis points or so growth—with the extra occupancy, expense growth was a little more than expected as well. So we are kind of carrying that through, much like we are doing with the top line, into the expense. Certainly, it is expected the rest of the year that expenses operate as we expect, much like we are thinking about the top line, kind of expecting that to perform as we expected for Q2 through Q4. Smedes Rose: Okay. Yeah. So thanks. That is helpful. And then, Tom, you said that you think the Hawaii assets this year can trend towards the upper end of your expected ranges. Can you just remind us what that range was for this year? Sean M. Dell'Orto: Well, I think, ultimately, you are talking about the upper end of our guidance range. So, certainly, you know—yeah, so 2.5%, somewhere in that zone or a little better. Thomas Jeremiah Baltimore: Two and a half. You know, as we said, we did not provide an EBITDA outlook. The other part is we do have, obviously, some favorable comps coming up on the heels of renovations and certainly some softening activity that we saw last year in Hawaii. So to Sean’s point, we feel good about that. If anything, it is conservative, but that is intentional given all the uncertainty right now. Smedes Rose: Okay. Thank you. Appreciate it. Operator: Alright. Thank you. Our next question is from Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: Yes. Hi. This is Peter on for Duane. Thanks for taking the question. I think I would like to maybe just piggyback off Smedes’ last question on Hawaii. And bigger picture, Tom, if you could just kind of lay out the building blocks of the recovery in Hawaii getting back to kind of pre-strike levels—what do you need to see happen, and what could kind of the cadence of that recovery look like? Thomas Jeremiah Baltimore: Yeah, Peter, it is a fair question. I would just again kind of frame it a little bit. If you look historically, Oahu’s RevPAR growth has always outpaced the U.S. pretty consistently by about 120 basis points. And I think Key West and Hawaii both are around CAGR of about 4.5% versus certainly 3.3%. Obviously, you have got very limited supply growth in Hawaii through 2030. And, again, the investment that we are making—that we continue to make—and after we have finished the Elihi Tower, at least 80% of the rooms at Hilton Hawaiian Village, in particular, will be renovated. And we have been looking to sort of reposition. If you think about the Japanese traveler, we are at about 750,000 visitation versus about 1.5 million historically. So we have been seeing that shift away, and we have been really repositioning the business to account for that. So Japanese travelers are really accounting for about 3% of our business approximately, which was probably high teens—18% to 20%—pre-pandemic. So as we look out, we are still very encouraged. Obviously, right now, you do have current headwinds, given what is happening with the conflict and the impact it is going to have on fuel and fuel surcharges and, obviously, the strong dollar versus the yen and, candidly, some cheaper alternatives. Having said that, when you look at the investment we have made and think about the favorable comps that we have, we think there is an opportunity for Hawaii to perform on the higher end of our guidance, if not exceed that. Do not want to get ahead of ourselves, but we are certainly very, very bullish over the intermediate and long term. We still, last year, generated north of $140 million in EBITDA, plus or minus. Think about the highs—it is about $185 million, plus or minus, coming out of the pandemic. So with that backdrop and some of those headwinds, we are really not that far. We continue to think about repositioning and get back some of the higher-end business. And certainly, as the convention center is also done, we also see that as another tailwind for us as we look out in the outer years. So we remain very, very encouraged for Hawaii over the intermediate and long term. And as it relates to Waikoloa, we are just very, very bullish—obviously, completing the Palace Tower renovation. If you look at the second half of this year and what we are lapping, we had 20 thousand out-of-order rooms last year. That also is going to, I think, be a favorable dynamic for us as we finish 2026 and look to 2027 and beyond. Duane Pfennigwerth: Great. Thanks for the detail. And then my follow-up, you mentioned group pace improving from the beginning of the year. Group pace ex Hawaii and Miami—could you highlight maybe some markets that you saw some sequential improvement and the flavor of those bookings? Is it corporate groups in the year for the year? Is it convention blocks booking up? Some details there would be helpful. Thanks for the time. Sean M. Dell'Orto: Yeah, sure, I will jump in on this. I would say from what we saw for Q1, we saw some help in New York on group where we had a nurses strike there and then ultimately, we were at a table taking some of the temporary labor as a group block there for a few weeks. So that was really helpful. We have seen some of the disruptive forces in Mexico and the Middle East allow for some groups to transition or change out and come into markets like Hawaii. So we are seeing some benefit there, and some of that will be in future periods. I think those are kind of the bigger things. I think we have seen revaluations across the portfolio for group be stronger, where groups have outperformed in their blocks, and so we have seen a little bit of that across the board in both in-house group and, ultimately, convention. Operator: Thank you. Our next question is from Ari Klein with BMO Capital Markets. Ari Klein: Thanks. Good morning. Just following up on Hawaii. First, I guess, is that market benefiting from some rotation from maybe also Puerto Rico? And then, Tom, you kind of touched on this, but if oil prices do materially impact airline prices, do you think that disproportionately impacts Hawaii relative to the rest of your portfolio? Thanks. Thomas Jeremiah Baltimore: Yeah, I mean, look, you have to believe, Ari—it is a fair question—if we get a prolonged supply shock and the conflict continues indefinitely, you certainly have to believe that it is going to have an impact, not only on long-haul air travel but certainly on air travel broadly, and certainly affect the sector. So certainly not going to argue that point. I would think, as you think about sort of rerouting, one of the things that I think would be important to point out is, if you think about inbound traffic into the U.S., we still have not gotten back to pre-pandemic. We were about 79 million; I think today we are somewhere in the 67 to 68 million—we are about 86%. And if you think about outbound from the U.S., that had gotten up to about 110% to 112%. I think given the conflict, if anything, you might see some of that reroute. People start to onshore themselves, if you will, to the U.S., and I think Hawaii could certainly benefit from that, as well as certainly the Caribbean and seeing Puerto Rico benefit from that. So, obviously, in Mexico, I think we are already, as an industry, seeing rerouting and seeing certainly Florida and the Caribbean. Certainly, we are seeing that in Puerto Rico. Puerto Rico has had a great first quarter. We are very encouraged about second quarter as well, and certainly seeing that—and those benefits also in California and other parts of the U.S. So those are sort of natural, and I think we are seeing certainly some evidence of that. If you think about all the various cycles over the last thirty-plus years, Hawaii has always been a fan favorite—generations, families, both domestic and international. We certainly think that there is no risk of that changing materially. Mix may change, and we are certainly spending our time as we make these big investments. And you think about Alihi as a great example—a hotel within a hotel—and the amount of investment that we are going to make in that really flagship, with its own check-in, its own pool, an elevated experience. We think that just continues to help us as we continue to reposition Hilton Hawaiian Village over the future. We also have the opportunity in Waikoloa, just by way of right, to certainly continue not only as we have renovated but certainly add additional keys when market dynamics make sense for us. So we remain bullish on Hawaii, and as I said, if you look historically from a CAGR standpoint, it certainly has been among, if not, one of the top performers over the last twenty-plus years, and I think the evidence would support that. Ari Klein: Thanks. And then I just had two clarifications on group. For the fourth quarter, I think previously it was down 8%, and it was going to be a headwind. Just curious, with the improvement, what that now looks like. And then on 2027, the 5.5% growth in pace—does that also exclude Hawaii and Royal Palm? Thomas Jeremiah Baltimore: It does not. Yeah, it includes Hawaii and Royal Palm. So if you think about 2027 just for a second, as Sean said in his prepared remarks, I think the core was up 5.5%. But you have got New York up mid-teens. You have got New Orleans up mid-teens. You have got Hilton Waikoloa up 17%. Bonnet Creek up mid-single digits. Key West up significantly—north of 20%. Hilton Hawaiian Village is down slightly there, in part. And you also keep in mind that you have got the convention center that will be under renovation at that point. But it is broad-based, and we are very, very bullish as we look out to 2027. Sean M. Dell'Orto: And I would just add on Q4, we were thinking about pace down 8% last time around; we are about down 4% now. Thomas Jeremiah Baltimore: Thank you. Operator: Our next question is from Chris Jon Woronka with Deutsche Bank. Chris Jon Woronka: Hey, good morning, guys. Thanks for taking the question. Morning. So, question—I was hoping maybe we can spend a minute going back to the transactional market and, you know, good progress so far to date. The question would be, are you seeing a difference in the buyer pool in terms of it broadening out and being more institutional as opposed to, you know, local or owner-operator? Thomas Jeremiah Baltimore: Yeah, Chris, it is a great question. I would say, candidly, for these types of assets—and again, as I try to frame for listeners—when you think about the eight for a second, these are smaller assets, not big EBITDA contributors. More attractive, I would say, generally to owner-operators, entrepreneurial, could be small PE firms—clearly experienced—and see value and see the opportunity to reposition in some cases. So no shortage of interested parties. Some markets are more attractive—no secret. L.A. certainly would not be at the top of anybody’s list, given some of the challenges there. And I would say Chicago, generally a more tough market. But, certainly, as you look across the assets that we are marketing, we have got a healthy buyer pool and interested parties. It is just really working through the process, which—the last mile is always the toughest. Many of these assets were assets that had been in the old Hilton portfolio, and they were not a high priority for obvious reasons. And then when Hilton was sold, it was not a high priority to that buyer. And the Park Hotels & Resorts Inc. team has the challenge. We accept the challenge. No excuses. We own it. And we have got to make it happen, and we are going to do that. And I think we have demonstrated that. And keep in mind, again, the long track record—we have sold assets before the pandemic, during the pandemic, after the pandemic. That also included 14 international—all of those assets—and all of these assets have, you know, some are legal issues, some are joint ventures, some are tax-related issues. Whatever it is, we are up to the challenge, and we are going to get it solved. And you are going to see significant progress this year. Chris Jon Woronka: Okay. Thanks, Tom. And as a follow-up on Miami—on the Royal Palm. I think you guys have outlined kind of EBITDA expectations fully ramped and timing of opening. So my question is, when that thing opens and it starts the ramp, how much does the composition of the earnings change to get to your EBITDA target, in terms of, you know, ancillary and getting the higher rate and maybe some—are you doing a beach club there—things like that? So just maybe how does the composition look versus what it did pre-renovation? Thanks. Thomas Jeremiah Baltimore: Yeah. I do not have all of that with me other than to just tell you how excited we are. If you think about the ADR pre-renovation, I think we were $265. I think we have underwritten this at around $400. I think in the prepared remarks I talked about business that we are already getting at $460, plus or minus. And then when you see it and you see the 2nd floor, which had a pool, and now it has got outdoor, really, entertainment space. Plus, as we are bringing all three of the buildings together, all of the opportunities for an elevated guest experience—and we are planning to really tuck underneath when you think about the Auberge and Rosewood and the Aman and Andaz and the Delano and all of those—and where they are going to be priced at $600, $700, $800 or more, and us underwriting at $400, I personally believe that we will exceed that. I think there is a significant opportunity for us, and just the response that we are getting is really exceeding expectations. So we are very, very bullish and very excited about it. And, again, I would draw your attention to the success that we are having at Bonnet Creek. We have taken that already from $60 million in EBITDA to north of $100 million. And you think about the success that we are having at Casa. I think it really speaks—we believe, passionately, and I think the track record is demonstrating—that we can generate higher returns on development deals than we can on acquisition deals. And I think it is a real core competency for the team. So we are excited to finish it and then to have an event and have analysts and investors down to see it, and to see what an incredible transformation really looks like. So we have got to get it done—we know that. As I mentioned, we have got north of 400 people on-site right now working two shifts, really to get the construction completed and to get as much of the World Cup as we can. But also keeping in mind we did not plan for any benefit in the World Cup as part of our guidance as it relates to Miami Royal Palm. So anything we get, we think is going to be incremental gravy, and we are pretty excited about the challenge and look forward to getting it done. Chris Jon Woronka: Okay. Very good. Thanks, Tom. Thomas Jeremiah Baltimore: Thank you. Operator: Our next question is from David Brian Katz with Jefferies. David Brian Katz: Hey, everyone. Thank you. So I feel like we always cover the quarters quite well, and I wanted to ask something a little longer term. Ian always reminds us about, you know, the pipeline of longer-term repositionings. Clearly, Royal Palm gets done. You know, Hawaii—I think you have given pretty good updates on it. Can you talk about, in qualitative terms, some of the ones that might be next and how we think about sort of building the portfolio for the longer term? Thomas Jeremiah Baltimore: Yeah. There are a few, obviously, that come to mind. Obviously, Santa Barbara—we think there is significant upside. We have a proposal to add approximately 70 keys, plus or minus, and so we have been working through the entitlement process there. I am really excited. And when you think about—obviously, that is unencumbered and will be unencumbered. We have a great JV partner, but unencumbered in terms of its visibility and views. So pretty excited about that as we sort of look out. As you think about Hawaii, something like at Waikoloa—by way of right—we have the opportunity to add another 200 keys. I would not say that that would be on the front burner until, obviously, we see the market recovered enough to where that makes sense, but it certainly is in the pipeline. We have the ability, obviously, with our DoubleTree in Crystal City—not sure that the market conditions warrant that right now—when you think about just bull’s-eye real estate and where it sits in the location at the front of Amazon HQ2. Certainly pretty excited about that over the long term. I do not think that is something intermediate as we look out right now. Now the one that we continue to noodle and study—we are working on some of the elevator modernization in New York—but there is no doubt as we think about New York and how to reposition that, that certainly is also a priority and one that needs to be addressed within the portfolio. We know that. It is just trying to figure out what is going to make the most sense for that asset over the intermediate and long term. We certainly think that there is significant value as you think about just the sheer scale of it. It continues to improve from a performance standpoint. We certainly think that there are opportunities—different things that can occur with that asset over time. So just to give you a few that are on the mind and ones that we certainly think about. David Brian Katz: Okay. Thank you. I appreciate it. Got a lot done. That is it for me. Thomas Jeremiah Baltimore: Okay. Thanks, Dave. Operator: Our next question is from Daniel Brian Politzer with JPMorgan. Daniel Brian Politzer: Hey, good afternoon, everyone. Thanks for the question. Just had a quick follow-up on the second quarter. I think you mentioned RevPAR in range, but I think you had a comment on May, how it is tracking. I was wondering if you could just give a little bit more detail what is driving that, because I think you kind of characterized it as mix. Sean M. Dell'Orto: Yeah. Ultimately, to the core second quarter—April, obviously, almost finished here—just looking, we probably have about a week or so of data to get in and get real time. But tracking flattish—might be a little bit better there. Certainly better than expectations, so it kind of continues from Q1. May is the weakest, I think, setup right now for the quarter, with group pace just down slightly. Transient—we ultimately need there to make the numbers we are thinking, which are kind of a flattish type of result. But there is some risk there, so we kind of hold that out as the one where we are going to monitor May. But June is really strong. So June makes the quarter. As we look at it right now, pace is up double digits for group. Obviously, we have got some things related to World Cup and Juneteenth and other activities going on around that month. Certainly, we think it is going to be a good performer. But altogether, April kind of flattish, May where we see a little bit of risk, and then June strong—comes together to be plus or minus the midpoint of the guide for the year. Daniel Brian Politzer: Got it. And just for my follow-up, I know we spent a lot of time talking the World Cup as it relates to Miami. But I guess more broadly, as you think about where your footprint is and across the portfolio, have you seen kind of a change in terms of the demand for World Cup maybe versus, say, three or six months ago? Sean M. Dell'Orto: Nothing dramatic. I think, for us—you put Royal Palm aside, Miami aside; Tom talked to that—the really two big markets for us are New York and Boston, and these are two markets that typically have been 90% occupied during this timeframe of June and July. So it is really kind of a rate play. I think the positioning right now is good in those two markets around the matches. It remains to be seen. Clearly, there is a lot of uncertainty around this event. But right now, we think we have a good position. I would not say it is—what we would say is fantastic like people thought coming into the year. We said about that impact between those two—those two markets considerably make up the most of the impact for the year for the portfolio. It is probably—we probably said $35 million or so, plus or minus, which might come off a little bit from our expectations today, but still a demand generator, still a positive. But I would not say as dramatic as we thought necessarily as we go into it. We will see. It could change, but I think there are a lot of unknowns around this event right now. Daniel Brian Politzer: Got it. Thanks so much. Sean M. Dell'Orto: Thank you. Operator: Our next question is from Chris Darling with Green. Chris Darling: Hi. Thanks. Good morning. Hey, Tom. Quick one circling back to Hilton Hawaiian Village, maybe framing the trajectory there in a different way. Can you update us on where your RevPAR index share is today and where you see that metric heading over time as you realize the benefit of the capital you have invested over the last few years? Sean M. Dell'Orto: Yeah. The RevPAR index is kind of tracking in that 95 to just around 100. We have seen that last year and this year as we started the year because we have had some of that work going on at the Rainbow Tower. What we saw last year is once we got past the first quarter, we saw that pick up a little bit more. But in terms of recovery, where we see it going from there is really back to the historical levels of 110 to 115 range. That is where we kind of were sitting ahead of the renovation and some of the other events like the strike. I think that is where we want to ultimately see it come back to. And certainly, if we can get there more on a rate profile as well, that is going to help the bottom line, given the renovation work. Chris Darling: Okay. Understood. And, you may not have a perfect answer to this, but just how are you thinking about the timing in terms of that index share? Is that a one-year timeline, three-year timeline? And maybe you cannot quantify. Thomas Jeremiah Baltimore: Chris, we would hope that—just if you look historically and the amount of investment that we have made, the corporate resources that we are devoting in addition to our operating partners at Hilton—we would expect that that ramp-up to accelerate. And, again, once we get the Alihi Tower done—again, that is somewhat isolated and self-contained—we think that is going to help. And, obviously, we project there is going to be minimal disruption. But when you get that done and you have got 80% of the campus done, we think that is just going to really continue to reposition and, candidly, give us the opportunity to change the customer mix as well. So very excited, remain committed to it. And, also, when we pay off the mortgage, keep in mind we will have two marquee assets in Hawaii completely unencumbered. Very rare. Most of those resorts and many of the assets owned are under long-term ground leases. That is not the case with Park Hotels & Resorts Inc.’s portfolio. So that is a real benefit for us too and gives us a lot of optionality. Chris Darling: Alright. I appreciate the thoughts. That is all for me. Thank you. Thomas Jeremiah Baltimore: Thank you. Operator: Our next question is from Cooper R. Clark with Wells Fargo. Cooper R. Clark: Great. Thanks for taking the question. Can you talk us through some of the building blocks for the updated OpEx guide for the full year and what you are expecting to see from a growth perspective on wages and benefits, insurance, and utilities? Sean M. Dell'Orto: Sure. Like I mentioned before, we have a range right now kind of in the mid-2s to mid-3s. Labor and wage growth should be kind of in that 5%, plus or minus, as you go throughout the year on average. We have some of the offsets to that. Fundamentally, our insurance—we do have embedded in our budgets favorable premium reduction—certainly continues to be a good market for the insureds as we look to renew. We renew on June 1, so we will get the continuation of our reduction from last year through May, and then ultimately pick up for the next seven months what we expect to be a favorable outcome. And we will give more color to that when we know more in the back part of the year. Estate taxes—once again, we kind of find ourselves with probably about a 5% increase right now through the budget process. But the whole appeal process is in place, and we have not fully factored that into any guidance because we just do not know—in terms of outcomes, amounts, timing, and the like. So I would say labor and wages are clearly the big driver on the growth side, but certainly some good offsets, and we continue to work with our asset management teams and the operators to find those meaningful ways to further offset. Cooper R. Clark: Great. Thanks. And then a quick follow-up. Just curious how much, if any, impact the Hilton Seattle sale had on the RevPAR guidance raise? Sean M. Dell'Orto: RevPAR guidance raise was obviously a growth rate, and it is comparable growth. So we remove that from the portfolio on a like-for-like basis. So no impact. Clearly, from a nominal RevPAR, you are seeing a nice increase. Cooper R. Clark: Great. Thank you. Operator: Our next question is from Robin Margaret Farley. Robin Margaret Farley: Great. Thank you. Most of my questions have been answered. I wonder if you could—oh, can you hear me okay? Thomas Jeremiah Baltimore: We can. Go ahead. Robin Margaret Farley: Okay. Great. Sorry. Yeah, most of my questions have been covered. Just going back to the Aliyah Tower in Hawaii. I wonder if you could walk us through a little bit about what you are expecting in terms of returns and change in RevPAR, kind of the way you—you know, I think you have given great color on Royal Palm. Just kind of what you are expecting from that Hawaii tower? Thanks. Thomas Jeremiah Baltimore: Yeah. We would certainly think, again, the opportunity is to take it from 351 keys to probably pick up three keys incremental, budgeting approximately $96 million. Any of these transformations—we have got to be in returns of 15% to 20%. And, again, if you think about Bonnet Creek and Key West that we have talked about already—already confidently exceeding that. The opportunity here is it is really a hotel within a hotel. You have got your own separate check-in. You have got, obviously, an embedded pool given its premier location on the Village. I am just really, really excited about it, and it has not had really that sort of upgrade for some time. So we are excited about it. Again, we will start that later this year and expect to finish that in the middle of next year, plus or minus. And given the experience that we have had, the success that we have had with the Tapa Tower there, obviously the Rainbow Tower—this is really the next in line to really reposition and, again, take the opportunity to change the customer mix. We are pretty excited about it. Robin Margaret Farley: And are there any limits on brand there in terms of—do you have to do something Hilton-branded, or could you do something completely different? Thomas Jeremiah Baltimore: It would have to stay within the Hilton family. And, you know, we have looked at whether you want to rename, but the reality—given the fact that Hilton Hawaiian Village is iconic; you think about that in north of sixty years, plus or minus—and Alihi Tower obviously has its own following. So we think really just the repositioning and the upgrade is the right answer there. But, you know, we will continue to look and continue to study it. But at this point, we have concluded really just the repositioning and the upgrade. And we are getting a phenomenal response, not only from Tapa but also the Rainbow Tower, and the room product and the quality of the renovation and how thoughtful we were about it. So, again, really excited and, to the point that Sean was making about RevPAR index, getting the whole Village back into that 110 and above range—we certainly think that is within our eyesight, and that will be accelerated once we get this final tower done. Robin Margaret Farley: Okay. Great. Thank you. Operator: There are no further questions at this time. I would like to turn the floor back over to Tom Baltimore for any closing remarks. Thomas Jeremiah Baltimore: I appreciate everybody taking time, and I look forward to seeing many of you at upcoming meetings—one hosted by Wells Fargo, JPMorgan, and, of course, NAREIT. Safe travels, and I look forward to seeing you all. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies, Inc. First Quarter 2026 Earnings Conference Call. My name is Daniel, and I will be your coordinator for today's call. There is a process for entering the question and answer queue. To ask a question during the session, you will need to press 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 1-1 again. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir. Rob Kukla: Thank you, Daniel. Good morning, everyone, and welcome to Forum Energy Technologies, Inc.'s First Quarter 2026 Earnings Conference Call. With me today are Neal A. Lux, our President and Chief Executive Officer, and David Lyle Williams, our Chief Financial Officer. Yesterday, we issued our earnings release, which is available on our website. Today, we are relying on federal safe harbor protections for forward-looking statements. Listeners are cautioned that our remarks today will contain information other than historical information. These remarks should be considered in the context of all factors that affect our business, including those disclosed in Forum Energy Technologies, Inc.'s Form 10-Ks and other SEC filings. Finally, management's statements may include non-GAAP financial measures. For reconciliation of these measures, please refer to our earnings release and website. During today's call, all statements related to EBITDA refer to adjusted EBITDA. Unless otherwise noted, all comparisons are first quarter 2026 to fourth quarter 2025. I will now turn the call over to Neal. Neal A. Lux: Thank you, Rob, and good morning, everyone. Our first quarter results reinforced our confidence in the path we presented with FET 2030. Year over year, we increased revenue 8%, EBITDA 14%, and net income 300%. The execution of our beat-the-market strategy drove these results. Impressively, we grew revenue per global rig 12% from a year ago, and positioned our company for future gains with strong bookings. Orders were up 10% year over year with a book-to-bill of 106%. We entered the year with our highest backlog in eleven years, and we grew that backlog again. Compared to the first quarter of last year, our backlog is up 44%. Also, following the completion of our structural cost saving initiatives, we are now a more efficient organization. These efforts have achieved $15 million of annualized savings. In addition, we continued our share repurchase program and strengthened the balance sheet by extending our credit facility's maturity to 2031. Overall, this was the kind of start we wanted to see, providing momentum into the second quarter and beyond. Looking ahead, our results should increase substantially, driven by market share gains, backlog conversion, and cost savings. We are forecasting second quarter EBITDA of between $24 million and $30 million, which at the midpoint is up 32% from a year ago. These results would deliver incremental margins of 51% with EBITDA margin approaching 13%. This sequential improvement is driven solely by the execution of our plan. Turning to the full year, we are raising the midpoint of our EBITDA guidance to $103 million, up 20% compared with 2025. Importantly, while we are seeing signs of increased activity, which is consistent with some analysts' expectations, our forecast conservatively assumes a flat market. Should the market pick up, I would expect to see further upside to our forecast. During the first quarter, we continued gaining market share through innovation and new customer adoption. This is a key part of our strategy, so let me provide an update on a few products we have recently commercialized. First, DuraCoil 95, coil tubing for sour service environments, is continuing to gain traction and is now active on three continents. This is an ideal product for Venezuela and the Middle East, especially if workover activity accelerates to bring production back online. Another innovation I want to mention is Unity, our next-generation operating system for remote ROV operations. We recently had the opportunity to showcase this technology at a large international trade show. In a real-time demonstration, our customers were able to control an ROV positioned hundreds of miles away from a terminal in our booth. It was a powerful demonstration of Unity's capabilities and has ignited interest in our product. The next product I want to highlight is DuraLine, our manifold system for multi-well frac applications. Compared to our competition, DuraLine is significantly safer and more efficient. Also, it is a great example of technology developed for U.S. shale applications that can be exported to international locations. In the first quarter, we received a significant order for multiple systems to be deployed in Argentina this year. Another innovative area for Forum Energy Technologies, Inc. is rig floor automation. We have developed patent-pending software for the FR-120 Iron Roughneck that automates the drill pipe makeup and breakout process with the push of a button. Our solution dramatically simplifies rig floor operations, reduces nonproductive time, and increases drilling efficiency by 30%. This software will be packaged with new Iron Roughnecks and sold as an upgrade to existing ones. I am very excited about this development. Shifting to the power generation and data center market, we have seen increased interest in the cooling solutions offered by our Global Heat Transfer product family. Based on customer feedback, we have developed a stationary power cooling solution. This new design gives us an opportunity to address a bigger part of the market and, since its introduction, we have developed a strong commercial funnel. These innovations are great examples of how our product pipeline is supporting both near-term share gains and the long-term ambitions of FET 2030. Shifting to the Middle East conflict and its impact, first and foremost, I am thankful all our employees in the region are safe. That is our primary concern. Also, operationally, we have not suffered any facility damage. We have experienced some disruptions that are having a slight impact on our business, particularly around logistics and freight costs. However, our teams did an excellent job finding creative solutions to these challenges, and we were able to increase revenue in the Middle East during the quarter. While uncertainty remains high, we are not forecasting any material net negative impact from the conflict. For context, Middle East revenue is only 10% of our total, limiting the company's exposure. At the same time, this conflict is creating medium to longer-term tailwinds for our industry. A significant portion of the world's oil and gas supply has been disrupted for 62 days and counting. Even if oil shipments through the Strait of Hormuz resume quickly, global oil inventories will be meaningfully reduced. Barring a material downturn in global demand, we expect investment in oil and gas production to increase over time to replace depleted inventories and support energy security. Some analysts have suggested that our industry will experience a prolonged upcycle beginning later this year or early 2027. This upcycle aligns with the growth market scenario of our FET 2030 vision. Under this scenario, our addressable markets grow at a rate of 9% annually and we expand our market share to 22% by 2030. The combination of market expansion and share gains doubles revenue and supports our near-term financial outlook. I will now turn the call over to Lyle for the financial results. David Lyle Williams: Thank you, Neal. Good morning. I will begin with first quarter results and our guidance, then shift to a discussion of cash flow and our capital allocation strategy. First quarter revenue of $209 million came in near the top end of our guidance. Growth in offshore and international markets led the revenue increase of 3%, outpacing global rig count. Our international revenue was up 7%, with Canada, Europe, and Latin America each delivering double-digit gains. This is the third consecutive quarter when international exceeded U.S. revenue. And offshore revenue expanded 10%, driven by a 20% increase in our Subsea product line as the team begins to execute orders secured last year. Adjusted EBITDA for the quarter was $23 million, in line with our guidance, as cost savings benefits were largely offset by product mix. Adjusted net income of $6 million increased 11% on a favorable income tax expense rate that benefited from geographic income mix. We grew backlog again in the first quarter, even after very strong bookings in 2025. Both segments posted a book-to-bill ratio greater than 100%. We saw higher demand for capital equipment in the Stimulation and Intervention and the Drilling product lines, and increased demand for wireline cables. Valve orders increased nicely, bouncing back from tariff-related impacts throughout 2025. Let me continue with additional color on our segment results. Drilling and Completions revenue was $127 million, flat with the previous quarter. The Subsea product line increased 20% as we recognized revenue on ROVs and the rescue submarine project. The Stimulation and Intervention product line increased 7%, supported by power end and wireline cable demand. And to note, our Quality Wireline product family set a new record this quarter in revenue and in greaseless cable sales. Coiled tubing revenue was down 17%, coming off strong U.S. sales last quarter and due to customer-requested delivery pushouts into the second quarter. Despite flat revenue, segment EBITDA was up 6%, benefiting from cost savings and improved plant utilization related to our facility consolidations. Artificial Lift and Downhole revenue was $82 million, up 9% with increased sales volumes across all three product lines. EBITDA was roughly flat, reflecting a combination of product mix, timing of incentive expense, and lower absorption at one facility, which we expect to improve in the coming quarters. Consolidated free cash flow was $1 million, consistent with our guidance. As a reminder, our free cash flow is typically back-half weighted; for example, roughly two-thirds of our free cash flow was generated in the second half of 2025. Despite the seasonally lower free cash flow, we still remained active on share buybacks. We repurchased almost 93 thousand shares for approximately $5 million under our share repurchase authorization. These purchases averaged $49 per share, about 20% lower than our stock price at yesterday's close. In addition, we paid $9 million for withholding taxes associated with our stock-based compensation program, avoiding the issuance of roughly 180 thousand shares and ultimately benefiting our shareholders. These payments, along with transaction costs associated with the credit facility amendment, resulted in a modest and temporary increase in net debt. We ended the quarter with net debt of $121 million, with a net leverage ratio still at a comfortable level of under 1.4x. While this is higher than where we ended last year, we expect net leverage to decline to under 1.0x by the end of the year. Liquidity of $91 million remains strong, with $54 million available under our revolving credit facility. During the quarter, we extended our credit facility maturity to February 2031 with improved pricing and greater letters of credit capacity. This amendment, combined with our strong balance sheet, provides significant flexibility for Forum Energy Technologies, Inc. to fund strategic initiatives, including long-term debt retirement, organic growth, and acquisitions. Now turning to our guidance. For the second quarter, as Neal mentioned earlier, our results should increase substantially, driven primarily by backlog conversion, cost savings, and market share gains. We are forecasting revenue between $202 million and $225 million and EBITDA between $24 million and $30 million, which at the midpoints are up 6% and 32%, respectively, from a year ago. Adjusted net income expected for the second quarter is between $6 million and $11 million. Our full year guidance issued in February assumed relatively flat market activity compared to 2025. Now, with strong first quarter results and increased expectations for the second quarter, we are raising the bottom end of our EBITDA guidance range from $90 million to $95 million. We are maintaining our revenue guidance of $800 million to $880 million, and for adjusted net income we are guiding between $21 million and $38 million. In addition, we reaffirm our full year free cash flow guidance of $55 million to $75 million, as we remain confident in our ability to convert approximately 65% of EBITDA into free cash flow. Let me conclude with our capital allocation expectations. As we discussed last quarter, our balance sheet is in great shape. We consider any further net leverage reduction as dry powder for incremental strategic investments, including acquisitions and share repurchases. With our M&A framework, we seek to acquire companies with differentiated products competing in targeted markets, at valuations that would be accretive to Forum Energy Technologies, Inc. per-share metrics. And we compare these acquisitions with repurchasing Forum Energy Technologies, Inc. shares. This year, our bonds allow total repurchases of around $30 million as long as our net leverage remains below 1.5x. We believe Forum Energy Technologies, Inc. remains a compelling investment. With that, I will turn the call back to Neal for closing remarks. Neal A. Lux: Thank you, Lyle. Over the last few years, we have implemented a strategy to make Forum Energy Technologies, Inc. a better and stronger company. We are gaining share through commercial excellence and innovation. We are leveraging our global footprint, delivering our solutions to customers around the world. We are creating significant value for our shareholders, and we have been successful despite market headwinds. Now we may be closer to finally having a market tailwind that can supercharge our efforts going forward. Thank you for joining us today. Daniel, please take the first question. Operator: Star 1-1 on your telephone and wait for your name to be announced. Our first question comes from Jeffrey Woolf Robertson with Water Tower Research. Your line is open. Jeffrey Woolf Robertson: Thank you. Good morning. Neal, with respect to the Unity ROV system and the trade show, are you seeing demand for that product outside of traditional energy? And then secondly, if we think about Unity and the cooling systems you all have, are there orders for those systems that are in the backlog, or are you working on that? Neal A. Lux: Good question. So, starting with Unity first, Jeff, it is still a fairly new system. We are gathering more and more field data as well as understanding how much it benefits our customers, so it is early stages there. I do think it would have an application outside of oil and gas for remote control of an ROV. I think the interest is high, and we do have a number of Unity systems already in the backlog that will continue to add to what we have already delivered. As we build that field experience, we will then look at other applications outside oil and gas; defense would be a great application as well. On our cooling systems, we did not mention in the call, but we have previously had a cooling system that is mobile for data centers that we call Powertron. The system I mentioned in the script is a new design that is stationary, so it is not mobile. This is brand new, one that we are quoting actively, and we are building up a strong opportunity queue. We do not have orders for that system yet, but all indications are we have a great product and would expect orders going forward. Jeffrey Woolf Robertson: Can you comment, Neal or Lyle, on what the margin profile looks like in the backlog? Neal A. Lux: With the new products and innovations, generally our innovative products have higher margins than our standard overall margin. The innovations we developed are addressing specific customer needs, and so we are able to get more value out of that. As we talked about, our backlog coming into the year, about 11% was new innovations or new products that we developed recently, so I would think overall our average margin would be higher because of that. Lyle, maybe a little color to add to that. David Lyle Williams: Last year, we booked a large amount of orders for Subsea. Their book-to-bill was basically off the charts in a combination of defense and traditional oil and gas, ROVs, and the rescue submarine. Typically, we see our Subsea business with slightly lower contribution margins—there is a lot of pass-through material and electronics, etc., that go through on those Subsea orders—that tends to pull the average margin down. So I would say the Subsea portion of backlog, which is meaningful, is a little bit lower. But as Neal mentioned, our other products we are putting through are coming in at higher margins. Jeffrey Woolf Robertson: And if I can have one more. With respect to the Middle East and Qatar's LNG—part of it has gone offline—are there conversations underway with customers in the Middle East that would increase demand for Forum Energy Technologies, Inc.'s business as the oil and gas producers maybe look to diversify their production capacity and maybe put a bigger emphasis on developing their own natural gas for internal consumption? Neal A. Lux: I think it is maybe early on for that rebuilding discussion, Jeff. We are staying close with our customers. As we mentioned, we did increase revenue in the Middle East during the quarter. One area that we did not cover specifically was Venezuela. We are seeing an increase there in demand, especially for our short-cycle, activity-based products like coiled tubing and wireline. As we get farther from the conflict, there will absolutely be an opportunity in the Middle East. Interestingly, we are finding some nice opportunities already in Venezuela. Operator: Thank you. Our next question comes from Stephen Michael Ferazani with Sidoti. Your line is open. Stephen Michael Ferazani: Good morning, Neal. Good morning, Lyle. Appreciate all the detail on the call. In terms of the guidance raised this early in the year—obviously, you would not do it without confidence—just trying to get a better sense of the components that led you to that decision. Covered it a little bit, but to me, the surprise here was the strength in orders, given the fact that we have not seen a pickup in North America yet, given the conflict in the Middle East, and given you would assume a lot more uncertainty on behalf of customers. Were you surprised? Was that the major contributor? Were there other factors in the guidance raise? We were certainly surprised by the strength in the order book for Q1. Neal A. Lux: Having a book-to-bill over 100% does give you a lot of confidence when you look out a quarter. That helped. Some of the orders we booked—I mentioned DuraLine for Argentina—that is one we worked on for a long time and got to the finish line in Q1, which helps. Another area where we are seeing great strength is in Canada with the Veraperm product line; they are delivering great results. With oil prices up, that is an area where we are going to see more investments. So Veraperm being strong, as well as the visibility from our backlog coming into the quarter, gave us a lot of confidence in increasing guidance. Again, we are not assuming yet an increase in overall activity; we are keeping our assumptions flat. But we are getting initial indications of some increase in activity. It is uneven so far, so I do not want to call it a trend. If activity does increase, we will be aggressive in following it up. Stephen Michael Ferazani: In terms of the strength in Q1, it sounds like you were also impacted by some delivery pushouts. Given the higher Q2 guidance, fair to assume those deliveries were either completed or will be for sure completed in Q2? Neal A. Lux: Yes. Specifically coiled tubing, where customers were a little unsure at the end of the quarter and just waited. That is an area where we are now seeing customers accelerate, which is one of the initial indications we have received. Stephen Michael Ferazani: Have we seen the full benefit of your cost reductions now with the plant consolidation? Or can we expect more to contribute to margins as the year goes on? Neal A. Lux: The Q2 guidance fully assumes all of our cost reductions. We still had some actions being completed in Q1, and we also had some operational challenges you always see when consolidating facilities. But going forward in Q2, we feel really good about the cost savings and our ability to execute. Stephen Michael Ferazani: That is helpful. And, Lyle, I do have to circle around on operating cash flow. Clearly, Q1 is always the lowest and you had pointed it out going into this quarter. That being said, cash flow was lower than the previous two years. Looking through the numbers, it looks like it is a timing issue with receivables collection as the delta between the last two years. Is that fair? More timing than anything? And there is no reason to think you are not still on track for full year cash flow? David Lyle Williams: Yes, Steve. The seasonality is driven by incentive comp payments and property tax payments that go out in Q1. That is the big drag from a working capital perspective. Beyond that, it is really timing. Quarter to quarter we see movements in DSOs based on project timing for our bigger projects and shipment timing. We did see a little bump up in DSOs in the first quarter; we think that will unwind in the second and third quarter. So there was some movement in receivables and payables, but the big driver for Q1 is those annual payments we make every year. We feel like we are on track for the full year, Steve. Stephen Michael Ferazani: In terms of the use of it, any change to your buyback strategy? David Lyle Williams: No. We like the buyback plan. We highlighted about $5 million bought back this year. Total capacity for the year would be about $30 million. We do expect that to be back-end weighted, keeping it somewhat in line with how our free cash flow comes in. With our free cash flow yield over 10%, it is an attractive investment for us to consider. Stephen Michael Ferazani: Great. Thanks, Neal. Thanks, Lyle. Operator: Thank you. Our next question comes from Daniel Ray Pickering with Pickering Energy Partners. Your line is open. Daniel Ray Pickering: Morning, guys. I think Lyle mentioned—or maybe it was Neal, I cannot remember—you talked about FET 2030 and you threw out some numbers. Just want to confirm what I heard. I think I heard doubling of revenues to 1.6 billion and EBITDA quadrupling to, call it, 400 million. I just want to confirm that. It implies an EBITDA margin of about 25%. I was hoping you could give us some perspective. I realize that is aspirational and forward-looking, etc. How do you think about pricing improvements? And can you put that 25% margin level in context with prior strong cycle periods? Neal A. Lux: Those numbers are based compared to 2025, when we delivered around $85 million of EBITDA. The revenue path is to 1.6 billion. We see two drivers: market growth and share gains driving revenue, and then operating leverage delivering roughly 30% incremental margins on that revenue increase. That is how we get the increase in overall margin. As you play it out, we see around 20% EBITDA margins once we have that kind of revenue growth on our fixed cost base. We also look at revenue per rig: in the U.S., we are around $700 thousand per rig annually; internationally, it is closer to $300 thousand. The ability for us to export technology—whether DuraLine manifolds, Multi-Lift solutions, DSP life extenders or protectors going into the Middle East—is a great opportunity. If international revenue per rig gets closer to the U.S., that 1.6 billion target is aspirational but feels like a great target for us to achieve. Daniel Ray Pickering: Thank you. Neal, you mentioned Venezuela. What are you seeing there? Is it inquiries about what you could do if companies go in there? Are you seeing companies that are already there asking for more stuff? Is this a Q2 revenue impact? Is it later in the year into 2027 revenue impact? Neal A. Lux: It is both. We are receiving orders and delivering material for customers who are already in country looking for our products so they can get back to work. We are also in early stages looking at more infrastructure-type sales—coil line pipe, things like that—potentially valves going into Venezuela to help rebuild infrastructure. That would be longer term. Historically, Venezuela was a great market for many of our products, and getting back in there creates a lot of opportunity for us. Daniel Ray Pickering: You talked about Argentina and the DuraLine order that you had been working on for a while. Is that going in with a pressure pumper that has equipment there already, or is it new capacity, new equipment moving in that you are going along with? Neal A. Lux: I am not positive if the pumps are in country yet or not, but I believe that is additional fleets being added to get the work done. Daniel Ray Pickering: As we bring it back to the U.S., can you talk a little bit about pricing behavior? Is it a flat pricing environment? Are we seeing any upward bias anywhere? Or is it kind of a steady market right now? Neal A. Lux: I would say it is steady right now, Dan. We are getting interest; the phone is ringing; inquiries are coming. We have had a few customers ask to receive material earlier than originally planned, but it is not a boom yet. I do not see a pricing impact in Q2 beyond passing through any freight increases, diesel surcharges, or tariffs. Real pricing increases—we have not approached that yet. We have some capacity, and some of our competitors have some capacity at least initially. As we go along in the cycle, that is absolutely something we are looking for. Operator: Thank you. Our next question comes from John Daniel with Daniel Energy Partners. Your line is open. John Daniel: Hey, Neal. My first question is with the GHT product line. Can you speak to what you are seeing from the North American frac companies—replacement orders and inquiries? Neal A. Lux: We have seen an uptick in inquiries. It is not a trend yet, John, but something we are monitoring. We are still seeing more demand right now for our data center cooling opportunities than for frac. That said, even going into the year, we were a little surprised with a few capital orders on the drilling side and on the pressure pumping side, where customers were pulling the trigger even before the recent oil price increase. I am cautiously optimistic that as we get farther in the cycle and activity picks up—and given how old some of the equipment is in the field—we could have an opportunity to add some new capital for our customers. John Daniel: And my follow-up: on DuraLine, it was characterized as more efficient. Can you elaborate on what makes it more efficient? Neal A. Lux: It is our DuraLine connection. We are able to rig up and rig down significantly faster. We also utilize high-pressure hoses and cranes to move those hoses. If you need to pull out a pump, you can do that much faster than with a traditional manifold. We are seeing a lot of interest from large pressure pumpers who want to be best in class, and uptake has been good. John Daniel: Once you sell those systems, what type of consumables go along with it? What is the repeat revenue opportunity? Neal A. Lux: The whole system is a pretty big order initially, but ongoing pull-through would include check valves, hose replacements, different types of bearings, and iron. Call it 80/20 on capital versus recurring. John Daniel: Final question. I do not know how many of the bearings, valves, and fittings are sourced from international markets, but do you see any potential supply constraints as an eventual Middle East rebuild comes—supply that you thought you could get gets diverted to a higher-priced market? Is that a risk? Neal A. Lux: We have not seen anything like that. We feel good about our supply chain, but it is something we will watch. Operator: Thank you. Our next question comes from Eric Carlson. Your line is open. Eric Carlson: Hey, good morning. Good quarter again. Last time we talked, oil prices were probably lower. In the 2030 plan you presented, and from a physical perspective, we are likely to lose over a billion barrels of supply from inventories. Your base case in that plan has been a no-growth scenario and then the 2030 growth scenario. Can you provide a bit more context on your confidence in outcomes given we probably need to build a lot of supply back into the market? Neal A. Lux: We agree. Taking a billion barrels of oil out of inventory has to be replaced. Countries around the world will have to ask themselves how much inventory they should have; I would imagine it is going to be more than what they had coming into the conflict. That is even more demand on oil production. This fits really well with our growth scenario. As the buildup comes in oil—and data centers are still out there, and natural gas demand is still going to grow—that biases us up toward our growth outlook where we could double revenue because our markets are growing and we are taking share. Our key innovations are driving growth, and adding the need to rebuild and refill creates a great opportunity for us. Eric Carlson: In that context of headline volatility—commodity volatility has been high, your own equity volatility is relatively high too—pretty good results today, but equity market reaction is what it is. In the context of your capital returns, do you look at volatility as an opportunity to buy more of what you already own? Does that change how you think about buybacks versus acquisitions? The organic opportunity is massive if the 2030 growth scenario plays out. And on the M&A market—potential targets, size of target, and bid-ask spread today versus a quarter ago? Neal A. Lux: Our free cash flow yield is still around 10%—higher than our peers and the average small cap—so we are a great value, especially with our growth outlook. For acquisitions, our criteria are clear: differentiated products, few competitors, great financial profile, and accretive to free cash flow per share. Lyle and his team have developed a solid pipeline. There are opportunities out there, but we will be incredibly selective, especially given our free cash flow yield. David Lyle Williams: Because of the breadth of our product portfolio, we have a lot of shots on goal around products that could be strategically beneficial. But the criteria are the same: differentiated technology, targeted markets, and accretive to our per-share metrics. We can be conservative and take our time because we have a good alternative investment in our own shares. It is an interesting market with a lot of opportunities to evaluate, and we have a compelling base case if we cannot find something even more compelling. Eric Carlson: On valuations, the Veraperm deal was done under 4x EBITDA with a really impressive free cash flow multiple. What does the market look like today versus a quarter ago? Seller expectations? David Lyle Williams: Public company valuations have increased year to date pretty meaningfully—ours included—and you would expect sellers to try to take advantage of that. That said, we have seen deals getting done still in the range of where we acquired Veraperm. Our expectation is those deal values have not changed a lot in the last 90 days. Valuation volatility in public equities can be high, so we will be appropriately conservative, making sure any moves are very accretive to our story. Eric Carlson: On target size, Veraperm was large and transformative. What is the general range you have been thinking about if you can get something at the right price? David Lyle Williams: We do have a broad dispersion of potential targets. Key financially is to keep our balance sheet very strong. We are not going to risk the balance sheet by doing a bigger deal that stretches us. Our stock being a very good value also brackets the size of deals we might do. The range is broad, and it depends on what we can bring across the line that meets our criteria. Eric Carlson: Seller type—privately held companies like Veraperm, carve-outs from publics, or something else? David Lyle Williams: We are seeing it all. Quite a few private equity-held businesses that are long in the tooth, smaller family-owned businesses considering next-generation and estate planning questions, and other structures. Over our history, Forum Energy Technologies, Inc. has participated in a lot of different kinds of deals. It is definitely an interesting time. Eric Carlson: Great. That is all I have. Thanks. Neal A. Lux: Thanks, Eric. Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Neal A. Lux for closing remarks. Neal A. Lux: Thank you for your support and participation on today's call. We look forward to our next meeting in July to discuss Forum Energy Technologies, Inc.'s second quarter 2026 results. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Church & Dwight Co., Inc.'s First Quarter 2026 Earnings Conference Call. Before we begin, I have been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecast. These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Richard A. Dierker, President and Chief Executive Officer of Church & Dwight Co., Inc. Please go ahead, sir. Richard A. Dierker: Alright. Thank you. Good morning, everyone. Thanks for joining the call. We had a fantastic quarter. I want to start by thanking all of our Church & Dwight Co., Inc. employees around the world for executing so well in a volatile environment. I will begin with some thoughts on the macro environment, then review our Q1 results. Then I will turn the call over to Lee B. McChesney, our CFO. And when Lee is done, we will open it up for questions. Starting with the broader environment, conditions remain dynamic. The consumer backdrop continues to be mixed. Consumer sentiment remains pressured by inflation, borrowing costs, and geopolitical uncertainty related to the Middle East, which, as you know, is also contributing to significant inflation in commodities and transportation costs. That said, the consumer remains resilient. Employment remains stable, and our largest categories grew 3% in the quarter. Our portfolio, with its balance of value and premium offerings, continues to perform well in this type of environment, supported by strong brands and innovation. Turning to the Q1 results, we delivered a strong start to the year and exceeded our outlook across key metrics. Net sales increased 0.2%, ahead of our expectation for a decline, and organic sales grew 5%, well above our 3% outlook. This growth was driven by volume. Adjusted gross margin expanded 130 basis points to 46.4%, and adjusted EPS was $0.95, up 4.4% year over year, above our $0.92 outlook. Overall, this was a high-quality beat driven by strong execution across the business. Now I am going to turn my comments to each of the three divisions. First up is the U.S. consumer business. Organic sales increased 5.4%, which was primarily volume. Across the portfolio, our brands continue to perform exceptionally well. Growth in the quarter was led by TheraBreath, ARM & HAMMER, Hero, and OxiClean, supported by strong innovation and distribution gains across all classes of trade. Global e-commerce also remained a key contributor, with online sales now representing approximately 24% of total consumer sales. Innovation and distribution gains continue to be key drivers of our performance, and the first quarter of this year is no different. We are confident that our relentless focus on innovation will continue to drive industry-leading growth, distribution gains at shelf, and market share expansion. In fact, we are just finishing tabulating all of the distribution gains looking forward, and I am proud to say Church & Dwight Co., Inc. was number one across all of CPG on total distribution points gained year over year. New product launches this year are expected to account for half of our organic growth as we innovate in key categories across our portfolio of industry-leading everyday products. The ARM & HAMMER brand had another quarter of growth with laundry hitting record shares across total laundry detergent. ARM & HAMMER laundry detergent consumption grew 4.1% in the quarter compared to category growth of 2.7%. The value segment of laundry continues to grow. ARM & HAMMER laundry grew despite a lower level of promotion in the quarter. Our newest innovation in laundry is ARM & HAMMER Baking Soda Fresh with 10 times the amount of baking soda, and it is off to a great start with a 4.9 consumer rating where most laundry items are around 4.5. Our ARM & HAMMER laundry sheets also continue to do well, growing consumption by 30%. We like the category-building potential of EVO, and we are well positioned to win in value. Next up is litter. It is fantastic results as ARM & HAMMER cat litter consumption grew a robust 6.8%, and share increased 0.4 points to reach 24.6%. While category promotional levels remain elevated, they did decline sequentially from Q4. OxiClean share declined in the quarter as we continue to be impacted by distribution loss and lapping that from a large club retailer a year ago. The good news is that the trends on OxiClean improved throughout the quarter, and sales growth surpassed our expectations. Hero and TheraBreath continue to contribute considerably to overall performance. TheraBreath achieved another quarter of record share gains, up 3.5 points to 24.1%, further solidifying our number two position in total mouthwash. Household penetration remains low relative to the category. In fact, even with these great distribution gains recently, we still have less than 20% of the shelf, so there is more room to run even in mouthwash. Early days, but the TheraBreath toothpaste launch is off to a great start. Hero consumption growth also outpaced the category, leading to share gains and remaining the share leader, two times larger than the next competitor. Hero’s growth was driven by distribution expansion and strong Q1 activations led by brand ambassador Jordan Chiles on Mighty Patch Original and Mighty Shield innovation. Mighty Shield is already achieving retailer hurdle rates. Finally, Toppik. In Q1, consumption grew low double digits, but sales were impacted by a strong Q4 holiday multipack sell-through. Recent consumption has slowed as we lapped year-ago launches. Internally, we are hard at work on integration and innovation. Turning to international, our international business delivered organic sales growth of 3.7% driven by our G&G and our subsidiaries. Growth was led by TheraBreath, Hero, and Batiste brands, partially offset by lower Middle East regional sales. Of note, in April we went live with our upgraded ERP system. Our project leader, Nicole, said it best: our customers did not notice the transition. Thank you to the entire team. I will close by saying that we are very pleased with our start to the year. Our brands remain strong. Our portfolio is well positioned. And our strategic actions continue to support long-term growth. I am proud of our Church & Dwight Co., Inc. team as we perform well in a volatile environment. As we look forward, our TSA agreement with the VMS business is winding down, and the organizational time that has been freed up is being spent on our forward-looking growth initiatives. We are laying the groundwork for ARM & HAMMER expansion, oral care growth behind TheraBreath, and international M&A. I will now turn the call over to Lee B. McChesney for the financial results. Thank you, and good day, everyone. Lee B. McChesney: Back in January at our 2026 Investor Day, we shared an industry-leading outlook for 2026. The highlights of that outlook included organic sales growth of 3% to 4% and EPS growth of 5% to 8%, in line with our Evergreen Model. As we now share results from the first quarter, we are delighted with the execution of our Church & Dwight Co., Inc. team members across the globe. The first quarter highlights once again the many strengths of our portfolio and the team’s execution capabilities. Let us jump into the details and provide you an update on our views for the year. Starting with EPS, first quarter adjusted EPS is $0.95, up 4.4% from the prior year, and $0.95 was better than our $0.92 outlook, driven by higher volume and gross margin results. Organic sales in Q1 were up 5%, above our outlook of 3%. Organic sales were broad-based across the globe with volume growth of 5.3%, partially offset by a negative price/mix of 0.3%. Our organic growth was fueled by a steady stream of market-leading innovation, and strong distribution wins with our commercial partners. The organic results also drove our reported revenue up 0.2% versus our original outlook of negative 1% back in January. I want to put our reported results in perspective. Due to our portfolio actions, our reported sales results would naturally be down 8%. However, organic growth of 5%, our Toppik acquisition, and some FX favorability fully closed the gap. The first quarter, fueled by volume growth, was certainly a strong start to the year. Our first quarter adjusted gross margin was 46.4%, a 130 basis point increase from a year ago. Our results versus last year were driven by 150 basis points from productivity programs, 110 basis points from higher-margin acquisitions combined with the impact of the strategic portfolio actions, 50 basis points from the combination of volume, price, and mix, and 10 basis points from FX. These factors offset 190 basis points of inflation and tariff costs. Let us jump to our investments in marketing. Our marketing expense as a percentage of sales was 9.5%, or 20 basis points higher than the first quarter of last year. Looking forward, we are continuing to target investments at approximately 11% of net sales, in line with our Evergreen Model. Q1 adjusted SG&A increased 110 basis points year over year. As we noted in our January Investor Day, SG&A in the first half of the year is primarily growing versus last year due to the inclusion of Toppik SG&A and amortization expense. Adjusted other expense increased by $5.2 million due to lower interest income compared to last year. In Q1, our adjusted tax rate was 20.3% compared to 21.8% in 2025, a 150 basis point year-over-year decrease, and our expected adjusted effective tax rate for the year remains at 21.5%. Now turn to cash flow. We delivered strong cash results in the quarter as cash flow from operations was $174.8 million. Our higher year-over-year cash earnings were partially offset by an increase in working capital in support of growth. Capital expenditures for the period were $31.9 million, and we continue to expect full year capital expenditures to be approximately 2% of sales. Let us now turn to our 2026 outlook. While the macro environment remains dynamic, we remain encouraged with our path forward. The strength of our brands, our strategic portfolio actions in 2025, and our growth initiatives continue to provide us confidence. As we noted in our press release, the situation in the Middle East is fluid and is creating some incremental volume and inflationary pressure on commodities and transportation. For example, currently we are estimating $25 million to $30 million of incremental inflation pressure. Our teams across the globe are responding to these developments and are taking actions across the P&L. As a result of our mitigating actions, we are reiterating our full year 2026 outlook. We remain on track to deliver full year organic growth of approximately 3% to 4%. We continue to expect reported sales growth to decline approximately 1.5% to 0.5% as a result of the strategic portfolio actions taken in 2025. We continue to expect full year gross margin expansion of approximately 100 basis points versus 2025, and this outlook reflects the breadth of actions we discussed in January and the balance of incremental headwinds and actions we have identified since the Middle East conflict began. Marketing as a percentage of sales remains at approximately 11%. SG&A as a percentage of sales will be higher than last year, reflecting the impact of the Toppik acquisition in the first half of the year and our focused growth investments. Our adjusted EPS expectation for 2026 remains at 5% to 8% growth. If we turn to the second quarter, we expect reported sales to decline approximately 1% with organic sales growth of approximately 3%. We anticipate gross margin expansion of approximately 50 basis points, reflecting transportation cost pressures ahead of the mitigation efforts that will take effect later in the year. In the quarter, we continue to expect higher marketing and SG&A, and in Q2 the investment in marketing and higher SG&A will more than offset the gross margin expansion, resulting in an adjusted EPS of $0.88 per share for the quarter. Recall, we continue to expect flattish EPS growth in the first half of 2026. To conclude, we remain confident in our 2026 outlook. We began the year with strong execution and are taking the steps to ensure continued success this year. My final prepared remark is for the Church & Dwight Co., Inc. associates: thank you for all of your efforts in the first quarter, and congratulations on the robust execution. Well done. We will now open the call for questions. Operator: Press star followed by the number one on your telephone keypad. Your first question is from the line of Christopher Michael Carey with Wells Fargo Securities. Christopher Michael Carey: Hi, good morning, everybody. Richard, you mentioned that distribution gains were number one in CPG. Not exactly sure of the timing of those gains, but nevertheless a very strong number. When you think about your Q1 delivery, how important are those gains to what we are seeing today, and really speaking to the durability of some of the volume growth that we are seeing relative to perhaps some of the tailwinds that may have been caused by some inventory reductions in the base? I just wonder if you could contextualize the quarter as you see it and what Q1 means for go-forward top-line, volume-driven results. And then I have a follow-up. Richard A. Dierker: Yeah. Sure, Chris. Q1 was phenomenal organic growth, and I think more than anything, it was great to see our categories growing around 3%, and we grew a little bit faster than that. We talked a year ago about retail inventory dynamics, and so we had a tailwind of a couple of points from that as well. That is how we get to about 5% for Q1. Now on the distribution gains, that is really just hitting now. It depends how you look at the metric. On an average basis over 13 weeks, it is about a 7% TDP lift. In more recent time, as these resets are happening, it is closer to 10% or 11%, which is about double what most of the CPG peers are getting. That is not just TheraBreath and Hero. That is across laundry and litter and personal care, so it is across the whole portfolio. We believe that is a great tailwind to our business, and it is really a payoff of all the innovation that we are doing. So it is a tailwind as we look forward and gives us confidence. Christopher Michael Carey: Great. A follow-up on Toppik. You noted that consumption slowed on year-ago activity that was strong in the base period. Can you give us an update on how you are thinking about growth of the business, the sustainability of growth, and whether you think it has runway to sustain perhaps double-digit growth into the back half of the year and into next year? Richard A. Dierker: Sure thing. When we look at consumption that shows up for you, we understand it shows consumption for the quarter is down 20%. We look at consumption that is all in, including untracked channels, and we are up about 12% to 13%. So there is a difference in what you see versus the entire picture. But it has slowed, partly because of all these holiday gift sets that go out and also because of the club channel. Overall, we believe that we still are going to have double-digit growth for Toppik for the full year. The good news is we have great ratings, we have low household penetration, and we are just starting now to advertise. A lot of our activations with either collaborations or partnerships are happening in the back half. So we feel good about Toppik. Operator: Your next question is from Anna Jeanne Lizzul with Bank of America. Anna Jeanne Lizzul: Hi. Your portfolio actions, I think from last year, helped drive the outperformance here in Q1. How are you looking at the portfolio now given the changes on the VMS business and others that you have exited? And then just to follow up on Toppik, can you comment on where it is performing best in terms of the channel? And further on M&A, where are you more focused in this more challenging consumer environment? Thanks so much. Richard A. Dierker: There are three questions. On M&A, I am not really going to comment. I would just say that the team is always hard at work. The leadership team spends an inordinate amount of time looking for great businesses and brands to buy. We have gone through our criteria again and again, and the team is hard at work in the U.S. and internationally. It is not an or; it is an and. That is some of the highest and best use of our time, and I continue to be optimistic. On Toppik channels, the channels doing better than most are ones that are not necessarily tracked. The club channel did extremely well. Amazon does well. Some of the beauty classes of trade, because of the timing of promotions and also some of the innovation, do not look as good, but some of the other channels that you do not necessarily see are doing better. On portfolio, I love our portfolio, short answer. Remember, a lot of categories out there are not growing or are going backwards. We have chosen and selected our categories over many years as we bought businesses. The fact that our categories grew 3% this quarter and we grew faster, as we typically do, bodes well. The portfolio decisions last year provide nothing but tailwinds as we look forward. Operator: Your next question comes from Rupesh Dhinoj Parikh with Oppenheimer. Rupesh Dhinoj Parikh: Just going back to organic sales growth expectations, you typically give it by segment. Updated thoughts for the year by segment, including for international? Richard A. Dierker: Go ahead, Lee. Lee B. McChesney: We are maintaining the outlook of 3% to 4%. Similar to what we talked about back in January, we still have U.S. at approximately 3%. International is approximately 7%—a little bit softer because of the Middle East situation—and then SPD is still about 5%. Again, it is a range. U.S. hits their number, others may end in the higher end, but we will see how it goes. Only one quarter so far. Rupesh Dhinoj Parikh: Great. And as you look at the consumer out there, are you seeing any changes in behavior? Historically, when you see spikes in gas prices, do any parts of the portfolio typically benefit? Richard A. Dierker: Good question. As I said in my prepared remarks, promotional levels are up in laundry for the category. We are hitting all-time share highs, and our promotional levels are down. All three competitors besides us are up. The value segment of laundry is growing. We deliver great cleaning and efficacy at a great value, and that is hitting the mark in this economy. Same concept for litter. Some competitors are promoting very heavily. We are promoting a little more, but we are gaining share again and again. For those two areas of household, which are more responsive to promotions, that is a good sign. Operator: Your next question comes from Javier Escalante Manzo with Evercore ISI. Javier Escalante Manzo: Good morning, everyone. My questions have to do with the commodity backdrop. I was expecting a more muted outlook for gross margin given oil derivatives going into detergent. Can you explain how much oil derivatives go into your COGS? You mentioned the impact is $25 million to $30 million. Is that a full-year number? Anything that can help us explain the gross margin expansion going into calendar 2026? And I have a follow-up. Richard A. Dierker: I will start, and then Lee can add comments. It is a full-year number, Javier, for that $25 million to $30 million, and it is primarily, as you would expect, oil-based derivatives like diesel, resins, and surfactants. Remember, in any given year, we enter the year about 60% hedged. These are net impacts for us. Hopefully this is transitory and not permanent, but we have good coverage for an extended period of time, especially in 2026. The team is laser focused on productivity to offset many of these things. There will be some RGM and promotional adjustments, but it is largely productivity. That has been the hallmark of the company. We have transformed this place on being able to get gross productivity year after year. In a perfect world, if the headwind does not happen, great—we would continue to spend on marketing even higher and drive the top line faster behind our innovation. Lee? Lee B. McChesney: To put it in perspective, we had about 160 basis points of inflation in the outlook back in January, and we got this $25 million to $30 million, which now brings you up to about 200 basis points. But we have additional offsets we are going after. You saw it last year when we did our work on tariffs—we worked that number down—and that is what we are doing here. We are in a good spot, and that is why we reiterate our outlook for the year. Javier Escalante Manzo: Very helpful. If this externality continues and commodities remain very high, would you expect then value players to lead in calibrating the promotional environment and then potentially price increases? Is that a good assumption? Richard A. Dierker: It is probably a better question for those competitors. As I said earlier on laundry, despite competitors promoting a bit more—still within a historical range—we are down on promotions and gaining share. The value segment is growing. That is a great position to be in when consumers are pressed at the gas tank and want to make sure their dollar goes further. One way they can do that is to buy ARM & HAMMER laundry detergent. It is about half the price of the leading detergent with great efficacy and great value. That is true not just in laundry but many of our brands. Operator: Your next question is from Olivia Tong Cheang with Raymond James. Olivia Tong Cheang: Great. Thanks, good morning. First question, relative to your expectations, a very nice beat on the top line. Where did you see the biggest positive surprises in your view? Was it more volume, more price/mix? It seems pretty broad-based. I am just curious how you are thinking about it. And then I have a follow-up. Lee B. McChesney: It is a broad-based improvement across the globe. The only pressure point we saw internationally was the Middle East. On the year, we are generally the same type of view we shared back in January in terms of how we thought growth would play out across the globe. Richard A. Dierker: Yes, the beat was volume-driven. Olivia Tong Cheang: Got it. And as more business consolidates into club and online, it feels like the move online should be good for you, whereas club typically keeps brand count tight. Given those dynamics, how do you think about your ability to grow in these channels—whether disproportionately relative to your peer set—and your ability to stand out in both club and online? Richard A. Dierker: There is no grand new strategy. We are performing really well online and in club. Remember, in 2015 we were 2% of sales online; we are at 24% now. We went from a laggard to a leader, and we moved quickly. We start with great brands—especially after the portfolio realignment—number one and number two brands consumers love. Even our new ARM & HAMMER liquid laundry with Baking Soda 10x has a 4.9 review where the average portfolio is 4.5. That story is playing out across categories and many brands. Then we make sure we have the right pack sizes for dollar, club, and online. We have proven we can move faster—one of our competitive advantages—to give the customer what they want, where they want. We plan to win across all classes of trade. Operator: Your next question is from Lauren Rae Lieberman with Barclays. Lauren Rae Lieberman: I want to talk about your perspective on the consumer’s ability to absorb pricing—not necessarily how you will mitigate cost inflation, you have been clear there—but broadly, the ability to absorb pricing should the industry end up going there? Richard A. Dierker: Great question. Our view is the consumer is pressed—and more pressed today than three, six, or twelve months ago—because gas costs show up immediately. When that happens, they retrench. The worst thing to do in an environment like this is push price. We have no plans to try to price through this $25 million to $30 million headwind. We will offset it with productivity. There is just no appetite for the consumer to bear something like this. Companies that do that will be more successful than those that do not. Operator: Your next question comes from Stephen Robert Powers with Deutsche Bank. Stephen Robert Powers: Building on that, two questions. First, is there any heuristic you could offer as to how external dynamics—volatility in the Middle East, further increases or duration in oil—translate into that $25 million to $30 million growing, and at what pace? Second, if that $25 million to $30 million grows over time and you run dry on incremental productivity, do you approach pricing across different parts of the portfolio with a different mindset—more ability to push price through premium and less on value? Richard A. Dierker: We are not going to go through the details of what every $5 or $10 in oil translates to for Church & Dwight Co., Inc. My answer to Lauren was based on the current scenario, $25 million to $30 million. We can handle that. If it becomes a lot more meaningful—$50 million, $100 million, $150 million—then you solve a different problem with different solutions. The first stop is productivity. The second is RGM on promotions, usually in household where a lot of our promotions are. The third would be pricing. You are right, many of our premium products are highly priced and consumers love them, but you have to do that behind innovation. As we launch innovations, we would look closely at price points. For today, if it is in this range—and we hope it is transitory—then we solve through productivity. If it becomes bigger, we have other tools in the toolkit. Stephen Robert Powers: If it is transitory, is the productivity you are putting in place structural, or more belt-tightening such that, if it rolls over, some gets reinvested and some backfilled? Richard A. Dierker: I would not call it belt-tightening. We accelerate projects. We have a three-year pipeline of productivity projects, just like we have a three-year pipeline of innovation. At any given time, we can fast-forward certain projects or slow down others—we can influence timing. If costs drop, perhaps we slow some of it down, or we take that money and reinvest it in marketing and build the virtuous cycle again. Operator: The next question comes from Andrea Faria Teixeira with JPMorgan. Andrea Faria Teixeira: Thank you for taking my question. I was hoping to see if you can comment on what you said about outperformance on organic sales growth and the comparison dynamic from last year. With what you guided for the second quarter and more aligned with consumption, is that 2% extra in the first quarter more of an adjustment, not a pull-forward from the second quarter? And then a follow-up: are you going to take price actions to mitigate the $20 million to $30 million impact from the Middle East war, or are you saying potentially you could take some pricing? Richard A. Dierker: On price, I was clear: the $25 million to $30 million headwind that the Middle East conflict has created, in terms of higher commodity costs and inflation, we believe we can offset with productivity. That enables us to keep our outlook where it is. Steve’s question was, what happens if that doubles or triples—can you still do it with productivity? The answer was no. At that amount, we can do it with productivity. If it goes a lot higher, we would look at RGM actions on promotions. If it goes higher from there, we would look at potential pricing. The normal sequence of events. At those higher levels, the consumer is pressed, and we do not plan on raising prices at this point. Lee B. McChesney: And to put a fine point on assumptions, we are using a reasonable average of what we have seen in the last couple of weeks. Obviously it changes daily, but $95 to $100 per barrel is a good base point. Andrea Faria Teixeira: Thank you, Lee. And on the first question about the 5% and the 2% inventory dynamic? Richard A. Dierker: Rewind twelve months. In Q1 2025, every CPG manufacturer saw a retail inventory pullback because of all the agitation around tariffs and the consumer. Everyone called out a number back then. This earnings cycle most folks are not talking about it as much; we are just trying to be transparent. We called it out a year ago and said a year later that is worth a 2% help. So we grew our business around 3%, and we had that 2% help—that is 5% organic. Categories are growing well, we continue to take share, and we are getting distribution gains. That is why we gave an outlook we think is really strong for the full year and solid for Q2. Operator: Our last question comes from Peter K. Grom with UBS. Peter K. Grom: Thank you, and good morning, everyone. I was hoping to get some perspective on category growth. You mentioned 3%, but some peers have touched on growth showing signs of improvement as you move through the quarter. Can you comment on what you have seen from a category standpoint exiting the quarter and quarter-to-date? And related, given the many things the consumer is dealing with, how do you see that evolving from here? Richard A. Dierker: Good question. For us in the quarter—talking about our major categories—we were around 3% for the quarter: about 3% in January, 3% in February, closer to 3.5% in March. That bodes well. It came down a little bit in April, but we are doing extremely well in April. It was better than we expected. When we started the year, we were expecting closer to maybe 2% to 2.5% category growth. It is only ninety days, but I am more enthusiastic than I was ninety days ago despite everything else. The categories really matter, and many of our categories—almost all—are growing at least 2.5% to 3%. That is a great thing. Operator: There are no further questions at this time. I will now turn the call back over to Richard A. Dierker for any closing remarks. Richard A. Dierker: Alright. Well, thank you very much, and we will talk to everybody in July.
Operator: Welcome to the Xerox Holdings Corporation First Quarter 2026 Earnings Release Conference Call. [Operator Instructions] At this time, I would like to turn the meeting over to Mr. Greg Stein, Senior Vice President and Head of Investor Relations. Gregory Stein: Good morning, everyone. I'm Greg Stein, Senior Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation First Quarter 2026 Earnings Release Conference Call hosted by Louis Pastor, Chief Executive Officer. He is joined by Chuck Butler, Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without the express permission of Xerox. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. We will make comments that contain forward-looking statements, which, by their nature, address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I'd like to turn the meeting over to Mr. Pastor. Louie Pastor: Good morning, and thank you for joining our Q1 2026 earnings call. Before we get into the numbers, I want to briefly introduce myself in this new capacity and share my thoughts about the role and how I intend to lead Xerox. First, I want to sincerely thank the Board for the confidence they've placed in me. This is not a responsibility I take lightly. As many of you know, I was appointed President and COO last September. And before that, I served in leadership roles spanning operations, transformation, corporate development and legal. I know this business well. I know our people well, and I have been deeply involved in the work underway to improve our performance, much of which is starting to show up in our results. The Board's decision to name me CEO reflects the progress we've made over the past 2 quarters, including structural cost reductions, early signs of momentum growing our revenue funnel, and the execution of key initiatives to strengthen our balance sheet, like the TPG Angelo Gordon joint venture and the warrant distribution. Separately, my decision to eliminate rather than retain and backfill the President and COO role was deliberate. There are no sacred cows here. The role is not needed anymore, and eliminating it reflects exactly the kind of cost discipline, operational efficiency and speed of execution this moment demands. I intend to lead this company with the same operating discipline I brought to every role I've ever held. Sleeves rolled up, deeply embedded in the work and with a clear-eyed focus on what actually moves the needle. We're aware of our stock price. We're aware of our credit ratings. I'm not going to paper over the challenges that Xerox faces. Rather, I have a disciplined, pragmatic approach to tackling them, and I'm focused on actions, not excuses. To our employees, our clients, our partners and our investors, I commit to being transparent and accountable with all of you. We will talk openly about our successes. We will acknowledge our challenges, and we will move quickly to address them. You deserve that. And frankly, it's the only way we'll make real progress. Let me also be clear about this. I am genuinely optimistic about the future of this business. I know what this organization is capable of, and I'm confident that we are closer to an inflection point than the external narrative suggests. Xerox has real assets, real client relationships and a team that has shown it can execute under pressure. Our strategy is not changing. It doesn't need to. What this company needs and what our leadership intends to deliver is relentless, disciplined execution against the strategy we have already laid out. The plan is in place. Now we run it. So with that, let's talk about our results. Q1 showed a continuation of the improving underlying trends we discussed on our Q4 earnings call. Revenue of $1.85 billion increased nearly 27% in actual currency and 24% in constant currency, reflecting the inorganic benefits of the Lexmark acquisition. On a pro forma basis, revenue declined 4%. Even excluding the benefit of some partner-driven pull forward from Q2, which Chuck will discuss in further detail, Q1 performance was a material improvement from the 9% organic revenue decline we saw in Q4. Quarterly adjusted operating margin increased on a year-over-year basis for the first time in 5 quarters. Adjusted operating margin of 3.9% was up 240 basis points year-over-year on a reported basis and was also up on a pro forma basis. This is a turning point in our profit trajectory, and it reflects the cost discipline our team has maintained through a complex integration. Overall market trends have improved from 2025 when demand was materially impacted by DOGE-related spending reductions, tariff uncertainty, and the government shutdown. In the Print segment, we're seeing steady demand in entry, led by better-than-expected performance at legacy Lexmark, continued softness in midrange and strong demand for our new production devices with Proficio, a recently launched device developed in partnership with Fujifilm, tracking well ahead of plan. Our overall print pipeline is now up meaningfully compared to this time last year, and we expect these trends to persist. I also want to highlight a partnership that speaks directly to the momentum we are building in production. Earlier this month, Toshiba Americas announced the addition of Xerox PrimeLink color and monochrome light production printers to their portfolio. This is a powerful validation, a well-respected global player with deep client relationships choosing to sell Xerox-branded devices through their network speaks to both the strength of our brand and the competitiveness of our production portfolio. We will actively seek to expand our distribution reach by pursuing partnerships like this with other OEMs. Our IT Solutions business delivered another solid quarter. Bookings grew 32%, billings grew 21%, and we delivered year-over-year profit growth. Total contract value of new deals continues to rise, and we are winning more managed services contracts, which provide greater visibility and long-term stability in our revenue trajectory. However, there are certain headwinds constraining that momentum. Memory lead times have extended, and in certain cases, higher memory prices have compressed margins as we prioritize establishing new relationships and expanding wallet share. We are also investing in technical talent to support a broader service offering. We believe these investments will lead to larger, more strategic deals over time, but they may create near-term pressure on IT Solutions profit expansion. As we look to the rest of the year, our positive expectations remain intact, though subject to quarterly timing variability, driven by OEM and inventory availability. A few other developments since our prior earnings call are worth noting. February Supreme Court ruling on tariffs is a net positive to Xerox's cost structure, particularly as it relates to our cross-border supply chain. That said, based on current forecast, those benefits will be slightly more than offset by increased memory prices, which are modestly higher than our last update, as well as higher oil prices, which impact toner, plastic and metal prices as well as transportation costs. Importantly, apart from certain international markets with exposure to the Middle East conflict, none of this to date has impacted overall demand. Given our solid start to the year and the momentum we have generated, we are reaffirming our 2026 financial guidance and are increasingly confident in our ability to meet these commitments. Looking ahead, our priorities are straightforward and every stakeholder should understand where we are focused: stabilize revenue, increase profitability, reduce leverage. That's it. First, stabilize revenue. Rightsizing our cost structure will remain a core focus, but we cannot cost cut our way to prosperity. We operate in a $50 billion print market facing secular headwinds, but there are real pockets of growth, particularly in entry and production. We intend to compete aggressively in those markets with better products, reduced manufacturing costs, stronger routes to market, improved service offerings and new partnerships. And over time, we expect growth in IT solutions and digital services cross-sold into our existing client base to offset print declines. Second, increase profitability. We expect to deliver $250 million to $300 million of incremental savings in 2026, including $150 million to $200 million from the integration of Lexmark. But I want to be clear, this is not a 1-year event. It is a multiyear journey. The cost actions we are taking today will continue to benefit us well into 2027 and beyond. We have guided to double-digit operating margins over time, and we intend to get there. Finally, reduce leverage. I want to address this priority directly because I know it is top of mind for many of you, as it is for us. While the $450 million TPG Angelo Gordon joint venture has increased our overall debt in the near term, it has provided meaningful liquidity to invest in and operate the business as well as the flexibility to take advantage of the dislocation in our bond prices. Between continued opportunistic debt repurchases and improving profitability, we expect our leverage ratios to improve as the year progresses. Reducing leverage is not just a stated priority, it is something you will be able to measure us against every quarter. Before I turn the call over to Chuck, let me take a minute to highlight some key operational initiatives that I believe are fundamental to how Xerox executes against the 3 stated priorities that I went through. Our go-to-market is now fundamentally different. We have moved from a fragmented structure with too much overlap and friction to a unified commercial engine with a simpler strategy, take share, cross-sell, upsell and mix shift toward higher-value offerings. On the enterprise side, we have eliminated account overlap and streamlined engagement. For corporate accounts, we have transitioned to a territory-based model with clear ownership, faster decisions and greater accountability. Our print go-to-market coverage is now structured into 3 regional theaters: North America, Western Europe and Rest of World, each designed around distinct client dynamics, routes to market and partner ecosystems. This simpler, more client-centric approach gives us the ability to meet clients where and how they need us, leverage our expanding global partner community and accelerate growth in targeted segments, all with clear rules of engagement and stronger accountability for both clients and partners. On inside sales, an initiative we launched last year to serve our smaller commercial clients with a greater touch, but at lower cost, equipment sales grew 24% year-over-year in Q1. On April 1, we expanded account coverage from 35,000 to 65,000 clients with revenue accountability quadrupling to more than $200 million. We expect to further scale this model over time. We also continue to take greater ownership of our product design and manufacturing, strengthening our control over quality, cost and speed to market. This will start yielding positive benefits to gross margin later this year. Xerox is becoming and in many respects, already is, a designer, developer, manufacturer, seller and servicer of our own technology. That end-to-end control matters enormously. We own the technology roadmap. We control the design costs. We make the decisions. And frankly, it means we control our own destiny. These initiatives, a transformed go-to-market and greater manufacturing control are central to how we stabilize revenue, increase profitability and ultimately reduce leverage. With that, Chuck, over to you. Chuck Butler: Thanks, Louis. Good morning, everyone. Louis just laid out our 3 priorities: stabilize revenue, increase profitability, reduce leverage. I'll walk through Q1 against that same frame. On revenue, trajectory improved versus Q4. On profitability, adjusted operating income more than tripled year-over-year. On leverage, we took deliberate concrete actions to strengthen the capital structure and position us to delever from here. We are reaffirming full year guidance with even more confidence today than when we set it. Before we get into the details, a brief note on tariffs. Our Q1 results and guidance do not reflect any potential refund benefits associated with the recent Supreme Court ruling on IEEPA tariffs. We expect additional clarity during the second quarter, and we'll provide an update on our next earnings call. Q1 revenue of $1.85 billion increased 27% year-over-year on a reported basis and 24% in constant currency, reflecting Lexmark's contribution. On a pro forma basis, revenue declined 4% year-over-year, a material improvement from a 9% decline in Q4. As Louis alluded to, Q1 revenue benefited by approximately 1% from the pull-forward of post-sale revenue, primarily in supplies, partly driven by customer and channel concerns around potential supply disruptions related to the conflict in the Middle East. Even adjusting for this benefit, Q1 revenue would have exceeded consensus expectations by approximately $80 million. As we have discussed on our prior calls, 2025 included meaningful headwinds from the exit of certain production print device sales. While their impact is diminishing, they have not fully dissipated. From this point on, we will no longer call these out separately. Our focus is on the trajectory of the business, not noise in prior period comparisons. On a similar note, as Louis mentioned, we have unified our go-to-market organizations. We will make select references to legacy Xerox and Lexmark on today's call where it adds context. But going forward, we will report and speak about the business as one. Turning to profitability. Adjusted gross margin was 30.3%, up 60 basis points year-over-year, driven by Lexmark's contribution and transformation benefits, partially offset by 100 basis points of increased product costs and declines in high-margin finance-related fees, largely a result of our forward flow arrangements, which shifts certain finance income off balance sheet. Adjusted operating margin was 3.9%, up 240 basis points year-over-year, driven by higher gross margins, integration synergies and lower marketing spend. Non-financing interest expense was $84 million, up $51 million year-over-year due mainly to higher net interest expense associated with Lexmark acquisition financing. GAAP loss per share was $0.84, down $0.09 year-over-year and adjusted loss per share was $0.43, $0.37 lower than a year ago, primarily due to higher interest expense and an unusual tax rate, the latter of which I want to address directly. Our non-GAAP adjusted tax rate of negative 219% looks unusual because we carry a valuation allowance against certain deferred tax assets. The practical effect is that pretax losses in the U.S. and U.K., along with disallowed interest expense do not generate a corresponding tax benefit while we continue to record tax expense on profits in certain jurisdictions. It is a GAAP consequence of where we sit today, not a reflection of operating performance or cash. As our profitability improves, we expect the tax rate to normalize and converge with our cash taxes. To put it in context, if we adjust for the impact of valuation allowances in the U.S. and U.K., EPS would have been negative $0.11, ahead of negative $0.27 consensus. We present non-GAAP taxes based on Q1 results, but we believe this is a more normalized lens to view underlying operating performance. Let me review segment results. Within Print and Other, Q1 equipment revenue was $378 million, up 33% as reported or up 31% in constant currency. On a pro forma basis, equipment revenue declined 2%, well ahead of the 10% decline last quarter, driven by stronger year-over-year trends at both legacy Xerox and Lexmark and fewer onetime headwinds. Legacy Xerox equipment revenue fell 5% compared to a 12% decline in Q4. The sequential improvement was driven by improved demand in entry and production. Legacy Lexmark equipment revenue grew 5% versus a 6% decline in Q4 on a higher demand across the enterprise and channel and a slight reduction in backlog. As we have noted previously, Lexmark's equipment revenue tends to be more variable than legacy Xerox, given Lexmark's higher concentration of large channel and OEM partner transactions. Print post-sales revenue was $1.31 billion, up 30% as reported and up 27% in constant currency. On a pro forma basis, print post-sale revenue declined 4%, mainly due to lower financing income and service rental and other declines within legacy Xerox. Print and Other adjusted gross margin was 31.3%, down 10 basis points year-over-year, as higher product cost, lower managed print volumes and lower high-margin finance-related fees were largely offset by transformation savings and Lexmark's contribution. The Print segment margin was 5.1%, up 190 basis points due to Lexmark's contribution, transformation benefits and integration savings. Turning to IT Solutions. Gross billings grew 21% year-over-year. Total bookings, an indication of future billings increased 32%. Both represent sequential improvements from Q4. GAAP revenue fell 5% in the quarter, but that number understates underlying activity. A growing share of what we sell, third-party service contracts, SaaS and certain fulfillment contracts where we act as an agent is reported on a net basis. The widening difference between GAAP and gross billings reflects accounting treatment, not changes in demand. We expect it will begin normalizing later this year and into 2027, though some revenue cycles could run longer. Going forward, gross billings and segment profit are the most useful lenses on this business. This is where you will see its health and trajectory. On profitability, gross profit was $30 million, with gross margin of 19.5%, up 230 basis points year-over-year, driven by changes in revenue mix and synergies, partially offset by higher memory cost. Segment profit was $6 million with profit margin of 3.9%, up 80 basis points year-over-year as higher gross profit was partially offset by investments in the sales and delivery organization and strategic hires. Cross-selling into our existing Xerox Print client base continues to build, with more than $32 million of new pipeline created in Q1. Moving to our cash flow and capital structure. For the quarter, operating cash was a use of $144 million compared to a use of $89 million last year, reflecting the inclusion of Lexmark, lower proceeds from finance receivable sales and working capital timing. Investing activity was a $24 million use of cash, $21 million from CapEx compared to a source of $6 million in the prior year, which included proceeds from asset sales. Financing activity resulted in a $242 million source of cash, reflecting the JV financing, partially offset by the paydown of the remaining IT savvy notes and partial payment of the 2028 senior unsecured notes. Free cash flow was a use of $165 million for the quarter, down $56 million year-over-year and in line with our internal expectations, as Q1 is typically a seasonal use of cash. Said differently, Q1 is our seasonal trough and the back half of the year is where the bulk of our free cash flow is generated. We expect improvements in adjusted operating income, working capital discipline and additional proceeds from finance receivables to deliver substantial free cash flow over the remainder of the year. We ended Q1 with $637 million of cash and cash equivalents, inclusive of $52 million of restricted cash and total debt of $4.4 billion. Approximately $1.4 billion of the outstanding debt supports our finance assets, with remaining core debt of $3 billion attributable to the nonfinancing business. On a pro forma basis, gross leverage was 7x trailing 12 months EBITDA. Our capital allocation priority remains debt reduction, driven by EBITDA growth and continued debt paydown, and we expect leverage to go down significantly as the year progresses. During the quarter, we announced an IP joint venture with TPG Angelo Gordon. This structure raised more than $400 million of liquidity net of fees against our intellectual property. Following the JV agreement, we repurchased $101 million of face value of our 2028 senior unsecured notes for $45 million, capturing $56 million of discount, reducing future cash interest and capturing real value for our shareholders. The result of these actions is a maturity ladder that has been meaningfully derisked in the near term. We have approximately $300 million of scheduled debt maturities between now and December 2027, inclusive of the $125 million of the 13% senior bridge notes that we will be paying at the end of Q2. That is a manageable window, and we will have multiple tools to address it, organic cash flow, continued open market repurchases, the warrant mechanism and capacity within our existing debt structure. We will continue to be opportunistic when market conditions support it. Importantly, we will continue to pressure test every action against one goal. Does it create sustainable long-term value for shareholders? That is the lens. Now, for guidance. For 2026, we still expect greater than $7.5 billion in revenue and expect adjusted operating income to be in the range of $450 million to $500 million, an increase of more than $200 million versus 2025, driven by $150 million to $200 million of in-year integration synergies and $100 million of in-year transformation savings. We expect free cash flow of approximately $250 million. Compared to 3 months ago, our free cash flow guidance is underpinned by higher interest expense resulting from the JV, offset by reductions in CapEx, improvements in working capital and lower cash taxes. The result of our assumptions remain unchanged. Our free cash flow guidance implies greater than $400 million of free cash flow generation for the balance of 2026. As a result, based on our implied guidance, by year-end 2026, we expect gross and net leverage to drop by approximately 1.5x to 5.6x and 4.5x trailing 12 months EBITDA, respectively. With that, I will now turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] And our first question comes from Ananda Baruah with Loop Capital. Ananda Baruah: A few, if I could. I guess, Louis, what -- you walked through a lot of great detail there in your prepared remarks. What you spoke about is new? And what might be some of the stuff that you'll be focusing on that could be new that may not have been mentioned in what you talked about? And I have a couple of follow-ups. Louie Pastor: Yes. Thanks, Ananda. I appreciate the question. I appreciate you joining the call. To be honest, a lot of what I was trying to emphasize was that the strategy actually is already in place and doesn't need to change. What's new, I would say, is perhaps the level of rigor and focus on solely these 3 priorities that we went through. So stabilizing revenue, expanding profitability and reducing leverage. Everything that we do needs to be framed through that lens. And as we do it, it just -- like I said, it just creates the opportunity to drive even greater focus and better execution. Ananda Baruah: I got it. And a point of clarification, going back to your prepared remarks. You made mention of -- and this is me paraphrasing, focus on entry level and production where you think there's attractive opportunity. What about the midrange? I know you also said midrange remains soft. What's the right way we should, sort of, think about midrange? And when you think about the core, your core enterprise customer, how do they fall across entry and midrange in the way in which you're describing entry and midrange? Louie Pastor: Yes. So the way we think about the strategy commercially is it's very much and we've talked about this in the past, a gain share mix shift strategy. And when we talk about the mix shift, a lot of people think just about the shift of the mix of our revenues from print in greater amounts into IT solutions and digital services. But there is also a mix shift within print. And that mix shift within print is actually part of the gain share component of the strategy. And that's the barbells that we were just talking about with entry and production. So we are responding to and following the trends in the market, which is why our investments are going into those 2 spaces in entry. Obviously, Lexmark historically has been a leader in the space. Now we're a fully vertically integrated player, controlling design, development, delivery, manufacturing end-to-end in that space, which allows us to compete far more effectively. And on production, we're so well positioned with respect to sales, distribution and service. And with new partnerships, we're bringing new hardware to market, but we're wrapping it around an end-to-end solution. And so part of how we grow and get back to a stable revenue stream in print is through the execution of that barbell strategy. Now the midrange is the most challenged part of the market. We've historically been a leader there. It's still highly profitable for us, and it's still a core component when we do an end-to-end managed print services offering at the enterprise. It's part of the mix of what is ultimately being purchased and delivered and serviced. But ultimately, our focus is going to be on the areas of growth and ensuring that the midrange plays a role where it's relevant and part of a holistic solution. And we'll continue to be in the space, but the focus strategically is going to be far more on entry and production. Ananda Baruah: That's helpful context. I got one more. You mentioned memory lead times have extended and that may have some sort of profit impact. And I think this is regard to IT savvy specifically. So correct me if that's not accurate. What I -- what we've seen is, some of the distribution folks, distribution vendors have been able to pass the memory cost through, without seeing impact to elasticity yet. So could you just give us a little more context around what it is you're seeing? Are you passing costs through? Are you able to pass costs through to some extent? Are you hitting elasticity points? Is it really a timing -- is it really a timing mechanism? Or to what degree is timing playing a role there as well? Just [ flip ] that for us, that would be great. And that's it for me. Chuck Butler: Louis, let me start and then maybe you jump in if I missed something here. Memory, it operates in both of our segments, both in the IT Solutions and in the print side of things, but impacts on both a little differently. On IT Solutions, what you'll find is that memory will slow down the buying patterns of some of our customers that we work with. We generally try to get in there and shape their demand to see what they want to spend their available budget on, make sure we keep equal wallet share in those customer bases because we have a broad product portfolio. And sometimes we work with them to say, look, you can extend the life of these hardware products that contain the memory and wait for the prices to come back down. So we try to help them shape that demand going forward. If they want to go ahead and buy, we largely pass that along to the end customer in the IT solutions space. On the print side of things, it can be a significant cost increase on some of the product line. The higher up you move the stack, the more price -- the more cost increase it has. What I will tell you is in our current forecast, we factored in the current macro environment for exactly where it is today, where we think it is today. So all the memory cost increases, what's happening with the fuel offset by the change in the tariff is all factored into our reaffirmation of the 2026 guidance. Operator: Our next question comes from Samik Chatterjee with JPMorgan. Unknown Analyst: This is Mark on for Samik. I guess my first question is kind of a follow-up to one of the previous ones for Louis. I guess with regards to some of the initiatives and new strategies that he's going to be -- or approaches that he's taking, I guess, anything to elaborate on in terms of how the approaches might differ from the prior management? Louie Pastor: No, I don't think we need to go into sort of granular detail around kind of what's changing from the prior leadership to my leadership other than to just emphasize once again kind of the 3 priorities that drive all of our decision-making. So stabilizing revenue, expanding profitability and reducing leverage. So ultimately, everything that we do is framed through that lens. We've talked about the strategy and where we're focused in what segments and how we execute the mix shift. And really, it's just continuing to make sure that everybody at this company is focused and empowered and accountable for delivering those results. Unknown Analyst: Got it. Chuck Butler: And if I could just add a little bit. I'll tell you from my seat, one thing you noticed and Louis touched on it there, it's every decision that we make right now is put through the lens of does it stabilize revenue? Does it expand margins? And does it delever this company as quickly as possible? And it's staying incredibly focused on those 3 points. Unknown Analyst: Got it. I guess on the margin side, there was some improvement in print profit margins quarter-to-quarter. I guess what are some of the drivers in the quarter-to-quarter improvement? And like how much of that would you consider structural versus like onetime benefits? Chuck Butler: Yes, the benefits that you're seeing as we continue to expand margin are largely related to the acquisition and synergy costs as we continue to realize those. Unknown Analyst: Got it. And then I guess the last question on top of that would be looking at the path of operating margins from around 4% this quarter to the midpoint of the guidance. I guess, what do you think about in terms of the quarterly cadence? What would be driving the step function changes? Any changes with regards to timing of how you envisioned it earlier this year? Chuck Butler: Yes, Louis, let me start and feel free to jump in. If you think about the seasonality of how we'll realize the synergy savings, it will expand each quarter-on-quarter successively and then peaking in the fourth quarter. Some of that's really seasonality because the scale of your business increases throughout the year, fourth quarter being the larger quarter in the space for us. And some of it is just the realization of another quarter, realizing full benefits from actions that you've taken. So you'll continue to see it expand each quarter on top of the other. Operator: Our next question comes from Asiya Merchant with Citigroup. Asiya Merchant: My question is also related a little bit to seasonality. And if you could just talk a little bit about the 2 segments. How envision sort of revenues seasonality between the 2 segments as you kind of look forward to your -- above $7.5 billion revenues for the year? And if you can also peel a little bit on cash flow here, free cash -- operating cash flow and free cash flow kind of seasonality. I think you guys are obviously expecting a lot more of it in the back half. What's driving that aside from operating income? How should we think about whether it's receivables flowing through or working capital as you progress throughout the year? Chuck Butler: Yes, I'll start here again. When you look at the seasonality of our revenue, even legacy Lexmark and legacy Xerox acted a little bit differently, but similar. Some of them depend on school cycles, government cycles, some of them depend on your geographic mix and where you operate in. Typically, what you would have seen for Lexmark and Xerox, though broadly, is one is light, two and three are in the middle and four is the biggest revenue month. IT Solutions appears to get its biggest traction in the third quarter. And it's largely driven by schools coming back in session and different buying cycles in the spaces that they play. Operating cash flow in the print space, working capital is a drag in the first quarter typically. And the first quarter tends to be -- it's your lower revenue month, so you don't get as much scale, and it tends to be the most compressed in those spaces. It was the same thing at legacy Lexmark. It was the same thing at legacy Xerox historically. And then the fourth quarter tends to be the best working capital and the highest revenue, so you generate the most cash flow accordingly. And you'll see that in the space. If you look back in '25, more than all the cash flow was driven in the back half of the year. And that's generally what we're going to see here in '26. We'd like to see that a little flatter, and we'll try to find ways to normalize it, so the impacts aren't so pronounced. But it is industry that drives a large piece of that. In addition to that, because of the expanding margins and the trajectory on realizing more synergy savings quarter-on-quarter, that will drive incremental cash flow throughout the year as well. Did I answer your question? Asiya Merchant: Yes, that's helpful. In terms of your billings and bookings, I know you're reporting pretty strong billings and bookings here in IT solutions. You're also talking about talent hires. Just help me understand like how we should think about those billings and bookings translate into revenues into that segment for the year? Louie Pastor: Yes. I'll start and then, Chuck, if you want to build on top of it. The way we run this business is with a focus on bookings and billings and then ultimately, how much of that actually pulls through to profit. So revenue is somewhat of a derivative of and a mid-level sort of gauge between those 2. But what we're really focused on is are we growing with our clients? Are we selling more to our clients? And ultimately, of what we sell, are we realizing a profit based on that? And so the trends overall that we're looking at bookings, billings and the flow-through on profit, we continue to see improvement in growth and the pipeline, albeit there are some macro headwinds there around memory and availability. But ultimately, it continues to benefit from secular tailwinds. Chuck Butler: Yes. The only thing I think I would add to that, a lot of times, gross billings doesn't always translate into revenue recognition on the face of your P&L. That's done based on the mix of customers and the mix of products that you take into that customer base, whether you treat it like an agent relationship or not. But the higher the gross billings go, you have a mind share and a wallet share in those customer bases that's meaningful. And the growth of that is operationally how you judge the health of that business. So we're excited about the growth we're seeing in the gross billing side of things. In terms of hiring talent, yes, we continue to invest in the space because that's the top line of the 3 priorities that Louis mentioned, stabilizing revenue. And we're going to invest in that to make sure it becomes the engine that allows us to achieve that. Operator: I would now like to turn the call back over to Mr. Pastor for any closing remarks. Louie Pastor: Thank you. Q1 gave us early proof points that the work we're doing is taking hold, an improving revenue trajectory, expanding margins and a growing pipeline across both print and IT solutions. We have more work to do, and we know it, but the business is moving in the right direction. In the coming months, Chuck and I plan to actively engage with our employees, clients, partners and investors. We will listen, answer questions and take feedback while keeping everyone focused on our 3 priorities: stabilize revenue, increase profitability and reduce leverage. Thank you for your time and for your continued support. We look forward to speaking with many of you in the weeks ahead. Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group First Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the conference over to James Lynch, Senior Vice President. You may begin. James Lynch: Thank you, Dani. Welcome, everyone, to our first quarter 2026 results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO, and Greg Milleman, our Vice President of Rates and Regulatory Affairs. Replay dial-in information for the call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until June 29, 2026. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com. Before looking at our first quarter 2026 results, I'd like to cover forward-looking statements. During our call, we may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. And now I'll turn the call over to Marty. Martin Kropelnicki: Thanks, Jim. Good morning, everyone, and thank you for joining us this morning to review our first quarter 2026. There are really 6 primary areas that we want to talk about today. The first one being, obviously, the quarter, and I would say Q1 results were in line with our expectations, given the fact that we had a delayed 2024 general rate case. And to remind everyone, in March, we did get a proposed decision, and there's a comment period that follows that proposed decision, which is 30 days. Our comments were filed. And then yesterday, we received what's called a revised proposed decision that I've asked Greg to talk about a little bit more in detail later on in our discussion today. I will generally say that the revised proposed decision we're very happy with, and we are on the docket today for approval at the California Public Utilities Commission. In terms of the quarter, again, given the light of the rate case, there was stuff we could not book because of the delay. But given where we are in line with expectations, I think the highlight of the quarter is the fact that our infrastructure investment for the first quarter was up 17%, and we continue to make good progress on our PFAS treatment and cost recovery from the polluters who put in the grounds and the waters that we treat. On the business development side, there are really 2 areas. Obviously, we remain focused on the NEXUS acquisition deal, and we have filed our change in control applications in Texas to advance our purchase of the minority interest in BVRT, which is the Texas partnership that we've been involved in for the last 5 years. Yesterday, at our Board of Directors meeting, our Board declared our 325th consecutive quarterly dividend, and that follows, of course, the 59th annual dividend increase that we had in January. Additionally, as I mentioned on our year-end earnings call, we have officially kicked off our centennial year of operations, which means we've been going out to the regions that we operate, doing employee and customer celebrations, which have gotten off to a very, very good start. I'll talk a little bit more about that later on today. Before getting into some of the details in these 6 subject areas, I'm going to turn it over to Jim to actually go through the financial results for the quarter. Jim, I'm going to hand it off to you, please. James Lynch: All right. Thanks, Marty. As Marty mentioned, the proposed decision on our California 2024 general rate case is expected later this afternoon. And having said that, our first quarter results do not include the impact of the revenue requirement or any of the other provisions included in the revised proposed decision. Recall that the company does have an interim rates memorandum account, and that does authorize us to retroactively apply the decision back to January 1 once it's finalized. So we're not losing out on any of the potential benefit from the rate case for the time that the decision has been delayed. In Q1 of 2026, revenue was $214.6 million compared to $204 million in the first quarter of 2025. Net income for the quarter was $4 million or $0.07 per diluted share, compared to the prior year's first quarter of $13.3 million or $0.22 per diluted share. Moving to Slide 6. You can see the impact of activity during the quarter. The primary earnings drivers were rate increases, which added $0.11 per diluted share, and accrued and unbilled revenue, which added $0.06 per diluted share. The accrued and unbilled revenue increase was due primarily to warm and dry weather during the last month of the quarter. The revenue increases were partially offset by an overall decrease in consumption for the quarter, increased depreciation and interest expense related to new capital investments, and an increase in the effective income tax rate due to a reduction in tax credits, which, when combined with other items, reduced EPS by about $0.32 per diluted share. Turning to Slide 7. We continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water. As Marty mentioned, our capital investments for the quarter were up 17.6% to $129.5 million. Our total planned capital investments for 2026 are $627 million, and this reflects the amounts included in the revised proposed 2024 California rate case decision. It also includes our estimated expenditures in the other states. The constructive impact our capital investment program is having on our regulated rate base is presented on Slide 8. If approved as requested, the 2024 California GRC and Infrastructure Improvement plan, coupled with planned PFAS investments and capital investments in our utilities in the other states, would result in a compounded annual rate base growth of over 11%. Moving to Slide 9. We continue to maintain a strong liquidity profile to execute our capital plan, and we continue to pursue tuck-in M&A opportunities as we progress on the acquisitions of Nevada, Oregon, and BVRT. As of March 31, 2026, we had $58.1 million in unrestricted cash and $45.6 million in restricted cash, along with approximately $470 million available on our bank lines of credit. We maintained credit facilities totaling $600 million that are expandable to $800 million with maturities that extend into March of 2028. We also have over $340 million remaining on the shelf registration we filed in connection with our ATM program after completing approximately $6.1 million of program sales during the first quarter. Importantly, both group and Cal Water maintained strong credit ratings of A+ stable from S&P Global, underscoring the strength of our balance sheet. Turning to Slide 10. We just declared our 325th consecutive quarterly dividend of $0.335 per share. We also announced our 2026 annual dividend of $1.34 per share. This is our 59th consecutive annual increase and is 8.1% higher than 2025. And with that, I'll now turn the call over to Greg to discuss the revised proposed decision on our rate case. Greg Milleman: Thanks, Jim. As Marty mentioned earlier, we received a revised proposed decision on our 24 California general rate case yesterday, and a final decision is expected later today or shortly thereafter. The revised proposed decision provides clear visibility into revenue growth, including approximately $91 million in 2026, followed by $43 million in 2027 and $49 million in 2028. Importantly, it continues key regulatory mechanisms like the Monterrey-style RAM and authorizes cost-balancing accounts such as our pension cost-balancing accounts, health care cost-balancing account, and a new general insurance liability balancing account, which helps stabilize earnings despite variability in customer usage and certain operating costs. While decoupling was not included, the decision introduces a new sales reconciliation mechanism and an updated rate design that better support this fixed cost recovery. Overall, we view the revised proposed decision as constructive and supportive of continued infrastructure investment and long-term earnings stability. And now Marty will take us through the remainder of the deck. Martin Kropelnicki: Thanks, Greg. And just echoing what I said earlier, I'm very happy with the PD that's going to the commission today for approval. And obviously, when it's approved, we will issue an appropriate press release and related 8-K with more of the details of what's included in that final decision. But I think it's fair to say from Greg's perspective, managing our rates department, and Jim's perspective as being our CFO, I think we're very happy with the outcome and look forward to getting the rate case wrapped up and moving on with our plans for 2026. Moving on to Slide 12, just a quick update on where we are with our NEXUS project. As you may recall, we announced that we reached an agreement with NEXUS to acquire their Nevada and Oregon operations. We have continued to progress very well, working with NEXUS. They're a great company to work with. We filed our change of control applications with both the state of Oregon and the State of Nevada. The state of Nevada has a 6-month statutory decision timeline. Oregon does not. We're hoping the 2 will try to stay on track around the same time, and we could drive to close these transactions as early as the end of the year. In the interim, the subject matter experts continue to work very, very well together, and we are mapping their processes into our systems. I've also had the pleasure of visiting all the sites in Oregon and Nevada. And very happy to say I was very pleased with all the employees that I met with. They are very, very professional and very, very sound operators, as well as an outstanding management team. In addition, since we last talked, I have had meetings with all the commissioners in the state of Oregon, as well as the commissioners in the state of Nevada and their staff. Those meetings have all gone very well as well. When we conclude this acquisition of the NEXUS assets, essentially, it will give us almost 100,000 connections outside of the state of California in total, which is about 20% of our total connections. So again, diversifying out of California, expanding our footprint on the West Coast. In addition, I think this is significant and something we don't talk a whole lot about. But for those of you who have been with us for a long time, if you remember, in 2008 and 2009, we started talking more about water and the wastewater business and recycled water. And back then, we really had the 2 wastewater treatment plants that we operate. When we get this deal closed with NEXUS, as well as the BBRT final buyout of the minority interest, we'll have over 24 wastewater plants that we'll be operating in the western half of the U.S. And I think, again, that just goes to show our diversification out of California into wastewater and then also recycled water, which I believe is going to play a very important role for water in the western half of the United States. Looking at Slide 13, on the DBRT slide, we filed the change of control application with the Texas Commission, which is on file with them. In addition, we added another 210 connections to our existing system. So we are waiting for the Texas Commission there as well, and then we will close on the minority interest that still remains in DBRT, and then that will become a wholly owned subsidiary of Texas Water Service Company. Moving on to Slide 14. We have started officially celebrating our centennial anniversary. I'd encourage everyone to take a look at our annual report. Our corporate communications team, headed by Shannon Dean, did an outstanding job going through kind of then now and next, which is the theme of the annual report. I'm also very happy that we've had over 41,000 people visit our Centennial website, which has a lot of information about the company, the rich history of the company, and how we grew from the idea that started with 3 World War I veterans to being the multibillion-dollar company that we are today. If you're interested in that site, I encourage you to look at it. You can visit it, and the URL is 100years.talwatergroup.com. In celebrating our 100-year anniversary, we have scheduled a number of events throughout the state of California. That includes both employees and local officials. We held our first one in Bakersfield. That was a big success, and we'll have another one here in Southern California in June. The overall goal of the program in celebrating this at a regional level is to allow us to increase awareness of the company's track record among our local communities and our public officials that we are allowed to serve. In addition to getting people together to celebrate our success, we are also getting a lot of reclamations and resolutions from, for example, the speaker of the California State Assembly, the City of Icealia, the City of Chico, Chamber of Commerce, the Central Valley Aging Chamber of Commerce, and the San Joaquin Hispanic Chamber of Commerce, and there's more to come. So it's actually fun to be out there talking about 100 years of service and reflecting on where we started to where we are today. With that, Dani, let's open it up for our Q&A, please, for the guests on the call. Operator: [Operator Instructions] Your first question comes from the line of Davis Sunderland with Baird. Davis Sunderland: Two questions for me. Maybe a PFAS question and then a balance sheet question. I guess I'll just start. I know the EPA has been talking recently about microplastics and potentially regulating some other substances outside the initial PFAS guidelines. Just wondering if you guys have any early thoughts on this, and specifically if these might be treatable within your current plans, or if this would require further capital investment beyond what you've already laid out? Martin Kropelnicki: Yes. Good question, Davis. And some of you have heard me talk about UCMR, which is really the unregulated contaminant list that the EPA publishes, and they update that list every so many years. If you really want to see what's coming down the pipe, no pun intended, on water regulation, you really want to monitor that UCMR list, and microplastics have shown up, and it has evolved on that list. And so it is certainly something that is a hotter topic at the EPA right now, and it is something that's in the water supply. And it's something that you will likely see regulations establishing MCL to make sure there are no microplastics in the water. So there's more to come from the EPA on that. Obviously, they go through a scientific process, and they come up with standards. Those standards get handed off to the states, and the State Department of Health is responsible for implementing those standards at the state level. So do I believe you ultimately have a standard that will come up on microplastics? Yes, I do. And I think as a society, we've gotten a lot better at not putting microplastics into the ground or into the ocean. So I think that part of it is actually improving. But I do think at some point, we will actually have a standard that will evolve that we'll have to treat for. And as part of that process, the EPA will also talk about what the appropriate methods and techniques are to treat the water that has microplastics in it. James Lynch: Yes. I think it's uncertain or unclear right now whether or not our current treatment that we're putting in place for PFAS will be effective for the microplastics, and that will depend largely on the EPA. Davis Sunderland: Maybe then just turning Jim, to the balance sheet. I appreciate all the comments on liquidity and available credit. But maybe if you could just talk a bit about how you're thinking about equity issuance and capital needs more broadly throughout the balance of the year, that would be super helpful. James Lynch: Yes. I think we're going to knock on wood, we feel very confident that we'll be successful in closing both BVRT and the Nexus acquisitions in Nevada and Oregon. And so that will be incremental to our normal cadence of debt and equity issuances. We'll take a look in terms of the timing on when we anticipate that's going to occur, and rightsize or determine the most efficient way that we can actually approach the capital markets to fund those transactions when the time comes. I think that there are some pretty interesting instruments out there relative to forwards that will allow us to time it a little closer to where we can minimize any sort of dilution that could occur in terms of the difference between the time we raise the equity and the time we actually close the transactions. And so we'll be looking into that. We believe when the transaction is closed, it would likely occur towards the end of the year, and that's when I would take a look at when we would look to raising the capital for those. Otherwise, we would continue to rely on our ATM and our normal lines of credit taken out by longer-term debt as we work through our capital programs and fund our other capital needs. Martin Kropelnicki: Yes. If you don't mind me jumping in. Davis, it's probably worth mentioning too, as you recall, we have our PFAS program, which is fairly substantial, and we have a separate application before the commission that we're waiting to hear on because that will add further pressure on Jim on the capital side. But the flip side of that is we've been very successful on the litigation side. And just last week, we received another $6.5 million gross from the polluter's trust that has been set up. So we have recovered about $66.5 million in gross receipts in our recovery process, going after polluters, which in essence just about $50 million. That $50 million will be a direct offset to our PFAS program and help keep those costs lower for our customers. So we're approaching 20%, 25% of those estimated PFAS costs being covered through our legal efforts. And our legal team continues to do a very, very good job at leading our industry efforts and getting recovery on that. So that will help a little bit. James Lynch: And for some perspective on that, we initially anticipated 2 basically segments of the program, one is treatment, and one is well replacement, with our objective to get the treatment in by the end of 2028. And then the well replacements will take a longer time. Of the total amount we plan to spend on PFAS, about $60 million of that is for the wells, and the remainder is for treatment. Operator: [Operator Instructions] There are no further questions at this time. I will turn the call back over to Martin Kropelnicki, CEO, for closing remarks. Martin Kropelnicki: Thank you, Dani. Thanks, everyone, for joining us today. Obviously, I think the big thing to watch for moving forward is really what happens at the commission today. We're hoping for approval. And again, I think we're very happy with the revised proposed decision that's on the docket for today. As we move into the second quarter, what are we going to be focused on? Obviously, we have to implement the results of the rate case. And while that sounds like an easy task, there's a lot involved in doing that. Obviously, there's a retroactive piece that goes back to January 1, which Jim and his team will have to work on, and we'll give a lot of clarity around that as we wrap up the quarter and have the appropriate disclosures in our financials for our second quarter 10-Q. In addition, there are thousands of table changes that have to take place on the billing cycle with the new tariffs. And so the rates team, working with our customer service team, the accounting team, and the IT team, will be making those tariff changes and doing the appropriate testing to make sure our tariffs are accurately being built. We are assuming an approval today, and we'd anticipate starting billing the new tariffs on July 1 of this year. And then in addition to that, obviously, we're staying very focused on our M&A side and really the Nexus transaction and the BVRT transaction, answering the commission's questions on the change of control applications as well as doing all the integration work and being ready to do a quick close and integrating those assets onto our platform once approved by the appropriate commission. So it's going to be a busy, busy second quarter, and then throw in the 100-year celebrations on top of that. We have a lot going on. But certainly, the team remains laser-focused on the tasks at hand. The last thing I want to do before we hang up is this is Greg's last earnings call with us. And if you know Greg Milleman, he's not a person who wants a lot of hoopla and fanfare, but I couldn't let the morning go without recognizing his contributions to California Water Service Group. We recruited Greg from Valencia Water in 2013, where Greg served as Senior Vice President of Administration. And believe it or not, we're Greg's third job out of college, and started off with Arthur Anderson, and then went to Valencia Water, and then he joined us. So we brought Greg in as a Manager of Special Projects. We were very impressed with him when we met Greg and didn't really have a spot for him, but we thought he was a very quality hire, a senior hire from within the water industry. Within a year, he was promoted to the Director of Operations, helping the operations team focus on deploying capital more quickly and more efficiently, and making sure that the plant is getting into service as quickly as possible. In 2017, he was named the Interim Director of Rates to help lead our rate case efforts. And in 2019, he was named Vice President of Rates for California. And then in 2022, when Paul Townsley retired, he took the helm as our Vice President of Rates and Regulatory Affairs to lead our overall rate strategy for all of our operating companies. Greg has only been with us for 13 years. And from a Cal Water standpoint, that's not a lot of time. We have a lot of employees who are in their 30s and have 40 years of service with the company. But Greg's impact on the company has been nothing short of outstanding. And if you look at our rate cases over the decade that he has been with us, the 13 years he's been with us, we have done the best with our rate cases under his leadership and his management. So I would be remiss if I didn't take this opportunity to tell Greg, thank you, and to wish him and Jim all the best in retirement, and we look forward to keeping in touch as we do with all of our retirees. So Greg, thank you. And with that, Dani, we'll wrap it up, and we'll see everyone next quarter. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Westwood Holdings Earnings 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, Jill Meyer, Director of Fiduciary Services. Please go ahead. Jill Meyer: Thank you, and welcome to our first quarter 2026 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended March 31, 2026, that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer; and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey. Brian Casey: Good afternoon, and thank you for joining us for Westwood's First Quarter 2026 Earnings Call. I'm pleased to share our results and key developments from the quarter as well as our outlook for the remainder of the year. Before going into the details, I would like to highlight a few points from the first quarter. Our AUM grew to $18.3 billion, up from $17.4 billion at year-end 2025. Our ETF suite of products surpassed $315 million in combined AUM. West II closed at over $300 million and West III fundraising is now underway. Combined institutional and intermediary gross sales were approximately $529 million. And finally, we completed the sale of Vista Bank, generating a net gain of approximately $2 million. I'll start with a brief overview of our assets under management. Firmwide AUM increased from $17.4 billion at December 31, 2025, to $18.3 billion at March 31, 2026. This growth was driven primarily by our energy and real asset strategies, particularly private energy funds and energy-focused ETFs, which more than offset modest declines in U.S. value equity. Private fund AUM was the largest contributor, reflecting new commitments and capital deployment in our energy secondaries and co-investment vehicles. This growth was structural in nature rather than market dependent, which we see as a healthy and durable source of AUM diversification. The first quarter reflected the continuing evolution of our AUM mix. Client allocations are shifting toward income-oriented real asset and private market solutions, driven by macroeconomic forces like energy security concerns, record global infrastructure investments and persistent power demand growth from data centers and AI-linked infrastructure. Traditional U.S. value equity strategies remain under pressure, although the pace of decline moderated during the quarter. Turning to the market environment. After reaching new all-time highs in late January, U.S. equities quickly faced a reversal. Military actions by the United States and Israel against Iran drove oil prices significantly higher in March, amplifying persistent market uncertainties. The S&P 500 fell 4.3% for the quarter, while SmallCap and MidCap stocks posted modestly positive returns. The standout story was energy. S&P 500 energy stocks gained more than 38% over the 3-month period, and market leadership continued to broaden out from mega-cap technology towards sectors like materials, utilities, consumer staples and industrials. The Fed held the funds rate steady in the 3.5% to 3.75% range as fourth quarter annualized GDP growth of 0.7% and lingering inflation kept policymakers on hold. Meanwhile, bond yields edged slightly higher, producing modestly negative returns for the quarter. With that market backdrop, let me turn to our long-term investment performance. Our results across strategy groups reflect the challenging near-term environment for value-oriented equities, along with several areas of genuine long-term strength that we find very encouraging. Within our U.S. value equity strategies, our SMidCap strategy continues to be a standout, ranking in the top quartile of both its eVestment and Morningstar peer groups over the trailing 3 years, a consistent and well-earned result. On a 10-year basis, our LargeCap value strategy has delivered competitive results relative to peers. We recognize that parts of U.S. value strategies remain under pressure, but we are actively focused on delivering improved results and have seen some moderation in outflows. Turning to our Multi-Asset strategies. Our results here are really encouraging. Our Multi-Asset income fund ranks in the top decile of its Morningstar peer category over both the trailing 3- and 5-year periods, a strong and consistent performance. And our income opportunity strategy ranks in the top third of Morningstar peers over the trailing 3-year period. Taken together, half or more of our Multi-Asset strategies are delivering top-tier results over meaningful time horizons. Our Salient Energy and Real Asset strategies delivered solid performance amid a favorable environment for the sector. Our MLP SMA strategy is in the top 1/3 of its eVestment Master Limited Partnership peer group over trailing 3 years and is performing well relative to the Alerian MLP Index on a net of fee basis. MBST and WEEI, the Westwood Salient Enhanced Midstream Income ETF and the Westwood Salient Enhanced Energy Income ETF continue to provide attractive yields to income-focused investors, consistent with their stated objectives. Our Tactical Growth mutual fund also delivered positive results while providing capital preservation during the March correction. Looking ahead, we believe market conditions are evolving in a way that increasingly favors our investment philosophy. The broadening of sector leadership out from mega-cap technology stocks toward energy, industrials, utilities and other value-oriented segments is precisely the environment in which our active quality-focused approach has historically excelled. Geopolitical uncertainty, inflationary pressures from elevated oil prices and potentially slower economic growth all create volatility, but they also create opportunity for disciplined investors like us who prioritize companies with strong cash flow, sound balance sheets and reasonable valuations. Over the long term and across market cycles, we have consistently demonstrated that quality and value are durable sources of outperformance, and we are well positioned to capitalize on that dynamic as the environment continues to evolve. Turning to distribution. Our institutional channel reported gross sales of $322 million for the first quarter with net inflows of $32 million. One major highlight was successfully onboarding our first institutional managed investment solutions client, accounting for over $200 million in gross sales, an important validation of the MIS capability we've been building. Our pipeline remains robust across both value and energy strategies with many new opportunities added during the quarter. We are also initiating SMidCap due diligence with 2 of the largest national consultants, which reflects the attraction of SMidCap's quality and competitiveness. We expect to see continued momentum in SMidCap Value for defined contribution plans, and we anticipate that our private capital platform will attract increasing institutional interest following significant enhancements we have made to our personnel and organizational structure. In our intermediary channel, gross sales reached $207 million, led by Energy and Real Assets with net outflows of $34 million. MBST gained approval from its first major wirehouse, a very important distribution milestone, and it continues to receive approvals from major national platforms. YLDW, our Enhanced Income Opportunity ETF, is approaching the $25 million threshold typically required for platform onboarding. Our Broadmark strategies are gaining traction as investor demand for risk mitigation has increased in the current elevated market volatility environment. And finally, momentum from our West II capital raise is underpinning West III as it attracts early interest from RIAs, family offices and independent advisers. Moving to our Wealth Management business. We entered 2026 with solid momentum as we continue to strengthen our multifamily office platform. Client engagement remained elevated throughout the quarter, reflecting ongoing market uncertainty and continued demand for proactive planning and thoughtful portfolio oversight. Our advisers maintained a disciplined long-term approach to asset allocation, which helped reinforce client confidence during periods of volatility. Client conversations are increasingly focused on holistic planning, particularly around tax positioning, liquidity management and coordination with trust structures, areas where our integrated model is optimal. From an operational standpoint, we continue to make progress on process standardization and cross-functional alignment across our advisory, client service and trustee. Our efforts are improving scalability while enhancing the overall client experience. Business activity remained steady during the quarter, including several notable large inflows from our multifamily office approach. We continue to prioritize high-quality client relationships with significant long-term potential. Looking ahead, our focus remains on refining internal processes, enhancing reporting and communication and strengthening collaboration across the platform to support sustainable growth. Beyond core business results, I'd like to highlight significant events and milestones achieved during the quarter. Our Enhanced Income Series ETFs achieved an important milestone as MBST, our Enhanced Midstream Income ETF crossed the $200 million AUM threshold in February, a landmark for a fund that has been in the market for less than 2 years. Together with WEEI and YLDW, our 3 Enhanced Income Series ETFs have now surpassed $320 million in combined assets. YLDW, the Westwood Enhanced Income ETF we launched last December, represents an important extension of our income ETF platform, being the first of our Multi-Asset strategies to be marketed as an ETF. YLDW combines a disciplined Multi-Asset allocation approach with a strategic covered call overlay, providing investors with a consistent and diversified source of current income plus potential capital appreciation. It is approaching $25 million in assets. MBST continues to maintain an annualized distribution rate of approximately 10%, consistent with its income generation objective and its recent wirehouse approval is a truly meaningful step in expanding our distribution reach. We will continue to look for opportunities to expand our ETF lineup with innovative strategies that address investor demands. Our Energy Secondaries business reached an important milestone as Westwood Energy Secondaries Fund II closed with over $300 million in capital commitments, more than double our initial $150 million target. Since launching our first Energy Secondaries fund in 2023, we have raised nearly $350 million and deployed over $250 million across 2 flagship funds and 3 co-investment vehicles. During the first quarter, we also received commitments for a new co-investment fund focused on an operated upstream platform. We have commenced fundraising for Westwood Energy Secondaries Fund III and its related co-investment fund, which we expect to market through early 2027, and it's generating substantial early interest. To support this growing platform, we have added team members to our private capital operations team and implemented a new AI-driven technology tool to streamline key operational processes. We completed the sale of our interest in Vista Bank during the quarter, receiving both cash and a stock consideration that enabled us to recognize a gain of approximately $2 million. In March, we celebrated the 25th anniversary of the Westwood Real Estate Income Fund, marking a quarter century of disciplined investing, durable income generation and a successful active management of publicly traded real estate securities. Since inception in 2001, the fund has navigated real estate and economic cycles while maintaining a philosophy grounded in fundamental analysis, valuation discipline and rigorous risk management. We're proud of the team that has delivered consistent results for our clients over such a long investment horizon. Finally, on April 1, 2026, Westwood celebrated its 43rd year in business, a testament to our commitment to clients, our culture of continuous innovation and the dedication of our entire team. We are proud to be one of the very few asset management firms with this depth of history, and we remain committed as always to the principles that have guided us since our founding. Looking back on the first quarter of 2026, we are encouraged by the strategic progress we have made across our business. Our ETF platform has scaled meaningfully. Our private capital strategy is gaining significant institutional and intermediary traction, and our distribution channels continue to build a healthy pipeline. The evolving market environment characterized by broader sector leadership, elevated energy prices and a renewed interest in quality and value is one in which we believe Westwood is well positioned to deliver for our clients and shareholders. With 43 years of experience, a diversified and growing product platform and demonstrated long-term performance in our core strategies, we are confident in our ability to capitalize on the opportunities ahead. Thank you for your continued support and confidence in Westwood. I will now turn the call over to our CFO, Terry Forbes. Terry Forbes: Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $25 million for the first quarter of 2026 compared to $27.1 million in the fourth quarter and $23.3 million in the prior year's first quarter. First quarter revenues were lower than the fourth quarter due to lower average AUM as well as fourth quarter recognition of performance fees for the prior year. First quarter revenues were higher than last year's first quarter due to the solid growth in our business reflected in higher average AUM and growth from our ETFs and private energy secondaries funds. Our first quarter income of $0.8 million or $0.09 per share compared with $1.9 million or $0.21 per share in the fourth quarter on lower revenues and higher compensation expenses, offset by a gain from the sale of our investment in a private bank and lower income taxes. Non-GAAP economic earnings were $2.8 million or $0.31 per share in the current quarter versus $3.3 million or $0.36 per share in the fourth quarter. Our first quarter income of $0.8 million or $0.09 per share compared favorably to last year's first quarter income of $0.5 million due to 2026's higher revenues and gains from our investment in the private bank, offset by higher compensation expenses. Economic earnings for the quarter were $2.8 million or $0.31 per share compared with $2.5 million or $0.29 per share in the first quarter of 2025. Firmwide assets under management and advisement totaled $18.3 billion at quarter end, consisting of assets under management of $17.3 billion and assets under advisement of $0.9 billion. Assets under management consisted of institutional assets of $9 billion or 52% of the total, wealth management assets of $4.2 billion or 24% of the total and mutual fund and ETF assets of $4.1 billion or 24% of the total. Over the quarter, our assets under management experienced net outflows of $50 million and market appreciation of $0.8 billion, and our assets under advisement experienced market appreciation of $48 million and net outflows of $50 million. Our financial position continues to be solid with cash and liquid investments at quarter end totaling $34.2 million and a debt-free balance sheet. I'm happy to announce that our Board of Directors approved a regular cash dividend of $0.15 per common share payable on July 1, 2026, to stockholders of record on June 1, 2026. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting quarterly highlights as well as a discussion of our business, product development and longer-term trends in revenues and earnings. We thank you for your interest in our company, and we'll open the line to questions. Operator: [Operator Instructions] I am showing no questions at this time. I will now turn it over to Brian Casey for closing remarks. Brian Casey: Great. Well, thank you. And I first want to thank our long-term and our new shareholders for approving our entire slate of directors today and all the other items we have on the agenda. Just in closing, our SMidCap performance has remained strong and our pipeline of opportunities has grown to over $1 billion. Our Managed Investment Solutions pipeline is improving every week, and we're optimistic that we will land our next institutional client in the coming months. We continue to build out our private capital platform, and we're anxious to kick off fundraising for our next fund. And finally, our ETF platform is seeing strong demand with higher trading volumes and growing AUM, and we're excited to see MBST go fully live tomorrow across one of the major wires. So that should be exciting. Thanks so much for your time. We appreciate it. Visit westwoodgroup.com or call Terry or I if you have questions. Thanks so much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to AIG's First Quarter 2026 Financial Results Conference Call. This conference is being recorded. Now at this time, I'd like to turn the conference over to Quentin McMillan. Please go ahead. Quentin McMillan: Thanks very much, Michelle, and good morning. Today's remarks may include forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based on management's current expectations. AIG's filings with the SEC provide details on important factors that could cause actual results or events to differ materially. Except as required by applicable securities laws, AIG is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks may also refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on our website at aig.com. With that, I'd now like to turn the call over to our Chairman and CEO, Peter Zaffino. Peter Zaffino: Good morning, everyone. Thank you for joining us today to review our first quarter financial results. Following my remarks, Eric Andersen will provide his initial perspectives on AIG and share some commentary on the quarter. And then Keith Walsh will provide more detail on our financial performance. Jon Hancock will join us for the Q&A portion of the call. We had a very strong start to 2026 and delivered an exceptional first quarter, the strongest first quarter that we've seen since I've been at AIG. During my remarks, I will share key first quarter highlights and discuss our outstanding progress towards our Investor Day objectives, provide a perspective on the Property market, since it's receiving a lot of attention this quarter, and outline the progress we're making on our AI and digital strategies. Before we get started, I'd like to take a moment to address the ongoing conflict in the Middle East and what it means for our people, our clients and the broader environment in which we operate. We have a significant number of colleagues in the region, and their safety remains our top priority. From the outset, our teams quickly shifted to enable remote operations, and we remain in close contact to make sure our colleagues have the support and resources they need. The impact on our industry will continue to evolve, and we remain focused on managing risk in a complex global market. Demand for expertise in property and energy, trade credit, and political risk insurance is increasing as clients navigate heightened uncertainty related to shifting trade policies. The direct impact on AIG is not material based on what we've seen to date, but we're not complacent. We're monitoring accumulation risk, adjusting underwriting guidelines where warranted, stress testing our investment portfolio and staying very close to our reinsurance partners. Just as important, we are continuing to stay close to our clients and brokers, helping them understand coverage, navigate claims issues and manage through this volatile environment. Now let me turn to our results. We had an excellent start to the year and have been very focused on advancing our strategic investments and delivering on the ambitious 3-year guidance that we provided at Investor Day in 2025. In order to achieve these objectives, we intend to continue delivering balanced net premiums written growth with excellent accident year combined ratios to support earnings expansion across our core businesses, while also focusing on our nominal expense base. Net premiums earned growth is expected to benefit AIG in the back half of 2026 and as we enter 2027. In the first quarter, General Insurance net premiums written increased 18% year-over-year on a constant dollar basis, driven by our Global Commercial Insurance business, which increased 21% year-over-year and our Global Personal Insurance business, which increased 11% year-over-year. All 3 business segments performed exceptionally well, supported by our recent strategic transactions, our differentiated reinsurance strategy and profitable organic growth that's in line with market peers. I want to provide a little bit more context on reinsurance. As I discussed during our fourth quarter call, AIG achieved enhanced terms and conditions and favorable pricing during the January 1 renewal cycle. We negotiated substantial year-over-year savings, which included the Everest portfolio, providing a meaningful tailwind to our net premiums written in the first quarter. It's worth noting that AIG's property catastrophe placements have lower modeled attachment points and higher exhaust limits for each geography on a risk-adjusted basis. For AIG, our strategy of maintaining a consistent low net retention for natural catastrophes through the cycle means that we will benefit from more attractive reinsurance pricing as evident in the positive impact to our net premiums written. We've discussed our Global Personal Insurance business in prior quarters, and I want to recognize the significant improvement in the financial performance, which has been deliberate. We grew net premiums written 11% in the first quarter, benefiting from the restructuring of our related reinsurance treaties and organic growth along with meaningful improvement in the expense ratio, which decreased 410 basis points. The accident year combined ratio as adjusted improved 570 basis points to 89.9%. The calendar year combined ratio was 89.4%, a strong improvement from 107.9% in the prior year. We continue to make outstanding progress in our Global Personal Insurance business. Shifting back to overall General Insurance financial results. The expense ratio was 29.3%, an improvement of 120 basis points year-over-year. The accident year combined ratio as adjusted was 86.6%, an improvement of 120 basis points year-over-year. The calendar year combined ratio was 87.3%, an improvement of 850 basis points year-over-year. Adjusted after-tax income per diluted share was $2.11, an increase of 80% year-over-year. Core operating ROE was 12.2%. Overall, we achieved very impressive financial results across the entire company, another exceptional quarter of execution from all of our AIG colleagues from around the world. Turning to capital management. During the quarter, we returned $760 million of capital to shareholders, including $519 million of share repurchases and $241 million of dividends. As we announced yesterday, the AIG Board of Directors approved an 11% increase in our quarterly dividend to $0.50 per share starting in the second quarter of 2026. This marks the fourth consecutive year of double-digit percentage increases and reflects the Board's confidence in our strategy and AIG's long-term outlook. Our total debt to total adjusted capital ratio was 17.7% at quarter end. As we discussed on our last earnings call, we've continued to reduce our ownership of Corebridge Financial. At the end of the first quarter, our equity interest in Corebridge was approximately 5.6%. We anticipate fully exiting our position by selling down our remaining stake in 2026, subject to market conditions. We expect the primary use of these proceeds will be for additional share repurchases. As we look ahead, AIG has tremendous financial strength and strategic optionality to execute against our objectives, profitability ambitions and our capital management priorities. Turning to the Property market. On our second quarter call last year, we spent time discussing the market's competitive dynamics and providing detail on our portfolio. I wanted to provide a further update based on current market conditions and the pricing pressure we have seen across the market on the U.S. large account segment. As a reminder, we have multiple points of entry into the global property market where we deploy capital for the best risk-adjusted returns. First, our balanced and profitable International Property business represents approximately 40% of AIG's $6.5 billion gross premiums written Property portfolio. I'm using gross premiums written because it's more accurate reflection of our performance without the impact of reinsurance. As a point of reference, the International Property portfolio's calendar year combined ratio was on average in the low 70s across 2024 and 2025. The International Property market rate environment is very different from the U.S. International pricing was down 4% in the quarter. And this was only the second quarter of rate reductions that we have had in the last 5 years. In the U.S., we have a strong performing Retail Property portfolio, which is majority shared and layered, and had calendar year combined ratios in the 70s in 2024 and 2025. In Excess & Surplus Lines, the Lexington middle market portfolio has performed exceptionally well. This has been one of the fastest-growing segments in Property and continues to deliver one of the best combined ratios in our Global Property portfolio. We've been deliberate in our growth and believe our AI implementation, which I will discuss later in more detail, will further enable this. The Lexington large account shared and layered business in Excess & Surplus Lines, which is less than 10% of our Global Property portfolio, has been under significant pricing pressure over the last year, and that's a different story. Given continued pressure on rate on a policy year basis and our general observations, we have been contracting our Lexington large account portfolio, and you should expect that to continue throughout the year if the current market environment persists. We have been and will continue to be more selective on new business within the portfolio, which decreased 19% year-over-year. Across the portfolio, we are willing to non-renew accounts that no longer meet our expected risk-adjusted returns. As part of this disciplined approach to underwriting, we're able to quickly redeploy capacity to areas of the market that provide more attractive opportunities for profitable growth. Now I want to discuss the progress that we continue to make on AI and digital. After years of extensive work exploring how to embed AI into our underwriting workflow, we outlined our blueprint at our Investor Day in 2025. That work reinforced our conviction that AI has the potential to materially improve performance and drive better solutions for our clients and for AIG. Our approach to using AI has been focused on 3 important components. First, you have to have an understanding of the technology and capabilities of large language models. Second, you have to have pattern recognition in order to know how to apply AI to your business. And third, you have to have a culture and a track record of execution in order to effectively deploy AI within an organization. While we expect the technology would develop meaningfully over time, we could not have predicted the rapid pace of advancement over the last 9 months or the breadth of AI's potential application. We started our AI journey at the core of our business in underwriting, where we felt the impact will be most profound. At the time, large language models could handle discrete tasks like answering a question or reviewing documents with limited autonomous time. In 2025, we launched Underwriting by AIG Assist to help our underwriters review our submissions with more and higher-quality information in a fraction of the time. After a successful launch, we began to deploy AIG Assist across 8 lines of business. We're very encouraged by the impact on underwriting metrics and improved data quality. In Lexington middle market property, which is an area we have targeted for growth, AIG Assist has helped deliver a 30% improvement on quoting more submissions, reduced time to quote for the underwriters by 55% and increased binding of submissions by approximately 40%. Now with advancements in reasoning models, AI agents can review, challenge and eventually recommend underwriting observations so that our underwriters can make more informed decisions and provide more robust insights to supplement their experience and underwriting judgment. We're advancing our business model and AI implementation programs to leverage this potential. To illustrate the magnitude of recent advancements in AI, when we began our work with Claude 2.0, AI agents could operate autonomously for less than an hour. Today, they can run autonomously for as long as 30 hours. This quarter, in close partnership with Palantir and Anthropic, we've begun the next phase of agentic AI at AIG that builds on early successes of AIG Assist. Using Palantir's Foundry platform, we expanded our ontology, a digital map of our business that included our underwriting processes, workflows and data relationships. This ontology, coupled with orchestration, will enable us to deploy multiple AI agent teams to integrate with our core systems, which will improve decision-making and reduce costs over time. As the logical next step in our AI deployment, we're creating a multi-agentic solution with a strong orchestration layer that coordinates specialized and trained AI agents to seamlessly supplement our underwriters' analysis and should further augment our underwriters' ability to assess risks and rate and provide coverage with real-time alignment. In this phase, we expect each AI agent to be purpose-built for a specific underwriting function. For example, one agent may handle submission ingestion and data extraction, another may perform risk evaluation against our underwriting guidelines and another could benchmark pricing against our portfolio targets, all with a collaboration agent to synthesize input from other agent large language models. These agents will communicate and handoff work to each other to augment our underwriters just like a well-functioning underwriting team, but operating at machine speed and with inherent consistency. To illustrate an example of how quickly agents can learn a business, I want to outline a beta test that was recently conducted by Anthropic. As part of a closed evaluation, Anthropic hired a professional claims adjuster to review 100 claims, ranked each as fraudulent or legitimate, and document the reasoning. Claude was then used to assess the same 100 claims. Claude's determination aligned with the adjusters 88% of the time, a very strong baseline for an out-of-the-box model with no claim-specific tuning. Fast forward to today, the latest version of Claude can elevate the performance of an entire claims team, surfacing patterns across submissions that are easy to miss when reviewing files one at a time, making our most experienced adjusters even more effective. Large language models can now hold a full file of claims information in context, every endorsement, every loss run, every guideline and reason across it with an audit trail. Examples of what Claude routinely flags include time line inconsistencies, geolocation mismatches, linguistic fingerprints, prior claim patterns, document tampering signals and coverage gaps. The intuitive nature of the large language models and its ability to learn all of the information the claims expert had access to demonstrates the potential of large language models to work alongside our underwriting and claims professionals to drive improved data, decision-making, more timely responses and more accurate outcomes. Importantly, we will be able to see what every agent is doing and can intervene in real time, if needed. Human oversight is and will continue to be essential to our underwriting processes. Overall, we're very pleased with the progress we're making, and we are beta testing the use of multi-agentic solution to enhance our team's productivity, efficiency and learning and development. AIG entered 2026 with significant momentum, and our performance in the first quarter was outstanding. We achieved impressive results in a complex operating environment, and have a very good foundation to accelerate our strategic progress. Finally, as I discussed last quarter, Eric Andersen joined AIG in February and will officially become our next CEO on June 1. Building on his decades of experience in the industry, Eric has hit the ground running, developing a detailed understanding of AIG, our business and our functions, and engaging with key stakeholders, including the AIG Board, colleagues, rating agencies, regulators and our clients, brokers and partners. We look forward to Eric's impact on leadership in 2026 and for years to come. Now let me turn the call over to Eric. Eric Andersen: Thank you, Peter. Good morning, everyone. I'm excited to join you today, and I'm honored to be part of AIG's leadership team at this pivotal juncture in the company's journey. I will begin by sharing my perspectives on AIG over the last 90 days since joining the firm. As you know, I served for decades as one of AIG's largest trading partners, and AIG has played an important part in my 3-decade-long career in insurance. In that time, I came to know the company extremely well, and gained deep appreciation for the valuable role it plays in the Global Property and Casualty Insurance market. Like many in the industry, I was impressed by the successful execution of the organization's transformation under Peter's leadership over the last several years. The company's balance sheet strength, improved underwriting, balanced portfolio, and ambitious strategic direction and powerful momentum were clearly evident. The time I have spent over the last several months meeting with colleagues, clients, distribution partners and other stakeholders have been invaluable and validated my earlier observations. AIG has demonstrated its ability to drive sustained profitability while balancing disciplined capital management with financial flexibility and building for the long term. This flexibility has enabled the execution of our recent transactions, which are already proving to be accretive to AIG's 2026 earnings. Our culture of underwriting excellence is firmly embedded across the company and is a defining attribute in which our team has great pride. Deep expertise, coupled with our commitment to prudent risk-taking, solidify AIG as a market leader, well-positioned to advise and serve clients in today's complex environment while utilizing reinsurance strategically to control volatility. As Peter has shared in depth, we are implementing a leading AI strategy designed to rapidly evolve alongside other advances in technology to deliver growth, data insights and quality decision-making. We expect our strategy to enable our businesses to be more effective over time. We have outstanding leaders. Our colleagues are highly engaged and the company is well aligned to deliver on our ambitious strategy and objectives. Before joining AIG, I thoroughly reviewed the strategy and how the company's plans for the future were outlined in our 2025 Investor Day. I believed in the strategy then and today, I want to reaffirm my commitment to the strategy and delivering on our Investor Day financial guidance, which includes: delivering operating EPS compound annual growth of over 20% over the 3 years ending 2027; driving core operating ROE of 10% to 13% through 2027; improving General Insurance's expense ratio to less than 30% by 2027; supporting the increase in our dividend by 10% in 2026; and achieving improvement in Global Personal Insurance combined ratio to 94% by 2027. I am encouraged by the strength of our results and I'm even more encouraged by the opportunities ahead. Our ability to grow is supported by our unique global platform, diversity of our products and distribution channels, risk expertise, complex claims capabilities, leadership across admitted and non-admitted markets, Gen AI capabilities and our spirit of innovation. I'm also committed to maintaining our underwriting discipline and culture. One of my personal priorities will be to work very closely with our clients and distribution partners to provide tailored solutions that address the rapidly changing risk landscape. As one of the largest U.S.-domiciled global insurers, we are proud to leverage our deep expertise in marine and war insurance and have joined other U.S. insurers in supporting the U.S. International Development Finance Corporation's Maritime Reinsurance plan to help restore confidence to the markets and support the flow of commerce in one of the world's busiest trade routes. This initiative builds on AIG's history of playing a central role in both public and private industry-led initiatives to deliver critical insurance solutions to respond to complex situations. Turning to our first quarter financial results. Let me provide an overview of our performance in General Insurance. First quarter net premiums written growth was superb and representative of our intent to position our business favorably regardless of challenges in the market environment and to capitalize on our recent strategic actions. North America Commercial net premiums written increased 36% year-over-year, with the growth largely driven by reinsurance changes and the Everest renewals in our Retail business. We continue to achieve double-digit growth in our Retail Casualty portfolio as the market conditions are largely disciplined in liability lines. Retail and Lexington property benefited from our successful January 1 reinsurance renewals. However, as Peter discussed, the U.S. Property market environment remains very competitive, and our teams are continuing to take a highly disciplined approach to the layers in which we participate and how we deploy line sizes as we continue to navigate the current rate environment. In Financial Lines, our team successfully continued to recalibrate in competitive D&O market segments where we are focusing on the value proposition of our differentiated offering and industry leadership. Western World, Glatfelter and Programs each had solid growth, which has been deliberate and Programs benefited from our new special purpose vehicle with Amwins. International Commercial net premiums written increased 12% year-over-year with the majority of growth coming from the Convex whole account quota share, Everest renewals and reinsurance changes, as the team prioritized organic growth discipline in a generally challenging rate environment. Global Commercial retention remained very strong at 88%. North America Commercial retention was 88%. And International Commercial retention was 89%. Global Commercial new business was $1.6 billion, including Everest renewals, an increase of 42% year-over-year. Our team has continued to make very good progress with the conversion of the Everest portfolio. Retention is performing within our expected range, reflecting strong support from our clients and broker partners who are intentionally choosing to work with AIG in a competitive market. The collaboration between our team and Everest has been extremely productive, delivering mutually-beneficial outcomes for both organizations. As Peter mentioned, Global Personal Insurance had a very strong quarter with underlying growth initiatives beginning to gain traction. The team has done significant work to improve profitability and growth over the past year, and we believe we should see continued progress in these areas. Before I close, I want to recognize the efforts of our team across the globe. They are doing an exceptional job navigating a dynamic market, prioritizing business with the highest risk-adjusted returns and collaborating with our clients and broker partners to identify optimal risk solutions. I'm looking forward to getting out on the road to meet more of our colleagues, clients, partners and investors around the world in the coming weeks and months. Our first quarter results were outstanding and reflect robust progress on our strategy, substantial growth and sustained underwriting excellence. This has been an incredible way to start the year from which we will continue to build on our tremendous position of strength. In closing, I am very excited to work with my fellow AIG colleagues to lead this remarkable company into the future. I want to thank Peter for the extraordinary accomplishments under his leadership to position us for success, and I look forward to continuing to work together as we capitalize on our strong foundation, disciplined capital management and sustained momentum. I'll now turn the call over to Keith. Keith Walsh: Thank you, Eric, and good morning. As Peter and Eric mentioned, we had a great first quarter, and I'm going to provide some additional detail. Adjusted pretax income was $1.5 billion, an increase of 65% from the prior year quarter. Underwriting income more than tripled to $774 million year-over-year, driven by lower catastrophe losses, improved accident year underwriting results and higher favorable prior year reserve development. Accident year underwriting income adjusted for catastrophes, rose 17%. This reflects transaction and organic growth while improving our underwriting margins, an excellent result in the current environment. On a constant dollar basis, General Insurance gross premiums written of $10 billion increased 7% year-over-year. Net premiums written of $5.6 billion increased 18%, reflecting strong growth across all 3 segments. For full year 2026, we continue to expect low to mid-teens net premium written growth in General Insurance. Net premiums earned were $6.1 billion, up 5% year-over-year. Moving to our underwriting ratios. General Insurance accident year combined ratio as adjusted was 86.6%, an improvement of 120 basis points from the prior year quarter. This improvement was driven by a lower expense ratio of 29.3%, reflecting increased operating leverage and expense discipline. Over the past several years, we have made significant progress in reducing our cost structure and improving the expense ratio while investing for the future. As individual quarters may reflect seasonal variability when thinking about the expense ratio run rate, it's better to look at the trailing 12-month trends and to model any improvement on a year-over-year basis rather than sequentially. The accident year loss ratio as adjusted of 57.3% was flat year-over-year. Total catastrophe losses for the quarter were approximately $180 million, with the largest losses attributable to winter storms. Prior year development, net of reinsurance and prior year premium, was $132 million favorable and included $127 million of favorable loss reserve development, $26 million of ADC amortization and roughly $21 million of reinstatement premiums. The favorable development was driven primarily by continued favorable loss experience, most notably in U.S. Property and Financial Lines. Overall, the General Insurance calendar year combined ratio was 87.3%, an 850 basis point improvement year-over-year. Moving to segment results. North America Commercial accident year combined ratio, as adjusted, was 85.5%, an increase of 120 basis points over the prior year quarter. This was primarily driven by a 90 basis point increase in the accident year loss ratio as adjusted due to changes in business mix as we reduced certain Property Lines and earned in more Casualty business. North America Commercial calendar year combined ratio was 85.5%, an outstanding result and an improvement of 840 basis points from the prior year. International Commercial accident year combined ratio as adjusted was 85.1%, an improvement of 30 basis points, driven by a 50 basis point improvement in the expense ratio. The International Commercial calendar year combined ratio of 87.3% improved 90 basis points year-over-year and was the 12th consecutive quarter of sub-90% combined ratio, underscoring the strength and consistency of the portfolio. Peter described the performance in Global Personal, and I'm going to add some highlights. We continue to improve underlying profitability and delivered strong performance across both net premiums written and underwriting income growth. Accident year combined ratio as adjusted was 89.9%, a 570 basis point improvement compared to the prior year quarter. The calendar year combined ratio improved over 18 percentage points year-over-year to 89.4%. We are encouraged by the progress we're making as actions we have taken to reposition the portfolio continue to earn in. Moving to pricing. We continue to take a disciplined approach to underwriting and pricing, prioritizing lines and accounts where we see attractive risk-adjusted returns. Starting with North America Commercial. Excluding the Property business, our North America Commercial renewal pricing increase was 7%, largely in line with loss cost trend. In North America Casualty, the overall pricing environment remains favorable with pricing in retail Excess Casualty up 14% and Lexington Casualty up 8%. In U.S. Financial Lines, pricing was flat, reflecting continued moderation of price reductions aligned with our team's strategy to drive rate in targeted D&O segments. In North America Property, overall pricing decreased 11%. The market remains competitive, as Peter described in his remarks. In International Commercial, overall pricing was down 1% and was slightly positive, excluding Financial Lines in the first quarter. Casualty pricing improved in the quarter, up 5%, benefiting from positive rate change on auto. Property pricing was down 4%, with modest variation by region while Japan continues to deliver both positive rate and pricing. Global Specialty pricing was down 1% and Financial Lines pricing was down 4%, a continuation of trends from the fourth quarter for both of these lines. Moving to Other Operations. First quarter adjusted pretax loss was $125 million versus the prior year quarter loss of $66 million. The difference was driven by lower net investment income and other of $54 million compared to $110 million in the prior year quarter, owing to lower parent liquidity levels in addition to lower Corebridge dividends. Given current short-term interest rate levels, we expect the second quarter Other Operations net investment income and other line to be in the range of $30 million to $40 million, subject to market conditions. Moving to General Insurance net investment income. First quarter General Insurance net investment income was $864 million, up 17% year-over-year. The increase was driven by our core fixed income portfolio, which grew net investment income by nearly 20% over the prior year quarter. This reflects the benefit of our proactive strategy to reposition the public fixed income portfolio. During the first quarter, we continued to reinvest at higher yields with the average new money yield on our core fixed income portfolio roughly 80 basis points higher than sales and maturities. The annualized yield was 4.61%, a 51 basis point improvement over the prior year quarter. The strong growth in our core fixed income portfolio was partially offset by lower alternative investment income, which was $6 million compared to $43 million in the prior year quarter. Private equity returns yielded 1.6% in the quarter, below our long-term expectation. It's worth noting that the private equity results are generally reported on a 1 quarter lag. Given the market volatility experienced in public markets throughout the first quarter, we expect second quarter alternative returns to remain below our expectations. Next, I want to spend a few minutes on our private credit portfolio, as we've slowed our deployment in this asset class given market conditions. We define private credit very broadly, as in everything that is not a public security. It includes commercial mortgage loans, investment-grade private placements, asset-backed finance and direct lending. Our direct lending exposure is about $1.2 billion, less than 1.5% of the General Insurance investment portfolio. It is a diversified portfolio of middle market loans with an average loan size of about $6 million. We hold all direct lending on our balance sheet, not through business development companies, and the software exposure is approximately $130 million or just 16 basis points of the General Insurance portfolio. We will continue to deploy funds in a wide variety of assets with key managers, including our new partners, CVC and Onex. Book value per share at March 31, 2026, was $75.82, up 6% from the prior year quarter, reflecting strong growth in net income as well as the favorable impact of lower interest rates, partially offset by capital return to shareholders through dividends and share repurchases. Adjusted tangible book value per share was $70.85, up 4% from the prior year quarter. In summary, we delivered a strong first quarter with excellent underwriting results. With that, I will turn the call back over to Peter. Peter Zaffino: Thank you, Keith. Michelle, we're ready for questions. Operator: [Operator Instructions] Our first question comes from Meyer Shields with KBW. Meyer Shields: Peter, I just want to start by saying, I've seen you take two companies from death's door to top tier, so congratulations on a phenomenal career. The big picture question that we're just trying to figure out now is that as leading carriers and brokers, both successfully adopt AI, how does that impact what the carriers pay to the brokers? And since you've been on both sides of that desk, I was hoping you could talk about how you expect that to play out. Peter Zaffino: Yes. Look, thanks for the question. And how we interact with the brokers, I think, is going to be more of how we all get so much more efficient in exchanging data and information on submissions. I mean, look between me and Eric, you've got two people here that have a lot of broker experience. And they do a lot more than gather data and do placement. They're giving massive advisory to industry groups across the globe. I think scale will matter over time. And as we look at the way in which data is being ingested through the mechanisms of a variety of large language models, I think we will be able to augment information that we get in submissions to be able to make better underwriting decisions. And what I was trying to give in that claims example in my prepared remarks is that not only are large language models sort of out of the box, not tuned, very capable and can give insight, but as they start to get trained a bit through experts, everybody benefits. And so the large language model gets more proficient, but also so does the underwriter, so does the claims executive in terms of what they learned in that calibration. So I think in the future, as enterprise becomes a much bigger part of large insurance companies and large insurance brokers, the ability to collaborate will get even stronger. Meyer Shields: Okay. That's very helpful. And then this is probably a smaller scope question. But I was hoping for any insight in terms of the impact of pricing on the Everest business. I know there's a mix of Property and Casualty. But I'm wondering how AIG's current pricing is impacting the gross premium volumes that you're bringing over from Everest? Peter Zaffino: Yes. Let me make a couple of comments, and then I'll ask Jon to maybe give a little bit of detail as he's been so intimately involved. Look, we looked at the portfolio in its entirety. We've been working very closely with Everest in the conversion. We've actually brought a lot of employees from Everest to AIG, and they've been doing a tremendous job. So they know the book. It's not as though you're handing off a portfolio from Everest to AIG without any insight. We have people here, terrific executives. Adam Clifford is running a lot of our International Commercial, doing just a fantastic job. And this has been a book that has been coveted by a lot. I mean we talk to brokers, there's a lot of inquiries about the portfolio. I don't want to go back to AI. But when we worked with Palantir on the ontology, we were able to get a look at the portfolio within a week about every upcoming month as to what the submission activity is going to be and what we like for pricing and what we thought we needed to restructure. And so we got ahead of that with the underwriters. And as Eric said in his prepared remarks, the conversion has just been outstanding, which just means that our broker partners want the conversion to go from Everest to AIG and the clients want that. And so I think that is really what I would want to take away and that the expectations in terms of loss ratio and combined ratio will be in line with what AIG's business has performed. But Jon, maybe you want to give a couple of examples. Jon Hancock: Yes. Thanks, Peter. I won't repeat things that you've said, but we're really pleased with this transaction. Everybody knows it's a renewal rights deal on business that we really like and complements our own portfolio. And I agree with Peter here. The biggest compliment I can give this book is that everyone else is chasing for it. And if you don't believe Peter, if you don't believe me, go ask the brokers because everybody is chasing for this business, so we take that as good. And when we talked about it last quarter, every indication we gave there still holds true. Now that the retention and the conversion is really strong, the ratios actually are just as we expected. We're 5 months into converting business, but obviously, we're a lot longer into that to understanding the portfolio through our underwriters, through our actuaries, through our partnership with Palantir and the way we did that. And we knew there were places in the portfolio where we'd want to reprice, restructure, play on different parts of the programs. And we're doing that. But there's also some other benefits here. We're collaborating really well with Everest. That's helped get that real support from our broker partners, that real will from our clients, they want to come to AIG. But it's also meant that we've been able to combine layers, everything's within risk appetite, take lead positions from follow positions. And as Peter said, we picked up -- we've been targeted. We picked up some real good talent on the way. That's great for our ongoing business, but it's great for helping us manage the Everest portfolio as well. Operator: Our next question comes from Brian Meredith with UBS. Brian Meredith: First, Peter, I just want to congratulate you also on this incredible transformation that you've led here in your tenure at AIG. It's really been impressive and wonderful to follow as an analyst. Yes. I guess the first question I have, I want to dive a little more into Lexington and the E&S markets here. Not only are the Property market is incredibly competitive, which you've been talking about here. But we've also heard from some companies, you're starting to see some cracks in Casualty, maybe some moderation in pricing rates, heard about terms and conditions softening up as well as maybe business moving back to the middle market from the E&S market. I'd love to get your perspective on that. Do you agree with it? And then what is the potential implications for AIG's growth in margins as we look forward here over the next, call it, 12 to 18 months on that? Peter Zaffino: Okay. Thank you. Let me try to unpack how you like -- approach like Lexington, and I think it's important to differentiate between sort of the large accounts, shared and layered, and then some of the middle-market business. I don't want to repeat what I said in my prepared remarks, but we see in the shared and layered in E&S and Property, rate decreases far and away cutting into margin and we're going to need to shrink the portfolio in the current environment. Just the one thing I would say is that we have a tendency as an industry to lock everything at the moment. We're coming into wind season. We're coming into an environment where there has been a lot of delegated authority, a lot of MGA writings and when there's CAT, sometimes it clears out, and there's opportunities. So we want to be positioned to take advantage of that. I would say the middle market, I outlined it in the Property sort of section, it has performed exceptionally well. There is a little bit more of a competitive rate environment, certainly in the middle market. But we see significant submissions, we see opportunities. They're selective. But I think as we start to get AI more embedded into Lexington, it's not because we see massive growth opportunities because the market is there. We see opportunities because we're not able to service the incredible submission flow, which has still been very strong. So I think there's going to be pockets of opportunities in the mid-market on E&S. And don't forget, like in the way in which wholesale brokers position themselves, I always put it into 3 buckets. One was pure E&S. The other was they became placement mechanisms for the 40,000 independent agents that exist within the United States that wanted more market and then they had the delegated authority MGA. So we're really kind of focusing on the middle bucket in terms of where we look at middle market, Property and Casualty. I do think the Casualty has become a little bit more under pressure from rates. I still think that we have very good returns, and we'll just watch that very carefully as we go into the back half of the year, but it's not in the same bucket as the way the property has been performing. Brian Meredith: Got you. Got you. And in terms and conditions, anything you can say there? Peter Zaffino: I think that's, like, on the ground, Brian. Like it depends on the industry group. It depends on the size and the class. I think, look, there -- in these markets, there tends to be a little bit more in terms of conditions. But what we're seeing is nothing that is concerning or a trend across the portfolio. Brian Meredith: Great. And then a follow-up, maybe more for Eric. Eric, so you're coming to a company now with significantly improved operationally, profitability, et cetera, et cetera, but also has a tremendous amount of excess capital. I'm just curious on kind of your thoughts on deploying that excess capital, thoughts on M&A and maybe how to increase the operating leverage here at AIG? Eric Andersen: That's a great question and thanks. It's great to be here. And just -- I know you said it, but I'll say it, too. The work that Peter and the team has done has just been outstanding in terms of organizing the firm. Listen, I think the opportunity is in front of us today with the plan that we've laid out right now in terms of how do we drive our organic growth, how do we continue to execute on the transactions that have been done, how do we evolve our offerings to meet our clients' needs in this risky environment. There's an awful lot to do over the next 12 to 24 months, just building on the strategy that we've laid out and really look forward to working with the team to make that happen. Peter Zaffino: That's great. And I would say, Brian, having been here for almost 9 years. We worked really hard to build that capital position, gave us the option value to do Everest, gave us the option value to assume risk for Convex. Eric and the team will be looking at opportunities. As the market gets more complicated, I think that comes with opportunity. And so like we have really worked hard on ROE. We know we have capital that we can grow into and we wanted just to provide AIG with as much option value as possible. Operator: Our next question comes from Bob Huang with Morgan Stanley. Jian Huang: Also I just want to echo what Meyer and Brian said. Peter, as a former librarian, if you write a book, we'll definitely read it. So just to put it out there. Peter Zaffino: Thank you, Bob. But I'm not writing a book. Jian Huang: Okay. No, totally understandable. So my questions are all on AI. I know there's a lot of emphasis on AI. So my question is a bit theoretical. So apologies in advance. When you talk about multi-agent collaboration and build out in underwriting functions, departmental level capabilities and then also the orchestration layer governing on top of it, it doesn't sound like a simple efficiency gain, but much more of a broader organizational and structural integration around AI. So is it fair to say 5 years down the road, 10 years down the road, there should be global-wide capability around that integration and coordination. And then there is a future state where your underwriting and your understanding of risk would be much more uniform globally. Does that sound right? I mean, is there like a future where the functions and then the coordinations will be globally across departments in underwriting? And then that's essentially where the differentiation between you and other more regional underwriters should be? Is that the right way to think about it as we think about AI integration going forward? Peter Zaffino: Well, 5 to 10 years, we couldn't predict a year out. I mean when we did Investor Day, that's why I wanted to highlight some of the significant changes in AI deployment and AI capability. I do think there's great opportunities to learn from different parts of the world and to be able to apply the ingestion, the large language model learning, multi-agent orchestration in terms of helping decision-making. Look, I think the most complicated part of the world is going to be Europe just because of GDPR and the use of data. It's very hard. And we've talked to a lot of our stakeholders there. It's very hard to beta test or roll something out in Europe without it being tested somewhere else just because of the complexity of how you're allowed to use data. So I think that -- look, there's a lot of differences across the world. A lot of Asia is very digitally enabled and very tech-oriented and believe that rollout and implementation, you have like different businesses that you need to customize. We're doing that in our Japan business. But I absolutely think in a 5-year period that the global capabilities in terms of the AI orchestration across an organization, just not in underwriting but across from front to back office will be profound. And I don't -- look, we're a large company, so I'm going to be biased, but I think you need to have size, scale and ability to beta test and try to work through this in order to get the most out of it. Jian Huang: Okay. Really appreciate that. Second question is around the AI expense costs. You talked about implementing Claude 2.0. Claude 2.0 has a lot of more token ingestions and inputs and things of that nature. As we think about just AI being much more of a variable cost rather than a fixed cost, when we think about your expense as we think about expense going forward, right? Can you maybe help us think about how that factors into your ROE considerations and things of that nature? Peter Zaffino: I think as we get into like '27, '28, not to punt to the poor, Eric, but like I think you'll start to get a lot more clarity in terms of what the expense components are of how we deploy it and what the benefits are on the revenue side. We've just begun. There's a lot of opportunities on the expense side. And why I haven't really spoke a lot about it is one is our first case was to go to the heart of the company, which is underwriting and then to go to claims. That's what we do. We're underwriters, and then in moments that our clients need us, we have to be able to deliver the best claims organization in the world, which under Julie Chalmers' leadership we're doing. So as we continue to move forward with the implementation of that, you're going to start to see benefits and efficiencies. What we're starting to work through now is more enterprise and how you actually can take the orchestration of agents. And we've moved more from Gen AI to agentic and now, we are going to look at how do you use autonomous with a lot of guardrails and supervision to work through reengineering our workflow. And with that, there's going to be a multi-agent orchestration. I can't give you a time frame. It could be '27, it could be '28. But I think there's going to be a lot of efficiencies that will create the bandwidth to reinvest in the business. And so how we're thinking about it at AIG is more capabilities, more insight, more benefit for brokers and clients, create our own bandwidth for investment by reengineering process and having the ability in certain markets to be able to grow exponentially when there's opportunities. Operator: Our next question comes from Michael Zaremski with BMO. Michael Zaremski: Great. Just a question on the loss ratio, which has been excellent. But I just wanted to -- it's one of the main questions we get from clients. You've done a great job explaining why the reinsurance helps ameliorate some of the downward pricing impacts. Your reserves look even healthier year-over-year. But ultimately, you're still living in a soft market. So I just wanted to make sure we heard that there's some core loss ratio impact as you mix into Casualty. But beyond that, should we just be -- just a little bit of kind of pressure from the soft market? Or I just want to make sure we don't get too maybe complacent or comfortable with just how excellent the loss ratio has been. Peter Zaffino: Yes. Thanks for the question. I think we saw in the first quarter evidence of the shift in mix of business with the accident year loss ratio increasing slightly by 50 basis points. Now the reinsurance did benefit that, meaning there's more net premium written and then there's a little bit earned in the first quarters, which will help us as we get into the second, third and fourth. But yes, as we look to grow organically more in casualty because we think that the pricing environment and the risk-adjusted returns are above loss cost and want to continue to do that, and we are doing that organically. And then the conversion of Everest on a Casualty basis as well as Financial Lines will change the mix a bit. And then the Property, it's hard to predict. I mean, I would expect that, that will, in the E&S, start to decrease how much we'll see where the market is, but we ought to expect E&S in the sort of shared and layered to decrease. But I tried to break out the overall Property portfolio, which has performed exceptionally well, and we got a 40% International business that is very predictable rate environment is not the same. And the other thing I would note, Mike, is that when the market was really in our favor a couple of years ago, and we were getting significant cumulative rate increases, we didn't always recognize that just in the loss ratio. We continue to build margin. We continue to put more into the overall loss ratio to make sure what we're seeing was going to be accurate. And as it emerged, it was better than we expected. So I think when you look at the loss ratios, why I broke down the reinsurance is that the reinsurance benefits because if you just say, look at our cost of goods sold, we buy a lot of property per risk, a lot of CAT, we're taking no more risk. I mean, so that's the other thing I just want to make sure I'm emphasizing is that when you look at the reinsurance and the savings, that's on same-store sales. Same attachment points, modeling goes up, it helps on the risk-adjusted basis. AALs, like there was no compromise there. We have a property per risk cover that's very comprehensive that we got benefits from. Every excess of loss treaty that we placed at 1/1 was at or better in terms of terms and conditions and pricing. And so that will benefit us. And then, yes, could there be some deterioration in the Property attritional loss ratios, which were exceptional? There could be. And so that will have a mix where the loss ratio could go up based on that mix over time. But we're highly confident that we can offset that with expense discipline, earned premium growth and the expense ratio will go down. Keith, he's already getting nervous, I can see him, that I'm going to give too much guidance. But I think when you look at what we put out in terms of the trailing 12 months, we're really getting after expenses. On a nominal basis, company has been incredibly disciplined and always performs exceptionally well. And then you have earned premium coming in. So I would expect the expense ratio to benefit the loss ratio, will reflect the mix, and we're going to watch the margins and make sure that our accident year loss ratios reflect our observations on the business performance. Michael Zaremski: That's thoughtful and helpful. And just lastly, as my follow-up for Eric. Congrats, we're looking forward to working with you. I mean, I don't expect you to kind of be able to specifically preview any changes you might make when you're officially in your seat. But just curious, you've been there for a bit now. Would you say there are some major changes or major projects you feel strongly about starting once you're in your seat based on what you've seen at AIG so far? Eric Andersen: No, that's a great question and I appreciate it. Listen, I would say other than -- let me maybe go back and tell you what I've been doing over the last 90 days and give you a little bit of context. So other than the onboarding process, in terms of digging deep into the firm itself, I've had a chance to meet with a lot of colleagues, a lot of clients, all of our distribution partners, and really excited about the vision and the strategy and where we are as a firm. And as always, it's always about execution, right? Can we continue to work with our clients and partners and develop those deep relationships? Can we continue to build a great business that obviously, you've all been recognizing today over the next journey? And listen, I think the strategy that we laid out on Investor Day, how we actually want to deploy capital, how we want to position the company to help our clients. I love where we are. I was excited about it coming in. And 90 days in, I feel even more strongly about where we are today. So I would expect, as you look at the rest of the year, I would say we are going to drive hard on the existing strategy and look to perform. Peter Zaffino: Thanks, Eric. And I want to thank everybody for joining us today. There's a few thank yous that I want to say before we leave. One is, I want to thank the sell side very much because it's been 9 years of complexity and your ability to dive in, try to be constructive, help learn so you can educate a variety of stakeholders has been hugely beneficial, and I'm very grateful for all that you did to allow us and enable us to make the progress that we did. I want to thank our employees. They did an incredible job. I've only worked in big companies for the 35 years that I've worked after college. And so I have a perspective. And in great companies, a lot of times, the positions matter. You need very talented people to be in those positions, but it's the positions and the people. At AIG, it's the opposite. It's the people that made a massive difference and the positions ended up becoming a big part of how we structure the company, but the will to win here is like nothing I've ever seen. And they've done an incredible job. They accomplished an incredible amount and just keep it going because like the best days are ahead for this company, and there's no doubt about it. And I just want to wish Eric the best of luck. As I said, the company is in great hands. Eric's been a student of the business and a practitioner for 3-plus decades, and this company is going to go from strength to strength. So I just want to thank everybody, and have a great day. Operator: Thank you for your participation. You may now disconnect. Everyone, have a good day.
Operator: Good morning. My name is Vincent, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle Mines Limited Q1 2026 Conference Call. [Operator Instructions] Mr. Ammar Al-Joundi, you may begin your conference. Ammar Al-Joundi: Thank you, Vincent. Good morning, and thank you for joining our Agnico Eagle First Quarter 2026 Conference Call. I'd like to remind everyone that we'll be making a number of forward-looking statements, so please keep that in mind and refer to the disclaimers at the beginning of this presentation. Next slide, please. We're pleased to announce a solid start to the year with production slightly above budget and with costs in line with our guidance. This solid operating performance, coupled with exceptional gold prices has allowed Agnico Eagle to announce yet another quarter of record net income driven by record operating margins. We are reiterating 2026 production guidance with production expected to be weighted approximately 48%, 52% between the first and second halves of the year. We're also pleased to reiterate our cost guidance for 2026. This is no small task given the uncertainties and pressures in the market over the past several weeks. As you will hear on this call, this has been a strong quarter across all of our businesses. Solid operations, strong progress on moving our growth pipeline forward, continued exceptional exploration results and as mentioned, another quarter of record financial results. My team will go through all of this in more detail in a moment, but let me outline and summarize what I believe are the 3 key messages that are important to take away from this call. One, as mentioned, we're off to a good start to the year with solid operating performance, delivering record operational and financial results. Record mill throughput at Macassa, record development rates at Meliadine, record pit tonnage at Detour. We're delivering these solid operating results while doing an excellent job controlling costs, leveraging off our relentless focus on cost control while benefiting from certain structural cost advantages that derive from our business model, including, for example, in both Ontario and Quebec, where we produce the majority of our gold, all of our electricity is either hydro or nuclear and really not exposed to changes in fuel and diesel prices. With regards to Nunavut, where we do generate our own power through diesel, we've got a lot of that diesel hedged both by necessity because we have to bring the diesel up in advance through a short barge season, and we have it stored up there, but also by some very smart and proactive hedging by our treasury department with regards to diesel exposure. We've also got the benefit of lower employee turnover and the reliable supply chain that comes from being the best customer for decades in the safe regions in which we operate. Two, we continue to strengthen our financial position and to increase returns to shareholders. This quarter, we paid a $1.3 billion 2025 tax catch-up. We distributed $375 million to shareholders. We invested almost $400 million into our high-quality growth projects, all while increasing our cash position by almost $250 million. At these gold prices, we will increase our share repurchases, and we are increasing our normal course issuer bid to $2 billion. And three, and perhaps the most important takeaway, we continue to aggressively reinvest in our business into the best pipeline in the industry, into projects that deliver exceptional returns at relatively lower risk, and we are making steady progress in many cases, ahead of schedule. Dom and Natasha will spend some time talking about the projects they're moving forward to increase production at Agnico Eagle by up to 20% to 30% over the next decade, including Detour to 1 million ounces, Malartic to 1 million ounces, Hope Bay, Upper Beaver and San Nicolas. In addition, with the expected consolidation of our Finnish platform, we now see a path to further growth that comes from building a 500,000 ounce a year multi-decade platform in what we believe to be the most prospective land package in Northern Europe. Guy will spend some time going over some of the continued great exploration results he and his team have generated focusing on Detour and Malartic, but he'll also spend a bit more time talking about this Finnish land consolidation and what he and his team see as a long-term potential well beyond the Ikkari project. Our strategy remains focused, focused on safe, responsible mining, focused on operational excellence, delivering reliable, low-cost production. We have the best land packages in the most prospective and safest gold jurisdictions in the world. We have a path to industry-leading production growth over the next decade. Our execution of delivering this growth remains on track. And at these gold prices, we think we can deliver this growth and reduce share count at the same time. Now before I turn the call over to Jamie, I need to spend a moment on safety. Tragically, we've had 2 fatalities over the past 5 months. This is not acceptable. I recognize and I accept that the responsibility for the safety of our people rests ultimately with myself and with my team. We've mobilized our teams to reinforce across our company and at all levels and to all employees, our commitment to not only deliver on our guidance, but to do so safely and responsibly. There is nothing more important than the safety of our people and our communities, and we commit to do better. With that, I'll turn the call over to our CFO, Jamie Porter, to review our first quarter operating and financial results. James Porter: Thank you, Ammar. As highlighted earlier, we delivered another strong financial quarter, driven by solid operational performance and continued leverage to higher gold prices. We had several record financial results during the quarter, including adjusted net income of approximately $1.7 billion or $3.41 per share and adjusted EBITDA of just over $3 billion. We generated about $730 million of free cash flow in the first quarter. This is particularly impressive given that we paid roughly 50% of our expected 2026 cash taxes totaling $1.8 billion in the quarter, of which $1.3 billion had been previously disclosed as related to our 2025 tax liability. First quarter gold production of approximately 825,000 ounces was actually slightly better than planned with the lower production year-over-year reflecting mine sequencing at LaRonde, Macassa and Fosterville. With the first quarter representing about 24% of the midpoint of our annual guidance and production weighted to the second half of the year, we're well positioned to meet our full year production targets. Total cash costs were $1,093 per ounce and all-in sustaining costs were $1,483 per ounce, reflecting higher royalty costs associated with a significantly higher realized gold price, lower production volumes as expected and a stronger Canadian dollar compared to the first quarter of 2025. Importantly, costs continue to trend within our full year guidance ranges of $1,020 to $1,120 per ounce for total cash costs and $1,400 to $1,550 per ounce for all-in sustaining costs. While we continue to monitor cost volatility, including diesel prices and foreign exchange movements, we believe our regional operating model, local procurement strategies and disciplined hedging program provide meaningful mitigation against potential cost pressures. With respect to diesel prices, our 2026 cost guidance assumes an average diesel price of $0.78 per liter. Direct diesel consumption covering mobile equipment and on-site power generation in Nunavut is estimated at approximately 108 liters per ounce of gold produced, representing roughly 7% of our total operating cost base. We believe that our exposure to diesel price volatility is below industry average, reflecting the fact that the majority of our gold production comes from underground mines, which are generally less diesel intensive than open pit mines. Further, the majority of our gold production is from mines located in Ontario and Quebec, which benefit from access to non-oil-based grid power. Overall, our sensitivity to diesel prices is estimated such that a 10% change in diesel prices results in roughly a $6 per ounce impact on annual total cash costs after taking into account our hedge position. We do not currently anticipate any disruption to our procurement strategy for fuel or other key consumables, and we remain comfortable with our full year cost guidance. We turn to Slide 5. We are in the strongest financial position in the company's history. We continue to deliver meaningful returns to our shareholders alongside further balance sheet strengthening and disciplined reinvestment in the business. During the quarter, we returned approximately $375 million to shareholders through dividends and share repurchases, representing roughly half of free cash flow. As previously announced, we intend to renew the normal course issuer bid in May on substantially the same terms with an increased limit of up to $2 billion. And at current gold prices, we are still targeting returning approximately 40% of annual free cash flow through dividends and buybacks. We will also look for opportunities to offset dilution from the proposed Rupert Resources acquisition, including potentially returning proceeds from portfolio investment sales through additional share repurchases. In parallel, the balance sheet keeps getting stronger. At the end of the first quarter, our net cash position increased to approximately $2.9 billion, giving us one of the strongest balance sheets in the sector. This strength was recognized recently by Fitch, which upgraded Agnico Eagle's long-term issuer rating to A- with a stable outlook. At the same time, we continue to reinvest in the business, advancing our 5 key pipeline projects that are expected to underpin long-term production growth of 20% to 30% over the next decade. We are exceptionally well positioned in the current gold price environment with a continued focus on disciplined capital allocation and long-term shareholder value creation. With that, I'll turn the call over to Dom. Dominique Girard: Thank you, Jamie. Good morning, everyone. In my section, I'm going to talk the update on operation and project for Quebec, Nunavut and Finland. For the first quarter, a good start led by Malartic and Meadowbank on the production, and we are in good position for the full year cost and production. An important milestone in the first quarter at Malartic, where we took the first stope at East Gouldie via the ramp approximately 1 kilometer underground. Why it's important? Based on the 2023 study, we're going to mine there up to 2042. But based on what we know now, we're going to be mining there up to 2060, most probably. Most probably, I will not be the COO at that time, but we have a good bench that's going to take it from there. So it's very positive. And on the shaft sinking, I'm going to talk a bit about that next slide, shaft sinking and also production hoist, it's also going well. The plan is to bring that ore to the surfaces via the shaft mid-2027. Everything is aligned. On the continuous improvement, an important milestone achieved at LaRonde. They were working on that since a couple of years to do autonomous hauling. So it's a good example of leveraging the synergy into the region using the LZ5 expertise. So what is that autonomous hauling? We are taking the ore from the 3.2 kilometers underground up to 2.9 kilometers without drivers. So this is a real example of a positive impact using technology. Instead of operating, let's say, using 4 trucks and 8 operators, for day shift or night shift, those guys in the current situation, they are able to operate effectively 10 to 12 hour per shift just by the time to go underground. Using the technology, we're able to use 2 trucks operating by 1 person, 1 night shift, 1 day shift, so a total of 2, and we're able to operate on a 20-hour basic. So it's a clear example of using technology to improve productivity and very good job done at LaRonde on that. Also in Finland, what we did, we took 3 and 4 people -- key people from each site from mainly Canadian operation. I mean the GMs, the key guys in the continuous improvement, the VP. We bring them to Finland to see what they did there. It was the first time for most of the people, not just to see the reindeers, but also the Finland site. And it was about how they did it in Finland, the mindset on continuous improvement, their leadership and the tools they were using. And it was also a very good opportunity to build a relationship and sharing best practices through our key people into the company. Guy is going to talk about that, but very happy also about the Ikkari, what's going on is very positive for the Finland team. Next slide. On the growth project, at Malartic, the ramp and shaft, as mentioned going well. The pilot hole for the first -- for the second shaft is done down to 1.8 kilometers underground. No issue related to that. And the study continue on the Shaft 2 and Marban and the Wasamac study. It's progressing well, and we're looking to give you an update in September later this year. At Hope Bay, look to the picture. So we are in good position. That was our goal. We are in a good position to potentially announce the construction in May with the Board. So the camp is ready. The fab shops are ready to welcome the construction team. The mill is empty, ready to go. And we are in good position for the engineering. That was one of an important goal. So we're going to be over 50% that guarantee and give us confidence into the cost into the schedule. We're going to give you more detail at the visit at site for the lucky ones that are coming because we're going to have [ Muscat ] on barbecue, charcoal barbecue. So this is -- the team is working on that. That's going to be a good thing. Before giving the mic to Natasha, the visit at Hope Bay, you're going to see the picture over the first 10 years. But we're going to most probably be there for many 10 years. And that's what Guy is going to show you into the car shaft, what is our vision on to the region. And also, the last 2 years, we focused on infilling the patch, the new deposit and to be ready for that study. But Guy is also gearing up to restart treasure hunting into the Hope Bay site eventually more next year and the years after. So on that, I will pass the mic to my great colleague, Natasha. Natasha Nella Vaz: Thanks, Dom, and good morning, everyone. I'll cover the operational highlights for Ontario, Australia and Mexico. So the regions delivered good performance to start the year. At Detour, they hit a quarterly record in tonnes mined, but they also had a record mill throughput for the first quarter with the lowest turnover -- quarterly turnover that we have seen since the mine began open pit operations. Over at Macassa, the mill here also delivered record quarterly throughput as a result of the ongoing optimization initiatives as we ramp up that mill towards over 2,000 tonnes per day by the end of the year. Now despite this progress, total mill tonnage was below plan this quarter, and this was mainly a function of challenges we faced with our old paste plant while commissioning the new one, which we expect to be fully operational in Q2. At Fosterville, they also performed very well this quarter. There was a significant step change in productivity, and that's really due to ongoing mine optimization efforts. Improvements this quarter were seen in both development and stope cycling. And it was the same with Pinos Altos. The team there continues to work very hard on initiatives to safely extract the most value from their assets. Now in terms of initiatives this past quarter, Dom spoke about our knowledge sharing trip to Finland to help other sites understand their continuous improvement journey and really inspire them to do the same. And of course, it was really great to network, to gain alignment to collaborate with other sites. And another good example of collaboration between sites and really maximizing the value of our assets and of our infrastructure was between Macassa and LaRonde. I just want to take a quick second to recognize both teams here. They worked very closely together over the last few months. And with a coordinated effort, they were successful in receiving the approval to allow ore from the AK deposit to be transported and processed at the LZ5 facility. At Macassa, we also successfully completed the installation of the LTE network underground. The connectivity is expected to support a range of optimization initiatives, including the implementation of a dispatch system and enabling the site to obtain short interval control. And this can enable us to make decisions quicker, to become more agile, to become more productive and as a result, further optimize our costs. So these are just a few examples of our ongoing productivity focus and our operational improvement initiatives. Moving to the next slide. I'll give you an update on the projects in Ontario and Mexico. The Detour underground project, that plays a very big role in the plan for the complex to be a 1 million-ounce producer annually. We're still in the early days of this project, but we're making very good progress, and we're advancing on schedule. We continue to advance the exploration ramp and have achieved just over 820 meters of development, reaching a depth of about 147 meters. We also began excavating the overburden for the conveyor portal, which is near the mill and progressed work on the camp extension. And to complement the planned bulk sample, we initiated a high-intensity drill program in an area being considered for mining as early as 2028, and Guy will speak to this program shortly. Over at Upper Beaver, there have been a lot of progress made this quarter with both the ramp and the shaft advancing ahead of schedule. The ramp has advanced over 500 meters in the quarter and has reached a depth of 108 meters. The shaft sinking, which commenced in the fourth quarter of last year, has already reached a depth of 382 meters. And similar to Detour, to complement the planned bulk sample at 760 level, the high-intensity drill program continued during the quarter. Now with respect to San Nicolas, we're waiting on the regulatory decision for key permits. But in the meantime, we're continuing to advance the engineering of the critical infrastructures, which will help further derisk and build confidence in our execution strategy. We're also continuing with the drilling activities focused on condemnation drilling and geological evaluation near the planned mine area. Finally, I'd like to close by just recognizing the teams at our operations and our projects for their very disciplined execution in the first quarter and for their continued focus on advancing our optimization initiatives and our key projects as we move through the year. And so with that, I'll turn the call over to my friend, Guy. Guy Gosselin: Thank you, Natasha, and good morning, everyone. Pleasure again to be able to report on progress we're making in exploration as obviously, this is one of the key components to be able to deliver that 20% to 30% growth that we are promoting. We had an excellent quarter in terms of diamond drilling, completing 25% or nearly 360 kilometers of drilling of our overall budget of 1.4 million meters for the year, having 127 rigs in operation on mine site and key value driver project. We continue to advance in our journey in exploration to make drilling safer and more productive while maintaining a unit cost in the same order than the last couple of years, aiming to offset inflation with gain in productivity. Going to specific projects on Slide 10. In Malartic, 35 drill rigs are in operation, completing 75,000 meters in Q1, 16 underground, 13 on surface in proximity to the Odyssey infrastructure and 6 at our regional target, including Marban deposits across the 3. At Odyssey, as mentioned by Dominique, the shaft and the ramp development are progressing ahead of schedule and the first stope is currently being mined at East Gouldie, which is quite exciting, considering the discovery hole in East Gouldie was made just a couple of years ago in 2018 and that we are already there with the ramp in the shaft because of the great collaboration between the various teams to turn it from a discovery into a mine in such a short period of time. This is impressive. We continue to get strong exploration results at East Gouldie with 6.7 gram over 36 meter on Level 105 in the center of the ore body and also in the internal zone between Odyssey North and Odyssey South with a new structure that returned 9 gram over 53-meter core land. Although we do not have a full understanding yet of the true thickness of that structure, it continued to show the additional upside we see both in the internal zone at Odyssey North and South and in East Gouldie that keeps growing laterally. And on the adjacent Marban project, lateral exploration drilling continued to the west and to the north of the proposed open pit, while we are, at the same time, advancing with the condemnation drilling program to confirm the potential location of surface infrastructure. Now on Slide 11, at Detour Lake, 9 rigs completed close to 40,000 meters of drilling in the first quarter, in line with our budget. Drilling was continued to focus on the Western extension of the ore body to the west of the open pit, where we are contemplating to initiate mining underground early on, utilizing the exploration ramp. Some strong results such as 8.9 grams over 14 meters at 190-meter depth and 10.7 grams over 10 meters at 500-meter depth shows a strong potential for high-grade underground mineralization over a large area that extends over more than a kilometer now adjacent into the west of the open pit, where the exploration ramp is currently being developed. Briefly, at Hope Bay, as mentioned by Dominique, we've had a great quarter in terms of drilling on ice, thanks to the team's great winter drilling program. We started early. We've completed north of 33,000 meters of drilling as of the end of March, and a full update will be provided on the May 19 press release along with the project announcement we've been talking. And finally, on Slide 13, in Finland, I would like to provide some color on the recent announcement we made with an offer to acquire all of the outstanding share of Rupert and Aurion Resources, along with the 70% interest of B2Gold and the Fingold JV. It was a great job by our corporate development team and legal team. With these 3 combined transactions adding to our current landholdings, we will be consolidating close to 2,500 square kilometers, consistent with our corporate strategy of focusing on regional hub, leveraging our 20 years of experience in exploration, permitting, mine construction and operation with a strong social license to operate in the most fertile greenstone belt in Europe. By combining the Finnish workforce of Agnico along with the workforce of Rupert and Aurion and removing property boundaries, we will aggressively explore in the near term, the immediate and lateral extension of the Ikkari deposits as well as the multiple occurrences that were identified on the Fingold JV and the large land position owned by Rupert and Aurion. Personally, it reminds me a lot about Kittila mine acquisition in 2005. At the time of the acquisition, there was approximately 2 million ounces down to less than a kilometer. And 20 years later at Kittila, it grows down to and still open at depth below 2 kilometers with a global endowment of 10 million ounces, considering past production reserves and resources known so far. I see a similar potential on the structure at the Ikkari deposit and as these mineral system are similar to our Canadian greenstone belt that have demonstrated extended vertical geological fertility. By this transaction, we are aiming to deliver in Finland a platform for multiple mines over multiple decades, similar to the 3 regions in Canada that are Quebec, Ontario and Nunavut, where we will be leveraging our regional expertise. And on that, I will return the microphone to Ammar for some closing remarks. Ammar Al-Joundi: Thank you, Guy, and thank you, Jamie and Dominique and Natasha and everyone else on our team. Really exceptional work, really tremendous results, well done. As you can see, we continue to work hard for all of our stakeholders, and we'll continue to build off the same foundational pillars that have defined our strategy and that have served us very well over the past almost 70 years. We will focus on the best mining jurisdictions based on geologic potential and political stability. We'll be disciplined with our owners' money, making investment decisions based on technical and regional knowledge, creating value through the drill bit and through smart acquisitions where and when it makes sense. We are uniquely well positioned with a quality project pipeline, leveraging existing assets in the best regions in the world where we believe we have a competitive advantage. And we will continue to be focused on creating value on a per share basis and on being leaders in our industry in returning capital to shareholders as evidenced by over 43 years of consecutive dividend payments and increased share buybacks. We have a clear and executable strategy to create tremendous additional value per share for our owners well into the foreseeable future with manageable risk, leveraging off existing infrastructure and regional competitive advantages. We have the assets, we have the projects, we have the resources and we have the people. We are making it happen right now. We will stay focused, and we will not be distracted. Thank you again for joining us on this call. And for many of you, thank you for decades of trust and support. We will always work hard to maintain that trust, and we will never take it for granted. Operator, may I ask that we now open up the call for questions. Operator: [Operator Instructions] First question comes from the line of Lawson Winder from Bank of America Securities. Lawson Winder: We'd like to start off with the Finnish acquisition, and we haven't had a chance to ask you guys about this in this type of forum since the announcement. And Guy, thank you very much for the picture you've painted and for the color on getting to 500,000 ounces. But can you help us understand what are the sort of value creation steps over the next 12 to 24 months to get to a better understanding of what that ultimately looks like. So resource update, study, when do you expect permitting to start? And just any other considerations on that sort of time line thinking? I appreciate it. Ammar Al-Joundi: I can start, but maybe Dom and Guy can jump in on more details. The first thing, Lawson, and by the way, nice to hear your voice, the first thing Lawson really was to consolidate all of this property. There's a lot of potential. They're good properties, but they were individually constrained and so that's why it was very important for us. And as mentioned, our entire team, but in particular, the corporate development team and the legal team did a really good job in allowing us to consolidate all of this at the same time. It's really first and foremost, and then I'll pass it over to my colleagues about consolidating what we think is the best land position in Europe. Dominique Girard: Thanks, Ammar. Lawson, Dominique speaking. Maybe I think what on my side, I need to do is to freeze the scope of that one, let's say, without the boundaries, where we should put the mill, the tailings and revamp the schedule, the study based on the new acquisition. And the exploration guys are all excited to add, but we're going to need to kind of try to kick that project for a first start but also to get some flexibility, maybe, for example, at the mill to make sure -- it's always a challenge to get enough detail into the study to push that into the permitting. And that's what we're going to focus by staffing the study team and eventually the construction team. Guy Gosselin: So maybe in complement, Lawson, Guy speaking now. As we discussed in the press release, our plan by removing the property boundary is to have sort of an updated view with the current information by the end of 2027, where we're going to have sort of a better picture of what the optionality that removing the property boundary offer on both the optimum pit design and location of infrastructure. And while we're going to right away, as a matter of fact, start drilling once the acquisition is completed because we know as well that property boundary was also constraining the drilling close to the property boundary. So -- but that's our intent. By the end of 2027, we should have an idea of the kind of a revised concept based on the current information, while we're going to continue to drill and maybe look at other iterations. So maybe like you can refer to what we did in Malartic. We're going to be providing most likely a first version of what it could be and then keep drilling and adjust based on what we're going to discover. Lawson Winder: Okay. That's helpful. And then just a follow-up from me with respect to the Detour Lake underground drill results. There were some really, really substantial intercepts, of course. With the drilling you've done to date, has your understanding of what the Detour Lake underground can be, has it evolved and changed in any way in the past, let's say, 12 months? I mean is it starting to look like it could be a much bigger system? And are you possibly reconsidering what the ultimate development plan might look like Detour underground? Guy Gosselin: Well, I would like -- to me, the area west of the pit is very similar to what was historically mined on the ground at Detour that we are now mining with the pit closer to surface. So obviously, we are showcasing a couple of great results. On average, we think that, that area will be anywhere between maybe 2.5 and 3.5 grams, something like that. And obviously, when you put those some spectacular results along with some others that are in a 2, 3-gram over 20, 30 meter. So it's in line with our expectation. It's aligned with what we're actually just firming up the model of that zone. As you know, we are mindful of the history at Detour. In order to selectively mine a high-grade ore, you need a ton of drilling, you need the right drill spacing. When we are getting there with the ramp, we're going to be soon being able to drill it more aggressively from underground as well from the exploration ramp. So it is shaping up as we thought. It's always an area that I personally liked a lot west of the pit. Natasha Nella Vaz: Lawson, just to add to that, it's Natasha, by the way. Just because of the -- we do have a study team looking at this and looking at different iterations as we proceed with the exploration program. But with the combination of the exploration success and the high gold price environment, there is definitely optionality here at Detour. So it's fairly early stages, I would say, but the team is looking at different trade-offs for potentially a higher milling capacity, a larger underground, potentially another pushback at the pit. But again, very early days. Operator: Your next question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: In the quarter, there was an announcement about a Nunavut collaboration agreement with B2Gold. Can you maybe just talk about the thinking behind that and what you hope to learn from their operations at Goose? Ammar Al-Joundi: Well, we -- it's Ammar here. I'll start and then maybe Dominique or Jean can comment. In general, we always like to try to work with our colleagues and our peers. We have a lot of experience in the areas we operate. We think we have some competitive advantages, but we're not so naive to think that we know everything. So any time we get an opportunity to work with our peers to see what they're doing, we take advantage of that. I think our owners would want us to do that. And also from B2's perspective, they're good people. We know them well, and they think that we do a good job where we operate, and they want to see if they can learn a little from our operations as well. So it's just the kind of stuff that we want to do in the industry. I think that's probably enough on that. Fahad Tariq: Okay. And then maybe just one for Jamie. I noticed the buyback pace slowed down quarter-over-quarter in the first quarter. Is that just a function of the pretty significant cash tax payment. And can you just remind us of the minimum cash you'd like to keep on the balance sheet going forward? James Porter: Yes. No, that's exactly right. I mean we said we put out our guidance in February that we'd be targeting returning about 40% of our free cash flow through a combination of the dividend and the share buyback. Our free cash flow was lower in Q1 as a result of the cash tax payments. So I think our -- the percentage worked out to closer to 50%. It was $150 million of shares repurchased in the quarter, which was half of what we did in Q4. That will ramp up certainly in Q2 and through the rest of the year as our free cash flow is expected to be higher. In terms of minimum cash balance, I mean, I think we're comfortable where we're at now with $3.1 billion of cash, $2.9 billion of net cash, between $3 billion and $5 billion I think that's a good position to be in, in terms of just giving us financial flexibility to be able to execute on our strategy. But yes, definitely higher share buyback activity expected through the remainder of the year. Operator: Your next question comes from the line of Josh Wolfson from RBC Capital Markets. Joshua Wolfson: I appreciate the additional disclosure on the energy sensitivity side of things. I had a question in terms of the Hope Bay project update later this month. Looking at the current market for prices, there's obviously been a high degree of inflation. How are you thinking about incorporating some of those input prices for that project update and thinking about maybe the near-term impact versus what otherwise would a long-term, much more reasonable price be? Ammar Al-Joundi: Josh, it's Ammar here. I'll start and then Dom will jump in. In my experience, the most important thing in building projects is to get the engineering done and to have the execution plan well laid out. We have seen some inflationary pressure, but actually, it hasn't been that bad. And the team, as Dom said, I mean you looked at the picture, the camp is going to be there. The backup power is there, the mill building, half the mill building is there. Water treatment is there. So we're coming to this with an advantage of infrastructure in place, which allows us to execute. I mean it's all about execution, but also exceedingly important is the amount of engineering the team has done, which allows them to get a much better control overall on execution and, therefore, on cost. Dom? Dominique Girard: Yes, Josh, we -- in May, we're going to give more detail on the economic. That that's going to be obviously positive economics. And our assumption are based on the long-term view, we're going to give you some sensitivity to understand how that could impact, and we don't know the future. But as Ammar mentioned, we're -- I'm very comfortable where we are right now. We've been mining in Nunavut over 17 years, and we've built already 3 projects with Meliadine, Meadowbank and in Amaruq. So that's -- it's a good time for Nunavut to add another -- it's going to be over 400,000 ounces per year, and that's going to bring us to potentially 1 million ounces per year into the Nunavut platform. Joshua Wolfson: Great. And then another, I guess, 2-part question for Malartic. I mean first question there is what drove the grade improvements this quarter? And I guess we saw something similar last year. Should we expect to see it going forward. And then second part is just on the September update that you referenced. Given that we had expected, I guess, the shaft project completion not really until year-end and then a larger update in the second half of next year, how should we be thinking about what information is disclosed ahead of that completion in September? Dominique Girard: Yes. Just for the grade, it's a question of sequencing mainly into the Barnett pit. That's the -- that's the only thing that changed that. And I will let Jean-Marie to answer on the second part. Jean-Marie Clouet: Josh, yes, in September, the plan would be to provide an update. So the last update really for Malartic was in June 2023. What we want to reflect in September is the update in the reserve resources that we've seen over the last few years and also start giving a better idea in terms of how the second shaft, Marban and Wasamac start to fit together, start giving ranges around what we think it will cost and operating. But you're right, the studies will be later in the year, but we should be able to provide a very good picture of what Malartic will look like to get to the 1 million ounce per year. Operator: Your next question comes from the line of Daniel Major from UBS. Daniel Major: Ammar and team, first question on the Finland acquisition and then around the kind of balance sheet and capital returns. First question is, was there a reason for using Agnico shares rather than cash specifically? And then I guess the second part, you alluded to exceeding the 40% cash flow payout potentially in order to reduce the share count following the acquisition. Can you give us a sense of kind of quantum you could be at $3 billion to $5 billion of net cash quite quickly through the year. Should we expect that as a limit to the cash balance you'd want to hold and how that would flow through to the buyback? Ammar Al-Joundi: Well, thank you for the question, Ammar here. I'll answer the first one, and maybe, Jamie, you can answer the second question. With regard -- it's a very good question on why we use shares instead of cash. And the answer is we wanted to use cash and they wanted 100% shares. I think their view and rightfully so is Agnico shares are good shares to have, and they wanted 100% shares. We used full cash on the other deals. And I think Jamie, as part of his answer to the second, can also incorporate how we hope to offset a little bit of the share issuance through the rest of the year. James Porter: Yes, absolutely. So I think in our disclosure, Daniel, we referred to potentially increasing repurchase activity based on the sale of some of our portfolio investments. So if there's opportunities for us to do a little bit more based on our views on valuation, we will do so. With respect to kind of minimum cash balance, where we are now, I'd say, is we're very comfortable. And as the cash balance increases, we'll look at even more activity under the share buyback. But I'd say the minimum target is 40%. We may be able to exceed that based on either our free cash flow performance or the proceeds of the sale of some of our investments. Daniel Major: Okay. And then my next question is on San Nicolas, actually saw Teck in Anglo American yesterday and discussed the project a little bit. But I mean it feels like it's somewhat subscale at 50% for either yourselves or the other partner. Have you had any discussions around the ownership of the project? And would you be keen to consolidate if the opportunity arose? Ammar Al-Joundi: Yes. I think we would look at it. We still think it's a good project. I don't want to forecast what our colleagues and our partners are thinking. But obviously, if they said, "Hey, would you want to look at it," we'd look at it. Daniel Major: Okay. Great. And then just one quick one, if I could. On Finland. I noticed Boliden deferred a pushback at Kevitsa because of the change in the taxation for the mining sector in Finland. Can you just give us any color about how you're seeing that landscape with respect to Kittila and the new acquisitions? Dominique Girard: Yes. Yes, there's tax change in Finland. And this is included into our evaluations as well as our life of mine at Kittila. Yes. James Porter: I was just going to add, the industry is lobbying the government to look at potentially changing the structure of those taxes to make certain additional things that are deductible to offset the impact. But all that was factored into our modeling. Operator: Your next question comes from the line of Bennett Moore from JPMorgan. Bennett Moore: Congrats on the record quarter. I guess following the land consolidation in Finland and as you continue to think about the company's next leg of growth beyond the early 2030s, where does Australia fit in this picture? Do you see similar opportunities around Fosterville? Ammar Al-Joundi: Well, thank you for the question. Actually, I was just out in Fosterville about a month ago. And I mean it's such fantastic people but we spent a lot of time on some recent I would say, very good exploration results in and around Fosterville. I think as some of you know, we've consolidated some land. That part of Australia was the original gold rush. And nobody is really focused on it for decades. And it's still very early, but I was quite pleasantly surprised with some of the results they were getting and the enthusiasm they had. Now we get questions all the time about the rest of Australia. We think Australia is a great place to mine, not just for gold. But I mean, you know us, we are very careful about what we do. We're very disciplined. And right now, we are -- we continue to be focused in Australia at Fosterville and the team we have there and the opportunities around that. Bennett Moore: Then I think it's been about 6 months since you launched the Avenir business. So just wondering how this is progressing, what sort of new opportunities the team may be evaluating. And then maybe if you could also comment on what sort of critical mineral opportunities there may be around the Lapland Greenstone belt as well. Ammar Al-Joundi: Well, I mean, it's a good -- I'll ask Guy to talk about sort of base metal and critical metals in the Lapland belt because there are some. Just with regards to Avenir, it's a really enthusiastic team. They are looking at a lot of things. What I would say is that they are naturally narrowing down what they're looking at and becoming more focused. It's an exciting business to be and in. It is a separate entity. We are supportive of it. And just to repeat, we're not obliged to do anything, but it does give us an opportunity to see things that are well considered. And maybe, Guy, you can talk about non-precious opportunities in Finland. Guy Gosselin: Yes. So yes, so in addition, obviously, of what triggers our primary interest, which is the structure around the circle line and the main break. We also know that it's the same -- to the north of that, that's the same rock package that hoists basically the given the Kevitsa in the Sakatti deposit that are nearby that are nickel, copper, PG and even at the old Pahtavaara mine, there was some evidences of massive sulphide that are potentially kind of a sign. So we have all of the ingredients. But for us, we see that as potentially an add-on and our primary focus remains to fully explore for gold. And if there's something else because there's the fertility of the rock is there, we'll see. Operator: Your next question comes from the line of Anita Soni from CIBC World Markets. Anita Soni: I just wanted to ask a little bit about the cadence of the production ramp over the course of the year. So I think you said that in Q2, it will be similar to Q1 production. And in Q1, there were, I guess, a couple of challenges with Kittila coming off of the shutdown and then the weather just impacting the restart there. So what are the things that are kind of offsetting in Q2 if Kittila is going to ramp back up. And I would assume it's the Caribou migration that I should be modeling. And then going into the back half of the year, what are the things that are ramping up. It's the AK project, right, at Macassa? Ammar Al-Joundi: Anita, it's Ammar here. It's -- honestly, it's more just mine sequencing and where we are on the plan. There's -- you've got a good point on specific items that were in the first quarter. There are always -- and we try to spread it out through the year when we have maintenance, when we have shutdowns, we try to, as you mentioned, exactly right, there's always the uncertainty of the Caribou season. But I think our team is really quite exceptionally good at taking all of that into account and projecting through the year. We don't typically give 48%, 52%. We decided we wanted to do it because we just wanted people to know that actually everything is going quite well. And as mentioned, the first quarter was actually a little bit above budget. So there's nothing in particular. It's mostly just mine sequencing and various other elements that come into it. Anita Soni: And then just from a longer-term capital allocation question, a lot of those questions have been asked and answered. But I just wanted to get an idea of as you think about the cash balance increasing, where do your priorities lie in terms of capital, just rank them again in terms of capital return to shareholders. And I mean, the balance sheet is pretty strong at this point, and you're accumulating a lot of cash. So where does reinvestment into the business now fall into the -- has it moved up over the capital return to shareholders? James Porter: Yes. Thanks, Anita. I'd say, I mean, reinvestment in the business is always a very high priority, right? The 5 key value driver projects that were that we're advancing our 30% to 60% IRR projects in the current gold price environment. So we want to invest as much as quickly as we can in those. And we're doing that. I mean our capital spending has increased from $2.3 billion last year to probably $3 billion this year all in, and we'll look to continue to find opportunities to accelerate that to bring that production forward. Beyond that, I'd say right now, in this gold price environment, we're fortunate in that we can do it all. We can afford to reinvest aggressively in the business. We can afford to deliver very strong returns to shareholders. I mean, 40% is kind of the floor for this year of our free cash flow being returned, I think, is quite attractive, and we can continue to strengthen the balance sheet. Having that $3 billion to $5 billion net cash position just gives us the -- again, the financial strength and flexibility to be able to execute on our business strategy even in a much lower gold price environment. So I don't think our priorities have really changed. We'll continue to look for opportunities to accelerate reinvestment in the business while strengthening our financial position and delivering strong returns to shareholders. Ammar Al-Joundi: It's a -- we understand the questions. The exact position of cash on the balance sheet is as much an art as it is a science. It's a $100 billion company, whether it's $3 billion or $4 billion or $2 billion, really, that's up to the discretion primarily of the CFO and treasury -- but I just want to make the point having been a CFO myself, it's not like there is an exact perfect number. What you want to do is look at all the circumstances at the time, make sure you have -- the most important thing a CFO has on his table is liquidity for the company. And so I think Jamie and the team are doing a great job balancing everything. Operator: Next question comes from the line of John Tumazos from John Tumazos Very Independent Research. John Tumazos: Thank you very much for your service to the company. I'm trying to make a back of the envelope concept of the Ikkari mine or Central Lapland new mine coming in 2034. Is a fair guess 15,000 tonnes a day times 2.25 grams times 95% recovery to get to the 500,000 ounces and that, that might cost $1.2 billion when we get to 2034, all those years out. Ammar Al-Joundi: Yes. It's -- John, first of all, I'd like to thank you for your service to the industry. That's a very nice introduction. It's -- we're still early in looking at that. It's -- maybe we can go through some of the details offline. I don't know, John, did you want to -- I mean, we got to be careful because these are very, very early, and we're working on it, but go ahead, John. John Roberts: I can step in. First of all, John, I'm very surprised with your question because I was expecting that you were asking how we were able to put all of this together at once. So a bit disappointed with the question. But on this, listen, 10,000, 15,000, we will have to define it and a function of the throughput, we will arrive with the minimum of, let's say, 200,000 plus, we'll be careful before we will provide any number. but I'm more focused on looking what it will be one day. And as Guy described, it's a high potential. And I think this is where I would like that we bring most of the attention, what it can be eventually. So we are excited with the consolidation and stay tuned because I think moving forward toward the end of 2027, we'll have more to say. Guy? Guy Gosselin: So John, what we are referring to in our press release is a platform of 500,000 ounces when combining Kittila and Ikkari together. That's currently and still we need to work if we can make it bigger than that, and we cannot work on the -- but just to make it clear, the 500,000 is just solely for Ikkari. It's our vision of the platform for the time being. John Tumazos: Let me ask another one, if I may. And thank you for the clarification. I was assuming we were only talking about the new property. I was guessing the CapEx and then the consideration for the 3 purchases -- and on the 4.22 million ounces of current resources slightly larger than the 3.5 million ounces of reserves. And $1.2 billion development capital, it works out to $1,268 an ounce acquisition and CapEx to develop. Should we be assuming that the resources are going to double or triple and that that's not the new normal for how much we're going to pay for developing mines. Ammar Al-Joundi: John, it's Ammar here. And I think this is probably the way that we look at it. The acquisition cost worked out by our internal assessment. And remember, we know this project quite well. We've been there for 6-plus years looking at it. We acquired it effectively by our own internal models at quite a good discount to NAV, just based on what we felt on our own, what we thought were fairly conservative. So we've acquired an asset in a region we know well that we have been looking at for 6-plus years at a considerable discount to NAV, and we got the rest of the land package for free. So we're excited about it. We think it makes a lot of sense. I can't get into all of the numbers, except to say in our usual fashion, we did an awful lot of homework before we decided to proceed. Operator: Your next question comes from the line of Tanya Jakusconek from Scotiabank. Tanya Jakusconek: My first question is for Dominique. Dominique, I hope that snow will be gone from Hope Bay when we're up there. That picture showed quite a lot of barbecue. I just wanted to ask because we capital increases lately at some of the projects out there, should we still be thinking that $2 billion for Hope Bay would be a reasonable capital for 10-year mine plan that you've been talking about? Dominique Girard: Tanya, yes, we see a bit of inflation, but it's going to be below 2.5 for sure. And the thing we need to finalize, we have a very good now, let's say, level of engineering, but there is a decision that we're taking, for example, to fast track Patch 7 and to do more ounces earlier, for example, to start the mill right up at 6,000 tonnes per day, it's going to be a ramp-up, but the mill is going to be designed right upfront at 6,000 tonnes per day compared what we did with Meliadine. And also, for example, we're looking to add one more wing to keep the drilling ongoing and to let Guy doing treasure hunting onto the property. So there's a decision that we're taking internally that at the end of the day, affecting the initial CapEx, but it won't be a big surprise. It's going to be slightly over $2 billion. Ammar Al-Joundi: And the changes are not so much inflation. They're more instead of ramping up the mill in 2 stages just because of the economics, you just do it all at once. And as Guy said, do you invest in some peripheral infrastructures so that we can continue to accelerate exploration. Tanya Jakusconek: Okay. That's helpful. Over $2 billion slightly because of plant rather than inflation. Ammar Al-Joundi: Yes, yes, sure. Tanya Jakusconek: Okay. Now that I have you on, just 2 quick questions for you. You mentioned the strategy in Australia, which was to focus around Fosterville and drilling that platform to see what you have there. In Mexico, besides San Nicolas, is that -- do you have anything else that you're looking at to expand that platform? Ammar Al-Joundi: At San Nicolas? Tanya Jakusconek: Mexico itself. Ammar Al-Joundi: Well, it's -- so we are looking at opportunities to expand San Nicolas. But beyond that, Tanya, there's really nothing substantial that we're seeing as an opportunity in Mexico. Tanya Jakusconek: Okay. And then my final question, Ammar, for you. It's always tragic to hear about fatalities for everybody in the mining industry. And so my question to you is from your tragic incidents that you had at your mine sites. What have you learned? And what changes to procedures and processes have you put in place from these learnings? Ammar Al-Joundi: Well, thank you for asking because it is very important, Tanya. Look, I think that we've learned what we already know, which is never ever slow down in emphasizing the importance of safety. And sometimes it's really disappointing. It's the routine things, the things that people do every day that they get too comfortable with. That's human nature, and it is our job to really just push it. What we did was we mandated a stand down, where we took every employee in at all of our sites, every single one and reemphasized it. We have a very sophisticated and comprehensive safety program like most of our peers. And frankly, it's really devastating to have had those fatalities. Tanya Jakusconek: So it seems that it was just routine so nothing that you would have changed, I guess, is what you're saying from procedures and processes. Ammar Al-Joundi: Well, I mean, I think that, yes, I don't want to get into detail. There's a lot of work still ongoing. These weren't things that -- well, actually, Carol, why don't you jump in, sorry. Carol-Ann Plummer-Theriault: Tanya, as you can understand that it's -- any loss of life is a tragic loss of life. In both of these instances, the in-depth investigations are still ongoing. The authorities are involved and the regulatory authorities and so on are involved in these investigations as well. So we can't share the results of these investigations yet. But certainly, there are learnings around this. We're sharing to the degree possible, not just internally, but to industry peers where there has been something that we can start sharing immediately to make sure that these types of accidents couldn't happen elsewhere. And really for us, we're really, as Ammar said, reemphasizing just the importance of safe production and making sure that we're following our procedures and always looking for the risks in the workplace and how we can mitigate those risks. So to that end, we've been looking at major hazards, which are the hazards of things that could actually be a life-changing accident and putting in place critical controls. So we're continuing down that road. And I think that's a really important step for us as we continue on that journey towards zero accidents. Operator: There are no further questions. I'll turn the call back over to Ammar. Ammar Al-Joundi: Thank you, everyone, for joining us. And everyone, have a nice weekend. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to ACCO Brands First Quarter 2026 Earnings Call. I will now hand the conference over to Christopher McGinnis, Director of Investor Relations. Please go ahead. Christopher McGinnis: Thank you. Good morning, and welcome to the ACCO Brands conference call to review our first quarter 2026 results. Speaking on the call today is Tom Tedford, President and Chief Executive Officer of ACCO Brands; and Deb O'Connor, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude amortization and restructuring costs, noncash goodwill and intangible asset impairment charges, bargain purchase gain and other nonrecurring items and unusual tax items and include adjustments to reflect the estimated annual tax rate on quarterly earnings. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-GAAP financial measures. Forward-looking statements made during the call are based on the beliefs and assumptions of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially. Please refer to our earnings release and SEC filings for an explanation of certain risk factors and assumptions. Our forward-looking statements are made as of today, and we assume no obligation to update them going forward. Now I will turn the call over to Tom Tedford. Thomas Tedford: Thank you, Chris. Good morning, everyone, and thank you for joining us today for ACCO Brands first quarter earnings call. Last night, we reported first quarter results with sales and adjusted EPS above our outlook. We also reiterated full-year guidance. We are pleased with the strong start to the year, and the results indicate we are executing well on our key operational and strategic initiatives. First quarter consolidated sales grew 8%, higher than our expectations, driven by favorable comparable sales and better first quarter performance from the EPOS acquisition. Additionally, as expected, foreign exchange had a significant positive impact on revenue in the quarter. In the Americas segment, sales growth was driven by favorable currency translation, computer accessories and the EPOS acquisition. Sales for computer accessories within the segment were strong, reflecting new products and a meaningful end-user pipeline. In North America, early purchases of back-to-school products were better than anticipated. While it is still early, we are confident in the upcoming back-to-school season due to increased listings and the absence of order cancellations due to tariffs in the prior year. For the season, we are expecting back-to-school sales to be flat to up low single digits. Sales of office products were down across the segment, but the rate of decline improved. In Latin America, sales improved due to a combination of a change in go-to-market strategies and new products. Turning to the International segment. Sales growth of 15% was driven by favorable currency translation and the EPOS acquisition, which I'll discuss in more detail shortly. The rate of decline improved in the quarter, reflecting the positive impact of price, broad-based improvement in core category demand and favorable mix. Our overall strategy remains focused on expanding our product range in faster-growing categories with an emphasis on technology peripherals. Our target for 2026 is for peripherals to grow to represent 25% of the company's projected revenue. In support of our strategy, our acquisition of EPOS was completed in the first quarter. We are excited about the potential of this addition to ACCO Brands. The integration is on track with expected 2026 sales of approximately $80 million over 11 months of the year and a modest contribution to profit. As a result of the acquisition, Jeppe Dalberg-Larsen, President of EPOS, will now lead Technology peripherals for ACCO Brands. Jeppe has over 20 years of experience leading technology peripheral businesses and is a strong operator who will drive our growth initiatives. This change in leadership is another step to better position ACCO Brands to execute on our strategy of expanding our global market shares and enhancing our product portfolio and technology peripherals through organic and inorganic initiatives in these large and growing categories. Pivoting to gaming accessories. The global gaming market faced headwinds in the first quarter from broad industry challenges and softer consumer spending. Our PowerA brand is well positioned to capitalize on 2 significant catalysts that we believe will improve performance throughout the year. The continued adoption of Nintendo Switch 2 consoles by the consumer and the expected fourth quarter release of Grand Theft Auto 6. Additionally, our product pipeline is robust as we are expanding our gaming portfolio to include simulation as well as a revamped audio offering. Our leading product portfolio, the important work we do with OEMs and our strong channel partnerships give us confidence in the back half of the year. In Computer accessories, the Americas delivered solid sales growth. In the International segment, sales were down versus the prior year as we comped a large government order in the U.K. in 2025. Normalized, computer accessory sales in the segment were up modestly year-over-year. We have an expansive range of new products and an improving pipeline throughout 2026 that will support our growth objectives. Transitioning to our cost optimization work, we continue to execute on our cost reduction and footprint optimization program. We remain on track to achieve the $100 million cost reduction target by the end of the year. Some of our projected savings, however, may be offset by rising costs due to the ongoing conflict in the Middle East. We anticipate fuel costs and certain raw materials to increase globally with the impact weighted towards the back half of the year. The company is carefully monitoring the situation and has taken appropriate steps to mitigate these potential impacts. We have considered these developments in our guidance, however, recognize this is a dynamic situation that is evolving daily. While consumers and some customers may be more conservative in the near term due to economic uncertainties, our tight cost controls and growth initiatives give us confidence in the year. In summary, I am pleased with our first quarter results. I am proud of our strong execution against our value-enhancing initiatives and the progress we are making on our strategy to transform ACCO Brands into a more focused, efficient and growth-oriented company. I will come back to answer your questions. Now let me turn the call over to Deb. Deborah O?Connor: Thank you, Tom, and good morning, everyone. As Tom mentioned, first quarter sales and adjusted EPS were above outlook. Comparable sales improved with a better mix of product sales as well as back-to-school order timing earlier than anticipated. Reported sales in the first quarter increased 8% with comparable sales down less than 3%. Growth in the quarter was driven by FX and the EPOS acquisition. Comparable sales reflect growth in Latin America and computer accessories in the Americas as well as lower declines in several core categories. Gross profit for the first quarter was $107 million, an increase of 7%, with the margin rate of 31.1%, down 30 basis points. The margin rate decline was attributable to lower priced product mix. Adjusted SG&A expense of $95 million is up modestly to the prior year, with the increase largely due to unfavorable FX and the EPOS acquisition, significantly offset by cost savings. Adjusted operating income for the first quarter was $12 million, up $5 million versus the prior year, reflecting cost savings somewhat mitigated by organic volume declines. Before turning to segment results, let me provide some detail on the bargain purchase gain related to our acquisition of EPOS. This $38 million gain represents the purchase price of EPOS compared to the preliminary fair market value of the business, which is primarily from working capital. As Tom mentioned, the integration of EPOS is on track, and our outlook includes $80 million of 2026 sales with a slightly higher gross profit rate than our consolidated average and neutral to adjusted EPS. We remain on track to deliver the outlined $15 million in cost synergies in 12 to 18 months. We recorded $7 million in restructuring charges, primarily related to this acquisition, most of which will be paid out in the next year. Let's turn to our segment results for the first quarter. In the Americas segment, sales were up 3% with comparable sales down 2%. We had good growth in computer accessories and in Latin America, which was offset by our core office products. The early purchase of back-to-school products was comparable to last year, and we expect the full season to be up modestly. The Americas adjusted operating income was $13 million in the first quarter, up approximately $3 million with the margin rate improving 140 basis points to 7.2%. The margin rate improvement was driven by cost savings. In the International segment for the first quarter, sales were up 15%, with comparable sales down approximately 3%. The improvement in the rate of the decline in comparable sales was driven by new products, and we also saw increased purchases of office products due to the lower year-end buying we highlighted in the fourth quarter. International adjusted operating income was $11 million, with the margin rate at 6.7%, consistent to the prior year. Free cash flow in the quarter was $1.4 million, comparable to last year and in line with our plan. Inventory was up $67 million since the start of the year. $27 million of that increase was related to EPOS, while the remaining increase was attributable to seasonal inventory build and higher tariff costs. During the quarter, we returned $7 million to shareholders in the form of dividends. At quarter end, we had approximately $252 million available for borrowing under our revolver and finished the quarter with a consolidated leverage ratio of 4.1x. Now let's move to the outlook. For 2026, we are reiterating our expectation for full year reported sales to be flat to up 3% and adjusted EPS to be within the range of $0.84 to $0.89. This outlook reflects a prudent sales expectation in the back half of the year given the global environment. We also anticipate cost increases in the near term, which we have considered in our guidance. Free cash flow is expected to be within the range of $75 million to $85 million, with approximately $25 million in restructuring payments and $15 million in CapEx. Lastly, we anticipate a consolidated leverage ratio within a range of 3.7x to 3.9x. For the second quarter, we expect reported sales to be up within a range of 1% to 4% with a lesser benefit from FX. We expect adjusted earnings per share to be within the range of $0.24 to $0.28. While the current environment remains dynamic, we are confident in the future of our company. We have no debt maturities until 2029 and a long history of productivity savings and cost management. Our strategy pivot is an exciting opportunity for ACCO Brands to accelerate growth and potential value creation for our shareowners. Now let's move on to Q&A, where Tom and I will be happy to answer your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Greg Burns from Sidoti. Gregory Burns: So with the guidance for the year, given the strong first quarter, why wasn't there more flow-through to the rest of the year? I know you talked about maybe some macro uncertainty, but why aren't we seeing maybe a little bit more of a flow-through for the balance of the year? And then how much FX and acquisition-related growth is baked into that flat to up 3% revenue for the year? Deborah O?Connor: Greg, it's Deb. First of all, the first quarter for us is a pretty small quarter. As you know, we typically had the bulk of our profits come in 2Q through the rest of the year. So it's always a difficult quarter to gauge your full year on. We're pleased with how we ended the first quarter, obviously. But in this environment and with all the global uncertainty with the Mid East and everything else, we just prudently left our -- and reaffirmed our guidance for the full year. And that's where we sit. And if you look to the full year, we have about 5% still coming from the EPOS acquisition. So very consistently throughout all the quarters next year. Foreign exchange is about 1%. So this first quarter had 6%. Future quarters have anywhere from 1% to kind of flattish. So we end the year with about a 1% impact. Gregory Burns: Okay. Great. And then in terms of EPOS could you talk about the opportunities to expand that brand globally, the timing of maybe some of the initiatives you have around that? And also, can you just help us better understand EPOS' position or position within the prior ownership? Like why wasn't the brand more successful in kind of growing into new markets? Thomas Tedford: Yes. Greg, this is Tom. Let me address the first part of your question initially, and then we can get into the second piece to the extent that we can. We are early in the integration process with EPOS. We're very pleased with what we've learned so far, and we certainly have growth synergies that we have targeted as a part of the acquisition thesis. We believe it's very complementary to our Kensington business. We recognize that it's a different product category. However, it likely goes through the same routes to market globally. And we think there's opportunities as we look ahead to pair the product along with our robust Kensington portfolio to offer a one-stop solution for enterprise attachments when laptops and desktops are deployed. So we think there's some significant opportunities as we look ahead to drive growth. Clearly, we're focused at the moment on integration and delivering the synergies while maintaining the growth initiatives that we have in both businesses. I don't want to comment on the historical performance of EPOS. It was under different ownership. I don't know if it was a highly strategic element of the Demant business, and I don't want to speculate as to why they struggled. I just want to reiterate to you that we feel very confident in the business and the products and frankly, the leadership of the team. And that's why we've announced a change in leadership and a change in focus with our organizational structure, and we have Jeppe leading it. So we're optimistic about the future. We're excited about the brand, and we look forward to positive business results from EPOS this year and beyond. Operator: Your next question comes from the line of Joe Gomes from NOBLE Capital. Joseph Gomes: Congrats on the quarter. So this is a follow up on EPOS. I don't know is there anything that you could point out that drove the segment outperforming expectations? Or did you just kind of go in with low expectations? I don't know if there's anything you can point out there, provide a little more color on that EPOS outperforming. Thomas Tedford: Yes. That's a good question, Joe. Candidly, we weren't really sure the uncertainty of an acquired business and the potential disruptions in integration. We just found it prudent to be careful with our guidance assumptions for the business. We're learning about it more and more. As I said earlier, we're very optimistic about its contributions to our business this year and beyond. But candidly, it was just our lack of really visibility into their forecast given what we knew, we thought it was a prudent thing to do to be careful with the numbers that we included in our models. Joseph Gomes: Okay. And then maybe I don't know if you could provide any more color on the early back-to-school. It sounds like it's performing a little bit better than maybe people had initially anticipated. I don't know if you can talk about inventories and what your customers are saying to you, kind of feedback you're getting from them on the whole back-to-school program. Thomas Tedford: Okay. Yes, it's early, Joe, obviously. We're in the process of shipping early orders, which predominantly are direct import orders from Asia. As we spoke in our prepared remarks, we believe the season is going to be up modestly. We feel good about our brands based on their performance last year in which ACCO Brands' portfolio of brands took market share in the U.S. and in Canada. So we're optimistic about the season. We have good line of sight to the initial orders. They're at or better than our current forecast. So early indications are strong, and we hope that the sell-through isn't impacted by some of the uncertainties and potential inflation based on the conflict in the Middle East. But given what we know today, we feel very good about back-to-school this year. Operator: Your next question comes from the line of Kevin Steinke from Barrington Research. Kevin Steinke: You mentioned that you saw growth in Latin America. And I know that region was a bit more challenged last year. You talked about consumers trading down, product choices, et cetera. But you mentioned that, I think in your prepared remarks that you shifted your go-to-market strategy. So maybe can you comment on that a little bit more? And did that contribute to the growth you saw in the first quarter? Thomas Tedford: Yes, Kevin, good question. Latin America was a good performing part of our business in the first quarter this year. And you're right, we managed it well. We implemented changes to meet the consumer where they are. We recognize that it's a constrained environment in both Mexico and Brazil. We've adjusted our product assortment. We've adjusted our go-to-market strategies, our incentive plans for our sales reps, and we've adjusted pricing where it was appropriate. So the combination of the strategies that we deployed in the market at the back half of last year have better positioned our product assortment for growth. And we'll continue to refine it as things continue to change, but we feel really good about where we are today in Latin America. Kevin Steinke: Okay. Great. And just following up on gaming accessories. You talked about the expectation of a stronger second half of 2026 and the reasons why it makes sense. You did mention some industry challenges currently. Is that just related to softer consumer spending? Or is there anything else that you would mention in terms of just the challenges you mentioned for the industry? Thomas Tedford: Yes. We believe it's largely related to a softer consumer. In the first quarter, if you think about the sequencing of our annual sales, a lot of it is reliant upon holiday and holiday was relatively weak for gaming in Q4, which left some inventory opportunities for retailers, which presented some challenges for us in Q1. But what I do feel good about is our brand. Our brand has taken share each month in the first 3 months of the quarter. We think we're well positioned as we discussed in our prepared remarks for the balance of the year. And candidly, we're excited about our new product assortment. So we think a lot of good things are in store for PowerA in 2026. Kevin Steinke: Okay. Understood. And as you mentioned, you're kind of factoring the potential for a softening in customer demand. Given the macroeconomic uncertainties, which makes sense to be prudent. But have you actually seen any noticeable signs of softening demand yet? Or is that just at this point, just trying to be cautious given the environment? Operator: Yes. We haven't to date. We think if there is a challenge with demand, it won't be felt until later in the year. And as Deb mentioned in her prepared remarks, we have seen some early indications of some cost increases, predominantly driven by fuel. And we are taking the necessary steps internally to protect profitability and to position ourselves to deliver the year based on what we see today. But from a demand perspective, we have not seen pressures on demand yet. Kevin Steinke: Okay. So have you -- do you have planned price increases in the pipeline currently or just kind of monitoring the situation on the cost front? Thomas Tedford: Yes, a good question. It's actually both. We do have some planned price increases that we are going to market in different geographies across the globe, and we'll continue to monitor the cost environment, and we'll take actions if necessary. Operator: Your next question comes from the line of William Reuter from Bank of America. William Reuter: My first one, clearly, you guys had some tariff cash payments last year. Can you share with us the magnitude of those? And in the event that you do get a refund, I guess, have you applied for refunds? And if you do get that, how would you allocate that cash? Deborah O?Connor: Yes. So -- we have talked in the past about our claim and how we have put it forth and that we feel very comfortable with the amount. And we're talking somewhere in kind of the $25 million range. We don't expect anything in 2026, and we'll watch it as it goes. William Reuter: Okay. And then on that, not expecting anything in '26, is that based upon the status of your claim, whether it was liquidated or not liquidated and the timing of what that may be? Because I think that there are a lot of signs that indicate some refunds may be paid this year. So is it just conservatism on your part or based upon the unique attributes of your claim, you just know it won't be this year? Deborah O?Connor: Yes. It's interesting. I would say maybe a little bit of both. But to be paid this year, there's a lot that has to happen at the government and different places like that. So who knows, to your point. And then we do have some claims that are a little more complicated that we anticipate coming in later. William Reuter: Got it. That's helpful. And then as you see things now, I know that you manufacture a portion of your products and you also have third parties that manufacture others. Is there any sort of a sense for what the headwind based upon current oil prices may be this year in the back half? Thomas Tedford: We've built our best thinking into our current guidance. That may be why you don't see us taking guidance up for the full year based on the over delivery in Q1. We've done our best to project what we think the impacts are going to be. But as you know, this has been a dynamic situation. We're optimistic that it ends relatively soon, but we've taken into account a prolonged disruption based on the conflict in the Middle East in our guidance. William Reuter: Got it. And then just lastly for me. Is there anything -- any commentary about this computer peripherals growing to 25%? I'm not even sure what products you're including in that. But any comments about the competitive dynamics of those categories? It would seem to me you may be going up against some big companies, but I'm certainly not a tech analyst. So anything you could share? That's it. Thomas Tedford: Yes, happy to. So technology peripherals, let's start there. It consists of our brands, Kensington, PowerA, LucidSound and EPOS. So it's not just computer accessories, it's computer and gaming products that we sell globally. We think those are large TAMs, growing TAMs and TAMs in which we have relatively small shares in. And so we think the dynamics for future growth are very positive. And we're working hard to position our brands to take market share in each market that we compete in globally. Operator: At this time, there are no further questions. I will now turn the call over to Tom Tedford for closing remarks. Thomas Tedford: Thank you, everyone, for joining us. We are pleased with our first quarter results and expect the combination of the EPOS acquisition, momentum from growth initiatives and positive foreign exchange to drive revenue improvement in 2026. Our commitment to operational excellence through continued cost management and productivity programs position us to deliver improved profits and cash flow. With our optimized operational structure and momentum with leading brands, we have a strong platform to generate consistent free cash flow while strategically repositioning ACCO Brands towards faster-growing technology peripheral categories. I want to thank our dedicated team and recognize their efforts and congratulate them on a strong first quarter. We appreciate your interest in ACCO Brands. I look forward to talking with you when we report our second quarter results in July. Operator: This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc. First Quarter 2026 Earnings Conference Call. My name is Chloe, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. Now I would like to turn the call over to your host, Erin Drabek, Vice President of Investor Relations for Arcosa. Ms. Drabek, you may begin. Erin Drabek: Good morning, everyone, and thank you for joining Arcosa's First Quarter 2026 Earnings Call. With me today are Antonio Carrillo, President and CEO; and Gail Peck, CFO. A question-and-answer session will follow their prepared remarks. A copy of the press release issued yesterday and a slide presentation for this morning's call are posted on our Investor Relations website, ir.arcosa.com. A replay of today's call will be available for the next 2 weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for 1 year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q expected to be filed later today. I would now like to turn the call over to Antonio. Antonio Carrillo: Thank you, Erin. Good morning, everyone, and thank you for joining us for a discussion of our first quarter results and 2026 outlook. I am very pleased with our performance. We kicked off the year with strong results, made meaningful progress on our strategic transformation, and increased our full year guidance for continuing operations. In the first quarter, we delivered adjusted EBITDA growth of 10% from continuing operations, double our revenue growth, and expanded margin by 100 basis points. The strong performance was driven by robust double-digit top line growth and strong margin uplift in utility structures. Despite typical seasonality and winter weather impacts, Construction Products contributed solid results, and we were pleased to see performance improved as the quarter progressed. Importantly, we recently reached a key milestone in our transformation. On April 1, we announced the completion of the $450 million barge divestiture, a pivotal step in simplifying our portfolio. Now with 2 segments, we're fully focused on Construction Products and Engineered Structures, both well positioned to benefit from infrastructure investment and power market tailwinds in the U.S. We intend to use the net proceeds from the barge sale to reinvest in our growth platforms and manage our debt. In March, we completed a $60 million acquisition of a natural aggregates operation located in Florida with accretive margins that enhance our platform in this attractive market. We continue to have an active bolt-on M&A pipeline complemented by a healthy set of high-return organic growth projects. Our balance sheet is in great shape. And at the end of the first quarter, pro forma for the barge divestiture, net debt-to-adjusted EBITDA decreased to 1.9x, slightly below our target range, providing for both flexibility and capacity to support continued growth. Turning to the outlook. Our full year 2026 guidance now reflects continuing operations only. At the midpoint of our guidance range, we expect adjusted EBITDA of $565 million, up $22.5 million from our previous guidance range, representing 11% growth year-over-year. In Construction Products, our demand outlook remains broadly consistent with the start of the year with new uncertainty created by the conflict in the Middle East, which commenced the day after our February earnings call. While geopolitical volatility is elevated and oil prices have risen sharply, we have not seen that translate into weaker demand in our construction footprint. Within Engineered Structures, our first quarter performance in utility structures exceeded expectations. Momentum has been building in the demand environment for some time, and this strength is aligned with the excellent commercial and operational execution by our team, driving record margin performance in the quarter. As a result, we have raised our expectations for the balance of the year. Reflecting on our journey as a stand-alone public company, we have never been better positioned. Our objective at the time of the spin-off was to grow in attractive markets while simplifying the portfolio and reducing cyclicality. We have succeeded in doing this while strengthening our margin profile and enhancing the company's overall resilience. Across our simplified portfolio, we are aligned to capitalize on durable multiyear U.S. infrastructure-related tailwinds. We're confident that these advantages, combined with disciplined capital deployment and consistent execution, position us to deliver continued shareholder value creation. I will now turn the call over to Gail to provide additional details on our first quarter segment results. Gail Peck: Thank you, Antonio. Good morning, everyone. My comments today will focus on continuing operations. First quarter results for the barge business are included in discontinued operations, and we have eliminated segment reporting for Transportation Products. Starting with Construction Products. First quarter results finished largely in line with our expectations, overcoming a slow start to the quarter due to severe winter weather across our footprint in January. Segment revenues increased 5% and adjusted segment EBITDA decreased slightly. Adjusted EBITDA growth in aggregates and trench shoring was offset by pronounced seasonality in asphalt and lower cost absorption in Specialty Materials. For aggregates, freight-adjusted revenues increased roughly 6%, driven by 2% pricing growth and 4% volume. Adjusted cash gross profit margin increased 220 basis points and adjusted cash gross profit per ton increased 7%. Performance this quarter was led by our Texas region, which benefited from favorable weather in February and March that more than offset the harsh winter conditions throughout the quarter in our East region. Turning to Specialty Materials and Asphalt. Revenues decreased 4%, primarily due to lower asphalt volumes. Revenues for Specialty Materials increased slightly, driven by higher lightweight aggregates volume. Costs were higher year-over-year due to planned maintenance downtime at one of our lightweight plants and a larger seasonal impact from asphalt. The result was lower adjusted EBITDA for the quarter. We expect to see earnings growth and margin improvement for both product lines for the remainder of the year. Finally, our trench shoring business completed another strong quarter of growth with both revenues and adjusted EBITDA up about 26%. Record order levels converted into higher volumes, and customer sentiment remains very positive. Moving to Engineered Structures. Segment revenues increased 4%, led by mid-teen growth in our utility and related structures businesses, more than compensating for lower wind tower revenues, which were expected. Utility structures revenue accelerated north of 15%, supported by both volume and pricing. Significant margin expansion drove a 21% increase in adjusted segment EBITDA. Segment margin increased to a record 21.1%, up 300 basis points year-over-year due to strong utility structures performance. During the quarter, the team successfully executed strategic capacity expansion projects to drive volume and accelerate the delivery of more favorable product mix. We ended the quarter with record backlog for utility and related structures of $558 million, up 28% from the start of the year. Order activity continued to be strong and included a couple of orders for long-term projects that extend into 2028. Customer reservations, which are not included in reported backlog, are also robust. For wind towers, we received orders of $43 million during the quarter for delivery in 2026 and 2027. We ended the quarter with backlog of $600 million and expect to recognize 36% in 2026 and 59% in 2027. I'll now provide some comments on our cash flow performance and balance sheet position. During the quarter, we generated $58 million of operating cash flow from continuing operations, which compared favorably to last year's $21 million use of cash. The increase was driven by higher earnings and a $53 million reduction in the use of cash for working capital. CapEx for continuing operations for the first quarter was $44 million compared to $33 million in the prior year period, which reflects increased investment in our core growth platforms. Free cash flow from continuing operations was $21 million, up from negative $49 million in the prior period. Additional cash activity in the quarter included the investment of $60 million for the bolt-on natural aggregates acquisition and $18 million of share repurchase to offset dilution. Our balance sheet and liquidity position were enhanced by the barge sale. Pro forma for the April 1 closing, net debt-to-adjusted EBITDA is 1.9x compared to 2.3x at quarter end. This reflects $370 million of estimated after-tax net proceeds, of which $83 million was used to prepay a portion of the outstanding term loan balance in April. Pro forma liquidity is estimated at $1.1 billion, including full availability under our $700 million revolver. I'll wrap up with guidance updates on a few items to reflect continuing operations now that the barge divestiture has closed. We now expect full year CapEx of $215 million to $240 million, a slight reduction from the prior range. We anticipate a full year effective tax rate of 16% to 18%, down 1.5 points due to a lower expected state tax rate for continuing operations. The first quarter tax rate of 5.3% was favorably impacted by onetime discrete items. So our guidance implies a quarterly effective rate slightly above the top end of the range for the balance of the year. And finally, we anticipate the full year corporate cost impact to adjusted EBITDA to be approximately $60 million at the midpoint of our guidance range, roughly flat with 2025 as we offset barge stranded costs. I will now turn the call back to Antonio for more discussion on our 2026 outlook. Antonio Carrillo: Thank you, Gail. We have started the year on solid footing, completing the barge divestiture, delivering strong financial and operational results and raising guidance. As a result, Arcosa is well positioned to deliver another year of record financial results for our 2 remaining segments. Our outlook for the year has improved, driven by the strength in utility structures as well as solid execution in the first quarter. At the midpoint of our guidance range, we anticipate revenues of $2.65 billion, up 6% year-over-year and adjusted EBITDA of $565 million, up 11% year-over-year. We expect margin to expand to a record 21.3%. In Construction Products, we anticipate another record year of revenues and adjusted segment EBITDA. In our guidance range, we continue to expect mid-single-digit adjusted EBITDA growth for the segment. For the aggregates business, we are incorporating low single-digit volume growth and mid-single-digit pricing improvement consistent with our February guidance. On the cost side, we're managing increases in oil-related inputs. We're actively deploying fuel surcharges and loading fees in the aggregates operations to combat higher diesel costs and the asphalt pricing is indexed to changes in liquid AC. We're maintaining strong pricing discipline to support solid unit profitability gains consistent with actions we took to address high inflation. Our 2026 outlook is underpinned by infrastructure and heavy nonresidential demand. In Texas, our largest market, we delivered above-average volume and pricing gains in the quarter, driven by healthy demand and favorable weather conditions in much of February and March. While highway lettings have been trending off peak levels recently in Texas, the outlook for state spending growth over the next several years is very positive. In New Jersey, our second largest regional market, the demand outlook is also favorable, as both the Department of Transportation and the Transit Authority have approved budget increases for 2026. We're ramping up for the spring construction season after a very cold start to the year. We believe there is pent-up demand as customers are ready to start their projects and make repairs caused by the harsh winter weather. There is also progress in advancing a multiyear surface transportation reauthorization with initial language expected to be released by the House Transportation and Infrastructure Committee later this month. Within heavy nonresidential, volumes continue to benefit from data center development, reshoring activities in certain areas, and overall demand for new power generation. Additionally, we see continued momentum related to LNG opportunities in the Gulf Coast. Residential remains challenged by affordability, and the recent rise in oil prices has weakened consumer confidence. With a soft start to the spring selling season, we see residential volume recovery pushing out to 2027, and anticipate flat to slightly down residential volume in aggregates this year. We service attractive markets and expect our footprint to benefit when the housing market recovers. In summary, our construction outlook continues to be supported by infrastructure and heavy nonresidential activity in 2026. With the winter season behind us, we're optimistic about a solid construction activity in the quarters ahead, led by healthy demand fundamentals in our largest markets. Moving next to Engineered Structures. We had an excellent start to the year, exceeding expectations for the segment, with outperformance driven by utility structures, our largest business in the segment. Regarding the market outlook, conditions remain very healthy. As we have discussed before, the expansion of data centers and the rise in electricity consumption across the U.S. continues to drive a significant and sustained increase in power demand. Our utility customers have made large multiyear capital commitments to power investments along with ongoing efforts to modernize the grid. As a result, our backlog continues to increase and we are optimizing pricing. We're successfully addressing the recently implemented steel tariffs. Previously, we were exempt from Section 232, as we source our steel from the U.S. for the manufacture of utility structures in Mexico to be sold in the U.S. Effective April 6, these imported structures are subject to a new 10% steel tariff on the full value of the finished products. We have contractual protection in place to effectively pass through the impact. We're optimistic that the joint review of the USMCA later this year will create certainty in the commercial relationships between U.S. and Mexico and avoid tariffs on products made in Mexico that comply with USMCA and are made of U.S. steel. We're advancing several high-return investments in utility structures to align capacity with strong demand, while at the same time, focusing on efficiencies and throughput enhancements within our footprint. We're ahead of schedule with the conversion of the Illinois wind tower plant, which had been idle for several years to a utility pole plant. With critical equipment being installed and commercial success filling our backlog, we now expect to produce large utility poles from this facility by the end of the second quarter. Our new galvanizing facility in Mexico completed its first dip in April, and we should be commercially operational in the second quarter as well. Our expectations are that the expected cost savings from the galvanizing facility will help offset start-up costs in Illinois. Additionally, planning continues for the transition of a second wind tower facility in Oklahoma to produce utility poles. In that plant, current wind tower backlog extends through 2027. We can run both product lines in parallel, and we expect to be moving our people to produce utility poles as wind tower orders are fulfilled. Within wind towers, which represent roughly 10% of full year total company revenues, the team performed well while transitioning to lower volumes. We now have 3 customers in our backlog with the orders received in the quarter, and we're planning for a volume recovery back to 2025 levels next year based on the backlog already in place. With power demand rising and wind energy remaining competitive source of generation, we're optimistic that there will be demand for wind towers after the tax credits expire. With 2 of our 4 wind tower plants under active conversion to produce utility structures, Arcosa will be well positioned to deliver strong returns on the capital invested in the wind business while retaining a great optionality to further expand capacity for utility poles if demand continues to strengthen. Our first quarter beat and guidance raise highlights the significant strength in utility structures that serve as a backbone of the grid modernization. Electricity demand is expanding at a pace not seen in a generation. We now anticipate segment adjusted EBITDA growth of approximately 10% at the midpoint of our guidance range with utility structures more than compensating for a transition year in wind towers. As it relates to our capital allocation priorities, we have an active pipeline of additional bolt-on opportunities, both in natural and recycled aggregates, and expect to deploy capital towards the highest value opportunities. While not reflected in our midpoint of our guidance, we are confident that we can execute on several bolt-ons this year. In closing, we're entering the second quarter with strong momentum and improved balance sheet and additional confidence underpinned by increasing our guidance. The divestiture of our barge business is a significant milestone in our company's evolution and will sharpen our focus on our key growth businesses. We remain proactive in our value creation strategy and are always seeking for ways to deliver more value for our stakeholders. I'm extremely proud of our team's excellent start to the year. We're now ready for your questions. Operator: [Operator Instructions] And we'll take our first question from Julio Romero with Sidoti & Company. Julio Romero: So on utility structures and maybe the Engineered Structures segment overall, the segment margins are very strong here in the first quarter, at a record level, I believe. Can you just help us understand what's driving the margin strength, particularly how much of that is driven by utility structures? And just help us think about how sustainable that margin performance is for the balance of '26? Antonio Carrillo: So let me give you some color. I think we mentioned in our scripts, but the 2 businesses, let's say, it's a K-shape segment. Utility structures are going up pretty significantly. And as we've mentioned before, we expect the wind to come down given that we see 2026 as a transition year. So utility structures has been overcompensating for the reduction in wind. As Gail mentioned, our revenues went up over 15% in the quarter. And margins were extremely strong. Our team performed incredibly well. As volumes come up and we've been able to tweak our capacity across our footprint, the margin has continued to go up. So it was mainly driven by utility structures. On the wind side, I also mentioned we expect this to be a transition year. In the second half of the year, we're going to start ramping up, because we already have the backlog in 2027 to go back to 2026 (sic) [ 2025 ] levels. So ideally, as the year goes by, we should continue to see utility structures continue to perform and accelerate, and wind should, at the end of the year, start accelerating to be able to fulfill our strong 2027 backlog. Gail Peck: And Julio, I think you asked for some guidance as we look forward in the sustainability of the margin. As you pointed out, the segment did report record margins in the quarter. So fantastic performance. Really, all the businesses were in line with our expectations and the outperformance was utility driven. So as we look through the balance of the year, we have raised our margin expectations for the year versus where we were here in February. You can see that in the guide with the EBITDA. The incremental margin on that EBITDA raise is pretty strong. So we do have some -- we are ramping up our Clinton, as we mentioned, that will be operational at the end of the second quarter. But we do still have some start-up costs that we'll incur in Q2, along with some continuing start-up costs on the galvanizer. Those will probably hit their peak level in Q2 before they start abating in the back half of the year. So a long-winded way of saying our margin expectation for this segment has increased, and we would see an annual margin in the 20% range sustainable for the year. Julio Romero: Excellent. Really helpful there. And then second question is, you mentioned that customer reservations for utility structures, which aren't included in the backlog, are also robust. Can you maybe expand on that commentary and how those have been trending relative to historical? And then kind of related to that, you also mentioned in the script about advancing several high-return investments related to capacity and utility structures. Does that go beyond the current conversions of Illinois and Tulsa? Yes, that's my 2-part question there. Antonio Carrillo: Let me start with the first one. As we've always said, we have long-term contracts with our customers. And as our customers' utilities determine exactly what they need, the designs on the poles, et cetera, that's when we include them in our backlog. So as our backlog grows, normally, the reservations also grow. Normally, the reservation piece is about the same size as our backlog. This time, it's probably a little smaller, because we have some additional orders that were outside of our normal contracts. But they normally grow in parallel, both the backlog and the reservations. And we continue to see very strong demand and very strong customer sentiment on what's coming. So very excited about what we're seeing on utility structures. On the 2 main projects that we have, which are the conversion of the 2 plants and the galvanizing -- 3 projects, 2 conversions and the galvanizing, those are the main projects in utility structures. We do have a lot of smaller projects that Gail mentioned in her script that we are trying to maximize our throughput in our plants; for 2 things, one is to maximize the margin profile of the products we are producing in a very tight market; and second, to try to increase our throughput. So lots of small projects in addition to the large projects. Operator: We'll move next to Trey Grooms with Stephens. Ethan Roberts: This is Ethan on for Trey. Great job on the quarter. I wanted to touch on maybe your cost outlook. Any more detail on how to think about the energy exposure across your Construction Products business, how you're navigating that? And any expectations on timing impacts on the margin as we progress through the year, and perhaps in the Engineered Structures business as well, any other inflationary inputs that you're looking at would be great. Antonio Carrillo: Sure. I'll give you conceptually and let Gail give you some numbers. So we use between 10 million and 11 million gallons of diesel in the footprint. And what we've been doing since this conflict started is passing through fuel surcharges and loading fees. So I think we have taken all the actions that we need to take to mitigate all these impacts. And I think we're in good shape. That's on the construction side. On the utility structures and wind, the impact is negligible. We don't have a lot of exposure to diesel. Our main exposure is natural gas. And as you've seen, natural gas, it went up a little bit, but it hasn't had a huge impact. So we don't expect a significant amount of impact there. And I'll let Gail give you some more color. Gail Peck: Yes. And Antonio mentioned the consumption that we have in aggregates, which is obviously clearly our most intensive diesel user. And so we've seen -- as you've heard from others, we didn't see much impact in Q1 as prices started to spike in March. But we're seeing diesel prices up about $1.50 a gallon in our footprint. So if these prices remained at this elevated level, we'd estimate about a 4% to 5% headwind to cash unit profitability for 2026, and that's unabated. So as Antonio just discussed, we have actively implemented surcharges and steps to mitigate that impact. So happy to provide any more color. Antonio Carrillo: A couple of additional comments. I mentioned in my script, but we only have one large operation for asphalt in the Northeast, and our prices are indexed to liquid AC costs. So that's something that we're covered. So overall, I think we are in good shape. One more thing that differentiates Arcosa from many of the peers. We don't have ready-mix. We don't distribute our products. We don't deliver them. For the most part, the diesel is consumed inside our facilities. We don't have a large footprint in trucks delivering asphalt or aggregates or ready-mix or cement or anything like that. So we are, I think, a lot more insulated. Ethan Roberts: Got it. That's all very helpful color. So I appreciate that. And maybe shifting gears a little bit back to utility structures. At a higher level, how long of a tail do you think that this level of utility power demand has? I mean you mentioned in the prepared remarks that some of these contracts extend into 2028. So how long of a tail do you think this has? And of course, what are you seeing here that gives you confidence in raising the guide here in the earlier part of the year? Antonio Carrillo: Yes. Let me start with your second question. We're raising the guide for 2 reasons. Performance has been very good. But we have the backlog already in place to support our guidance. So we have a lot of confidence in what our team is doing, and we have the orders to support our guidance. So that's on the guidance piece. On what gives us confidence? So when you look at -- let's go back 7 years, 6 years, there's always this forecast of investment by utilities in the grid. And the forecast has been strong. And that's why we, 8 years ago, almost when we spun off, we decided this was going to be one of our growth businesses, because we saw significant investment in utility infrastructure that was coming and it was coming fast. But what has happened is that every year since then, things have gotten, let's say, more optimistic about the amount of investment going into the grid. And then AI came and that simply, let's say, supercharged the demand for transmission towers and the investment companies have to do to support growth in power demand. So things have gotten -- they were already looking good and they have gotten better. We recently did market studies to support our expansions. We are not doing them blindly. We talk to our customers. We ask about their demand. We ask about their forecast for the next several years. And our forecast suggests that this has a very long tailwind of sustained demand for many years to come. So I think we're in a really strong position. Operator: We'll move next to Min Cho with Texas Capital Securities. Min Cho: First, on the utility structures, Gail, can you break out kind of price versus volume in the quarter? And maybe talk to any change in mix in terms of larger structures or anything like that, that we should be aware of? Gail Peck: Sure. As we said, we had north of 15% revenue growth in the quarter within the utility structures product line. And really a combination of very favorable volume and price, I would say, with a tilt towards volume, but both are -- just based on the demand environment right now, we're getting a tailwind from both sides of the equation. Product mix, we've done a good job, I would say, from the margin lift with the increase in efficiencies and throughput. We've really worked through, I guess I could say it was lower-priced product, but the market is pretty attractive right now to be able to pull forward some of the improved price in our backlog. So you saw that in the margin lift as well. Maybe I'd turn it to Antonio just to give you some color on the product type and what's driving demand right now, but we're certainly seeing a movement towards larger tower structures as the increased need for transmission expands. Antonio Carrillo: Yes. So I'll give you color. I think what we've seen over the last several years is a trend toward larger poles. And I would say that's our sweet spot. As a company, we pride ourselves in our engineering capacity and capabilities. And I think that's what our customers value. When you go to smaller poles, they're simpler, they're easier to make, and margins in general are lower. We've seen a large move towards larger poles, and that's our sweet spot. And that's why I think Arcosa is in a very strong position, because we are transitioning from a -- we're in a transition year for wind towers. And those towers, as you know, wind towers are very large. So the plants are very nicely suited to transform them into larger utility pole plants, which is what the market needs. And that's what we're doing right now, transforming plants that we had already in place to utility poles. As we move forward, we are very confident in our ability to ramp up Illinois. That's what we do for a living, and then transform Tulsa into another transmission tower plant. And by 2028, we'll only have 2 wind tower plants left, which gives us great optionality. If the utility pole market continues to accelerate, we'll have a lot of optionality to add capacity if the market continues to grow in that way. Min Cho: Excellent. And I know there's been a push or there's been a lot of discussion about the 765 kV transmission lines, which typically require like larger lattice towers. And I believe Meyer has experience with those towers. But do you have the capability and capacity to be able to produce these types of towers for these extra high-voltage lines? Antonio Carrillo: Yes. For the most part, those lines, as you said, have been lattice. As you know, most of the lattice towers are imported. There's a couple of people developing capacity here in the U.S., but for the most part, they are imported. We have the engineering capability to do it and are working on it, but we have not sold those towers in the past. But we are actively working with customers on designing and developing them. And the plants we have converted, the wind tower plants, have capabilities to build those poles if we get to that point. So I think that's one of the things that Meyer, which is our brand for utility poles, is extremely well suited for those changes that are coming, and we're actively pushing for it. Min Cho: Excellent. Let's see. I know that you -- obviously, congratulations on the barge sale, strengthened your leverage here. How are you prioritizing your incremental cash? I know that you mentioned M&A and obviously, you're doing the conversions. But if you can just kind of talk about your prioritization there. And I also saw the share repurchases this quarter. So that would be helpful. Antonio Carrillo: The share repurchases are normally just opportunistic. We normally try to compensate for the compensation dilution. It's not our main capital deployment. We have no plans to increase our dividend at the moment. We've kept it flat for a long time now. And the reason is we always say that we have more ideas than money, which is a sign of a healthy company. We have a robust pipeline of bolt-on opportunities, both on the aggregates and recycled aggregates, and that's always been our priority on the inorganic side. And on the utility structures, it's mainly an organic story. We have a lot of opportunities to continue to deploy capital there. So those are our 2 priorities. How do we continue to increase our footprint on natural aggregates and recycled aggregates, in great locations, with accretive margins, like the acquisition we announced in the first quarter in Florida. And then on the second side is continue to accelerate our transmission tower expansion, so that we can keep up with the market. So I think we have opportunities to deploy the capital. You will see us pay. Gail mentioned, we paid, I think, $83 million in April for our debt. So we will continue to manage our leverage profile as we see fit. Operator: And it does appear that there are no further questions at this time. Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.