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Operator: Morning, ladies and gentlemen, and welcome to the Cousins Properties Incorporated First Quarter Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded. On Thursday, 04/30/2026. I would now like to turn the conference over to Pamela Roper, General Counsel. Please go ahead. Pamela Roper: Thank you. Good morning, and welcome to Cousins Properties Incorporated first quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard G. Hickson, our Executive Vice President of Operations; Jane Kennedy Hicks, our Executive Vice President and Chief Investment; and Gregg D. Adzema, our Executive Vice President and Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-Ks. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the Quarterly Disclosures and Supplemental SEC Information link on the Investor Relations page of our website, cousins.com. Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws and actual results may differ materially from these statements due to a variety of risks, uncertainties, and other factors, including the risk factors set forth in our Annual Report on Form 10-Ks and our other SEC filings. The company does not undertake any duty to update any forward-looking statements whether as a result of new information, future events, or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday and a detailed discussion of the potential risks is contained in our filings with the SEC. We will now turn the call over to Colin Connolly. Colin Connolly: Thank you, Pam, and good morning, everyone. We had an excellent start to 2026 at Cousins Properties Incorporated. On the earnings front, the team delivered $0.73 per share in FFO during the quarter, which was $0.02 per share above consensus. In addition, we increased the midpoint of our FFO guidance by $0.02 per share to $2.94 per share for the full year 2026, which represents 3.5% growth over 2025. This would be our third consecutive year of FFO growth and represents a 3.9% compounded annual growth rate since 2023. Cousins Properties Incorporated earnings growth during this three-year time frame is unmatched among traditional office REITs. Leasing remained robust. We completed 932,000 square feet of leases during the quarter, which is one of the highest quarterly volumes in the history of the company. Our cash rent roll-up on second generation leasing was 15.2%, which marks 48 consecutive quarters of positive rent roll-ups. Significant leasing wins included our large renewal with our largest customer at The Domain in Austin, and new leases with Oracle at Newhof in Nashville, and KPMG at Precinium in Midtown Atlanta. These results underscore the strength of our portfolio and depth of customer demand for high-quality lifestyle office space. I will start with a few broader observations on the trends driving the office. First, most major companies are phasing out remote work. Yesterday, Fidelity became the latest to announce a five-day-a-week office mandate. At Cousins Properties Incorporated, we call it the return to normal, and it is boosting demand across all of our markets. Second, the flight to quality is unrelenting. Customers are prioritizing high-quality, well-amenitized, and well-located buildings to promote engagement and collaboration. According to JLL, nearly all of the positive net absorption in the office sector since the onset of COVID has occurred in buildings that delivered from 2010 to present. Third, the Sunbelt migration has reaccelerated. We have seen a significant uptick in relocation activities as proposals to meaningfully increase personal and business taxes in New York, California, and Washington have advanced. Starbucks recently announced a major East Coast headquarters in Nashville. Apollo is looking for a second headquarters in Texas or Florida. Capital Group announced a major hub in Charlotte. Each of these companies specifically state access to the growing talent pools in these markets is a major reason for their decisions. These are not back-of-house or support jobs that they are creating. We believe that we are still in the early innings of this migration trend and expect these announcements to continue. Lastly, record-high office conversions combined with record-low new development starts are leading to shrinking inventory of office properties. Given the three- to four-year lead time to deliver a new project, this is unlikely to change until 2030 at the earliest. Simply stated, demand is increasing while supply is decreasing. The net result is an emerging shortage of premier lifestyle office space in the best submarkets of the Sunbelt, and one that will become increasingly acute over the next several years and favor landlords. Cousins Properties Incorporated is uniquely positioned to benefit from these trends. Before moving on, I want to briefly address a topic that has received a lot of attention recently, that is artificial intelligence. While AI is shaping how companies operate internally, we are not seeing evidence that it is reducing long-term demand for high-quality office space. In fact, many of the companies most actively deploying AI are also prioritizing collaboration, talent density, and physical presence, which aligns well with our lifestyle office portfolio in the Sunbelt. Ultimately, space decisions are still being driven by people, culture, and access to talent. In that respect, the trends we are seeing in our leasing activity remain very encouraging. Turning to our strategy, as we outlined in prior earnings calls, our focus remains unchanged. We are sharply focused on driving sustainable earnings growth while maintaining our best-in-class balance sheet and continuing to enhance the quality of our Sunbelt lifestyle office portfolio. Our team’s ability to drive both internal and external growth is key to this effort. During the quarter, we advanced that strategy. First, we increased occupancy to 88.9% across the portfolio as a result of robust leasing activity. Second, we closed on the acquisition of 300 South Tryon, a 638,000 square foot trophy office asset in Uptown Charlotte, for approximately $317.5 million. Third, we repurchased 3.9 million shares of our own stock at a weighted average price of $23.36. Lastly, we sold Harborview Plaza in Tampa for $39.5 million and entered into an agreement to sell 111 Congress in Austin. Looking ahead, the number one priority for Cousins Properties Incorporated is to continue to grow occupancy. We have modest lease expirations this year and a robust late-stage leasing pipeline that will support this effort. More broadly, we remain focused on optimizing our portfolio, maintaining flexibility, and creating optionality in our capital allocation decisions. As I mentioned earlier, everything we do is guided by a disciplined approach that prioritizes earnings accretion, balance sheet strength, and continuous improvement in our portfolio quality. We are excited about what lies ahead for Cousins Properties Incorporated. The office market is rebalancing, new construction is virtually nonexistent, and high-quality lifestyle office space is becoming increasingly scarce. Despite ongoing macro concerns and volatility in the public markets, Cousins Properties Incorporated continues to outperform, supported by a strong operating platform, a highly efficient G&A structure, and one of the strongest balance sheets in the office REIT sector. Before turning the call over to Richard, I want to thank our talented Cousins Properties Incorporated team for their commitment to excellence and to serving our customers, the foundation of all of our success. Richard? Richard G. Hickson: Thanks, Colin. Good morning, everyone. Our operations team delivered the strongest start to a calendar year since Cousins Properties Incorporated began its focus as a pure-play owner of trophy Sunbelt office. In the first quarter, our total office portfolio end-of-period leased and weighted average occupancy percentages were 91.8% and 88.9%, respectively. Both metrics increased sequentially and were driven by a combination of organic growth and our recent investment activity. Our portfolio lease percentage increased in nearly every market, with Atlanta, Charlotte, and Austin as the largest contributors in terms of organic growth, while Nashville’s lease percentage increased materially with our recently signed 116,000 square foot new lease with Oracle at Newhof. That project will not be included in our overall portfolio statistics until it is stabilized. The largest market contributors to organic growth in our weighted average occupancy were Atlanta and Austin. Our lease expirations through 2027 now total only 8.3% of contractual rent, which is 320 basis points lower than at the end of 2025. Coming off of a very strong fourth quarter, our leasing activity in the first quarter was record-setting on a number of levels. Our team completed 49 office leases totaling 932,000 square feet during the quarter, with a weighted average lease term of 6.6 years. Our square footage volume was the highest for a first quarter in well over a decade, and was also our highest quarterly level in general since the second quarter 2019. On a square footage basis, 52% of our completed leases this quarter were new and expansion leases, totaling 483,000 square feet. New and expansion leasing volume was essentially in line with our very strong fourth quarter, which we view as a great repeat performance. The team also completed 19 renewals during the first quarter, including a material renewal in Austin that took care of what was previously our largest 2027 expiration. Regarding lease economics, our average net rent this quarter came in at $44.54, approximately 18% higher than the full year 2025. This quarter’s average leasing concessions were essentially in line with the full year 2025. As a result, average net effective rent this quarter came in at a solid $32.28, second only to 2024. Finally, second generation cash rents increased yet again in the first quarter at a strong 15.2%, with cash rents rolling up in every market where we had activity. Beyond our excellent recently completed activity, our overall leasing pipeline remains very healthy, at a level comparable to this time last quarter. In our early March investor presentation, we shared that 1.2 million square feet of activity was either signed first quarter to date or in lease negotiations. Even after completing 932,000 square feet of volume in the first quarter, as of today, we have 1 million square feet of leases either signed second quarter to date or in lease negotiations. This late-stage pipeline has been growing nicely throughout the second quarter. In fact, it has grown by about 200,000 square feet just in the past two weeks and currently includes 450,000 square feet of new and expansion leases. We believe our late-stage pipeline has us very well positioned for continued strong leasing performance in the near term. Turning to our markets, in Atlanta, according to JLL, leasing activity was strong with 2.3 million square feet of leases signed in the first quarter. Sublease availability declined for the eighth consecutive quarter and is now at its lowest level since the start of 2021. Additionally, average asking rents had the largest quarterly increase in two and a half years. We continue to see solid demand in our own portfolio where we signed 192,000 square feet of leases in the first quarter. This included a 105,000 square foot new lease with KPMG at Precinium in Midtown. Subsequent to first quarter end, we also signed a new 46,000 square foot lease with CallRail at 725 Ponce in Midtown. CallRail is a homegrown Atlanta-based technology company that decided to relocate to 725 Ponce from Downtown because of the property’s location, quality, and direct access to the BeltLine. We are excited to welcome them as a customer. Our Atlanta portfolio was 89.3% leased at first quarter end. In Austin, JLL notes that tenant demand increased 30% year over year from about 3.9 million square feet of requirements in 2025 to nearly 5 million square feet today. The market continues to digest speculative development delivered since 02/2023. However, new speculative development is now at its lowest level since 2013. Across our Austin portfolio, we signed an impressive 339,000 square feet of leases in the first quarter, including a 273,000 square foot renewal of a Fortune 10 technology company at Domain 8. This sizable renewal demonstrates a strong commitment to the Austin market and to the value of high-quality office in the core of The Domain. Our Austin portfolio also increased to 95.3% leased as of first quarter end, driven primarily by encouraging new activity in the CBD. In fact, our Austin team has seen a notable increase in overall tenant demand in the CBD since the beginning of the year, and it is focused primarily on availability in the highest-quality office segment. In Charlotte, market-level leasing activity maintained strong momentum in the first quarter with a 74% increase year over year. In our portfolio, we signed 181,000 square feet of leases in the first quarter, 58% of which were new and expansion leases, and the team rolled up cash rents 26%. Activity included a 72,000 square foot new lease with Scout Motors at 550 South, and a 54,000 square foot renewal and 27,000 square foot expansion with a major law firm at our newly purchased 300 South Tryon. Touching on our redevelopments, our 550 South project is very close to completion—within weeks—and with that, we have seen a nice uptick in early-stage leasing interest. Regarding 201 North Tryon, that redevelopment project is well underway and should be substantially complete during 2027. Looking at our recently completed redevelopments—whether it be Buckhead Plaza, the Promenade buildings in Atlanta, or Tempe Gateway and Hayden Ferry in Phoenix—we generally saw a meaningful boost in demand and, importantly, in lease economics once the projects approach completion and prospects could see the finished product. Based on this experience, and also knowing the shortage of available premier space in the market is becoming more acute, we are taking an intentionally patient approach to leasing at the property. In short, we are willing to trade some number of months of timing of occupancy in return for meaningfully better net effective rents and outcomes for shareholders. In Dallas, the market recorded 3.6 million square feet of leasing activity during the first quarter, above first quarter 2025 levels. New supply also remains limited, which is helping to boost top-tier assets and drive rent growth. Flight to quality remains the dominant theme, consistent with all of our markets, with Class A space accounting for 73% of quarterly lease volume. In our 800,000 square foot portfolio, we signed 65,000 square feet of leases, rolling up cash rents over 32%. This past quarter, we also took over the management of Legacy Union One in Plano, and I am pleased to report that subsequent to first quarter end, we signed a 52,000 square foot long-term lease with U.S. Renal Care, representing our first direct lease with an existing subtenant at the property. Our Dallas portfolio was 98.1% leased at the end of the first quarter. Finally, and as I mentioned earlier, our leasing volume this quarter included a 116,000 square foot new lease with Oracle at Newhaft in Nashville. We are very encouraged by this activity, and Kennedy will share more details about Newhof in her remarks. As always, a big thank you to our entire team for the work you put in to make the start of this year an incredibly positive one. We appreciate everything you do. I will now turn the call over to Kennedy. Jane Kennedy Hicks: Thanks, Richard. I will start with updates from our recently completed Newhof project in Nashville. As you may have noticed, we moved this mixed-use project off of our development schedule in our supplement this quarter, given its near-stabilized status. The approximately 400,000 square foot office component is now 84.3% leased, up from 55.3% last quarter, largely driven by the 116,000 square foot new lease with Oracle. The company leased five floors on a long-term basis to accommodate its ongoing rapid growth in Nashville, citing it as the center of Oracle’s cloud and AI growth. We are excited for the company’s employees to take occupancy later this year and add to the vibrancy of this unique project. I am also pleased to share that we are now in lease negotiations for the remaining two full floors of the project, which, if executed, will bring the office component to almost 96% leased. The accelerated interest in Newhof is indicative of the demand we continue to see across our portfolio for best-in-class, differentiated assets. The 542-unit apartment component at Newhawk stabilized this quarter at 92.6% leased. I want to point out that we added Nuhawk Phase Two to the land inventory on page 27 of the supplement. As part of the Phase One development, we completed significant infrastructure including all of the parking for a future office building that is planned to be approximately 300,000 square feet. The costs for this work, including the allocated land value, are now reflected in our total land inventory number, whereas they were previously part of the overall Nuhof project spend. Given the work and investment already completed for this next phase, we believe we will have a significant competitive advantage in terms of both speed and pricing when the time is right to move forward with the development. As a reminder, we own Newhop in a 50/50 joint venture. Turning to our investment activity, we had another busy quarter. In February, as we previously disclosed, we closed on the off-market acquisition of 300 South Tryon in Uptown Charlotte. We acquired the building for $317.5 million, or $497 per square foot, a basis that represents a significant discount to replacement cost. The 638,000 square foot, highly amenitized asset is an excellent strategic fit for our portfolio and representative of the continued advantage we have in the market as a buyer for large, tricky assets. As Richard said in his remarks, we have already executed a renewal and an expansion of a large customer there, enhancing the remaining lease term and validating the mark-to-market in rents that can be achieved at the building. Across the country, the office transactions market has opened up, with sales volumes steadily increasing. Both equity and debt sources are realizing the strengthening fundamentals and are now more constructive around opportunities. Smaller transactions are generating the most depth. Accordingly, we continue to pursue select dispositions within our portfolio that we think line up well with market demand. I will add that we are in the fortunate position that we do not need to sell any of our assets, so we plan to remain disciplined in our approach. In late February, we closed on the previously discussed sale of Harborview Plaza in Westshore, Tampa. The building sold for $39.5 million, or $191 per square foot. The pricing equates to a low 9% cap rate. As I mentioned last quarter, this standalone asset needed capital upgrades and we believed our capital was best focused elsewhere. We remain under contract with a residential developer to sell our 303 Tremont land parcel in South Bend, Charlotte. The contract price for the 2.4 acres is $23.7 million and we expect it to close before the end of the year. We are always evaluating the highest and best use of our land bank and resources and determined that this site is now better suited for residential development as opposed to the office towers that we originally contemplated. We are also now under contract to sell 111 Congress in Austin. This 519,000 square foot asset was built in the late 1980s and is prominently located in Austin’s CBD. Our ownership of this asset dates back to the Parkway transaction in ’20, and similar to Harborview, our view is that this asset is better off in the hands of private capital going forward and we intend to redeploy the proceeds as part of the funding of 300 South Tryon. We were pleased with the process and the positive sentiment towards the asset and the Austin market. We will disclose more details around pricing after closing, which is anticipated to be early in the third quarter. These dispositions are representative of our strategy to continuously monitor our portfolio and identify opportunities to recycle out of non-core assets to fund acquisitions—acquisitions of either assets or our own stock, if that is a better use of proceeds at the time. We only intend to do so in a manner that is neutral or accretive to earnings. We believe that this ongoing portfolio optimization will only enhance the resiliency of our assets and future cash flows. Going forward, we plan to be opportunistic when it comes to both acquisitions and dispositions, as well as other investment opportunities such as development. We have the flexibility to invest in a variety of ways throughout a capital stack, including preferred equity and mezzanine positions, as we have demonstrated in the past. Given the emerging scarcity of available lifestyle office space, we believe that there will be select instances where development is compelling and offers an appropriate return premium to trophy acquisitions. We are currently evaluating opportunities with the goal of breaking ground within the next year. We will provide more insights if and as those transactions materialize. With that, I will turn the call over to Greg. Gregg D. Adzema: Thanks, Kennedy. I will begin my remarks by providing a brief overview of our results, spending a moment on our same property performance, then moving on to our property transactions and capital markets activity, before closing my remarks by updating our 2026 earnings guidance. Overall, as Colin stated upfront, our first quarter results were outstanding. Second generation cash leasing spreads were positive, same property year-over-year cash NOI increased, and leasing velocity was exceptionally strong. Focusing on same property performance for a moment, cash NOI grew 5.5% during the first quarter compared to last year. This was comprised of a 4.5% increase in revenues and a 2.7% increase in expenses. These numbers were positively impacted by a combination of increased occupancy and the expiration of rent abatements, primarily at Promenade Tower, Tempe Gateway, 300 Colorado, and Hayden Ferry. Before moving on, I wanted to take a moment to highlight our recent same property expense performance. Despite lots of talk around accelerating property-level inflation—including taxes, utilities, payroll—we have held same property expenses to an average annual increase of just 1.95% over the past four years. I suspect this sub-2% number is well below most investors’ perception of office expense growth over the past few years. A new and efficient portfolio located in affordable and business-friendly markets is what has allowed us to contain expenses. As Kennedy discussed earlier, we acquired a property in Charlotte during the first quarter. We will fund this acquisition with the sale of three non-core properties. We already sold Harborview during the first quarter, and we are under contract to sell 111 Congress during the third quarter and 303 Tremont land during the fourth quarter. We also received repayment during the first quarter of our $18.2 million mezzanine loan secured by an equity interest in the 110 East property in Charlotte. Moving on to our capital markets activity, it was very busy and very productive. We started by issuing a $500 million seven-year unsecured bond immediately after announcing fourth quarter earnings in early February. It was a great execution, generating a yield to maturity of 5%. With this issuance, we have effectively taken care of all of our 2026 refinancing needs. In total, we have issued four unsecured bonds for $1.9 billion since receiving our investment-grade credit rating in April 2024. As Colin stated upfront, we also repurchased 3.9 million shares at a weighted average price of $23.36 per share during the first quarter. Please note that subsequent to quarter end, the board authorized an increase to our recently launched share repurchase program, taking the authorization from $250 million to $500 million, of which approximately $410 million remains available. We now have both a share repurchase program as well as an ATM program available for use, and we have actively employed both over the past 12 months. In addition to shares we repurchased this past quarter, we issued 2.9 million shares on a forward basis under our ATM program during 2025 at an average price of $30.44 per share. We have not yet settled these forward shares. Finally, on April 1, we closed a new five-year $1.2 billion unsecured credit facility, increasing the prior facility that was scheduled to mature in April 2027 by $200 million. As part of this process, we also amended our existing $400 million and $100 million unsecured term loans, adding two six-month extensions to each. The borrowing spread improved by 15 basis points on both the credit facility and the larger term loan and by 30 basis points on the $100 million term loan. Before closing with guidance, I wanted to briefly provide some context on the leverage. Our goal remains, as it has since 2014, to maintain net debt to EBITDA in the low five-times range. The metric is a bit elevated this quarter at 5.66 times, but it is only a timing issue. Once we complete the asset sales to fund the Charlotte acquisition and we complete the funding of the share repurchase, leverage will return to its historic level. With that, I will close my prepared remarks by updating our 2026 guidance. We currently anticipate full year 2026 FFO between $2.90 and $2.98 per share, with a midpoint of $2.94. This is up from our prior midpoint of $2.92 and represents an increase of approximately 3.5% over the prior year. The increase in FFO guidance is primarily driven by the share repurchases I just discussed as well as better-than-forecast execution of the debt financings, partially offset by the elimination of a prior mid-year SOFR cut assumption. We now have no SOFR cut assumptions during 2026 in our guidance. Our updated guidance assumes the 3.9 million share repurchase that we executed in the first quarter is funded with proceeds from the settlements of the 2.9 million shares we previously issued on a forward basis. In reality, we may ultimately fund some or all of this share repurchase with non-core asset sales. As Kennedy stated earlier, we are constantly monitoring the sales market and exploring additional sales candidates. However, for modeling purposes, we have assumed the settlements of all outstanding forward shares during the second quarter, and this is what is in our guidance. As I mentioned earlier, our guidance also assumes the 300 South Tryon acquisition is funded with proceeds from Harborview, 111 Congress, and 303 Tremont. Finally, our guidance does not include any additional property acquisitions, dispositions, or development starts in 2026. If any of these take place, we will update our guidance accordingly. Bottom line, our first quarter results are among the best we have reported in recent memory. Important operating metrics that we track were outstanding, and we raised full-year guidance. Office fundamentals in the Sunbelt remain strong, and we continue to deploy capital into compelling and accretive opportunities. We look forward to reporting on our progress in the coming quarters. I will now turn the call back over to the operator. Operator: We will now open the call for questions. If you wish to ask a question, press 1 on your touch-tone phone. If you would like to withdraw from the queue, press 2. The first question comes from the line of Blaine Heck from Wells Fargo. Blaine Matthew Heck: Thanks. Good morning. Colin, you commented on the leasing pipeline in the earnings release and again here. Can you, and/or maybe Richard, give any more detail on the size of the pipeline today versus maybe a year or 18 months ago and versus your historical average? And maybe give a little bit more color on any trends you are seeing with respect to tenant size or industry? Are you seeing any specific segments or markets strengthening or weakening? Richard G. Hickson: Sure, Blaine. This is Richard. I will take that and then Colin can add on if he would like. For starters, you specifically asked the size of the pipeline overall today. Certainly, the late stage is what I would focus on more versus, say, a year ago, and it is about 2x the size of this time last year. That is the late-stage pipeline. It is about the same size right now as this time last quarter, but year over year it has grown significantly. Just some additional detail on the overall pipeline: I would note that the number of prospects in the pipeline overall has increased quite a bit—on the order of about 15% since last quarter—so that is encouraging to see. The net size, again, is comparable to last quarter. The mix of industries is roughly the same. I would say technology is slightly ahead of financial services at this point, but they are both neck and neck and very big drivers of our activity. Legal continues to be a significant component of our industry mix, with professional services coming in last and then a good mix beyond that. We have seen particularly strong growth— I mentioned we had about 200,000 square feet that built into the late-stage pipeline here in the last couple of weeks. It has been growing nicely throughout the quarter. We have seen the most increase in activity migrating through the pipeline in Atlanta, especially in Buckhead and in Midtown. Phoenix has had a nice bump, Nashville certainly is contributing as well—as Kennedy mentioned, we are going to leases with two more floors there—and some good activity in Austin. So it is pretty broad-based. Colin Connolly: And, Blaine, it is Colin. I would just add too, as it relates to the 900-plus thousand square feet we leased this quarter and this kind of million-plus square foot pipeline. One piece of commentary that I have seen is that the Sunbelt is largely back-office and support function, and I would characterize just about all of the leasing activity that we are doing as very much front-of-house, revenue-producing employees for very dynamic companies, whether it be in technology, financial services, investment firms—you name it—particularly also AI companies beginning to infiltrate the Sunbelt. So I can very much push back on that narrative. While there are certainly suburban properties in Atlanta with back-office employees, the same holds true with back-office employees in suburban New York. The quality of the pipeline for the portfolio that we have in our lifestyle properties is very much attracting very well-educated, knowledge, revenue-producing employees. Blaine Matthew Heck: Great. That is really helpful commentary. And you all mentioned that asking rents had grown the most this quarter in 2.5 years. I was hoping you could quantify that increase. And also, can you comment on what you think is a reasonable forecast or range for net effective rent growth in your segment—Class A, A+, or trophy—within your markets, and whether there are any standout markets on the positive end of that metric or any that could be more muted? Richard G. Hickson: Sure. This is Richard again. In terms of rent growth, we have a number of different examples we can give on really impressive rent growth across markets. In Atlanta, for instance, at Buckhead Plaza, we have been able to grow rents 20% in the last year or so. In Dallas, Uptown—it has really been breathtaking how much rents have grown, particularly in Uptown. I think the general number is about 40% in growth since 2021, and I think new product and top-of-market asking rents right now are $80 net. So extremely impressive rent growth there. If you look at Charlotte, all the new products that have leased up in the last year or so in the market as they were taking down large blocks, we pegged that rent growth during that process at roughly 10% during that time. In Phoenix, lastly, where we have done our redevelopment of Hayden Ferry, which is now complete, we have grown rents about 20% since 2024. So those are just some examples of some really bright spots where we have been able to push rent growth. It is really just a dynamic market where, as Colin has mentioned, supply is shut down. We are not going to see any new supply really added to virtually any of our markets that is not already leased, and demand is still allowing us to push net effective rents. In terms of how much those will grow, we certainly posted very impressive net effective rent growth this quarter, and it was broad-based. The mix of where we did our leasing this quarter was very favorable in a lot of our highest rent markets. We feel good. It is always hard to pinpoint exactly how much we are going to grow net effective rents in any given quarter versus another, but over time we are confident that we are going to continue to grow them in a manner that we have done so here in the recent past. Blaine Matthew Heck: Great. Thanks. And then just lastly, can you talk a little bit more about the optionality you have for funding the share repurchases? I believe you have issued the forward shares yet. So can you talk about the strategic and economic merits for stock issuance versus additional sales? Are there certain cap rates or other factors that would make you lean towards sales instead of the forward equity? Gregg D. Adzema: Hey, Blaine. Good morning. It is Greg. We have issued the forward shares; we just have not settled them. I just want to make sure everybody understands that. And we have the flexibility right now to settle those shares through year-end 2026, but that can be extended with the banks that helped us issue those shares. So we have ultimate flexibility there. In terms of modeling, you need your models to put in some type of assumption, and so this is the most conservative and cleanest assumption, and that is what we provided. Is that what we actually do at the end of the day? Maybe, maybe not. But as Kennedy talked about in her opening remarks, we are always in the market, exploring the market and liquidity and pricing for our non-core assets. We do not have a lot of non-core assets left, but we do have a handful, and so we are out there exploring. I think how we ultimately pay for the $90 million share repurchase that we executed in the first quarter will depend upon the clarity that we get over the next month or two or three on some of these efforts that Kennedy is out there doing with the non-core assets. We are in a sources and uses business, and ultimately, at the end of the day, we are trying to drive accretion on a leverage-neutral basis. I think one of our secret sauces here at Cousins Properties Incorporated is that we have been very nimble and in a position to be nimble with this balance sheet that we have—to figure out a way to maximize shareholder value but maintain the balance sheet. I think we have done a good job of that in the last few years, and I think we will continue to do so. This transaction—the share repurchase and the funding of it—will just be one more example as we process that strategy. Blaine Matthew Heck: Great. Thank you all, and congrats on a great quarter. Colin Connolly: Thanks, Blaine. Operator: Your next question comes from the line of Analyst from Evercore. Please go ahead. Analyst: Perfect. Thanks for taking the question. In light of the really good leasing volumes, I just wanted to ask about your expectations for second generation CapEx spending going forward. I know you do not necessarily guide to FAD, but I am just trying to understand and square FFO versus FAD growth in the near-term future. Gregg D. Adzema: It is Greg again. Second gen CapEx, as you know if you have looked at our earnings supplement over the last few years, can be super lumpy. It just depends upon the leasing that we do and then, honestly, when the tenants that we lease to come to us and want their TI dollars back. FAD is a cash-basis metric, and so we base it upon when the actual cash goes out the door. Some tenants can ask for it very quickly; some tenants can wait a while before they ask for the money. So it is really hard for us to predict, but it is loosely tied to leasing at the end of the day. You have seen it elevated a little bit over the last few quarters because we have been leasing so much space, and so you could see it for calendar year 2026. Again, I do not want to comment on quarterly numbers because they are very difficult to predict with any accuracy. But for the full year, I think you could see second gen CapEx be a little higher this year than it was the last couple of years, just because we are leasing so much space. But once we stabilize the portfolio in the midterm, as Colin has talked about, you will see second gen CapEx decline to its more historic levels. Analyst: Got it. That is appreciated. I know that you previously talked about your year-end occupancy target for 2026. Now being a quarter in and obviously with leasing being very strong and the pipeline being very large, how do you feel about the occupancy trends by year-end 2026 and how bullish it makes you going forward into 2027? Richard G. Hickson: Sure. This is Richard. When you step back and look at all the building blocks—which we typically do not give at that level of granularity for occupancy guidance—but when we look at all of the building blocks, we are seeing a relatively modest amount of new leasing that we need to do incrementally to what we already have in the pipeline or have already completed to get to a year-end 90% number, which is our goal. We are confident that that modest amount is achievable and still feel good about our expectations for getting to 90%. Analyst: Okay. Thank you so much. I appreciate it. Operator: Your next question comes from the line of John Kim from BMO Capital Markets. Please go ahead. John P. Kim: Thank you. So you have a million square foot pipeline already signed in the second quarter, and that is versus roughly 800,000 square feet expiring this year. You are also selling 111 Congress, which is a little bit under-leased versus your portfolio. So I am just wondering, where do you think occupancy or lease rate could go to either by year-end or maybe over the next 12 months? Colin Connolly: Hey, John. It is Colin. As Richard just outlined, the goal for the end of the year—which we think is achievable—is 90%. And I think over the medium term, our intention is to drive this portfolio back to historical stabilized levels, which is absolutely in the low to mid-90%. That will take a little bit longer to get to. Just keep in mind while we are leasing a lot of space— we leased a lot of space in the first quarter, and we think we are going to lease a lot of space in the second quarter—there is typically a lead time, in many cases of a year plus, from signing of a lease to actual occupancy. So our ability to incrementally keep driving occupancy up will be dependent upon the timing of the need of our customers. But the underlying demand is there, and it is robust, and it is being driven by, certainly, the return to office, which might be more temporary, but more longer term, this flight to quality is insatiable, and the migration to the Sunbelt is only accelerating. John P. Kim: And the large renewal you had in Austin—it sounds like that was with Amazon just based on your commentary—but I am wondering if you could share any insights that you have on your largest tenant, given they talked about reducing a lot of desks, almost 14 million square feet of office space globally. Is there anything we should read in the renewal term? It was a little bit lower at 4.7 years versus the new leases signed this quarter. Colin Connolly: Hey, John. It is Colin. I cannot be overly specific due to certain confidentiality provisions, but you can go look at our supplement, and it seems like you are on a pretty good track there. A couple of thoughts. I shared this last quarter—some commentary specifically around Amazon, which has gotten a lot of publicity for announcing some small reduction in their workforce of, I think, 40,000 employees—but you have to put that in perspective that they grew their headcount over the past five years [inaudible].
Operator: Good morning, ladies and gentlemen, and welcome to Patrick Industries First Quarter 2026 Earnings Conference Call. My name is Sherry, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded. And I will now turn the call over to Mr. Steve O'Hara, Vice President, Investor Relations. Mr. O'Hara, you may begin. Steve O’Hara: Good morning, everyone, and welcome to our call this morning. I'm joined on the call today by Andy Nemeth, CEO; Jeff Rodino, President; and Matt Filer, CFO. Certain statements made in today's conference call regarding Patrick Industries and its operations may be considered forward-looking statements under the securities laws. The company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the company's annual report on Form 10-K for the year ended December 31, 2025, and the company's other filings with the Securities and Exchange Commission. Before we begin, I would like to remind you that on April 17, 2026, Patrick announced the merger of equals discussions with LCI Industries. Andy will be providing a brief comment in his remarks. However, we are unable to answer any further questions or discuss the potential for a transaction beyond Andy's remarks at this time. I would now like to turn the call over to Andy Nemeth. Andy L. Nemeth: Thank you, Steve. Good morning, everyone. We appreciate you joining us on the call. Today, we'd like to talk about our first quarter results, industry conditions, expectations for the year and also briefly discuss our recent announcement related to discussions for a potential merger of equals with LCI Industries. First quarter results continue to highlight the strength and resilience of our diversified platform, our innovation and product development efforts over the last 2 years and the incredible dedication of our team to support our customers in this dynamic environment. Marine revenue growth in spite of shipment declines, along with powersports revenue growth helped to offset double-digit shipment declines in our RV and manufactured housing markets. Net sales for the first quarter were $997 million, up 1%, with overall organic growth contributing 8% Earnings per diluted share was $1.10, including approximately $0.10 of dilution from our convertible notes and related warrants. On a trailing 12-month basis, net sales were approximately $3.9 billion. I'm incredibly proud of our team's disciplined execution on our operational playbook to deliver results in an uncertain and unbalanced shipment environment. Retail demand is seemingly constrained by macroeconomic factors, the war in Iran, consumer confidence and interest rate uncertainty. Importantly, OEMs and dealers have remained disciplined, keeping dealer field inventories lean, positioning our markets for a sustained recovery. Our diverse end market exposure and deep and broad brand-forward product portfolio remain a compelling advantage, enabling us to deliver more complete full solution-oriented offerings to our customers across the good, better, best framework while deepening our partnerships with OEMs. We remain focused on empowering our brands to lead with innovation while engineering new products and experiences for our customers. The nimble scalability of the Patrick platform enabled us to deliver quality with speed, depth and consistency across every end market we serve, driving content expansion, deeper OEM integration and continued opportunity for aftermarket growth. Our Advanced Product group is driving meaningful progress on multiple product solutions, including our composite strategy and an entry-level tower audio solution to help drive better affordability. We are increasingly collaborating with OEM customers to integrate solutions-based models into new and existing platforms, replacing legacy materials with higher-performing alternatives that offer durability, weight and design advantages. As a result of these benefits, coupled with OEMs placing greater emphasis on material sourcing, we believe our ability to procure, value-add value engineer and deliver full solutions will continue to position our value proposition as a true low-cost solution for our customers' ever-changing needs, representing durable long-term growth opportunity for Patrick. Additionally, our investments in technology and innovation continue to generate real measurable impact as the integration of automation and AI, which is in its infancy, are enhancing visibility, efficiency and responsiveness across our operations. These investments will help us manage costs, optimize production, navigate demand variability and better align and communicate with our customers, providing enhanced customer service. Regarding tariffs, our decentralized business structure, sourcing flexibility and close coordination with suppliers and customers have enabled us to mitigate impacts over time. Our team has expertly navigated changes to trade policy in the past, and we are confident that they will continue to operate with agility, maintaining our position of strength. We do not expect a material impact to our full year 2026 outlook from tariffs. From a financial standpoint, we used cash in operations during the quarter, consistent with normal seasonality and reflecting a proactive strategy to add inventory that supports anticipated growth in customer demand for composites and other materials. Importantly, we continue to expect strong free cash flow generation for the full year, supported by disciplined working capital management and the underlying earnings power of our business. While 2025 presented a more challenging valuation environment on the M&A front, largely related to macroeconomic uncertainty, we continue to be excited about the deals we did execute and the ones in the pipeline currently being cultivated. Our teams are well equipped to advance our proven playbook, targeting well-run companies with durable value creation while prioritizing leadership, talent and cultures that align with Patrick's long-term objectives. Long term, we are confident in our ability to outperform as a result of our organic growth initiatives, structural advantages and financial strength, including end market diversification, strong balance sheet, robust free cash flow generation and operational agility. Patrick is well positioned to continue generating value across a range of market conditions. And as demand in our markets recovers, we believe we will capitalize meaningfully. Now turning to our recent announcement regarding discussions about a potential merger of equals with LCI Industries. While we cannot discuss or confirm specific details at this time, we believe the potential combination of our two companies could provide additional opportunity to drive value and better partnerships with our customers and in the form of innovation, value-add value engineering, cost-effective full solutions and an overall low-cost model to help partner in driving better affordability. Together, the two companies could further enhance our overall value proposition by obtaining substantial cost savings through synergies, operating efficiencies and deployment of best practices as well as continued development of our bench strength for long-term shareholder value. We will communicate appropriately and alignment with regulatory guidelines as appropriate and in accordance with regulatory requirements as we continue to evaluate this opportunity. I'll now turn the call over to Jeff, who will highlight the quarter and provide more detail on our end markets. Jeffrey Rodino: Thanks, Andy, and good morning, everyone. Our first quarter RV revenue was $446 million, up 7% from the same period in 2025, representing 45% of consolidated revenue. We outperformed a 12% reduction in RV industry wholesale unit shipments during the first quarter, which equated to nearly 12,000 fewer units being shipped. Our team drove RV CPU on a TTM basis, up 8% to $5,277 through ongoing adoption of our composite products and solutions, coupled with market share gains during the period. On a quarterly basis, CPU increased 6% year-over-year. Based on the data published by Statistical Surveys or SSI, we estimate RV retail unit shipments were approximately 63,200 -- and according to the RVIA, wholesale unit shipments were approximately 86,100 in the first quarter. This implies a seasonal dealer field inventory restock of approximately 22,900 units during the period, resulting in an estimated dealer inventory weeks on hand of approximately 19 weeks to 21 weeks. This is up from the 16 weeks to 18 weeks at the end of the fourth quarter of 2025, but remains well below historical averages of 26 weeks to 30 weeks. We remain encouraged by the level of discipline shown by our RV industry and believe OEMs and dealers are committed to the long-term health of the industry. First quarter marine revenues increased 14% to $170 million, representing 17% of consolidated net sales and outperforming an estimated 7% reduction in wholesale Powerboat unit shipments. On a TTM basis, our estimated marine content per wholesale Powerboat unit increased 17% to $4,657. On a quarterly basis, estimated marine CPU increased 23% year-over-year. Our above-market revenue performance and strong content per unit growth primarily reflect sustained benefits from our market share gains related to the latest model year changeover and the impact of acquisitions last year that expanded our marine electrical solution set and aftermarket presence. Based on data from SSI and NMMA, we estimate marine retail and wholesale Powerboat unit shipments were 28,300 and 34,200 units, respectively, in the quarter. This implies a seasonal dealer field inventory restock of approximately 5,900 units. Dealer inventory in the field remains lean at an estimated 22 to 24 weeks on hand, up slightly from 20 to 22 weeks in the fourth quarter of 2025, remaining well below the historical averages of 36 to 40 weeks. Similar to RV, we believe disciplined inventory levels and improved alignment between retail and wholesale trends position the marine market favorably for a future rebound in demand. Our powersports revenue increased 28% to $104 million in the first quarter versus the prior year period, representing 10% of our first quarter 2026 consolidated sales. The continued strength in our powersports revenue was driven by the further OEM adoption of our cabin closures we provide through Sportech and other integrated solutions. Team's ability to drive increased attachment rates and expand content across platforms has further solidified our position as a key supplier in the space. As noted before, Patrick primarily serves the utility side of the powersports market, which continues to demonstrate resilience relative to other categories, partially due to the adoption of innovative features, which have improved customer utility. We remain incredibly confident about the opportunity ahead for Patrick in powersports space with enhanced focus on innovation and expanding the existing cabin closure solution and growing our aftermarket presence. On the housing side of our business, first quarter revenue was $277 million, up 6% when compared to the prior year period, representing 28% of consolidated sales. Manufactured housing represented approximately 56% of our housing revenue in the quarter. Estimated content per MH unit on a TTM basis was $6,636, flat when compared to the prior year period as we focused on maintaining solid content in a softer demand environment. On a quarterly basis, estimated content per MH unit was flat year-over-year. We estimate MH wholesale unit shipments were lower by 11% in the first quarter, while total housing starts increased 1% as macroeconomic pressures, including interest rates and affordability constraints continue to impact demand. We believe underlying demand for affordable housing remains intact, which we expect will be favorable for us over the long term, and we are positioned accordingly. Moving to the aftermarket side of our business. Our platform continues to grow traction, and we are aligning talent and infrastructure to support long-term profitable growth. Our investments are aimed at improving visibility into key metrics that can help us uncover incremental opportunities at existing business units and identifying appropriate candidates in the M&A pipeline. Many of the targets we seek to acquire have existing presence in the aftermarket, supporting Patrick's broader diversification strategy while offering important margin accretion benefits. Finally, I want to reiterate our excitement for the experience and provide an update on our first-of-its-kind digital design studio. The new technology is elevating how we engage with our OEM customers, and they appear energized by the ability to iterate in real time, enable faster and more collaborative decision-making. Our studio team continues to host a number of demos showcasing the capabilities of the space and collaborating with product leaders to make the experience a part of their design and engineering process. As we approach the next model year changeover, we have hosted more than 25 working sessions and have already eliminated dozens of prototypes through this process. We believe the experience further embeds Patrick as an indispensable partner in the OEM product life cycle and represents a meaningful durable competitive advantage as we drive greater operating efficiencies and more profitable growth over time. I will now turn the call over to Matt Filer, who will provide additional comments on our financial performance. Matthew Filer: Thanks, Jeff, and good morning, everyone. Consolidated net sales for the quarter were $997 million, up 1% from the first quarter of 2025. Our team delivered higher CPU on a trailing 12-month basis in each of our Outdoor Enthusiast markets, as Jeff highlighted, which helped drive revenue increases of 14% and 28% in our marine and powersports end markets, respectively, helping offset lower revenue in our RV and housing markets attributable to reduced wholesale shipment levels in the quarter. The year-over-year change in our revenue was comprised of 2% acquisition growth, 8% organic growth and negative 10% industry. Gross margin was 22.8%, unchanged versus the first quarter of 2025. Operating margin of 6.5% was flat when compared to the prior year period. Our stable margins reflect our team's ability to flex our operations in response to lower-than-expected RV and housing demand in the first quarter. Our overall effective tax rate was 14.8% for the first quarter compared to 17.7% in the prior year. Net income was up 3% to $39 million or $1.10 per diluted share compared to net income of $38 million or $1.11 per diluted share in the prior year quarter. Our diluted earnings per share for the first quarter of 2026 included approximately $0.10 in additional accounting-related dilution as a result of the increase in our stock price above the convertible option strike price for our 2028 convertible notes and related warrants. The prior year's diluted EPS included just $0.05 per share. Adjusted EBITDA was $113 million compared to $116 million last year, while adjusted EBITDA margin was 11.4%, lower by 10 basis points from the first quarter of 2025. Cash used in operations for the first 3 months of 2026 was $14 million compared to cash provided by operations of $40 million in the prior year period. This reflects an increase in working capital, partially related to our strategic decision to increase composite material inventory in anticipation of customer demand. Purchases of property, plant and equipment were $19 million during the quarter. Total net liquidity at the end of the first quarter was $734 million, comprised of cash on hand and unused capacity on our revolving credit facility of approximately $696 million. With no major debt maturities until 2028, we have the financial strength and capital necessary to capture long-term organic and inorganic growth opportunities. At the end of the first quarter, our net leverage was 2.8x. In the first quarter, we returned a total of $31 million to shareholders, including quarterly dividends of $16 million and $15 million for the repurchase of approximately 127,700 shares. We remain opportunistic towards share repurchases and had approximately $153 million left on our existing repurchase authorization at the end of the first quarter. During the second quarter through April 29, 2026, we have repurchased approximately 153,100 shares for a total of approximately $15 million. I want to briefly frame our thoughts regarding the rest of the year. We recognize the broader macroeconomic environment remains uncertain, particularly with respect to consumer confidence, interest rates, conflict in the Middle East and thus, the timing of a more sustained recovery in our end markets. Against this backdrop, we remain focused on executing operationally, driving content and share gains, advancing our aftermarket initiatives and maintaining a disciplined approach to capital allocation, including M&A. We believe these actions, combined with the strength of our diversified platform, position us to deliver solid financial performance even if demand conditions remain soft. With that, our 2026 outlook is as follows: -- we now estimate RV retail will be down low to mid-single digits and RV wholesale will be 315,000 to 330,000 units in 2026. In Marine, we estimate retail shipments will be flat to down slightly and wholesale shipments will be up low single digits in 2026. In our powersports end market, we continue to expect both full year unit shipments and our organic content to be up low single digits, implying an overall mid- to high single-digit increase for our business. For housing, we now estimate MH wholesale unit shipments and total new housing starts will both be down low to mid-single digits for 2026. Moving to our financial outlook. Based on the revisions to our end market shipments, we now expect our 2026 adjusted operating margin will improve by 30 basis points to 50 basis points versus 2025. We have also updated our 2026 operating cash flow, which we now estimate will be between $370 million and $390 million, with capital expenditures totaling between $70 million to $80 million, implying free cash flow of approximately $300 million. For 2026, we continue to estimate that our effective tax rate will be between 24% and 25%. That completes my remarks. We are now ready for questions. Operator: [Operator Instructions] Our first question is from Scott Stember with ROTH Capital. Scott Stember: Can you talk about the state of retail, what you're hearing in RV Camping World this morning, it sounds as if things are getting incrementally better from the doldrum of the winter, at least in April. What are you hearing through your touchpoints? And also on the production side from OEMs, what are you hearing and seeing from a production standpoint and also a mix standpoint? Jeffrey Rodino: Yes, Scott, this is Jeff. From a retail standpoint, I think I agree with what you heard from Camping World this morning. It is getting incrementally better. Certainly, a slow start to the year in January with some of the weather and into February. Some of the macroeconomic things and consumer confidence is tamped it down a little bit. But I think it's incrementally getting better. From a production standpoint from the OEMs, they're still being very measured in what they're producing. They're not overproducing. They're kind of falling in line with where things are at with retail, down a little bit over -- year-over-year. But overall, keeping an eye on what retail is doing. So we feel really good about the patience and the discipline that's going on in that market. As far as the mix, we are seeing a little bit different mix than we have through '24 and into '25, we saw really heavy on the entry-level side. That mix is changing a little bit. We're seeing a little bit more on the fifth wheel side, but overall, not back to what we would call a normalized mix by any means. So overall, we feel good about where people are at and certainly hope to see the retail pick up even a little bit more. Scott Stember: Got it. And then looking at the aftermarket, it seems like there's some continued gains there. Can you talk about the ongoing cross-pollination efforts with the RecPro platform regarding powersports and marine and the existing RV products from Patrick? Jeffrey Rodino: Yes. So since we made the acquisition in September '24, we've added over 500 different parts to the RecPro site. I would tell you that within RV, I think we've added 6 brands or 7 brands in several offerings from those brands on the marine side and even some on the powersports. Certainly, it's been a little bit heavier on the RV side to start with, and we've really started to gain some traction in the marine and powersports parts that we're adding on to the system. Scott Stember: Got it. And just the last question on the margins. The lower growth outlook for this year. Is that just strictly based on the lower shipment forecast that you have? Andy L. Nemeth: It absolutely is volume related to shipments, Scott. And I think one of the things that Jeff mentioned related to just overall discipline remains very, very strong. I think everybody is working in partnership in [ Unison ] to keep things in check with flexibility to scale up when needed, but everybody is being very, very thoughtful about maintaining a balanced level of inventory to support the industry conditions today. But like I said, scalability. So for us, it's simply volume related. And I think what we're confident in is our continued development and delivery of innovative products. Our content growth is under our control, and our teams have done a fabulous job of connecting with customers on our full solution. So overall, again, volume related, we're offsetting the things with what we can control. Operator: Our next question is from Joe Altobello with Raymond James. Joseph Altobello: The first question on M&A, and I'm guessing you probably don't want to talk too much about the LCI or potential LCI transaction. But I guess my question there is while those discussions are ongoing, does that impact your M&A strategy? Is it on hold at this point? Andy L. Nemeth: It is not, Joe, and we're continuing to be very active. I think the strength of our balance sheet, the tremendous amount of liquidity that we have, the pipeline candidates, we're definitely active in the market right now cultivating deals regardless of an LCI transaction or not. And so we're we feel really good about our continued position to be on offense in this market and be able to take advantage of opportunities that are out there. So in no way are we impeded by any discussions at this point and certainly continuing to be aggressive on M&A. Joseph Altobello: Okay. And then just to shift gears a little bit over to Marine. I think you mentioned your content per unit there on a quarterly basis was up 23%. What's -- maybe talk a little bit more about what's driving that and how you see that over the balance of the year? Andy L. Nemeth: Yes. Our team has done a really good job with innovation. I think when you look at the content growth, not only in marine, but in RV as well and as well in powersports, the combination of our Advanced Products group really working with our annual prototyping work that the team does, just a tremendous amount of focus on innovation. And like I said, customer solutions are really what we're focused on today. And becoming more value-add for our customers, helping them bring costs down through those value-add solutions, but innovative solutions. And so just across the platform, our brands are continuing to work together to put solutions together in front of our customers that are compelling and exciting and help them differentiate their products. So just like I said, just tremendous effort and focus on collaborative brand-fronted, innovative solution-oriented products to customers is driving our content growth. Operator: Our next question is from Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: I guess maybe to drill down there a little bit more. TTM CPUs, I think, up 8% on the RV side, up 17% on the marine side. Could you just remind us, I guess, how you typically think about content growth as part of the kind of growth algorithm? And are you seeing or expecting kind of like a step change versus how you used to think about things? And if so, kind of what's driving that? Andy L. Nemeth: Yes. So typically, the algorithm on our model is centered around a target of 2% to 3% organic content growth net of industry on an annual basis. And so that's kind of the foundation for the model. As far as kind of ongoing step change, I'd say we're going to stay consistent with kind of expectations around that 2% to 3%. But I would also tell you, there's tremendous opportunity based on the continued innovative solution development that our team is working on to increase that number. And so I don't know that we're moving off of the algorithm, but certainly, expectations internally continue to be elevated as it relates to the opportunities that are out there in front of us today, especially on the solutions front. So I think there's upside potential to that algorithm. Noah Zatzkin: And then maybe just one on manufactured housing. Obviously, just to see the outlook down there. So kind of maybe just a quick update on what you're seeing in that end market? Andy L. Nemeth: Yes. Manufactured housing has been declining over the last several quarters, and it's fairly soft right now is what we would tell you. We're not seeing a lot of improvement at the moment. I think everything as it relates to consumer confidence right now is constrained. And so we're certainly seeing it on the MH side of the business for sure. So continued expectation right now is kind of standard. We're seeing declines in the MH industry. I think things are a little bit soft out there right now, hoping for some increase in consumer confidence. But overall, there hasn't been a lot of change. We've seen a decline, and it continues to decline. Operator: Our next question is from Craig Kennison with Baird. Craig Kennison: Yes, I wanted to start with tariffs and trade policy, which is impacting businesses in dramatically different ways this quarter. Could you just help us understand your supply chain and your production footprint and why that keeps Patrick insulated from some of these recent policy changes? Jeffrey Rodino: Yes, Craig, this is Jeff. So from some of the metal aspect of things on tariffs, a lot of what we're doing is domestic. Certainly, we're still seeing commodity prices move in an upward direction even if they are on the domestic side. But we've got a couple of different kind of ways that we go about our policies and some of it is direct importer of record -- we work through that through our business units. And then in other cases, we're using importers or distributors in the states that are actually doing the importing. So it's just a couple of different ways that we look at it. And then as far as how we are trying to mitigate those tariffs as we work right back to the manufacturers to try to understand what the tariff impact is going to be, figure out how we can best mitigate those costs at the starting point. And then we work directly with our customers to really communicate upfront what it means, what it will mean on a go-forward basis and really communicate with them to pass those along. I mean I think we've said in the past that our tariff I'm going to say, policy or how the way we handle it is that there's not an impact to our margins on the tariffs. But we're working very hard to mitigate those as best we can from the supplier all the way down through distribution. Craig Kennison: Are your powersports partners cutting any cab orders, for example, as they wait for more clarity on policy? Jeffrey Rodino: We've not seen that as of right now. We've had a really good first part of the year on powersports, and they schedule out their units a little bit further than some of our other industries and the scheduling that we're seeing right now is still showing stronger orders. Andy L. Nemeth: And our focus on and concentration on the utility side has been extremely positive for us on the powersports. We just continue to see strong take rates on cab upfit for utility units, and that's been, again, a nice organic contributor for us and for our powersports team for the first part of the year and really through kind of the starting in the back half of last year. So we continue to be encouraged by the utility sector in powersports. Craig Kennison: And then I guess, finally, to the extent you can comment on the proposed merger of equals, what would you share with respect to either shareholder or OEM reaction, any time lines or hurdles that you'd face? And maybe just comment on any potential portfolio overlaps that might be problematic as you discussed with [indiscernible]. Andy L. Nemeth: Yes. So what I can comment on, Craig, is that we've been very thoughtful about these discussions from the beginning. And the first and primary focus was on the customer and how can we be a better partner to the industry. And I look at the opportunity to enhance product solutions and really be able to positively impact our customers and partner with our customers, especially in this environment where things are uncertain and affordability remains in question. And so first and foremost, I would tell you that we were very thoughtful about that. And so we understand the risk, and we also understand the opportunity to be a true partner to our customers in this space. And so that's why -- that was kind of the overriding theme behind the discussions. And so that's what I can tell you at this moment, but customer first has been the priority and headline for us throughout the entire process. So we've been very thoughtful about that. Operator: [Operator Instructions] Our next question is from Daniel Moore with CJS Securities. Dan Moore: Operating -- just in terms of kind of the cadence, operating margin in Q1, essentially flat year-over-year. How should we think about the cadence of the 30 basis point to 50 basis point improvement that you expect? Is Q2 kind of similar to Q1 with most of the improvement in the back half? Or would you start to expect to start to see some of that improvement coming through this quarter in a dynamic environment? Matthew Filer: I think -- sorry, this is Matt. And I think we're definitely looking at the second half being a little bit stronger than the first half. As we saw in the first quarter, the markets were softer than what we were hoping for coming into the year, but we're going to control what we can control, and we still expect to see that 30 basis points to 50 basis points improvement over prior year. Andy L. Nemeth: Yes. Typical Q2, Q3 seasonality, Dan, we would expect to see an uptick in margins. Dan Moore: Okay. Free cash flow guidance, very little change despite the kind of lower EBITDA. Just are you seeing incremental opportunities in terms of working capital? And what's the offset there? Andy L. Nemeth: Yes, that's correct. So there's definitely some working capital benefit baked into that. Dan Moore: Okay. And then just housekeeping in terms of given where the stock is trading here, I know it was $0.10 dilution in Q2 -- Q1, what would that kind of quarterly dilution from the convert look like? Andy L. Nemeth: At this point, Dan, I mean, it's pretty dynamic. I can't really give specific guidance here. We would expect -- what we've seen, what, $0.05-ish kind of quarterly dilution is what I would continue to expect while we kind of move through this. Yes. Dan Moore: Sneak one more in. Aftermarket, just kind of -- you touched on this in some of the other questions, but where are you seeing the biggest opportunity in terms of cross-selling? Just kind of remind us what your margins are? And is that something -- would you consider breaking out aftermarket as a separate segment at some point? Andy L. Nemeth: At some point, we certainly will. And we've got a strategy as it relates to our aftermarket program, which includes M&A. And so as we continue to deepen our presence in the aftermarket, it's going to become more and more material as part of our vision and where we want to take that for the future. And so we will start to break that out and potentially break it out even further going forward. But the overall margin profile is accretive to Patrick's consolidated profile today. And as we look at the aftermarket, there's still tremendous opportunity organically with our existing product categories to get that on to our DTC sites and RecPro in particular, and that presence to become kind of our overall outdoor enthusiast direct-to-consumer site. So as we think about it, we're still early in the game on aftermarket and -- but it's absolutely a strategy, and we see not only, like I said, potential for organic growth, but M&A potential out there, too, today that we're focused on. Operator: Our final question is from Tristan Thomas-Martin with BMO Capital Markets. Tristan Thomas-Martin: Andy, you mentioned a couple of times kind of advanced integrated solution-based offerings as a benefit to the OEM, both from kind of like quality of life standpoint and also just improved affordability. Could you maybe give us a couple of examples of what those are? Andy L. Nemeth: Yes. I mean we talked about it in our release, but we've got a low-cost power audio solution that we're working on today. We're working on home solutions in the marine space. that integrate our products and can help our customers bring their overall build cost down because of those solutions and our ability to procure and bring these solutions together, I think on the RV side, our roofing solution is very exciting to us, but as well some flooring solution opportunities that are upcoming as we look forward into the future. And so we're really trying to -- and our brands have really opened up, again, the collaborative process with each other to start to really think about how we can get solution-oriented products to customers. And so there's just a wide variety of things that we can do based on the depth and breadth of our portfolio that we're very focused on. But those are some simple examples that I can give you that are really compelling today. Matthew Filer: And Tristan, one other thing I would add to that is our teams are really focused on the discussion of ASPs out there. we're working very diligently with customers with our good, better, best offering to figure out how we can kind of mix and match solutions to be able to drive some of those prices down and be a better partner as they look to try to drive down those ASPs, both on the RV and marine side. Tristan Thomas-Martin: Okay. That's a good segue into my next question. Where do you think ASPs for model year '27 shake out, both in terms of whether it's either your kind of incremental content gains and then also kind of what the industry is trying to do on a like-for-like basis? Andy L. Nemeth: Yes. I'll tell you, I mean, we're making a lot of strides on the composite side. So we'll see some gains on market share on the model change. So we feel really good about that on the RV side. The marine and powersports side, we've seen quite a bit of our CapEx that we've used so far this year go towards tooling on projects that we've been working on with customers leading into this upcoming model change. So we're really excited about what we're going to see on our model change in marine and powersports as well. As far as ASPs, really, what we're seeing is we're seeing some higher prices on commodities that we're being forced to pass along. Some of those are driven by the higher fuel prices, higher resins and some of the things that we've seen on the commodity side there. How that's going to equate in the ASPs, I really couldn't give you that answer right today. But it will have an impact. That's why, like I said, our teams are kind of focused on that. So we're trying to figure out in our good, better, best offering, where we can take money out where we see we have to add money back in with the commodities doing what they're doing. So it's a challenge, but our teams are really, like I said, laser-focused on that for the customer and ultimately for the end customer. Operator: Ladies and gentlemen, thank you. I will now turn the conference back over to Andy Nemeth for closing remarks. Andy L. Nemeth: Yes. I want to just once again thank our team for just incredible dedication and commitment to continuously serving our customers better in this environment, which is extremely dynamic. And I'm really confident in where the company is positioned today. We're sitting on a position of strength, especially as it relates to our balance sheet, our team, the strength of our bench to continue to really be aggressive in controlling what we can control and continue to drive our business forward in alignment with our strategic plan. And so I feel really good about where we're at, especially in this dynamic environment to be able to flex both up and down as well as deliver exceptional customer service. So I want to thank everybody for joining the call, and we look forward to talking to you on our next conference call. Operator: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Franklin BSP Realty Trust First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lindsey Crabbe, Executive Director, Investor Relations. Please go ahead. Lindsey Crabbe: Good morning, and welcome to FBRT's first quarter earnings conference call. Thank you for joining us today. As the operator mentioned, I'm Lindsey Crabbe. With me on the call today are Michael Comparato, Chief Executive Officer of FBRT; Jerry Baglien, Chief Financial Officer and Chief Operating Officer of FBRT; and Brian Buffone, President of FBRT. Before we begin, I want to mention that some of today's comments are forward-looking statements and are based on certain assumptions. Those comments and assumptions are subject to inherent risks and uncertainties as described in our most recently filed SEC periodic reports and actual future results may differ materially. The information conveyed on this call is current only as of the date of this call, April 30, 2026. The company assumes no obligation to update any statements made during this call, including any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, we will refer to certain non-GAAP financial measures, which are reconciled to GAAP figures in our earnings release and supplementary slide deck, each of which are available on our website. We will refer to the supplementary slide deck on today's call. With that, I'll turn the call over to Mike Comparato. Michael Comparato: Thank you, Lindsey, and good morning, everyone. Thank you for joining today. I will begin with key developments from the first quarter and an overview of the market, then Jerry will walk through our financial results, and Brian will provide updates on our portfolio. The quarter played out against an increasingly complex macro backdrop. Geopolitical uncertainty and ongoing conflict have added volatility across markets. But in many ways, commercial real estate has already gone through its correction over the past few years. Values have reset meaningfully across all asset classes, and we believe we are much closer to the end of the cycle than the beginning. What remains is the final phase, working through the legacy positions as lenders move beyond extend and pretend. Against that backdrop, liquidity in our markets remains strong and competition is high with spreads near cyclical tights. We've stayed disciplined in that environment while continuing to find opportunities in origination. Our origination activity outpaced repayments this quarter, resulting in portfolio growth. That speaks to the strength of our platform and our ability to operate outside of the most crowded parts of the market. In addition, last year, we selectively began deploying capital into equity investments where we saw the potential for strong risk-adjusted returns. We've already seen meaningful appreciation in those assets with the estimated fair value significantly increasing since our initial investment. This is another good example of how we're using the breadth of our platform to allocate capital opportunistically and enhance overall returns. We expect the equity allocation of the portfolio to increase throughout 2026, but we will also strategically exit equity investments if the pricing is compelling. On the credit side, we continue to make progress resolving legacy assets, including reducing our REO count this quarter. We believe the majority of the legacy issues have been identified and are prioritizing resolution and redeployment of capital over holding underperforming assets. Within NewPoint, first quarter activity was seasonally higher, which is typical -- excuse me, seasonally lighter, which is typical. If rates stabilize, we would expect origination volumes to build throughout the remainder of the year. As we've said before, even modest movements in rates today have an outsized impact on transaction activity. All in all, I would put this in the excellent category for a quarter. Our adjusted distributable earnings covered our dividend. We increased book value. We bought back a meaningful amount of stock at a substantial discount to book value. The Board approved more stock buybacks post quarter end. We sold our largest REO position early in the second quarter, grew the overall portfolio size, issued a highly accretive CRE CLO that closed in the second quarter. We integrated the entire BSP servicing book into NewPoint and we had meaningful appreciation on 2 equity investments. The team really did an outstanding job this quarter. And with that, I'll hand it off to Gerry. Jerome Baglien: Great. Thanks, Mike. I appreciate everyone joining the call today. I'll walk through the financial results for the quarter. FBRT reported GAAP net income of $12.3 million or $0.08 per fully converted common share. Distributable earnings for the quarter were $13.5 million or $0.09 per fully converted share. Distributable earnings includes $12.3 million of realized losses tied to foreclosure real estate that we sold. Excluding these losses, distributable earnings were $0.22 per fully converted share. Results this quarter were supported by relatively stable net interest margins compared to Q4, along with a more normalized contribution from NewPoint, which I'll touch on briefly. During the quarter, we recorded a CECL provision of $13.5 million, which included a $1.3 million benefit from our general reserve and a $14.8 million specific reserve primarily tied to one watch list loan. Book value per share increased to $14.18, driven by our share repurchase activity. We've been consistent in allocating capital where we see the best risk-adjusted return, and we view our stock as one of those opportunities. We repurchased nearly $40 million of common stock during the quarter. Subsequent to quarter end, the Board reauthorized the share repurchase program with $50 million available through December 31, 2026. Net leverage ended the quarter at 2.84x with recourse leverage standing at 1.16x. Excluding the leverage on NewPoint assets, our net leverage for the vehicle was 2.62x and with our current leverage target in the range of 2.75 to 3x with NewPoint excluded. Subsequent to quarter end, we issued an $880.4 million managed CRE CLO. In connection with that transaction, we called the 2022 vintage CLO that had exited its reinvestment period. We continue to maintain strong liquidity and financial flexibility with reinvestment capacity now available across 3 CLOs. Looking ahead, we expect earnings to benefit from the larger core portfolio and a more stable contribution from NewPoint over the course of 2026. Slide 11 highlights NewPoint's contribution for the quarter. Distributable earnings from NewPoint totaled $5.6 million, which is more consistent with what we view as a normalized steady-state level of income from the platform. Agency origination volume was $646 million in Q1, reflecting typical seasonal softness compared to the back half of 2025. At quarter end, the MSR portfolio was valued at approximately $217 million and generated $6.7 million of income in Q1, representing an average MSR rate of roughly 100 basis points. NewPoint's servicing portfolio totaled $58.1 billion at quarter end. The quarter-over-quarter increase was largely driven by integration efforts, including the successful transition of all BSP real estate loans onto the NewPoint servicing platform, which occurred over the course of the quarter. The full earnings benefit from this transition will be realized in the coming quarters. This marks a significant milestone in our integration process and positions us to be a more differentiated servicing provider going forward. We continue to see NewPoint as a meaningful driver of long-term value with increasing contribution expected as volumes build, MSR and the servicing book grow and the benefits of integration come through. With that, I'll turn it over to Brian to give you an update on our portfolio. Brian Buffone: Thanks, Jerry, and good morning, everyone. I'll start on Slide 14. Our core portfolio finished Q1 at roughly $4.6 billion. As Mike mentioned, we grew that core loan portfolio during the quarter with net growth of $173 million. This was driven by $468 million of new loan commitments in addition to future funding commitments from previously closed loans. was partially offset by $323 million of repayments. We expect continued modest portfolio growth throughout the rest of this year. Approximately 79% of our loans are backed by multifamily assets and our office exposure is extremely limited sitting at just 1% of our core portfolio. That office loan exposure is now only $55 million across 3 loans, 2 of which are performing and the third is nonperforming and on our watch list. During the quarter, we originated 26 loans at a weighted average spread of 278 basis points with multifamily accounting for 92% of that production. We remained active in a highly competitive market but stayed disciplined in how we deployed capital. Our focus continues to be on high-quality multifamily loans with lower loan-to-value profiles where we believe we are best positioned from a risk-adjusted return perspective. Our pre-rate hike portfolio continues to be reduced and now represents approximately 29% of our total loan commitments with $175 million of payoffs during the first quarter tied to that vintage. This continued runoff reflects steady progress in rotating the portfolio into newer post-rate hike originations. Turning to Slide 16. The overall portfolio remains stable with an average risk rating of 2.5 and 11 loans on watch list at quarter end. During the quarter, we resolved one watch list loan completing that loan sale within the quarter, and we added 2 multifamily loans during the quarter. Slide 17 covers our foreclosure REO portfolio. We reduced our REO count to 6 assets at quarter end, down from 7 last quarter, reflecting continued execution on asset resolutions. But the most meaningful milestone in resolving our REO positions came very shortly after quarter end with the sale of the Raleigh multifamily asset, which was by far our largest REO position. Our financing of that sale will return equity associated with that investment from a negative to a positive contribution next quarter. Write-downs associated with that sale were recognized this quarter and contributed to realized losses as we continue to take a proactive approach to resolving these positions. With that, I would like to turn it back over to the operator to begin the Q&A session. Operator: [Operator Instructions] The first question comes from Matthew Erdner from JonesTrading. Matthew Erdner: I'd like to kind of touch on NewPoint to start. a lot better quarter this quarter than the prior. Could you talk a little bit about the timing of when those loans were kind of transferred on to the servicing book and if it had the full effect for this quarter? And then if you expect any kind of normalization of that going forward? Jerome Baglien: Yes. This is Jerry. I'll take that. It occurred during first quarter. So you're not getting the entirety of the benefit, effectively done kind of mid-first quarter. But keep in mind, you've got to have the personnel to run that ahead of that. So from a contribution in the first quarter perspective, you're certainly not capturing the entirety of what we expect that to contribute on a go-forward basis. And when we gave our estimations last quarter on kind of the expected growing contribution for 2026, the back or latter half of the year beyond this will show the full benefit of having the yield in its entirety throughout the rest of the quarters of the year. So it's going to be more positive than it was in Q1. Matthew Erdner: Got it. That's helpful. And then turning to the watch list real quick. Is there, I guess, anything specific that you guys are seeing kind of across the Southeast, Southwest from a borrower profile perspective that's leading to kind of, I guess, the Texas and Arizonas finding their way onto the watch list? Michael Comparato: Matt, it's Mike. I don't think much has changed, honestly, probably in the past 2 years in that regard. Rates are kind of in the same spot that they've been. Everybody has been hoping for greener pastures that just haven't really materialized. We've also been talking for the past 2 years just about borrower behavior and how difficult it's been to predict what borrowers are going to keep things current and pay loans down versus those that are walking away. So I would say largely not much has changed. We just learn more things every quarter. We got almost $200 million of paydowns from those kind of legacy 2021, 2022 vintage originations. So I continue to say that not everything originated in those years necessarily is bad and is losses, right? We've had billions of dollars of paydowns at par on that stuff. It's just the natural kind of adverse selection of working through the rest of that portfolio. And I think the team is doing a great job, but I don't think there's any new information that we have today that we haven't had for the last few quarters or years. It's just kind of working through the system. Operator: The next question comes from Timothy D'Agostino from B. Riley Securities. Timothy D'Agostino: It'd be great to just hear a little bit more on your capital management and balance sheet management going forward. Obviously, you repurchased about $40 million of common stock and the Board increased the repurchase program back to $50 million. So I guess, going forward, is buying back stock continue to be kind of a focal point? How do you feel about -- obviously, the dividend was cut last quarter. How do you feel about that going forward? I'm just trying to get an overall sense. Obviously, book value increased quarter-over-quarter, which is a positive. Michael Comparato: Tim, it's Mike. Thanks for the question. Let me start with the dividend, so I'll answer backwards and then go to the share repurchases. So I think we were -- we're pretty straightforward in saying we thought the earnings potential of the company was in that -- where the dividend previously was, right? We thought through the passage of time, the recycling of the REO portfolio and nonperforming loans into performing investments that we could get back up into that general area. The cut obviously was a decision that we made just to stop burning book value while we went through that transition. So I don't think anything has changed from a macro perspective. I think we still believe the earnings power of the firm is substantially higher than what we performed this quarter. It's really just about the team continuing the execution of getting through those legacy assets, liquidating the REO and getting that capital reinvested. So I would hope that earnings continue to move in the upward right trajectory. And I think that's been consistent with what we've said all along. With respect to share repurchases, we walk in the office every day looking for what we think are the best investments for our capital on any given day. Our shares are clearly one of those options. So I can't tell you, obviously, the magnitude at which we would buyback on any given day, week or month, but it's something that the Board is supportive of. And Jerry, Brian and I and the rest of the management team discussed it regularly. Operator: The next question comes from John Nickodemus from BTIG. John Nickodemus: Regarding the 2 loans moved on to the watch list, just if you wouldn't mind expanding on sort of what drove both of those downgrades. I know one went from a prior 3 rating to a 5 and the other from a 2 to a 4. So I'd just love to hear a little more detail on specifically what went into those changes this quarter. Michael Comparato: John, it's Mike again. I would say, again, this is based on mostly borrower behavior. One of them went from a 2 to a 4 because a borrower defaulted. Shortly after the default, I think they realized that, that was not the greatest outcome for them. They actually came whole on all of the payments due, including about $300,000 of default interest and late fees. So that loan is current as we sit here today. But given that it did have a default, we thought it appropriate to risk rate it at a 4. With respect to the loan that was risk rated at I would say this is exhibit A of trying to figure out borrower behavior and what happens next. These are, I would say, average to above average assets in average to above average locations. This is a major, major sponsor who has been contributing, I would say, an exceptional amount of equity to the property and keeping the loan current for several years. And unfortunately, they just decided that the well had run dry. We thought that they were going to right size the loan and continue to keep things current, and they woke up and said no loss. And so we got a valuation in conjunction with that default that currently indicates that it would be a loss. Obviously, we'll see when we actually exit the positions, what that turns out to be, but that's kind of the back story behind that one. John Nickodemus: That's super helpful for both of those. And then just the other one for me. Congratulations again on the sale of your largest REO position. I was just curious how you're thinking through the remaining 5 assets and any sort of timing or just what the cadence could look like for those potentially being sold throughout the rest of 2026? Michael Comparato: Yes. Brian, do you want to take that one? Brian Buffone: Sure. on the majority of them, we are actively marketing for sale. We hope to have resolution in Q2, Q3 on 2 or 3 of them. But right now, we are actively looking to resolve those. And as Jerry and Mike both pointed out, redeploy that capital back into what is our core portfolio on multifamily assets on the lending side, but very actively in the market on those and hope to have resolution within the next couple of quarters there. Michael Comparato: And I would add to that, John, the 2 that are closest to being sold, indications are that they will be collectively at or maybe even above where we have them currently marked. Operator: The next question comes from Chris Muller from JMP Securities. Christopher Muller: So following up on a prior question. On the increase in specific CECL reserves, so there wasn't much of a change in risk ratings in the quarter, 1 new 4-rated loan and 1 new 5-rated loan. Was that increase in specific reserves due to those downward migrations? Or is it more related to the other watch list loans? Michael Comparato: It's really just position. Yes, go ahead, Jerry, sorry. Jerome Baglien: Yes, we're saying the same thing. It's the one position that went to a 5. That's the majority of the increase in the quarter. It's just a specific provision on that asset. Christopher Muller: Got it. Makes a lot of sense. And then I guess shifting gears to the NewPoint business. You guys originated $1.1 billion in 4Q and then down to $646 million in 1Q. And Jerry touched on this a little bit. But how much of that dip was due to seasonality? And how much was due to the conflict in the Middle East causing some interest rate volatility? I'm just trying to see where the seasonally adjusted baseline for this business should be. Michael Comparato: Yes, Chris, a harder question to answer, obviously. I think Q1 is seasonally lower historically in the agency business overall. But we are just in this really complicated rate environment, right? We saw the 10-year briefly hit kind of 3.75%, 3.80%. And I would say borrowers became euphoric again and the amount of inquiries shot through the roof. And then we completely reversed ourselves. And I think the high I saw was 4.48% in just the past few weeks. And so every borrower has kind of said, well, I'm going to wait again. So we're just in this unfortunate period of -- I've said this a few times, 25 basis points with 4.25% kind of being the start rate. At 4.50%, I think everything comes to a screeching halt. And at 4%, I think you're going to see a deluge of transactional volume. And so unfortunately, right now, we're at the higher end of that range to really see origination ramp, you need to see rates come down a little bit and have borrowers stop bridging and taking floating rate debt hoping for that lower rate environment. But I can't say it's 60-40, 70-30. There's just no way that I could really answer that or measure that for you. Christopher Muller: Got it. That's fair. And if I could just squeeze one last one in. Is that dynamic of interest rate volatility also impacting your guys' conduit business? And that business has been a nice contributor to earnings. It looked like it was about $0.06 this quarter. If we do see rates start to settle in a little bit, could there be some upside to the conduit business as well? Michael Comparato: I think there could be. I also think there's potentially upside to the conduit business in that we are buying our first CMBSB piece that we bought in probably 5 years. And I think we're going to be able to give borrowers much more certainty of execution within that space, which is a very sought-out commodity. But we talk about this regularly. You didn't directly ask this, but I'm going in a slightly different direction. When you put all of the pieces on the board now and how we've acquired NewPoint, we have a conduit business, we've got a servicing business, and we've got a floating rate debt business and a growing equity business. FBRT in its totality has kind of become a perfect hedge for itself, right? If rates go down, it benefits this side of the group. It probably is to the detriment of others. As rates go up, we do more floating rate business, maybe the conduit underperforms and the agency underperforms. But what we really have built is something that should be just a natural hedge based on rates overall. And I think that the market will figure that out in the coming quarters and years as the different pockets of the company perform in certain market environments. Operator: [Operator Instructions] The next question comes from Gabe Poggi from Raymond James. Gabriel Poggi: A lot of what I wanted to ask has been asked. I want to ask kind of a 20,000-foot question here. FBRT has, over the last years, rent against newer vintage. Obviously, you got 70-plus percent of the book in newer vintage multi. Two questions on that. Can you, Mike, talk about just general market color between what you're seeing in the transaction market between newer vintage product and older and then kind of A/B/C product? And then the piggyback to that is, as you mentioned, potential more equity investments, is there at even Benefit Street in totality, more want or interest in potentially owning some of the multifamily that you guys have been in and around the hoop on for longer from an equity perspective because of longer-term tailwinds? Michael Comparato: Gabe, thanks for the question. I appreciate it. I'll channel my inner Charles Dickens and say it's kind of a tale of 2 -- the best of times and the worst of times when it comes to Class A new vintage to the older stuff. It seems like everybody, whether that is equity or credit, wants to be in the nicer, newer vintage, higher-quality assets. It's easy for an equity investor to walk into their investment committee or look themselves in the mirror and say, okay, I'm buying a brand-new asset below replacement cost, construction starts have declined, supply is declining. If I own this thing for 5, 7 years, 10 years, as long as I just operate it correctly, don't over lever it, I'm probably going to have a pretty good investment experience. For credit guys, it's the same exact conversation. It's slightly different, but it has the same foundations, which is this is the best -- new best asset in the market. If the buyer is below replacement cost, we're substantially below replacement cost. And I just think that, that's a very, very easy thesis for people to understand and sink their teeth into. For example, I mean, Austin is the most -- probably 1 of the 3 most oversupplied markets in the country. We closed 2 loans last quarter in Austin on brand-new delivered stuff, I think 2024, maybe even the 2025 vintage assets, where we were lending at $135,000 to $140,000 a unit. And we just kind of all looked at ourselves and said, if that's not money good, wow, like we're in trouble. So I think that everybody is kind of piling into that space. And I think the exact same is true of people avoiding kind of the 1970s and 1980s vintage stuff. It feels like that has to correct a little bit more on cap rates. There are a small handful of equity investors that are actively trying to play in that 1980s vintage stuff. And I don't think you're going to get more equity investors there until you see returns adequately reflect the additional risk of buying kind of that older vintage asset. So I would say we've generally avoided it as well from a lender standpoint. But with the void there, we are slowly talking about does it make sense to go back into some of that 1980 vintage stuff if we're getting paid appropriately, if our attachment point is priced appropriately. So definitely a tale of 2 different worlds, and it will be interesting to see how that kind of plays out over the course of the next 12 to 18 months. But I do still think that older vintage stuff has to correct a little bit more. With respect -- I'm sorry for the long-winded answer, but with respect to equity investment, yes, with respect to the equity investments, we always look at them and just say, is this the type of stuff that we want to own long term? As you and I have talked about, as I've talked about with the market, we are generally bullish on commercial real estate. I think what's always left out of that question of debt versus equity is duration. And commercial real estate is an outstanding inflation hedge. If you own it long enough and just let inflation compound and let inflation do a thing, you're probably going to have a good investment experience. So every time we've got a loan that is downgraded to a 4 or downgraded to a 5, we sit in the room and we have a conversation, hey, is this the type of asset that we want to own for the next 5, 7, 10 years? Or is it time to move on, take our licks and just reinvest the capital. So -- and that question -- that answer is different, obviously, for every asset and location that we look at. But it is certainly something that we take into consideration. I think there's probably some assets that we wish we kept a little bit longer, but it is something that certainly goes into the narrative and something that we talk about actively. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Lindsey Crabbe for closing remarks. Lindsey Crabbe: We appreciate you joining us today. Please reach out if you have any further questions. Thanks, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Q1 2026 SunCoke Energy, Inc. Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sharon Doyle, IR Manager. Please go ahead. Unknown Executive: Thanks, Nick. Good morning, and thank you for joining us to discuss SunCoke Energy's first quarter 2026 results. With me today are Katherine Gates, President and Chief Executive Officer, and Shantanu Agrawal, Senior Vice President and Chief Financial Officer. This conference call is being webcast live on the Investor Relations section of our website, and a replay will be available later today. Following management's prepared remarks, we will open the call for Q&A. If we do not get to your questions on the call today, please feel free to reach out to our Investor Relations team. Before I turn things over to Katherine, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call. With that, I'll now turn things over to Katherine. Katherine Gates: Thanks, Sharon. Good morning, and thank you for joining us on today's call. This morning, we announced SunCoke Energy's first quarter results. I want to share a few highlights before turning it over to Shantanu to discuss the results in detail. We're pleased with our performance in the first quarter, delivering consolidated adjusted EBITDA of $56.5 million, reflecting strong operational execution. Our Industrial Services business performed well during the quarter with sequential improvement in terminals handling volumes and with Phoenix performing to our expectations. As discussed on our fourth quarter 2025 earnings call, our coke plants were impacted by severe winter weather and the Middletown turbine failure. Earlier today, we also announced a quarterly dividend of $0.12 per share payable to shareholders on June 2, 2026. This is our 27th consecutive quarter announcing a dividend. While the dividend is evaluated on a quarterly basis by our Board, we expect the dividend to continue as part of our well-balanced capital allocation strategy. We had strong operating cash flow generation of $72.7 million and ended the quarter with ample liquidity of $262 million. As previously discussed, we are running at full capacity and sold out for the full year. With the continued seamless integration of Phoenix, the resumption of power production at Middletown and continued strong operational execution, we are confident we will achieve full year 2026 consolidated adjusted EBITDA within our guidance range of $230 million to $250 million. With that, I'll turn it over to Shantanu to review our first quarter earnings in detail. Shantanu? Shantanu Agrawal: Thanks, Katherine. Turning to Slide 4. Net loss attributable to SunCoke was $0.05 per share in the first quarter of 2026, down $0.25 versus the prior year period. The decrease was primarily driven by higher depreciation expense, the shutdown of our Haverhill 1 cokemaking facility, severe winter weather and the lower power sales due to Middletown turbine failure, partially offset by lower income tax expense. Consolidated adjusted EBITDA for the first quarter of 2026 was $56.5 million compared to $59.8 million in the prior year period. The decrease in adjusted EBITDA was primarily driven by the impact of severe winter weather on our coke operations, lower power sales from the Middletown turbine failure and the shutdown of Haverhill 1, mostly offset by the addition of Phoenix. Moving to Slide 5 to discuss our domestic coke business performance in detail. First quarter domestic coke adjusted EBITDA was $35.3 million and coke sales volumes were 842,000 tons compared to $49.9 million and 898,000 tons in the prior year period. The decrease in adjusted EBITDA was primarily driven by severe winter weather impacting our operations, lower power sales due to the turbine failure at Midtown and lower coke sales volume due to the Haverhill 1 shutdown. While we experienced a slow start to the year, we are already seeing improvement in our coke operations in the second quarter with more favorable weather conditions. We are confident we'll make up the lost production from the first quarter during the balance of the year. Additionally, we are expecting power production to resume at Middletown late in the second quarter. We are reaffirming our full year domestic coke adjusted EBITDA guidance of $162 million to $168 million. Now moving on to Slide 6 to discuss our Industrial Services results. Our Industrial Services segment generated $26.2 million of adjusted EBITDA in the first quarter of 2026 compared to $13.7 million in the prior year period. The increase in adjusted EBITDA was primarily driven by the addition of Phoenix results, partially offset by a change in mix of products handled at the terminals. First quarter total terminal handling volumes were 5.6 million tons, representing a substantial improvement versus the fourth quarter of 2025. Steel customer volumes serviced were 5.6 million tons in the first quarter. We expect our Industrial Services segment to continue delivering strong results throughout the balance of the year and are reaffirming our full year 2026 Industrial Services adjusted EBITDA guidance range of $90 million to $100. Now turning to Slide 7 to discuss our liquidity position for Q1. SunCoke ended the first quarter with a cash balance of $104.4 million and revolver availability of $158 million, representing ample liquidity of $262 million. We generated strong operating cash flow of $72.7 million during the quarter, mainly driven by a reduction in coal and coke inventory and used $26 million for debt paydown. We spent $17 million on CapEx and paid $10.7 million in dividends at the rate of $0.12 per share this quarter. SunCoke has a strong track record of generating steady free cash flow, and we expect the trend to continue throughout the year. As Katherine mentioned earlier, we intend to continue utilizing our free cash flow to pay down debt as well as to reward our long-term shareholders via dividends, which is reviewed and approved on a quarterly basis by our Board of Directors. With that, I will turn it back over to Katherine. Katherine Gates: Thanks, Shantanu. Wrapping up on Slide 8. As always, safety is our first priority. Our excellent safety performance in 2025 has continued into the beginning of 2026, and the team remains committed to maintaining strong safety and environmental performance throughout the year. Robust safety and environmental standards set SunCoke apart and are central to our reliable delivery of high-quality coke and industrial services. We continue to be confident in our operations for 2026 with our profitable long-term coke business underpinned by the 3 pillars of Indiana Harbor, Middletown and Jewel Foundry, which have consistently delivered excellent performance and results. With our Haverhill I and Granite City cokemaking contracts extended and all spot blast and foundry coke sales finalized, we're sold out for the full year. We also maintain a positive outlook for our Industrial Services segment. 2026 will benefit from a full year of Phoenix adjusted EBITDA contribution and improvement in market conditions at our terminals. Our efforts will continue on the seamless integration of Phoenix, maintaining the strength of our core businesses as well as assessing new growth opportunities across all of our businesses. As always, we take a balanced yet opportunistic approach to capital allocation. On the back of our steady and healthy cash flow generation, our focus will remain on utilizing our free cash flow to support our capital allocation priorities. We will use excess cash to continue paying down our revolver balance with the goal of gross leverage below 3x by the end of 2026 and beyond. We also plan to continue returning capital via the quarterly dividend as approved by our Board, which has always been well received by our long-term shareholders. We continuously evaluate the capital needs of the business, our capital structure and the need to reward our shareholders, and we'll make capital allocation decisions accordingly. We are committed to maximizing value for all of our stakeholders, which means operating and investing in our assets in the best and most efficient way possible. Overall, we see the strong fundamentals of our business and expect our 2026 results to be reflective of that. We are confident that we'll be able to deliver full year consolidated adjusted EBITDA within our guidance range of $230 million to $250 million. With that, let's go ahead and open up the call for Q&A. Operator: [Operator Instructions] The first question will come from Nathan Martin with the Benchmark Company. Nathan Martin: Thanks, operator. Good morning, everyone. Just to start out, within the Domestic Coke segment, adjusted EBITDA per ton, I guess, roughly $42, obviously below the $48 to $50 per ton full year guidance that you guys just reiterated. What was the main driver or drivers there? How much of that was lower power sales maybe at Middletown? And then can you guys help us bridge kind of that full year range as we move throughout the rest of the year? Shantanu Agrawal: Yes. Nate, I mean, as we mentioned, the two main factors of us performing lower versus kind of our full year guidance is the winter weather impact to our operations and the Middletown turbine impact, right? And they were both very comparable, right? And if you recall, when we gave out our -- when we were in the Q4 2025 earnings call, we talked about that this quarter is roughly $10 million off versus kind of the run rate. So I think that still holds true from that perspective. And then looking forward, as we mentioned, the Middletown turbine is expected to be back in late Q2. So you will see that impact through majority of Q2 with no power production there. But then we should be able to make that back up in Q3 and Q4. So you should see a much significant improvement in Q3 and Q4 as the power production comes back up. Nathan Martin: Appreciate that, Shantanu. Is it fair to consider the Middletown impact in 2Q could be roughly half of that $10 million to maybe $5 million headwind or so in the second quarter? Shantanu Agrawal: That's kind of in the ballpark, yes. Nathan Martin: Okay. Great. Appreciate that. And then maybe shifting to the Industrial segment. It looks like revenues were flat to actually slightly down quarter-over-quarter. However, adjusted EBITDA was actually up about, what, $3 million, $3.5 million. So are there any cost savings or efficiency gains there we should think about driving this? I know you guys previously called out potential opportunities to improve things within Phoenix or maybe it's related to the improvements on the terminal side. Just any additional color would be helpful there. Shantanu Agrawal: Yes. So on the terminal side, as we lined out, you're comparing Q4 '25 to Q1 '26, right? And we are seeing significant improvement in the volumes that we are handling at terminals. And we expect the kind of the market environment to continue and to continue to improve for the rest of the year. So we are much very hopeful and kind of that kind of our plan reflects that, that terminals will continue to improve and do well through the rest of the year. So there is improvement coming from that. And then on the Phoenix side, obviously, right, like kind of this is our second full quarter of running Phoenix under the SunCoke umbrella. And as we go through the remainder of the 2026, we expect to see some more of those synergies come through. There are some of the drag costs, right, like we are implementing kind of the software kind of merging them together. So there is some drag cost of that. But as you get through rest of the 2026, you should see some cost improvement in Phoenix, and that is built into our guidance for Industrial segment. Nathan Martin: Okay. Got it. And then those costs, just jumping to SG&A for a second. Was that kind of behind the increase there in the quarter? Was that the IT, I think bonus expense items that you previously mentioned as well? And how should we think about SG&A kind of going forward? Shantanu Agrawal: No. So in 2025, the accrual for the bonuses are different for '25 versus '26 given the performance of the company, and that is the main driver of the difference in SG&A. Nathan Martin: Should we expect it to kind of repeat at that level, Shantanu? Or will it kind of come back down a little bit from the first quarter? Shantanu Agrawal: Q1 2026 should be the run rate for the rest of the year. Operator: [Operator Instructions] The next question will come from Henry Hearle with B. Riley Securities. Henry Hearle: To start off, I wanted to ask, to what extent could your logistics terminals be a beneficiary of the Section 303 DPA determination on the coal supply chains and export terminals? And then could you guys pursue potential DoD funding as well? Katherine Gates: Yes. Thanks for your question. I think as we look ahead, we really -- we see the market, as Shantanu said, improving throughout the year, and we've already seen that quarter-over-quarter. I don't think that those are going to be drivers to additional throughput necessarily. I mean, I think we'll have to see. But when we give our guidance with respect to Industrial Services and with respect to the performance of the terminal specifically, we really are looking at market conditions. And as we look back in time, there's been various regulatory initiatives over time. But at the end of the day, it really seems driven by demand primarily internationally for coal. Henry Hearle: Got it. And then are you guys able to share specifically what percent or what share of the volumes at CMT are thermal export tons? Shantanu Agrawal: So Henry, going forward, we -- like since it's one segment, the Industrial Services, we are not kind of breaking out. We are giving one number for our terminals and one number for like the Phoenix business, the steel customer volume service. But if you go back and look at historical data where we used to break out, the ratio should remain the same. That should kind of give you a good guidance on what those numbers are. Henry Hearle: Got it. And given the conflict in the Middle East over the past couple of months, have you seen a kind of sizable increase in those export thermal tons? Would that be fair to say? Katherine Gates: We -- it's a good question. We are seeing certainly some higher pricing in the market, and that is leading to higher demand, and that is part of how we look at the market as getting stronger as we move forward throughout the year, we don't see any signs of that weakening. And so we've seen higher demand due to the higher prices. So yes, there's definitely sort of a flow-through from that conflict and the focus on coal in light of the challenges that we're seeing on the oil and gas side. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Katherine Gates for any closing remarks. Katherine Gates: Thank you all again for joining us this morning and for your continued interest in SunCoke. Let's continue to work safely today and every day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to Weave Communications, Inc.'s First Quarter 2026 Financial Results and Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal remarks. As a reminder, this conference is being recorded. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I would now like to turn the conference over to your host, Moriah Shilton, Investor Relations. Thank you. You may begin. Moriah Shilton: Thank you, Kara. Good afternoon, everyone, and welcome to Weave Communications, Inc.'s First Quarter 2026 Earnings Call. With me on today's call are Brett White, CEO, and Jason Christiansen, CFO. During the course of this conference call, we will make forward-looking statements regarding the anticipated performance of our business. These forward-looking statements are based on management's current views and expectations, entail certain assumptions made as of today's date, and are subject to various risks and uncertainties described in our SEC filings. Weave Communications, Inc. disclaims any obligation to update or revise any forward-looking statement. Further, on today's call, we will also discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. Unless otherwise noted, all numbers we talk about today will be on a non-GAAP basis, which excludes acquisition-related costs, costs related to certain shareholder matters, amortization of acquired intangible assets, and stock-based compensation. A reconciliation to comparable GAAP metrics can be found in today's earnings release, which is available on our Investor Relations website and as an exhibit to the Form 8-K furnished with the SEC before this call, as well as the earnings presentation on our Investor Relations website. With that, I will now turn the call over to Brett. Brett White: Thank you, Moriah. And thank you to everyone joining us today. I am very pleased to share that we have delivered another excellent quarter marked by acceleration in revenue growth and further expansion in operating margin. Both revenue and profitability came in above the high end of our guidance. This marks our 17th consecutive quarter of meeting or exceeding the high end of our revenue guidance. Revenue growth accelerated to 17.4% year over year and operating income was $2.5 million, a significant improvement from breakeven last year. This continues our track record of strong execution, consistent growth, expanding margins, and disciplined operations. We are well positioned for long-term success with a growing customer base and an expanding market opportunity. We see a clear path to building a significantly larger business with our growing suite of solutions by expanding market share and increasing average revenue per location. We added the most locations ever in a quarter, and revenue retention improved in Q1. We saw strong performance in our upsell motion, with new products like insurance eligibility and AI receptionist. Additionally, payments revenue growth accelerated in Q1 as our customers increasingly used Weave Communications, Inc. for their payment processing. Weave Communications, Inc. is purpose-built for health care. We serve over 40 thousand customer locations and billions of patient interactions flow through our platform. That data, combined with nearly two decades of experience, underpins a platform that supports growth and executes that work end to end. Weave Communications, Inc.'s workflows begin with precare operations focused on acquiring new patients, reengaging existing patients for follow-up care, and keeping schedules full. Once a visit is scheduled, we automate administrative tasks like confirming appointments, collecting patient information through digital forms, and verifying insurance eligibility to ensure appointments are kept and to streamline patient intake. During the clinical visit, we handle payment processing and help staff address patient financing needs that improve treatment plan acceptance. Following treatment, our platform helps manage the practice's online reputation through reviews, and manages accounts receivable by following up on unpaid bills and enabling patients to make payments from their mobile device. Throughout the patient journey, Weave Communications, Inc. manages communication and engagement behind the scenes, reducing time spent on repetitive tasks and empowering staff to focus on the personal side of patient care. Health care practices are resilient businesses, but they face significant operational pressures: higher costs of goods, rising labor expense alongside talent shortages, and elevated patient expectations. The day-to-day demands of running a practice often pull skilled staff away from face-to-face patient care. Weave Communications, Inc. harnesses the power of AI to automate repetitive tasks. Rather than managing paperwork, practice teams focus on people work. Our deep understanding of health care workflows guides how we deliver and use AI through our platform. Our customers start with a Weave Communications, Inc. core solution that typically includes communications, reviews, appointment reminders, and patient recall to fill schedule openings and ensure schedules stay full. Customers pay for these solutions through standard bundles, and we have released several AI-powered enhancements that streamline practice operations and make these bundles more valuable. More than 50% of our customer locations use at least one of these embedded AI solutions such as intelligent reviews response and always-on messaging assistant. Additionally, we have developed AI-powered products that we sell as add-ons to their chosen bundles. These products include Call Intelligence, insurance eligibility, and our AI receptionist. Weave Communications, Inc. Call Intelligence is an AI analytics product that transcribes every call and creates a task list for office staff to follow up on. It highlights missed revenue opportunities and unhappy patients. A physician owner of a primary care practice in New Jersey implemented Call Intelligence as a coaching tool for his front desk team. Rather than operating without clear visibility, or manually reviewing every call, they use AI-generated summaries and transcripts to pinpoint the exact moment patient sentiment shifts, dramatically reducing the time required to identify training gaps and freeing them up to provide more one-on-one coaching. After implementing Weave Communications, Inc. Call Intelligence and updating training, their unhappy call rate dropped by over 40% in just two months. A multi-location med spa in Philadelphia describes a similar transformation. Every Wednesday, using Call Intelligence, they review the flagged unhappy calls and follow up with a personal note. They report a 100% client retention rate among those follow-ups. They shared that they would not have known who needed outreach without it. Our solutions provide these practices with protection from otherwise invisible and preventable revenue leakage. Our customers are increasingly reliant on our AI functionality. In Q1, our platform handled over 300% more AI interactions than in Q1 last year. The growth is being driven by both expanded AI features and products and increased customer adoption. Today, our text-based AI handles appointment scheduling and answers common questions such as office hours and accepted insurance providers. Our customers have highlighted a number of ways the AI receptionist has increased the production of their dental practice. One is by reducing no-shows and appointment cancellations. Another is effectively converting leads to new patients. A dental practice recently reported that using our AI receptionist, they saw new patient volume grow 37%. This had a meaningful impact on the business's financial profile as their new patients spend three times as much per visit as existing patients. Next week, we will release our omnichannel AI receptionist to customers on select integrations, which will significantly increase these capabilities by supporting both voice and text modalities. We anticipate that the agent will be more broadly available late this quarter. Weave Communications, Inc. delivers seamless task execution, transcription, and summarization, and preserves context through a single unified view of conversations and analytics across every bot-to-human handoff. We are uniquely positioned to deliver this capability. Because we own the full stack, we make the entire experience connected, visible, and actionable. Initially, the agent will be able to effectively manage dozens of workflows, including scheduling, answering common questions, and completing handoffs between AI and humans. We have mapped out hundreds of additional workflows which will steadily be added to the agent skill set. It will become a more effective and skilled teammate every week. Customers who are using this latest solution are getting significant value from it, and it is changing the way they operate. One dental office signed on to the pilot because the staff was completely overwhelmed by voicemail and increased call volumes on Mondays. By implementing our AI receptionist, patients got their questions answered more quickly, and more appointments were kept. The doctor highlighted, quote, we only get paid when patients come in, so protecting the schedule matters. We have had several instances where patients started to cancel at the last minute, saw the cancellation fee warning from the AI agent, and decided to keep the appointment. End quote. A dental practice in Florida joined the pilot to address missed calls outside of business hours and an overwhelmed front office team during the day. The result is that missed calls have dropped by roughly 80% with a similar decrease in weekend voicemails. An additional benefit is the improvement in care continuity. Patients dealing with emergencies or last-minute scheduling conflicts can now get help when they need it most. For the front office team, the day simply runs smoother with fewer interruptions, less time managing calls on hold, and a lighter start to the week. These are just two examples, but the early results confirm that providing our customers with an always-on teammate to autonomously fulfill daily tasks will change the way these practices do business. This makes Weave Communications, Inc. more mission critical than ever by increasing the production and revenue capture of the practice, which provides an additional way to grow our revenue per location by competing for a portion of the labor budget. We plan to monetize the omnichannel AI receptionist through a hybrid subscription model, largely aligned to consumption. Our ability to monetize will grow as practices expand their utilization of this always-on teammate that manages the complete patient life cycle. In the future, we expect to capture even greater payment processing volumes as we process copays by intelligently managing the intake process and collecting outstanding balances. The future of Weave Communications, Inc. is agentic and proactive: converting leads to booked appointments, filling holes in the schedule with patients on the verge of slipping through the cracks, collecting critical patient data in advance of appointments, recommending financing options to drive higher treatment plan acceptance, garnering online reviews, and collecting on outstanding patient balances. Our current and future success with AI is a result of nearly 20 years of data and deep domain expertise that informs the development of health care–specific workflows. Most patient-facing workflows for a practice originate from or terminate through a phone call or a message. Our communication platform gives us a significant advantage as Weave Communications, Inc. owns and manages this control point and natively executes these workflows through the trusted primary business phone number, which leads to higher patient engagement. These interactions often require data transfers with practice management systems, and we have the largest library of authorized practice management systems integrations available. Weave Communications, Inc. is the all-in-one partner that practices can use to standardize work and efficiently grow their business. Practices that use Weave Communications, Inc. are smarter, built to scale, and feel more human. We focus on the day-to-day operations so the rest of the practice team can focus on the people they care for. To close, I want to thank the Weave Communications, Inc. team for their continued focused execution. Q1 was a great quarter, and our future is bright. I am very excited about the recent product launches and what we have on the horizon. Our financial results improved while delivering increasing value for our customers. We are well positioned for success in the new AI frontier. We will continue to lean into our strengths and our scale to deliver innovative solutions that help our customers improve their business outcomes. I also want to thank our customers, partners, and shareholders for your continued trust. With that, I will turn the call over to Jason to walk through the financials in more detail. Jason Christiansen: Thanks, Brett, and good afternoon, everyone. The first quarter was a great start to 2026 for Weave Communications, Inc., with improved revenue growth, strong gross margins, and much improved operating income as we continue to execute across the business. In the first quarter, we produced $65.5 million in total revenue, which represents an acceleration to 17.4% year-over-year growth, driven by payments, which again grew more than twice the rate of total revenue, and the addition of new locations. We added more gross and net locations in Q1 than in any previous quarter, and the specialty medical vertical continued to be the largest contributor. Gross profit grew over 19% year over year to $47.9 million. Gross margin for the quarter was 73.2%, representing a year-over-year improvement of 110 basis points. This margin improvement in Q1 was primarily driven by improvements in our customer support model, ongoing efficiencies in our cloud infrastructure and hardware device costs, and the growing contribution of higher-margin payments revenue. Customer support has been able to scale partly due to the benefits of using AI to deflect calls and effectively manage the caseload tied to a growing customer base. We also saw strong growth in the number of locations using our payment processing solutions, increased processing volume per location, and a higher net take on payment transactions. These factors contribute to an expanding subscription and payment processing gross margin of 78.4%. In aggregate, the underlying progress and growing mix of high-margin payments revenue clearly highlights a path to achieving our target long-term gross margin profile of 75% to 80%. Turning to our dollar-based revenue retention metrics, we believe our reported metrics found the floor in Q1 as monthly retention rates positively inflected in the quarter and were higher than in 2025. Our dollar-based net revenue retention rate in Q1 was 92%. Our dollar-based gross revenue retention rate was 89% and remains very strong for companies serving SMB customers. As a reminder, our reported dollar-based revenue retention rates are a weighted average of the previous 12 months’ monthly retention rates. As such, it can take multiple quarters for improvements to show through in reported metrics. Total operating expenses for Q1 were 69% of revenue. As mentioned in our previous conference call, Q1 expenses are seasonally higher due to the reset of payroll tax limits and benefit renewals taking effect. General and administrative expenses were $10.2 million, and decreased over 180 basis points year over year to 15.6% of revenue from 17.4% of revenue in the prior year. Research and development expenses were $8.6 million, or 13.1% of revenue. Research and development expenses decreased slightly year over year due to the increased capitalization of software development costs in Q1 2026, as development efforts tied to new products have increased. Our omnichannel AI receptionist development has been a key contributor. Sales and marketing expenses totaled $26.6 million, or 40.6% of revenue. Sales and marketing expenses increased year over year largely due to increased advertising expenses and sales costs. Q1 is seasonally higher in advertising expenses due to increased events and prospect reengagement after the holidays. We added a payments sales team and channel sales team in 2025, expanded our inbound, upsell, and mid-market sales teams, and most recently reintroduced a sales development team. We continue to optimize our sales and marketing activities to deliver more profitable growth, and we anticipate some improvements in sales and marketing efficiency as a percentage of revenue starting in 2026. Operating income for the quarter was $2.5 million compared to breakeven in Q1 2025. Operating margin was 3.9%, a 380 basis point improvement over the prior year and more than a 20 basis point improvement sequentially. We are really pleased with how the quarter developed, as we converted 26% of the revenue growth year over year into incremental operating income. The 26% incremental margin is a significant improvement over the 6% incremental margin produced in Q1 2025. Turning to the balance sheet and cash flow, we ended the quarter with $72.7 million in cash and short-term investments, a decrease of $9 million sequentially. Cash used by operating activities in Q1 was $5.7 million and free cash flow was negative $7.1 million. Q1 cash flows and March 31 balances on the balance sheet are impacted by large seasonal disbursements, including the payout of our annual bonuses and significant prepaid software renewals, which will not recur until Q1 of next year. Additionally, we used $1.6 million in cash on the net settlement of vesting equity awards, which reduces dilution from RSU vests. We expect free cash flow to be positive for February 2026. Looking ahead, we look to build on our strong Q1 and are encouraged by the opportunities in front of us. We remain committed to delivering improving margins while maintaining our bias toward growth. We continue to make targeted investments in growth initiatives, which reflects our ability to balance growth while making investments into our business. For Q2 2026, we expect total revenue to be in the range of $67.2 million to $68.2 million. We expect second quarter operating income to increase from Q2 last year to be in the range of $2.1 million to $3.1 million. As a reminder, Q2 operating expenses will increase sequentially as annual merit increases take effect in early Q2. For the full year 2026, we are raising our outlook and expect total revenue to be in the range of $275 million to $278 million. We are also raising our outlook for non-GAAP operating income and expect it to be in the range of $10.5 million to $13.5 million. We expect our weighted average share count for Q2 to be approximately 79.6 million shares and approximately 79.8 million shares for the full year. With that, I will turn the call over to the operator for Q&A. We will now open the call for questions. Operator: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Alex Sklar with Raymond James. Alex Sklar: Great. Thank you. Brett, first one for you. Just in terms of the record locations added, where do you see that incremental pickup versus some of the prior quarters? And what are you seeing in terms of the land sizes relative to a year ago across all your different bundles? Thanks. Brett White: Sure. So we had really strong performance across all of our verticals and all of our motions. So, I think, as Jason mentioned, medical was strong, but dental was actually quite strong as well, which was terrific to see because that is the largest part of our business. So I think broad performance across all verticals for new locations added. And then also all of our motions, we had a strong bookings quarter in mid-market, added some good logos there. Both inbound and outbound performed well adding locations, and then on just adding the MRR, not location-based, our upsell team had a terrific quarter. All the new products that we have released over the last 12 months are really getting traction now, which is terrific to see. And then on the land side, on ASP, I think it is pretty consistent with what we have seen over the last several quarters. Obviously, the upsell motion adds to the average revenue per location for the businesses that are adopting those products. Alex Sklar: Great color there. And then a follow-up on payments. I do not know if you want to take this or Jason. You talked about higher usage in the quarter. Maybe just some color on what drove that? And then enhanced payment integration with some of those bigger practice management vendors—what is the potential unlock there from that announcement? Thanks. Jason Christiansen: Yeah. Hey. Thanks, Alex. Really, we saw very strong payments performance across a number of vectors. I think some of the product functionality that we talked about at the end of 2025 that we delivered, which includes bulk collection capabilities—the ability to send multiple collection requests through one motion—payment reminders that follow up on unpaid invoices, and then the surcharging capabilities. All of them contributed to the additional pickup. Surcharging was a very strong quarter for us. We saw the most increase in adoption of surcharging here in Q1 as we have seen. So really encouraging across those use cases. And then you cannot discount the impacts that adding payment integrations has on the payments business. We are still pretty early stages. We have got a handful of payment integrations done with more to come. And I think that will continue to be an unlock for us as we are able to really just streamline some of the office workflows, the pain points that staff experiences, and help these practices reduce their days’ sales outstanding and their AR balances. And so AI receptionist is going to be part of that story as we look forward, as we are able to become more proactive in collecting on those balances and also help introduce the collection on the front end as part of the intake process. Alex Sklar: Okay. Great. Thank you both for the color and nice results. Operator: Your next question comes from the line of Hannah Rudoff with Piper Sandler. Your line is open. Please go ahead. Hannah Rudoff: Hi, guys. Thanks for taking my questions. It is nice to see the growth acceleration in Q1. I just wanted to ask on AI receptionist. You talked about hybrid subscription and consumption pricing. I guess, Jason, could you just expand on what this looks like? I know you have talked about tapping into labor budget in the past, and I guess have you thought about pricing this on more of an outcome-based pricing model? Brett White: Sure. So what we mean by hybrid is, we will have a monthly fee for the product, which will come with a number of phone calls—a number of phone interactions—handled by the agent. And as your usage increases, then you can move to a higher tier, which gives you more phone calls that the agent will take. So, basically, you can scale the receptionist up and down, and the monetization is really tied to the number of calls it handles. So you could imagine a practice may want to use it just for nights and weekends, so that would probably be on the lower end of the call handling. Or they might want to use it 24/7 to actually be a fully always-on teammate, in which case the number of calls handled would go up, and then the pricing would go up as well. So right now, that is the pricing that we are launching with. And as far as outcome-based pricing, yeah, it is absolutely on our pricing team's radar. But we are going to start with this hybrid usage model and test that and see how that goes. Jason Christiansen: The one thing I would add to that is, as we think about some of the additional workflows that we deliver, there is built-in or inherent pricing on that side. When you think about payments, as we integrate payment workflows into the AI receptionist, we will also be able to collect on the outcomes of actually collecting balances on behalf of practices, but there is a lot more thought going into it that we will continue to iterate over time. And maybe one thing just to highlight on the AI receptionist that Brett alluded to, where offices will be able to scale the utilization up or down: one of the unique things about Weave Communications, Inc. and our ability to support that is because we own the full communication stack on the back end. Offices can insert the agent anywhere they want within the interaction flows. So offices will have the control to dial that up, to scale that back, hours where they want it in—like for calls coming in, where they want it in the call tree, where they do not, when they want it to escalate or hand it off to a human and when they do not. And so that is part of the adoption that Brett is talking about. As offices might start with nights and weekends and see how it starts to actually deliver meaningful bookings and see the same results that the customers we highlighted are getting, they will be able to inject it more and more directly with how their practice operates. That is unique to us because of the full stack that we own where it is all in one place. Brett White: Yeah. To expand on that a little bit, if I could, Hannah, we recently showed one of our large DSOs this functionality. Basically, you pull up a screen—it is basically a flowchart—and you grab the AI receptionist and you move it wherever you want. So you can say, I want it to pick up only at lunch. Or you can say, I want it to pick up only after the third ring. Or—I want it—so, you know, just showing the capability and the flexibility of moving the agent anywhere you want in the call tree is really, really powerful. And I am sure that practices will experiment with it and see how it works best for them. Hannah Rudoff: That makes a ton of sense, and it is nice to see that users can completely customize how they use the AI receptionist. My second question is on NRR. I know we have talked about this metric being a little complicated just with it being location-based, but I guess how should we think about, or when should we expect, AI to help drive an expansion in that NRR metric? Jason Christiansen: Yeah. I guess I will just start with highlighting what I talked about in the prepared remarks, which was where we have started to see an inflection within the monthly net retention metrics—not the weighted 12-month average, but the direct monthly—here in Q1. You know, the contribution—there is an interesting thing with our business, which is customers continue to land heavy whenever we bring new capabilities and we are able to deliver meaningful value. And so how exactly AI starts to drive the expansion of our net revenue retention is tough to predict. We have a better opportunity today with the release of these new products that we have brought to market and what is coming—more than we have had in the past. And so that is something that we are leaning into and we are optimistic about, also realizing that they may continue to land heavy as well and how that dynamic will play out. The one thing that I anticipate to continue to be true—which is regardless of what happens with net revenue retention as a metric—the average revenue per location, we anticipate that to continue to grow. Q1, we saw growth again in the revenue per location. If you look over the last two years, it has grown about 10%. At the same time, net revenue retention has decreased as a metric. And so I think we are very optimistic about what these products can do and contribute, though. Hannah Rudoff: Makes a ton of sense. Thanks, guys. Operator: Your next question comes from the line of Parker Lane with Stifel. Your line is open. Please go ahead. Parker Lane: Yeah. Hi. This is Jack on for Parker. Thanks for taking the questions today. I wanted to go back to the strong quarter of location additions, and I would be curious to hear if in any way you are seeing the AI product set and roadmap really resonating with prospective clients, and whether this potentially drove the really strong location addition quarter. Brett White: Yeah. So I will start. Because of our sales model, what is super interesting is we generally sell what we have available to deliver immediately. So the vast majority of the sales success in the quarter was on the core products that we have now—our core engagement platform—plus some of the newer products that have come out recently. We do not really sell futures just because of the SMB nature of our customers. However, what resonates very well with larger customers—DSO, multi-location—is the roadmap. So I think most of the upsell and the new additions this quarter were primarily based on our current product set—what they were going to get next week, what they are going to go live on next week—which kind of gets us even more excited about the next 12 to 24 months because then we can get these customers onboard, happy with the core platform, and then come back to them with new products, additional products, especially the AI receptionist. Parker Lane: Yeah. No. It makes sense. And then just to follow up, when you think about the ideal customer profile for the AI receptionist and what you are rolling out soon with everything around the omnichannel receptionist, is there a portion of your customer base that you think the product makes the most sense for in particular? Is it more relevant in mid-market due to their scale or SMB due to staffing constraints? Or maybe even on the vertical side there may be puts and takes between the old core TAM versus specialty medical in terms of ripeness for adoption. Brett White: Yeah. So it is a great question. And as we build our personas for our core platform and additional products, we really give a lot of thought to this. So the AI receptionist is getting really favorable reviews across the board, and there are really different use cases. If you are a small practice, you want to cover the phones at lunch or over the weekends, because all you need to book is a couple potential lost appointments, and it pays for itself. You can see some small practices say, well, I will try it because I really want to have that personal experience. But then they find out how many calls they are missing, and it is really not a personal experience. So the proposition definitely resonates on the low end. And then you think about the high end—multi-location practices—they are very, very serious business operators. They understand the economic value very clearly. And so the upsell products that we have—Call Intelligence is going really well with larger, more sophisticated practices—we expect the AI receptionist, we are piloting with them now, and it has been received very well. So when we look at the personas for the additional products, specifically AI receptionist, it really works. There is a strong use case all the way across the spectrum. Jason Christiansen: Yeah. And when you look at it by vertical, you see a similar phenomenon with just how they operate. Many dental practices might only be in the office four days a week, and so they have extended weekends where they need more coverage that this is really impactful. If you flip over and you look at a veterinary clinic, they have incredibly high call volumes that flow into their practices. And so the value proposition of a receptionist that can help them manage—especially if there are staffing shortages—the demands of pet owners to bring their sick or injured, or whatever the situation is with their loved animal, having a resource in place that can help address their needs is also very relevant. And so it is universal across the end markets that we serve and across the sizes as Brett highlighted. Parker Lane: Great. Thank you. Operator: Okay. I think that concludes the Q&A portion. So I will now turn the call back to Brett White for closing remarks. Go ahead. Brett White: Okay. Well, thank you all very much for joining the call, and thanks again to the Weave Communications, Inc. team for such a terrific quarter. I look forward to chatting again in about 90 days. Operator: And that concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the SPS Commerce, Inc. Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. To ask a question, you may press star then 1 on a touch tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the call over to Irmina Blaszczyk. Please go ahead. Irmina Blaszczyk: Thank you. Good afternoon, everyone, and thank you for joining us on the SPS Commerce, Inc. first quarter 2026 conference call. We will make certain statements today, including with respect to our expected financial results, go-to-market strategy, and efforts designed to increase our traction and penetration with retailers and other customers. These statements are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Please refer to our SEC filings, specifically our Form 10-K, as well as our financial results press release for a more detailed description of the risk factors that may affect our results. These documents are available at our website, spscommerce.com, and the SEC’s website, sec.gov. In addition, we are providing a historical data sheet for easy reference on the Investor Relations section of our website, spscommerce.com. During the call today, we will discuss adjusted EBITDA financial measures and non-GAAP income per share. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures, including reconciliations of these measures with comparable GAAP measures. I will now turn the call over to Chad. Chad Collins: Thanks, Irmina, and good afternoon, everyone. Thank you for joining us today. SPS Commerce, Inc. delivered a solid first quarter. Q1 revenue grew 6% to $192.1 million. Recurring revenue grew 7%, driven by Fulfillment growth of 8%. Amid rapidly evolving global supply networks, SPS Commerce, Inc. innovations are critical in addressing trading partner needs across the supply chains of manufacturers, retailers, logistics providers, and brands. Tariffs, geopolitics, and risk mitigation are fundamentally restructuring global trade. In this environment, supply chain partners need real-time coordination to respond to disruptions, demand shifts, and capacity constraints, and SPS Commerce, Inc. is uniquely positioned to deliver the AI automation trading partners need at scale. Before I provide an update on how customers are leveraging our AI-enabled solutions, I will review current business dynamics across our product portfolio. First, with respect to our revenue recovery business, we continue to manage the headwinds from Amazon’s policy changes. For example, to better align pricing with the value we deliver to our 3P take-rate customers, we are introducing a subscription platform fee. Joe will be providing further detail. Second, we are pleased with our cross-selling momentum among 1P customers, and I will share some examples of that shortly. Third, our business without revenue recovery is performing in line with our expectations, with early indications that the invoice scrutiny we observed last year as a result of tariff and macro headwinds is subsiding. We continue to expect these transitory headwinds will be largely behind us by the end of the second quarter as we remain focused on delivering the solutions our customers need to succeed in a dynamic trade environment. A great example of how suppliers are realizing value from the SPS Commerce, Inc. portfolio is Siete Foods, a customer since 2018. Over the past year, Siete made the transition from a high-growth emerging brand into an enterprise-scale operation, driven by their acquisition by PepsiCo and rapid expansion across mass retailers like Walmart, Target, Whole Foods, and Costco. As their scale increased, so did the complexity of their supply chain. We worked closely with Siete to modernize their operations and support their goal of full supplier compliance, while integrating tightly with their ERP to ensure they are able to handle higher volumes and evolving retail requirements with greater data consistency across orders, shipments, and invoicing workflows. Recently, Siete became an early adopter of MAX, SPS Commerce, Inc.’s AI agent, embedding our proprietary network intelligence directly in day-to-day operations. Their team is using MAX to quickly diagnose issues that previously required manual investigation, such as identifying why shipments failed or invoices were rejected, before those issues impact their retail partners. MAX is also helping Siete surface broader operational patterns across thousands of transactions to address root causes of inefficiencies, enabling them to scale and handle greater order volume with stronger compliance without adding operational overhead. This customer engagement demonstrates how an SPS Commerce, Inc. partnership evolves beyond trading partner connectivity and compliance to become a core intelligence layer within our customers’ supply chains. Siete Foods is one of many brands participating in the MAX beta release, providing valuable insight into how agentic capabilities are being applied and where customers are realizing value across their workflows. For Siete, by catching undetected inventory failures, MAX is projected to protect up to 8% of revenue that would otherwise be lost to stockouts. Based on feedback from more than 400 MAX beta customers, the biggest impact AI can have on trading partner collaboration is identifying issues early before they cause disruptions. MAX is already demonstrating its ability to do exactly that. SPS Commerce, Inc. is also leveraging agents to improve operational efficiency. Early applications within our agentic network are already driving measurable gains in customer treatment strategies, reinforcing our competitive moat through proprietary network data and intelligence, and reducing onboarding and setup time from weeks to days. In parallel, product engineering has advanced significantly, with much of our software development now agent-driven, accelerating innovation cycles and improving productivity. In sales, our data-powered growth strategy is using demand signals from customer activity across our network to identify upsell and cross-sell opportunities. As we continue to advance our network-led go-to-market motion, cross-selling momentum continues to build across our customer base. For example, Fulfillment customers are expanding into revenue recovery, while revenue recovery customers are adopting Fulfillment, reinforcing the strength of our network and the value of our integrated solutions. Explore Scientific, a precision optics company that designs and manufactures telescopes, binoculars, and other scientific instruments, was a SupplyPike revenue recovery customer. After spending over a year with a different EDI provider during their NetSuite ERP implementation, they faced ongoing usability challenges, unreliable workflows, and incomplete automation, at times requiring manual order processing just to keep pace. More importantly, these inefficiencies created a downstream financial impact, with inconsistent data and limited visibility leading to shipment failures, invoice rejections, delayed payments, and revenue loss through deductions and write-offs. By transitioning to SPS Commerce, Inc., Explore Scientific reestablished a reliable operational foundation. With a fully functioning ERP integration and standardized workflows across orders, shipments, and invoices, they gained consistent, accurate data flowing across their business. This shift enabled their team to move from reactive problem solving to proactive management, identifying issues earlier, understanding root causes, and preventing disruptions before they impact financial outcomes. As their operations stabilized, Explore Scientific expanded their use of SPS Commerce, Inc. solutions, adding analytics and system automation to operate with greater confidence and control. What began as a need to fix operational gaps has evolved into a broader transformation, positioning Explore Scientific not just to process transactions more efficiently, but to actively protect and recover revenue. Explore Scientific’s experience highlights how customers are realizing meaningful value on the SPS Commerce, Inc. network by restoring operational stability and visibility. In addition to cross-selling our products, we are unlocking incremental growth opportunities by unifying them. For example, Walmart suppliers using SPS Commerce, Inc. Fulfillment can now recover overages directly in the SPS Commerce, Inc. solution. This underscores the value of the platform approach and enables trading partners to collaborate better along the entire value chain. In closing, SPS Commerce, Inc. is well positioned to capitalize on significant growth opportunities ahead. Our product portfolio continues to advance with AI-driven solutions for both suppliers and retailers, powered by proprietary data that improves efficiency and unlocks meaningful value across supply chains. As a result, SPS Commerce, Inc. is the leading intelligent supply chain network, embedded in the daily flow of commerce, driving automation, insights, and increasingly AI-powered optimization. Lastly, over the past 16 months, we have added seasoned SaaS leaders to the SPS Commerce, Inc. team who bring the operational rigor necessary to scale our product and go-to-market strategy. Today, I am pleased to formally introduce our new CFO. He joined us on March 16, and we are excited to have his expertise on board as we enter this next phase of our journey. Welcome. Unknown Speaker: Thank you, Chad, for the warm welcome. This is my first earnings call as SPS Commerce, Inc. CFO. I would like to take the opportunity to express my excitement and share my reasons for joining SPS Commerce, Inc. at such a pivotal time. First, I believe SPS Commerce, Inc. is uniquely positioned to capitalize on the dynamics that are driving a growing need for supply chain optimization. Second, with a large global market opportunity, disciplined capital allocation, and a clear path to scale, SPS Commerce, Inc. is well equipped to deliver durable growth, margin expansion, and long-term shareholder value creation. Lastly, and most importantly, having engaged with the management team and many SPS Commerce, Inc. employees, I am truly impressed by the strength of the organization’s culture. I look forward to being part of such an energetic, driven, and highly collaborative team. I share the organization’s strong sense of momentum and enthusiasm for the opportunities that lie ahead. Now let us review our Q1 results. We reported a solid Q1 2026. The core business is strong and continued to show momentum throughout the quarter. However, as Chad called out, we continue to see headwinds in the Amazon portion of our revenue recovery business. Revenue was $192.1 million, a 6% increase over Q1 of last year. Recurring revenue grew 7% year over year. The total number of recurring revenue customers in Q1 was approximately 54,200. Consistent with our expectations, the number of 1P customers was flat sequentially while the number of 3P customers declined by 400. ARPU was approximately $13,550. As Chad mentioned earlier, we are generating cross-selling momentum across our network, and we remain strategically focused on servicing and expanding the 1P customer base, where we see the greatest cross-selling potential for our products. To improve profitability across our smaller customer cohorts, we are in the process of introducing a subscription platform fee to our 3P take-rate customers to better align pricing with the value delivered, while helping offset servicing and infrastructure costs associated with these accounts. We expect this change to increase churn within this cohort, with a projected decline of up to 4,000 3P suppliers in 2026. We do not anticipate this action to result in a material impact to revenue. Adjusted EBITDA increased to $57.9 million, and we ended the quarter with total cash and cash equivalents of $154 million. In Q1 2026, we deployed nearly 100% of free cash flow to repurchase $47.1 million of SPS Commerce, Inc. shares. Now turning to guidance. For Q2 2026, we expect revenue to be in the range of $194.5 million to $196.5 million, which represents approximately 4% year-over-year growth at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $60.9 million to $62.4 million. We expect fully diluted earnings per share to be in the range of $0.53 to $0.56 with fully diluted weighted average shares outstanding of approximately 37.3 million shares. We expect non-GAAP diluted income per share to be in a range of $1.06 to $1.09, with stock-based compensation expense of approximately $19 million, depreciation expense of approximately $5.2 million, and amortization expense of approximately $9.4 million. As we look to the rest of the year, three dynamics are shaping our outlook: First, we continue to expect headwinds impacting the Amazon revenue recovery business. Second, excluding Amazon, we expect the revenue recovery business to continue to outpace overall company growth. Third, we expect our business without revenue recovery to continue to perform in line with our expectations. For the full year 2026, we expect revenue to be in the range of $796 million to $802 million, representing approximately 6% growth over 2025 at the midpoint of the guided range. We expect adjusted EBITDA to be in the range of $262.8 million to $267.3 million, representing growth of approximately 14% to 16% over 2025. We expect fully diluted earnings per share to be in the range of $2.66 to $2.69 with fully diluted weighted average shares outstanding of approximately 37.3 million shares. We expect non-GAAP diluted income per share to be in the range of $4.73 to $4.76, with stock-based compensation expense of approximately $69.8 million, depreciation expense of approximately $23 million, and amortization expense for the year of approximately $37.4 million. For the remainder of the year, on a quarterly basis, investors should model approximately a 30% effective tax rate calculated on GAAP pre-tax net earnings. To wrap up, I am encouraged by our momentum entering the year. I am excited to be part of this driven team, and I am committed to maintaining the rigor and discipline necessary to scale our success and fully capitalize on the market opportunity in front of us. With that, I would like to open the call to questions. Operator: We will now open the call for questions. Please limit yourself to one question and one follow-up. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then 2. Our first question comes from Scott Randolph Berg with Needham & Company. Please go ahead. Ian Black: Hi. This is Ian Black on for Scott Randolph Berg. When should we expect to see the 3P revenue recovery business start to trough? Unknown Speaker: I can take that question, Ian. I think on the 3P—the way we are explaining it a little bit more is the Amazon revenue recovery side of the business. Right now, that continues on a negative trajectory. It probably troughs somewhere in the middle of this year towards the end of this year. As we enter into 2027, we would probably see a little bit more momentum in that business. But right now, we still see a lot of headwinds in 2026 as it relates to that business. Ian Black: Thank you. And then you reported some delayed enablement campaigns exiting 2025. What is the progress of those campaigns? Chad Collins: Yes. Overall, our pipeline and activity on the retail relationship management campaigns is quite strong. Some of the specific campaigns that we cited in Q4 that were going to carry into 2026 have now either closed or are near closure, so that momentum has continued. As these programs affect customer count, keep in mind there is some delay to actually run the program and get the suppliers on and initiate the invoicing with those suppliers. We do expect that to affect customer count and be more impactful in the second half of the year versus the first half of the year. Operator: Our next question comes from Parker Lane with Stifel. Please go ahead. Parker Lane: Hey, guys. Good afternoon. Thanks for taking the question. Chad, I think you said tariff and macro headwinds that you started to see in the middle of last year should start to dissipate as we lap them this year. Obviously, we have seen more conflict in the Middle East and some talk about what that could mean for global supply chains. Any thoughts on what your customers could be facing or are facing as a result of that? And is there any belief that, as you look through the year, that could have any follow-through effect that maybe knocks that recovery timeline off of the 2Q that you outlined? Chad Collins: Absolutely. We are seeing the contract scrutiny driven by the cost pressures from the tariffs begin to dissipate. You will remember that most of that took effect beginning the latter half of Q2 last year. We are cautious in watching how we run through the final renewals that may be more susceptible to that on the annual renewal part of our business. As it relates to the broader global situation, we have not yet seen any indicators on that. As I reflect on this situation versus the tariff situation, we were hearing from our customers more directly that the tariffs were a bit more acute to their business with immediate impact on their cost of goods sold, and we are not hearing that type of thing from our customers at this point in time given some of the more global situations that we have right now. Parker Lane: Understood. And maybe one for you as well on the 3P churn you referenced—about 4,000 third-party customers could churn off the platform as a result of the changes you are making. Comparing that to the roughly 7,300 today, what is it about those—are these the smallest of them in nature and most sensitive to cost, or is there something else you would characterize amongst that base that puts them in the category of likely to churn? Chad Collins: Yes. These are the very smallest of our 3P take-rate-only Amazon customers. One, they do not have a high volume of recovery opportunities for us, so they are very low revenue customers. When we introduce this subscription fee, which is quite modest at $19.99 a month, we could find ourselves in some situations where they periodically process a recovery but do not feel there is enough volume to pay a $19.99 per month subscription fee. That is how we arrived at our churn numbers. They are very small revenue customers. In fact, we have a cost to service those customers—platform, monitoring, all those things—so we think there is some benefit to us from a cost perspective to not service those very low revenue customers if they do churn as a result of this platform fee. Operator: Our next question comes from Dylan Tyler Becker with William Blair. Please go ahead. Dylan Tyler Becker: Hey, gentlemen. I appreciate it. Maybe, Chad, starting with you on early takeaways from the MAX program and how customers are implementing it and seeing value across the network. Any incremental color you can provide? I know you had a couple of ROI case studies. Also, the opportunity outside of the prebuilt agents you are spinning up and offering to clients—what about clients building their own agents over time? How do you think about custom-built versus prebuilt deployment over time? Chad Collins: Great question, Dylan. In the MAX beta, we have 400 customers now, and the feedback has been particularly strong. What is interesting is where they are finding value—combining their data in our network with the proprietary databases we have on major retailers’ and distributors’ supply chain expectations for their suppliers. For example, the differences in rules for shipping an order to Target versus Walmart or Costco. When you combine those nuances with a customer’s specific data, it allows you to answer questions like the difference in time to acknowledge an order from Target versus Walmart and how that affects workflow. A good example is Siete Foods, where MAX helped them determine they had less inventory than they believed due to transactions with a supply chain partner involving detailed lot codes and expiration dates. MAX helped them identify and correct their inventory position so they could make more commitments to sales—hard ROI where MAX helped with inventory and generated sales. On customers building agents versus using agents in the tool, our approach is with the MAX Connect product we have launched, which is an MCP endpoint that gives customers access to their network data as well as our proprietary databases around retailer supply chain expectations. Some customers will utilize it within the product itself, but others will want agent-to-agent interaction, and that is where MAX Connect fits in and can handle agent-to-agent communication. Dylan Tyler Becker: Fantastic. Thank you, Chad. And maybe for you on margins—understand the third-party dynamics, but the core business continues to track relative to plan. Historically, we talked about gross margin as a big lever, but it sounds like you have other initiatives underway to improve unit economics of the third-party piece. How reliant is the 200 basis points target on growth, and how many levers do you have to sustain that trajectory as we navigate these idiosyncratic dynamics? Unknown Speaker: Thanks, Dylan. Some of the savings on the 3P side are a pretty small impact on EBITDA and our ability to drive the 200 basis points. A couple of levers you already saw in Q1 with the ability to overperform guidance. We are seeing initial success on time to onboard customers and how much more efficient we can be using AI internally. There are efficiencies on the product engineering side—our ability to iterate much faster. You will see levers across sales and marketing, R&D, and G&A throughout the year. I am working closely with IT on where AI can add the most value internally. There will be more to come on future calls on where we are leveraging AI to drive margin. Operator: Our next question comes from Christopher Quintero with Morgan Stanley. Please go ahead. Christopher Quintero: Hey, Chad and team. On the medium-term targets—historically at least high single digits—you are guiding Q2 to 4% to 5%. I understand the Amazon headwinds. Is high single digits still the right framework, and how should we think about the path back to that growth rate? Chad Collins: Yes, we believe high single digits over the mid to long term is the appropriate growth rate for the business. The headwind is very specifically from the Amazon revenue recovery piece. The other portions of our business—revenue recovery without Amazon—is growing faster than the overall business, and the business excluding all revenue recovery is executing per our expectations. If you take out that headwind, you are back in that high single-digit range, which is consistent with our mid to long term expectation. Unknown Speaker: I will add a couple more data points. On Q2 year-over-year, there is a comp dynamic: Q2 this year has the first full-year comp for Carbon6. That growth rate is probably not directionally where we are headed. If you look at our full-year guide and do the implied growth rates for Q3 and Q4, you see pretty strong reacceleration. Lastly, if you remove Amazon revenue recovery from Q1, the rest of the business is already growing high single digits. There is a huge part of our business growing high single digits; you just cannot see it because of the Amazon revenue recovery headwinds. Christopher Quintero: Got it, that is helpful. As a follow-up on MAX Connect: businesses are choosing vendors based on API strategy and interoperability with broader agents and third-party agents. How are you thinking about the openness of MAX Connect and monetization as agents leverage your network and data? Chad Collins: We have been very open and API-friendly in our product strategy. Many of the ways our network connects to retailers, especially on ecommerce and marketplaces, is through APIs. Customers have always been able to access our network through APIs. Specific to agentic APIs or an MCP approach, we think this is very important. Agent-to-agent workflows are the future—we are already seeing that internally. The data we have—both transactional and, importantly, our databases of retailer and distributor supply chain expectations—are very robust and built over 20 years. Our customers tell us they cannot find this information anywhere else. Exposing the combination of network data and these proprietary supply chain databases will be powerful for agent-to-agent communication via MAX Connect. We will monetize those interactions over time once we get through the beta period. Operator: Our next question comes from Analyst with Citi. Please go ahead. Analyst: Thanks for taking the questions. On approach to guidance: we have seen revenue come in towards the lower end of the range a few quarters in a row. Any learnings or shift in approach toward embedding more conservatism? It sounds like spend scrutiny is improving—has that been baked in or could it be a source of upside? Unknown Speaker: There is no major change in guidance philosophy. On the annual guide, the Amazon revenue recovery business is posing a strong headwind, and we wanted to make sure we were factoring all the risk we are seeing in that part of the business. If you take that out, the rest of the business is in line with expectations. We saw momentum coming out of Q1 into Q2. On EBITDA, there is likely to be upside—we raised the full-year guide and are exploring other AI use cases internally. Overall, no major change in guidance philosophy. Analyst: Got it. And on the Amazon revenue recovery pricing changes—can you give details on the timing of the rollout and how churn from the subscription fee translates through the metrics so we can get a sense of that 4,000-customer number? Unknown Speaker: We will begin rolling that program out into Q2, and the rollout will go into Q3 a little bit. The churn may happen over time, so even though we are rolling it out in Q2 and early Q3, the churn may come throughout the year. Operator: Our next question comes from Lachlan Brown with Rothschild & Co and Redburn. Please go ahead. Lachlan Brown: Appreciate that we are cycling off the second quarter of 2025 where we began to see lower document volumes within Fulfillment. How have these trends been as we exit the first quarter, and what is your confidence we will see strong year-on-year growth in the volume-based component as we head into the coming quarters? Chad Collins: We have seen a dissipation of the headwind related to contract scrutiny, which had customers looking at their document plans and any trading partners they could reduce from their contracts. As we have moved into 2026, we have not seen the same level of pressure as in 2025. As we engage with customers who have renewals through the year, that gives us more confidence about that dynamic in 2026 versus what was a challenge in 2025. Lachlan Brown: And with those 400 customers on MAX, how has consumption/usage been through the beta stage—over or under expectations? Has usage been helpful in formulating the monetization strategy for MAX? Chad Collins: The 400 number was above our internal targets, which speaks to the communication to customers and their ability to see benefits even in beta. As with anything, some customers have heavy use cases and others are smaller with less volume. All of that is informing how we plan to monetize. Our current thinking—although not final—is that we will try to include MAX in a lot of our base subscriptions to get customers using the feature, with usage throttled somehow, and then have an uptick in subscription based on incremental usage. Operator: Our next question comes from Joseph Vruwink with Baird. Please go ahead. Joseph Vruwink: On AI increasing development velocity—you spoke to that inside the company. What are you seeing outside—competitors wielding that capability as well? To what extent is AI making automation easier to build such that suppliers who historically looked to SPS Commerce, Inc. might now consider doing it internally? Chad Collins: There is still a fundamental difference between a do-it-yourself approach and being in a proactively managed network like SPS Commerce, Inc. The majority of competitors facilitate DIY connections—good tooling and now AI tooling to help manage maps—but you still need to manage it yourself. We do not believe most customers, especially small to medium, will get the efficiencies from DIY that they would in a managed approach. In a managed network, one change a retailer makes can immediately cascade to all our customers, which is more efficient. Also, our average revenue per customer is about $13,000 per year; if a customer is dedicated to rebuilding their enterprise IT stack, they will likely prioritize bigger spend applications before a $13,000-per-year connection to the SPS Commerce, Inc. network, which gives us some protection. Joseph Vruwink: Thanks. A clarification on the subscription change in Amazon 3P. You said it will yield logo churn but not a material revenue impact. Yet the revenue guide is coming down and relates to revenue recovery. Are the headwinds absorbed in the Q1-to-Q2 timeframe, and is that the source of change? Chad Collins: These are two different topics. Specific to the subscription fee and churn, while the count seems high at 4,000, the revenue from those is quite modest. For those that remain and absorb the platform fee—again, modest—there is potential for even a small revenue uplift. Netting those effects out, the platform fee and related churn are not material to revenue. The reduction in the guide is related to overall headwinds from the Amazon space tied to policy changes Amazon has made that reduce the amount we can recover for customers. That is separate from the introduction of the platform fee. Operator: Our next question comes from Matthew VanVliet with Cantor Fitzgerald. Please go ahead. Matthew VanVliet: Thanks, and welcome aboard. On the product roadmap, how has the ability to get product to market faster using AI tooling pulled forward items that were “nice to have” but not high enough priority before? Do you think you will roll out functionality that helps expand that $13,000 per-year average customer spend? Chad Collins: Absolutely. A few key areas drive higher ARPU. In revenue recovery, we continue to execute our strategy to build out to more retailers—the more retailers we cover, the more market that opens up. We are making enhancements to our Analytics product and underlying technology to provide more data access and AI capabilities, which we are optimistic about. We are also advancing strategies around ERP connections—for example, our longstanding partnership with NetSuite, where we are investing in technology so customers using NetSuite together with the SPS Commerce, Inc. network can get more full features. These are examples underway in our product roadmap that have benefited from the velocity we are experiencing using agentic engineering. Matthew VanVliet: On M&A appetite—how has AI raised the bar on targets, and what outcomes and potential synergies are you looking for? Also, initial viewpoints on how the M&A strategy might evolve? Unknown Speaker: Overall, we are focused on running the business and buying back stock. We bought $47 million in Q1, and the board has authorized up to $300 million in total. That is our major focus right now—run the business and buy back shares. Chad Collins: The most efficient use of our capital today is buying back shares. Over the long term, we view M&A as part of our strategy in three areas. First, further consolidating in the EDI market—there remain players, and every time we add an EDI company, customers benefit by moving to the SPS Commerce, Inc. network, and those have been efficient transactions. Second, broadening our product solutions for supplier customers—as we drive more cross-selling and build the discipline into our go-to-market teams, we will gain more confidence over time to add to the product portfolio for cross-sell opportunities. Third, activity outside the U.S. has been strong, and as those businesses scale, there could be longer-term opportunities to gain more scale with acquisitions outside the U.S. Operator: Our next question comes from Jeff Van Rhee with Craig-Hallum Capital Group. Please go ahead. Daniel: This is Daniel on for Jeff Van Rhee. Regarding the pricing increase for 3P customers, what was the timetable for deciding on that, and to what degree had it already been anticipated in guidance? Chad Collins: Strategically, if you look at revenue recovery, going back to SupplyPike—SupplyPike was a 100% subscription business with broad retailer coverage, a lot in Walmart, not much in Amazon. We saw an opportunity to quickly gain the world’s two largest retailers, Amazon and Walmart, by acquiring Carbon6. Carbon6’s revenue model was more of a take-rate, where we took a portion of what we recovered for customers. We have always had two revenue models, and we believed portions of the 100% take-rate business could convert to a more predictable subscription model or hybrid over time. That has always been part of our thesis. We decided to start with the very small 3P customers, particularly those that, because they are small in revenue, had cost-to-serve questions relative to the revenue we were getting from them. Unknown Speaker: On guidance, as briefly mentioned earlier, it is revenue-neutral. We believe there will be some churn and these customers are low value, but that will be offset by customers that accept the fee. From a guidance standpoint, assume a net zero impact to revenue for the rest of the year. Daniel: And as you are coming on board, what opportunities drew you to SPS Commerce, Inc., and what are your top priorities stepping into the role? Unknown Speaker: My focus areas: first, ramping on the business and industry quickly so I can help drive strategic decisions. Second, keep driving EBITDA—there is a strong track record, and I want to ensure we stay on that course. Third, there is real opportunity on the AI front internally to drive leverage, and I will be laser focused there. At the highest level, the network we have built between retailers and suppliers and our ability to use that data—plus our proprietary data—and apply AI is a huge opportunity. We are early with MAX, but there is a lot of upside as we introduce AI into the product set. Operator: Our next question comes from Mark William Schappel with Loop Capital Markets. Please go ahead. Mark William Schappel: Thanks for taking my question. There is a new Chief Commercial Officer on board for a little over a quarter. With the recent expansion of your product portfolio into revenue recovery and AI, how is the commercial team streamlining the cross-sell motion to ensure these products are effectively adopted by your current client base? Chad Collins: Historically, our go-to-market motion focused on acquiring new customers. As we established our market-leading position and moved further into our TAM, there is still opportunity for new customers, but the larger driver of growth is expanding ARPU with existing customers—first by expanding their total usage of the network, especially for Fulfillment customers where there is opportunity to add more connections and features, then cross-selling revenue recovery and Analytics, and, as we move into monetizing MAX, cross-selling MAX. In response, we have focused sales and marketing on engagement with customers and full lifecycle relationships, making investments in treatment strategies to retain and grow customers. There is a new operational rigor that our Chief Commercial Officer and our new Chief Marketing Officer have brought to expansion within existing customers while simultaneously maintaining a strong motion, especially on the retail side, to continue adding new customers. Operator: Our next question comes from Nehal Sushil Chokshi with Northland Capital Markets. Please go ahead. Nehal Sushil Chokshi: Thank you for the reminder. Good to see that the guidance implies an inflection of overall revenue growth in the back half of 2026. Given the core business, excluding Amazon 3P, is already growing high single digits, what is the driver for the inflection implicitly projected here? Chad Collins: The right way to think about the dynamics is in three parts. First, the Amazon revenue recovery portion has strong headwinds based on policy changes Amazon has made, which reduce the amount we are able to recover—this drove coming in at the lower end of our range this quarter and the reduction in guidance. Second, all of our revenue recovery business excluding Amazon—for retailers like Walmart, Target, Lowe’s, Home Depot, and others—is growing very nicely with great cross-selling momentum and is growing faster than the overall company. Third, our business without revenue recovery is growing consistent with expectations, and we are seeing improvement compared to 2025—downsells and contract scrutiny are not at the same level, and our forward visibility for 2026 is positive. Nehal Sushil Chokshi: So the core business is inflecting up because you are anniversarying the scrutiny in Q2 2026? Chad Collins: Yes, that is a large effect. We are lapping some of the negative effects from 2025, which appear more one-time in nature, leading to a reacceleration in the back half of 2026. Nehal Sushil Chokshi: If the business excluding Amazon 3P is already at high single digits, does that imply it could move further up beyond high single digits in 2026? Unknown Speaker: We are sticking with the annual guide we gave you. If that changes throughout the year, we will update you, but for now we remain within the guidance provided. Operator: At this time, there are no more questions. This concludes our question and answer session. Thank you for attending today’s presentation. The conference has now concluded. You may now disconnect.
Operator: Please stand by. Welcome to the Merit Medical Systems, Inc. first quarter 2026 earnings conference call. At this time, all participants have been placed in listen-only mode. Please note that this conference call is being recorded and the recording will be available on the company's website for replay shortly. I would now like to turn the call over to Martha Aronson, Merit Medical Systems, Inc.'s president and chief executive officer. Martha Aronson: Thank you, operator, and welcome, everyone. I am joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer, and Brian G. Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you please take us through the Safe Harbor statements? Brian G. Lloyd: Thank you, Martha. This presentation contains forward-looking statements that receive Safe Harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to risks and uncertainties. The realization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from the expectations and projections expressed or implied by our forward-looking statements. In addition, any forward-looking statements represent our views only as of today, 04/30/2026, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements except as required by applicable law. Please refer to the sections entitled Cautionary Statement Regarding Forward-Looking Statements in today's press release and presentation, for important information regarding such statements. For a discussion of factors that could cause actual results to differ from these forward-looking statements, please also refer to our most recent filings with the SEC, which are available on our website. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. This presentation also contains certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in today's press release and presentation furnished to the SEC under Form 8-Ks. Please refer to the sections of our press release and presentation entitled Non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers should consider non-GAAP financial measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the Investors page of our website. I will now turn the call back to Martha. Martha Aronson: Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. I will begin with a brief summary of the first quarter financial results, then I will discuss several areas of operating and strategic progress that we have made in recent months including an important strategic acquisition in the oncology space that we made subsequent to quarter end. Then Raul will provide a more in-depth review of the quarterly financial results as well as our financial guidance for 2026, which we updated in today's press release. We will then open the call for your questions. Beginning with a review of our first quarter results. We reported total revenue of $381.9 million, up 7% year-over-year on a GAAP basis and up 5% year-over-year on a constant currency basis. Our constant currency revenue results exceeded the high end of the expectations that we outlined on the Q4 2025 earnings call. First quarter constant currency growth was driven by 2.7% organic constant currency growth, and contributions from our acquisitions of BioLife and the C2 Cryo Balloon device, both of which exceeded the high end of our expectations. Our organic constant currency growth includes the impact of the strategic divestiture of our DualCap product line in February 2026, which we discussed in our Q4 2025 call. Excluding divested revenue, our organic constant currency growth was 3.7% in the first quarter. With respect to the profitability performance in Q1, we delivered financial results that significantly exceeded expectations. Our non-GAAP operating margin increased 47 basis points year-over-year to 19.7%, representing the highest first quarter operating margin in the company's history. The team delivered 9% growth in non-GAAP EPS, which exceeded the high end of expectations, and we generated $25 million of free cash flow, an increase of 26% year-over-year. We are pleased with the solid start to fiscal year 2026 and I want to thank our team members all around the world for their effort and commitment to our customers. We updated our guidance in today's press release to include the expected financial impacts from our acquisition of Viewpoint Medical on April 1. Importantly, we remain confident in our team's ability to drive stable constant currency growth, improving profitability, and solid free cash flow this year. Our organization is aligned around our priorities for 2026, specifically to drive strong execution around the globe and to successfully complete our Continued Growth Initiatives program which includes our previously disclosed financial targets for the three-year period ending December 31, 2026. Turning now to a discussion on three key operating and strategic announcements we made since our last earnings call. First, on March 16, we announced the U.S. commercial introduction of the Resilience Through-The-Scope, or TTS, esophageal stent. The Resilience stent is indicated for treatment of esophageal fistulas and strictures caused by malignant tumors. Resilience is designed to demonstrate the greatest migration resistance amongst currently available TTS esophageal stents and facilitates physician control and accurate placement. Resilience targets an attractive market opportunity in the United States and we expect adoption and utilization of this differentiated product to contribute nicely to the growth in Merit's endoscopy platform in the coming years. Second, on April 1, building upon our oncology platform, we announced the acquisition of Viewpoint Medical for an aggregate transaction consideration of $140 million, of which $90 million was paid in cash at closing. Viewpoint Medical is based in Carlsbad, California, and manufactures the OneMark detection imaging system and OneMark tissue markers. This unique ultrasound-enhanced technology offers an innovative solution to localize more lesions at the time of biopsy, representing an estimated 1.3 million procedures annually in the United States alone. This represents an expansion of the annual addressed procedure opportunity of approximately three times for our oncology business. Merit has built a market leadership position in wire-free non-radioactive breast localization procedures. Our leadership has been built upon our SCOUT platform, which utilizes the precision and accuracy of radar. The OneMark system is U.S. FDA cleared for percutaneous placement in soft tissue tumors to mark biopsy sites or lesions, and it consists of a surgical detection system and ultrasound-enhanced tissue markers. After placement, the tissue markers are designed to be visible across commonly used imaging modalities and engineered to minimize interference with future imaging studies. This acquisition expands our portfolio of therapeutic oncology products dedicated to the diagnosis and localization of breast and soft tissue tumors. The combination of SCOUT and OneMark provides physicians with localization options during the initial diagnostic biopsy which may reduce the need for a separate procedure to mark the location of the tumor prior to surgery. We believe this acquisition presents multiple strategic and financial positives and importantly, this acquisition is consistent with our Continued Growth Initiatives program. This acquisition represents another example of Merit selectively investing to expand our product portfolio in key strategic markets that leverage our existing commercial footprint. Finally, I want to highlight our new presentation of revenue, which we formally introduced in a Form 8-K filed on April 13. As discussed on our Q4 call, Merit's new executive leadership team and I have been working through a comprehensive analysis of the business and it became clear during this process that we had an opportunity to streamline our internal planning and reporting processes with the goal of aligning how we think about, evaluate, and plan each of our underlying businesses. We also identified an opportunity to streamline how we talk about the business externally as well. We believe there is significant value in aligning how we talk about the business both internally and externally, and we expect these changes to help the investment community not only better understand the composition of our business today, but also the underlying growth drivers of our business going forward. To that end, as disclosed in the Form 8-Ks on April 13, and reported in our earnings press release today, we are now reporting our revenue in two product categories: foundational and therapeutic. Foundational products are used primarily for access and enabling functions in vascular and other procedures. Merit's foundational products comprised about two-thirds of our total revenue in 2025, and sales increased at a 6% compound annual growth rate over the last three years. Therapeutic products are devices and systems that treat disease in a number of very large markets that together represent significant growth potential. Merit's therapeutic products comprised about one-third of our total revenue in 2025, and sales increased at an 11% compound annual growth rate on an organic basis over the last three years. Given that we call on a wide variety of clinicians and our products are a part of so many procedures, we have solidified our new operating model internally around eight platforms: Access, Vascular Intervention, Procedural Solutions, Cardiac Therapies, Renal Therapies, Oncology, Endoscopy, and OEM. The Access and Procedural Solutions platforms are comprised entirely of foundational products. The Vascular Intervention and OEM platforms are comprised of both foundational and therapeutic products. And Cardiac Therapies, Renal Therapies, Oncology, and Endoscopy are comprised entirely of therapeutic products. In the Form 8-Ks, we shared four years of historical revenue in each of these platforms. So to reiterate, going forward, we plan to report revenue results by foundational and therapeutic products. In addition, we intend to continue to highlight additional color on the underlying drivers of growth within the underlying platforms. As I shared last quarter, each of our platforms is being co-led by a marketing lead and a research and development lead, and each team is comprised of cross-functional and cross-geographic members so that we have better alignment on product and commercial priorities, improved communication across functions and geographies, and a team who feels accountable for that platform globally. I am very pleased with how our teams are taking ownership, increasing communication, and thinking about how best to serve our customers in each area. I truly believe that focusing our efforts in this way will enable us to drive even greater growth within each one of these platforms in the years to come. With that, I will turn the call over to Raul for an in-depth review of our quarterly financial results and our updated financial guidance for 2026. Raul? Raul Parra: Thank you, Martha. I will start with a detailed review of our revenue results in the first quarter. Note, unless otherwise stated, all growth rates are approximated and presented on both a year-over-year and constant currency basis. First quarter total revenue increased $18.6 million, or 5%, exceeding the high end of the expectations we outlined on our fourth quarter call. Excluding sales of acquired products, our total revenue growth on an organic constant currency basis was 2.7%, at the high end of our expectations. Excluding divested revenue, organic constant currency growth was 3.7% in the first quarter. By geography, our total revenue in Q1 was primarily driven by growth in the U.S., where sales increased $14.5 million, or 6.8%, and international sales increased $4.1 million, or 3%, both of which modestly exceeded the high end of our expectations in Q1. Turning to a review of our revenue results by product category. First quarter total revenue was driven by a $10.1 million, or 4%, increase in sales of foundational products and an $8.5 million, or 7%, increase in sales of therapeutic products. Including the contributions from acquired products of $6.6 million and $2.5 million, respectively, sales of foundational and therapeutic products increased 1.5% and 5.2%, respectively, on an organic constant currency basis. Organic growth in the foundational product category was driven primarily by our Vascular Intervention and Access platforms, which offset year-over-year declines in sales of OEM and Procedural Solutions products, the latter of which was impacted by our divestiture of the DualCap product line. Organic growth in the therapeutic product category was driven by strong growth in our Cardiac Therapies and Endoscopy platforms and contributions from solid growth in our Vascular Intervention and Oncology platforms, offsetting year-over-year sales declines in our OEM and Renal Therapies platforms. We were pleased with our first quarter total revenue results that exceeded the high end of our expectations despite the notable headwinds to year-over-year revenue growth experienced in our OEM business in Q1. OEM sales declined 14% year-over-year in Q1, significantly lower than what was assumed in our guidance. Sales to OEM customers outside the U.S. continue to see demand trends impacted by the macro environment, particularly in the APAC region, and these headwinds were largely consistent with our expectations. OEM sales to U.S. customers were impacted by inventory destocking dynamics related to product line transfers to Tijuana, Mexico, as expected. That said, customer orders came in lower than expected, which we would characterize as transient or timing based rather than a reflection of share loss. Our OEM business remains healthy despite the quarter-to-quarter fluctuations in growth rates. We continue to believe the appropriate normalized growth profile of our OEM business is in the mid to high single digits annually. Turning to a review of our P&L performance. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during 2026 and our growth rates are approximated and presented on a year-over-year basis. We have included reconciliations from our GAAP reported results to the most directly comparable non-GAAP items in our press release and presentation available on our website. Gross profit increased 7% in the first quarter. Our gross margin was 53.2%, down 20 basis points year-over-year, but notably stronger than our internal expectations. Q1 gross margin included a $4.6 million impact from tariffs, compared to no impact in the prior-year period, representing a 120 basis point impact to gross margin in the period. Operating expenses increased 5% in the first quarter. The increase in operating expense was driven primarily by a $5.4 million, or 5%, increase in SG&A expense and, to a lesser extent, a $1.1 million, or 5%, increase in R&D expense compared to the prior-year period. Total operating income in the first quarter increased $6.9 million, or 10%, from the prior-year period to $75.3 million. Our operating margin was 19.7% compared to 19.3% in the prior-year period, an increase of 47 basis points year-over-year. First quarter other expense, net, was $1.2 million compared to $1.7 million for the comparable period last year. The change in other expense, net, was driven primarily by gain/loss on foreign exchange and higher interest income. First quarter net income was $56.7 million, or $0.94 per share, compared to $52.9 million, or $0.86 per share in the prior-year period. First quarter net income and EPS exceeded the high end of our guidance range by $3.7 million and $0.07, respectively. Turning to a review of our balance sheet and financial condition. As of 03/31/2026, we had cash and cash equivalents of $488.1 million, total debt obligations of $747.5 million, and available borrowing capacity of approximately $697 million, compared to cash and cash equivalents of $446.4 million, total debt obligations of $747.5 million, and available borrowing capacity of approximately $697 million as of December 31, 2025. Our net leverage ratio as of March 31 was 1.6 times on an adjusted basis. The increase in cash and cash equivalents in the first quarter was driven by a combination of strong free cash flow generation of $24.7 million and $25.5 million of proceeds from our divestiture and sale of the DualCap product line, offset partially by $6.3 million in cash used for financing activities in the period. Subsequent to quarter end, we acquired Viewpoint Medical for an aggregate consideration of $140 million. Of that amount, $90 million was paid in cash at closing, and two deferred payments of $25 million each are scheduled to be paid no later than the first and second anniversary of the closing date, respectively. In addition to the favorable strategic rationale for this acquisition that Martha outlined earlier, the financial rationale for this transaction is compelling. While we expect the transaction to be $0.05 dilutive to our 2026 non-GAAP EPS, for the twelve months ending 12/31/2027 the acquisition is projected to be accretive to our non-GAAP EPS. Longer term, we project this acquisition to be accretive to Merit's multiyear growth and profitability profile. Specifically, we project sales of Viewpoint Medical's OneMark system to grow at least 20% per year, with 70% non-GAAP gross margins and non-GAAP operating margins above our company average. Turning to a review of our fiscal year 2026 financial guidance. As reported in our earnings press release, we have updated our financial guidance for 2026 to reflect the projected contributions to our total revenue and impact on our non-GAAP EPS previously disclosed on 02/24/2026. Specifically, from the acquisition effective date of 04/01/2026 through 12/31/2026, the acquisition is projected to contribute revenue in the range of $2 million to $4 million and to dilute Merit's initial 2026 guidance for non-GAAP earnings per share by approximately $0.05. This non-GAAP EPS dilution includes approximately $2 million of lower interest income on cash balances used for the total purchase consideration and excludes approximately $5.3 million of non-cash, non-recurring transaction-related expenses. For the twelve months ending 12/31/2026, we now expect total GAAP net revenue growth in the range of 6.3% to 7.8% year-over-year, and 5.6% to 7% year-over-year on a constant currency basis, excluding an expected 80 basis point tailwind to GAAP growth from changes in foreign currency exchange rates. There are a few factors to consider when evaluating our projected constant currency revenue growth range for 2026, including first, our constant currency growth range assumes sales of foundational products increase in the mid-single digits year-over-year and sales of therapeutic products increase in the high-single digits year-over-year. Second, our total net revenue guidance for fiscal year 2026 now assumes inorganic revenue contributions in the range of approximately $17 million to $20 million compared to $13 million to $15 million previously. This increase in inorganic revenue expectation is driven by the combination of $2 million to $4 million of Viewpoint Medical revenue and stronger than expected contributions from our BioLife and C2 acquisitions in the first quarter. Excluding inorganic revenue, our 2026 guidance continues to reflect total net revenue growth on a constant currency organic basis in the range of approximately 4.5% to 6% year-over-year. Third, our total net revenue guidance for fiscal year 2026 continues to assume U.S. revenue from the sales of the Rhapsody CIE of approximately $7 million. Fourth, our total net revenue guidance for fiscal year 2026 reflects the impact of our DualCap divestiture. Product sales and royalty revenue for DualCap totaled approximately $20 million in 2025, and net of approximately $1.6 million of sales in Q1 2026, the divestiture represents an estimated year-over-year headwind of approximately 130 basis points to our total constant currency revenue growth in 2026. With respect to profitability guidance for 2026, we continue to expect non-GAAP diluted earnings per share in the range of $4.10 to $4.15, up 5% to 8%. Note, our non-GAAP EPS range reflects the $0.05 of dilution from the acquisition of Viewpoint Medical, funded by the better-than-expected non-GAAP EPS results we delivered in the first quarter. All of the modeling considerations regarding our profitability and cash flow expectations for 2026 introduced on our fourth quarter call remain unchanged. For avoidance of doubt, our 2026 non-GAAP EPS guidance continues to assume a twelve-month tariff impact of approximately $15 million, or $0.19 per share, compared to a $9 million, or $0.12 per share, impact realized during the last eight months of 2025. As a reminder, the expected twelve-month tariff impact assumed in our 2026 non-GAAP EPS range was based on tariff policies in place prior to the decision of the U.S. Supreme Court in late February. This continues to be an evolving situation. The ultimate impact of the U.S. Supreme Court decision and subsequent new and/or additional tariffs or retaliatory actions or changes to tariffs on our business will depend on the timing, amount, scope, and nature of such tariffs, among other factors, most of which are currently unknown. We intend to review our 2026 financial guidance when we report our financial results for the three and six month periods ending 06/30/2026. We will provide an update on the estimated twelve-month tariff impact and potential gains related to refunded tariff payments in prior periods. Finally, we would like to provide additional transparency related to our growth and profitability expectations for the second quarter of 2026. Specifically, we expect total revenue in the range of $400 million to $410 million, representing growth of 5% to 7% year-over-year on a GAAP basis, and up approximately 4% to 7% on a constant currency basis. Note, our second quarter constant currency sales growth expectations include inorganic revenue in the range of approximately $4 million to $4.5 million; excluding inorganic contributions, total revenue is expected to increase in the range of approximately 3% to 5% on an organic constant currency basis. With respect to our profitability expectations for the second quarter of 2026, we expect non-GAAP operating margins in the range of approximately 18.7% to 20.4% compared to 21.2% last year, and non-GAAP EPS in the range of $0.90 to $1.00 compared to $1.10 last year. With that, I will now turn the call back to Martha for closing comments on the prepared remarks. Martha Aronson: Thanks, Raul. As you can hear, we continue to be on a nice trajectory to successfully complete the third and final year of CGI. I want to commend the organization once again for staying focused on delivering these results while also closing a strategic acquisition on April 1 and embarking on our long-range strategy work. I want to add that when our extended leadership team spent several days kicking off our long-range strategy work during the quarter, we had very robust conversations about each platform and there was tremendous energy around this work. We also recommitted ourselves to ensuring that our infrastructure is solid so that we can continue to scale our business globally. As I have said before, we will do that with both organic product development alongside disciplined tuck-in acquisitions focused on our strategic platforms. Finally, as I have continued my global travels and spend time with customers, investors, and employees, I continue to be inspired and excited about the future of Merit Medical Systems, Inc. We will now open the call for questions. Operator: Thank you. Please signal by pressing star 11 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 11. And our first question will come from Michael Petusky of Barrington Research. Your line is open. Michael John Petusky: Hi, good evening. Nice results. I guess there was not much in the way other than, I guess, the reaffirmed guide on Rhapsody. Martha, are there any updates you want to share there, whether it is anecdotal or more quantitative, just on early days progress? Thanks. Martha Aronson: Yes. Thanks very much, Mike. You asked—just to clarify—you are asking about Rhapsody? Michael John Petusky: Yes. Yeah. Martha Aronson: We are very pleased with how Rhapsody is going. Again, just to remind folks, we did a bit of a reset, if you will, on how we are approaching our go-to-market strategy with Rhapsody. We really instituted that toward the end of last year. And I would say at this point, we are very pleased with how we are doing. We have given, I think, our previous guidance or our revised guidance in 2026 of $7 million for Rhapsody for the fiscal year, and we are tracking right on that. Michael John Petusky: Okay, great. And then I am not sure who this is for, but I am just curious about—are you guys, like, is there a formal process? Are you seeking refunds in terms of the tariffs that you had to pay last year and the first part of this year? And if so, how does that process work? Thanks. Raul Parra: I will just give a guidance overview if you do not mind, Mike, because there are a lot of moving parts to this. Just as a reminder, for our 2026 guidance, we have left it unchanged essentially from what we did in the first quarter, which is we have got $15 million that is baked into our guidance for 2026 versus the $9 million that we had in 2025. That is unchanged since the U.S. Supreme Court decision. I think there is still a potential for the administration to challenge that, I believe, through May, and so we will reevaluate that as part of our second quarter reevaluation and we will discuss that further after the second quarter once we are on firmer ground. It is a moving target, but there is also the Section 232 stuff that is hanging out there. Michael John Petusky: I was just going to say, have you guys filed it? Like, is there paperwork to file to seek refunds at this point for you guys or no? Raul Parra: Yes. We have started the process of reimbursement. Like I said, though, I think the challenge is that the administration can still challenge the reimbursement through May. From our perspective, we have started the process of filing and have essentially filed for the majority of that. I think we will have an update, hopefully, on our second quarter call as to how that shakes out. Feeling optimistic, I would say, if things stay as they are today, I definitely think the $15 million would come down. Michael John Petusky: Okay. Very good. Thanks, guys. Operator: Thank you. And our next question comes from Jason Bednar of Piper Sandler. Your line is open. Jason M. Bednar: Hey, good afternoon, everyone. Thanks for taking the questions and nice start to the year here. I wanted to start first on Viewpoint, the recent deal. It is a pretty sizable revenue contribution step-up from this year to next. Could you help us out with how you see this coming together—what is supporting the growth ramp going from $2 million to $4 million in revenue this year up to $14 million to $16 million next year? And then should we think about that 20% growth rate you referenced starting in 2028, building on that $14 million to $16 million? And then, looped in here, just any considerations around synergies that could be realized with respect to that SCOUT platform? Martha Aronson: Yes. Thanks, Jason. Appreciate the question. A couple of comments on that. First, taking a step back on oncology: it is about a $100 million platform for us, and it has been growing very nicely. It has been pretty much a one-product platform, so we have been looking for a while at ways to add to that because we have an outstanding field organization and we wanted to get some additional products in their hands. If you think about the breast cancer market, particularly the biopsy phase—someone has a mammogram or something is seen—in the U.S. alone there are 1.6 million breast biopsies done each year. For SCOUT, the product that we have had for a period of time now, the applicable market has been about 300,000 of those procedures each year. With the addition of OneMark, you actually expand the market three to four times because the other 1.3 million breast biopsies tend to be done for lower-risk patients; SCOUT tends to be used for higher-risk patients. We are really seeing a terrific market expansion opportunity. It then comes down to physician choice about whether they would rather use radar technology or ultrasound technology. We are super excited about that. Both of these approaches happen at the time of biopsy, whereas if you do not do something at time of biopsy, a patient may have to go through an additional localization procedure before surgery. We are excited about what it means for patients. Breast cancer grows about 4% a year, and the wire-free localization market where we play is growing at about 13% a year, so when you ask about our confidence in the future growth rates, we feel good about that. Raul Parra: I will add, Jason, at the midpoint of our 2027 guide, which was around $15 million, you can definitely tack on the 20% that we called out. On the synergies, just to be clear, in the guide for 2027 on a full-year basis it is accretive, both on the top line and the bottom line, with strong gross margins at 70%. We are really excited about it. Jason M. Bednar: Thank you for all that. Super helpful. I want to pivot to the OEM part of the business. I appreciate all the extra color in the prepared remarks, Raul. I heard you on the 1Q performance and the normalized growth profile for OEM. But can you say whether the worst is behind you for OEM? Does that performance get sequentially better in 2Q? Does growth return in the second half of this year? And bigger picture on OEM, Martha, we have seen you take actions on portfolio management at Merit. How do you think of the value OEM provides to Merit versus maybe what you could potentially realize through strategic moves like some of the actions we have seen across other med tech OEM players here the last several months? Raul Parra: I will take the last part first. To level set on what our OEM business is: we essentially sell capacity. We are different than other OEM companies out there; we are not a contract manufacturer. We are selling our own products. Divesting of that just does not really work—we would end up with a bunch of extra capacity. Having said that, we love our OEM business. It is a great asset and remains healthy despite quarter-to-quarter fluctuations. I know you find that frustrating, but as we see the visibility, we are getting excited about what we can do there. We continue to believe the appropriate normalized growth profile is in the mid to high single digits. We are starting to see orders for Q2 that give us a lot of confidence that we are going to be at, at the very least, that mid single-digit growth profile that I just talked about. We are excited to see how the quarter goes; the early start is looking really good. Jason M. Bednar: Just to clarify, you are saying mid singles is how you are seeing 2Q come together, mid single-digit growth for OEM? Raul Parra: That is right. Jason M. Bednar: Perfect. Thanks so much. Operator: Thank you. And our next question comes from Sam Elber of BTIG. Your line is open. Sam Elber: Hey, good afternoon. Thanks for taking the questions here. Maybe I can follow up on some of the dynamics in the Cardiac business that was called out in the prior quarter. Just curious to get an update on how that is shaking out here, and then I will have a quick follow-up. Raul Parra: We continue to be on track. To walk through that issue: when we initially had our fourth quarter call, it was a supply chain issue that unfortunately turned into a recall, and I am sure many of you saw the notice go out. From a financial perspective, it is immaterial to our 2026 financial results. We continue to be on track to have this product back on the market. It is unfortunate that it came to this, but to highlight it, it is a Class I recall, and we have not had any of those since 2017. Just to clarify, this was in Renal, right? Martha Aronson: Just for clarity, Sam. Sam Elber: Okay. That is helpful. And maybe just a quick follow-up on some of the geopolitical issues we are seeing out of the Middle East. Are you able to help quantify or think through any impact on the revenue line and then to input costs, whether it is freight or oil—how should we be thinking about that over the rest of the year? Raul Parra: On the positive side, we have yet to receive any price increases from our vendors. We are seeing fuel surcharges; those are pretty typical and we usually see those at least once a year as gas prices fluctuate, so that is nothing unusual. Right now everything is manageable. If the issue continues, we will have to reevaluate, but as of now, we feel like we can overcome whatever is coming our way. On the sales side, we continue to get orders from the Middle East region. We did leave about $1.5 million of revenue on the table from shippers that were not able to pick the product up and deliver it. We are seeing an impact, but it is very manageable, and we continue to feel really optimistic about the guidance that we put out for 2026. Martha Aronson: Thank you. Operator: And our next question comes from David Rescott of R.W. Baird. Your line is open. David Kenneth Rescott: Great. Thanks for taking the questions. Two from us, and I will ask them both upfront. I heard some of the commentary around OEM as it relates to the quarter, Q2, and the guide for the year. I recall that there is some APAC impact in there in general. Can you provide any color around what the assumptions are for China and APAC at this point and, in broad strokes, how that is shaking out versus contribution from that region in the prior year at least? And then on the operating margin side, I believe the results were a little better than we expected. Lower OpEx growth seemed to be the case, better gross margin. Can you help us think about how you are thinking about controls on the OpEx side through the rest of the year? I believe you commented on gross margins already, but would be curious around any of the underlying assumptions you have for better-than-expected operating margins for the year. Raul Parra: On the APAC region and OEM: that was essentially in line with our expectations. APAC as a whole was up 1% on a constant currency basis in Q1, which was a beat versus the high end of our guidance. China sales increased by about 2% year-over-year on a constant currency basis in Q1, essentially in line with our expectations. VBP impact was modestly better than expected. As far as China, we continue to expect low single digits for 2026 as we continue to deal with volume-based purchasing. Moving to operating expenses, we were expecting a lower gross margin, so we controlled operating expenses. With the conflict, as that came out, we really talked to the executive team about being in control of operating expenses, and they did a really good job. We let that flow through to the bottom line with an $0.11 beat and a much better operating margin than we had initially indicated on the fourth quarter call. One of the nice things is that we were able to offset the $0.05 dilution of Viewpoint and essentially increased our EPS guide to cover for that. Overall, the P&L was off to a really strong start for Q1. We beat on the revenue side by over $4 million, gross margin was better than anticipated, we controlled operating expenses, and that gives us a lot of confidence as we head into the rest of the year. We are really confident in the full-year operating margin guide and obviously focused on our CGI targets. Martha Aronson: And, David, I might add one comment. Hats off to Raul and Travis in our finance team. One of the things we have been working on is a number of our processes across the company and getting our finance partners involved earlier in the process. We are doing our best to ensure discipline throughout the organization when it comes to spend. Hats off to our finance team partnering with engineering, operations, etcetera. Thank you. Operator: And our next question comes from Aidan Lahey of Bank of America. Your line is open. Aidan Lahey: Hi, thanks for taking the questions. Two from me on OneMark. One, when you did the deal, how much were you factoring in it being complementary versus cannibalistic to SCOUT? I know you said physician preference. Is this a move that can open up broader accounts? Would some accounts have both systems? And do you think there is any impact on SCOUT sales during the inorganic period that could impact growth? Martha Aronson: Thanks for the question. We really view this as a market expansion play. There could be a handful of accounts where some have both, and there could be some where someone chooses one over the other. There is an opportunity—it is a bit of a better-and-best offering. There is an opportunity to target accounts very specifically, which our team has done a great job preparing to do. We see it as a total expansion of that time-at-biopsy localization market. Aidan Lahey: Got it, really helpful. And then I think we saw OneMark was actually running a trial that was head-to-head with SCOUT. Now that both products are yours, do the outcomes of that trial change the strategy of SCOUT depending on if it goes one way or the other, and what are the plans there? Martha Aronson: I literally got off the phone earlier today with one of the team members from OneMark. This group is super excited to be part of Merit, and Merit is super excited to have them as part of our team. There is a major congress happening starting today—the Society for Breast Surgeons. There was a training with fellows earlier today, and the team reported that it really is a physician preference. Some are more “audible” and like the radar and hearing it; others prefer being able to see it visually. We are excited to have this enhanced product offering across the portfolio and, as we said, it is a great add to the Merit Oncology platform. Aidan Lahey: Great. Thank you. Operator: Thank you. And our next question comes from James Sidoti of Sidoti & Company. Your line is open. James Philip Sidoti: Good afternoon. Thanks for taking the questions. If I heard you correctly, with gross margin, you were able to keep that basically flat despite about $5 million of tariff expense. What drove that? Was that a mix issue? Can you give us more color on that? Raul Parra: It is essentially a 120 basis point impact to our gross margin from tariffs. Hats off to our sales force for focusing on selling the right products at the right price. We have some acquisitions helping us, and that is part of the mix component. We continue to focus on the “throw the kitchen sink” approach at gross margin. The conflict in the Middle East is exactly why we do that—there are surcharges coming that we were still able to overcome. Our operations group is doing everything they can to maintain or improve costs in a really challenging environment. It is a little bit of everything, but there is a mix component helping us. We divested the DualCap, which was a very low gross margin product, and that is helping as well. We are hyper-focused on CGI goals, and gross margin is an important contributor to operating margin, which is why we focus on it so much. James Philip Sidoti: And then, inventory was up about $20 million in the quarter. Can you explain that? Raul Parra: We have acquisitions that have taken place, and we are building out those inventories. There were certain areas we were a little low in. Over the last year in our Endoscopy segment, we dealt with some supply chain issues, so getting that to a healthy point. Same with our Oncology business, and same within our Cardiac and Renal Therapies—areas that had really strong sales. We are getting safety levels to an area we feel comfortable with. You are also in an environment where you look at the supply chain to make sure you are covered given the performance we expect, so we are making sure our safety stocks are at the right level. James Philip Sidoti: Alright. And if I can, I am going to sneak one more in. Can you just tell us what the distribution looked like for the OneMark system prior to the acquisition, and how many people will be selling it now that it is a Merit product? Martha Aronson: We do not share exactly how big our sales organizations are. Viewpoint was certainly a smaller organization. It will fold really nicely into our team, who are excited to have their Viewpoint colleagues join them. It is not a major expansion of our commercial footprint, but the energy behind it will certainly make up for that. James Philip Sidoti: Okay. So the big jump to revenue in 2027—that is not because of increased distribution. You think that should occur due to product awareness? Martha Aronson: Correct. It is increased product awareness, having options as you go into each and every account, and excellent account planning and targeting that our team is undertaking. James Philip Sidoti: Alright. Thank you. Martha Aronson: Thanks, Jim. Operator: Thank you. And our next question comes from John Young of Canaccord. Your line is open. John Young: Hi, guys. Thanks for taking the question and congratulations on the quarter. Martha, when you came into the seat there was an emphasis on OUS growth given your background. Any updates on the progress or changes that you have made there? In the script, you spoke about some alignment changes. Has compensation changed at all for the reps? Martha Aronson: As we go into 2026, there have not been any significant comp changes for our reps. You have heard Raul talk about our gross margin improvement. Over the last several years, this organization has done a nice job making sure our team knows which products to stay focused on, and we are pushing a bit more emphasis on some of our higher-margin products. In general, about 40% of our revenue is outside the United States, and as you heard, our international teams continue to do a really nice job. I am quite pleased with that. John Young: Great. Thanks. And then perhaps any additional color on the Endoscopy segment and any progress you made in the quarter on the integration and training of that sales force. Thanks again. Martha Aronson: We are really excited about the Endoscopy platform. We brought in the C2 Cryoballoon acquisition, which is so far doing better than our end expectations. We also announced a new product, the Resilience through-the-scope esophageal stent. This is a really nice market for us—sub-$100 million in size. For Merit Medical Systems, Inc., that is a really nice market space. This is a great stent, and because physicians deploy it through a scope, they feel they have more control and accurate placement. Most importantly, the initial feedback is that it is not moving once it is there. Migration has been an issue with a number of stents in that market. We are really excited about the opportunity for Resilience and the Endoscopy business in general. Next week, I will be at Digestive Disease Week with the team, which is one of their big shows—more on the GERD side of things—but across Endoscopy we are very pleased. Raul Parra: I will add a little color. As you hopefully saw last year, our Endoscopy team just got better every quarter as they integrated and learned how to sell both bags. Q1 was mid-teens growth—really strong performance—so they are excited about what they are doing, which makes us excited about their potential. John Young: Great. Thank you. Operator: Thank you. And our next question comes from Jason Bedford of Raymond James. Your line is open. Analyst: Hey, Raul. Hey, Martha. It is Zack on for Jason Bedford here. Thanks for taking the question. You have talked about being open to deals that are somewhat larger than historical tuck-ins, and of course we saw the Viewpoint deal. As you look at the pipeline, can you remind us what those key areas are for the next deal? And in terms of sizing, would you say Viewpoint is a good proxy for deal characteristics and size in terms of helping us level set expectations on acquisitions? Martha Aronson: Thanks. Doing deals is not something where you get to say you want to do something of exactly this size at this time to add precisely to this particular platform. That would be lovely, but that is not reality. We are not going to put a number around a deal. We are looking at a lot of things. This company has grown a lot through acquisition; we plan to continue to do that. It is important to think in terms of tuck-ins or bolt-ons—nothing transformational. Every deal has to have a lot of strategic fit. With our platform structure, I am looking to each platform to have conviction around any proposed deal because they are going to own it. That is how we are building these business lines. It is critical that they believe in it and have done the work and analysis. We do a lot of that at corporate as well, but that is how we are thinking about acquisitions going forward. It has to be strategic and fit certain financial metrics that we have in place—certainly being margin accretive would be one of them. Analyst: That makes sense. Appreciate the color. Then, if I can ask a second one: just curious on that Medtronic distribution deal you did during the quarter. Is there any stocking tied to that, and is there a material impact for you on growth that comes from this agreement? Raul Parra: They are going to gear up, and we are not going to give details. It is not our practice to talk about our customers’ launch plans. We are really excited for our OEM division. They have done a good job working with our OEM partners and customers on finding opportunity, and this happens to be one of them. It is built into our guidance for the year, which gives us a high level of confidence in that mid single-digit growth that we expect in OEM. We have a high level of confidence in their performance for the rest of the year. Martha Aronson: This is a really good example of why we say OEM is lumpy. As you saw—and Medtronic put out a press release on it—we have a relationship with them; they have been an OEM customer as they shared in their press release. These things ebb and flow a bit. As Raul said, we are very excited, and this is a factor in gaining confidence on our OEM platform for this fiscal year. Operator: Thank you. And our next question comes from Mike Matson of Needham & Company. Your line is open. Michael Stephen Matson: I just want to ask one on capital allocation. I understand you are focused on M&A and that has been the priority. But the stock is pretty beaten up, pretty cheap here. Would you consider doing a share repurchase at all? Raul Parra: That is a board-level decision, and I do not want to speak on their behalf. For now, with our net leverage ratio of 1.6, and a lot of opportunity out there from an M&A perspective, we continue to conserve cash. We continue to generate strong free cash flow—as you saw, approximately $25 million for the first quarter, a strong increase over 2025. For now, we are focused on CGI, on our free cash flow goals, and on delivering long-term sustainable growth. Michael Stephen Matson: Got it. I will leave it there. Thanks. Operator: Thank you. This concludes our question and answer session. I would like to turn it back to Martha Aronson for closing remarks. Martha Aronson: Thank you, everybody. I appreciate you dialing in today. We are pleased with our strong start to 2026 and feel good about tracking nicely to our CGI goals. Most importantly, I want to thank our team who is so committed to helping patients all around the world. Thanks, everyone, for joining us today. Operator: This concludes our conference call for today. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Mechanics Bank first quarter 2026 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would like now to turn the call over to our chief financial officer. Please go ahead. Unknown Speaker: Thank you, operator, and good morning, everyone. We appreciate you joining our earnings conference call. With me here today are our President and CEO and our executive chair. The related earnings press release and earnings presentation are available on the News and Events section of our Investor Relations website. Before we begin, I would like to remind everyone that any forward-looking statements are subject to those risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our Safe Harbor statements in our earnings press release and in our earnings presentation. All comments expressed or implied during today's call are subject to the Safe Harbor statement. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measure can also be found in our earnings release and in the earnings presentation. Thank you, and good morning. We appreciate everyone joining our call and for your interest in Mechanics Bank. I will kick things off today and will summarize the highlights of our first quarter performance. I will also provide another strategic update on the bank before handing things off to our CFO to review our financials in more detail. We will then open up the call for your questions. With that, let us turn to Slide 4. We had a productive first quarter reporting $44.1 million in net income. On a fully diluted basis, our earnings per share were $0.19. Our tangible book value per share ended the quarter at $7.53, with $0.40 per share of dividends paid to investors in Q1. As anticipated, this was another noisy quarter, so I will walk you through some of the major items. First, we recorded a £6.5 million provision entirely related to qualitative CECL factors tied to geopolitical uncertainty stemming from the Iran war. Importantly, this was not driven by any specific credit deterioration within our loan portfolios. Asset quality metrics remain strong, and I am pleased to report that we have 0 basis points of net charge-offs when you exclude our auto net charge-offs. Our run-off auto portfolio, by the way, is also performing well as it winds down. This provision was a conservative response to the heightened global risk of the Iran war and its potential impact on the U.S. economy, particularly given higher oil prices. Second, we incurred just under £5 million of merger-related expenses as we continue to work through the final phases of our HomeStreet integration. These costs were in line with our expectations and are nearing completion. The third non-core item was a $1.7 million tax provision related to the remeasurement of our deferred tax asset due to a lower anticipated effective tax rate moving forward for the company. For forecasting purposes, we expect our effective tax rate to be approximately 26.5% in 2026, but this could still move around a bit. When you adjust for the non-core items, it adds up to $53.8 million of core net income for the quarter representing a core ROAA of 1% and a core ROTCE of 13%. First quarter is always the seasonally weakest for us for both noninterest expenses and core deposits. On the deposit front, our seasonality primarily stems from our $860 million of food and ag deposit customers who see large inflows in December and outflows in January. This quarter, $137 million of our non-maturity deposit decrease was from these customers, which is normal course activity. Otherwise, core deposits are roughly flat. Importantly, we did see a $640 million reduction in CD balances during the quarter. This was deliberate as we continue to hold the line on CD pricing and let hotter money from legacy HomeStreet customers leave the bank. When we modeled the merger over a year ago, we expected $1 billion in CD runoff by the end of 2026. However, runoff has been greater than anticipated, and we now expect a $1.4 billion cumulative reduction in CDs, with overall Mechanics CD balances expected to stabilize at a $2 billion run rate. This implies an additional reduction in CDs of just under $150 million in Q2. Notably, the vast majority of CDs leaving the bank were from single-account households, and our core deposit retention from the merger has been very strong. Also, nearly all of our CDs have repriced once at our lower rates and have maturities of seven months or less. While this elevated time deposit runoff has a negative impact on earnings, it is higher-risk, low-ROE, non-core money that is better to not have in our bank. Getting a bit smaller also generates excess capital, which provides strategic flexibility. Staying on the topic of risk reduction, legacy HomeStreet construction loans also decreased nearly $100 million during the quarter, as we made the strategic decision to let certain business go that we felt was not priced appropriately relative to the credit exposure we were taking in the bank. In general, competition for loans and deposits remains quite stiff. We are okay getting a bit smaller in the near term to minimize risk to the company and position ourselves for long-term success. Our total assets are now £21.4 billion with total gross loans of $13.9 billion, total deposits of $18.2 billion, and tangible shareholders' equity of $1.7 billion. We remain 100% core funded with no brokered deposits or FHLB borrowings at 03/31/2026, and we paid off $65 million of high-cost senior debt in March that was acquired from legacy HomeStreet. Primarily because of the Iranian war provision, our ACL grew 5 basis points this quarter to 1.13% of loans and now totals $157 million. Our allowance is also a very robust 2.95x our total nonperforming assets as of 03/31/2026, with NPAs generally flat for the quarter. Our capital ratios remain healthy with a 13.9% CET1 ratio and an 8.7% Tier 1 leverage ratio. Our cost of deposits was 1.28% in the first quarter, down 15 bps from Q4, and our spot cost of deposits at 03/31/2026 was 1.21%. Our NIM was 3.61% for the quarter, up 11 bps sequentially, and our CRE concentration ratio was 348%. Turning to Slide 5. I would like to provide you with an update on some of the key strategic initiatives happening at the bank. I am very happy to report that we successfully converted all legacy HomeStreet customers onto our core banking platform in March. This major milestone was achieved thanks to a tremendous amount of planning and hard work from all our employees. We will substantially complete our merger integration during the second quarter and expect to realize significant additional expense synergies moving forward as we will not be paying two core providers. Other redundant contracts will be terminated and final headcount reductions occur. We remain on track to deliver on our budgeted cost synergies from the merger, and reiterate our prior guidance of achieving an annual run-rate noninterest expense excluding CDI of approximately $430 million by the fourth quarter of this year. The $130 million sale of our DUS business line to Fifth Third has taken a bit longer than expected, but we have a high degree of confidence that it will close in the second quarter. Given the pending DUS sale, our first quarter earnings, and our modestly smaller balance sheet, we will have significant excess capital, and we expect to pay approximately $0.70 per share in dividends in Q2, subject to regulatory and Board approval. Merger integration is almost behind us after a very full year of work, and the buildouts of our wealth, commercial banking, and treasury sales teams are substantially complete. It will be nice to move past integration work and focus entirely on growing each of our core business lines with a technology roadmap for the bank that is increasingly focused on leveraging AI tools to improve enterprise productivity. As for the big picture, we expect a relatively flat NIM for the next two to three quarters as auto loan runoff remains a drag, our deposit costs stop declining given we no longer expect any Fed rate cuts, and our CD repricing moderates. Our NIM should begin expanding again in early 2027, as the impact of auto fades, driven by legacy Mechanics Bank earning asset repricing, which will continue to occur over the next five years and will provide a tailwind to earnings growth. We now expect to deliver a 17% to 18% ROTCE and a 1.3% to 1.4% ROAA in 2027 and beyond, with a projected GAAP net income range of $275 million to $300 million for 2027. Our earnings guidance has been reduced primarily due to removing two Fed rate cuts from our projections as well as from a modestly smaller balance sheet due to the lower CD balances. We also expect outstanding construction loans to be roughly $300 million over the rest of the year versus $500 million previously. Let us go to Slide 6, which shows an overview of Mechanics Bank today. Again, we have £21.4 billion in assets, 166 branches, and very competitive deposit market share. We are the fourth largest community bank in both California and on the West Coast, with a branch map that is nearly impossible to replicate. We fully expect Mechanics Bank to be a high-performing bank despite taking very little risk with our earning asset strategy. On the left-hand side of the page, we compare Mechanics Bank to all publicly traded banks with $10 billion to $100 billion in assets, which, including us, now has 77 banks in the comparative group. As you can see, cost of deposits for the first quarter was 1.28% versus the median of the 77 banks of 1.76%, giving us a rank of number 10, and I expect our cost of deposits to continue to drop in the second quarter before flattening the remainder of the year. Next, our noninterest-bearing deposit mix is 36%, which is third out of 77, up one spot from a quarter ago, and the greatest store of value for our company. Our CET1 ratio of 13.9% ranks nineteenth, and our risk-weighted assets to total assets is just 59% versus the group median at 76%, which is the second lowest out of our 77 competitor banks nationwide. Despite this low-risk profile, our expected 2027 ROTCE of 17% ranks eighth of the 77 banks, which would be exceptional. Finally, our 2027 efficiency ratio is now projected to be approximately 50%, which ranks twenty-second out of 77 despite our operating in higher-cost markets and with the majority of our deposits comprised of small-balance consumer accounts. Slide 7 is key to our investment thesis and another way of visualizing some of the important statistics from Page 6. The strength of our deposits and the efficiency with which we run our bank, both from an expense and a capital management standpoint, will allow us to post very strong returns despite having nearly the lowest risk mix of assets in the country. These charts provide a great visual in my opinion, especially the risk-weighted assets to total assets comparison. In fact, we expect our risk-weighted assets as a percentage of total assets to continue to come down over time as our auto loans run off and our CRE concentration ratio is managed below 300%. While we will pay substantial dividends in 2026, we expect moving forward that our dividend payout ratio will be closer to 80% of net income as we retain some capital to support core growth and preserve strategic optionality. To wrap up my section, let us turn to Slide 8. This slide summarizes our investment highlights. First and foremost, we have very strong market share across the West Coast, with a branch footprint that is nearly impossible to replicate. We also expect to have very strong profitability due to our top-notch deposits and efficient business model despite taking very little credit risk. We are 100% core funded with no wholesale borrowings or brokered deposits, and are highly capitalized with a very liquid balance sheet, with a 70% loan-to-deposit ratio forecast for 2027. We are efficient with our capital and plan to pay out substantial dividends, which would imply a very attractive yield at today's share price. There is also firm alignment between our public and private investors as Ford Financial Fund owns 74% of the company. Finally, we have an experienced management team with a strong operating and M&A track record. Overall, the future prospects of Mechanics Bank are quite bright. I am looking forward to finishing the job with the HomeStreet integration and moving on to the next chapter of growth for our great company. With that, let me turn the call over to our CFO to dig into more detail on our first quarter results. Unknown Speaker: Thank you. Starting on Slide 10, for the first quarter, net interest income declined $3.9 million, or 2.2%, to $179 million compared to $183 million in 2025. Our net interest margin expanded 11 basis points to 3.61%, driven primarily by the reduction in deposit costs and the $640 million runoff of higher-cost legacy HomeStreet CDs. First quarter interest income included $12.7 million of discount accretion on loans acquired in the HomeStreet transaction, and we have approximately $150 million of remaining discount on those loans as of 03/31/2026. Lastly, the earning asset mix shifted modestly during the quarter, reflecting lower cash balances as CDs continue to roll off. Turning to Slide 11. Noninterest income declined $57.5 million, or 73%, to $21 million compared to $78.5 million in the linked quarter. As a reminder, the fourth quarter included a $55.1 billion bargain purchase gain related to the write-up of the DUS intangible asset acquired in the HomeStreet merger. Excluding that item, underlying noninterest income declined $2.4 million quarter over quarter, primarily driven by lower trust fees, lower gain on sale of loans, and reduced OREO income. Turning to Slide 12, noninterest expense increased $900,000, or 0.7%, to $130.4 million compared to $129.5 million in the fourth quarter. Merger-related expenses totaled $4.8 million, up modestly from $3.5 million last quarter, and were primarily comprised of professional services and severance costs. Excluding these one-time merger expenses, noninterest expense declined $400,000 versus the linked quarter. The efficiency ratio increased to 61.6% compared to 46.7% in Q4, reflecting the absence of the prior-quarter bargain purchase gain rather than any deterioration in underlying operating efficiency. Turning to Slide 13. Loan interest income declined $12.9 million, or 6.7%, to $181.2 million, and loan yields declined 9 basis points to 5.25%, driven by slightly lower contractual yields and reduced discount accretion. Multifamily and single-family residential yields declined modestly by 6 and 3 basis points, respectively. The CRE concentration ratio increased to 348% at quarter end. During the quarter, we originated $546 million of loan commitments, predominantly in SFR and other consumer categories, and sold $54 million of loans, primarily DUS, multifamily, and residential real estate. Turning to Slide 14. The commercial real estate portfolio remains well diversified and continues to reflect our longstanding focus on lower-risk multifamily lending. Multifamily represents approximately 70% of the total CRE portfolio, with an average loan size of $3.8 million, an average LTV of 56%, and an average debt coverage ratio of 1.55x. The remainder of the CRE portfolio is broadly distributed across retail, office, industrial, hotel, and mixed-use categories, each with modest exposure and conservative credit characteristics. At the end of the first quarter, our CRE concentration was 348%, which would be 101% when excluding our multifamily portfolio. We also continue to manage down the higher-risk segments of the legacy HomeStreet portfolio. During the last six months, we made progress reducing our HomeStreet syndicated loan exposure, with balances declining from approximately $142 million at 09/30/2025 to about $68 million at 03/31/2026. During the first quarter, we sold roughly $9 million of unpaid principal balance, or $18 million of commitments. On Slide 15, you can see both legacy Mechanics Bank asset quality trends and the impact of the HomeStreet merger. Mechanics Bank has historically maintained excellent credit quality with minimal non-auto charge-offs and a very low level of nonperforming assets. As shown on the slide, the majority of our historical charge-offs were auto-related, and as mentioned earlier, that portfolio is in runoff and continues to outperform expectations. As a reminder, the increase in the non-auto charge-offs in 2025 was due to a charge-off of a legacy HomeStreet acquired loan that had specific reserves established, and the actual charge-off was slightly lower than the original anticipated loss. At March 31, nonperforming assets represented 0.25% of total assets, modestly higher from 0.23% in the fourth quarter. The increase reflects the impact of lower loan balances in total and a slight increase in the non-auto nonperforming assets of $2 million. Loan loss reserves to loans held for investment were 1.13% at quarter end compared to 1.08% in the prior quarter. The increase in the allowance reflects incorporation of qualitative factor adjustments, including a $6.35 million pre-tax provision driven by the heightened economic uncertainty related to geopolitical developments. Turning to Slide 16. Securities interest income increased $3.5 billion, or 7%, to $53.1 million from $49.5 million in the fourth quarter. The increase was driven by higher yields on the portfolio, which increased by 11 basis points to 3.97% as compared to the fourth quarter. The increase in the portfolio's yield was due to the full-quarter impact of the $650 million of securities purchased in 2025 at accretive yields to the portfolio. The overall securities portfolio decreased by $83 million in the first quarter due to paydowns and a $33 million reduction in fair value due to higher interest rates. Turning to Slide 17. Total deposits declined $782 million during the quarter, driven by a $640 million reduction in higher-cost time deposits and a $232 million reduction in noninterest-bearing demand and $137 million in seasonal non-maturity deposit outflows, partially offset by money market growth. This mix shift and balance reduction contributed to a $10.7 million, or 15%, decline in the deposit interest expense compared to the prior quarter. The total cost of deposits improved to 1.28%, down 15 basis points from the prior quarter, driven primarily by the continued runoff of the higher-cost legacy HomeStreet time deposits. Spot cost of deposits at March 31 was 1.21%, reflecting ongoing repricing benefits. Noninterest-bearing deposits represented 36% of total deposits, continuing to support our low-cost funding profile. Turning to capital and liquidity on Slide 19. We remain very well capitalized with a 13.9% CET1 ratio and an 8.7% Tier 1 leverage ratio at March 31. Available liquidity totaled approximately $16.3 billion. Book value per share at quarter end was $12.61 and tangible book value per share was $7.53. During the first quarter, we paid a $0.40 per share dividend on our Class A common stock. As discussed earlier, we expect the $130 million sale of our Fannie Mae Delegated Underwriting and Servicing business to Fifth Third to be approved and closed shortly. Pro forma for that transaction, we expect to have approximately $165 million of excess capital, which we intend to return to shareholders through a special dividend of approximately $0.70 per share in the second quarter, subject to regulatory and Board approval. That concludes our prepared remarks. Operator, please open the line for questions. Operator: We will now open the call for questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. You are muted locally; please remember to unmute your device. Please stand by while we compile the Q&A roster. It is star 1 on your telephone keypad to ask a question. Your first question comes from Woody Lay with KBW. Operator: Please go ahead. Woody Lay: Hey, thanks for taking my questions. I wanted to start on the net interest margin. Based off the spot rate of deposits you gave, I am a little surprised margin would be flat, or relatively flat, next quarter. Could you walk through the puts and takes to the flat margin over the next couple of quarters and the glide path we need to see in order to hit the $275 million to $300 million of net income in 2027? Unknown Speaker: Sure. Good morning, Woody. I will start, and maybe let our CFO comment as well. Yes, the spot cost of deposits is down, and that will provide a bit of a tailwind, but we expect our deposit cost to be not quite at 1.21%, probably a little higher than that for the quarter overall, as we are really through most of our CD repricing. We also have a bit of a day-count issue with the first quarter and February and how we do some of our yields. The 3.61%, especially in February, which is a short month, is a bit elevated. So that gets some of it. We are very liability sensitive. We are going to add a bit more disclosure around that in our next investor deck in the second quarter, but we do have, of our $18 billion of deposits, $10 billion at basically 1 basis point, noninterest-bearing or very low cost. But we do have $7 billion that is at 2.85% today, and so it is a bit of a barbell for the deposit base. Not getting the rate cuts, having a flat forward curve, is a bit of a negative for us, clearly. We do have about $4 billion of floating-rate assets. So there is a $3 billion gap between our rate-sensitive liabilities and our floating-rate assets, and we have been working to narrow that gap. It has come down; it will continue to come down, but that is putting some pressure on the margin during the year, especially as we still have $600 million or so of auto loans at a 6.5% yield. Those are running off to zero. That is putting pressure on the margin. The offset is we have outsourced the expense for that, and as those loans run off, our NIE continues to proportionally run off with that as well. We have $12 million right now that we are paying, and so as those balances run down, the $12 million also comes down. So the offset to the margin impact is going to show up in noninterest expense. Do you want to add anything to that? Unknown Speaker: Yes, I think you covered most of it. A couple of other items I would add: you gave updated guidance on the construction land balances, which is one of our highest-yielding assets, so there is an impact there. In addition, we have seen interest-bearing transaction costs pick up. Part of that is some of the CD runoff from HomeStreet. Strategically, we have been pushing some of that into interest-bearing transaction accounts, and so we expect that to pick up during the second quarter, along with everything else that you discussed already. Woody Lay: Got it. And then maybe with some of the moving pieces, is there a margin range you expect in 2027 in order to achieve the NII run rate you expect? Unknown Speaker: I would say probably 3.7% to 3.8% in 2027 would be my estimate. Obviously, that is still a ways down the road, and things can change, so I hesitate to give too much there. What I do know is we are 100% core funded, and our deposit costs should be pretty stable, especially if we can grow core deposits, which we think we can do. I think our deposit cost should remain pretty stable once we get through the second quarter. We have at least $5 billion of low-yielding legacy Mechanics Bank assets that are a hangover from the COVID era that will continue to amortize, prepay, cash flow, and reprice. We are going to add some disclosure around that as well in the second quarter, but that is going to be a tailwind. That is happening, and that will push our margin higher every year for the next five years. Eventually this would be a bank that is north of a 4% NIM, and there are levers we can pull to accelerate that. We are going to be continuing to generate excess capital as we are a little smaller, and we have low-yielding loans and low-yielding securities. We may consider a restructure on some of that. It would be small. Eventually, we are going to sell these auto loans. I do not know when that will be, but it is going to be back half of this year, early next year. We are still trying to determine the ideal timing of it, and we may take a modest loss when that occurs, but it will be a pickup to earnings for sure, because that line is losing us money at the moment as we continue our runoff. So there are a lot of levers we can pull, and the underlying earnings power of this bank is very strong, thanks to our rate deposits, and we have not embedded any of that kind of stuff in our guidance. Woody Lay: Maybe just shifting to the balance sheet real quick. As you noted, some of the deposit runoff is coming a little bit more than expected, and I think you said there is another $150 million of planned CDs from HomeStreet that is coming off next quarter. Once we get through that tranche, how are you thinking about the size of the balance sheet? Should it remain pretty stable off those levels, or just given the sale of the auto—potential sale of the auto—portfolio, could we see some additional shrinkage in the back half of the year? Unknown Speaker: Once we get through any remaining CD reductions in the second quarter—and again, the first quarter is also the seasonal low for deposits with us; every first quarter that is the case—expect core deposit growth. We think we should grow 2% to 4% a year in line with our economies, and we have a ton of focus at the bank on growing core deposits. The non-core stuff is basically all out. If we sell auto loans, we will get the proceeds and reinvest somewhere else, so that will not change the size of the balance sheet. I view this as very close to the low. We should be growing; we are budgeting to grow. We have momentum on deposit pipelines and things like that, so I would not expect much, if any, more balance sheet shrinkage—maybe a bit in the second quarter, but that should be the near-term low. Woody Lay: Got it. And then maybe just last for me. You all noted in your opening remarks an 80% payout ratio in 2027 that provides some capital to be strategic with. You noted you could look at restructures, but I was also interested in your thoughts on additional M&A from here, especially once we get past the official core conversion. Unknown Speaker: Good morning, Woody. I think that you have to look at our past to somewhat predict our future. We have always been extremely acquisitive. We are always looking at situational opportunities. Obviously, the opportunities have to be within our footprint. We are not looking to really expand our West Coast footprint, and we do not want to do an M&A transaction simply to get bigger. It has to make us better. And I think the overlay to that is making us better with an M&A transaction gets harder and harder and harder. You heard the 1.28% deposit cost for the quarter and the 1.21% spot rate. We protect these deposits judiciously. I am not talking about our time deposits—the story there is we have run those down intentionally—but it really gets harder and harder to move the needle. I am not saying that we have to buy another bank or acquire another opportunity that has a like deposit cost, but we think the value of a bank—the franchise value of a bank—is demonstrated predominantly by its liability structure and its deposit cost, and so we have to take that into consideration. Frankly, there just are not a lot of banks out there. We are always looking. There are a scant few opportunities that we constantly monitor. Something in our favor is we are trading at a pretty good multiple. All I can say is we are keen to the opportunity set; we are always looking. Being extremely transparent, there is nothing right now on the front burner, and that is simply because there is nothing more important for our bandwidth today than getting this integration right. We only acquired HomeStreet, which significantly increased our size and our footprint, eight months ago, and we are now in the midst of getting our cost out and we spoke to the conversion. Those are the very important things that we have to get done and get right first, and we are getting in the later innings of doing that. Then we will certainly see what is out there. Woody Lay: Awesome. I appreciate you taking my questions and all the color you provided. Unknown Speaker: Of course. Thanks for the questions, Woody. Operator: A reminder, if you would like to ask a question, please press star 1 on your keypad. Your next question is from Dave Rochester with Cantor. Please go ahead. Dave Rochester: Hey, good morning, guys. Unknown Speaker: Good morning, Dave. Dave Rochester: Back on your comments on growth in core deposits, it sounds like you feel pretty good about doing that through the end of this year. I was curious, just given the headwinds in auto and construction, if you think you could still grow the loan book this year. And then I am trying to triangulate into an NII trend with a stable NIM. It sounds like you are still expecting NII to grow through the end of this year as well with—whether it is loan growth or securities growth—through the end of the year, just given that you are growing core deposits. I wanted to get your thoughts on that. Unknown Speaker: From a loan growth standpoint, we expect to grow our consumer loans. We had modest growth in single family; we expect that to pick up throughout the year. Mortgages and HELOCs—we have seen good demand and growth. We are also lending against the cash surrender value of whole-life policies through our partner, Incline. That is growing rapidly. We are now at, I think, $670 million of drawn balances. We expect that over the course of the year to get to $1 billion drawn and really like that business from a risk-adjusted return standpoint, especially given its short duration and a good counter to some of that gap I talked about earlier between our rate-sensitive deposits and our floating-rate assets. So the consumer should grow. We have talked before about our construction balances—we expect those to decrease around $300 million. The homebuilder team that came over from HomeStreet does a great job; they really are a strong team, but that business was thinly priced in some areas, and we are getting it deliberately a little bit smaller. So that will be a bit of a headwind through the year, but we are de-risking. Not doing construction lending can obviously go great for a while, then it can go the other way very quickly, so I think that is prudent. On commercial real estate, we are originating loans, but the plan is still to get that below 300%. I would model us over the next couple of years getting below 300%, so there will be a modest decrease in outstanding multifamily CRE. C&I should be—deliberately we sold some of the syndicated loans that HomeStreet had; that is part of the balance reduction there. That should be close to a nadir and should be starting to grow again. Unknown Speaker: I would add one other comment, and that is the market is extremely—everyone says the same thing, and we have been monitoring earnings releases, and some have had modest loan growth—but I would say the competitive landscape on both term and pricing is as thin and as tight as I have ever seen it. We are tough on credit, and I think that would be an opinion shared by a lot of our lenders that are out in the market today. We are seeing some things out there that may trend to this thing just getting really, really competitive to the extent that it is probably not all that healthy, particularly as it relates to term, which I equate to underwriting. Credit spreads are extremely tight. In my way of thinking, this is not the time to necessarily be pressing the accelerator too hard for loan growth, and with the overlay of our CRE concentration, we have to be very mindful of that. Dave Rochester: Appreciate that. Are you, at this point, still expecting NII growth from the first quarter through the end of the year, or is it more stable along with the margin? Unknown Speaker: It should be pretty stable, I would say, for a couple of quarters, and then start to pick up. The balance sheet is going to be getting a little bit smaller in the second quarter and then should start to grow, but the growth will be modest. I would guide to stable NII and then picking up, I think, pretty materially in 2027. Dave Rochester: You mentioned the upside in the margin as you get into the early part of 2027. Where are you seeing that roll-on, roll-off differential in the earning asset buckets you have at this point? Unknown Speaker: We have a lot of lower-yielding mortgages. Our legacy Mechanics Bank single-family is probably a low 4% coupon. A fair amount of that is starting to prepay and amortize, coming back on the books at, call it, 6%. Multifamily—we have $2.4 billion or something north of $2 billion of multifamily loans that yield low 4% in aggregate. That business today is closer also to 5.75% to 6%. That entire book will reprice—it is all adjustable, five, seven, ten; it was mostly originated in 2021 and 2022. By 2032, it will all have reset to market rates closer to 6%. So there are a lot of tailwinds there. We also have an HTM portfolio that is a drag. It is $1.3 billion today, yielding 1.61%, and $100 million of that amortizes a year. Slower, longer duration, but over time, it will continue to be a tailwind. There is a lot of upside to the bank over time; as time passes, we will have a natural tailwind just from that occurring. This year will be a bit more flat, though, given the flat curve—no Fed cuts—and the final drag of auto. We will make up for some of that in our pretty substantial expense reductions that are coming here in the second and third quarters. Dave Rochester: It looks like between now and the fourth quarter, you are looking at at least a $10 million reduction on a quarterly run-rate basis on expenses, right? How much of that are you expecting to get in 2Q? Unknown Speaker: We are at $474 million, excluding CDI annualized, in the first quarter. We expect to get to $430 million by the fourth quarter. That is $44 million annual—over $10 million a quarter. In the second quarter, we should see—a lot. I do not know the exact number, but there is going to be a significant amount of cost reductions coming off, and that will persist into the third quarter. By the fourth, we will be there. Dave Rochester: Good, that will be good. Switching to the fee side for a minute on the trust business: you were opening an office in Delaware. I think it was this quarter. Is that up and running? If you could just remind us what that does for you and what other expansion you are planning in that business going forward, that would be great. Unknown Speaker: We got a little bit delayed. It is now expected to open in May. We are almost there on the Delaware trust business. We have some demand waiting for us to open that. That is a major step for our wealth group, so that is exciting, but it has been delayed a quarter. Overall, our buildout of the team is complete. We have a great team; a number of folks came over from First Republic after that bank failed right in our backyard. We have been laying the groundwork. We have been very busy with the integration and the merger, and we picked up some private bankers and other new clients from HomeStreet on the deposit side through it, and I think there is opportunity on the trust and wealth side to continue to grow. I am optimistic that that business will continue to grow and be a very accretive business line for us, but the trust business did take longer than we thought. We are at the finish line. Dave Rochester: Maybe just one last one on capital. You mentioned the big payout next quarter—I think it was $165 million of excess that you are looking at. Does that get you down to your target 8.25% Tier 1 leverage, or do you keep a little bit of extra there for flexibility going forward? How are you thinking about that? Unknown Speaker: The way we have been managing capital is 8.25%, but one quarter in arrears, so it is more effectively like 8.5% to 8.6% leverage. This quarter, we are at 8.7%. To your comment, we are going to have excess—my rough math is maybe $35 million this quarter—that we are not paying out. Our dividend is going to be close to $160 million to $162 million this quarter, but there is still some that we are holding back, and we will think about how best to use that. That will persist as we go into the third quarter due to the lag on leveraged assets as the bank gets a bit smaller. Leveraged assets take a quarter to catch up fully, and so we will have some excess capital. The other thing I will point out is there is a lot of CDI amortization that does not show up in GAAP earnings, but it does compound in capital generation for the bank. That is another source of excess capital that we create above and beyond the actual GAAP net income. Dave Rochester: Alright, great. Thanks, appreciate it. Unknown Speaker: Thanks, Dave. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Westwood Holdings Group, Inc. earnings call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you need to press 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, 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 03/31/2026 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, a 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 Holdings Group, Inc.'s first quarter 2026 earnings call. I am 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 2 closed at over $300 million, and West 3 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 will start with a brief overview of our assets under management. Firmwide AUM increased from $17.4 billion at 12/31/2025 to $18.3 billion at 03/31/2026. 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 small-cap and mid-cap stocks posted modestly positive returns. The standout story was energy; S&P 500 energy stocks gained more than 38% over the three-month period. Market leadership continued to broaden out from mega-cap technology toward 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 SMID Cap strategy continues to be a standout, ranking in the top quartile of both its eVestment and Morningstar peer groups over the trailing three years—a consistent and well-earned result. On a ten-year basis, our Large Cap 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 three- and five-year periods—a strong and consistent performance. Our Income Opportunity strategy ranks in the top third of Morningstar peers over the trailing three-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 third of its eVestment master limited partnership peer group over the trailing three years and is performing well relative to the Alerian MLP Index on a net-of-fee basis. MDST 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 have been building. Our pipeline remains robust across both value and energy strategy, with many new opportunities added during the quarter. We are also initiating SMID Cap due diligence with two of the largest national consultants, which reflects the attraction of SMID Cap’s quality and competitiveness. We expect to see continued momentum in SMID Cap 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. MDST gained approval from its first major warehouse, a very important distribution milestone, and it continues to receive approvals for 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. Finally, momentum from our West 2 capital raise is underpinning West 3 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 teams. 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 would like to highlight significant events and milestones achieved during the quarter. Our Enhanced Income Series ETFs achieved an important milestone as MDST, 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 two years. Together with WEEI and YLDW, our three 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, and is approaching $25 million in assets. MDST continues to maintain an annualized distribution rate of approximately 10%, consistent with its income generation objective, and its recent warehouse approval is a truly meaningful step, 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 2 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 two flagship funds and three 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 3 and its related co-investment fund, which we expect to market through early 2027, and it is 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 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 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 are proud of the team that has delivered consistent results for our clients over such a long investment horizon. Finally, on 04/01/2026, Westwood Holdings Group, Inc. 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 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 Holdings Group, Inc. 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 Holdings Group, Inc. I will now turn the call over to our CFO, Terry Forbes, for the financial results. 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 was $800,000, 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 $800,000, or $0.09 per share, compared favorably to last year's first quarter income of $500,000 due to 2026's higher revenues and gains from our investment in a 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 $900 million. 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 $800 million, 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 am happy to announce that our board of directors approved a regular cash dividend of $0.15 per common share, payable on 07/01/2026, to stockholders of record on 06/01/2026. 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 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 will open the line to questions. Operator: We will now open the call for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the Q&A roster. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. 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 had on the agenda. Just in closing, our SMID Cap performance has remained strong, and our pipeline of opportunities has grown over a billion dollars. Our managed investment solutions pipeline is improving every week, and we are optimistic that we will land our next institutional client in the coming months. We continue to build out our private capital, and we are anxious to kick off fundraising for our next fund. Finally, our ETF platform is seeing strong demand with higher trading volumes and growing AUM, and we are excited to see MDIF and MDST go fully live tomorrow across one of the major wires. That should be exciting. Thanks so much for your time. We appreciate it. Visit westwoodgroup.com or call Terry or me 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 thank you for standing by. Welcome to the Q1 2026 Pacira BioSciences, Inc. Earnings Conference Call. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Susan Mesco, Head of Investor Relations. Please go ahead. Susan Mesco: Thank you. Good afternoon, everyone. Welcome to today's conference call to discuss our first quarter 2026 financial results. Joining me are Frank Lee, Chief Executive Officer; Brendan P. Teehan, Chief Commercial Officer; and Shawn M. Cross, Chief Financial Officer. Kristin Williams, Chief Administrative Officer and Secretary; Tony Malloy, Chief Legal Officer; and Jonathan Slonin, Chief Medical Officer are also here for today's question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements subject to the safe harbor provisions of federal securities laws. Such statements represent our judgment as of today and may involve risks and uncertainties that could cause our actual results, performance, or achievements to differ materially. For information concerning risk factors that could affect the company, please refer to our filings with the SEC or the Pacira BioSciences, Inc. website. Lastly, as a reminder, we will be discussing non-GAAP financial measures on today's call. A description of these metrics, along with our reconciliation to GAAP, can be found in the news release issued this afternoon. With that, I will now turn the call over to Frank Lee. Thank you. Frank Lee: Good afternoon to everyone joining today's call. Just over a year ago, we introduced our Five by 30 strategy. This plan was designed to accelerate performance and position the company for sustainable growth and shareholder value creation. To remind you, Five by 30 was built to deliver measurable progress around five key goals: patients served, product revenue, profitability, pipeline, and partnerships. Collectively, we believe advancing these five goals will drive shareholder value into and well beyond 2030. Let me start by saying that I am pleased with our first quarter results and I would like to recognize our team for their remarkable efforts. Our solid first quarter results reinforce our confidence that Five by 30 is delivering its intended business results. We are on the right strategic path. One year into execution, our progress across all five goals is clear. This is reflected in our commercial performance, financial results, and pipeline advancements. I will start with our flagship product, EXPAREL. Since our founding, EXPAREL has been the cornerstone of Pacira BioSciences, Inc.’s leadership in opioid-sparing innovation for postsurgical pain. Thanks to the dedicated efforts of our team, EXPAREL is demonstrating renewed growth more than a decade after its initial launch. This is a rarity in the pharmaceutical industry and a clear testament to the strength of our commercial, medical, and market access organizations. The accelerating volume growth we delivered in 2025 has continued into 2026. This momentum reflects a combination of fundamental improvements that are strengthening the long-term durability of our franchise, including expanding coverage outside the surgical bundle for Medicare patients following implementation of the NOPAIN Act in 2025; a new product-specific J-code enabling streamlined billing and reimbursement; growing commercial payer coverage outside the surgical bundle, which Brendan will discuss in more detail shortly; increased awareness and adoption of non-opioid stewardship programs, as evidenced by encouraging market research results; and enhanced intellectual property protection providing greater long-term visibility for the franchise. We now have 21 Orange Book-listed patents across two families protecting EXPAREL from generic challengers. This is a dramatic evolution from the single patent previously litigated and supported a favorable volume-limited settlement in 2025. This multiyear EXPAREL patent infringement litigation began in 2021 and extended through 2024. In addition to EXPAREL’s leadership in postsurgical pain control, our ZILRETTA and ioverao positions in early interventional pain management are expanding. For ZILRETTA, the year is off to a strong start, with a 15% year-over-year increase in sales. We believe the growth initiatives we put in place last year are beginning to deliver results. These include our dedicated ZILRETTA sales force, expanded patient access programs, and extended promotional reach through our Johnson & Johnson MedTech collaboration. From a lifecycle management perspective, we are pleased to report enrollment has concluded for a Phase 3 registrational study in shoulder OA. Top-line results are on track for later this year. The unmet need for shoulder OA is significant. There are approximately 1 million injections for shoulder OA administered annually in the U.S. despite the absence of FDA-approved products. If this Phase 3 trial meets its objectives, ZILRETTA could become the first product with a labeled indication for shoulder OA. ioverao also had a strong start to 2026, with first quarter sales increasing 21% over 2025, as we are starting to see the benefits from last year's rollout of a product-specific reimbursement code and a dedicated sales force staffed with experienced medical device account managers. From a lifecycle management perspective, our registrational study in spasticity is on track, with top-line results expected by year-end. Here, the unmet need remains high with 6.3 million patients with spasticity seeking treatment each year in the U.S. Together, we believe our strong commercial performance and advancing lifecycle management will support durable top-line growth. Importantly, this momentum further strengthens our leadership in postsurgical pain control and early-intervention OA pain management. In tandem with the momentum across our commercial portfolio, through our Five by 30 strategy, we are now advancing an innovative clinical-stage pipeline. Here, we are prioritizing mechanistically de-risked assets with the potential to drive shareholder value well beyond 2030. In addition to clinical data readouts for our commercial products, our clinical-stage assets are entering a catalyst-rich period. Key upcoming milestones include PCRX201, our locally administered gene therapy for knee OA, which remains on track for top-line data later this year. With approximately 15 million people in the U.S. affected by knee OA and limited durable treatment options, the unmet need remains high. I will talk in greater detail about PCRX201 shortly. PCRX2002, our novel hydrogel formulation of the non-opioid analgesic ropivacaine for postsurgical pain, was designed to deliver rapid-onset and long-acting analgesia from a single application at the time of surgery. We expect to begin Phase 2 development later this year. This asset has the potential to complement EXPAREL as an easy-to-use, longer-acting therapy with patent protection extending to 2042. Additionally, our gene therapy platform continues to generate promising preclinical candidates to advance our Five by 30 pipeline goal. These include PCRX1003 for degenerative disc disease, PCRX1002 for dry eye disease, and PCRX1001 for can90A, which we believe has significant out-licensing potential. Let me briefly highlight PCRX201, our lead HCAG program, which represents a potential paradigm shift in the treatment of knee OA. Building on the encouraging durability we observed in our Phase 1 study, our two-part Phase 2 ASCEND study is on track. Part A is fully enrolled with 49 patients, and as previously mentioned, we will have top-line results from this 52-week study later this year. Like most Phase 2 studies, ASCEND is not powered for efficacy. The primary objective is safety, but we will also be looking for efficacy trends. Key secondary endpoints include changes in pain and function from baseline, as measured by numerical rating scale, WOMAC, and CUSS scores. In parallel, we are advancing a commercially viable manufacturing process for PCRX201. This work is critical to enabling the initiation of Part B around midyear. We expect Part B to enroll roughly 90 additional patients across three arms: two different doses of PCRX201 and an active steroid comparator. While it is premature to quantify the commercial opportunity, we believe PCRX201 has three key attributes that underscore its market potential. First is durability. We believe that demonstrating a treatment effect lasting one year would represent a transformational advance in knee OA. This would be significantly longer than currently available OA treatments, which generally provide durability of approximately three to six months. Second is cost of goods. PCRX201 is locally delivered. This differs from systemic approaches requiring much higher dosing to achieve the desired effect. Lower dose levels, coupled with efficient manufacturing, support a favorable and commercially viable cost-of-goods profile. This is an important consideration for any therapy intended for chronic high-prevalence conditions like osteoarthritis. Third is health economic value. If the durability we are targeting is borne out clinically, we believe PCRX201 could offer attractive value to the health care system. As a reminder, PCRX201 is an IL-1 receptor antagonist. IL-1 is a well-validated, de-risked target for reducing inflammation. There are currently two FDA-approved drugs that block the IL-1 pathway in other inflammatory joint conditions. Neither one is practical for early OA intervention because their short half-life would require very high systemic doses or daily knee injections. PCRX201 is complementary to ZILRETTA and ioverao and could expand our leadership in early-intervention OA pain management. Briefly turning to partnerships, which remain a key pillar of our Five by 30 strategy, we are taking a disciplined, targeted approach to business development. We are prioritizing strategically aligned assets that are financially accretive and leverage our commercial infrastructure. In parallel, we are utilizing strategic partnerships to access new sources of revenue by expanding our commercial reach into untapped U.S. and international markets. Our strategic collaboration with market leaders Johnson & Johnson MedTech and LG Chem are both excellent examples of our strategy in motion. These partnerships advance our goal of five partnerships by 2030 and efficiently expand our commercial coverage and geographic reach. In summary, we are pleased with our first quarter results and the momentum behind our Five by 30 strategy. With clear progress across every Five by 30 goal, we remain confident we will deliver stable growth and value creation into and well beyond 2030. With that, I would like to turn the call over to Brendan to share more details on our first quarter commercial performance. Brendan? Brendan P. Teehan: Thank you, Frank, and good afternoon to all joining us today. I am pleased to report that the upward momentum we observed in the second half of 2025 has continued into 2026. Our commercial execution is on point, demand trends are strong across the complete portfolio, and we are delivering top-line growth consistent with what we previewed in February. I will start with our flagship product, EXPAREL, where we are outperforming last year's first quarter volume growth and continuing to expand patient and provider access. We continue to see excellent momentum in hospital outpatient and ASC settings, where an increasing number of EXPAREL-assisted procedures are taking place and where our customers are seeing favorable reimbursement. Our focus, beyond sharing excellent clinical outcomes, is demonstrating the enhanced economic value of EXPAREL. To support this, we recently presented data from real-world studies highlighting EXPAREL's compelling value proposition, along with several health economics and outcomes studies at key congresses that include the Orthopedic Research Society, the American Academy of Orthopaedic Surgeons, and the Academy of Managed Care Pharmacy. These real-world data demonstrate both the clinical and economic value EXPAREL delivers. We look forward to reporting additional data readouts as the year progresses. Our initiatives include the comprehensive real-world IGORD registry, which now has more than 3,500 OA patients enrolled and is providing valuable information for EXPAREL, ZILRETTA, ioverao, as well as other treatments. These data are helping guide best practices for knee OA patients across their treatment journey. Importantly, commercial payers continue to recognize the EXPAREL value proposition and implement NOPAIN-like policies that reimburse outside the surgical bundle. We have now surpassed 110 million covered lives with reimbursement outside of the bundle for EXPAREL. With a growing critical mass of coverage, we expect accelerating change in the market throughout the remainder of the year. In short, we are extremely encouraged by the progress made in the first quarter. Building on the momentum from 2025, demand is being driven by a powerful combination of expanding reimbursement, growing protocol adoption, and compelling real-world evidence, all supporting each other and growing our business. With a strong finish to 2025 and a solid start to 2026, EXPAREL continues to gain share as institutions commit to best-practice opioid-sparing care. We remain confident in our ability to deliver durable, sustainable growth for EXPAREL as access widens and best practices evolve. Turning to ZILRETTA and ioverao, both products are off to a strong start to 2026, as valuable commercial investments we made last year begin to bear fruit. As you know, last year we rolled out a dedicated Pacira BioSciences, Inc. sales force for ZILRETTA to ensure a focused promotional impact. In addition, we essentially tripled our U.S. commercial reach for ZILRETTA through a strategic collaboration with Johnson & Johnson MedTech. For ioverao, we are benefiting similarly from a dedicated sales force onboarded last year. Looking ahead, we believe both ZILRETTA and ioverao have significant upside potential to become more meaningful sources of revenue. In summary, we are pleased with the strong start to 2026 across our three commercial products, and we believe we are well positioned to deliver a successful year of sustainable top-line growth. With that, I will turn the call over to Shawn for his financial review. Shawn M. Cross: Thank you, Brendan. I will start with an update on sales and margin trends. First quarter EXPAREL net sales increased to $143.3 million versus $136.5 million in 2025. Volume growth of approximately 7% was partially offset by a shift in vial mix and discounting from our third GPO going live last year. In addition, first quarter sales were also impacted by winter storms disrupting shipping and triggering returns. As we move forward in 2026, we expect the delta between volume and revenue growth for the second quarter to be similar to 2025 and then narrow as we anniversary our third GPO agreement midyear. For ZILRETTA, first quarter sales improved by 15% to $26.8 million versus the $23.3 million we reported in 2025. As Brendan mentioned, this was largely attributable to the growth initiatives implemented last year, including our dedicated ZILRETTA sales force. For ioverao, sales increased 21% to $6.2 million compared to $5.1 million in 2025. Again, as Brendan mentioned earlier, this was largely attributable to the growth initiatives implemented last year, including our dedicated ioverao sales force. Turning to gross margins, on a consolidated basis, our first quarter non-GAAP gross margin was 80% versus 81% for last year. Gross margins continue to benefit from the improved costs and efficiencies of our enhanced larger-scale EXPAREL manufacturing process and continuous improvement initiatives at both of our manufacturing facilities. Non-GAAP R&D expense for the first quarter increased to $25.4 million from $23.1 million reported last year. This increase relates to our advancing Phase 2 study of PCRX201 as well as our label expansion studies, all of which have anticipated top-line readouts later this year. In addition, we are supporting three promising HCAG-based preclinical programs. Non-GAAP SG&A expense came in at $83.9 million for the first quarter versus $76.2 million last year. You may recall that last year's SG&A expense was positively impacted by a favorable outcome to litigation and subsequent recovery of $5.2 million in legal fees. Taking this into account, we are largely in line with last year. As we discussed last quarter, we are now leveraging our existing commercial infrastructure, which is well equipped to support top-line growth. All this resulted in another quarter of significant adjusted EBITDA of approximately $40.2 million for the first quarter. As for the balance sheet, we continue to be in a position of strength and ended the quarter with $[inaudible] in cash and investments. With a strong balance sheet and a business that is producing significant operating cash flow, we believe we are well equipped to advance our Five by 30 growth strategy and create shareholder value. With respect to capital deployment, we will continue to maintain a disciplined and strategic approach focusing on three key areas. First, driving top-line growth by leveraging our existing commercial infrastructure. Second, advancing an innovative pipeline and becoming a leader in musculoskeletal pain and adjacencies. We are prioritizing accretive in-market assets to leverage our established commercial footprint and de-risked clinical-stage programs. Third, opportunistically returning capital to shareholders. During the first quarter, we executed another $50 million in share repurchases. As a result, we retired approximately 2.2 million shares of common stock. Since last year's start of the plan, we have decreased our share count by a total of approximately 9 million shares and reduced our outstanding common shares to 39.3 million. As of March 31, we had $100 million remaining under our share buyback authorization, which runs through the end of this year. Going forward, we remain committed to maintaining favorable operating margins while advancing our Five by 30 strategy. This brings us to our full-year financial guidance for 2026, which we are reiterating today as follows: total revenues of $745 million to $770 million; for EXPAREL, net product sales of $600 million to $620 million. With respect to quarterly trends, we anticipate the remainder of 2026 will largely follow historical patterns. For ZILRETTA and ioverao, our guidance assumes 2026 will be largely in line with 2025. While we are encouraged by both products' start to the year, we will wait to gain more visibility before updating our assumptions. The final component of our 2026 revenue guidance relates to $7 million in expected revenue from our licensing agreement for the veterinary market. Non-GAAP gross margins of 77% to 79%. With respect to quarterly cadence, we expect the next two quarters to continue to benefit from the sale of lower-cost EXPAREL inventory; for the fourth quarter, we expect margins to be slightly below our full-year guidance range due to the sale of higher-cost inventory as well as shutdown-related costs and other expenses. Non-GAAP R&D expense of $105 million to $115 million. As we prepare to initiate Part B of our Phase 2 ASCEND study of PCRX201 and certain EXPAREL and ZILRETTA product development efforts, we expect an uptick in R&D expense during the second quarter followed by a slight decline in quarterly spend in the back half of the year. Non-GAAP SG&A expense of $320 million to $340 million. With respect to the timing of SG&A spending, we expect the first half of the year to be higher than the second half as a result of proxy-related activities. Stock-based compensation of $54 million to $62 million. Lastly, for those modeling adjusted EBITDA, we expect our 2026 depreciation expense to be approximately $30 million. With that, I will turn the call back over to Frank. Frank Lee: Thank you, Shawn. In closing, 2026 is off to a strong start. Pacira BioSciences, Inc. is operating with momentum, clarity, and discipline. Our Five by 30 strategy is driving strong execution and reinforcing our leadership in postsurgical pain and early-intervention OA pain management. We look forward to building on this momentum and positioning the company for sustainable growth and value creation through and beyond 2030. Thank you again for joining us today and for your continued support and confidence in our mission. We will now open the call for questions. Operator? Operator: To withdraw your question, please press 11 again. Our first question will come from the line of Douglas Tsao of H.C. Wainwright. Your line is open, Douglas. Douglas Tsao: Hi, good afternoon. Thanks for taking the questions. I have two questions. Maybe, Shawn, just as a starting point, if you could help us walk through a little bit about the cadence for R&D spend through the rest of the year. Just to confirm, it sounds like we are going to have a step up in 2Q followed by then sort of a step down in the third quarter, just as we see 201 ramp up. Should we think then more spend in 2027? Thank you. Frank Lee: Hey, Doug. Frank here. Thanks for the question. Let me turn it over to Shawn, and he can walk us through that a little bit here. Shawn M. Cross: Thanks, Frank, and thanks for the question, Doug. Happy to provide a bit more detail on the R&D cadence this year. As mentioned in our remarks a few minutes ago, we are preparing for initiation of Part B of the ASCEND study for PCRX201, which we are excited about, and certain EXPAREL product development efforts. From the $25.4 million in Q1 that we spent, we do expect an uptick in Q2. To provide a little more detail, we expect it to be in the low $30 million range, and then we will come back down closer to the Q1 levels in Q3 and Q4. That is how we see it playing out, and we will obviously provide more updates as we get through the year. Douglas Tsao: Okay. Great. That is very helpful with that specificity. And then just at a macro level, one thing that I have been curious about is the expiration of the Obamacare subsidies, and we have started to see some decline in terms of enrollments. I think if we look at results for some of the medtech companies in the first quarter and even some of the hospital names, it has not shown anything dramatic. But I am just curious what you are hearing from the hospital channel in terms of how they are thinking about the rest of the year playing out? Thank you. Frank Lee: Thanks, Doug. We stay close to this. Let me turn this one over to Brendan to give his perspective. Brendan P. Teehan: Doug, thanks so much for the question. Obviously, we are always looking at the broader macro environment, and I am sure people are taking a look at what those changes will mean to them individually. We will keep a close eye on those procedures where EXPAREL is favored, and we will continue to provide updates as we see it play out. I think it is just too early to say. Douglas Tsao: Okay. Great. Thank you very much, and I will jump out for now. Operator: Our next question will be coming from the line of Dennis Ding of Jefferies. Your line is open, Dennis. Analyst: Hi. This is Cynthia on for Dennis. Thanks for taking our question. Earlier this week, we saw data from a cell-free regenerative therapy for knee OA with a headline efficacy of 93% of patients demonstrating clinically meaningful improvements in mobility and pain reduction. There is not a lot of information on that trial, so I am curious how you are framing that data and how 201 will differentiate from that product. And then any additional color on what promising efficacy trends would look like for PCRX201's readout would be helpful as well. Thank you. Frank Lee: Thanks for the question. I did not get the name of the company you mentioned. What was that? Analyst: I think Creative Medical Technology. Frank Lee: Okay. There are a lot of different cell and regenerative therapy companies out there, with various studies of differing rigor. Let me turn it over to Jonathan to see if he has any perspective on that. Jonathan Slonin: Thanks, Frank. Not commenting on any specific company, we are confident that the HCAG platform is the right modality for sustained relief of knee osteoarthritis. We have made tremendous progress in scaling up and are finalizing our commercial-scale manufacturing for Part B, as we have articulated before. Our anticipated enrollment is right on time. To answer your second question, we are expecting the top-line data from Part A to read out at the end of the year. Just to remind you, the primary endpoint is safety, and we will be looking at the totality of the data to understand how PCRX201 performs in a randomized controlled trial with an active comparator. We will also be looking at the secondary endpoints around efficacy, including pain and function measures. We will review those data and assess where we are, but the trends we are looking for are trends consistent with durability and efficacy from our Phase 1 trial. Analyst: Okay. Thank you. Operator: Thank you. And our next question will be coming from Truist Securities. Your line is open. Analyst: Hey. This is Jeevan on for Les. Thanks for taking our questions. How would you characterize elective procedure trends exiting March? Any lasting impact from the winter storms? And then, separately, how should we think about potential upside from ex-U.S. partnerships across the portfolio? Thank you. Frank Lee: Thanks for the question. I will ask Brendan to comment on what we are seeing now. He mentioned it a little earlier. Then I will comment on ex-U.S. partnerships. Brendan? Brendan P. Teehan: Jeevan, thank you for the question. If we look at the moving annual total for procedures where EXPAREL would assist, that is largely flat year-over-year, despite EXPAREL being up over 7%. If we look specifically at the first quarter, market procedures are up in the mid-single digits, I would say 4% to 5%, as opposed to EXPAREL, if that gives you some sense. We will look to see how that progresses here in the second quarter. Frank Lee: On ex-U.S. partnerships, this is an important part of our Five by 30 strategy in terms of signing five partnerships both in the U.S. and ex-U.S. As you know, ex-U.S. we have signed a partnership with LG Chem. They are a leading company in Asia-Pacific, and we have plans to sign similar partnerships in other major geographies. It is premature to provide guidance on these partnerships and top-line impact, but I would say it is not insignificant. These will be important partnerships that will drive revenue not only through 2030, but well beyond 2030. The first partnership’s intention is to file in the not-too-distant future, and we will be updating you on guidance around that starting in 2027. Operator: Our next question will be coming from the line of Serge Belanger of Needham. Your line is open. Serge Belanger: Hi. Good afternoon. Thanks for taking the questions. The first one is a follow-up to the previous question around the impact of winter storms. I think you were expecting a potential softer 1Q because of those storms. It looks like all three of your products had some pretty solid year-over-year growth. Did you see any impact, or were you able to recapture it over the remainder of the quarter? And then my second question regarding NOPAIN: if I remember correctly, the NOPAIN Act has a three-year term ending in 2027. Is there any legislation in development to extend or modify that term? Thanks. Frank Lee: Thanks for your questions, Serge. Regarding the winter storms, we can provide a bit more color. I will turn to Brendan for that, and then I will speak to NOPAIN. Brendan P. Teehan: Thank you, Serge. The winter storms did have an impact. They affected both the ability to ship and, as you would expect in those geographies, the surgeries did not happen, which led to rescheduling not necessarily within the quarter. There is some carryover as patients look to be rescheduled for those procedures. Despite that, we are very pleased with the performance of EXPAREL volume vis-à-vis the total available market. We believe we are past that and are looking forward to the second quarter. Frank Lee: And Serge, with regard to your question about NOPAIN, initially it is scheduled to expire in 2027. We have been staying very close to CMS and other stakeholders. We are very encouraged by not only the uptake of NOPAIN, but also the expansion of coverage to commercial lives. As Brendan mentioned earlier, we now have a total of 110 million covered lives outside the bundle, and growing. As you know, NOPAIN primarily covers Medicare lives. We are encouraged by the discussions we have had and the uptake we are seeing. We will confirm a lot of what we are seeing through claims analysis. NOPAIN is doing what it is intended to do, and commercial payers are also coming on board, which is highly encouraging. Operator: Thank you. And our next question will be coming from the line of Hardik Parikh of JPMorgan. Your line is open. Hardik Parikh: Hey, everybody. Thanks for taking my question. I just want to ask about SG&A. I think I heard you say you expect SG&A to be lower in the second half. Can you talk to the magnitude of the step down you are expecting in the second half? And then, SG&A seems to have been elevated the past five quarters relative to 2024. I am trying to get a sense of what the normalized run rate is going forward. Frank Lee: Thanks for that, Hardik. Let me turn it to Shawn. Shawn M. Cross: Thanks for the question. We reported $83.9 million in SG&A this quarter. Without providing super specific detail, you can look at the information we filed in our proxy this week that provides some magnitude of what we anticipate spending during the proxy season that would be above the typical course of events. We anticipate coming back down in Q3 and Q4 to perhaps a little bit below where we spent in this quarter. That is generally directionally correct for the second-half step down and normalized run rate. Operator: I would now like to turn the conference back to Susan for closing remarks. Susan Mesco: Thank you, operator, and thanks to all on the call for your questions and time today. We are excited about the opportunities ahead and remain focused on executing our Five by 30 growth strategy with discipline and purpose. As we look to the remainder of 2026, we are confident in our ability to build on our momentum and position Pacira BioSciences, Inc. for long-term success. Thank you again for your continued support. Good night. Operator: This concludes today's program. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Internet Bancorp Earnings Conference Call for the First Quarter 2026. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to turn the call over to Julia Ferrara from ICR. You may begin your conference. Julia Ferrara: Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's first quarter 2026 financial results. The company issued its earnings press release earlier this afternoon, and it is available on the company's website at www.firstinternetbancorp.com. In addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website. Joining us from the management team today are Chairman and CEO, David Becker; President and COO, Nicole Lorch; and Executive Vice President and CFO, Ken Lovik. David and Nicole will provide an overview, and Ken will discuss the financial results, and then we'll open up the call for your questions. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial conditions of First Internet Bancorp that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David. David Becker: Thank you, Julia. Good afternoon, and thank you for joining us on the call today. We delivered strong first quarter results that demonstrated the resilience and strength of our diversified business model. We generated solid revenue growth, expanded our net interest margin and continued making meaningful progress on credit quality, all the while navigating an uncertain macroeconomic environment. Let me start with some of the highlights for the quarter. Total revenue reached $43.1 million in the first quarter, up 21% year-over-year, driven by a 26% increase in net interest income. Our fully taxable equivalent net interest margin expanded to 2.45%, a 54 basis point improvement from a year ago and 15 basis points sequentially. This margin expansion reflects the benefits of our proactive balance sheet management strategy and the power of our deposit franchise, combined with our scalable nationwide lending platforms. Pre-provision net revenue grew 51% year-over-year to $18.1 million, underscoring our ability to generate strong operating leverage while maintaining disciplined expense management. This performance gives us confidence in our ability to drive sustainable profitability as we continue to work through our credit normalization process. On credit, our overall loan book remains solid and continues to perform in line with industry trends. In addition, we're seeing tangible evidence that the decisive actions we've taken over the past several quarters are yielding favorable results on the 2 problem portfolios, SBA and Franchise. Our provision for credit losses for the quarter came in better than expected, and we're observing improving trends in our portfolio with delinquencies and nonperforming loans headed in the right direction. The credit trends we're seeing, particularly in our SBA portfolio reflect the impact of enhanced underwriting standards, more vigorous portfolio monitoring and responsive problem loan resolution. On the growth front, our commercial lending pipelines remain robust across multiple verticals. Total loans increased to $3.8 billion with particularly strong production in single tenant, lease financing and construction lending as well as in one of our emerging verticals, wealth advisory lending. While we maintain appropriately conservative underwriting standards, we're seeing great opportunities to deploy capital into high-quality commercial relationships at attractive yields. Turning to the other side of our balance sheet. Total deposits reached $5 billion, up from $4.8 billion in the prior quarter. We continue to benefit from the strength and flexibility of our Banking-as-a-Service initiatives. Importantly, we're seeing continued growth in lower-cost fintech deposits, which has also allowed us to let higher cost CDs and broker deposits mature without replacement. Our fintech deposit platform also provides us with significant balance sheet management flexibility. During the quarter, average fintech deposits totaled $2.4 billion, an increase of over 186% from the first quarter of 2025. At quarter end, we have moved approximately $1.5 billion of these deposits off balance sheet, optimizing our asset size while maintaining these valuable customer relationships and the associated fee income streams. This capability is a unique competitive advantage that enhances both our profitability and our capital efficiency. In our SBA business, while seasonality and tightened underwriting resulted in softer loan production for the quarter, we're pleased with the strong foundation we're building and how the business is positioned for long-term profitable growth. To further align our strategy in SBA, we've strengthened the business by promoting Gary Carter to the position of National Sales Manager. Gary rejoined us a year ago as our Senior SBA Credit Officer, bringing deep industry expertise, including his role at Live Oak Bank that will help us continue building this business on a sound foundation. Our capital and liquidity position remains solid as we were able to closely manage the size of the average balance sheet while continuing to grow revenue. Regulatory capital ratios remain well above minimum requirements with a total capital ratio of 12.5% and a Common Equity Tier 1 ratio of 8.97% as well as substantial liquidity coverage. Moving to our strategic investments in technology and artificial intelligence. We continue to invest thoughtfully in digital capabilities that enhance the customer experience, improve operational efficiency and position us for long-term growth. These technology investments aren't just about maintaining our competitive position, they're also about creating sustainable advantages in how we serve customers, manage risk and drive operational excellence. Looking ahead, we're navigating an uncertain macro environment from a position of increasing strength. Our diversified business model is generating strong revenue growth. Our deposit franchise provides funding advantages and strategic flexibility. We've proven our ability to make difficult decisions and execute effectively. The credit challenges we've experienced are manageable in the context of our overall business. We've taken decisive action, strengthening underwriting standards, enhancing risk management and addressing problem loans proactively. We see the benefits in improving trends and expect continued progress throughout 2026. We are not standing still. We're investing in AI and technology to enhance efficiency and customer experience, strengthening our commercial banking capabilities, expanding fintech partnerships and repositioning our SBA business on a stronger foundation. We're confident in our strategy, our team and our ability to deliver value for shareholders. I'll now turn it over to Nicole for operational highlights, including commercial lending, SBA, Banking-as-a-Service and credit. Nicole Lorch: Thank you, David. Starting with commercial real estate, we saw solid first quarter activity with particularly strong production in construction and single-tenant lease financing. These businesses continue to perform well with strong credit quality and attractive risk-adjusted returns on new originations. We were also pleased to see higher balances in a couple of our emerging verticals, wealth advisory lending and equipment finance. The pipeline remains healthy with disciplined underwriting and good yields on new commitments. Turning to SBA. As David mentioned in his comments, the deliberate shift we communicated in our last call that prioritizes credit quality over volume, combined with a seasonally lighter first quarter resulted in lower originations for the quarter. This translated into lower loan sale volume and lower gain on sale revenue compared to the linked quarter. Regarding gain on sale revenue, while premiums have been strong so far this year, we still expect to retain more production on our balance sheet in future periods as the pricing on certain higher-quality deals will not fetch quite the same premiums in the secondary market. We generally look at a 12-month earn-back period when making decisions on whether to sell or hold loans. While this will impact gain on sale revenue for the year, it will be highly additive to net interest income and net interest margin in future periods. Nonetheless, barring any macroeconomic deterioration, we remain optimistic about the previously shared production and gain on sale targets for the full year. Importantly, while we're being selective about growth in this portfolio, we remain committed to small business lending as a core business. This is an attractive lending vertical with good long-term economics, and we have the platform, expertise and relationships to compete effectively once we've fully worked through this current credit cycle. As to credit performance, we've made substantial progress over the past several quarters through proactive and prudent actions. We've significantly enhanced our underwriting standards, added experienced talent to our credit and portfolio management teams and implemented more robust monitoring and early warning systems. We've also been proactive in working with our borrowers to prevent the formation of nonperforming loans, and we're seeing results. As of March 31, delinquencies in the SBA portfolio have improved 118 basis points quarter-over-quarter and 126 basis points year-over-year. As we look ahead, our focus in SBA is on durability and consistency rather than near-term volume. Loans originated under our revised standards are showing more stable early behavior. While these newer vintages are still early in their life cycle, we're encouraged by what we're seeing in terms of borrower performance, responsiveness and overall portfolio dynamics. The operational changes we've made across underwriting, execution and portfolio oversight are now fully embedded in the business. This enables us to remain selective today while preserving the ability to scale responsibly as conditions normalize. Our objective is an SBA portfolio with attractive long-term economics and reduced volatility across cycles, and we are building with that goal in mind. In Franchise Finance, we continue to make progress working through problem loans. Our special assets team was busy during the quarter coming to resolution on several credits. While net charge-off activity remained elevated during the quarter, it more than offset nonperforming loan formation as nonaccrual Franchise Finance loans dropped to their lowest level in 4 quarters. Looking at our Banking-as-a-Service operations, we continue to see strong momentum with our fintech partners. These relationships provide valuable deposit funding, generate attractive fee income and position us at the forefront of innovation in digital banking. We processed over $82 billion in payments volume during the quarter, an increase of over 260% year-over-year through a carefully curated partner network, a reflection of our efforts to strengthen and deepen existing relationships while cultivating new partnerships. We are constantly evaluating new partnership opportunities while ensuring we maintain the highest standards of compliance and risk management. Across the bank, we continue to invest strategically in AI and automation to drive efficiency and enhance customer service. Our strong data foundation built through previous investments in our data warehouse and integrated data sources now supports our infrastructure upgrades for AI agent processing. While scoping our own proprietary agents, we've already deployed third-party AI capabilities with measurable impact, such as fraud detection agents that screen outbound transfers before processing. Additionally, our virtual customer service agent resolves approximately 45% of inquiries, significantly reducing the burden on human agents and improving response times. The effects of this are validated by the favorable results from the Net Promoter Score framework and customer listening program we implemented in the first quarter with our consumer and small business banking team. Out of the gate, our scores are well above industry average. We have built relationships through transparency and delivering on our promises, and that loyalty delivers strong returns. The diversity of our business model is another key strength. We have multiple engines driving growth and profitability. Our commercial lending is performing well. Our consumer lending remains stable. Our fintech partnerships continue to grow, and we're seeing improving trends in SBA. We're executing on all of this with appropriately conservative underwriting standards that position us for sustainable profitable growth. I will now turn it over to Ken for additional insight into our first quarter performance and update to our 2026 outlook. Kenneth Lovik: Thanks, Nicole. We are pleased to report solid first quarter results with net income of $2.5 million or $0.29 per diluted share. Total revenue for the quarter was $43.1 million, a 21% increase over the prior year period and when combined with well-managed expenses, pre-provision net revenue totaled $18.1 million, up 51% year-over-year. These results reflect our diversified business model, strong operational execution and sustained business momentum across our core segments. Net interest income for the first quarter was $31.6 million or $32.8 million on a fully taxable equivalent basis, up about 26% and 25%, respectively, year-over-year. Net interest margin improved to 2.36% or 2.45% on a fully taxable equivalent basis, up 14 and 15 basis points, respectively, from the prior quarter and both up 54 basis points year-over-year. The yield on average interest-earning assets for the quarter rose to 5.67% compared to 5.57% in the prior year period as higher rates on new loan originations more than offset the impact of Federal Reserve rate cuts in late 2025. We also saw a meaningful decline in funding costs during the same period with the cost of interest-bearing deposits falling 56 basis points to 3.45%. The ability to maintain and increase yields on interest-earning assets in conjunction with declining cost of interest-bearing deposits demonstrates delivery on our years-long effort to reposition the balance sheet and optimize our mix of earning assets. Noninterest income for the quarter totaled $11.5 million, up almost 11% year-over-year as fee revenue from our fintech partnerships continued to grow, supplemented by higher net loan servicing revenue following the servicing retained sale of single-tenant lease financing loans in 2025. David and Nicole both touched on our positive momentum in the Banking-as-a-Service space, which is evidenced by the growth in fee revenue with quarterly revenue increasing over 200% compared to the first quarter of 2025 and increasing over 220% on a trailing 12-month basis. Noninterest expense for the quarter totaled $25 million, up only 6% year-over-year despite continued investment in technology and AI to enhance both front and back-office operations and costs related to working out problem loans. Turning to credit. The provision for credit losses was $16.3 million in the first quarter, which was a little better than our initial expectations. The provision for the quarter included net charge-offs of $15.8 million and additional specific reserves in our Franchise Finance portfolio. Relative to our original forecast, the lighter provision was due to a combination of lower loan balances and unfunded commitments as well as updates to the assumptions in the CECL model. Our allowance for credit losses at quarter end was $56.5 million or 1.5% of total loans, up slightly from year-end. Nonperforming loans increased to $61.6 million or 1.63% of total loans. However, a portion of the increase consists of fully guaranteed SBA 7(a) balances where the government guarantee substantially mitigates our loss exposure. Excluding fully guaranteed balances, nonperforming loans to total loans drops to 1.22%. Another component of the increase in nonperforming loans was accruing loans 90 days or more past due. However, the largest portion of this increase, about $6 million, relates to one relationship that we expect to pay off in full in the second quarter. I will also note that our SBA team was successful in bringing some past due borrowers current shortly after quarter end, reducing delinquencies even further. At quarter end, the ratio of the allowance for credit losses to nonperforming loans was 92%. Adjusting nonperforming loans to remove the fully guaranteed SBA balances, the allowance coverage ratio improves to 122%. While we are pleased with the improvement in nonperforming loans and delinquencies, our updated allowance for credit losses model reflects our expectation that the provision for credit losses will remain elevated in the second quarter, but then improve gradually in the second half of the year. Total loans as of March 31, 2026, were $3.8 billion, an increase of $29.1 million or 1% compared to the linked quarter and a decrease of $479 million or 11% compared to March 31, 2025. David and Nicole both covered some of the lending highlights from the quarter where we experienced growth. Overall, origination activity was fairly strong across our commercial and consumer areas. We did, however, experience some early payoff and maturity activity in the Franchise Finance, Public Finance and Recreational Vehicles portfolios and in particular, saw early payoffs of some large balance relationships in the investor commercial real estate portfolio, which impacted total loan growth during the quarter. Total deposits as of March 31, 2026, were $5 billion, representing an increase of $142 million or 3% compared to December 31, 2025, and an increase of $36 million or 1% compared to March 31, 2025. David talked about the continued strong growth in fintech deposits, which has allowed us to further improve the mix of deposits and drive funding costs lower. Average CD and broker deposit balances, our highest cost of deposit funding were down over $180 million from the prior quarter. The weighted average cost of maturing CDs in the first quarter was 4.19%, while the average cost of fintech deposits was 3.19% and the cost of new CDs was 3.62%. As the cost of maturing CDs in the second quarter is 4.11% and in the third quarter is 4.06%, we have the ability to drive funding costs lower throughout the year and hence, drive net interest income and net interest margin higher even in a flat rate environment. Looking at our full year 2026 outlook, we're broadly maintaining the guidance we provided in January. However, we want to acknowledge the heightened macroeconomic uncertainty we're navigating, including volatile energy prices and other potential geopolitical developments. While we're confident in our business momentum and strategic positioning, we're taking a measured approach given the current uncertain environment. With regard to loan growth, while our commercial pipelines remain robust and our consumer business continues to produce solid results, we recognize our full year target could prove ambitious given higher-than-expected loan payoffs and the evolving macro headwinds, which could lead to further tightening of underwriting standards. We're closely monitoring the current environment, and we'll provide updates as the year progresses. In summary, we feel confident in the underlying momentum of our business and our ability to navigate the current macro environment while positioning the business for accelerating profitability in the second half of the year and into 2027. With that, I'll turn it back to the operator for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Nathan Race with Piper Sandler. Nathan Race: I was wondering if you could just help us kind of unpack the charge-offs a bit more for this quarter. And just generally, what kind of visibility you have into charge-offs over the balance of this year? I know you guys have spent a lot of time scrubbing the SBA portfolio. But just curious within that context, how we should think about the $50 million to $53 million provisioning forecast that was laid out last quarter for this year. Kenneth Lovik: Yes. I think as we think about it, it's -- I think it's still very similar to what we had talked about last quarter where we expect the bulk of it in the second half of the year. In terms of charge-offs for this quarter, we had $15 million to $16 million of charge-offs. I think where SBA -- I think our SBA came in line with what we were forecasting. Our Franchise number was a little bit higher because we took action on some other credits probably sooner rather than later. But I think we still continue to feel like first quarter is probably going to be the worst of the quarters in the second quarter. You can look at -- even though we made progress on reducing nonaccrual unguaranteed SBA balances and Franchise balances, we still have elevated nonperforming loans that we need to work through. But our special assets team is working through those. And I think we'll probably see some resolution on many of those here in the second quarter. And I think by the time we get to the third and fourth quarters, I think our feeling is that we'll be through a lot of the kind of some of the older vintages where there's probably still some potential problems. And by the time we get to the end of the year, the credit costs are going to be at a far more moderate level. Nathan Race: Okay. Got it. That's really helpful. Maybe changing gears to the margin. With the Fed on hold, I think that's a bit of a headwind in terms of deposit repricing. But David, you mentioned a lot of the success you're having bringing on some lower-cost deposits from some fintech relationships. So just curious how you're kind of thinking about the margin trajectory over the next few quarters, assuming the Fed remains on pause and just trying to drive that with the NII growth expectations for this year that were laid out last quarter of, I believe, $155 million to $160 million. David Becker: We're sitting here, Nate, Ken and I are pointing fingers back and forth on it. Yes, the net interest margin, the biggest issue that we have out here even without -- and we did not put in our forecast at the beginning of the year, any rate decreases. We have not come back and modified it with any rate increases yet. But we -- from the get-go, we weren't anticipating any rate fall off this year. But because of the CDs that are maturing and running off, as Ken said earlier, they're north of 4%. New CDs that we're adding and rolling are in the 3.6% range. So there's a gap there, but even better yet on the fintech deposits are coming in at about 3.19%, almost 100 basis points improvement. So that will continue throughout the course of the year. We have another $800 million rolling between now and year-end. So we could be up in that $290 million range by the end of the year. Kenneth Lovik: Yes. I think, Nate, in terms of what we -- I mean, kind of similar to what we talked about last quarter, I think our forecasting still holds that we'll probably -- I mean, feel like a 10 to 15 basis point improvement through the -- 10 to 15 basis point improvement per quarter through the end of the year is a very, very achievable target on our end. Nathan Race: Okay. And then David, I believe you said to get you to the $290 million by the fourth quarter, if I heard you correctly? David Becker: Yes. Operator: Your next question comes from the line of Brett Rabatin with StoneX Group. Brett Rabatin: I wanted to just continue to talk about guidance, and you just mentioned the $290 million guidance. I think for the outlook in January, you mentioned $275 million to $280 million by the fourth quarter. It sounds like the only tweak that you've made, if I'm hearing this right, really is you're a bit more conservative on that 15% to 17% loan growth target, just given some uncertainties. But I was a little surprised you didn't tweak down maybe the expense guide a little bit from the $111 million to $112 million and then also, it seemed like the fee income guide could have increased. Any thoughts on fee income and expense guidance and just the variables that might impact that? Kenneth Lovik: Yes. I think on the expense side, Brett, I think we're -- the guidance we had out there before, I think we're good keeping it there just for conservatism. I do think if, for example, in the macro headwinds, if you will, impact originations or maybe the SBA originations are lighter in the first half of the year or whatever, we have some offsets on the expense side, certainly in incentive compensation tied to loan origination. So there are definitely some offsets there on the expense side that would take that number lower. And then on the fee side, too, there's levers there, too. I mean, as we -- Nicole said in her comments that we expect to retain more balances going forward in SBA, given some of the higher quality deals we're doing. But as we put in our deck, look, premiums are holding in there on gain on sale. So there could be -- if the premium levels hold up near the high end of the range, I mean, there's the opportunity to sell more into the secondary market and drive higher fee income. So there's a number of different levers there that could offset perhaps any shortfall in the loan growth. Brett Rabatin: Okay. So there's leverage to both those line segments. Kenneth Lovik: Yes. Absolutely. Brett Rabatin: And then I know you guys have been working really hard on the Franchise and SBA. When I think about the macro of higher oil prices, I guess the only piece of your portfolio that I start to think about would be the RV portfolio. And I know quite a few of that or a lot of that is not RVs per se. It's horse trailers and things that people use for work. But have you guys seen any migration in the RV book as you've been looking at that portfolio just to watch it as oil prices/gas has been higher? Nicole Lorch: A great question, Brett. I'll take that one. We actually just had a credit committee meeting this morning, and we're talking around the table with all of our lending lines about the impact of fuel prices. I think diesel fuel is up over $1 per gallon and certainly regular gasoline is as well. Our consumers have not been affected. We are not seeing any increase in delinquencies or any problem loans in the consumer book as a result of fuel prices. The horse trailers in particular, have always performed well even with headwinds. Other lines of business that could be -- and in fact, originations are very solid. So even in this first quarter and the conflict has been going on for a little over a month now. So we're not seeing any depreciable decline in new originations with people spooked by the prices. So that's a positive sign. In other lines of business, equipment finance, we do some lending for fleet vehicles. We're not seeing any issues there that are related to fuel prices. We've also done some outbound contacting of our top SBA customers who are most likely based on their industry to be affected by fuel pricing. So that's not just transportation, but it's anything that would have a fuel component to it. And there -- we're hearing no issues related to fuel pricing at this point. Some have had to pass along price increases to their customers. But overall, we're not seeing any weakness in the portfolio as a result. Certainly, we all hope that the conflict gets resolved sooner than later. Brett Rabatin: Yes. That's -- I think everyone knows that. And then if I could just ask one last one just around -- you guys highlighted the $82 billion of payments processed. When I think about some of the stuff that you've been doing in fintech, I guess I look at the fee income and just think that there should be some momentum in fees aside from whatever happens to the SBA bucket. Do we start to see bigger fees related to all these things you're doing in fintech? Or is that just going to be a process over time? It just seems like you're gaining some momentum on the fintech side, but it hasn't yet showed up really in a meaningful way on the fee side. Nicole Lorch: Well, we are seeing some momentum there. And I think what's important is that we have negative net revenue churn, which means we are seeing really good retention from our existing programs, and we have been able to increase our fee structure in a way that helps us to support them and support the growth of the program. We're not bringing on new programs at a rate that we cannot sustain. So we always have a backlog of customers that we've been talking to. We're in due diligence with half a dozen programs, but we're trying to make sure that we're bringing them on in a really responsible way. And we have some solid partners that are meaningful. So I think on a year-over-year basis, we've doubled the fees that we're seeing in our fintech partnership line of business. But it does show up in different ways across our income statement. For instance, the balances that we've been able to push off balance sheet, those are not showing up in the interest income or interest expense, but those are showing up in noninterest income. You're also seeing the fees in the noninterest income. And then we do have a couple of lending programs and those are going to show up then in interest income. Does that help? Brett Rabatin: That is helpful. Do those things show up in the other line? Or what line items did those show up in? Kenneth Lovik: Yes. Brett, they really -- they show up in the other line item. Well, they show up in the other line item. They also show up in the services and fees, service charges and fees line item. But just to put some numbers around that. I mean, in the fourth quarter, we had about just, call it, a little bit over $1 million for the quarter in fee income. This -- in the first quarter of '26, we had a little over $1.5 million of fee income. So to Nicole's point, with some of the momentum that we're getting with some of our existing partners, higher volumes, higher payments volumes, higher deposits, more deposits pushed off balance sheet. I mean if you run rate that, you're talking about a 50% growth year-over-year and you're starting to talk about real dollars. Brett Rabatin: Okay. And Ken, just to be clear, that $1.5 million, that encompasses all of your fintech operations? Kenneth Lovik: Yes. That's just fees, right? That doesn't include any interest income from any of our lending partners. That's just pure fee income. Yes. Operator: Your next question comes from the line of Emily Lee with KBW. Emily Noelle Lee: This is Emily stepping in for Tim Switzer. Yes. So you mentioned you're in due diligence with about half a dozen programs right now on the fintech side. Can you speak more on just those partners in the pipeline and maybe the projected timing of those launches or an idea of kind of potential earnings impact surrounding those? Nicole Lorch: Well, we are not known for being easy in the fintech space. In fact, I think we've gotten a reputation for being one of the tougher due diligence programs out there. So we certainly kick the tires and give them a good opportunity to understand what our expectations are because, in fact, we are the regulators of these programs because they are, in fact, our customers in many cases. So right now, I know we have a couple of lending programs that we are taking a look at. We also have a couple of deposit programs that are out there. We have one that is moving much closer to approval. And so I think that would be a second quarter onboarding event. But some of them will go more slowly, especially when there is a consumer lending program involved, for instance, that's going to be probably the longest due diligence process. Something that might be a business payments program can be a bit faster. It just depends on the nature of the program and when that starts to show up. Also depends on whether or not the program is existing with another financial institution as a sponsor bank. A conversion is a different beast and usually can be quicker to have an impact on the financial statements as opposed to a brand new program that needs to ramp up itself. So it all depends is the very official answer to that, but we have some that we do expect to be bringing on in the next quarter and then the third quarter as well. Emily Noelle Lee: Understood. And then also just on the NIM. You mentioned 10 to 15 basis points of improvement per quarter through the end of the year as a very achievable target. That's if the Fed doesn't cut, but what would be the impact of 125 bps cut? Kenneth Lovik: If they cut -- and this is -- keep in mind, we run this on a static balance sheet. So this doesn't impact -- this doesn't take into account growth. But on a static balance sheet, you're talking about probably $2.2 million to $2.3 million annually of net interest income. Operator: Your next question comes from the line of George Sutton with Craig-Hallum. Logan W Lillehaug: This is Logan on for George. First one for you, Ken. I was wondering if you could just kind of talk about the loan-to-deposit ratio. I've got it kind of stepping down again this quarter, and you've talked about how it's kind of a historically low point for you guys. I wonder if you could just sort of address sort of the path for that from here, especially as we think about potentially lower loan growth this year and just sort of how you plan to manage that? Kenneth Lovik: Well, I think over the course of the year, we expect the loan-to-deposit ratio to increase. We ended the year with pretty healthy cash balances. And it's kind of hard to look at any particular quarter end cash balances because sometimes they're inflated due to payments activity at the end of the month. But we do have, in our minds, excess cash that we can just take out of the cash and deploy. So we probably see that ratio if we're at 75%, 76% this quarter, probably gradually stepping up and probably being somewhere closer to 85% to 90% in the fourth quarter. And I think that's -- we like that because you're obviously -- you're deploying cash into higher interest-earning assets, loans, but on keeping the balance sheet relatively -- keeping balance sheet growth to a minimum. David Becker: We had a couple of very large commercial loans, literally one paid at the last day of the quarter that was over $50 million and knocked it down. So that kind of messed up the ratios pretty quickly. But as we are in that commercial market now, we can have some pretty big swings. And as Ken said, we have swings on the deposit side at quarter end because of bill payment services and we also have people trying to close deals or clear them up by quarter end. So that number didn't intentionally go down. It was just a matter of math and the way things happen in that last week of the quarter. Logan W Lillehaug: Okay. Got it. And then maybe just a high-level one for you, David. I mean the last few quarters, you kind of mentioned that returning to that 1% return on asset level. And obviously, there's a lot of moving dynamics this year. But maybe just talk about sort of the steps that you need to take to sort of get back there and call it, the medium term? David Becker: Yes. We get back to our -- what we think our numbers are for the fourth quarter, that will set us up to be back into the 1% return for 2027. And we just continue the improvements. We've got a great base taking that number forward through our calculations, we'll be right back at 1% by the end of 2027. Operator: Your next question comes from the line of John Rodis with Brean Capital. John Rodis: Ken, the -- what drove the tax benefit this quarter? And how should we think about the tax rate going forward? Kenneth Lovik: The -- again, it's -- when net income is low like it has been, we do get a significant benefit from our tax-exempt businesses, particularly our Public Finance portfolio. So we have to get to a certain level of pretax income before you start applying rates to it. I mean I think if we're in the range of I don't know, call it, maybe $3 million of pretax or less, probably that tax rate is going to be nonexistent to a credit. And then kind of once you get into maybe north of $5 million to $8 million or so, you're probably a low mid-single-digit tax rate. And then if we get into, say, a $10 million to $12 million of pretax income, you're probably looking closer to a 7% to 9% tax rate, effective tax rate that is. It's just when income -- when pretax income is low, we just -- we get such a benefit from the not only the tax-exempt business in public finance, but we also get benefits from some LIHTC investments. And obviously, from last year, we have an NOL that we can carry forward when we make money. So as long as when pretax income is low, we're going to have a pretty -- we're going to have a decent tax credit. John Rodis: Okay. It's a moving target then. Kenneth Lovik: It is. Operator: Your final question comes from the line of Nathan Race with Piper Sandler. Nathan Race: Just on the SBA revenue going forward, I appreciate Nicole's comments earlier around holding some production for a longer seasoning period, I think, was what she was alluding to. So I'm just trying to think about kind of the cadence of SBA revenue. I think in the past, it's been more back half loaded. But I know you guys have made a number of changes to your platform and credit infrastructure over the last handful of quarters. So I was just hoping you could kind of speak to the cadence of kind of SBA revenue within that context. Kenneth Lovik: Yes. I think historically, if we go back in time a couple of years, it's probably like first quarter, you had -- it was seasonally light, although oftentimes, you may reap the benefit of a strong fourth quarter in terms of loan sales. But in terms of originations, first quarter historically has been light and it ramps up in the second, ramps in the third and then usually maybe comes back a little bit in the fourth quarter. I think the way that we're looking at it this year and the experience we saw in the first -- certainly in the first quarter with, again, kind of changing our approach on underwriting and having our team get around that, combined with just the typical seasonality is that probably the way that we're looking at originations this year is that there's just -- there's going to be a ramp-up throughout the year. And second quarter will be a little bit higher than first and third quarter and fourth quarter will be -- I don't want to use the word significantly higher, but we do have those third and fourth quarters ramping up in terms of origination volume, much higher than we have second and first quarter. Nicole Lorch: And our pipeline is building. It's up about 1/3 from where it was at year-end. So that would suggest that we're going to be in a good position to hit that. Nathan Race: Okay. So it sounds like the base case is SBA revenue grows from here and the guidance from last quarter on total fee income, which I believe was $33 million to $35 million, it's going to be higher than that, correct? Kenneth Lovik: Well, I think right now, we think -- keep in mind, that's total fee income. I think last quarter, we said in terms of just pure gain on sale somewhere in the $19 million to $20 million range, just that line item within the fee income. I think as we talked about, I think we still feel good about that total amount. Maybe it just shifts a little bit more towards third and fourth quarter than say, I mean, we had a pretty good first quarter without a doubt. The second -- the third and the fourth quarters are definitely stronger than the second quarter. Operator: I will now turn the call back over to David Becker for closing remarks. David Becker: We thank you for joining us today and for all the thoughtful questions we had. We're pleased with the strong momentum that we built during the first quarter. We remain confident in our ability to execute on the priorities we've outlined for the year. We are very mindful as we have said many times about the macroeconomic uncertainty, but we think we're executing from a position of strength and we're well positioned for improving profitability throughout this year and beyond. So we appreciate your continued support. Look forward to keeping you updated on our progress next quarter. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Riot Platforms, Inc. First Quarter 2026 Earnings Conference Call. Please note that all participants have been placed in a listen-only mode until the question-and-answer session begins following the company's presentation of its prepared remarks. Please also be advised that today's call is being recorded. I would now like to hand the conference over to Joshua Kane, Head of Investor Relations at Riot Platforms, Inc. Please go ahead. Thank you, operator. Joshua Kane: Good afternoon, and welcome to Riot Platforms, Inc. First Quarter 2026 Earnings Conference Call. My name is Josh Kane, Head of Investor Relations. Joining me on today's call from Riot Platforms, Inc. are Jason Les, Chief Executive Officer, and Jason Chung, Chief Financial Officer. On the Riot Platforms, Inc. Investor Relations website, you can find our first quarter 2026 earnings press release and accompanying earnings presentation, which are intended to supplement today's prepared remarks and include a discussion of certain non-GAAP items. Non-GAAP financial measures should not be considered as a substitute for or superior to measures prepared in accordance with GAAP and are included as additional clarifying items to aid investors in further understanding the company's first quarter 2026 performance. During today's call, we will be making forward-looking statements regarding potential future events. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties. Actual results could materially differ due to factors discussed in today's earnings press release, comments and responses made during today's call, and in the Risk Factors section of our Forms 10-K and 10-Q, including for the three months ended 03/31/2026, which will be filed later today, as well as other filings with the Securities and Exchange Commission. With that, I will turn the call over to Jason Les. Jason Les: Thank you, Josh, and good afternoon, everyone. 2026 was a definitive inflection point in Riot Platforms, Inc. transition into one of the most significant and capable data center operators in the industry. Looking at our key milestones for the quarter: First, AMD officially exercised a 25 megawatt expansion option, bringing their total contracted footprint at our Rockdale facility to 50 megawatts, validating our ability to execute at institutional scale. Initial data center capacity for this expansion will be delivered beginning in November. Second, on the initial 25 megawatt AMD lease, we delivered the first 5 megawatts of critical IT capacity right on schedule in January, with the remaining 20 megawatts on track for delivery this May. Third, we continue to make significant progress at our Corsicana facility. We have initiated development of our first core-and-shell building using our enhanced 168 megawatt standard design, which efficiently consolidates our previous two-building design and will be connected by expanded administrative capacity. Concurrently, we are securing long-lead items to ensure timely delivery of full built-to-suit capacity after the core-and-shell is complete. Finally, we achieved this infrastructure growth while maintaining strong capital discipline, proactively funding our data center initiatives entirely through operating cash flow and disciplined Bitcoin sales, allowing us to execute on these key growth initiatives without issuing a single share of equity. Let us dive into the AMD expansion. When we announced the initial AMD lease in January, we signed a 10-year agreement to deliver 25 megawatts of critical IT capacity at our Rockdale facility with extension options that created a partnership pathway of up to 25 years. That original lease included a 75 megawatt expansion option and a right of first refusal on an additional 100 megawatts. More recently, our partnership with AMD has expanded as they worked with our team to exercise an additional 25 megawatts of their expansion option capacity. AMD now has 50 megawatts of critical IT capacity under contract with Riot Platforms, Inc. at the Rockdale facility. This expansion reflects AMD's ongoing confidence in our ability to deliver and is a clear indicator that we are delivering exactly as promised—on time and on budget. To summarize the economics of our expanded AMD lease today, we are delivering an additional 25 megawatts of critical IT capacity, bringing the total lease to 50 megawatts. Total revenue of $636 million during the primary 10-year period, $51 million in average annual NOI over the course of the contract, which, when combined with the reduced CapEx spend, will drive an even more attractive development yield relative to the initial AMD lease. The total CapEx required for the expansion is approximately $3.3 million per megawatt, totaling $83.2 million, a significant reduction from the initial 25 megawatt CapEx of $3.6 million per megawatt, driven by a leaner build-out scope following building preparation in the initial phase. Slide 8 presents a clear visual of how this expansion is taking shape at our Rockdale facility. On the top half of the slide, you can see the physical layout of Buildings F and G. We are finalizing the initial 25 megawatts of capacity for AMD, highlighted in yellow. We are already delivering 5 megawatts for AMD, with the remaining 20 megawatts firmly on schedule for full delivery next month in May 2026. AMD's 25 megawatt expansion will be developed directly adjacent to the initial footprint in Building G and will be constructed in two phases. Phase three, highlighted in blue, will deliver 10 megawatts in November 2026, while phase four, highlighted in orange, represents the remaining 15 megawatts for delivery in May 2027. As a result of this phased delivery, we anticipate exiting 2026 with an annualized operating lease revenue run rate of $37.8 million, scaling to a run rate of $55.6 million as we exit 2027 and AMD's full 50 megawatt footprint comes online. Importantly, this provides a highly visible, high-margin baseline that has the potential to scale up even further if AMD exercises its remaining expansion options. You can see the physical footprint of those additional options mapped out in green on the site plan. AMD retains an additional 50 megawatt expansion option and now holds an additional 100 megawatt option, which replaces their prior right of first refusal. Together, this provides a highly visible, de-risked pathway to potentially scale our partnership with AMD to up to 200 megawatts of critical IT capacity at Rockdale. Now I want to provide an update on the development activity underway at our Corsicana campus. As a reminder, at the end of last year, we announced our plan to initiate core-and-shell development at Corsicana. I am pleased to report development is actively underway and tracking on schedule. This marks the transition of Corsicana from a site with approved power into an active data center development site. Since that announcement, our team has refined our standard basis of design based on market engagement and feedback. The result is a meaningful enhancement to both the density and the flexibility of what we can deliver. Our updated standard is a 168 megawatt critical IT building engineered to support densities beyond 1,000 watts per square foot. The design is configurable as a two-story standard or a single-story high-density format with oversized galleries to accept 100% liquid cooling and the densest next-generation equipment without retrofit. We are using prefabricated skids and vendor-agnostic equipment specifications to further compress our schedule and de-risk procurement. This is a design built for repeatability, speed to market, and the requirements of the most sophisticated AI and HPC tenants in the market today. Reflecting this enhancement, we have consolidated the two buildings we previously announced into a single larger building with 168 megawatts of critical IT capacity, up from the 112 megawatts we originally planned across two buildings. The core-and-shell CapEx is unchanged from our prior guidance, which means we are now delivering 50% more critical IT capacity for the same capital spend. This meaningfully improves our capital efficiency at the core-and-shell level. Development is underway today, and we have a clear line of sight to 168 megawatts of completed core-and-shell in 2027. Applying the updated design across the full Corsicana site, our total planned campus capacity now stands at 756 megawatts of critical IT capacity—an increase over our prior plan on the same approved power, the same land, and the same development timeline. Put simply, we are extracting more capacity and more value from the infrastructure we have already secured, and we are doing so on a timeline that matches the urgency of today's market. Now I would like to turn it over to Jason Chung to outline our financing strategy and review the quarterly financial results. Jason Chung: Thank you, Jason. Turning to how we are funding this growth on Slide 11, there are four primary principles that guide our approach to finance. First, we carefully manage our current liquidity. This involves the strategic management of cash and Bitcoin holdings to finance initial equity requirements for data center development. Second, we seek to broaden capital availability. By leveraging the credit profiles of our tenants and our highly visible long-term contracted cash flows, we are establishing new institutional financing and capital sources for Riot Platforms, Inc. Third, we look to systematically lower our cost of capital. As our asset base matures, we are able to translate these strong credit characteristics and funding profiles into accretive, low-cost capital. Fourth, we maintain prudent ongoing balance sheet management. This requires active debt management throughout market cycles in order to cleanly recycle capital, preserve our liquidity profile, and support long-term growth. Slide 12 illustrates how these principles work in practice. Our funding strategy utilizes a sequential capital cycle to fund our data center development. In phase one, initial development funding, we use our balance sheet to advance development, as seen with the initial 25 megawatt AMD deployment, the just-announced additional 25 megawatt AMD option, and the core-and-shell development at Corsicana. During the quarter, we funded this CapEx through a disciplined sale of a portion of our Bitcoin holdings, the most capital-efficient source of funding currently available to us. Importantly, we did not issue any common equity during the quarter. Instead, we leveraged our Bitcoin treasury and our operating cash flows to fund this development. In phase two, tenant-backed project financing, we are actively engaging with multiple institutional lenders on project-level nonrecourse financing structures for the AMD lease. The quality of the AMD lease as a long-term, high-margin lease with an investment-grade leader in the AI ecosystem makes this the type of asset that project finance markets are designed to finance efficiently. We continue to target attractive loan-to-cost ratios in the range of 80% in these structures. Once we close funding, we will be in a position to recover a substantial portion of the equity we deployed into this first set of projects. Phase three is the capital recycling phase, where equity recovered from either a true-up during the construction period, as in our AMD discussions, or from refinancing proceeds on completed, stabilized assets flows directly back into the next wave of data center development. The cycle is to lease, finance, build, and recycle. As we compound through this cycle, we retain ownership of high-quality, cash-flowing assets while continuously redeploying capital to finance additional growth. Let us move on to the first quarter financial update on Slide 14. For the first quarter of 2026, Riot Platforms, Inc. reported total revenue of $167 million. Notably, with the delivery of our first 5 megawatts to AMD this quarter, Riot Platforms, Inc. is now an active data center operator, and for the first time, our top line includes contracted lease revenue from an investment-grade tenant. We recorded a GAAP net loss of $500 million, or $1.44 per diluted share, and an adjusted EBITDA loss of $311 million. This loss was driven by non-cash mark-to-market accounting adjustments on our Bitcoin holdings of $326.7 million and non-cash depreciation and amortization expense of $97.7 million, which do not reflect the underlying strong fundamental economics of our operations. Diving into these operations, our Bitcoin mining segment performance remained robust. Riot Platforms, Inc. produced 1,473 Bitcoin in the first quarter and ended the quarter with a deployed hash rate of 42.5 exahash. We generated $21 million in power curtailment credits, driving our net cost of power down to $0.03 per kilowatt-hour, thereby lowering our direct cost to mine Bitcoin to $44,629 per Bitcoin, a 26% reduction compared to 2025. In our newly added data center segment, we successfully exited the quarter with 5 megawatts of critical IT capacity fully online and generated $33.2 million in total revenue, consisting of $900,000 in operating lease revenue and $32.2 million in tenant fit-out services revenue. Finally, we ended the quarter holding 15,679 Bitcoin on our balance sheet, valued at approximately $1.1 billion, which we will continue to leverage in order to finance the ongoing development of our data center business. Turning to Slide 15, I am proud to present the inaugural financial results of our data center segment. In the first quarter, this segment generated $33.2 million in total revenue. As we introduce this new reporting line, it is important to understand the composition of this revenue and how it will evolve as our footprint scales. The majority of our first quarter revenue—$32.2 million—was driven by tenant fit-out services. This represents the procurement and installation of customer-specific equipment, which is reimbursed by tenants on a cost-plus basis. While this revenue naturally carries a lower margin, it requires no capital risk from Riot Platforms, Inc. and accelerates our tenants' ultimate speed to market. The fundamental value of this segment, however, is reflected in the operating lease income. We recognized roughly $900,000 in recurring lease revenue, driven by the initial 5 megawatt delivery to AMD in January, which generated a 91% gross margin this quarter. As AMD scales its operations, we expect associated operations and maintenance costs to increase, which will normalize this margin towards our previously stated run-rate target of 80% plus. As we look ahead, you will see a natural evolution in this revenue mix. While tenant fit-out revenue is elevated today during the development phase, as the remaining megawatts for AMD come fully online, our high-margin operating lease revenue will scale dramatically. This will layer highly predictable, infrastructure-grade cash flows into our consolidated P&L, driving significant margin expansion over time. Turning to Slide 16, our Engineering segment—comprised of ESS Metron and E4A Solutions—serves as a key pillar of our execution strategy. The financial metrics for Engineering remain exceptionally strong. Engineering backlog stood at $193.4 million during the quarter, with approximately 90% of backlog continuing to be driven by data center sector demand. Most importantly, the apparent decline in backlog for this quarter was entirely driven by our decision to strategically hold back manufacturing capacity for deployment towards our own data center business. Since acquiring ESS Metron in December 2021, Riot Platforms, Inc. has realized approximately $24 million in cumulative CapEx savings across our development footprint, and these savings will continue to compound as we further scale up. While this compounding cost advantage is accretive, the true strategic value of our Engineering business is control over procurement. Low- and medium-voltage switchgear, transformers, and power distribution centers are among the most severely constrained components in the data center supply chain. For developers relying on third-party manufacturers, lead times are lengthening, and these lead times have become a binding constraint on delivery schedules across the industry. Because Riot Platforms, Inc. owns a dedicated switchgear and power distribution manufacturer, we can sequence, prioritize, and de-risk the schedule-critical equipment required to bring a data center online. This vertical integration was a key factor supporting our ability to deliver phase one of the AMD lease on an accelerated timeline. Looking ahead, we will continue to invest in this strategically important business. In 2026, we expect to increase ESS Metron's total engineering capacity by approximately 25%, and we will be strategically allocating that incremental capacity to support Riot Platforms, Inc. data center growth. Further, because we manufacture these components in-house, we design them in parallel with our data center engineering team, allowing us to move faster and reducing redesign risk. Just as importantly, the same teams that manufacture this equipment also provide maintenance in the field, which will drive long-term operational efficiencies as our data centers are energized and stabilized. Taken together, our Engineering business is a core engine of our competitive moat in a market where time to power is the single most valuable commodity. Now I would like to turn it back over to Jason Les. Jason Les: Thank you, Jason. I want to frame one of our key competitive advantages in the broader data center development market: secured power. Today, access to power is a key bottleneck in data center development globally. This makes our large portfolio of 2 gigawatts of fully approved power a strong competitive advantage, giving us one of the most significant development pipelines in our industry. However, we are not stopping here. We recognize that market demand for power is strong, and we are aggressively pursuing growth in our power portfolio across four distinct avenues. First, through greenfield and brownfield development—securing and developing new land assets that offer immediate or near-term approved power capacity. Second, through behind-the-meter self-generation, allowing us to strategically colocate our own power production directly with our critical load. Third, through inorganic M&A—actively targeting and acquiring portfolios or organizations that already possess established access to power. And fourth, through strategic partnerships—forming joint ventures to expand our geographic footprint, rapidly grow our pipeline, and explore next-generation technologies. To put the scale and rigor of this effort into perspective, our corporate development team has already evaluated over 100 distinct opportunities across these four avenues. We have the team, the capital, and the strategy to continuously source the highest-quality power assets required to fuel our development pipeline. However, let me be clear. While we are aggressively pursuing these opportunities, we maintain rigorous capital discipline. We will only execute on transactions that are highly accretive, financially responsible, and strictly aligned with our target return thresholds. Now I want to walk through the path we have taken to get to where we are today and provide investors with a clear picture of some of the obstacles Riot Platforms, Inc. has navigated in order to best position our power portfolio for maximum value creation. At the start of 2025, we engaged Altman Solon to conduct a formal feasibility study on both Corsicana and Rockdale. The conclusion was unambiguous: we had two of the most attractive data center sites in the country. But the same study also identified two specific constraints that, left unresolved, would have prevented us from leasing that power to high-quality tenants at meaningful scale. The first was land at Corsicana, where our original footprint was insufficient to accommodate the full 1 gigawatt campus development we wanted to deliver. The second was our ground lease at Rockdale. Until we solved both of these constraints, we were not in a position to meaningfully advance design, development, or leasing at either site. Solving these constraints required patient, disciplined execution, and that is what we did. Over the course of 2025, we successfully navigated a series of obstacles to acquire land adjacent to our original Corsicana site, unlocking the ability to develop the full 1 gigawatt of approved power on Riot Platforms, Inc.-owned land in a connected campus layout. At Rockdale, we converted our interest from a long-term ground lease into a fee simple acquisition of the 200 acres underlying the site. With those two transactions closed, we owned the land, took control over our own destiny at both sites, and removed the most significant barriers between our power portfolio and high-quality contracted leases. Critically, we did not wait for one workstream to finish before beginning the next. In parallel with the land work, we systematically built out the organization starting in 2025 with veteran product design and engineering talent. With the Corsicana land situation on track, we completed the initial basis of design for our standard data center product and initial campus design for the full Corsicana buildout. Through 2025, we took those designs to market for direct technical and commercial feedback from prospective tenants, initiated core-and-shell development at Corsicana, and brought on senior commercial leadership to drive leasing execution. That disciplined, sequenced groundwork is exactly what allowed us to move decisively when the opportunity arrived. In January, we signed our first data center lease with AMD and delivered the initial phase of capacity within the same month. Since that initial lease, we have expanded the AMD relationship to 50 megawatts, enhanced our standard design to increase density and flexibility, and are now actively engaged in commercial discussions at both of our sites. Every step on this timeline was necessary in order to maximize our value creation opportunity. Every one of them has been completed on an accelerated schedule. The result is that we now have an active commercial pipeline underpinned by secured land, a proven design, committed capital, and a tenant relationship that is already generating revenue today. This is an excellent position to be in, and we are confident in our ability to continue to execute from here. Now I want to zoom in on part of that timeline and elaborate on the team we have built to execute on this opportunity. Over the past year, building out a world-class data center organization has been one of our highest priorities, because we knew from the start that the quality of our team would be every bit as important as the quality of our assets. What you see on this slide is the depth and breadth of the capabilities we have assembled across four pillars: commercial sales, critical operations, project execution, and design and construction. Each of these functions is led by experienced, credentialed leadership with direct track records of delivering mission-critical infrastructure at hyperscale-grade platforms. On the commercial side, our sales organization is led by Ria Williams, our Senior Vice President of AI and Hyperscale Sales. Ria joined us following previous sales roles at Oracle, Compass Datacenters, and Digital Realty, and she brings both the relationships and the credibility necessary to engage hyperscalers and other top-tier tenants at the highest level. Ria reports directly to me. That reporting structure is deliberate. Our leasing strategy is the single most important driver of long-term shareholder value at Riot Platforms, Inc., and having sales report directly to the CEO ensures that I am directly engaged in every major commercial discussion. I am also very pleased to announce today a significant addition to our leadership team. Adam is a proven infrastructure executive with more than 15 years of experience leading hyperscale and AI data center development at multi-gigawatt scale. He comes to us most recently from TA Digital Group, where he served as Senior Vice President of Design and Construction, and prior to that, he held leadership positions at both Google and Meta. Adam is exactly the caliber of leader we need at this stage of our development, and we are thrilled to have him at the helm of our design, construction, and procurement teams as we scale Corsicana, Rockdale, and our broader data center platform. Rounding out the organization, our critical operations leadership brings deep experience running mission-critical environments to hyperscale SLA standards. Our project execution team combines in-house high-voltage and procurement expertise with integrated program management across our development pipeline. Every one of these functions is supported by Riot Platforms, Inc. broader enterprise platform, including our vertically integrated engineering capabilities at ESS Metron and E4A Solutions. The result is a data center organization that is experienced, credentialed, and deep. This is the team that is already delivering for AMD at Rockdale, building Corsicana, and advancing the leasing discussions underway today. We have the right people in the right seats to execute on the opportunity in front of us, and our confidence in this team is reflected in the pace of progress you are seeing across our business. I want to close by putting this quarter into perspective. Riot Platforms, Inc. has four things that, in combination, are extraordinarily difficult to replicate. We have the assets—2 gigawatts of utility power, including 1.7 gigawatts of fully approved, energized capacity at two of the most attractive data center development sites in the United States. We have the balance sheet—a 15,679 Bitcoin treasury worth roughly $1.1 billion at quarter end, significant cash on hand, operating cash flow from efficient, low-cost mining operations, and strong capital markets relationships that give us the ability to fund our growth on value-accretive terms. We have the team—our in-house data center organization includes veteran leadership across product design, construction, engineering, sales, and operations, and they are delivering on the AMD lease, developing our data center product, building Corsicana, and advancing our next wave of leasing discussions. And we have a repeatable approach—our power-first strategy: lease to creditworthy tenants, finance efficiently, build with discipline, recycle capital. Our priorities for the balance of 2026 are clear. First, deliver contracted megawatts to AMD on schedule and on budget. Second, execute on additional leases at both Rockdale and Corsicana, with active discussions underway across hyperscale and other high-quality tenants. Third, advance core-and-shell development to support delivery of Tier III built-to-suit data center capacity. Fourth, secure attractive, low-cost financing that reflects the quality of our tenants and sites. Fifth, continue to selectively grow our power pipeline through greenfield and brownfield development, self-generation, partnerships, and targeted acquisitions. The opportunity in front of us is significant. Data center demand continues to grow rapidly, driven by the commercialization of AI and the accelerating need for high-density compute. Power, execution talent, supply chain access, and capital discipline remain the binding constraints, and timelines for new capacity continue to extend. Riot Platforms, Inc. sits on the right side of these trends, with energized, fully approved power in exactly the right markets and with a built-out operating model that is delivering. The AMD expansion is a direct reflection of that position, and it is, we believe, just the beginning. As we continue to convert megawatts into contracted data center leases with creditworthy tenants, we expect the market to increasingly recognize the quality, scale, and cash flow visibility of our platform and to re-rate Riot Platforms, Inc. valuation accordingly. On behalf of our entire management team, I want to thank our shareholders, partners, and employees for their continued support as we execute on this opportunity. We will now open the call for questions. Operator? Operator: Thank you. As a reminder, to ask a question, please press [inaudible]. To withdraw your question, please press 1-1 again. Due to time constraints, we ask that you please limit yourself to one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Paul Golding with Macquarie. Paul Golding: Thanks so much, and congrats on all the progress this quarter. I just wanted to ask a couple of questions. First, on the 25 megawatt expansion with AMD, I was hoping you could talk through some of the puts and takes. It looks like the total contract value across the 25 megawatts is up versus the initial lease, while, as you noted, the CapEx per megawatt is down due to a leaner build-out. Could you give some color on those puts and takes on how you were able to realize a better TCV versus a leaner build-out and better CapEx profile? And then I have a follow-up. Thank you so much. Jason Les: Sure. Thanks, Paul. This expansion falls under the original lease that we executed with AMD earlier this year, so it is the same rental rate and terms. I think the only reason you may be seeing the difference is that there is an escalator clause in our agreement, and this new tranche runs over the course of those escalators occurring. Otherwise, it is substantially similar terms and rate. The only economic difference is the lower build-out cost that you mentioned. We are able to achieve that lower build-out cost because we are leveraging the full building preparation that was already done in the original phase. When we did the first 25 megawatts, we prepared that full building, which had some additional expense. Now, as we execute the next 25 megawatt expansion completing that building out, we do not have to do that work again, so we have lower cost by leveraging the initial work and substantially the same lease terms. As you see on our slide, you combine all of these factors together, and you are getting a lower build cost, a slightly higher contract value, and altogether, an even improved yield from our original deal. Paul Golding: Great. Thanks, Jason. Maybe a two-part follow-up. It does look like there may be a bit of a longer build-out period for that 25 megawatt expansion. Can you talk to that, and also the ROFR piece that was converted to an option as a follow-up to that? I know there is another 50 megawatts in that original option, as well as the 100 megawatt ROFR, but just to understand how that converted, as well as some of the timing considerations with the expansion? Thanks so much. Jason Les: Yes. This is a pretty fast timeline to deliver capacity. We are announcing this deal here in April, and then we are delivering in October/November, so it is a quick timeline. To give you some color, with the first 25 megawatts for AMD, we were making progress on that schedule before the lease was signed. We were taking some calculated, manageable risks to be prepared and to get that first lease off the ground. With this expansion, you are seeing the whole process from the beginning, and this schedule is broadly in line with the build schedule in the first phase—the difference being we were not able to announce that until farther along in the process. As far as the expansion option and the ROFR go, from the beginning we viewed our initial deal with AMD as the beginning of a larger partnership. The best way we at Riot Platforms, Inc. can achieve that is by being a consistent and reliable partner for AMD, positioning ourselves as their supplier of choice. By continuing to do what we are doing, we believe we are positioned to continue to grow that relationship, and the fact that AMD exercised part of its options a few months after the initial deal demonstrates that. More specifically on the ROFR, we converted the ROFR to an option to simplify the pathway of expansion with AMD. We want to advance this relationship, and having an option instead of a ROFR gives them what they wanted and works better for us. With the pace of interest at Rockdale and in addition to Corsicana, it was better for us to have a defined mechanism for what AMD is looking for, instead of having to call that ROFR on terms or on a design different than AMD’s needs. We simplify our discussions with other potential tenants while also simplifying the pathway for expanding the relationship with AMD. That is how we thought about changing this ROFR to an option. Paul Golding: Got it. All very clear. Thank you so much. Congrats again. Operator: One moment for our next question. And that will come from the line of John Todaro with Needham. Your line is open. John Todaro: Hey, thanks for taking my question, and congrats on the capacity with AMD. Could we get an update on current lease discussions beyond AMD at Rockdale and Corsicana—how you would characterize progression since last quarter, and if there have been any sticking points or gating factors? And then I have a follow-up. Jason Les: Thank you for the question. Over the past few quarters, we have laid out the roadmap we have been on to execute a commercial process. We completed the foundational work to fill gaps, as we discussed on the timeline, and to bring a strong offering to the counterparties we want to lease to. As a result, we have been able to act on the substantial interest I mentioned on our last earnings call, and those discussions have advanced considerably since then. We are in a great spot; there are no gating items or issues. We are moving forward, we have interest for capacity across both Corsicana and Rockdale, and we are pursuing those opportunities in parallel. On leasing, our philosophy has always been to focus on high-quality tenants that can drive the financing terms that maximize value. The type and depth of engagement we are getting validates the methodical approach we have taken. Our ability to succeed in this commercial process is enhanced when we go through onboarding with a hyperscaler and can check the box affirmatively on the vast majority of the hundreds of requirements they have. That is the result of preparation. Leasing this type of capacity to top-tier tenants is an enormous lift and can have an unpredictable timeline. We have seen peers have multiple deals start and stop before one got to the finish line. While it is unpredictable, I am more confident than ever in our ability to succeed based on the progress we have made and the engagement we are getting. I cannot tell you when our next lease will be signed, but I believe you will continue to see us make progress over the roadmap we have laid out, ultimately culminating in a full lease-up of our capacity. John Todaro: That is great, thanks. As a follow-up on demand signals: do you think we have seen fewer leases in the public markets so far than some investors expected in 2026? Is there anything beyond your conversations where there are changes in demand signals over the last several weeks or months? Jason Les: We see the broader theme of data center demand outpacing supply continuing for the foreseeable future. The commercialization of AI is rapidly advancing, and everyone is going to continue to be short on compute. All of the hyperscalers’ earnings calls yesterday showed growing CapEx, and they are short on compute and capacity—identified as a key thing keeping some CEOs up at night. That theme remains intact. Each buyer is in a different phase of their own buying cycle, and at different times different companies are in a more urgent state than others. In this rapidly changing environment driven by AI, this cycle is running quicker than it has historically. You are not always going to see the same level of urgency across the field, and that field can change from one quarter to the next. The important thing is that we at Riot Platforms, Inc. have built a structure where we can come fully prepared and rapidly respond and engage as customer interest comes forward. Whether it is reliance on our standard design or specific requirements that our design can easily accommodate, our preparation is paying off, and we are in the right market at the right time. John Todaro: That is very helpful. Thanks for taking my questions, and congrats again. Operator: Thank you. One moment for our next question. And that will come from the line of Mike Grondahl with Northland. Your line is open. Mike Grondahl: Hey, thanks. Can you talk about some of the initial data center revenue this quarter—how that related to the initial 25 megawatts you are delivering, and how to think about margins this quarter and going forward? Jason Chung: Mike, thanks for the question. To get a clear picture of our initial data center financials, it is important to break down the total segment revenues of $33.2 million for the quarter because there are two distinct revenue streams at play. First, the vast majority of that top line—$32.2 million—relates directly to tenant fit-out services, which we execute on a cost-plus basis. This generated $1.4 million in gross profit, at about a 5% margin. The remaining and more interesting data point is the core operating lease revenue, which was $900,000 for the quarter. This reflects a little over two months of revenue from the initial 5 megawatt delivery to AMD, which occurred in late January. Regarding margins, the margin on that core operating lease component for this quarter was 91%. However, that 91% is a function of being in the early stages of AMD's ramp at Rockdale, meaning relatively lighter operating costs during those initial two-plus months. As AMD scales into their full capacity and site operations mature, we expect O&M costs to scale in line with that ramp-up and drive NOI margins towards the targeted 80% plus range we have put out publicly before. Mike Grondahl: Got it. And then maybe one more as we close out Q3 and head into Q4: can you talk a little bit about the financing structure you envision for AMD and initial conversations you have had with lenders? Jason Chung: Absolutely. Initial feedback has been very positive on the AMD financing, based on the strong cash flow profile of the lease, the attractive development yield, and the overall strength of having AMD as an investment-grade tenant. I cannot comment on specific spreads at this point, but we believe the overall structure of the deal—and the relative lack of supply of AMD debt in the market today—supports spreads that will be highly competitive with what we are seeing across the broader financing markets. Mike Grondahl: Got it. Thank you, guys. Operator: Thank you. One moment for our next question. And that will come from the line of Stephen Glagola with KBW. Your line is open. Stephen Glagola: Hey, thanks for the questions. Two parts for me. With the recent changes in leadership on the data center side, has that had any impact on lease discussions you are having with hyperscalers or potential tenants in general? And second, sitting here today, do you feel you have the team in place to simultaneously advance leasing efforts at both Rockdale and Corsicana? Thank you. Jason Les: Thanks for the question, Stephen. One of my ongoing responsibilities as CEO is to ensure that we have the right leadership structure and the right team in place to execute on our strategy. To do that, we are constantly looking at how we are organized and where additional talent can enhance our ability to succeed. Bringing in leaders like Adam Black to lead design and construction is a perfect example of that philosophy in action. You can imagine this is not something that happened overnight; it was some time in the making and was the right move to enhance our leadership structure. These changes have had absolutely no impact on development or commercial discussions. Our continued rapid delivery for AMD—and their decision to exercise part of their option—is a perfect example of that. As we continue to make progress, that will become even more clear. For the second part of your question, do we feel that we have the right team in place right now? I believe we have an extremely strong team to execute at both Rockdale and Corsicana concurrently—and the reason I say that is because we are doing that right now. From design, construction, commercial sales, critical operations, and project execution perspectives, we have an incredibly strong leadership team assembled, working hand-in-hand to advance our strategy. You can expect some incremental hiring for support roles across departments in the future as our business scales, but the core leadership structure has been built, and that is the team executing today. Stephen Glagola: Thank you. Operator: One moment for our next question. And that will come from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open. Brett Knoblauch: Hi, thanks for taking my question. Maybe a quick double on Corsicana. It seems like there is a lot of momentum there, and last quarter you talked about customer conversations for taking down the entire site. Is that still the case? Do you have a preference for single-tenant or multi-tenant? And as a follow-up, on the procurement process for the core-and-shell—where are you on that, as well as the procurement process for what would come after the core-and-shell? Jason Les: Thanks, Brett. On whether the majority of the conversations are still around the entire site—yes, that remains the case, and that is probably our preference. I want to emphasize that we still have the ability to accommodate multi-tenant if that is the way things go. At a potential 756 megawatts of leasable capacity, Corsicana is a huge deal. We have not seen any deals signed by peers at that scale. That is a fantastic asset for us, but it also means it is a big bite to chew for tenants committing to a multiyear deployment schedule at a huge scale. So while the majority of interest is for the full site—as I said on our prior call—there are multiple potential outcomes this can take. There is still a substantial amount of interest, and we are very excited about that. On procurement, we previously secured and have already begun receiving the necessary substation equipment, so we are in a terrific position on the long-lead equipment for core-and-shell. At this point on core-and-shell development, it is largely an exercise in mobilizing labor. I am happy to share that we have secured a general contractor for this phase of development, and they are executing. In fact, this is the same general contractor executing for us with AMD on a very accelerated timeline, and we feel great about this partnership. Beyond core-and-shell—talking about the Tier III eventual buildout of the site—we have been securing long-lead equipment for that, such as backup generators and chillers. As Jason mentioned in the prepared remarks, ESS Metron is scaling up and holding/allocating capacity for Riot Platforms, Inc. use. All of this procurement reflects our confidence in how our strategy is progressing. We are ensuring that we have an attractive offering and an attractive timeline. You can read into why we are making these moves—we feel good about the progress we are making with procurement, and development remains on schedule. Brett Knoblauch: Awesome. Thanks so much, and congrats on the quarter. Operator: Thank you. One moment for our next question. And that will come from the line of Brian Dobson with Clear Street. Brian Dobson: Hey, thanks so much. One more follow-up on financing in general. Bitcoin sales have been a big part of your upfront financing. Do you expect that to continue? And would you elaborate on your view of long-term debt financing and how that fits into your broader strategy moving forward? Jason Les: Let me turn that question to Jason Chung. Jason Chung: Sure. Hey, Brian. That is correct—right now, our Bitcoin treasury and operating cash flows remain the most capital-efficient, non-dilutive sources of funding available to us. As a reminder, we executed our Q1 development entirely without issuing any common equity. Looking ahead to our broader financing philosophy, as our leasing pipeline scales, we recognize that establishing deep, diversified access to capital is critical. We are in active discussions with capital markets participants and evaluating a wide spectrum of debt options, ranging from asset-specific project financing to broader corporate debt markets. To be clear, we are not looking to push all of our future growth through a single financing channel. We fully expect our long-term capital structure to utilize a mix of different instruments, and the specific path we take for any given project will depend on the dynamics of that particular underlying lease, the credit profile of the tenant, prevailing market conditions at the time, and Riot Platforms, Inc. own needs. Regardless of whether a specific project is funded through project finance, capital markets, or otherwise, the mechanics will remain the same in that the debt will be supported by long-duration, highly visible cash flows from investment-grade tenants, in line with our leasing strategy. By maintaining a strong balance sheet today, we are preserving the optionality to tap into the right market with the right instrument at the right cost of capital for every future lease. Brian Dobson: Yeah, thanks very much for the color. Operator: Thank you. One moment for our next question. And that will come from the line of Nick Giles with B. Riley Securities. Your line is open. Nick Giles: Thank you, operator, and good afternoon, everyone. I wanted to ask about the potential cadence of AMD's remaining 150 megawatt expansion option. Is there a date where the options expire? I see the illustrative chart on Slide 22 shows the second 100 megawatt tranche is contingent on power availability—what exactly does that mean? Thanks. Jason Les: The cadence of expansion with the AMD lease will be driven by them. As I said earlier, we will continue to be good partners, deliver capacity, and ensure we are the first call they make when they are looking to expand capacity. As far as the mechanics of the options, the new 100 megawatt option is conditional on first utilizing all of the first option, which now has 50 megawatts remaining. There is some confidentiality to the agreement, so I do not want to elaborate further. One comment: the original lease and expansion clearly go into the two buildings already there—Buildings F and G. For the next 100 megawatts, that would require a new building or capacity being developed. I would say stay tuned as we work on those plans and that development pipeline comes together. Nick Giles: Got it. For my follow-up, regarding your pipeline and the four different growth options, which do you favor most? And out of the 100-plus opportunities referenced in your prepared remarks, were those mostly greenfield and brownfield, behind-the-meter, M&A, or JVs? Jason Les: In this environment where power is so constrained, I do not think you can have a single preference. We laid out that slide because we are pulling on every lever possible to build our pipeline. As we advance commercial discussions at Rockdale and Corsicana, this pipeline becomes even more important—we have built the base of our business with these large core assets, and now we are thinking about how we continue the strategy from there. Our philosophy is that it will require creativity and being open-minded to all of those options. They all have merit, with pros and cons, and you can expect to see a bit of everything as we progress in building our pipeline. Nick Giles: Got it. Thanks for the color, and best of luck. Operator: That is all the time we have today for our question-and-answer session. I would now like to turn the call back over to Mr. Jason Les for any closing remarks. Jason Les: I want to thank everyone for tuning in to our call today—our investors, shareholders, analysts, and partners. We are incredibly excited about the progress we have made and the position we are in today. We have more confidence than ever right now, and we are very excited to continue sharing progress as we make it. We will see you on our next earnings call, if not before. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to the MYR Group First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] Today's conference is being recorded. I will now turn the call over to Jennifer Harper, Vice President of Investor Relations and Treasurer, for introductory remarks. Jennifer Harper: Thank you, and good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the company's first quarter results for 2026, which were reported yesterday. Joining us on today's call are Rick Swartz, President and Chief Executive Officer; Kelly Huntington, Senior Vice President and Chief Financial Officer; Brian Stern, Senior Vice President and Chief Operating Officer of MYR Group's Transmission and Distribution segment; and Don Egan, Senior Vice President and Chief Operating Officer of MYR Group's Commercial and Industrial segment. A copy of yesterday's press release announcing our first quarter results can be found on the MYR Group website at myrgroup.com under the Investors tab. A webcast replay of today's call will be available on the website for 7 days following the call. Please note, today's discussion may contain forward-looking statements. Any such statements are based upon information available to MYR Group's management as of this date, and MYR Group assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. For more information, please refer to the risk factors discussed in the company's most recently filed annual report on Form 10-K. Certain non-GAAP financial measures will also be presented. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in yesterday's press release. With that, let me turn the call over to Rick Swartz. Richard Swartz: Thanks, Jennifer. Good morning, everyone. Welcome to our first quarter 2026 conference call to discuss financial and operational results. I will begin by providing a summary of the first quarter results and then turn the call over to Kelly Huntington, our Chief Financial Officer, for a detailed financial review. Following Kelly's overview, Brian Stern and Don Egan, Chief Operating Officers for our T&D and C&I segments, will provide a summary of our segment's performance and discuss some of MYR Group's opportunities going forward. I will then conclude today's call with some closing remarks and open the call up for your questions. We delivered strong financial results in the first quarter, supported by ongoing work with long-term customers and the selective pursuit of new opportunities while continuing to expand customer relationships. Quarterly results reflect strong bidding activity and continued infrastructure investment to support electrification needs across our business segments. We continue to monitor project opportunities and remain focused on disciplined project execution. Safe, reliable delivery and strong customer relationships remain central to our operations. Our teams are focused on understanding our customers' requirements, maintaining clear communication and producing consistent results. I'm proud of our teams for their continued dedication to quality, safety and collaboration. Now Kelly will provide details on our first quarter 2026 financial results. Kelly Huntington: Thank you, Rick, and good morning, everyone. Our first quarter 2026 revenues were $1 billion, which represents an increase of $167 million or 20% compared to the same period last year. Our first quarter T&D revenues were $541 million, an increase of 17% compared to the same period last year. T&D segment revenues increased primarily due to higher revenue on unit price and T&E contracts, partially offset by a decrease in revenue on fixed price contracts. Work performed under master service agreements increased to approximately 70% of our T&D revenues. C&I revenues were $459 million, a record high for our C&I segment and an increase of 24% compared to the same period last year. C&I segment revenues increased primarily due to higher revenue on fixed price contracts. Our gross margin was 13.4% for the first quarter of 2026 compared to 11.6% for the same period last year. The increase in gross margin was primarily due to a larger portion of our projects progressing at higher contractual margins, some of which are nearing completion. Gross margin was also positively impacted by better-than-anticipated productivity, favorable change orders and a favorable job closeout. These margin increases were partially offset by an increase in costs associated with inefficiencies on certain projects. T&D operating income margin was 9.7% for the first quarter of 2026 compared to 7.8% for the same period last year. The increase was primarily due to better-than-anticipated productivity and a favorable job closeout, partially offset by an increase in costs associated with inefficiencies on a project. C&I operating income margin was 8.1% for the first quarter of 2026 compared to 4.7% for the same period last year. The increase was primarily due to a larger portion of our projects progressing at higher contractual margins, some of which are nearing completion. C&I operating income margin was also positively impacted by better-than-anticipated productivity and favorable change orders, partially offset by an increase in costs associated with inefficiencies on certain projects. First quarter 2026 SG&A expenses were $69 million, an increase of approximately $7 million compared to the same period last year. The increase was primarily due to higher employee incentive compensation costs and employee-related expenses to support future growth. Our first quarter effective tax rate was 26.9% compared to 28.9% for the same period last year. The decrease was primarily due to a favorable impact from stock compensation excess tax benefits, partially offset by higher U.S. taxes on Canadian income and other permanent difference items. First quarter 2026 net income was a record $47 million compared to net income of $23 million for the same period last year. Net income per diluted share of $2.99 increased 106% compared to $1.45 for the same period last year. First quarter 2026 EBITDA was a record $82 million compared to $50 million for the same period last year. Total backlog as of March 31, 2026, was a record $2.84 billion, 8% higher than a year ago. Total backlog as of March 31, 2026, consisted of $981 million for our T&D segment and $1.86 billion for our C&I segment. First quarter 2026 operating cash flow was $85 million compared to operating cash flow of $83 million for the same period last year. The increase in cash provided by operating activities was primarily due to higher net income, partially offset by the timing of billings and payments associated with project starts and completions. First quarter 2026 free cash flow was $69 million compared to free cash flow of $70 million for the same period last year. This slight decrease was due to higher capital expenditures, partially offset by an increase in operating cash flow. Moving to liquidity and our balance sheet. We had approximately $258 million of working capital, $9 million of funded debt, $460 million in borrowing availability under our credit facility and $163 million in cash and cash equivalents as of March 31, 2026. We improved our already strong funded debt-to-EBITDA leverage ratio to 0.04x as of March 31, 2026. We believe that our credit facility, strong balance sheet and future cash flow from operations will enable us to meet our working capital needs, support the organic growth of our business, pursue acquisitions and opportunistically repurchase shares. I'll now turn the call over to Brian Stern, who will provide an overview of our Transmission and Distribution segment. Brian Stern: Thanks, Kelly, and good morning, everyone. The T&D segment delivered strong first quarter results, supported by a mix of small to midsized projects across our markets. Execution remains consistent with a focus on safety, quality and reliability. Bidding activity remained steady with increases in revenue and margins from the prior quarter and compared to our first quarter of last year. We continue to deepen relationships with long-standing customers while also pursuing opportunities with both new and existing customers, supported by a positive industry outlook. This quarter, Sturgeon was awarded an MSA in Arizona, spanning transmission, distribution and substations along with EPC program opportunities in the Northwest. Great Southwestern Construction secured the construction of 2 greenfield substations in Texas. High Country Line Construction was selected for substation work in Arizona, along with the 345 kV transmission line project in South Carolina. L.E. Myers was selected for a 345 kV transmission job and several overhead distribution rebuild projects across Illinois and Iowa. Harlan Electric was awarded overhead transmission work in Pennsylvania. This activity is supported by a strong industry outlook. According to the S&P Global Horizons Top Trends 2026 report, grid infrastructure has become a central focus in 2026 as electrification and digital demand continue to strain existing systems and underinvestment in transmission and distribution modernization presents a potential bottleneck for reliability and capacity growth. This dynamic reinforces the ongoing importance of our T&D project activity across our markets. We expect work to remain steady across the U.S. and Canada, spanning a range of sizes and complexities. Our ability to support this demand is driven by a continued focus on safety and ongoing investment in our workforce. We are proud of our accomplishments in the first quarter and look forward to advancing this momentum in the months ahead. I'll now turn the call over to Don Egan, who will provide an overview of our Commercial and Industrial segment. Don Egan: Thanks, Brian, and good morning, everyone. Our C&I segment achieved strong first quarter results supported by the health of our core markets. Bidding activity remained consistent and backlog expanded further, reflecting both market demand and the depth of our customer relationships. By working closely with customers to understand their needs, plan projects effectively and execute safely and efficiently, we continue to create opportunities for long-term collaboration across projects of various sizes. These strong ongoing customer relationships remain central to our strategy, reinforcing our position as a trusted partner in the industry. Data center projects and water, wastewater projects are driving the strongest growth in today's construction market. According to FMI's 2026 North American Engineering and Construction Outlook, data center construction starts are up nearly 100% year-over-year. While nonbuilding infrastructure such as power, water and wastewater also continues to grow, supported by committed funding and long-term investment needs. These projects require specialized expertise in grid modernization and complex installations creating multiyear backlogs and sustained demand. The result is a clear divergence within the construction market. Mission-critical electrical and infrastructure work is showing sustained resilient growth, while more traditional commercial building segments remain volatile. Our teams across all subsidiaries continue to execute and pursue a diverse range of projects. We were awarded multiple data center projects in New Jersey, Arizona, California and Colorado, clean energy work in California and multiple water treatment plants in Colorado. These awards reflect the strong and growing demand for data centers and related electrical infrastructure projects across our key markets. We continue to earn significant project awards, reflecting our ongoing ability to deliver value across markets and sectors. In closing, we continue to see steady performance across our core markets, supported by our long-standing customer relationships that drive opportunities. Our employees remain central to this execution with a consistent focus on quality and safety across every project. Thank you, everyone, for your time today. I will now hand the call back to Rick for his closing remarks. Richard Swartz: Thank you for those updates, Kelly, Brian and Don. Our first quarter 2026 performance reflects the effectiveness of our business strategies and the value of our long-term customer relationships across both segments. We believe we are well positioned for continued growth as investments in electrical infrastructure increases, supported by safe execution, disciplined bidding and close collaboration with our customers in a dynamic energy environment. Our record of integrity, teamwork and dependable project delivery enables us to pursue new opportunities and deepen long-term customer relationships. I appreciate our employees for their contributions and our shareholders for their ongoing support. As we move through the rest of 2026, we look forward to building on the progress and continuing to strengthen our customer relationships across the business. Operator, we are now ready to open the call up for comments and questions. Operator: [Operator Instructions] Our first question comes from Sangita Jain of KeyBanc Capital Markets. Sangita Jain: First, can I ask about C&I margins, which were very, very strong in 1Q. If you could help us kind of understand what led to the strength and what we should expect going forward? Richard Swartz: Yes. I said our backlog margins were similar to what they were in the past, but we had less risk in our contracts. And again, we've been focusing on carrying less risk in our contracts along with project execution and making sure that we continue to do as much prefab as we can. We do it in a controlled environment where we're taking that labor risk out of the field. So we continue to double down on that. And then we also had some projects that were nearing completion that had some potential upsides. With that being said, our margin profiles coming into this year, we were at 5% to 7.5%, and we're looking to increase that going forward for the rest of the year. We're looking kind of at that 6% to 9% margin profile and operating kind of in that mid-ish range on the C&I side. Sangita Jain: That's helpful. And then can we talk overall guidance for the year because you also beat on -- well, I shouldn't say beat, but your revenue performance was also very strong in 1Q, and I think you said 10% in each segment for the year? And how should we think about T&D margins, which also came in towards the high end of your range? Richard Swartz: Yes. I think previously, our margin profile on T&D was at 7% to 10.5%. And as we look at what's in our backlog and the quality of our backlog work, really upping that margin profile to that 8% to 11% with the goal of operating in that mid part of that range. So again, an increase on that one going forward for the rest of the year. Now quarter-to-quarter in either one of those, it can be a little lumpy depending on which projects are starting and finishing. But we see that kind of as our goal overall. Along with that, I think if you look at our revenue growth, we came into the year saying we have that 10-ish percent growth. I think when we look at it across both segments as a whole, kind of that 12-ish percent growth this year is where I would forecast that out, knowing it can be lumpy quarter-to-quarter depending on how subcontractors come into our mix or materials delivered. So it can be a little lumpy between segments, but I'd look at that overall 12% growth on revenue. Operator: Our next question comes from the line of Manish Somaiya of Cantor Fitzgerald. Manish Somaiya: Congrats team on a fantastic quarter. Rick, I wanted to just go back to the C&I business. I think you mentioned that the fixed price contracts are now about 86% of the mix. If you could just help us understand where that mix has been over the past year, over the past couple of years? And perhaps that's what's kind of driving some of the upside in C&I based on solid execution? Richard Swartz: It's solid execution on that. I mean, as I said, a little less risk in our contracts, so more favorable terms and conditions, managing our projects very well. So that's really where it is. I'd say that mix has been similar over the past. So fixed cost is really a big component of how we do C&I work. I think we're pretty good at executing it as a whole and our customers trust us and continue to release that work. But again, with contracts that have a little less risk in them contractually than what historically they've had. Manish Somaiya: Okay. Helpful. And then, Kelly, if you could just talk about cash flow from operations, free cash flow. Clearly, Q1 was exceptionally strong. How should we think about it for the rest of the year? Kelly Huntington: Sure. Yes, we delivered another strong quarter from a cash flow perspective, and we were able to maintain our DSO in that kind of mid-50s range, which is significantly below our historical average. I think if we look out, we could see DSO rise to the low 60s, and that will really depend on the timing of new awards and the weighting between projects with more favorable billing structures versus more MSA-like work. As I noted in my comments on the call, MSA work in T&D represented 70% of our revenues, which was an uptick from what we've seen for the last few quarters. And we like that work. It's recurring, it's predictable, but we never get into an overbuild position. So that can represent a little bit of a headwind from a DSO perspective. The other thing I would say about cash flows is I would just point out CapEx. We've been talking for a couple of quarters now, how we expect that to be trending more to about 3% of revenue on a full year basis. And that is above our historical average, really driven by the opportunities that we see on the T&D side of the business that is the more capital-intensive side of the business. And with first quarter being light from a CapEx perspective, which was really just due to timing, that does mean we'll see an increase as we look rest of the year. Operator: Our next question comes from the line of Julien Dumoulin-Smith of Jefferies. Brian Russo: It's Brian Russo on for Julien. I was wondering if you could just elaborate a little bit more on what's driving the structural margins higher now in both segments? Is it just your confidence in your labor productivity and maybe better contract terms? Or is it more so a function of the electrician labor constraints that we read and see nearly every day in the end markets that you serve. Is that driving better bidding power for you and the E&Cs. Richard Swartz: Yes. I would say that tight market right now on labor isn't really turning into margins today and what we're seeing. It still remains fairly competitive, and we feel that will potentially change in the future, and we continue to be selective on the larger projects we're taking on because I've said in the past, we don't want to be the first in on those projects, plenty of opportunities, great conversations going on with our clients. I think it really has more to do about what I talked about a little earlier in the call with better contract management, better terms and conditions and then better execution on our project side as far as the way we're laying out our projects, doing pre-fab, kitting our material, really being more efficient out there. So that's really where we've seen those margin increases. But again, hopefully, in the future, we can see more margins come in because of the tightness of the market with the labor. Brian Russo: Okay. And should we assume kind of gradual improvement in the segment margins as we move through the year, assuming lower margin projects are burned off and replaced in the backlog with the higher margin type profile? Is that the way to progression? Richard Swartz: I think from quarter-to-quarter, it can be lumpy. We've given the new margin profiles that 6% to 9% operating margin for C&I and that 8% to 11% for T&D. And again, we plan on operating on a yearly basis, kind of in that mid-ish range of those. With that being said, it can always be lumpy quarter-to-quarter depending on weather, depending on project timing, which ones are finishing up, which ones are starting. So again, on a yearly basis, I'd look at that. But from a quarterly basis, it's always going to be lumpy. Brian Russo: Got it. And then just on the T&D side, can you just talk about some of the recently signed MSA awards and kind of the cadence of layering that into the backlog, the Xcel $500 million 5-year MSA and then I think it was a Kentucky new MSA highlighted last quarter. Neither of those are in backlog yet. Is that accurate? Richard Swartz: The Kentucky one wouldn't be in complete backlog yet. I mean we're not burning it. So the whole amount is not in there. Again, we only count on the MSA side, 90 days of that work in our backlog. So the Xcel one is starting to have some activity, but a little bit slower start as we said it would. And we see that progressing and going forward and that spend really start continuing to ramp up this year slowly and into next year and take off from there. But good activity on those projects and great opportunities going forward. Brian Russo: Okay. And then just lastly, I think your 10-K referred to any large transmission or T&D project awards granted this year would not start construction or generate revenue until 2027 at the earliest. I mean is that kind of insinuating that you're still in discussions on some high-voltage transmission projects? And that -- is that what you were referring to? Or were you being more broad? Richard Swartz: Yes, we are. Yes, that's -- we anticipate with our conversations going on that some of those large projects will start rolling in our backlog this year. So we see that still happening, ongoing great conversations with our clients, and we see that continuing into next year also. But we do feel we'll have some large projects come into our backlog in the future quarters. Operator: Our next question comes from the line of Ati Modak from Goldman Sachs. Ati Modak: I guess some of your peers in the market are increasingly stepping into C&I data center exposure. I'm curious how you're thinking about your exposure on a relative basis. You've guided to a very strong year and obviously, the fundamentals look pretty strong. But does it create a little bit more competition or risk to project awards or pricing concerns? Any thoughts on that? Richard Swartz: Not overly concerned. We've got long-term client relationships with a lot of the data center providers. We've been doing it since we're not just trying to get in the market now. We've been doing data centers since data centers first started. So again, we continue to expand that market, very good conversations with our clients. But along with that, we've always said we want to balance business. So we don't want 100% of our resources just doing data centers. But again, we haven't seen margin pressure from these new entrants. There's a lot of work going on. And again, it's how do we keep our relationships with our clients going forward and keeping those relationships strong. Ati Modak: Great. And then I guess you mentioned some of the transmission line awards along the larger projects. You mentioned 345 kV line awards. So I'm curious what the outlook for [ 500 kV ] and more specifically 765 kV lines looks like as you think about the rest of the decade. Like in terms of your conversations, how are you positioning for that? Richard Swartz: I feel we're well positioned for that. We've done -- there hasn't been much 765 kV done in the country, but we performed that work in the past, having great conversations with our clients. It's a matter of project timing. I think the 765 kV for the most part, won't get started the project at the earliest, probably mid next year, rolling out. But again, very good conversations with our client. We've got long-term alliances with some of those clients that are building that work. And as I said, ongoing conversations. So hopefully, more to come in this year, next year. I think there's great activity in that market, though. Operator: Out next call comes from Brian Brophy of Stifel. Brian Brophy: Congrats on the nice quarter. Just a big picture question for me, Rick. How would you compare the environment you're seeing here today, maybe over the next couple of years to the demand environment we saw back during the CREZ project in 2013 and 2014? And what do you think the market [ implications ] of that? Richard Swartz: Yes. I don't -- I really can't say what the market -- what the margin impact or implications are on that. What I can say is when you go back to the CREZ days and you look at that during that '13, '14, '15 time frame, it had an increased margin against not just on our work, but across all our peers at that point. But that was in one area. I mean that was [ 2,500 miles ] being built out in Texas. And now you have the build-out going across the United States over the next 10 years or so, over the next decade. So I think it's just going to be amplified from what we saw there. Potentially, we're not seeing that yet today. But again, our conversations with clients aren't just about projects that are going to start in the next year or 2. We're having conversations with clients about projects going to start in '30, '31, '32 and beyond. And they're concerned about 2 things where are they going to -- how do they get the material lined up to have their project built on time and where -- how do they get their labor secured. So very good conversations with our clients. Operator: Our next question comes from the line of Justin Hauke of Baird. Justin Hauke: Great. First of all, thank you for giving those updated margin targets. That's interesting. I just wanted to clarify on those, the 6% to 9% for C&I and the 8% to 11% now for T&D, those are like kind of multiyear targets at this point, right? That's not -- you're not talking about just for this year because of some of the pull-through, but that's kind of the operating environment as it stands today, right? Richard Swartz: Yes. We see that, as I said, on a yearly basis this year, we feel those are our margin profiles we can operate within. I think when you look beyond, I don't see the market getting any softer. So we haven't got done anything beyond that, but that's where I see it for this year. And again, I think there's great opportunities going in future years. Justin Hauke: Yes. Okay. That's what I figured. And then I guess the second thing, I heard you talk a little bit more about the prefab capacity that you guys have as something that's been controlling the risk terms on your jobs. I feel like you mentioned that more than you have in the past. And Kelly, maybe it's a question on the CapEx as well. You've got a lot of net cash here, $152 million. Is that one of the areas where you're seeing or where you expect to kind of deploy some of that capital to the extent that there aren't acquisitions that you do and kind of expanding some of that prefab capacity? Kelly Huntington: Sure. I can start on that, and then Rick or John might give you a little bit more color. But absolutely, that is an area where we continue to invest. I mean we've been doing prefab for a long time, but I think our teams are continuing to push the limits on how we can perform more work in a controlled environment in a way that really helps us to be effective at the job site, especially in congested areas and can help support our more consistent execution. I would still say that the vast majority of our capital expenditures go to the T&D side of the business, but it is part of our growth in CapEx overall. Richard Swartz: Yes. And then you talked a little bit about our strong balance sheet and what we're doing with that. I think we'll continue to invest in the prefab, but that's not going to take that all up. So I think we continue to look for acquisitions. And I'll say right now, there's some great activity in the market with some, I would say, some high-quality companies that are out there. So we talked about kind of the 12-ish percent growth on revenue overall, and that's on the organic side. If we capture the right, I guess, acquisition and it came into our portfolio, that would be above that. So again, we're looking to potentially do acquisitions with that money or do stock buybacks either way. Kelly Huntington: Yes. And I would just kind of reiterate Rick's point in a very strong financial position with almost no debt at the end of the quarter and [ $160 million plus ] in cash on the balance sheet. So in a good position to support that strong organic growth that we're seeing as well as pursue the right acquisitions. Operator: At this time, I'm showing no further questions in the queue, and I would now like to turn the call back over to Rick Swartz for additional closing remarks. Richard Swartz: To conclude, on behalf of Kelly, Brian, Don and myself, I sincerely thank you for joining us on the call today. I do not have anything further, and we look forward to working with you in the future and speaking with you again on our next conference call. Until then, stay safe. Operator: Thank you very much. This concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Good day, and welcome to UFP Industries Q1 2026 Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead. Stanley Elliott: Good morning, everyone. Thank you for joining us to discuss UFP Industries' first quarter 2026 results. Joining me on our call are Will Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Following our prepared remarks, we will open the call for questions. Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the factors identified in this release and our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website, ufpi.com. I will now turn the call over to Will. William Schwartz: Good morning, everyone, and thank you for joining today's call to discuss our financial results for the first quarter of fiscal year 2026. We'll start by sharing our thoughts on the quarter, what we are seeing in the marketplace and provide some thoughts on how we see the business performing for the balance of the year before opening the call for questions. Many of these same dynamics that we saw through much of 2025 continued into our first quarter. After seeing some stabilization through much of the quarter, macro headwinds and competitive pressures increased volatility as the quarter progressed. We were also adversely affected this quarter by a longer-than-normal winter season, and so the normal seasonal uplift during the month of March failed to materialize. In addition to the impact of softer demand, our results were impacted by higher medical costs than the previous year. This abnormal activity throughout March contributed to roughly 60% of the year-over-year decline in profitability in the quarter. Business conditions have since leveled out, but given the ongoing geopolitical uncertainty and broadening inflation, particularly around higher transportation costs, we are approaching the remainder of the year with a slightly more cautious outlook. Our Q1 results are reflective of the current operating environment. Net sales of $1.46 billion were down 8% from Q1 of 2025, representing a 7% decrease in units and a 1% decrease in price. Our adjusted EBITDA margin for the quarter was 7.6% and earnings per share for the quarter was $0.89. Despite the temporarily challenged environment, we will continue to be focused on refining and growing our core business. We will focus on controlling costs, and we plan to use this period of uncertainty to be more opportunistic and leverage our strong financial position. With approximately $2 billion in liquidity, we intend to pursue meaningful M&A, while returning our free cash flow to shareholders through opportunistic share repurchase and dividends. As we've said before, we continue to target above-market growth with an emphasis on returns, and we continue to make strategic investments that contribute to the long-term success of our business. In the immediate term, new product sales remain consistent at 7.5% of sales on a trailing 12-month basis. We also have a sharp eye towards strengthening our core business for the long term, deploying capital for greenfield investments and M&A, introducing innovative products and structurally lowering our cost base. On the cost side, we are actively mitigating higher costs and remain on track to deliver the remaining $25 million of our $60 million cost-out program by year-end with the potential to capture incremental savings beyond our initial targets. While Mike will share additional color on the results, we were also pleased to announce two post-quarter end acquisitions that align with our disciplined strategy to deploy capital toward high-quality strategic fits. Before I get into the details, I'd like to start by welcoming the employees of Moisture Shield and Berry Palets into the UFP family. These companies were a strategic financial fit, but equally important, they aligned well with our future. In our Deckorators business unit, we announced the acquisition of moisture Shield decking operations from Oldcastle APG. The acquisition adds a wood/plastic composite plant in Springdale, Arkansas, which meaningfully expands our capacity, adds redundancy to our operation and enhances our ability to bring unique products to market. Additionally, this acquisition eliminates the need to spend capital on a new greenfield as demand for our product has outpaced capacity. We anticipate that this acquisition gives us the needed footprint to double our wood/plastic composite decking manufacturing capacity by 2027. Additionally, the acquisition also brings the rights to Moisture Shield's cool deck technology, a proprietary heat mitigating technology, which reduces heat transfer by up to 35%. We believe this would fit alongside our Deckorators decking line, including integration into our Surestone technology boards. In our Packaging segment, we also welcome to the UFP family Berry Pallets, a new pallet manufacturer in the Upper Midwest that expands our geographic reach and strengthens the density of our pallet network. These opportunities to increase the scale and synergy of our business only create value if we integrate it well, and that's exactly why earlier this month, we announced Patrick Benton will transition from his role as President of UFP Industries Construction segment to the newly created Executive Vice President of Operations Integration position. Patrick has spent his career running some of our most profitable plants and business units, and he knows firsthand what it takes to drive efficiency, reduce cost and accelerate the path to strong returns. In his new role, Patrick will apply that operational discipline across our growing portfolio of acquisitions, ensuring we move faster from close to contribution and that every business we bring into the UFP family performs to its full potential. Now moving on to segment highlights, beginning with retail. Our largest business unit, ProWood, continues to make progress on lowering our cost positions and improving our manufacturing process. Some of this progress was overshadowed by the levels of inflation we saw in the quarter as well as the later-than-usual winter conditions. ProWood is an industry-leading brand, and we continue to add more value across our portfolio. A great example of this is our TrueFrame Joists product launched last month at JLC. As a reminder, this is the business unit's first proprietary product designed specifically for use in deck substructures. The value we add on the front end eases several common pain points for contractors, saving time and money. We have expanded production into four manufacturing plants and increased our sales efforts to capitalize on the demand pull. While still relatively small, this is a compelling product line extension in our core pressure treating and decking products. Similarly, we are pleased with the repositioning of our Edge business and prospects for profitable growth. Our new Arris trim made with Surestone technology will begin shipping to customers late this quarter. Early demand indicators look quite favorable as contractors are gravitating to the same product features that has made our Surestone decking offering so compelling. Turning to Deckorators. We continue to see strong momentum from last year carry over into our first quarter. Our Surestone decking sales increased 27% and our traditional wood/plastic composite decking increased by 4%, both from the same quarter a year ago. We believe both metrics remain ahead of the broader industry. We were pleased with the results of our efforts last year to enhance Deckorators brand and intend to maintain that effort in 2026. In addition to our elevated sales volumes, our measures of consumer interest have more than doubled over the past year. These metrics include where to find a contractor, where to buy decorators and sample requests, both at big box retailers and through our website. The outperforming demand stated earlier, combined with a measurable customer feedback gives us confidence in our stated plan to double market share over the next five years. We remain excited about the progress we are making within both our Surestone and wood/plastic manufacturing facilities to increase capacity and meet growing consumer demand. Our first truck left Buffalo in mid-April, and we continue to ramp up production at both our Surestone production locations. We look forward to being fully operational in Q2, which will help us continue to work through the sales backlog that we were not able to realize in the first quarter. Coupled with the recent MoistureShield acquisition, we are well positioned to capture growth entering 2026 and beyond. Despite near-term macro uncertainty, our confidence in the business remains strong, and we continue to expect $100 million of incremental Deckorators growth this year. Our Packaging segment continues to make progress despite an uneven macro backdrop. We are positioning the business for longer-term success by introducing new value-add products to our customers, investing in automation and investing in new and lower-cost manufacturing. Quoting activity has remained strong, but customer takeaway remained mixed, which is reflective of the uncertainty across many end markets. The combination of higher commodity prices and a competitive market remain an overhang on profitability. That said, we are encouraged that our margins continue to stabilize sequentially and supports our view that we are closer to the bottom of the cycle. We continue to believe that our national footprint gives us geographic expansion opportunities and our design and engineering capabilities separate us from many of our smaller, more regional competitors who lack the manufacturing scale and financial position to compete with national customers. With the improvements we made to the business, we can deliver above-market growth in a recovery. Moving on to construction. The macro story in our Construction segment has been fairly consistent for the past several quarters, but we continue to actively reposition our portfolio. A challenging new residential construction environment continues to weigh on results, overshadowing improvements across our other businesses. Residential builders remain cautious, managing home inventories carefully ahead of the spring selling season, while consumer confidence and affordability headwinds persist. We continue to make investments in automation and other initiatives to improve our cost position and throughput. One of these initiatives is the Frame Forward Systems brand that we launched in February at the International Builders Show. Frame Forward Systems positions our site-built business unit to move our wood framing business beyond commodity component sale to capture increased margin through a system selling approach and to drive greater customer loyalty. While early, Frame Forward Systems has been very well received by the construction trade as we continue to raise the bar on off-site manufacturing to address the on-site challenges in the construction industry. Similarly, in our factory-built business, this business unit continues to actively add more value to our customers through partnerships, expansion of distribution capabilities and by facilitating cross-selling with other parts of our business. Our concrete forming business continues to expand our products and services offerings to capture more of our customers' wallets while helping them address labor challenges on the job site. Finally, our Commercial business continues to build on new products, new customer relationships and the benefits from prior restructuring actions to deliver improved results. Across our Construction segment, we are actively finding ways to solve our customers' problems by helping address labor, quality, production cost and reduce build time to help our customers win in the marketplace. Looking ahead, we remain committed to our long-term targets and believe the steps we are taking today will position us to achieve these results in the future. As a reminder, we are driving towards the following goals: a 12.5% EBITDA margin, 7% to 10% unit sales growth, some of which will come from M&A and new products; ROIC in excess of 15%, which is well ahead of our cost of capital. And lastly, to achieve all of this while maintaining a conservative capital structure. While the market dynamic has changed since our last call in February, it has not dampened our enthusiasm for our business longer term. As we've said before, we have confidence in our model and our focus remains on the most attractive opportunities that enhance our core business. We're taking action to reduce costs, rightsize capacity and exit underperforming or non-core businesses, while positioning the company to deliver above-market growth and margin expansion as market conditions normalize. With that, I'll turn it over to Mike Cole. Michael Cole: Thank you, Will. Net sales for the March quarter were $1.5 billion, down 8% from $1.6 billion last year. The change reflected a 7% decline in units and a 1% decline in pricing. Units declined due to continued weakness in residential construction activity, adverse weather, the exiting of select low-margin commodity sales and softer demand for new pallets. Pricing was impacted by a 6% decline in lumber and continued price pressure in our site-built business. Adjusted EBITDA was $111 million, down $31 million year-over-year, and adjusted EBITDA margin was 7.6% compared with 8.9% in the prior year period. The decline was driven primarily by Site Built, where gross profit decreased by nearly $19 million, along with higher health care and transportation costs across the portfolio, which increased approximately $7 million and $3 million, respectively. Despite these headwinds, our trailing 12-month return on invested capital remained above our weighted average cost of capital at nearly 11%, demonstrating continued value creation through the current phase of the cycle. Turning to our segments. I'll begin with the Retail. Retail sales were $531 million, down 12% year-over-year, driven by a 13% decline in units, partially offset by 1% higher pricing. ProWood units declined 15%, reflecting soft demand driven by adverse weather, weaker consumer sentiment and the absence of storm-related demand. We also exited certain low-margin commodity sales starting in Q2 of 2025. Deckorators delivered 2% unit growth as decking continued to outperform the market. Overall, decking sales increased 16%, led by 27% growth in Surestone, which was supported by capacity added at our Alabama plant. And wood/plastic composite decking increased 4%. We continue to target above-market growth in our Deckorators business unit. In April, we added wood/plastic composite manufacturing capacity in Arkansas through an acquisition. Our new Surestone plant in Buffalo just started shipping, and we continue to expand distribution across professional and retail channels, all of which is expected to support additional share gains in 2026 and beyond. Edge volume declined 20% as we closed our [ Bonner ] facilities and narrowed the portfolio to products we expect to meet profitability targets by the end of 2026, representing the significant actions needed to restructure the business unit. Retail adjusted EBITDA was down $1 million year-over-year. Gross profit and SG&A were both essentially flat, reflecting improved mix and continued cost control, while we continue to invest in the Deckorators brand. We remain focused on improving ProWood distribution and increasing throughput and margins in Deckorators. With these initiatives and the EDGE restructuring substantially complete, the Retail segment is well positioned for improved results in 2026. Packaging sales were $394 million, down 4% year-over-year, reflecting a 2% decline in units and a 2% decline in pricing. Structural packaging volumes were flat. PalletOne units declined 7% and protective packaging units increased 5% as new greenfield locations continue to ramp up. Across the segment, we continue to gain share with key customers because of our ability to provide value-added solutions and a comprehensive product portfolio on a national scale. Packaging adjusted EBITDA was $28 million, down $7 million year-over-year. The decline reflected lower volumes and higher input costs in PalletOne, along with unabsorbed overhead as protective packaging greenfield operations continue to focus on achieving targeted volumes. We partially offset this gross profit impact with a $2 million reduction in SG&A, primarily from incentives tied to profitability. Construction sales were $465 million, down 10% year-over-year with a 5% decline in price and a 5% decline in units. The change was driven primarily by a 14% unit decline in site-built as housing demand remains pressured by affordability and weaker consumer sentiment and larger builders are focused on lowering inventory. We are, however, seeing improving trends among multifamily customers. Factory-built units declined 7% as we exited certain low-margin commodity sales. While volume was lower, mix improved and supported higher profitability. And commercial and concrete forming each achieved mid-teens unit growth. Construction adjusted EBITDA was $26 million, down $12 million year-over-year, driven by market weakness and competitive pricing pressure in Site Built. The other three business units improved profitability through growth and more favorable mix, partially offsetting the decline. As we manage through this cycle, we're balancing cost discipline with continued investment on our long-term strategy. We remain focused on aligning our cost structure with current demand while continuing to fund growth initiatives, product innovation, brand awareness and technology-enabled productivity improvements. Consolidated SG&A declined over $3 million year-over-year due to lower incentive compensation tied to profitability. For 2026, our key cost structure targets are $25 million in cost savings from capacity consolidations, reducing cost of goods sold and keeping us on track to achieve the $60 million cost-out goal we announced last year. Core SG&A of approximately $570 million, including Deckorators advertising and excluding the following incentive-related items. Bonus expense of 17% to 18% of pre-bonus operating profit, sales incentives of about 3% of gross profit and $21 million of vesting expense for prior year stock-based incentives, an effective tax rate of 25% to 26% and total depreciation, amortization and other noncash expenses of approximately $200 million. Turning to capital resources and capital allocation. The company continues to maintain a strong balance sheet. At the end of March, the company had $714 million in surplus cash and no borrowings under its credit agreements for a total liquidity of approximately $2 billion. Our surplus cash was approximately $200 million lower than at year-end, driven by a typical seasonal working capital build that we expect to convert to cash by early Q4. We believe our diversified business portfolio generates meaningful and consistent free cash flow to support organic growth and M&A. Last year, we converted 80% of adjusted EBITDA into free cash flow. Our highest capital allocation priority is to invest in opportunities, organic and inorganic that grow our core businesses and increase margins and returns over time. Our focus areas are expanding geographically in core higher-margin businesses where we have sustainable competitive advantages, expanding capacity for new and value-added products and driving operational excellence through automation, consolidation and enhanced productivity. Consistent with this framework, in April, we completed one acquisition and announced a second that we expect to close in May. On April 6, we purchased the net operating assets of MoistureShield, Inc. And on April 28, we announced our plan to acquire the net operating assets of Berry Pallets. These transactions are aligned with our capital allocation strategy to strengthen our core portfolio, expand capacity in the geographies we serve and improve margins. We also intend to return capital by growing our dividend in line with long-term free cash flow and repurchasing shares primarily to offset dilution from stock-based compensation. We will evaluate additional repurchases opportunistically when we believe our shares are trading below intrinsic value, and we'll preserve our balance sheet strength to fund growth. With these points in mind, the Board approved a quarterly dividend of $0.36 per share, a 3% increase from a year ago. We have a $300 million share repurchase authorization in place through July 2026. Year-to-date, we've repurchased 30 million shares at an average price under $90 per share. We currently expect $250 million to $275 million of CapEx, about $50 million lower than our February target due to the MoistureShield transaction. And we continue to build our M&A pipeline around targets that fit strategically, offer higher margin and return potential and present opportunities to meaningfully scale our core businesses. As we pursue these opportunities, we'll remain disciplined on valuation. I'll conclude with our outlook. We expect the current market environment to persist through 2026. Based on current headwinds and visibility, we believe demand for the balance of the year is trending toward the lower end of our prior guidance, which assumes flat to slightly down unit volumes across our segments based on mix. With respect to input costs, we expect continued pressure from energy and transportation. While pricing actions are underway to offset these items, the benefit is expected to take time to flow through the income statement this year. Positively, we believe market share gains, capital investments and operating improvements should help offset headwinds in markets tied to new residential construction. For example, we continue to target $100 million of growth in Deckorators, decking and railing sales. With that, we'll open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Kurt Yinger with D.A. Davidson. Kurt Yinger: I just wanted to start off on ProWood. I know that you lost some lower-margin business last year, but it also sounds like kind of that slow progression into spring impacted the March period. I guess with the commentary that April has maybe leveled out a little bit, would you expect to see some better volume trends there? William Schwartz: Yes. I think that's fair to say, Kurt. If you look at it, there's the factors and points that we referenced in some of the commentary, whether it's kind of carryover of really a very slow storm season from last year. A lot of that tail drags into 2026 into the first quarter. We didn't have that, obviously. You combine that with unusual weather patterns and then the change in business mix, some of those volumes we talked about. So yes, we -- I think if you take some of that noise out, it really matches up well to some of the guidance we've talked about for single-digit down, and I think that carries forward. Kurt Yinger: That's helpful. And then on the Deckorators side, obviously, still a very good quarter in terms of decking sales growth. Can you just talk about how that matches up maybe internally versus your plan? And then as we think about the need to hit accelerating growth to get to that $100 million target with Buffalo online, does that really help ramp things up in Q2, or is it maybe more of a back half kind of phenomenon in terms of when a lot of that starts to flow through? William Schwartz: Kurt, it's a combination of both. I think you're -- what you're reading into Q1 is exactly aligns with the amount of production that we have. So with those CapEx improvements coming online, [indiscernible] fully operational. But as described, we shipped our first truck mid-April out of Buffalo. So that's a quick ramp-up. But really, as you get to Q3, Q4, we'll be able to capitalize on a lot of backlog of orders. So our first quarter sales matched up to what we had to sell. So we were very happy. It's right on track in those CapEx advance. It's right where we expect it to be at this point. Kurt Yinger: Okay, okay. Great. And then just last one on the transportation and energy side. Without maybe putting too fine a point on it, could you just help us kind of frame maybe what type of headwind do you expect that to be relative to what you're kind of budgeting at the start of the year? And then also talk a little bit about kind of the process of passing that additional cost on. Is it something that a portion of your contracts with customers might be embedded with just a time lag or something that's more negotiated? Just help us understand that dynamic a little bit. William Schwartz: Yes. The -- that's a hard one. The month of March is where we really felt the impact. And certainly, when the conflict started, we didn't know how prolonged that would be at the point that we realized we were a month in that looks like this is going to have a longer-lasting effect, we started those conversations with customers. And fortunately, for us, because of the relationships we have, they understand. We're not the only ones in that game with the cost out of our control. And so those are starting to go into place or already in place in most cases and will continue as -- in the different markets that we serve. But yes, as it looks right now, it looks like that's going to continue to be a bit of a headwind, but we've got it covered in the form of covering those costs and continue to work through it with customers. Kurt Yinger: Is it fair to say then that we kind of see that headwind in Q2 and then the back half, you feel like you're pretty well set in offsetting it, barring another kind of material inflation shock, or is it maybe going to be really the latter part of the year where you think? William Schwartz: Yes. I think as you described it, I think it's a very fair assessment of it. Most of those are already in place at this point, those offsets, but we continue to work through things through the quarter. But by the back half of the year for certain, I wouldn't expect to be taking hit as a result of those increased fuel costs. Operator: One moment for our next question, and that will come from the line of Jeff Stevenson with Loop Capital. Jeffrey Stevenson: First, I was wondering if you could provide some more color on how the MoistureShield assets fit into your long-term Deckorator strategy and then the opportunity to leverage your Deckorators products at existing MoistureShield distribution partnerships that you previously were not working with? William Schwartz: Yes. You hit the nail on the head. There's a combination. That was certainly an opportunity that we were happy to be able to take advantage of. We needed additional capacity. We've been challenged there. We needed a secondary plant. And so we had budgeted. It was reflected in the CapEx expectation for another plant. That eliminated that need. So we got immediately a product that's really, really good, a manufacturing plant that satisfies that additional capacity need. But I'll tell you the cool deck technology and being able to apply that across the Deckorators portfolio of products also is extremely exciting. And then lastly, coming with it, as you described, some other distributor partners that we think are extremely valuable and potentially, we can expand on that. So it was a win all the way around. Jeffrey Stevenson: That's great to hear. And then at a high level, how should we think about the margin cadence over the next several quarters in your retail business, given the full load-in of your low-end summer decking products across the 1,500 retail stores and then the new Deckorators capacity coming online here in mid-April. Just any more color there would be helpful. William Schwartz: Yes. And let's go back to last quarter, we kind of re-pivoted on that 1,500 stores. It's a little different. So store count, where products flow in from distribution centers, et cetera, and that's why we really explained the $100 million of additional Deckorator sales that we expected to get. You'll see that continue to build throughout the year. So describing back to the last question, we've only been limited by the production that we've had. So as that additional capacity comes on, Jeff, you'll see those sales build and revenues grow. So super excited about that. Operator: And that will come from the line of William Carter with Stifel. W. Andrew Carter: What I wanted to ask is on the kind of inflation, the energy pass-through. I think just to make sure, you are saying that when it's a headwind, it's transitory like in March. Could you give us a sense of how big that transitory headwind particularly was in the first quarter? How long you live with the lag? And then if it's just we see diesel stop or whatever, then the lag goes the other way. Any other incremental color to get some clarity around that incremental headwind this year? William Schwartz: Yes, absolutely. I think Mike is chomping at the bit to get a word in. So I'm going to let him kind of jump in here. Michael Cole: Yes, it was about a $3 million headwind in March, [ Andrew, ] and it did increase in April. But the good news is that in April, as Will had indicated, that's when we started taking actions with our customers and now through freight surcharges and price increases on the products, depending on which approach the customers prefer, we're now beginning to pass that through. And so working through that process, like Will said, and I expect that's going to be completed here in pretty short order in Q2. W. Andrew Carter: And I 100% apologize if you all answered this to Jeff's question because I actually cut out, but it's kind of something that we were chomping at the bit to ask about. The MoistureShield locations, basically, if you look at the kind of the dealer locations for MoistureShield and kind of Deckorators where you are today, it's highly incremental in terms of incremental distribution points. So I guess the first thing is, obviously, MoistureShield is going to go more 2-step. Is it an easy conversation to pick that up for Deckorators or Surestone? Obviously, you'd also be the factory constrained that you -- kind of your kind of playbook for launching MoistureShield. And I guess, long term, what's the brand strategy here? Is it keep MoistureShield, is it kind of -- and make it more of the brand, or just anything to help out there? William Schwartz: Yes. Good question. And I'm going to start with the last question first or the last point. So the intent is to run the MoistureShield brand for the remainder of the year and in 2027, we'll start to transition moving that under the Deckorators umbrella and starting to introduce some of those products into the mix as well as the cool deck technology, applying that towards the whole portfolio of products where we deem fit. Yes, we're excited, and we're working through that with those customers and partners that were part of MoistureShield that weren't part of the Deckorators customer mix, and we're working through that right now and -- but very, very excited about the opportunities that presents to us. Operator: One moment for our next question, that will come from the line of Reuben Garner with Benchmark. Reuben Garner: Let's see, this may be too early days, but any plans from a branding perspective? Will the MoistureShield assets ultimately become Deckorators wood/plastic composite, or is there a need or a reason to keep the separate branding longer term? William Schwartz: Yes. So Reuben, I think you probably cut out in the queue for asking the question. And yes, so we will transition that MoistureShield brand under the Deckorators umbrella at some point in 2027. So we'll carry it through the year, and then we'll start that transition process. Reuben Garner: Got it. Sorry, I missed that. And then the -- a lot of moving parts the last couple of years with both demand and the supply you've been adding and now MoistureShield. Can you give us an idea of what total wood/plastic composite business you have today, what total Surestone business you have today? And then like what the capacity is today, and where it's ultimately headed in each of those so we can kind of level set it on a go-forward basis? Michael Cole: Yes. So I'll work off with the 2025 numbers, Reuben. I think we finished the year in total decking and railing sales of about $245 million. I think of that $245 million, there was $165 million of decking. And of the $165 million in decking, about $90 million was mineral based with Surestone and about $75 million was wood/plastic composite. And the balance there, I think it's $80 million was railing. Now to your point about capacity, prior to this year, we had about $100 million, I think, in capacity of mineral-based or Surestone. We had about $100 million in wood/plastic composite. We've now doubled as a result of the -- or have the ability to double as a result of the MoistureShield acquisition, wood/plastic composites. So that's going to go from $100 million to $200 million. And as a result of [ Soma ] and Buffalo, we go from $100 million of capacity to adding another $250 million. So we'll be at $350 million of capacity for Surestone. And some of that will be -- most of it will lion's share be for decking, but we don't want to forget about the churn product that we're launching this year as well. Reuben Garner: Perfect. Very helpful. And then a question about -- you mentioned -- I think you used the term price mechanisms and maybe there being a lag for offsetting some of the inflationary pressures that you've seen. What exactly are those mechanisms? Are you using surcharges for fuel and transportation and they're delayed for some reason? Just walk me through that comment. William Schwartz: Yes, it's a combination. And so you're exactly right. Fuel surcharges in certain situations, others want repricing, building that into the price. So each of those scenarios is different. So when we speak mechanisms, we have a lot of business that we quote each time. And so you obviously take that into account the new updated costs, and what's reflected in the market. So it's just a combination of all of those and each of the segments we serve have different pricing time lines. So site built is very different than retail, an example. Operator: And that will come from the line of Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: So sticking with the flavor of the day, which is Deckorators. So just help me understand a little bit on Q1. Obviously, Surestone and wood/plastic composite both grew quite nicely in Q1. Yet overall Deckorators sort of bucket was up 2%. So what are the other offsetting sort of factors there? Michael Cole: Yes. Railing was off 6%. I think we called that out in the release. So that was an offset. And then the other product categories that are sitting inside the Deckorators business unit are decorative aluminum fencing, deck accessories, generally post caps, [ basters ] and then vinyl lattice is also in the category. So those are areas that were softer. And obviously, the decking sales themselves are obviously very strong. Ketan Mamtora: I see. Okay. No, that's helpful. So as I think about sort of decorators and now with MoistureShield coming into the fold, Mike, is the right way to sort of think about as $100 million incremental sales you all talked about previously. And now we've got MoistureShield for probably 8 months of the year or something like that. So is that the way we should be thinking about Deckorators growth in '26? Michael Cole: Yes, that's exactly right. The $100 million that we originally talked about with the capacity coming online that goes a long way towards helping us achieve that and now the incremental increase from the MoistureShield transaction. Ketan Mamtora: Got it. Okay. That's helpful. And then just switching to the construction side. In Site Build, are you seeing sort of continued price competition among players, or is that sort of largely leveling out at this point given that we've been at it for a while now? William Schwartz: Yes. That's the hardest part of the business for us today. Obviously, that business is very tough. And when you talk about even some of the cost inputs that we recognized in the first quarter, it's hardest to pass along. So that's reflected in margins, too, when you talk fuel increases, lumber costs going up during the quarter. And so it continues to be a very pressured market for us on the margin side. Ketan Mamtora: Understood. But has the competitive dynamics changed at all since the start of this year? Obviously, at the start of this year, there was expectation that things will -- that housing activity will get better. And then with sort of the geopolitical events, it sort of feels like things have become a little softer since then, has there been any change? William Schwartz: Yes. I think your assessment is exactly right. From the start of the year until today, it has certainly not gotten better in the geopolitical tensions, interest rate increases, consumer sentiment, all those factors in play, it's a tough environment. Michael Cole: Although we did expect a tougher front half of the year. We had tougher year-over-year comparisons. Obviously, housing was pretty tough coming into the beginning of the year. We had anticipated it being tougher. But yes, exactly the recent events have made it even more so. Ketan Mamtora: Okay. That's fair. And then just final one for me. On capital allocation, are you -- sort of how are you thinking about M&A opportunities? And it seems like that pipeline is growing and you are seeing more opportunities versus kind of the other tool that you have on share repurchases. How are you stacking those two at this point, and if you were to rank order? William Schwartz: Yes, we are definitely more focused on growing. That's where we start. We talk about that a lot, but never losing sight of return. And I would tell you the pipeline is the best we've had in 5-plus years. I think a lot of that is intent and action. We've done a lot more prospecting. I personally have done more prospecting, allocated more time towards it for strategic opportunities that fit where we want to take the corporation. And so when you think about the liquidity, we want to put that to work, but it's got to be the right opportunities. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Will Schwartz for any closing remarks. William Schwartz: Thank you for joining us this morning. While the operating environment remains challenging and visibility limited, we're confident in the strategy we have in place and the actions underway to strengthen our business. We're staying disciplined. We're focused on what we can control, investing thoughtfully in our core businesses and managing costs while remaining patient in how we deploy capital. I want to thank our employees for their continued execution and commitment and our customers and shareholders for their trust and support. Thank you, and have a great day. Operator: This concludes today's program. Thank you for participating. You may now disconnect.
Lena Petersen: Good morning, and welcome to Stagwell's First Quarter 2026 Earnings Webcast. I'm Lena Petersen, Stagwell's Chief Brand and Communications Officer, filling in for Director of Investor Relations, Ben Allanson today. With me are Mark Penn, Stagwell's Chairman and Chief Executive Officer; and Ryan Greene, Stagwell's Chief Financial Officer. Mark will provide a business update before Ryan shares a financial review. After the prepared remarks, we will open the floor for Q&A. [Operator Instructions] Before we begin, I'd like to remind you that the following remarks include forward-looking statements and non-GAAP financial data. Forward-looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risk factors addressed in our earnings release, slide presentation and the company's SEC filings. Please refer to our website, stagwellglobal.com/investors for an investor presentation and additional resources. This morning's press release and slide deck provide definitions, explanations and reconciliations of non-GAAP financial data. And with that, I'd like to turn the call over to our Chairman and CEO, Mark Penn. Mark Penn: Thank you, Lena. This is a pivotal moment in the Stagwell story as we continue to achieve our vision of extending in services from global full service to platform self-service AI applications. We're hitting major milestones on both ends of that vision while keeping costs under control and increasing our earnings per share. Together, these developments should produce an incredible 2026. First, our net new business is hitting records, and we are now regularly achieving large-scale wins. The first quarter was a record, and our wins are about $80 million ahead of wins last year at this time. We're closing in on 4 new major assignments under final negotiations and we just signed our first 5-year nearly $60 million government contract this week. Second, our new enterprise tech products and sales organization are on track towards hitting the first sales goal of $25 million with $12 million booked, and we are just getting our sales operation in place. Demand for the new products is strong with a growing pipeline. Our Digital Transformation segment continues to lead the way in growth. Third, this quarter is in line with expectations, as indicated on the last call, and we are building towards a record-breaking second half of the year with the combination of new business and the kickoff of an advocacy super cycle. We reiterate guidance and express even further confidence given this quarter's organic net revenue growth is actually the strongest in Q1 in at least 4 years. We expect growth to accelerate to double digits by Q3 and Q4. Revenue grew 8% to $704 million and net revenue grew 4% to $585 million. We saw growth across all 5 of our segments in the first quarter, led by a 9% jump in Digital Transformation. Digging into the Digital Transformation results, the 2-year organic net revenue stack for the segment tells a particularly impressive story with growth of more than 22% in Q1. This continues an improving trend in this metric that we have seen for the last 8 quarters. Given the strong start to the year, we expect the Digital Transformation segment to accelerate to mid-teens growth in the second half. AI and our understanding of how to apply it is a huge tailwind for us. Past weakness in Communications has reversed and the segment grew more than 6%, principally on the backs of new corporate assignments as the political season was not yet underway, but will be in full swing in the last 2 quarters. All advocacy work is now within the single Communications segment, and the companies are diversifying their work for more nonprofits, universities and localized retail marketing. By region, the U.S. led the way this quarter with over 8% organic revenue growth with over 3% organic net revenue growth and double-digit growth in adjusted EBITDA. International efforts outside the U.K. were muted by a strengthening dollar and slowdowns in the Middle East tourism and technology, which we expect to be temporary. Adjusted EBITDA grew 9% year-over-year to $90 million, representing a margin of 15.3%, an improvement of 75 basis points versus last year. This reflects prudent cost controls across the business. Our first quarter labor ratio declined to 63.9%, even as we invested in our go-to-market engine. We are reinvesting these efficiencies in growth to take advantage of the AI opportunities. In the first quarter, we bought back approximately 7.3 million shares. Our shares outstanding at the end of the quarter was down to about 246 million shares, down by about 19 million shares since last April and down about 50 million shares since August 2021. As a result, EPS for the quarter was $0.17, 31% higher than a year ago. Continued improvements in cash management means cash flow from operations improved by $34 million versus the first quarter of last year. This puts us on target to hit $250 million to $300 million in free cash flow with almost no deferred acquisition payments. Acquisitions have been dialed back as we are investing heavily in buybacks and in new technology, as I previously outlined last month. As I also predicted on the last call, we saw a surge in wins to start the year with record-breaking first quarter net new business coming in at $141 million, putting our last 12 months at $486 million. Our winning streak is continuing into this quarter as well with several important wins to be announced shortly. As I mentioned earlier, our government contract effort is also picking up steam and having success. This is adding hundreds of millions of dollars to our pipeline, and we have multiple large pitches coming up. When it makes sense, we are partnering with established players like Deloitte and Palantir on massive contracts. We continue to focus on driving organic growth through larger assignments, previously the domain of our 3 major competitors and reducing the high churn rate among our smaller customers. We have taken 2 major steps to execute that strategy, and we expect it to pay off in 2026 and in raising 2027 estimates. First, we have doubled the size of the new business team, announcing significant new hires, including Nicole Souza as Chief Growth Officer for North America, who brings with her 25 years of experience, most recently at Publicis. Second, to reduce client churn, we've instituted a client accountability program so that every client, no matter what its size has a person responsible for it. We're receiving frequent reports fed into an AI engine that monitors and reports on client needs and trends. We have seen our top 100 clients grow by 15% in size, and we've decreased client churn across the business by more than 10% versus 1Q 2025 as we roll out these programs. As to our emerging Enterprise Services and Software business, we are innovating with the products and driving early sales. In addition to the over $100 million of Marketing Cloud revenue, we are building an additional stream of software and service revenue housed in the Digital Transformation segment based on 3 key products: The Machine, an agentic marketing operating system, which brings together a company's entire marketing stack; SATs, the Stagwell Agentic Targeting system that brings together a secure mix of client and our proprietary data with the power of Palantir's targeting; and Stagwell Search+, a new set of tools for managing search in the world of AI answers. We announced the addition of Michael Twidell to lead our Enterprise AI Solutions team and organize our sales and go-to-market efforts. He is quickly building a team. We are building the most cutting-edge comprehensive agentic marketing system available today. We believe every company will need an agentic marketing operations operating system, or MOOS, as I like to call it, to unite their ever-burgeoning volume of enterprise applications and data. Since officially launching the machine, we have 3 active engagements that are part of the initial $12 million booked, including Con Edison, a well-known electric utility, a division at Microsoft and a soon-to-be announced global spirits brand. We also currently have 9 active opportunities with 2 deep into scoping, the rest spanning industries from public sector to financial services. SATs will be sold both with the machine and individually. It's also in testing with multiple client engagements, including a Fortune 500 client and a global lifestyle accessories brand. Working together with Palantir, we are adding key features that take users from audience identification through to media placement and assessment on an agentic basis. Stagwell Search+, our tool to help brands optimize in AI search and beyond was described by senior Google leaders as "genuinely differentiating," and we are now working regionally with Google industry heads to support client adoption. We're partnering with key leaders, including The Trade Desk, AppLovin and Adobe. Last week, we announced a joint initiative with Adobe called the Creative Intelligence System, which creates agentic personas to surface insights specifically for marketers in the financial sector who use Adobe as their system of record. This is a major pivot to the sales of AI application services and software, and we are now on the verge of bringing it all together, going to market with significant sales and installations this year and the ability to hockey stick it in 2027. Stagwell is on the verge of expanded growth that will carry through '26 into '27 and '28. Leg 1 of that growth is from the political super cycle, which will ramp starting in midyear and then with the presidential race starting the day after the midterms. Expenditures and political efforts have expanded fourfold since 2008, and we believe it can double again. Leg 2 is the unique combination of services and software we are now offering, which is at the sweet spot of what clients need to adopt AI and shift new models of marketing. And leg 3 is our expanded wins of new clients at scale, displacing long-term holdco relationships. We are coming into the CPG and health care spaces with superior talent offerings against hollowed out creative shops, and we are moving to disrupt their long-standing government contract relationships. While aged legacy companies are seeing shrinkage, we continue to grow year after year and have an unlimited growth runway ahead of us. We will continue to diversify the business into new high-touch areas as the business of marketing changes and into AI-based services and software that is a must-have for marketing today. We're growing our top and bottom lines. We're expanding our margins. We're delivering strong free cash flow. We continue to be significantly undervalued no matter how you look at the metrics for a healthy growing company like us at the forefront of its field. How many companies with this profile do you know are trading at 6x free cash flow. That's why we will continue to be aggressive with our buyback. We have hundreds of millions of dollars in our buyback runway. We will use it. With that, I'd like to hand it over to Ryan, who will walk you through some of the financials in more detail. Ryan Greene: Thank you. Good morning, and thank you for joining us. Today, I will share additional information about our first quarter's financial performance and how we are tracking towards our full year goals. Before beginning, I want to reiterate what we discussed on the fourth quarter call. Our first quarter is where we lay the foundation for growth throughout the year. And we go through a cycle of departing clients leaving January 1 and new clients coming on typically from April to June. Results in the quarter were firmly in line with our expectations across all metrics. We expect to deliver accelerating sequential growth in the second quarter and throughout the year. Starting with the top line. Revenue increased 8% year-over-year to $704 million, and net revenue increased 3.6% to $585 million. All 5 segments delivered revenue and net revenue growth during the quarter. Growth was led by Digital Transformation segment with net revenue rising 9% year-over-year to $96.5 million, driven by increasing demand for integrated technology solutions paired with services that deliver measurable ROI in a changing market. The Marketing Cloud grew 5.3% to $26.5 million, driven by demand for our AI-enabled communication technology platforms and research offerings that help clients track sentiment in real time, gain faster insight and more actionable insights into customer behaviors. Some of the other divisions are now selling Marketing Cloud products and retaining the revenue there. One product in the Middle East was pushed to Q2 due to regional conflicts, while BERA, our brand modeling product, grew 28% year-over-year and the Harris Quest family of products grew 19%. The new enterprise software products are not accounted for in the Marketing Cloud, but are in the Digital Transformation segment. Media and Commerce continued its rebound, delivering 2.3% net revenue growth to $149.5 million. Performance was driven by improving new business momentum and expanding relationships as clients increasingly lean into the segment's integrated media, creative and loyalty capabilities. Continued investment in media technology and AI-enabled platforms, combined with disciplined cost management supports stronger operating leverage across the segment. Marketing Services maintained its momentum despite elevated prior year comparables, growing 1.1% to $217.6 million. Performance was led by our creative and research agencies and our centralized production group nearly doubled net revenue as we continue to bring more production in-house. And finally, Communications grew 6.4% year-over-year to $96.8 million, largely driven by new corporate assignments as our communication firms deliver their product lines to undertake more localized marketing for retailers and other outlets. We expect election-related revenues to ramp up in the second quarter and to continue to grow each quarter thereafter. As we grew to our top line, we continue to take steps to manage our costs. Payroll as a percent of net revenue declined by 110 basis points year-over-year to 63.9%, while G&A as a percent of net revenue declined by approximately 50 basis points to 19.6%. In the first quarter, we expanded the rollout of tech deployment through our businesses in anticipation of actions, actioning the balance of the cost savings we announced last year. The total action savings since April last year amount to $54 million, firmly on track to achieve the $80 million to $100 million that we previously outlined with these savings flowing through the P&L during 2026 and fully reflected in 2027. These improvements were partially offset by purposeful actions to strengthen our go-to-market expertise through expanding our new business team, which we aim to double in 2026 and Marketing Cloud sales force. Additionally, we increased our investment in our AI and technology capabilities. This includes OpEx investments into our tech products, including the machine and our Palantir partnership as well as bringing in further experts to strengthen our technical expertise in AI and data. Adjusted EBITDA in the first quarter was $89.7 million, representing a margin of 15.3%. This reflects year-over-year growth of 9% and margin expansion of 75 basis points. This improvement in adjusted EBITDA, together with the impact of share repurchases I will discuss shortly, drove adjusted EPS of $0.17, a 31% increase versus the first quarter last year. Cash management continues to be a core focus for Stagwell, and we delivered further progress early in the year. Cash flow from operations improved by $34 million versus first quarter last year, driven primarily by stronger working capital execution. That improvement translated into an $18 million year-over-year increase in free cash flow within the quarter, keeping us firmly on track to achieve our full year free cash flow conversion target of 50% to 60% of adjusted EBITDA. These improvements in cash flow reduced our revolver balance at quarter end to $350 million, a $25 million or approximately 7% reduction versus the first quarter of 2025. Lower net debt and year-over-year growth in adjusted EBITDA drove a 0.17 turn improvement in our net leverage, bringing leverage down to 3.11x. Our continued progress on leverage and cash has been reflected in recent ratings actions with Moody's reaffirming our B1 rating and revising our outlook to positive in late March. We remain on track to exit 2026 with net leverage in the mid-2s, reflecting the combination of our growing adjusted EBITDA, disciplined cost allocation and improving free cash flow generation. Turning to capital allocation. We repurchased approximately 7.3 million shares during the quarter at an average price of $6.16 representing approximately $45 million of deployment. We continue to invest in our technology platforms, including the machine, our partnership with Palantir and the Marketing Cloud offerings. Capital expenditures and capitalized software totaled $33 million in the first quarter, and we continue to expect full year investment levels to be consistent with 2025. As Mark noted, the momentum behind these products supports this level of investment, and we expect them to begin driving growth across the segment in the second half of the year. Deferred acquisition consideration totaled approximately $50 million at quarter end, down roughly $43 million versus prior year period. As previously noted, we expect deferred acquisition consideration to be negligible by year-end. First quarter results, coupled with excellent new business trends that Mark highlighted, give us confidence in our full year guidance of total net revenue growth of 8% to 12%, adjusted EBITDA of $475 million to $525 million and free cash flow conversion of 50% to 60% and adjusted earnings per share of $0.98 to $1.12. Thank you, and I will turn it back over to Lena for questions. Lena Petersen: [Operator Instructions] Let's start with a question from Steve at Wells Fargo. Digital Transformation continues to track well. Can you talk about the underlying trends here in terms of new customers, expansion with existing customers and also speak to what kinds of projects we're working on in a world with far more AI adoption in marketing services? Ryan Greene: I think we're finding that there is tremendous demand out there. Now we've come from the stage of what's AI; "Oh my God, what's legal say about AI"; to "I better have AI." And I think that we're seeing with the machine, like lots of pitches, same thing with the SaaS product. You see that we're getting big name customers. We're going first, obviously, to existing customers and offering this. But we just went to the Adobe Summit, and we got over 600 leads, right, and that kind of tremendous interest in the product. So I think the answer to your question is really, people want to put AI into their marketing. We've got a full suite of agentic tools here. We're going to existing customers first, but we're really out -- we've just organized our sales force. We just went to Adobe Summit, picked up 600 leads. And I think that's how this thing is going really about as well as I could expect. And we've gotten 50% of our first year quota really in the first couple of months. Lena Petersen: Great. So Steve has one more question, which is, I think last year, you cycled off of a client loss that dragged Media segment down. As we look into 2026, what's your outlook for media? And how should we expect it to trend throughout the year? Mark Penn: Yes. I mean we're still in the Media burning off from the Q1 H&R Block client that was there. So that kind of is fully out. And so that means our -- we don't have somebody else with a big Q1. So we think that the media stuff comes later in the year. I think right now, we run really strong. If you look, particularly GALE has been out there winning really significant contract after contracts. I think that, that's going to be probably the biggest area of kind of Media growth that we -- that I see coming down the pike. We, of course, have given now -- we have a new head of the entire division, and he's been reorganizing the media. We're adding the technology. So our media is going to be more holiday pattern. Our political is going to be more holiday -- more or less holiday season pattern as well. And I think I see us growing across the year. And I think you're going to particularly see that pattern, both in the whole company and with media. Lena Petersen: Okay. We've got a question from Mark at Benchmark. Your guidance implies an acceleration in the second half of the year. Could you discuss how much the second half acceleration is dependent on AI product scaling versus advocacy tailwinds and existing client expansion? Mark Penn: I think it's not dependent as much on AI scaling as it is on -- number one, we know that a number of large-scale creative contracts are closing. We know that our pipeline for general digital transformation work is really about as strong as we've ever seen that pipeline. And it is also -- and the third element is the political season, which really, again, promises to be another record political season. I think people -- I've never heard of people talking about midterms 6 months out like they were tomorrow. So I think those 3 elements when we started out, say, what gives us increased confidence? Well, we just won the biggest government contract. We know that we're closing on 3 or 4 other assignments now that are in final contracting and signing stage, which are mixed across Creative and Media. We know the political super cycle is coming, and we already have the clients in the bank. Lena Petersen: So a question came in asking for you to elaborate on the comments about advocacy agencies and specifically seeing how they're seeing more work from corporate rather than political clients? Mark Penn: Yes. I think that in the long term here, I ran originally where you recall an advocacy, and we were always diversifying by the end of it, Microsoft was my biggest client. And so I think we're seeing those -- all of those companies now taking more public affairs, more particularly suited to local work around retail establishments in communities. We're seeing those kinds of assignments. We're seeing more nonprofits, universities, hospitals, those kinds of clients that really work well as they begin to really diversify. Remember, we've taken the whole Communications segment now and put it together into a single unit under a single manager. Lena Petersen: Excellent. So turning to new business. Laura at Needham was asking, could you dig a little deeper into the record net new business quarter? Can you talk about the areas where Stagwell is seeing strength? Or what verticals are driving the improvement in pipeline? And is the mix of your new clients changing? What are the margins on new clients versus historical client base? Mark Penn: Okay. So I think the -- in terms of new clients, I think digital transformation and creative are the 2 spots where we are seeing really strong flood of new business. I think that we're also -- as you can see, we're getting out there with the new products. But in terms of what I call the regular pitch flow, when I look at that and I look at the wins and the wins are significantly ahead of what we've ever seen, and so I think that's kind of where the new ones. I think in terms of margin for the new clients, I think those margins are at or better than the previous. I think that as we scale up to bigger clients, we are not finding that we have -- that the margin is going to be reduced on those clients. It's really quite the opposite. We have a lot of smaller, lower-margin clients that are sort of cycling out of the system. And just in terms of the fact that our longevity with larger clients is 5x our longevity with smaller clients, just what you spend on marketing and remarketing and getting those smaller clients, just taking that overhead out gives them a higher margin. Lena Petersen: So we have a number of questions coming in about the improvements in churn we're seeing in the business. Could you discuss what improvements in churn might look like through the rest of the year? And what impact we might -- that might have on our top line? Mark Penn: Yes. Look, our goal is to cut the churn by about 25% right? We've seen -- we've seen a change already as we've told kind of everybody to focus on it. We're putting in place the system, what I call the accountability system where every single client, no matter how small, we'll have someone responsible for it, has to report on it. Look, many of these are small projects. We don't count small projects, by the way, under $500,000 in net new business. But -- so we'll separate out the small projects from the clients that should grow, and we're really focused. But our goal, if we're successful, we could get 2 or 3 points of organic growth out of that system. I think we are trying a dual-track approach, double where we've been successful, obviously, in the net new business, put a real focus on trying to mitigate what's been taking us down, which is small client churn. And those 2 together, I think, are key factors here in improving organic growth over the next -- over this year and permanently. Lena Petersen: Okay. A question for Ryan. Could you talk about the key drivers of the 30% plus improvement in adjusted EPS this quarter? Ryan Greene: Yes, sure. So it's really a function of 2 things. We have seen significant growth in our adjusted EBITDA, which has increased our numerator, but we also have been aggressive with our share buyback, purchasing 7.3 million shares in the quarter for about $45 million. And so we lowered the denominator with us realizing the stock has been undervalued. We've got aggressive, and we're seeing the reflect of that in our adjusted EPS growing 31%. Lena Petersen: Great. I think we have time for one more question from Jeff at B. Riley. He's asking a question about the macro. What are you hearing from your client base regarding if and how they might alter their marketing plans as a result of the Middle East conflict, oil prices or headwinds and the macroeconomic impact that could materialize if the conflict is prolonged? And what assumptions are you making about potential macro impact included in your guidance for 2026? Mark Penn: Well, look, I think the only direct impact on us is Mid East tourism is not exactly the flourishing at the moment. We expect, though, when this is over, it will bounce back quickly and that a lot of these clients will then -- they will be like post pandemic, but that is -- but really only about 3% of our business is out there, but it is -- but that is some impact on us. We are not right now, as you can see, as the stock market continues, we don't see clients making contingency plans about this. We don't see clients pulling back about this. We don't see clients altering their plans right now. I think for those in America right now, remember, gasoline prices or oil prices were above $100 a barrel for 3.5 years of the Obama administration, parts of the Biden administration. This is not what we're -- this is not like a pandemic, massive pullback. We're just not seeing that right now. And we're -- remember, people are going to pretty much lock their holiday plans in the next 2 or 3 months. So there's not a lot of time here for change. We're seeing, in fact, tremendous investment in AI, tremendous focus on the fact that every company needs to redo its connection with AI. And we don't see any pullback from that whatsoever. And that and the political sphere, which is going to be, I think, again, a very strong season, no matter what happens in the Mid East, I think those 2 basic trends, which are the most important for us as a company are really strong and intact for this year. Lena Petersen: Okay. Our final question is a question from Jason. And what have you learned about the opportunities in the government sector over the past year? And how do you think the opportunity for Stagwell has changed as you've been engaged in these contract discussions? Mark Penn: Well, I set that out as an initiative that I knew would take time. I think that we've moved a long way in the initiative. As I say, you should see in the next 2 weeks, a formal announcement of the contract I alluded to, which is a real breakthrough. We've picked up 2 or 3 other smaller government-related contracts and assignments. But now we're really ready with the team, the accounting, the structure in order to bid on the largest contracts like the post office and the Navy to bring in good partners to, because these are massive contracts and to really to compete. And for the first time, I think, for some of these agencies to have a brand-new competitor. And so far, I can say from the ones that we've won or just about to win, that has played out pretty well for us. Lena Petersen: On that note, that was our last question. Thank you to everyone for joining us. We'll see you next quarter.
Operator: Greetings, and welcome to the Lincoln Electric 2026 First Quarter Financial Results Conference Call. [Operator Instructions] And this call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin. Amanda Butler: Thank you, Kathleen, and good morning, everyone. Welcome to Lincoln Electric's First Quarter 2026 Conference Call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Steve Hedlund, Chairman and Chief Executive Officer; and Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions. But before we start our discussion, please note that certain statements made during this call may be forward-looking, and the actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided both in our press release and in our SEC filings on Forms 10-K and 10-Q. And in addition, we do discuss financial measures that do not conform to U.S. GAAP. A reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website at lincolnelectric.com. And with that, I'll turn the call over to Steve Hedlund. Steve? Steven Hedlund: Thank you, Amanda. Good morning, everyone. Turning to Slide 3. We achieved solid results, led by record quarterly sales and adjusted EPS performance while also navigating heightened operating complexity from geopolitics and evolving trade negotiations. Teamwork exemplified our success this quarter. We remained agile in addressing short-term dynamics while staying customer-focused, investing in long-term growth and reimagining how work gets done. The global launch of our new RISE strategy was successful, and we celebrated a string of early wins, which include the U.S. launch of our elite customer program as part of our enterprise-wide Spotlight initiative, which raises the bar for customer service in our industry. It enables us to provide superior on-time delivery, hassle-free support and value-added services to help customers grow their business with us. In addition, we commissioned a new automated manufacturing line in one of our Harris facilities that triples the line's productivity while significantly improving quality. This investment also showcases the breadth of automated manufacturing solutions we engineer beyond traditional welding robots. Finally, we launched a new center-led process innovation function in welding consumables to accelerate our speed to market. I am pleased by the speed of progress, and we will work hard to maintain this pace. Turning back to quarterly performance. We are encouraged by improving sales and order momentum in the Americas region through April. This aligns well with 3 consecutive months of expanding manufacturing PMI data. In the quarter, we held our adjusted operating income margin steady with prior year. While we targeted a slight margin improvement, our 10% higher price did not fully offset inflation in the quarter. To ensure we achieve our neutral price/cost target this year, we have already announced new price actions across our welding segments, which go into effect in early May. Cash flows, while seasonally lower, were further affected by a temporary increase in inventory levels we put in place to maintain high fill rates and service levels while we pursue our Spotlight initiative and migrate select products to next-generation versions. We continue to invest in long-term growth through CapEx and R&D and return cash to shareholders through both dividends and share repurchases. ROIC performance remained at top quartile levels at 21.5%. Turning to Slide 4 to spend a few minutes on demand trends. The Americas region continued to outperform other geographies and consumables remained the most resilient product category. This was driven by factory activity and infrastructure investments in energy and data centers, which helped offset slower auto production. These same end market drivers, along with an increase in capital spending from off-highway customers, supported modest automation growth in the Americas in the quarter as well. Globally, our automation portfolio achieved $210 million in sales versus $215 million in the prior year with compression from international markets where we have a challenging prior year comparison. We have been encouraged by the continued acceleration in both equipment and automation order rates and backlog levels in the Americas through April. This should support modest volume growth in the Americas Welding segment starting in the second quarter with further improvement in the back half of the year if conditions are sustained. Internationally, we also saw a broad improvement in sales from European customers with organic sales pivoting to growth across Northern, Eastern and Central Europe and in Turkey. In addition, India and Australia improved. The headwind in our international business was largely from challenging prior year comparisons in regional automation and energy projects and to a lesser extent, the Middle East conflict. On a consolidated basis, the Middle East represents a relatively small portion of sales, and we estimate an approximate $8 million sales impact from the conflict as several customers suspended activity. In April, EMEA order rates continued to improve, and we are monitoring for consistency as activity may reflect prebuying ahead of higher inflation and regional commodity supply concerns. In the Middle East, we are engaged with regional customers servicing active requests and our global team of welding experts are ready to support their repair and expansion needs as called upon, whether for rapid large-scale metal 3D printing of replacement and spare parts to core welding and automation solutions. Pivoting to end market performance, we continue to see three of our five end markets achieving flat to higher organic sales growth in the quarter. Most notable is the high 30% growth rate in general fabrication, which represented accelerated factory and fabrication activity in the Americas as well as in data center and HVAC projects. Heavy industries grew in the quarter, led by growth in off-highway globally. Both construction and ag equipment grew across a broad mix of solutions, including automation. Energy was steady but was bifurcated between a high teens percent growth rate in Americas, which was offset internationally. We remain bullish on energy and expect Americas to continue to outperform international with a strong pipeline of pending LNG projects and energy infrastructure projects needed to support data center investments. With our strong broad presence across oil and gas and power generation applications, including gas turbine, battery, nuclear and renewables, our energy team is encouraged by the opportunities ahead. Our two challenged end markets, nonresidential structural steel and transportation are both project-oriented and capital intensive, which can result in choppy results quarter-to-quarter. Nonresidential was largely impacted by international weakness, while transportation was broader and largely driven by lower capital spending versus prior year and a slight decline in production rates. To conclude before passing the call to Gabe, while we are operating in a more complex environment, we are well positioned to adapt and react effectively to short-term dynamics. We are financially disciplined, maintained a solid balance sheet profile and continued to generate strong cash flows and manage the business for long-term profitable growth. This is evident in our balanced capital allocation strategy as well as our track record of compounding earnings and increasing shareholder returns through the cycle to deliver superior long-term value. This is an exciting time at Lincoln Electric with the launch of our new RISE strategy, and the entire team is energized to achieve our mission of being the essential link to help customers build better and execute on our 2030 goals. And now I will pass the call to Gabe Bruno to cover first quarter financials in more detail. Gabriel Bruno: Thank you, Steve. Moving to Slide 5. Our first quarter sales increased approximately 12% to $1.121 billion from approximately 10% higher price, 2% favorable foreign exchange translation and a 1.6% benefit from the Alloy Steel acquisition. This was partially offset by 2.6% lower volumes. Gross profit increased approximately 9% to $399 million, reflecting higher sales. Our gross profit margin declined 80 basis points to 35.6% due to lower volumes, timing of price/cost recovery and an approximate $1 million LIFO charge. Price/cost was unfavorable 90 basis points in the quarter. We continue to target a neutral price/cost posture and have implemented new pricing actions in our welding segment, which will go into effect in early May. Our SG&A expense increased by 7% or $14 million to $211 million. The increase was driven by foreign exchange translation, higher discretionary spending, which was largely commercially driven and from higher employee costs. SG&A as a percent of sales improved 80 basis points to 18.8% on higher sales levels. On April 1, we implemented our seasonal merit increase, which raises employee costs by approximately $6 million per quarter on a year-over-year basis. We expect our quarterly SG&A run rate to be at $250 million for the balance of the year. For analysts reviewing our segment EBIT schedule, our corporate expense of approximately $1.4 million reflects our decision to allocate additional center-led enterprise investments to our reportable segments. Looking ahead, we expect corporate expense to be approximately $1 million to $2 million per quarter for the balance of the year. Reported operating income increased 13% on higher sales. Excluding special items, adjusted operating income increased 11.5% to $189 million, and we held our adjusted operating income margin steady year-over-year at 16.9% with a 17% incremental margin. Our steady margin performance reflected favorable SG&A leverage, which offset the impact of lower volumes and an unfavorable price/cost position. First quarter diluted earnings per share performance increased 18% to $2.47. On an adjusted basis, earnings per share increased 16% to $2.50. We recognized a $0.04 benefit from foreign exchange translation and $0.05 from share repurchases. Moving to our reportable segments on Slide 6. Americas Welding sales increased approximately 8% in the quarter, driven by nearly 8% higher price and 1% favorable foreign exchange translation. Volume declines narrowed to 40 basis points as orders accelerated through the quarter across all three product areas on improving demand trends from most end markets. We expect volumes to inflect to modest growth in the second quarter. First quarter Americas price marked peak levels in the segment as we started to anniversary last year's actions in the second quarter. The team has recently announced new pricing actions to mitigate rising raw material and logistics costs. We expect Americas Welding to achieve a full quarter benefit of these new actions starting in the third quarter at 150 basis points per quarter run rate. We will continue to monitor evolving operating conditions and will respond as necessary. Americas Welding segment's first quarter adjusted EBIT increased approximately 3% to $128 million on higher sales. The adjusted EBIT margin declined 100 basis points to 17.2%, primarily due to timing of price/cost recovery and higher corporate expense allocated to the segment. We expect Americas Welding margin to perform in the mid-18% to mid-19% EBIT margin range for the remainder of the year. Moving to Slide 7. The International Welding segment sales increased approximately 4%, primarily from favorable foreign exchange translation and strong sales in our Alloy Steel acquisition, which will anniversary in early August. This increase was partially offset by 10% lower volumes primarily from automation and to a lesser extent, a temporary decline in customer activity due to the Middle East conflict. Adjusted EBIT decreased 1.5% to $23 million. Margin declined 50 basis points to 9.7% as the benefit from Alloy Steel was offset by lower volumes and higher corporate expense allocated to the segment. We now expect International Welding's margins performance to improve sequentially but remain in the 11% range until conditions improve in the Middle East. Moving to The Harris Products Group on Slide 8. First quarter sales increased 42%, led by 41% higher price. The outsized price impact reflects actions taken to mitigate record high metal costs, most notably in silver and copper. The segment effectively managed costs and achieved their neutral price/cost target in the quarter. While metal prices remain elevated, we expect Harris' price to moderate from first quarter record levels based on current metal price trends and prior year comparisons. Harris volume compression narrowed, benefiting from the growth in the retail channel as well as an improvement in HVAC production activity, which we anticipate will inflect positive by midyear. Looking ahead to the second quarter, we expect segment volumes to compress due to a challenging comparison from last year's retail channel load-in of a new customer. Volumes are then expected to pivot to growth in the back half of the year. Adjusted EBIT increased approximately 68% to $41 million and margin improved 330 basis points to 21.2%. The profitability improvement reflects SG&A leverage from higher sales dollars and favorable mix. We expect the Harris segment will operate in the 19% to 20% margin range at current metal prices. Moving to Slide 9. We generated $102 million in cash flows from operations in the quarter, which was lower due to higher uses of working capital. We strategically increased inventory levels on a short-term basis to ensure high customer service levels while we transition select products to newer models and ensure we capitalize on early strengthening of demand, especially in the Americas. We expect to reduce inventory levels in the second half of the year. The increase in inventories resulted in an 80 basis point increase in our average operating working capital to sales ratio to 18.6%. Moving to Slide 10. We continue to execute on our capital allocation strategy by investing $39 million in CapEx and returned $101 million to shareholders from a combination of our higher dividend payout and from share repurchases. We maintained a solid adjusted return on invested capital ratio of 21.5%. Moving to Slide 11 to discuss our operating assumptions for 2026. We have increased our net sales growth assumption to incorporate recently announced price actions taken to offset rising input costs. We now expect net sales growth to be in the high single-digit percent range as compared to our initial assumption of mid-single-digit percent growth. Our organic sales mix is now expected to be 3/4 price at a mid-single-digit percent rate and 1 quarter volume. Given how early we are in the year and the potential trade-off of strong order rates in Americas offsetting lower sales from the Middle East conflict, we have not changed our original volume growth assumption of a low single-digit percent growth rate. We estimate the sales impact from the Middle East conflict to be $8 million to $10 million per quarter while the conflict persists, which is split evenly between the Americas and International Welding segments. We also continue to anticipate a 70 basis point M&A benefit from the Alloy Steel acquisition, which again anniversaries in early August. We are maintaining our other full year assumptions on operating income margin improvement, a mid-20% incremental margin, interest expense, tax rate, CapEx and cash conversion. And now I would like to turn the call over for questions. Operator: [Operator Instructions] And your first question comes from the line of Bryan Blair of Oppenheimer. Bryan Blair: It would be great to hear a little more on how your team is thinking about cycle positioning here and the prospects for overall demand acceleration and broadening product growth over the coming quarters. Consumables growth has been encouraging since Q2 of last year, obviously, very robust in Q1. Trends have been a bit choppier on the equipment side, but it sounds like you do expect near-term improvement. Just any additional color on that front would be helpful. Steven Hedlund: Bryan, this is Steve. I would say we're cautiously optimistic, right? We're seeing good order rates in the Americas business. We've got continued strength in the PMI data conversations with customers are encouraging, but we don't want to get ahead of ourselves, right? We want to see a little bit more consistency month-to-month. In Europe, there's a lot of choppiness. We're concerned that some of the volume growth we saw there might have been pull forward around pricing and other regulatory issues in terms of carbon taxes and the like. Don't really have any more clarity than anybody else about what's going to happen in the Middle East and keeping our fingers crossed there. So cautiously optimistic, I guess, is our overall position. Gabriel Bruno: Yes. Bryan, just to add. As we mentioned, in the Americas Welding segment and we look at real volumes, consumables and automation were up. And as Steve mentioned as well as I, the progression in the quarter on orders were strengthening through March as well as into April and it also positions for growth on the equipment side. So Steve mentioned that a keyword for us is being just cautiously optimistic about what we're seeing in the business. Bryan Blair: Okay. That all makes sense. And specific to automation, sorry if I missed any related detail here. Is the expectation that the strategy turns to growth in Q2? Is it mid-single-digit range is still a reasonable outlook for 2026? And have you seen any improvement in the scope of quoting outside of the large projects that you cited last quarter? Gabriel Bruno: Yes. So Bryan, we do expect to turn to modest growth on the automation side as we exit Q2 with an expectation that second half, we see broad volume improvement across the automation business. Our order intake continues to be strong, backlog levels strong. And the mix, while a lot of project activity, which creates some choppiness, as you saw, particularly on the international side in this first quarter, but we do expect to posture the growth in second half. Operator: Your next question comes from the line of Angel Castillo of Morgan Stanley. Oliver Z Jiang: This is Oliver on for Angel this morning. Just a question on your gen fab end markets. I know you guys were up high 30s this quarter. Can you help us unpack that in terms of how much of that was driven by price versus volume? And then just on the back half of the year, we're seeing some of your customers talk about order numbers that are higher than that even. So just how does that translate in terms of volume growth for you guys in the back half of the year? Gabriel Bruno: Yes. So just high level, our volumes, particularly on consumables in the Americas Welding segment were up low double digits. So we're pleased with the mix. We do have a significant component of the overall increase tied to automation projects in this first quarter. But overall, we're seeing a broad-based strength across general industries. So we're optimistic -- cautiously optimistic that, as you know, almost 1/3 of our business is tied to general industries. And so as we see now 3 months in a row on PMI improving and the flash numbers in April also point to positive, we're tracking that closely because it's a key part of our business. Oliver Z Jiang: Got it. That's super helpful. And then maybe just one on automation. Was that a drag on Americas margin this quarter? And then looking forward, how does the margin look in terms of what you signed into your backlog? I know you guys are targeting mid-teens there. So any color there would be helpful. Gabriel Bruno: Yes. For the first quarter, we did have some pressure on automation margins. As you know, that's dilutive to our overall business. It wasn't as a key driver to the overall margin performance in the Americas Welding segment because, as I mentioned, it was driven by price/costs. We're trailing a bit there as well as the increase in corporate allocations into the segment, which is about 40 basis points. But we expect improvement in volumes to also track with a high single-digit type of margin for the automation business. Operator: And your next question comes from the line of Mig Dobre of Baird. Mircea Dobre: I just have a couple of points of clarification here. Gabe, I appreciate all the commentary, trying to take notes, but I guess I'm not a fast enough note taker here. In terms of pricing, do you expect to be back to neutral from a price/cost standpoint in Q2? Or is that delayed until later in the year? And as far as the embedded price in the guide, does that reflect the actions that you talked about in the welding business that occurred in May? Is that embedded in that or not? And how about Harris? Like -- because obviously, I mean, what we saw in Q1 at Harris is just outsized. And I know things are moderating, but at what pace should we expect that to happen? Steven Hedlund: Yes. So Mig, let me handle the first part of that, and then I'll let Gabe comment more specifically. Obviously, our goal is to be price/cost neutral at the margin level and that we've got a long history of achieving that objective. What you saw was an inflection in input costs for us in the latter part of Q1. And then there's a little bit of a delay for us to be able to announce the pricing to our customers, communicate all that and have it go effective. So I would expect that we're going to recover most of that in Q2 as the pricing goes into effect beginning of May. And then I think our guide for the year on total price reflects that assumption of the pricing we've already announced. Gabriel Bruno: Yes. So Mig, as Steve mentioned, I would expect price/cost neutral as we enter the third quarter. So the timing of the price increases will have an impact positively in the second quarter, but we have the full impact in the third quarter. In terms of our price assumptions, if you think about the increase between 300 and 400 basis points, the way I think about it is about 1/4 of that on a full year basis is tied to the new price actions and the balance really tied to the Harris, what we've seen throughout Harris. We don't get the full year impact, obviously, with the new price actions being taken. So if you just think about that 150 basis points that I mentioned that begins in the third quarter, think about half of that, and that's really about 1/4 of the overall pricing change assumption. Mircea Dobre: Great. That's very helpful. And then my follow-up, going back to international, I'm trying to make sense of the volume decline that you have in there. I understand the Middle East impact, something around 230 basis points. But what about the rest of it? Because at least optically to me, when I'm looking at the prior year, the comparison was not that difficult. I know you talked about tough comps, but volumes were down about 6% last year as well. So can you unpack what's going on here and what regions are doing what -- outside of the Middle East? Gabriel Bruno: Yes. So just real simply, the largest driver was the timing of projects within our automation business. We did see pockets of strength in certain markets within Europe and you have the impact of Middle East, but that was the key driver. On the Asia side, we've seen favorable trends in the likes of India, Australia and that. But biggest driver overall was the timing of projects and the tough comps on the automation side. We were down in automation internationally. We're slightly up on the Americas side. Operator: And we have our last question from Nathan Jones of Stifel. Andres Loret de Mola: This is Andres on for Nathan. Just moving on to the margin side. Can you maybe talk about some of the cost management actions Lincoln is taking to drive improved margins near term? Steven Hedlund: Yes. We have a series of initiatives we're driving under this RISE strategy in terms of enterprise-led initiatives. We're focusing a lot on sourcing and trying to get more leverage out of our global spend. We're looking at trying to improve supply chain planning, so we can become more efficient in how we run the factories and servicing our customers with less inventory going forward. We're looking at SG&A productivity initiatives. And the combination of all those things are reflected in our assumptions around incremental margins over the course of the RISE strategy period. Gabriel Bruno: And just to remind you, when we talk about our expectations in the operating margins as well as incrementals for 2026, as you know, we're talking about mid-20s. When you think about our 2030 targets, we're talking about high 20s. So we're looking to make a step change and a lot of the investments we're making currently have longer-term implications while we're continuing to improve the short-term margin outlook. Andres Loret de Mola: Got you. That's helpful. And just specifically to Harris, I guess, can you walk us through what were the primary margin drivers in Harris? Was it mainly mix related? Maybe just a little bit more color there. Gabriel Bruno: Well, mix was certainly favorable. We did have some strengthening across on the retail side as well as what we've seen on HVAC, which was better than expected. And then we also have the pricing impact where we've achieved our price/cost neutral posture and with the leverage on SG&A. You probably have about low to mid-20s type of incremental margin on that. So mix is a big part of it and then our pricing and strategy as well. Operator: And we have more questions. The next question comes from Walt Liptak of Seaport Research Partners. Walter Liptak: I wanted to ask about the lower international margins. I wanted to hopefully talk about that a little bit. I think you -- Gabe talked about 11% international margin throughout the year. And I think previously, it was at 11% to 12%. And I wonder if you could help us understand, is this more price/cost? Or is it the Middle East kind of volume overhang? Help us understand what's going on with the international profitability. Gabriel Bruno: Yes. Well, certainly, the volume impact in the first quarter, while the 9.9% down had an impact. And we do expect to see more stability in the overall business profile as we enter the second quarter. Timing of projects, as I mentioned on the automation has an impact depending on how the conflict progresses in the Middle East, we'll continue to see an impact there. But the mix is good from an Alloy Steel acquisition standpoint that will anniversary, as I mentioned, in August, and we expect that to also have a favorable impact. So the impact on volumes had an impact coming into the second quarter, which we expect that to stabilize. Walter Liptak: Okay. Great. And then kind of going back to the earlier questions about some of the general fab markets and just the way that things trended. Was this quarter kind of in line with what you guys were thinking going into it? Or did you see more of a pickup as the quarter went on and into April? Gabriel Bruno: Yes. I mentioned the level of -- in Americas Welding consumable volumes being up low double digits. So that was stronger than we would have expected as we spoke in February. So we saw strengthening in real volume activity in general industries. We continue to see that momentum into April. So that's what gives us the cautious optimism on the early parts of recovery, particularly in the Americas Welding side. Steven Hedlund: Yes. Walt, I would say the improvement in gen fab, particularly in the Americas, consumables may be a little bit ahead of what we were anticipating and standard equipment may be a little bit behind what we were anticipating. The consumables is a great barometer of factory activity. And with continued strength in the factory activity and hopefully improving confidence, we should see the standard equipment follow in fairly short order. Operator: And your next question comes from the line of Steve Barger of KeyBanc. Christian Zyla: This is Christian Zyla on for Steve Barger. One clarifying question. Just with your earlier comments on the 2Q volume expectations, are you expecting overall margins in 2Q to be somewhat similar to 1Q and then a pretty meaningful step-up to get to your full guide of slight improvement? Can you just help us walk through the cadence for the full year? Gabriel Bruno: Yes. No, I expect the second quarter to show a step improvement compared to what we've realized in the first quarter and see that progressively stable as we get full realization of price/cost neutral in the third quarter. Christian Zyla: Got it. And then to follow up on that, is that driven primarily by volume or mix in the back half? Just kind of help us parse that out. Gabriel Bruno: Yes. So for sure, volumes, we do see progressively improving. As we talked prior to the increase in our pricing assumptions for the year, we did point to the mix of price volume to progress into volumes in the back half of the year as we've anniversaried the price actions from -- that we had taken in 2025. So we have pivoted to volume in the back half of the year. The only comment we made to reinforce mix is that the strengthening of Americas, depending on what progresses within the Middle East conflict could be an offset, which we estimate that impact to be about $8 million to $10 million per quarter. Steven Hedlund: Yes, Christian. So our expectation is still for continued volume improvement in the second half of the year. We haven't seen anything yet to have us come off of that, but we're cautiously monitoring demand trends to stay on top of that. So hence, our cautious optimism. Christian Zyla: Understood. One final one for me is just on the cash flow for the year. I think I understood the comment of the increased working capital or inventory levels. Do you expect that to repeat as we go for the full year? Or should we expect a similar '26 versus '25 free cash flow, which then would imply about $140 million, [ $150 million ] per quarter? Gabriel Bruno: Yes. No, we expect to -- we're still anchored on 100% cash conversion. So we expect that while we're investing short term for some product transitions that would turn around in the back half of the year. Operator: And we have one last follow-up question from Mig Dobre of Baird. Mircea Dobre: Still back on international for me. If we're kind of leaving out the Middle East conflict and the drag that you've outlined from that, so excluding this, do you expect to see volume growth in the rest of that business at any point in time in '26? And as far as inflation goes, what is the impact on that flow-through in pricing in international welding? Steven Hedlund: Yes. Mig, I would say we're expecting volume growth in the Asia Pacific region of the business. The Western Europe, in particular, and the broader European region, excluding the Middle East, a little more cautious. We were pleased to see a little bit of an uptick this quarter versus the prior quarters, but we're concerned that, that might be pull forward related to pricing actions and also some of the government regulations around the carbon border adjustment mechanism coming into play. And so it's just a little too early to call any bottoming and improvement in Europe at this point in time. But we continue to see growth in Asia Pac and believe that we're investing appropriately to take advantage of that growth. Gabriel Bruno: And our posture there in the international market is to be price/cost neutral. So we'll take some action to achieve that objective, and that's what drives the improvement as we see from Q1 into that 11% type EBIT margin profile that we expect from the business. Operator: And this concludes our question-and-answer session. I would like to turn the call back over to Gabe Bruno for the closing remarks. Gabriel Bruno: I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our RISE strategy in the future. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you, everyone, for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the DexCom, Inc. First Quarter 2026 Earnings Release Conference Call. My name is Abby, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star one on your touch-tone phone. As a reminder, the conference is being recorded. I will now turn the call over to Sean Christensen, senior vice president of finance and investor relations. Mr. Christensen, you may begin. Sean Christensen: Thank you, operator, and welcome to DexCom, Inc.'s first quarter 2026 earnings call. Our agenda begins with Jacob Steven Leach, DexCom, Inc.'s President and CEO, who will summarize our recent highlights and ongoing strategic initiatives, followed by a financial review and outlook from Jereme M. Sylvain, our chief financial officer. Following our prepared remarks, we will open the call up for your questions. At that time, we ask analysts to limit themselves to one question each so we can provide an opportunity to everyone participating today. Please note that there are also slides available related to our first quarter 2026 performance on the DexCom, Inc. Investor Relations website on the Events and Presentations page. With that, let us review our safe harbor statement. Some of the statements we will make on today's call may constitute forward-looking statements. These statements reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. All forward-looking statements included on this call are made as of the date hereof, based on information currently available to DexCom, Inc., are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in the forward-looking statements. The factors that could cause actual results to differ materially from those expressed or implied by any of these forward-looking statements are detailed in DexCom, Inc.'s annual report on Form 10-K, most recent quarterly report on Form 10-Q, and other filings with the Securities and Exchange Commission. Except as required by law, we assume no obligation to update any such forward-looking statements after the date of this call or to conform these forward-looking statements to actual results. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. This non-GAAP information should not be considered in isolation, or as a substitute for results or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and the slides accompanying our first quarter 2026 earnings call for a reconciliation of these measures to their most directly comparable GAAP financial measure. Now I will turn it over to Jake. Jacob Steven Leach: Thank you, Sean, and thank you everyone for joining us. Today, we reported first quarter revenue growth of 15% compared to 2025 and organic revenue growth of 12%. This reflected strong demand for DexCom, Inc. CGM globally, as we benefited from broader access, new product launches, and continued active base growth. We also continued to drive operational improvement over the course of the quarter, which included an outstanding launch of G7 15-day, improvements in field performance across all of our products, a good response to our MyDexcom account and enhanced web-based service and support, and continued progress on new product initiatives. This helped us deliver solid margin performance, cash flow generation, and earnings for Q1. In the U.S., we are generating good momentum across the spectrum of diabetes care. This was especially pronounced across the categories of type 2 diabetes where our expanded reach and product momentum led to strong first-quarter share gains, with the biggest increase coming from people with type 2 diabetes who are not on insulin. This performance reflects growing clinical awareness of the greater than 6 million non-insulin lives currently covered for DexCom, Inc. CGM across the three largest PBMs. Our team has done a great job driving this awareness in the field, and this message will become even stronger as type 2 coverage continues to build. Along those lines, I am excited to announce another recent reimbursement win for the commercial type 2 non-insulin population. As of this summer, Prime Therapeutics will begin covering DexCom, Inc. CGM for all people with diabetes. This puts us on track to have commercial coverage for more than 7 million type 2 non-insulin lives by the end of this year. It is also another clear demonstration that payers are recognizing the value of DexCom, Inc. CGM in driving health and economic outcomes for this population. While this is a great start, we will not be happy until we have coverage for all people with diabetes. And the largest single driver towards that goal would be CMS coverage for the type 2 non-insulin population, as around half of those with type 2 diabetes not using insulin sit within the Medicare population. As we have said before, we continue to view this decision as only a matter of time. In recent months, we have seen upgraded recommendations in the ADA Standards of Care recommending CGM use for all people with diabetes, and the level of real-world evidence for CGM-driven health outcomes continues to grow. As one example, at ATTD, we recently provided a full readout of our 12-month type 2 non-insulin registry data. In this real-world study, DexCom, Inc. CGM delivered a statistically significant A1c reduction over a one-year period across a broad population of people with type 2 diabetes with strong utilization. These are the types of outcomes that we are consistently demonstrating across this group, which gives us high confidence that the coverage will continue to grow. And to further strengthen our case, we are currently completing our randomized control trial for people with type 2 diabetes who are not on insulin. Similar to how our DIaMonD and MOBILE RCTs reshaped clinical perspectives for those using insulin, we expect this trial can become the defining study for the non-insulin population. This readout will also form the cornerstone of our evidence base for any global payer that is waiting to see RCT-level data. We look forward to sharing a full readout of this study with you at the ADA's 2026 Scientific Sessions in a few weeks. As I mentioned earlier, during the first quarter, we also expanded the launch of our DexCom, Inc. G7 15-day system across all channels in the U.S. This broad rollout has been very well received, and most importantly, the feedback from customers and physicians has been excellent. The positive response goes well beyond the longer wear time. One of the most consistent points of feedback is around the new sensor algorithm which delivers our highest level of accuracy to date. Combined, we believe these updates can attract new customers into our ecosystem. And we are now working to build broader awareness of DexCom, Inc. G7 15-day in the market. We are also excited for more of our existing base to shift to this product so they can experience this longer wear time and improved performance firsthand. Of course, we are not stopping there. We are always working to improve the performance across our product portfolio. As one example, we recently began May manufacturing with our new patch technology that received FDA clearance earlier this year. We expect this upgraded adhesive to strengthen sensor survivability across our product portfolio and improve wear experience for our customers. We expect this new technology to reach the market in the coming weeks. We also have several software updates planned, including a complete redesign of Stello. In the coming weeks, we will introduce this new experience to all customers, which will offer a more consumer-friendly feel, more AI-driven personalized insights, and additional food logging capabilities including detailed macronutrient information. For our G Series products, we are currently expanding access within our pilot KOLs for our DexCom, Inc. Smart Basal feature. This personalized dosing module has the potential to reinvent basal insulin management by driving more accurate insulin titration, accelerating the time needed to reach optimal dose, and delivering improved outcomes for customers and physicians. Each of these updates were built specifically around customer feedback. We will always keep the customer at the center of future product innovation, which we believe can help us build an ecosystem that is more personalized and engaging for all customers. Our international markets provide a great example of what product personalization can do for our business. By offering a portfolio of products that can be tailored to each market and reimbursement system, we have been able to consistently secure broader access and drive growth within these regions. Our first quarter results were another great demonstration of this story. Once again, we delivered some of our strongest growth in markets where we have established broader access in recent quarters. Even in some of our largest markets, recent reimbursement wins have helped us reach a new cohort of customers and drive greater share. We will continue to build on this international growth strategy, including through the launch of new products. In 2026, this will include the international launch of Stello, as well as a new CGM system that is designed to further extend our market reach. We look forward to going into greater detail on these product launches, software updates, and more at our upcoming May Investor Day. You may recall that earlier this year, I laid out my three priorities for DexCom, Inc.'s next phase of growth: number one, be the premier glucose sensing solution for all; number two, set the standard for customer experience; and three, expand international market share. At our Investor Day, I am looking forward to exploring each of these topics in further detail as we share our vision for DexCom, Inc.'s next chapter. For those joining in person, we are also planning to visit our Mesa manufacturing facility to provide a glimpse into our original high-scale CGM manufacturing location and the level of precision that this work requires. We look forward to showcasing the quality and automation that we have built, and that we feel positions us well to lead the CGM category into the future. We hope to see you there. With that, I will turn it over to Jereme. Jereme M. Sylvain: Thank you, Jake. As a reminder, unless otherwise noted, the financial measures presented today will be discussed on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as the slide deck on our IR website. For the first quarter of 2026, we reported worldwide revenue of $1.19 billion compared to $1.04 billion for 2025, representing growth of 15% on a reported basis and 12% on an organic basis. As a reminder, our definition of organic revenue excludes the impact of foreign exchange, in addition to non-CGM revenue acquired or divested in the trailing 12 months. U.S. revenue totaled $832 million for the first quarter, compared to $751 million in 2025, representing an increase of 11%. As Jake mentioned, in the U.S., we saw momentum build across the spectrum of diabetes care in the first quarter. This reflected both growing awareness of the broader type 2 coverage and the launch of our G7 15-day product, which has generated a lot of excitement in the market. We have been very encouraged by the initial 15-day uptake and the market feedback, and look forward to seeing the active base continue to transition as we progress over the course of the year. International revenue grew 26%, totaling $360 million in the first quarter. International organic revenue growth was 17% for the first quarter. Our international growth was widespread across our core markets this quarter, with some of the largest increases coming from geographies where we recently expanded access, such as France and Canada. Our first quarter gross profit was $757.4 million, or 63.5% of revenue, compared to 57.5% of revenue in 2025. We are excited by our progress on gross margin performance, which was up significantly on a year-over-year basis and flat compared to the fourth quarter despite our typical Q1 seasonality. This performance reflected strong execution across our operations and supply chain as we delivered continued manufacturing efficiencies, more normalized freight costs as we have improved our global inventory levels, and initial benefit from the switchover to G7 15-day. Operating expenses were $493 million for Q1 2026 compared to $453.1 million in 2025. Operating income was $264.4 million, or 22.2% of revenue in 2026, compared to $143.1 million, or 13.8% of revenue in the same quarter of 2025. We are really proud of the team and the discipline demonstrated over the course of the quarter, both on operations but also all of the support teams that worked tirelessly for our customers. This is a demonstration of the ability to deliver for our customers, our employees, and our shareholders. Adjusted EBITDA was $364.5 million, or 36% of revenue for the first quarter, compared to $230.4 million, or 22.2% of revenue for 2025. Net income for the first quarter was $216.3 million, or $0.56 per share, representing 75% growth over 2025. We remain in a great financial position, closing the quarter with approximately $2.4 billion of cash and cash equivalents. This was up over $400 million compared to year-end 2025, which reflected our significant free cash flow performance in the first quarter. This cash balance, along with our growing free cash flow profile, continues to provide us with a lot of flexibility as we assess ongoing capital allocation opportunities. Turning to guidance, we are reaffirming our prior revenue guidance of $5.16 billion to $5.20 billion, representing growth of 11% to 13% for the year. For margins, we are reiterating our previous full-year non-GAAP gross profit margin guidance of 63% to 64%, and increasing our non-GAAP operating profit margin guidance and adjusted EBITDA margin guidance to 23% to 23.5% and 31% to 31.5%, respectively. While our Q1 gross margin performance leaves us tracking well relative to our current guidance, we left gross margin guidance unchanged to account for the current geopolitical environment, including uncertainties with fuel prices and shipping routes. Regardless, our strong cost control over the quarter positioned us to raise our full-year non-GAAP operating profit and adjusted EBITDA margin guidance. With that, we will now open the call for questions. Sean Christensen: Thank you, Jereme. We will now open the call for questions. As a reminder, we ask our audience to limit themselves to only one question at a time and then reenter the queue if necessary. Operator, please provide the Q&A instructions. Operator: Thank you. We will now begin the question-and-answer session. If you have a question, please press 1 on your touch-tone phone. If you wish to be removed from the queue, press 1 a second time. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 1. Our first question comes from the line of David Roman with Goldman Sachs. Your line is open. David Harrison Roman: Thank you. Good afternoon. I appreciate your taking the question here. I guess when we look at the totality of the U.S. market now with two major players having reported, it does look like the market is in a period of slower growth. And as your competitor noted, that may be due to no major coverage expansion or new indications. So could you maybe just give us your perspective on how you are seeing the U.S. market unfold here? What is assumed in your guidance? And any details you can provide, whether it is new patient starts or other metrics, to corroborate the health of both the U.S. market and your business would be helpful as we think about the balance of the year? Jacob Steven Leach: Yes, thanks, David, for the question. If you take a step back and look at the U.S. market, there is still pretty significant opportunity. If we think about it, about 30% penetration into the covered lives is where we are as a category. That means that only one in three people that have coverage for CGM are using it, so the other two thirds is out there today, and that is before we talk about any expanded coverage. So I think as we look at new patients, we are always striving for a record number of new patients every quarter, and this quarter came in in the U.S. very close to a record, and we set a global record number of patients across the entire globe. We feel like there is a lot of strength in the category, and if we just focus on the U.S., there is still a long runway to go. We mentioned a new PBM now covering CGM by the end of the year that is going to add another million lives to that non-insulin using population, and when you think about that, that provides a lot of opportunity. Frankly, our team is getting much better at targeting this new coverage, as we saw some of the share gains that we had in this group, and so I think we still see a solid rate of growth going forward for the U.S. Operator: Our next question comes from the line of Travis Steed with Bank of America. Your line is open. Travis Lee Steed: I will start maybe asking on 15-day, kind of a two-part on 15-day. When you think about the better algorithm and the better customer experiences, is that something where maybe that product helps new starts as it launches? And then also maybe talk about the margin impact. I know you left gross margin guide unchanged, so how much inflation are you baking in? I am curious how to think about the margin impact of 15-day rollout versus the inflationary impact on margins. Jacob Steven Leach: Sure. I will take the part around the product and the starts, and then Jereme will fill in with the margin perspective. I absolutely believe that the 15-day product is helping drive the momentum that we are seeing. We did see performance improvements across our entire portfolio when it comes to the reliability of our product, but when you think about the 15-day in particular, it has that new algorithm and the extended wear, and that is something that patients very much value. The convenience of the longer wear, and then the algorithm, the performance and reliability of that product, is really driving new starts as well as conversions over to it. We are making good progress towards converting the base over to that product. We estimate nearly 50% will be converted by the end of the year over to this new 15-day product. Jereme, you want to fill in on margin? Jereme M. Sylvain: Yes. You are exactly right, Travis. We kept gross margin guidance on hold because of the impact of oil on both fuels and resins, and obviously resins play a large part in our product as well. There is probably about 50 to 100 basis points of potential risk associated with fuels and resins over the course of the year. Absent that, we would be raising the gross margin guidance. You can see in the first quarter we had really solid performance. Typically, we step back from Q4 into Q1, and with some of the work that we have done over the course of the year, that was flat coming into Q1, which should give you a lot of confidence that the work we have been putting in place to help improve throughput, quality, and yields is really starting to play out. So think about it that way: about 50 to 100 basis points. If oil prices come back down to normal, we will certainly revisit it and revise at that point, but right now, we have a placeholder for that. The underlying performance of the business is outperforming expectations as we got into the year. Operator: Our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open. Gursimran Kaur: Hi, good afternoon. Thanks for taking the questions. This is Simran on for Larry. I just wanted to ask on type 2 non-insulin. We heard the RCT presentation is slated for ADA. Could we see a publication before ADA, and do you plan to share any color on the trial results at the Investor Day? And maybe just a broader question on type 2 non-insulin: any color on how we should think about this unlocking or re-catalyzing the next leg of growth in the U.S. CGM market, maybe even stepping back to that strong double-digit growth that you have talked about in the past? Jacob Steven Leach: Thanks for the question. Speaking of the randomized control trial for the non-insulin using population, we are planning to do the full readout at ADA, and we are anticipating results there are going to be similar to what we have seen when we look at our registry data and all of the other data that we generated in this population—really significant improvements in the glucose outcomes for these folks that, frankly, are not usually measuring glucose in any way. Many of them are not taking fingersticks. When you provide them with real-time feedback from our CGM, they are making the changes, the behavior modifications, and learning about how to better manage their diabetes, and therefore getting the A1c reduction, which is what that study is powered for. We do not plan on publishing before the readout. It will be in a major publication, but the readout at ADA will be the first time we do the readout. As we think about the unlocking of coverage, we have both continued unlocking of commercial coverage and then, obviously, this large population of non-insulin treated folks that sit in Medicare. It has the potential to really provide durable growth for a long time in the U.S. when you think about that opportunity. We are going to continue to advance access for these folks. As we think about the field and how we are building out our products and serving this population, we are going to continue to build products that help us grow the active user base. We think about new patients, but it is also retention and utilization in these populations. The more we do with the product and the service and the experience, the more that active base is going to grow. Operator: Our next question comes from the line of Robbie Marcus with JPMorgan. Your line is open. Robert Justin Marcus: Great. Thanks for taking the questions. You said it was close to a record new patient start, and I think that has been the language the past four quarters. So we are now a full year without a record new patient start. If I remember on the fourth-quarter call, you said the top end of the sales guide assumed a record and the bottom end assumed no new record patient starts. So a two-part question. One, do you feel like the lower end is maybe more appropriate if we do not see a record? And two, do you think you can maintain the current sales growth if you do not put up a new record in the future? Jereme M. Sylvain: Sure. Thanks, Robbie. Let me be clear. Globally, we did have a record new patient quarter this quarter. So globally, it was a record. In the U.S., it was close to a record. We are seeing momentum building behind 15-day, and sequentially it was an improvement from Q4. We also took share both in the U.S. and OUS. As you talk about the full year, the low end would be not records globally, the high end would be records globally. We are tracking well, given the first quarter is a record, and that gives you some context. For the year, our goal is to continue to unlock coverage. We talked about Prime Therapeutics in the U.S. commercial space. Outside the U.S., we also have plans to unlock coverage over the course of the year. Our expectation is to continue to unlock that coverage and help drive the growth algorithm. We have a lot of catalysts over the course of the year: momentum building with G7 15-day, Stello launching with a new app experience, bringing Stello outside the U.S., and looking at 15-day opportunities outside the U.S. Given what we have seen in the U.S. with the performance of 15-day, we are excited to bring that outside the U.S. We also expect progress on CMS coverage unlock timing. It starts with a record globally in the quarter, and we delivered that. Operator: Our next question comes from the line of Matt Taylor with Jefferies. Your line is open. Matthew Charles Taylor: Hi, thanks for taking the question. I wanted to double click on the CMS coverage. Your competitor said they are not going to call the month, basically implying it could happen soon. I know you do not know exactly when it is going to happen, but what are your thoughts on whether that could come before the usual process of going through the RCT and submitting your application? What is the range of outcomes for when that could happen, you think? Jacob Steven Leach: Thanks for the question, Matt. At this point in time, the RCT may not be required for that CMS coverage. In my conversations with the folks at CMS, it is very clear that they understand the benefit of CGM for this category. It is hard to estimate exactly when this coverage is going to come, but as we have said before, it is really just a matter of time. When that coverage does come, it provides a great opportunity for durable growth and continued patient impact. This product provides significant benefits for all people with diabetes, and as I said in my prepared remarks, we are not going to be happy until everybody with diabetes has coverage for this product. We are looking for that globally. Again, it is hard to call exactly, but we do know that the benefits are clear, and we look forward to the decision. Operator: Our next question comes from the line of Jeff Johnson with Baird. Your line is open. Jeffrey Johnson: Thank you. Good afternoon, guys. Jereme, you talked about some of the coverage unlocks outside the U.S. Are you inching closer? Is there progress or any even body language or gut feel on moving towards some basal coverage in some of the other bigger markets where we do not have it outside the U.S. at this point? Any update there? And was there anything one-time—timing, tender—anything that helped that 17% OUS constant currency organic growth rate, anything we should think about as a tough comp for next year in 1Q or anything like that? Thanks. Jereme M. Sylvain: Thanks, Jeff. Outside the U.S., there is a mounting body of evidence that continues to grow. We have had MOBILE and other studies come out, and the dialogue with a lot of the international bodies has continued to progress in a good way. We are continuing to look to unlock basal coverage. We are in lots of different conversations about how to do so, whether it is payers or tenders. There is a lot moving by country, and I would expect to have wins in pockets over the course of the year. We will give updates as they come. In markets where basal already exists, our type 2 evidence will help keep moving there. As Jake mentioned, around the world, we are not going to stop until everybody has access. In terms of any one-timers, no, there really was not. The way tenders work, folks use this product repeatedly. You do not use it once and then move away. Tenders typically allocate product for some time because people use the product year-round. We have been competing in tenders for some time and winning quite a few. Our product portfolio approach has gotten into tenders that may have been exclusive with a competitor and are now dual formulary, and that has happened in many cases we have seen. It is our opportunity to get into these markets with a product portfolio that makes sense and take share, and you are seeing that taking place. Operator: Our next question comes from the line of Marie Thibault with BTIG. Your line is open. Marie Yoko Thibault: Thanks for taking the questions this evening. I wanted to drill down a little bit more on your comments about the share gains in the type 2 population this quarter. I wanted to understand how sustainable some of that momentum feels to you out in the field, what you have seen since the quarter ended, and how much of it you think is linked to the 15-day launch versus sustainable momentum from your salesforce and execution? Jereme M. Sylvain: Yes. There are a few things we have seen playing out, which I think are all good things around share taking and the outlook longer term. First and foremost, we pay a lot of attention to customer satisfaction, and our NPS scores have jumped up with 15-day. We saw that playing out in the first quarter. That is sustainable. The customer experience is moving in the right direction, and that is an exciting moment for us. Certainly, the launch of 15-day helped. We had opportunities to extend wear length, and we have taken advantage of those, and the new algorithm has wowed customers. When you have a product like that in the market, plus coverage wins over time with low copays, it is providing an opportunity to get in front of physicians, demonstrate the value of the product, and make sure physicians know we have the lowest copays and the most coverage across the board. We are not going to stop until we win in these categories. Given we have the best coverage, I do not think there is any reason we would not look to do so. Our opportunity is to continue to take share and continue to take share until we are market leaders in every category. We are already market leaders in some categories, and we have some room to go in categories that historically did not have coverage. Having the 15-day product, having the customer satisfaction scores moving, and having the best coverage all bode well to taking share for some time to come. Jacob Steven Leach: What I would add is, when you think about the long run and as we are developing this product portfolio for different categories of patients, a feature like our Smart Basal is really designed to change the experience around going onto basal insulin. We are still seeing the largest category of new patients in the type 2 insulin-using population, both the IIT and the basal. With basal penetration still around 20% to 25% as a category, there is still a lot of opportunity for us to grow and take share there. That system is really designed to make the experience that both users and physicians are looking for, driving outcomes and ease of use. Operator: Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open. Matthew Oliver O'Brien: Good afternoon. This is Anna on for Matt. Thanks for taking the questions. There is always a focus on new patient starts, but I also wanted to ask on the retention side what trends you are seeing today in the domestic market and how that contributed to the results in the quarter. How do you expect this metric to evolve from here? Jacob Steven Leach: Hey, Anna. When we think about retention, it has been fairly consistent within a band. We look at both retention and utilization because both really help drive the active base. We have targeted improving our experience and really setting the standard both with the product and the service behind it. As Jereme mentioned, our NPS scores have been going up quite a bit, and I do think that bodes well for the future when we think about retention and utilization. It has been fairly consistent for a period of time now, but one of our goals is to improve it so that we can continue to improve active base growth. Operator: Our next question comes from the line of Joanne Wuensch with Citi. Your line is open. Joanne Karen Wuensch: Good evening, and thank you for taking the question. I am curious how we should think about the next couple of quarters, and if you can comment on thoughts for revenue growth rate throughout the remainder of the year and, in particular for the second quarter, if there is anything else we should be aware of as we think of our models. Thank you. Jereme M. Sylvain: While we do not necessarily guide to quarterly cadence, I can give you some things to think about over the course of the year. When we guided the year at 11% to 13% organic growth, we said it would be relatively split across U.S. and OUS, and that really has not changed. U.S. comps are a little more difficult in the first part of the year and a little easier in the back half, and vice versa internationally, where comps are a little easier in the first half and more difficult in the back half. We are still anchoring around the same commentary around the split across the two. Most folks are thinking about the cadence relatively well. Operator: Our next question comes from the line of Jayson Bedford with Raymond James. Your line is open. Jayson Tyler Bedford: Good afternoon. Thanks for taking the question. I apologize if I missed it. The Smart Basal launch, I think it was early access in 1Q. When do you expand this launch? Thanks. Jacob Steven Leach: Thanks, Jayson. We are still in a pilot launch. The idea is making sure the system as designed fits into workflow because it is designed to be a very broad-use product across many clinical environments—large diabetes clinics and small primary care offices. The work we are doing now in a number of pilot sites is ensuring that flows well. We actually learned a couple of things and made some updates to the system. We are not revalidating the algorithm; we know the patient experience is excellent. It is more about how it fits into clinical workflow. When we broaden the launch, we want it to be extremely easy and successful for users and physicians. We do plan to expand throughout the year, and once we finalize the workflow, we will launch it in a very big way. Operator: Our next question comes from the line of Jonathan Block with Stifel. Your line is open. Jonathan Block: Great. Thanks, guys, and good afternoon. Maybe I could go back to the prior question and push a little bit on the 11% to 13% organic revenue growth being essentially evenly split between U.S. and international. If you look at 1Q—17% international—and you said there was nothing abnormal in terms of tenders. T2 NIT seems more of a 2027 event than 2026. There seems to be sensitivity from investors around that U.S. number. Why do you have the conviction it is split and not, say, 10% plus U.S. this year poised to maybe accelerate next year with T2 NIT, instead of equally weighted specific to 2026? Jereme M. Sylvain: The question is fair. We exited last year with a relatively split U.S. and OUS business. Looking at comps year over year, you can see where there were wins and opportunities. We saw a ramp in the international business into the back half of last year and, as we comp some easier first half, looking at Q1 in isolation can be challenging. As you zoom out to our performance over last year and into this year, we still feel very excited about the opportunities in both the U.S. and international businesses. If we come back at the end of the year and it is slightly different, we will keep you posted. We still see a lot of opportunity in the U.S., especially with coverage wins like Prime Therapeutics, and outside the U.S. with tenders we expect to win. We still think it is balanced. If the numbers are slightly off by half a percent or so by the end of the year, we will discuss it. Nothing has changed versus what we saw at the start of the year—we continue to believe both businesses can operate quite strongly over the course of the year. Operator: Our next question comes from the line of Issey Kirby with Redburn. Your line is open. Issie Kirby: Hi, guys. Thanks so much for taking my question. I wanted to ask about Stello and how that is tracking. What prompted the redesign? With the international launch, how broad do you expect to go? Is this a product that you could push into markets where you are not currently present? Thank you. Jacob Steven Leach: Thanks, Issie. We see Stello as a fantastic opportunity to reach more patients, and it is tracking well to our estimates. As we have been out there for over a year, we have learned quite a bit. One of the main things we are hearing from users is they want more context around real-time glucose data. Over time, we started adding features to the current version of Stello, particularly focused around capture of nutrition—meal logging—using AI to analyze those meals. Taking a step back, we looked at the current version and saw an opportunity to redesign the experience to better match what customers are looking for, both aesthetically and functionally. The new Stello app we are launching very shortly is a complete redesign of the user interface. It has a more technology-forward aesthetic and provides insights that add context to glucose excursions, glucose variability, and nutrition. We are finding that nutrition is really important in helping users connect the dots to make sense of their glucose data and make healthy lifestyle changes. This new version puts those insights front and center and has an overhauled insight engine. We wanted to make insights much more personalized and take advantage of integrated data from activity trackers—Oura Ring, sleep scores, and more—bringing more personalized context and analysis. We are excited for people who maybe tried Stello but wanted more, and for enhancing the experience for current and future customers. For international launches, we are looking at countries in both EMEA and APAC. We will start with a smaller number and then expand, and we believe it is an opportunity for many markets to have an entry point with a product that meets user needs. Operator: Our next question comes from the line of Mike Kratky with Leerink Partners. Your line is open. Analyst: Hey, guys. Good afternoon. This is Brett on for Mike. Thanks for taking the question. Back to type 2 NIT—going into the Analyst Day, we will see the data at ADA. You say it is a matter of time for CMS. For your long-range plan and thinking long term, would you expect to have the assumption that CMS coverage is coming within that number, or would you need to actually have that coverage in hand before that is included within your long-range plan? Jereme M. Sylvain: For long-range plans, I would expect us to include our assumptions around that. I do not want to preempt Investor Day, but it is an opportunity for us to talk about it—our thoughts on timing and how we think about it. It does not change that we will push hard to get the coverage as soon as possible because there are a lot of folks who need this product. You can expect us to talk about our assumptions and viewpoint into the future at Investor Day, and if timing differs from assumptions, we will address that then. Operator: Our next question comes from the line of Richard Newitter with Truist Securities. Your line is open. Richard Newitter: Hi. Thanks for taking the questions. One clarification and then a follow-up. Did you say you have an incremental 50 to 100 basis point headwind that you are now contemplating in 2Q to 4Q that is getting absorbed in your reiterated gross margin guidance? Did I hear that correctly? Jereme M. Sylvain: It is 50 to 100 basis points. Richard Newitter: Got it—50 to 100 basis points incremental to what you had heading into the year? Okay. And then on the Prime Therapeutics win—congratulations. How long does it take for these things to work into having an impact? Does that mean you are banking on contribution from that incremental coverage to get to 11% to 13% in the U.S., or was that largely left as upside? Jereme M. Sylvain: On coverage timing, on national formularies like Prime, the second it is turned on, if you have a script and go to the pharmacy, you are covered. It is generally immediate on those national formularies. You should see it this summer when it is turned on for everyone covered there. That will help. New patients are helpful for the long-range engine, but they are not the only driver—retention, utilization, price, and mix also play into the guide. This is helpful and gives us bullishness around penetration and adoption, but it was not a major contributor to the original guide. We assumed nominal wins over the year and coverage largely as is. As we get more unlocks, that helps over the course of the year. One dynamic our salesforce consistently sees is that as coverage expands, physicians become more comfortable writing scripts broadly. As coverage for the type 2 population rises, it really unlocks the ability for physicians to go deeper. We would expect a similar phenomenon with CMS coverage—a rising tide. Operator: Our next question comes from the line of Chris Pasquale with Nephron. Your line is open. Chris Pasquale: Thanks. Jereme, on the gross margin strength, leverage in the middle of the income statement was excellent this quarter as well. You tweaked up the high end of your operating margin and EBITDA ranges a little bit, but those seem conservative given where you are starting and the normal cadence we see throughout the year. Did some spending get pushed out of 1Q that is going to come back later? Might this year look a little bit different? I am looking in particular at R&D being flat in dollar terms as an outlier. Any color there would be great. Jereme M. Sylvain: I appreciate you bringing it up; there has been a lot of work by the team to get here. We did much of that work in the back half of last year. One reason we felt good about raising guidance—though we typically do not raise after one quarter—is you saw operating expense performance in Q4 and now in Q1. We raised the midpoint of operating margin guidance by 75 basis points, which is a pretty big raise with just one quarter behind us. We do expect R&D spend to continue to increase. We did good work managing expenses and leaning into things like AI to be more efficient, but we are not pulling back on R&D. Being flat year over year is not expected to continue. We will continue to invest in Ireland as that manufacturing facility ramps through the year. You really start to ramp a facility right before you turn it on; we turn it on in the fourth quarter, so you can imagine Q2 and Q3 ramping a bit going into that. It was not pushed back—this has always been part of the plan. We had 300 basis points of leverage in operating expense spend last year; that is playing through a bit this year. Our underlying business is continuing to get leverage despite the investments in Ireland, and that is one of the reasons we raised guidance. Operator: Our next question comes from the line of Joshua Jennings with TD Cowen. Your line is open. Colin Clark: Hi, guys. Good afternoon. This is Colin on for Josh. Thank you for taking my question. People seem to be treating CMS as a binary event. Is it possible there is language around stipulating that patients are on orals or other diabetes medications, and would that change your expectations for the adoption trajectory over the next couple of years? Thank you. Jereme M. Sylvain: It is a good question. CMS has always had requirements to ensure qualification for coverage. When it was intensive insulin, you had to prove multiple shots per day and submit glucose logs. When it moved to basal, you had to demonstrate one shot a day. I would not be surprised if CMS includes something—script evidence, orals like metformin, etc.—to document diagnosis and therapy. Most folks diagnosed with diabetes are prescribed medication. Whether it is all folks or all folks with some form of medication, this is a massive expansion and opportunity to serve this population. I would not expect any such requirement to materially limit our ability to impact the population or change our growth opportunity. Operator: Our next question comes from the line of Daniel Markowitz with Evercore ISI. Your line is open. Analyst: Hey, good afternoon, and thanks for taking my question. It is great to hear the callout on share gains in type 2 non-insulin. It sounds like the 15-day is helping a bit. Is there anything you are doing to the organization or the salesforce in order to prepare for this market unlock—maybe more focus on PCPs versus endos? Also, how should we think about the operating impact related to increasing contribution from the type 2 non-insulin market going forward? Thank you. Jacob Steven Leach: We are continually evolving the product portfolio and service, and the way our field team is calling, to make sure we are serving all the people that have coverage for this product. For those that do not have coverage, we have our Stello over-the-counter product available. We have advanced our service—updates to technical support, web forms, and digital tools—and that is one of the reasons we believe our user satisfaction scores are improving. It is a big deal for the type 2 non-insulin population. The 15-day product is helping drive share gain, but it is also the experience they are having with DexCom, Inc., making sure we meet their needs. On the salesforce, we are using advanced tools to analyze data and target—find these patients, find their prescribers. The number one thing we need to do is continue to educate around the coverage that exists because, as Jereme mentioned, when only about 25% of this population is covered today, it can be complicated, particularly for primary care physicians who are not prescribing CGM every day. We are finding the physicians seeing these patients, making sure they are aware of coverage, and helping them know how to write the prescription for CGM. As we expand, we will continue to look for efficiencies and productivity across the salesforce. Primary care is the main location where these folks are seen, and that is why we expanded our salesforce in 2024 to call on this broader group of physicians. Operator: Our next question comes from the line of Bill Plovanic with Canaccord Genuity. Your line is open. William John Plovanic: Great. Thanks for taking my question. Really impressive free cash flow in the first quarter, especially considering the first quarter is typically not so good for free cash flow. With that cash balance and commentary in the press release on prioritizing exploring new opportunities, help us understand what that means. You have more than enough to pay back the convert if you so choose. Another building? $1.2 billion? Are you looking to buy something? What is the use of cash? Thanks. Jereme M. Sylvain: Thanks for the question. We worked hard on free cash flow. In terms of uses of cash, you are right: we paid down our convert last quarter, and that was one reason to isolate cash. We did $500 million of share buybacks in the back half of last year. Having extra on the balance sheet provides multiple opportunities: tuck-in M&A that makes sense—geographic expansion or capabilities we do not have—and having capital for potential capital markets activity. We have not been shy about share buybacks. We will talk more in a couple of weeks at Investor Day; we will have a section on capital allocation and dig into it more there. It is important folks understand we are able to generate quite a bit of cash in this business, and it is something we will be focused on for the foreseeable future. Operator: Our next question comes from the line of Shagun Singh with RBC Capital Markets. Your line is open. Shagun Singh Chadha: Thank you so much for taking the question. Could you talk about the right growth rate in your view for your U.S. and OUS business excluding Stello? How should we think about those underlying growth rates? Also, as we think about the NCD and the type 2 non–insulin-treated market opening up, any comments you can make on lifetime patient value and how that impacts financials going forward? Jereme M. Sylvain: Let me anchor on what we said this year, and for beyond this year I will defer to Investor Day. This year, we talked about 11% to 13% growth, split across U.S. and OUS, and about one point of contribution from Stello. That gets you down to the core clinical markets. Stello will not be a meaningful contributor outside the U.S. this year in total dollar value, so assume de minimis OUS contribution from Stello in 2026. It is most important to get Stello outside the U.S. so it can roll up over time. On lifetime value of a customer, retention and utilization are why we pay so much attention to those metrics. Value varies based on utilization by use case—type 1, type 2 intensive, basal—and we have those bands on our website. As we move into use cases with 70% to 80% utilization, the value is a little less than higher-utilization categories, but still a massive unmet need. The economics per purchase are generally around the same. Our goal is to keep a close eye on cost to acquire—there is a team dedicated to that—meet the unmet need, and keep patients on our product. We balance operating expenditures with that value over time. We will get into longer out-years at Investor Day. Operator: Our final question comes from the line of Anthony Petrone with Mizuho. Your line is open. Anthony Petrone: Thanks. Just one on the RCT. Looking at historical data—the MOBILE study, Libre studies, registry data, meta-analyses—you can see A1c reductions from as low as 50 basis points up to 2.5%. This is a less intense population, so I am assuming starting A1c levels are a little bit lower. How do you level set expectations on what we should be looking for for a statistically meaningful A1c reduction out of the RCT? Thanks. Jacob Steven Leach: I appreciate the question. It is important for care and reimbursement. Our registry data is a good example. This population comes in with a spectrum of A1c—some are quite high because they have not progressed to insulin and are on other glucose-lowering medications. A big part of managing diabetes is behavior and also medication adherence. Those are two things CGM targets, and that is why we see improvements. Looking at our registry data is a reasonable estimate for what we expect. The main thing we are expecting is a statistically significant improvement that meets the threshold for reimbursement. We are confident that CGM will drive that type of outcome in these patients, and we look forward to sharing the full readout at ADA next month. Operator: That concludes our question-and-answer session. I will now turn the call back over to Mr. Jake Leach for closing remarks. Jacob Steven Leach: Thank you, operator. As we close out the call, I want to take a moment to say thank you. First, to our employees: the results that we shared today are a direct reflection of your execution, your resilience, and your commitment to doing the hard work the right way. I am incredibly proud of what you have delivered and how you show up for our customers every day. I also want to thank the customer advisory council. We met multiple times this past quarter, and your candid input and your partnership are playing a critical role in shaping our strategy and improving the experiences that we deliver. The progress we are making is stronger because of your voice. We look forward to seeing many of you at our Investor Day in a few weeks. Thanks, everybody. Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Q1 2026 Grand Canyon Education, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sarah Collins, General Counsel. Please go ahead. Sarah Collins: Joining me on today's call is our chairman and CEO, Brian E. Mueller, and our CFO, Daniel E. Bachus. Please note that many of our comments today will contain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results, expressed or implied by such statements. These factors are discussed in our SEC filings, including our Annual Report on Form 10-Ks, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in Grand Canyon Education, Inc. With that, I will turn the call over to Brian. Brian E. Mueller: Good afternoon, and thank you for joining Grand Canyon Education, Inc.’s first quarter 2026 conference call. Grand Canyon Education, Inc. had another strong quarter, producing online enrollment growth of 8.8% and hybrid growth, excluding the closed sites and those that are in teach-out, of 20.3%. Grand Canyon Education, Grand Canyon University, and now 19 additional partners have produced remarkably consistent positive results over the last 17-plus years in spite of significant change in the macro environments of education and the workplace. Most significantly, GCU has gone from the brink of [inaudible] to now being the largest private university in America. In addition to over 110 thousand students studying online, GCU now has 25 thousand students in an on-campus environment and has more students living in university-owned housing on its campus than any university in the country. Recently, Grand Canyon Education, Inc. and its partners have built 47 hybrid campuses throughout the country to address severe shortages in the health care fields. More recently, Grand Canyon Education, Inc. has assisted GCU in building a workforce development center to produce professionals in the rapidly growing construction and manufacturing fields where there are also severe shortages. The growth and success that has taken place is because Grand Canyon Education, Inc. and its partners have built a model that is extremely flexible, is able to respond with great speed, and has used advanced technologies to produce tremendous scale. The current dissatisfaction with higher education is because faculty governance models are very inflexible, move very slowly, and cannot scale to meet demands. Excellence in higher education is going to be defined in very different terms going forward. There is a lot of talk about how AI will produce winners and losers by industry type. The real discussion should be about winners and losers within industries. Higher education as an industry will continue to exist. Institutions that are flexible, fast, and that can scale will be able to use AI to flourish to even greater levels in the next ten years. Higher education will be more important than ever if we can educate the generation of workers to use AI in three important ways. One, to use AI to produce products to increase levels of human productivity. Two, to quickly allow workers whose jobs have been eliminated to re-career. And three, to educate a generation of workers for jobs that do not exist today but will exist in the future. It is important that universities do not just teach AI, but are able to model it in the way they run their business. Grand Canyon Education, Inc. and GCU have dozens of AI products and products in development across 10 colleges, over 375 academic programs, emphases, and certificates, and across every operational area. Students are learning with increasing levels of excellence and efficiency. Scores currently produced by GCU students in exit and licensure exams in the areas of health care, education, accounting, etc., are reaching all-time highs while scaling to huge numbers. This is especially important for GCU since it has rapidly expanded into academic areas requiring licensure. Programmatic areas like nursing, education, social work, counseling, etc., will benefit from AI implementation, but employment in those areas will always require formal higher education, the completion of degrees, and licensure. Project work produced by business, engineering, and technology students is at increasing levels of sophistication. GCU's innovation center is producing new student businesses that are thriving. To succeed in the future, universities must produce these real-world opportunities for students, and they must graduate in less time, for less money, and for lower debt levels. Our AI products are making curriculum more targeted, faculty more effective and efficient, and allowing operators to produce greater levels of student support. I believe AI will make our current advantages even greater, which makes me even more confident we will continue to meet or exceed our long-term objectives. With that, I would like to review the first quarter results. First, the online campus at Grand Canyon University. New starts were up in the high single digits in 2026, which was slightly above our expectations, and total enrollment growth was 8.8%, which significantly exceeds GCU's long-term objectives. In the past, I have highlighted four reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5.5 thousand employers directly to address workforce shortages, strong retention levels, and holding the line on tuition to maintain GCU's competitive pricing position. Working with over 5.5 thousand employers directly to address workforce shortages puts us in a very strong position with regard to online enrollment growth. We are now getting approximately 30% of our new starts by directly working with employers. The lead generation environment is definitely being impacted by the increasing numbers of people using artificial intelligence rather than an organization's website to gather information that they will use to make important purchases and life decisions. Our ability to respond to those changes is greater than before because of our unique ability to generate a high percentage of our students without using the typical lead generation strategies. The students we are generating by working directly with employers tend to be very purpose-driven and have high retention and graduation rates. Our marketing team continues to roll out AI strategies to showcase the strong brands and outcomes of our partners. We believe in the long term, this will be very positive for us. Second, the GCU ground campus for traditional students. Total traditional campus enrollments were down slightly year over year in 2026 as expected. Spring total enrollments have historically been less than fall enrollments, as spring new enrollments are a small percentage of overall traditional campus new enrollments, as they are mostly made up of transfer students that defer a semester, and total enrollment is impacted by the growing number of students that are graduating in less than four years. We believe GCU will continue to experience annual new student growth on the ground campus each fall despite its increasing number of graduates because of its significant advantages, including the very low price point, very low average debt levels, the percent of students completing in less than four years, the relevancy of GCU's academic programs to a fast-changing and modern economy, and having the twentieth-ranked campus in the country. As we discussed on last quarter's earnings call, we have made some changes to our marketing and recruitment strategy for GCU's traditional campus which accelerated some spend into 2025 and 2026. Those changes to date are producing positive results, as registrations for fall 2026 remain ahead of last year. Even with the macro trends I discussed earlier, and the tougher year-over-year comps, we believe we can grow new enrollments significantly year over year, which should get residential students back to growth. Two weeks ago, GCU made a major announcement. As part of its 25 thousand-student traditional campus, GCU has one of the fastest-growing honors colleges in the country. Mike Ingram, one of Arizona's most prolific land developers, has made a long-term commitment to the future of the college, and it has been named the Sheila and Mike Ingram Honors College. GCU expects to have over 3 thousand students in the fall with average weighted incoming GPAs of over 4.1. This is one of the highest in the country. The students are coming from all 50 states and are studying across all 10 of GCU's colleges. Students are getting internships and eventually jobs at many of America's top companies, health care organizations, school districts, counseling centers, engineering firms, etc. GCU plans to more than double the student population, making it one of the largest and most impactful honors colleges in the country. Mr. Ingram is leading an effort to build a very prestigious Honors College Council which will be comprised of highly successful professionals from the worlds of business, entertainment, politics, education, health care, and sports. A 55 thousand-square-foot building is under construction to open in the fall that will be a state-of-the-art facility containing lecture halls, collaboration spaces, maker spaces, and gathering areas for many of America's best students. We believe the university's academic brand will continue to accelerate upwards as the Honors College grows, which is another reason we remain optimistic about the future growth of GCU's traditional campus. Third, Grand Canyon Education, Inc.'s hybrid campus had an increase in enrollment year over year of 18.3% in the first quarter. Excluding the closed sites and those that are in teach-out, enrollment increased 20.3% year over year. Hybrid campus new starts in the first quarter, excluding those in teach-outs, were up 20% over the prior year, which exceeded our expectations. There are two main reasons for this continued growth. One, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students or are in the process of making that change. Students with partially completed degrees have not accumulated a great deal of debt. They are very interested in nursing careers but did not have an efficient way to earn the prerequisite science coursework. GCU created the science courses and some other gen ed courses so that they could be delivered online in eight weeks. Students can access these courses from anywhere in the world. There are start opportunities almost every week. These courses have been made very affordable, are taught by experienced faculty, class sizes are low, and there is a tremendous amount of academic support, including the artificial intelligence project, which provides students 24/7 access to tutoring. Since implementing these courses, we have already enrolled 23.104 thousand students. We have a waterfall report which allows us to know how students are progressing through prereq courses and when they will be eligible to start at one of our ABSN sites. Graduation rates of students who successfully enter the ABSN programs are in the mid-80s, and the first-time pass rate on the NCLEX exam is approximately 90%. Nearly all our partners have responded positively to the change needed to serve the advanced standing students. Our goal is to still have 80 locations with our partners, with 40 of the locations being GCU locations. We opened five new sites in the year ended 12/31/2025, closed two sites in which we stopped recruiting new students in 2024, and merged two sites that were located in the same market, bringing the total number of these sites to 47 as of 12/31/2025. Three of the five new sites were GCU's, bringing their ABSN location total to 11. We plan to open one to two additional sites in 2026, while we mutually agreed with one partner to stop the recruiting of new students and begin teach-out at three of its sites during 2026. A couple of sites that were planned to open in 2026 are more likely to open in early 2027, as we have previously discussed. We are being more selective on new site openings with a focus on the scalability of the market. We are also expanding our programmatic offerings with our hybrid partners by adding a graduate nursing program with seven specializations with Northeastern University, which started this past fall; a hybrid occupational therapy bridge-to-master's program to the already successful St. Kate's occupational therapy assistant hybrid program, which will begin in 2026; and an online health science degree with Utica University, and GCU launched a BS in occupational therapy assistant program and a speech-language pathology program in 2025 at its Phoenix West Valley location. GCU also plans to add a Bachelor of Science in Medical Lab Sciences program in 2026. Adding additional programs at our hybrid locations is an important component to our business plan. We anticipate this momentum will continue, although with the lower number of new site openings and more of our locations getting to capacity, hybrid enrollment growth will slow a bit; the profitability of this pillar will continue to improve. Fourth, the Center for Workforce Development at Grand Canyon University. GCU now has four programs in the Center for Workforce Development, including the electricians pre-apprenticeship program, the CNC machinist pathway program, the manufacturing specialist intensive pathway, and a construction general pathway, and we will be rolling out a fifth program, the manufacturing general pathway, in 2026. Programs were all built in partnership with companies that are experiencing labor shortages in that area and are excited about hiring GCU's graduates. These programs are either one-semester or two-semester programs. A total of 116 students successfully completed the electrician pre-apprenticeship program in fall 2025, with five in the Austin, Texas hybrid location. Fifteen students completed the manufacturing CNC machinist pathway program in the 2025 cohort, and 29 students completed the manufacturing specialist intensive program. These students attend school for 20 hours a week and then work in the facility as a paid employee for 20 hours. At the end of the semester, they receive a manufacturing certificate and become eligible for employment in Arizona's fast-growing manufacturing industry. Students in GCU's growing engineering college are getting experience in this manufacturing facility, which is adding to their engineering education. I started out talking about the relevant programs and creative delivery models that Grand Canyon Education, Inc. has implemented with 20 partner institutions. In the seven-plus years since Grand Canyon Education, Inc. became a service provider, it has helped its partners accomplish the following. In that time, Grand Canyon Education, Inc. has helped Grand Canyon University graduate 221.436 thousand students: 59.659 thousand in education, including 27.601 thousand first-time teachers, at a time when teacher shortages have created a national crisis; 57.412 thousand in nursing and health care professions, including 3.723 thousand prelicensure nurses, at a time when there is a huge shortage of nurses; 46.520 thousand in the College of Humanities and Social Sciences, including thousands in counseling and social work, where there are also huge shortages. The College of Business has become one of the largest business schools in America and has produced 38.823 thousand graduates. The College of Science, Engineering, and Technology has grown by 225% and provided 9.739 thousand graduates. The doctoral college, Honors College, and College of Theology also continue to grow. In addition, Grand Canyon Education, Inc. has helped its other partners graduate over 15 thousand prelicensure nurses and occupational therapist assistants. The numbers that I have cited have all happened in the past seven years, since the GCU–Grand Canyon Education, Inc. transaction and since Grand Canyon Education, Inc. has become an education services provider. This is a great example of a futuristic educational model that is flexible, moves fast, and is capable of great scale. All of this has occurred while Grand Canyon Education, Inc. paid 627 million in federal and state taxes, while state universities and community colleges pull money out of the tax system. Grand Canyon Education, Inc. has helped produce over 235 thousand graduates while pouring millions of dollars into the system. Service revenues were 308.8 million for 2026, an increase of 19.5 million, or 6.7%, as compared to 289.3 million for 2025. The increase year over year in service revenue is primarily due to an increase in university partner enrollment [inaudible], including an increase in GCU online enrollments of 8.8%, university partner enrollments at the off-campus classroom and laboratory sites of 18.3%, and one additional day of ground traditional revenue at GCU of 1 million in the quarter as a result of the shift of one day of revenue from the second quarter to the first quarter as compared to last year's spring start date.
Operator: My name is Julianne, and I will be your conference facilitator today for the Amgen Inc. Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session at the conclusion of the last speaker's prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. To ask a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star 1 again. I would now like to introduce Casey Capparelli, Vice President of Investor Relations. Mr. Capparelli, you may now begin. Casey Capparelli: Thank you, Julianne. Good afternoon, everyone, and welcome to our 2026 earnings call. Robert A. Bradway will lead the call today and be followed by a broader review of our performance by Murdo Gordon, James E. Bradner, and Peter H. Griffith. Through the course of our discussion today, we will use non-GAAP financial measures to describe our performance, and have provided appropriate reconciliations within the materials that accompany this call. We will also make some forward-looking statements which are qualified by our Safe Harbor statement, and please note that actual results can vary materially. Over to you, Bob. Robert A. Bradway: Good afternoon, and thank you for joining us. We had a strong first quarter and are well positioned to achieve our objectives for the year. Recall, we previously described 2026 as a springboard year for Amgen Inc., a year in which we expect our rapidly growing products to offset the financial impact of patent expirations and increased competition while our next generation of molecules progress through the R&D pipeline, setting the stage for sustained long-term growth. As you can see from our progress thus far, we are on track to achieve these objectives. With steady execution through the rest of the year, we expect once again to demonstrate that we can grow through a period of patent expiration, and deliver attractive performance for our shareholders with a strong portfolio of innovative medicines and biosimilars that meet the needs of patients with serious diseases. As you listen to Murdo’s presentation in a moment, note the momentum of our six key growth drivers. Together, they generated 70% of our sales in the quarter and grew in aggregate by 24%. That strong performance sets us up well for the year and well beyond. Turning to the pipeline, our focus this year is on disciplined data generation and execution across a number of important Phase 3 programs, again we expect will drive attractive long-term growth for Amgen Inc. Our confidence in Meritide as a differentiated treatment for obesity, type 2 diabetes, and obesity-related conditions continues to build. We are executing effectively across the company, building the capabilities we need to bring this medicine to market. As Jay will discuss in a moment, we are disclosing additional Phase 3 studies of Meritide, one of which will evaluate switching from the weekly injectables to Meritide on an every eight or twelve week schedule. In other words, we will evaluate switching from medicines which are injected 52 times a year to one which can be injected as few as four or six times a year. In addition, we will evaluate weight maintenance for Meritide on a schedule of four or six injections a year as well. Expect there to be a great deal of interest in these data. Beyond Meritide, we see strong potential across a number of other programs in late-stage development, including opazirand, and other innovative programs in Phase 3. We have talked about the excitement we feel about the convergence of technology and biology including the application of artificial intelligence across the company. Here too, we are making great progress. And there is no question we are in a period of tremendous change and we are encouraged by the progress we are making in embedding new capabilities. We are doing this across the company and we took steps early on to have Dave Reese lead these efforts, and we are grateful to him for the success he has achieved with this initiative. And we are encouraged that James E. Bradner will build on Dave’s accomplishments leading our artificial intelligence and data activities across the company. I will have more to say about Dave at the end of the call. But before we turn to Murdo, let me just thank my Amgen Inc. colleagues around the world for their dedication to our mission to serve patients and the quality of their work again this year. Murdo? Murdo Gordon: Thanks, Bob. As mentioned, in 2026, 16 products achieved double-digit or better sales growth and 17 products are now annualizing at sales of $1 billion or more. Overall, we delivered 4% growth in product sales driven by a diversified portfolio of fast-growing products that continues to outpace the impact of losses of exclusivity. The evolution of our business is now well underway, with our six key growth drivers, which include Repatha, Evenity and Testfire, three innovative medicines delivering significant clinical benefit for large populations of undertreated patients. Also included are our rare disease, innovative oncology, and biosimilars portfolios. Collectively, these growth drivers delivered 24% year-over-year sales growth and generated $5.6 billion in sales in the first quarter, representing almost 70% of total product sales. Starting with general medicine, Repatha delivered $876 million in first quarter sales, up 34% year over year. Growth was driven by increased urgency to treat patients in both secondary prevention and high-risk primary prevention, where intensive LDL-C lowering with Repatha significantly reduces major cardiovascular events. The ACC/AHA updated their dyslipidemia guidelines now reinforcing earlier risk identification, lower LDL-C levels and targets, and earlier use of therapy like Repatha. These guidelines do not yet reflect the practice-changing VESALIUS-CV data, leaving a clear opportunity to further evolve clinical guidelines and quality measures. We expect these additional changes will further encourage cardiologists and primary care physicians to manage LDL-C levels below 50 milligrams per deciliter, alongside lifestyle modification to reduce cardiovascular risk in both primary and secondary prevention. Physician response to our landmark VESALIUS-CV study has been strong with sustained increases in new-to-brand prescribing across cardiology and primary care, particularly in support of high-risk primary prevention patients with diabetes. At the recent ACC meeting, the VESALIUS-CV subgroup analyses in patients with diabetes and without known significant atherosclerosis was presented and simultaneously published in JAMA. These data further reinforce the consistent and significant benefit of Repatha, delivering a 31% reduction in cardiovascular events. A trend in lowering mortality rates was also observed. The body of evidence is now very clear. Treating patients earlier with Repatha can lower cardiovascular events. In the U.S., Amgen Inc. now is further strengthening access to Repatha by offering a simplified cash-pay option to patients. We are seeing encouraging patient interest in this direct access model which now also includes Enbrel, Otezla, Aimovig, and Amjevita. Repatha is now the only PCSK9 inhibitor with positive outcomes data in both high-risk primary and secondary prevention patients. These data, along with Repatha’s broad access, create an imperative to close the treatment gap for millions of patients for whom Repatha can help reduce heart attacks and strokes and potentially save lives. Evenity sales increased 27% in the first quarter to $562 million. U.S. sales grew 35% year on year and Evenity maintains leadership of the U.S. bone builder market with a 65% market share. To date, approximately 320,000 U.S. patients have been treated with Evenity, supported by increased investment and an expanded field force. However, the unmet need remains significant with more than 90% of the 2 million women at very high fracture risk remaining untreated, presenting a clear opportunity to expand the market and drive additional Evenity growth and impact. In Japan, Evenity has been prescribed to more than 900,000 patients since launch, and it leads the bone builder category with over 55% market share. We see a positive reaction to the treatment guideline updates by the Japan Osteoporosis Society, which further improves Evenity’s positioning and potential. Moving to inflammation, Test Buyer sales grew 20% year over year, reaching $343 million in the first quarter, driven by robust patient demand and solid execution across both pulmonology and allergy specialties, partially offset by a burn in channel inventory. Test Buyer remains well positioned to reach more patients in the U.S. given its differentiated TSLP mechanism that targets multiple inflammatory pathways driving uncontrolled asthma, including in those patients with coexisting chronic rhinosinusitis with nasal polyps. This new indication is gaining traction and helping expand Test Buyer’s reach across a broader patient population. Prolia and XGEVA combined delivered $1.1 billion in sales in the first quarter, a decrease of 32% year over year. Erosion since loss of exclusivity remains in line with our expectations; we anticipate accelerated sales erosion over the remainder of 2026 driven by increased competition from multiple biosimilars. Our rare disease portfolio grew 25% year over year to $1.2 billion. Eplizna sales increased 188% year over year to $262 million in the first quarter, reflecting growing demand across all three approved indications. We are encouraged by the pace of growth and the potential that Oplizna has to help patients living with rare autoimmune conditions with significant unmet need. The plasma’s uptake in gMG has been strong across both bio-naïve and switch patients, supported by broad access for most covered patients with requiring a step through another approved biologic. Given this momentum, we see a meaningful opportunity for Eplisna to become the first line and first switch choice for appropriate patients living with gMG. Momentum in IgG4-related disease continues, the plasma adoption led by rheumatologists and increased prescribing by GI specialists and nephrologists. In NMOSD, Iplisna continues to maintain its leadership as the most prescribed FDA-approved therapy in the U.S. TEPEZZA sales grew 29% in the first quarter, to $490 million in the U.S. More than 25,000 patients have been treated since launch with growing interest from both new and returning prescribers, increased prescribing from endocrinologists and a broadening specialist base. We see rising awareness of moderate thyroid eye disease in the U.S. This positions TEPEZZA for growth, supported by its best-in-class efficacy, well-established safety profile, industry-leading patient services, and broad payer coverage. We are also encouraged by the positive Phase III data for the on-body injector, which demonstrated comparable efficacy to IV TEPEZZA and supports a clear path to subcutaneous administration without compromising clinical benefit. This convenient dosing option will enable TEPEZZA administration in additional sites of care and expand access for more patients in the future. Following our launch in Japan in 2025, we expect additional global launches of TEPEZZA in 2026 and beyond. TADNIO sales were $119 million in the first quarter, up 32% year over year driven by strong volume growth. Since its launch in 2021, more than 8,000 patients have been treated with Tavneos, and Jay will comment on recent regulatory events in just a few moments. Our innovative oncology portfolio, which consists of Blincyto and Deltra, Vectibix, Kyprolis, Lumicraz and Enflate, grew 25% year over year generating $1.8 billion of sales in the first quarter. INDELTA delivered $258 million in first quarter sales driven by deep clinical conviction and continued adoption across care settings. More than 1,800 U.S. sites now administer Imdeltra with a majority of doses delivered in the community setting. This progress has been supported by the combined efforts of our commercial, medical, and access teams to remove operational barriers that physicians encounter in practice, helping expand patient access to treatment. Imdeltra has become the standard of care in second-line small cell lung cancer, an aggressive disease with poor survival outcomes and few effective options to extend life. Blincyto sales were $415 million in the quarter, increasing 12% year over year, driven by broad prescribing across both academic and community settings. Blincyto is widely recognized as the standard of care in combination with multi-agent chemotherapy for patients with Philadelphia chromosome-negative B-cell ALL. Our biosimilar portfolio delivered 14% year-over-year growth, generating $835 million in sales in the first quarter. PABLUE, our biosimilar to EYLEA, delivered $280 million in first quarter sales. Adoption continues to expand among retina specialists who appreciate PABLUE’s ready-to-use prefilled syringe and Amgen Inc.’s track record of manufacturing biologics and delivering reliable supply. Since our first product approvals in 2018, our biosimilars have generated more than $14 billion in cumulative sales, contributing meaningful growth while expanding patient access to high-quality, lower-cost biologics. Our first quarter results reflect both the strength of our key growth drivers and the commitment of our commercial, medical, and policy colleagues globally to improving the lives of patients facing serious disease. And we remain focused on extending the reach of our medicines to even more patients in 2026. And now I will hand it over to Jay. James E. Bradner: Thank you, Murdo, and good afternoon, everyone. Let me begin with Meritide, a new paradigm in the management of obesity, obesity-related conditions, and type 2 diabetes. The unique antibody-peptide conjugate design of Meritide delivers a potential for strong efficacy with monthly or less frequent dosing and favorable tolerability to improve long-term treatment. With existing obesity medicines, treatment burden and dosing frequency remain barriers to long-term persistence on therapy. For individuals with chronic conditions, sustained treatment is often required to realize the full health benefit of therapy. Meritide’s unique properties, particularly its potential for monthly or less frequent dosing, may help reduce treatment burden and improve persistence on treatment over time. Towards this objective, we are excited to announce two new Phase III studies that focus on longer-term maintenance therapy with Meritide. We have initiated two long-term extensions of our ongoing Phase III chronic weight management studies to evaluate Meritide maintenance for durable weight loss. Participants who completed 72 weeks of treatment in the parent trial will enter a 48-week extension treatment period, where they will receive a monthly, every eight-week, or quarterly dose of Meritide. To date, our clinical trials have studied Meritide in the initial management of obesity and overweight. We recognize that many patients may wish to switch to Meritide from weekly injectables. Today, we announced the initiation of another new Phase III study that will evaluate switching from weekly injectable GLP-1 therapies to Meritide following dose escalation to a convenient every eight-week or quarterly dosing schedule. Combined with our ongoing pivotal chronic weight management Phase III trials, the Meritide program will inform physicians on how to start a new patient on Meritide, and how to switch to a more convenient, less frequent dosing. Previously, we described the importance of dose escalation for improving initial tolerability with Meritide. We observed marked improvements in GI symptoms progressing from one-step to two-step dose escalation. Our accumulating experience with three-step dose escalation is quite positive. For example, we recently completed one of our standard Phase I physiology studies in preparation for potential regulatory filings that utilized three-step dose escalation. As anticipated, three-step dose escalation further decreased the rates of nausea and vomiting as compared to prior experience with two-step dose escalation. We believe that three-step dose escalation and less frequent dosing are effective and well tolerated because of the unique antibody backbone of Meritide. The long-lived stability of an antibody creates a gentle and smooth stepwise increase in sustained drug exposure. Stable drug levels avoid the frequent peaks and troughs of daily orals and weekly injectables that may contribute to intolerability. We remain confident and excited by Meritide, and are focused on delivering high-quality clinical data to support future regulatory filings. The studies are enrolling well, indicating strong physician and patient interest in Meritide. Meritide is emerging as a new paradigm for patients with obesity, diabetes, and related conditions as a well-tolerated first monthly or less frequently administered medicine. Turning from one major public health challenge to another, we continue to build on the landmark findings from Repatha, the prevention of cardiovascular events. In March, a new pre-specified subgroup analysis from the Phase III VESALIUS-CV trial was presented at the American College of Cardiology and simultaneously published in the Journal of the American Medical Association. In this subset of high-risk patients with diabetes, and without known significant atherosclerosis, Repatha demonstrated a significant 31% reduction in major adverse cardiovascular events including heart attack. Repatha also demonstrated a nominal 32% reduction in the risk of cardiovascular death and a nominal 24% reduction in all-cause death. Taken together with the VESALIUS-CV data presented last fall, these findings reinforce the breadth and magnitude of benefit from Repatha in the primary prevention of cardiovascular disease. We look forward to sharing additional insights and analyses from VESALIUS with the scientific community, notably at the upcoming American Diabetes Association Annual Meeting. Olpasiran, our potentially best-in-class small interfering RNA medicine that delivers greater than 95% reduction in Lp(a) with a quarterly dosing schedule, continues to progress in Phase III clinical investigation for secondary prevention of cardiovascular events. We have recently initiated the OCEANA CCTA study that evaluates the effect of olpasiran on the burden of non-calcified plaque in coronary arteries, as measured by coronary CT angiography. Attention to Lp(a) in medical practice is rising, reflected by the recently updated ACC/AHA lipid guidelines that now recommend broader Lp(a) testing. Moving to rare disease, we continue to build strong momentum across our portfolio. For APLISNA, we recently received European Commission approval for generalized myasthenia gravis. Supported by a strong biological rationale, we expect to initiate two pivotal Phase III studies of aplisna in autoimmune hepatitis and chronic inflammatory demyelinating by the second half of this year. We are also advancing TEPEZZA, where we recently reported positive Phase III top-line data for subcutaneous administration via an on-body injector. These data demonstrated robust efficacy in patients with thyroid eye disease consistent with intravenous administration alongside a favorable safety profile. Subcutaneous administration of TEPEZZA represents an important step forward in improving convenience, and expanding treatment options for patients with thyroid eye disease. Dazodalibet, our first-in-class CD40 ligand-targeting fusion protein, continues to progress with two Phase III studies in Sjogren’s disease now fully enrolled. These studies address both systemic and symptomatic disease, and both are expected to complete later this year. As publicly disclosed, the FDA proposed to withdraw the approval of Tabneos. We continue to believe that Tabneos is an important medicine for patients with ANCA-associated vasculitis, a rare life-threatening disease with limited treatment options. We are confident in the benefit-risk profile of this medicine and expect to engage further with the FDA on this topic. Turning to oncology, our bispecific T cell engager, or BiTE, platform continues to deliver meaningful impact for patients with advanced cancer. Imdeltra is emerging as a standard of care in second-line extensive-stage small cell lung cancer, delivering an unprecedented survival benefit in a disease that has seen very little innovation for decades. As we work to advance Imdeltra into earlier lines of therapy, we are encouraged by the apparent improvement in median overall survival in the first-line maintenance setting to 25.3 months, observed in the Phase 1b DELPHI-303 study. Frontline maintenance with Imdeltra is now being studied in the ongoing Phase III DELPHI-305 study. Zeliridomig, our first-in-class STEAP1-targeting bispecific T cell engager, is advancing rapidly with two ongoing Phase III studies in metastatic castration-resistant prostate cancer. Multiple ongoing Phase 1b studies are underway where we have taken a deliberate and differentiated approach toward earlier stages of disease to maximize long-term patient benefit. First, in biochemical recurrence, where patients experience a rising PSA without clinically evident disease, we are evaluating Xaloritomiga as monotherapy without androgen deprivation therapy. Second, we are advancing into metastatic hormone-sensitive prostate cancer, where we are evaluating zalaritamab on top of standard-of-care hormonal therapy with the goal of developing a more effective regimen without chemotherapy. One last but important note about our oncology portfolio: Following a comprehensive review, we have taken the decision to discontinue development of AMG 193, our MTA-cooperative PRMT5 inhibitor. Over the last several years, amidst the rapid advances in artificial intelligence, we have taken a principled approach to reconsidering and augmenting drug discovery and therapeutic development. At the intersection of powerful AI models, developed both externally and internally with Amgen Inc. research, and insight-rich proprietary datasets, we are beginning to see meaningful, tangible advances across Amgen Inc. R&D. Integrated multi-omics data resources at Amgen Inc. deCODE Genetics identify new targets for therapeutic consideration, in particular non-coding regions of the human genome studied at population scale. Antibody lead optimization has accelerated by 50% from contributions both to lead discovery and lead optimization. In clinical development, we have designed and implemented a proprietary site selection model that improves clinical trial enrollment with a significant, and in some cases up to threefold, improvement in enrollment rates. Leveraging large language models and agentic AI for regulatory filing preparation, we are seeing early promising results in data ingestion, integration, and document traffic. These are early innings. We are captivated by the potential for AI and data science to deliver measurable impact and value in R&D and across the enterprise, as Peter will highlight in a few moments. With the retirement of our revered and beloved colleague David Reese, I am excited to lead the AI and data transformation across our business at the enterprise level, working in partnership with our leadership staff and collaborators. Let me close by saying that we are encouraged by the progress we have made in the first quarter. With a continued focus on disciplined data generation across the portfolio, with a robust pipeline and meaningful breadth and depth across four therapeutic areas, we are well positioned to deliver continued innovation for patients with long sustained value. I want to thank my colleagues across Amgen Inc. for their continued focus on patients and their commitment to advancing innovative medicines for serious diseases. I will now turn it over to Peter for the financial update. Peter H. Griffith: Thank you, Jay. We are pleased with our strong first quarter performance, executing through a full quarter of the patent expirations and losses of exclusivity. Our non-GAAP operating margin was 45%. We continue to invest in advancing our pipeline with non-GAAP R&D spending increasing 16% year over year in the first quarter. This reflects increased spending on our late stage by including continued investments in Meritide, IMBELTRA and opasiran. Our non-GAAP cost of sales as a percentage of product sales was 19.5%, driven by higher profit share and royalty expenses and changes in our sales mix. We expect these factors will continue to negatively impact the cost of sales in future quarters. We further expect second quarter operating margin to be in line with the first quarter operating margin. Our non-GAAP OI&E resulted in $480 million of expense for the quarter, including a gain of about $90 million from retiring debt through open market repurchase. Our non-GAAP tax rate decreased one percentage point year over year to 13.6%, primarily due to net favorable items in the current year period, partially offset by the change in earnings mix. We generated $1.5 billion in free cash flow in the first quarter, reflecting continued momentum across the business. We spent $700 million in the first quarter on capital expenditures, driven by investments across our U.S. manufacturing sites, including Ohio, North Carolina, and Puerto Rico. We continue to expect capital expenditures of approximately $2.6 billion in 2026, reflecting significant investment in our business to scale manufacturing capacity for volume growth, including for Meritide’s launch. We see technology and artificial intelligence as increasingly important tools to help Amgen Inc. operate with greater speed, productivity, and scale across the enterprise. Beyond what Jay described, we are also seeing tangible benefits in other parts of the business. In AI-enabled automation, it has reduced production line clearance time at one of our manufacturing sites from approximately 30 minutes to about two minutes per batch run. We are also seeing promising results as our colleagues across Amgen Inc. use AI to enhance productivity. In addition, we returned capital to shareholders through competitive dividend payments of $2.52 per share, representing a 6% increase compared to 2025. Let us turn to the outlook for the business for the remainder of 2026. As we said last quarter, we expect 2026 to be a springboard year for future growth. Our strong first quarter performance reinforces that outlook, and we are raising our 2026 guidance ranges for both revenue and non-GAAP earnings per share. We expect 2026 total revenues in the range of $37.1 billion to $38.5 billion and non-GAAP earnings per share to be between $21.70 and $23.10. These ranges reflect our confidence that the emerging growth drivers will more than offset the outgoing legacy brands. Note, our guidance does not include any potential business development transactions that may occur throughout the remainder of the year. Let me highlight a few updates to our outlook for the remainder of the year. For the full year, we now expect other revenue to be in the range of $1.7 billion to $1.8 billion. We now anticipate non-GAAP OI&E to be in the range of $2.2 billion to $2.3 billion of expense in 2026. We now expect a non-GAAP tax rate in the range of 15% to 16.5%. And let me remind you of prior items that have not changed. We continue to expect the full-year non-GAAP operating margin as a percentage of product sales to be roughly 45% to 46%. This reflects our commitment to investing in the best innovation as we continue to rapidly advance the Meritide Phase III program and additional key late-stage assets. We expect share repurchases not to exceed $3 billion. Finally, in regard to our ongoing tax litigation, the tax court litigation covering tax years 2010 through 2015 remains ongoing, and while we expect a decision no earlier than the 2020, we remain confident in the case we presented at trial. We are currently under audit by the IRS for the 2016 to 2018 tax years. In April 2026, we received a draft Notice of Proposed Adjustment, or NOPA, from the IRS for 2016 to 2018, asserting significant adjustments primarily related to the allocation of profits between the United States and Puerto Rico. The approach taken by the IRS is similar in nature to our 2010–2015 dispute with the IRS currently pending in tax court. If sustained in full, the adjustments set forth in the draft NOPA could have a material impact on our financial statements. We disagree with the draft NOPA and have informed the IRS audit team that its draft calculation methodology is inconsistent with the positions asserted by the IRS and the Tax Court, which positions were more favorable to Amgen Inc. than the draft calculation methodology taken by the IRS audit team. We firmly believe that the IRS positions are without merit and we also believe that our tax reserves are appropriate. We intend to continue to vigorously defend our position, just as we have throughout our entire dispute with the IRS. We remain focused on delivering sustained long-term growth and creating value for patients, staff, and shareholders by doing what we said we would do: executing on our growth drivers, advancing innovation in areas of high unmet medical need, and maintaining rigorous financial discipline. I am grateful to work with all of our colleagues worldwide in our mission to serve patients. This concludes our financial update. I will now hand it over to Bob for Q&A. Robert A. Bradway: Thank you, Peter. Julianne, why do you not open up the lines for questions. I know it has been a long day for many of our callers, so let us jump straight in and try to get to everybody’s, or as many questions as we can. We will limit you to one question each please. But let us get started, Julianne. Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by one again. To ask a question, press star 1. Our first question comes from Yaron Werber from TD Cowen. Please go ahead. Your line is open. Yaron Benjamin Werber: Great, thanks so much. Maybe, Jay, unsurprisingly first question on the Meritide switch studies. Can you give us a little bit of a sense: Are you switching sort of one to one to one to months every two months and every three months? And are you looking at superiority or noninferiority? And sort of what is the noninferiority sort of margin? Thank you. James E. Bradner: Yaron, thank you for the interest. As I just shared, people are naturally very interested to know what it will take to switch from a weekly injectable to a medicine potentially quite a bit more convenient and quite active. And so the SWITCH study is designed to provide that experience. There will be 300 subjects on study with obesity or overweight. There will be a run-in on weekly semaglutide or tirzepatide, and then they will switch to Meritide on an every eight-week or quarterly basis. The primary endpoint of this trial will be change from baseline body weight after 52 weeks of Meritide treatment. We look forward to these results. Thank you, Yaron. Operator: Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead. Your line is open. Salveen Jaswal Richter: Good afternoon. Thanks for taking my question. Could you just comment on the Meritide switching study and why it only evaluates every two months and three months and not every one month? And then as you think about the profile today, how significant do you expect the maintenance opportunity to be for Meritide? Thank you. James E. Bradner: Thanks. Why do I not start with the question around the design of the switch study, and then Murdo, you can talk about the opportunity thereafter. We have a lot of experience with monthly Meritide in this program, which is featured today in all of the enrolling Phase III programs. We have had a really good experience in the maintenance setting in our Phase II part two. In that regard, the long-term extensions that we have just described, where we switch from Meritide to Meritide, give us a chance to explore less frequent dosing after effective dosing and, comparably, in the switch study, we are focusing that trial on the learnings of going from weekly to an every eight-week and every twelve-week treatment regimen, which can make Meritide quite attractive to patients if successful. Murdo Gordon: Thanks, Jay, and thanks, Salveen. Obviously, the goal here for weight loss is to lose weight and then sustain it over multiple years so that you can get the full medical benefit of the treatment. And given that we are coming later into this market, and there will be many, many patients already on other weekly treatments, we thought it would be helpful to prescribers, to clinicians, and patients to understand how to convert, how to switch from those weekly agents to, as Jay mentioned, a more convenient regimen like Meritide. Importantly, it will also be necessary to describe once you reach your weight loss goal on monthly Meritide, how you would want to modify that dose interval either to Q8 week or to Q12 week for even more convenience. And so we have taken the opportunity, given the timing of our launch and order of entry, to fully describe how to start patients on Meritide and then how to switch from other treatments that patients may be on and they may be dissatisfied. Robert A. Bradway: Okay, let us go to the next question. Operator: Our next question comes from Luca Issi from RBC Capital Markets. Please go ahead. Your line is open. Luca Issi: Hi, Jay. Thanks so much for taking our question. This is Cassie on for Luca. We have a question for INVELTRA. The drug has clearly done very well so far in second-line setting. Can you tell us more about what is next for INVELTRA? Not only in terms of the opportunity you get once you move to the front lines, but also now with Indaltro selected as part of the real-time clinical trial pilot program, could you help us understand the process? Is the idea basically FDA will look at your data and scientists together as a study is going, and for indications with no healthy volunteers, you essentially can go straight from first-in-human to approval without pausing for safety or end-of-phase reviews? And curious what made FDA pick INVELTRA as the pilot program? Thanks so much. James E. Bradner: Well, let me please start. Thank you for the question. Imdeltra has really emerged as the standard of care for patients with second-line small cell lung cancer because, as I mentioned moments ago, the unprecedented efficacy afforded by Imdeltra on just the most important endpoint, overall survival. As for so many medicines in advanced cancer, medicines that work in later stages of the disease tend to confer even more clinical benefit when they are moved to earlier lines of therapy and earlier stages of lower disease burden, especially when they are used in combination. And so we are advancing Imdeltra quite actively and aggressively into frontline induction as well as frontline induction and maintenance. The maintenance experience with Imdeltra and the frontline experience will be in extensive-stage small cell lung cancer, and these studies are rapidly progressing. Further, we have the DELPHI-306 study which studies triladumab versus placebo after chemotherapy and radiation, in frontline limited-stage small cell lung cancer. We are hopeful for these trials and just cannot wait to read them out. As you have described, we have had a chance to collaborate with Commissioner McKary and members of the FDA on imagining what a clinical study might look like in the real-world prospective practice. And we have a very fine design coming together with the FDA that will give us a chance to characterize Imdeltra in a clinical trial setting but in the real world, leveraging things like electronic health records and real-time data capture as opposed to the way the clinical trials are conducted today. It could be a very important experiment for us and for others, because so many clinical trials initiated do not complete. Enrollment is very challenging. Managing data and packaging it and submitting it to regulators is quite a big book of work. And if there is a way to do this in more real time, we would all benefit from having this learning. We are looking forward to working with them on that. Murdo Gordon: Thanks, Jay. The other thing that I would add here is we have seen very good progress in where patients are treated for their small cell lung cancer with Imdeltra. We have seen really good uptake in the U.S. in community oncology. We have seen a very good launch in Japan. We expect to be launching in the second-line indication across multiple markets this year. And then, as Jay said, we have a nice randomized clinical program reading out through the balance of this year into next to further expand the use of this product. Imdeltra seems to have very durable survival as we have seen in our Phase I data. And importantly, in these innovative trial designs that the FDA is in discussion on, this will further help the physicians, primarily those in community settings in regional hospitals or in community oncology practices, better care for their patients closer to their homes, which is a really exciting opportunity. Thank you. Robert A. Bradway: All right. Let us move on. Operator: Our next question comes from Michael Yee from UBS. Please go ahead. Your line is open. Michael Yee: Thank you. Great. Maybe a question on Olpasiran. And obviously, you guys have a well-designed study and potentially superior drug. I am wondering if you think that background therapies such as GLP-1 or PCSK9 either would impact your trial design or your competitor trial design, how you think about that impacting the overall results of what we might see from a competitor soon. Thank you. Robert A. Bradway: Jay, why do you not answer that? James E. Bradner: Yes. Thank you for the question. We see it the same way. The OCEANA-ACE study is a very well-designed study, a randomized controlled trial of almost 7,300 patients with Lp(a) over 200 and a medicine, olpasiran, with best-in-class performance characteristics, as you cite, 95% reduction in Lp(a) with every 12-week dosing. So we are really looking forward to reading out this event-driven trial. We have built this study around a very high-risk group of patients. Elevations in Lp(a) are genetically defined, and as such, one in five individuals will have elevated Lp(a). Unfortunately, to your question, you cannot take a GLP-1 medicine or a statin, even Repatha, and meaningfully reduce levels of Lp(a). This independent risk factor maps to a very atherogenic and inflammatory characteristic of the Lp(a)-containing particle, which is actually six times more inflammatory and atherogenic than the LDL-C containing particle, which, of course, we and others have shown to be a dramatically and importantly modifiable risk factor. And though we observed improvements in the standard of care for patients with cardiovascular disease, and we contribute to that with Repatha, we are very confident in the study as defined, which focuses on a high-risk, high-leverage elevated Lp(a) population treated with direct and targeted therapy to Lp(a) itself. Robert A. Bradway: Okay, thank you. Let us move on. Operator: Our next question comes from Terence Flynn from Morgan Stanley. Please go ahead. Your line is open. Terence C. Flynn: Great, thanks for taking the question. Bob, I was just wondering, we have seen a pretty active M&A year thus far in the sector. Just as we think about Amgen Inc.’s needs, potential size of opportunity, how are you thinking about BD and M&A right now given your current needs, but also your strength and your balance sheet? Thank you. Robert A. Bradway: Terence, I am not sure I would use the word needs the way you have in your question, but we are very active in business development as we always have been, looking for innovation that we think we can add value to. So that remains the case. I think the areas where we are interested are very clear to you and to our investors, and we will continue to see if there are things that line up in a way that we can take over programs and still add value to our shareholders. Thank you, Julianne. Next question. Operator: Our next question comes from Geoff Meacham from Citi. Please go ahead. Your line is open. Geoffrey Christopher Meacham: Great, thanks for the question, guys. Murdo, Repatha has been consistently strong, but I want to get some perspectives from you on penetration into primary prevention and where it could go. And as you look to the olpasiran data, how do you think primary prevention looks as a key market within the Lp(a) segment? Thank you. Murdo Gordon: Thanks for the question, Geoff. We are really excited about what is happening in primary care. As you recall, we expanded promotion and coverage of our primary care sales team at the beginning of last year. We expanded our medical teams in anticipation, of course, of some of the news flow that we have seen: new data from the VESALIUS-CV trial that we presented last November at the AHA meeting, and then, as Jay mentioned, subsequent sub-study in diabetes patients without atherosclerosis also showing significant benefit with a 31% reduction in three-point MACE and a 31% reduction in four-point MACE. So we have a clear opportunity to help these patients who are in the care of the primary care physician. The average diabetes patient without documented atherosclerosis is someone who is not being referred to a cardiologist, and so since the change in our label occurred actually just prior to the VESALIUS trial being presented, we have been out there talking to primary care physicians. We have seen really, really good uptake. In the quarter, we had strong overall growth in Repatha globally. If you look at new-to-brand prescription evolution in the U.S., we were up 44% in the quarter, and that is being driven by increased depth of prescribing by cardiologists and increased breadth of prescribing by primary care physicians. So very strong foundation, very pleased with the momentum. But we still have a huge opportunity ahead of us in primary prevention promotion of Repatha, the only PCSK9 with that data generation now. So real opportunity for us. Now when we look at Lp(a), the one thing I will say that helps us is the new treatment guidelines that came out from the ACC/AHA. They have recommended that everyone who is at risk of cardiovascular disease be tested. As you know, this is a genetically determined level, so you really only need to do the test once. It is affordable. It is accessible. And so that bodes well for having some population of patients who will know their Lp(a) level. And I do think that primary care physicians will play a significant role in treating those patients, in lowering their Lp(a) levels with, hopefully, a product like olpasiran should the data bear out. Robert A. Bradway: Okay. Good. Let us move on to the next question. Operator: Our next question comes from David Risinger from Leerink Partners. Please go ahead. Your line is open. David Reed Risinger: Thanks very much. So my question is for Murdo, please. Congrats on the launch of Amgen Now. I think that occurred last fall. Could you provide some quantification on the uptake of Repatha by cash-pay patients and, I do not know if it is meaningful enough yet, but possibly the current mix of sales between cash pay and covered given the strong ramp of Amgen Now? And then, is Amgen Inc. considering leaning into offering Repatha as a cash-pay product ex-U.S.? Thanks so much. Murdo Gordon: Thanks for the question, David. We have been pleased with overall response to the Amgen Now offering. As you will recall, Repatha is offered at a $239-a-month price point, and we are seeing cash-paying patients interested in pursuing Repatha. Now at the same time, however, it is important to note, we have opened up access substantially for Repatha, and so many patients now can access Repatha without much friction and their physician can simply attest that the patient meets the criteria for the indication of the product. So I would not expect the cash-paying component of patients going through Amgen Now to be substantial. We are in the kind of the 8,000 to 9,000 patient range of patients moving through the Amgen Now program, and we continue to see more and more interest there. So it has been a success, but as a percentage of total Repatha, as you will note, it is relatively small. Robert A. Bradway: Julianne, next question, please. Operator: Next question comes from Matt Phipps from William Blair. Please go ahead. Your line is open. Matthew Christopher Phipps: Hi, thanks for taking my questions. I was wondering on some of the blinatumomab updates. First off, you noted in the press release that enrollment has stopped in the SLE trial. Can you give us any updates on that status? And it also looks like you are pausing enrollment of the subcu administration in ALL. Any additional reasoning for that pause? Thank you. Robert A. Bradway: Sure. Thanks, Matt. I am happy to take the question. James E. Bradner: Blinatumomab is proving to be an important component of standard of care for adults and children with relapsed and refractory B-cell leukemia, and its current instantiation is delivered by intravenous continuous infusion. We have studied and characterized subcutaneously administered blinatumomab in the past, and there is a chance with this medicine for even higher remission rates, as we have previously shown at presentation. We observed 89–92% remission rates with manageable safety in adults with relapsed and refractory B-ALL. And so we are very encouraged by the efficacy seen with subcutaneous blin and are moving subcutaneous blin to earlier lines. As you shared, we have a potential registration-enabling Phase II initiated in adults and adolescents. We have a Phase Ib/II study of subcu blin as well initiated in pediatric patients there with relapsed and refractory and MRD-positive B-cell ALL. As you noted, we have paused some of these studies for enrollment. BiTEs are known to have inflammatory side effects. We prioritize patient safety, especially in the conduct of clinical investigation. And observing a handful of inflammatory reactions, we are at this moment collecting some patient data and having a dialogue with the FDA. We expect to be able to open these studies back for enrollment shortly. Robert A. Bradway: Next question, Julianne. Operator: Next question comes from Chris Schott from JPMorgan. Please go ahead. Your line is open. Christopher Thomas Schott: Great, thanks so much for the question. I just want to come back to Meritide. Sounds like some encouraging earlier-stage data on the titration. Are you able to provide any more color on what levels of vomiting and duration of vomiting you are seeing with the three-step titration from some of these earlier studies? Or if you cannot provide specific numbers, just maybe directionally, where that is shaking out versus a Wegovy or is that bound? Thanks so much. James E. Bradner: Yeah, Chris, thanks. The level of nausea and vomiting observed with three-step dose escalation is lower than we have seen before. Dose escalation works for GLP-1 agonist-based therapy. That is known. In our experience, one step improved GI tolerability significantly. Two-step improved it further. And today we share the unsurprising but accumulating data that provide clinical confirmation that three-step dose escalation further improves GI tolerability. Now we await efficacy and tolerability data from the ongoing Phase III studies, but we are quite encouraged by what we have seen. Robert A. Bradway: Jay, on the question of duration, you may help him understand what we see, help Chris understand what we see and how it is different from what we are observing from the weekly and dailies in terms of the side effect duration, side effect profile. James E. Bradner: Before we started this research, we did not know whether a long-acting medicine like Meritide that can be delivered monthly or every eight weeks or every twelve weeks would enjoy durable efficacy owing to high time on target. This antibody backbone leads to very smooth and stable exposure over a long period of time, engaging GLP-1 receptors and GIP receptors in the brain and peripheral tissues. Would that durable efficacy be associated, when there was a side effect, with a long-term side effect? And that we do not see. When we do observe nausea and vomiting, it tends to be quite short in its duration, over the course of one or several days. No different than the weekly GLP-1s. But different than the weekly GLP-1s and different than oral GLP-1s that are short half-life medicines. This trough-to-peak spike that is experienced every time these medicines are taken we believe can be associated with intolerable side effects in the GI and otherwise. And this can be avoided with a steady, stable, long-acting medicine like Meritide. We see this at target dosing of Meritide, by Manhattan plots versus what is reported in the field with more frequent dosing. So, in the fullness of time, this could prove to be a very important attribute, keeping patients on the medicine for the length of time that they have these diseases, which is for many of them a lifetime. Julianne, we probably have time for two more questions. Operator: Thank you. Our next question comes from Akash Tewari from Jefferies. Please go ahead. Your line is open. Analyst: Hey, thanks so much. For DAZZO’s Phase III Sjogren’s programs, you are making an interesting bet, splitting it up into systemic and symptomatic patients. What kind of drove that decision? And which one of those trials are you more confident will work? And can you go over any of the biological differences between DASO and then the Novartis CD40, but also Sanofi CD40L, which both ended up discontinuing their programs? Thank you. James E. Bradner: Yeah, Akash, I love your questions because they invite a mechanistic characterization of these molecules, but I will try to keep this brief, though it will be hard for me. We observed in Phase II very strong activity of dazodalibep, as you comment, which is a CD40 ligand Fc fusion protein targeting fusion protein. And the performance against the ESSDAI score in Sjogren’s syndrome is quite a unique situation. It has proven very hard to develop effective medicines in Sjogren’s disease. But seeing movement in the ESSDAI score made us very motivated to follow this up in Phase III clinical investigation. The presentation of this heterogeneous disease can be quite different clinically. And so we thought to segregate, in order to have clear clinical outcomes in these clinical trials, into two Phase III studies: patients with what we will call systemic disease, but then also a separate study of moderate to high symptomatic disease, but there with low systemic disease activity. In the case that these two populations might be considered differently, we aim to observe meaningful differences attributable to those biological and clinical presentations. These studies have completed enrollment and completion of both studies is expected in the second half of this year. Dazodalibep is a product of a long-sought-after drug discovery campaign, honestly, in the field of immunology. CD40/CD40 ligand signaling is fundamental T cell/B cell co-stimulation. CD40 ligand is on T cells; CD40 is on many, many different kinds of cells. And that makes this molecule very different than CFZ533 from Novartis. What is true of Sjogren’s disease, whether or not it is systemic or symptomatic, is that T- and B-cell activation is the primary driver. This is not a dry gland disease; it is enriched with inflammatory cells. And so we believe that CD40 ligand is the right lever to press on, as it will impact all downstream signaling by targeting the upstream CD40 ligand on T cells. So we look forward to reading out these studies, one with the ESSDAI score, another with the ESSPRI score, appropriate for a symptomatic study, in the second half of this year. But Julianne, let us take one last question and then I will have a couple of remarks and we will be finished. Operator: Thank you. Our last question today will come from Louise Chen from Scotiabank. Please go ahead. Your line is open. Louise Chen: Hi. Thanks for taking my question. I just wanted to ask you, if you get Meritide approved, what are you playing for here? Do you want to be the number three player behind Novo and Lilly, or are you assuming a higher position than that with your product? Thank you. Robert A. Bradway: Louise, that is a tempting question to consider a softball pitch over the middle of the plate here at the end of the day. But Murdo, do you want to offer any quick thoughts for Louise and then we will wrap up? Murdo Gordon: Well, I think we are going to be the best monthly or less frequently dosed agent. But no, in all sincerity, this is a highly differentiated product. I think the opportunity is substantial to come into a market with something that really is a new paradigm-changing opportunity for a massive category. And our focus is going to be on helping as many patients as possible in that category, whether they are de novo patients who have yet to attempt a weight loss treatment and they will be new to Meritide, or whether they are on another therapy and they are not achieving the results they like, or they are not enjoying the frequency of injections, or they are having side effects and they want to try another treatment. And we will, across the business, across the company, be ready to go into that market and compete with all of the other companies that are already there. Robert A. Bradway: I know some of our competitors have risen to the bait of that question, Louise, but we will resist and wait instead until we have the data in hand. As you know, we are working diligently to try to generate the necessary data to register this molecule and, as Murdo said, help as many patients as possible. There are very many who need a differentiated therapy like this and we are looking forward to having the data so that we can appropriately talk to it. But before we wrap up, as I mentioned earlier in my remarks, I just wanted to take a moment and acknowledge that Dave Reese will be retiring from Amgen Inc. at the end of the second quarter. And I wanted to thank him publicly for his contributions to Amgen Inc. over the past 20 years. As a longstanding leader and former head of R&D, Dave’s legacy here, as you all know, includes a generation of innovative medicines. What you may not be as familiar with is that Dave has been a persuasive champion for change and new technologies at Amgen Inc. and recognized, long ahead of many others, the growing importance of AI and what he called the hinge moment. Dave both raised his hand to be Amgen Inc.’s first Chief Technology Officer and helped attract Jay Bradner to be his successor as Head of R&D. So we are thrilled and excited about the progress that we made in artificial intelligence and data under Dave’s leadership, as well as the other businesses that Dave has had responsibility for. And again, we are grateful that Jay will build on what is a very solid foundation following Dave’s retirement at the end of the second quarter. Dave is both a close colleague and friend to many of us and we will all miss him and wish him well in what we are sure will be a very active retirement. So Dave, on behalf of all of Amgen Inc., thank you, and let me thank all of you for joining our call as well. Thank you. Operator: This concludes our Amgen Inc. Q1 2026 earnings conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Acadian Asset Management Earnings Conference Call and Webcast for the first quarter 2026. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. To be added to the queue, please press the star followed by one at any time during the call. If you need to reach an operator, please press the star followed by zero. Please note that this call is being recorded today, Thursday, 04/30/2026 at 11:00 AM Eastern Time. I would now like to turn the meeting over to Melody Huang, SVP, Director of Finance and Investor Relations. Please go ahead, Melody. Melody Huang: Good morning, and welcome to Acadian Asset Management. This conference call is to discuss our results for the first quarter ended 03/31/2026. Before we begin the presentation, please note that we may make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding these risks and uncertainties appears in our SEC filings, including the Form 8-Ks filed today containing the earnings release and our 2025 Form 10-Ks. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update them based on new information or future events. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced, including a reconciliation of those measures to GAAP measures, can be found on our website, along with the slides that we will use as part of today’s discussion. Finally, nothing here shall be deemed to be an offer or solicitation to buy any investment products. Kelly Ann Young, our President and Chief Executive Officer, will lead the call. And now I am pleased to turn the call over to Kelly. Kelly Ann Young: Thanks, Melody. Good morning, everyone, and thanks for joining us today. I am thrilled to share our exceptional Q1 2026 results with you. Our assets under management and profitability continue to reach new heights, with strong recent growth underscoring sustained momentum in our business and disciplined execution of our strategic plan. We started 2026 by delivering outstanding results across all metrics. Our U.S. GAAP net income attributable to controlling interest was up 21% and EPS was up 26% compared to the prior year, driven by increased management fees and partially offset by non-cash expenses representing changes in the value of Acadian LLC equity and profit interest. ENI was up 85% to $37.6 million, driven by revenue growth, and our ENI diluted EPS of $1.05 was up 94%. Our adjusted EBITDA was up 76%, driven by increases in management fees. We realized £21.4 billion of positive net flows in Q1 2026, 12% of beginning AUM, a new quarterly record, driven by enhanced extensions and global equity strategies. And finally, AUM grew 61% from 2025 to $195.7 billion as of 03/31/2026, marking another record high for Acadian Asset Management. Turning to Slide 3, Acadian Asset Management’s investment performance track record remains strong. Five major implementations comprise the majority of our assets. As of 03/31/2026, Global Equity, Emerging Markets Equity, Non-U.S. Equity, Small Cap Equity, and Enhanced Equity have 100% of assets outperforming benchmarks across three-, five-, and ten-year periods with only one exception. In 2026, U.S. equities declined more than non-U.S. equities while the dollar strengthened. Despite the market uncertainty, our disciplined systematic approach has stayed the course and generated consistent alpha for our clients. Acadian Asset Management’s short-term performance track record continued to improve in Q1 2026 after a challenged 2025. We remain confident that we are well positioned given our 40 years of experience through various market cycles and macro forces. Slide 4 details how our investment process has generated meaningful long-term alpha for our clients. Our revenue-weighted five-year annualized return in excess of benchmark was +4.1% as of the end of Q1 2026 on a consolidated firmwide basis. Our asset-weighted five-year annualized return in excess of benchmark was +3.4% as of the end of Q1. By revenue weight, 96% of Acadian Asset Management strategies outperformed their respective benchmarks across three-, five-, and ten-year periods as of 03/31/2026. And by asset weight, 92% of Acadian Asset Management strategies outperformed their respective benchmarks across three-, five-, and ten-year periods. The next slide highlights our sustained momentum in net flows. We realized positive net flows of $21.4 billion in 2026, representing 12% of beginning AUM, achieving a new quarterly record high. Gross inflows included a significant enhanced mandate from a premier U.K. wealth manager. This mandate expanded our non-U.S.-domiciled client base, as well as our presence in the wealth channel. Excluding this large enhanced mandate, the remainder of the net inflows were again diverse across products and client types, with extensions and global equity also generating strong NCCF. We have now generated nine consecutive quarters of positive net flows. We continue to focus on renewing our pipeline, which remains very healthy and active with the funding of a number of significant client wins in 2026. I am now going to turn it over to our CFO, Scott Hynes, to provide you with more detail on our financial performance this quarter and an update on capital allocation. Scott Hynes: Thanks, Kelly. Turning to Slide 7, our key GAAP and ENI performance metrics are summarized here on a quarterly basis. As previously noted, we manage the business using ENI metrics, which better reflect our underlying operating performance. You can find complete GAAP-to-ENI reconciliations in the appendix. Let me now turn to our core business results. Starting on Slide 8, total ENI revenue of $165 million increased 40% from Q1 2025, primarily due to recurring management fee growth and an increase in performance fees. Q1 2026 management fees of $159 million increased 41% from Q1 2025, reflecting a 57% increase in average AUM driven by strong positive NCCF and market appreciation over the last 12 months. Stepping back, with average AUM of $190 billion in the first quarter, we have materially expanded our recurring management fee base and significantly strengthened Acadian Asset Management’s earnings power. Moving to Slide 9, in Q1 2026, ENI operating expenses increased 13%, primarily driven by higher sales-based compensation and portfolio-related costs due to AUM growth as well as general and administrative costs, including continued investment in IT and infrastructure. Our ENI operating margin expanded 978 basis points to 38.1% from 28.3% in Q1 2025, driven by an increase in ENI management fees, while our operating expense ratio fell 10 percentage points year over year to 38.4%, reflecting the impact of improved operating leverage. Q1 2026 variable compensation increased 35% year on year, primarily driven by higher profit before variable compensation. Our Q1 2026 variable compensation ratio decreased to 39.4% from 47.6% in Q1 2025. Assuming revenue mix and levels similar to Q1 2026, contractual allocations would imply a full-year 2026 variable compensation ratio of approximately 40% to 43%. Turning to Slide 10 on capital resources and our strong balance sheet, as of 03/31/2026, we had $129 million of cash and $97 million of seed investments on the balance sheet, with a $200 million balance on our term loan credit facility and an $85 million balance on our revolving credit facility. Note, the revolver balance reflects first-quarter seasonal needs and is expected to be fully paid down by year end. Our Q1 2026 gross debt to adjusted EBITDA ratio was 1.3x, and our net debt to adjusted EBITDA ratio was 0.7x. Note that while both these measures are slightly higher quarter on quarter, reflecting our typical first-quarter revolver draw, they are down over 0.5 turn year on year, driven by lower gross debt and higher adjusted EBITDA. Moving to Slide 11, we have a track record of creating significant value through share buybacks in recent years. Outstanding diluted shares have decreased 58% from 86 million in 4Q 2019 to 35.8 million shares in Q1 2026. Over the same period, $1.4 billion in excess capital were returned to stockholders through share buybacks and dividends. During Q1 2026, we repurchased just under 100 thousand shares, or $4.7 million of stock, at a volume-weighted average price of $49.77. Acadian Asset Management’s board has declared an interim dividend of $0.10 per share to be paid on 06/26/2026, to shareholders of record as of the close of business on 06/12/2026. Going forward, we expect to continue generating strong free cash flow and returning excess capital to shareholders through dividends and share repurchases over time. We look forward to discussing our broader capital allocation framework in more detail at our upcoming investor forum. I will now turn the call back over to Kelly. Kelly Ann Young: Before moving to Q&A, let me recap some key points on Slide 12. Acadian Asset Management is competitively positioned as the only pure-play, publicly traded systematic manager with a 40-year track record and competitive edge in systematic investing. Our investment performance track record remains strong this quarter, with more than 96% of strategies by revenue outperforming over three-, five-, and ten-year periods. Business momentum continued apace in 2026, with record net inflows of $21.4 billion for Q1 2026, 12% of beginning AUM, reflecting nine consecutive quarters of positive net flows and reaching AUM of $195.7 billion, up 61% from Q1 2025, the highest in the firm’s history. Q1 2026 financial results included record management fees of $159 million, up 41% from Q1 2025, ENI EPS of $1.05, up 94% from Q1 2025, and operating margin expansion to 38.1%, up nearly 10 percentage points from 28.3% in Q1 2025. Finally, capital management remained a focus in the quarter as we strengthened our balance sheet with conservative leverage ratios, continued to invest in organic growth, and returned excess capital to shareholders. We are pleased with our first-quarter results, we remain focused on disciplined execution, and we look forward to discussing our strategic priorities more at our first Acadian Asset Management Investor Forum on 05/19/2026. This concludes my prepared remarks. Operator: We will now open the call for questions. At this time, those with questions should lift their phone receiver and press star followed by the number one on their telephone keypad. To cancel a question, please press star one again. Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of Kenneth S. Lee with RBC Capital Markets. Your line is open. Please go ahead. Kenneth S. Lee: Hey, good morning, and thanks for taking my question. Just one on the institutional pipeline. Wondering if you could provide a little bit more color in terms of what you are seeing within there, what is the composition of strategies between Enhanced, and it looks as if you are getting some traction on the extension side there as well. Thanks. Kelly Ann Young: Hi, Ken. Nice to speak to you again. The pipeline looks very healthy across a number of different strategies and client domiciles. As you will see, the Enhanced story continued to dominate Q1 of this year, but once we pull out that very large win from St. James’s Place, which was about $16 billion, it is an incredibly positive quarter with north of $4 billion in net flows over and above that. That was very granular this quarter. About half of that remaining $4 billion was coming from our extension strategies. We have certainly seen a pickup in momentum and interest in extensions, and that forms a very solid part of the pipeline. As I say, this quarter’s dominant theme continues to show up very healthily in our pipeline, but it is granular. Global, Emerging Markets, International equities—all of those are very broad core strategies that Acadian Asset Management is well known for, and our flagship strategies are continuing to see a lot of interest and momentum. So the pipeline continues to be diversified. The team continues to do a great job in replenishing it despite that very large NCCF number for Q1. Again, it is very robust as we go into the second part of 2026. Kenneth S. Lee: Right, and just one follow-up, if I may. Average fee rates did not change much quarter to quarter, despite the sizable mandate inclusion there. Wondering whether there is a little bit of timing in terms of impact—whether we should see some impact on average fee rate going forward, given the mix shift there? Scott Hynes: Yes. Hey, Ken, it is Scott. Thanks for joining us. I think the short answer to your question is yes, a little bit. Again, as Kelly suggested, we are very proud of the large win from St. James’s this quarter. It did fund later in the quarter, so for all intents and purposes, we have not yet realized the full run-rate impact of that. As you know, the fee rate is subject to a whole bunch of things out of our control. It is an output of market conditions and where client demand comes in next quarter, and, as Kelly already said, we have things—particularly when we think about extensions or the like—that can go above the current 34-basis-point fee rate generally. But all else equal, if nothing else should change, I do think we are staring at a little bit of headwind in the next quarter as we realize the full run-rate impact of this continued mix shift to Enhanced. Kenneth S. Lee: Got it. Got it. And one final one for me. Seed capital investments—any particular outlook in terms of whether you could see that increasing over the near term? Just a little bit more color around that. Kelly Ann Young: Sure. Yes. Again, we appreciate that the board and others have been very supportive with a very active seed program, as you know, Ken. The majority of our seed has been deployed into our systematic credit strategies, and we remain very excited about the trajectory there and the performance track record that the team is building. As you know, we have three launched today. Each of those are a little short of their three-year track record. We will hit three years in November for U.S. High Yield, closely followed by the remaining two strategies early next year. I think we will look to have that seed remain in place for some time, although we are building momentum in the pipeline there for systematic credit, and we are very excited to hit three-year anniversaries considering where performance is trending. Beyond that, we have had an active seed program. We are looking at some other new strategies, ensuring that we have vehicles in place that meet the needs of our more diversified client base today, whether that be in the institutional or wealth space. I do not think that the overall needs are going to increase significantly from here—perhaps on the margins—but underneath that number, there has been an active recycling program as we have launched extensions, our dynamics extension strategies, and as we see those gain traction with clients, we are able to redeploy that capital to other new areas of growth. Scott Hynes: I would just add, Ken, onto that—Kelly hit the recycling. We feel like we are very well positioned in this regard. It is obviously very important to the business, and as Kelly suggests, as the team continues to innovate and we as a finance team think about supporting them—with just under $130 million of balance sheet cash today and this dynamic where we have been able to often recycle what we have already put in—again, we feel like we are really well positioned to support the business as it continues to innovate and meet client demand. Kenneth S. Lee: Great. Very helpful there. Thank you. Operator: Your next question comes from the line of John Joseph Dunn with Evercore. Your line is open. Please go ahead. John Joseph Dunn: Thank you. I wanted to ask about renewed demand for particular non-U.S. exposure, but also the Managed Vol strategy, which I think could benefit from the current environment. Kelly Ann Young: Hi, John. Nice to speak to you again. Yes, non-U.S. has certainly been a feature that I know we have talked about on these calls over the last 12 or 15 months or so. We are continuing to see a lot of interest in international strategies broadly. As you know, Acadian Asset Management has a very strong, compelling track record there dating back many decades, and we continue to see a lot of momentum there, particularly from U.S.-based clients. Managed Vol was a slight headwind in Q1, but we have certainly seen outflows there taper off quite dramatically versus two to three years ago. These types of strategies, when we have seen what has been a challenging macro backdrop in Q1 with the tensions and conflict in the Middle East, are where strategies like Managed Vol come into their own. We have a number of longstanding clients in those strategies who have seen the real value of them at inflection points like that. Q1 was not an asset-gathering quarter for Managed Vol, but only a very slight headwind. Those outflows have certainly tapered off, and I think it is at the forefront of clients’ minds, with the current environment we are in, where Managed Vol may play a role in their strategic asset allocation. John Joseph Dunn: Got it. And then maybe if you could opine on the dynamics and potential for systematic taking share potentially from private strategies and then also from the passive side? Kelly Ann Young: Sure. We see this in the industry numbers, and we see it anecdotally as we talk to clients every day. Systematic is clearly a winner in the active equity space. When we talk about private investments—particularly private credit—we are excited about what we have built on the systematic credit side. We do think there are opportunities there as investors continue to evaluate their private credit investments. There is a place for something more like public systematic credit. As we build that track record and story—we think it is compelling—the transparency and liquidity will be compelling to investors on that side. Scott Hynes: John, I would add that we are looking at an investor forum that we are excited about on 05/19/2026. As Kelly suggests, this all adds up as we think about our addressable market. We have been spending a lot of time as a management team thinking about it. It is rather large, it is diversified, and we look forward to talking about it in a more granular way on 05/19/2026. John Joseph Dunn: Thank you. Operator: Your next question comes from the line of Michael J. Cyprys with Morgan Stanley. Your line is open. Please go ahead. Michael J. Cyprys: Hi, good morning. Thanks for taking the question. More of a big-picture question with all the advances in data science and AI models entering the generative era. How do you see that impacting the competitive landscape versus thematic investing? What are the risks, if any, of these quickly advancing models that could democratize access to folks creating systematic strategies and emerging new competitors? How do you see that evolving? Kelly Ann Young: Michael, thanks for the question. We do not view AI as a strategic threat to the business model today. Systematic investment has relied on data, technology, and increasingly sophisticated research tools throughout our history and throughout the time of this industry. We view AI very much as an extension of that evolution rather than a disruption to it. From our side, machine learning and AI have been within Acadian Asset Management’s DNA for many years, and we are using AI to enhance our research development and our operating workflows. It is key that you keep human judgment and your investment discipline and risk controls at the center of that process. Firms that adopt these tools effectively are going to strengthen their competitive position. We are at the forefront of that and intend to remain on the right side of that equation. Michael J. Cyprys: Could you elaborate on how you are using the newer generative AI tools as well as agentic AI tools across the firm today, and how you are thinking about the opportunities? Kelly Ann Young: The landscape is changing very quickly. We think there are huge opportunities. While AI is not new to us, the current generation of tools is allowing us to apply it more broadly across the firm. Investments today are focused on a couple of key areas: improving productivity through enterprise AI tools and enhancing software development through AI-assisted coding, and building selected AI-enabled services to support our research. We have people with many years of experience in computer science and machine learning, and we are encouraging people to experiment across different software and platforms while building a strong foundation, sharing guardrails, and ensuring security. Michael J. Cyprys: Great. And then just a final question on capital allocation. Could you unpack how you are thinking about the dividend tiers—any particular growth rate or payout ratio that you are targeting—and then more broadly on buybacks and other uses, how you are approaching that given the significant free cash flow generation of the business? Scott Hynes: As you suggest, the free cash flow—which, for all intents and purposes, the ENI that we disclose is a good proxy for—is very strong. We think we are very well positioned. We remain dynamic. As I have suggested before, we have a capital management framework. It starts with organic investments—seed capital and the like are at the top of the list. I would also include as we expand further down the list organic investments in things like AI. Then we get to a dividend, and then a return of excess capital via buybacks. I have used the word “athletic”; that continues to be the case. We look at it every quarter, and as we think about organic needs and balancing those with returning excess capital, that is how we make the decision. Everything has an IRR frame; we pencil out returns on any of the investments we are making, and that informs us. This quarter, we landed where we landed. I would not say we manage to a payout ratio—it is much more dynamic than that. I know that is not an easy answer for modeling purposes, but it is dynamic each quarter given the priorities. On the dividend, as you know, we recently moved from $0.01 to $0.10. We are proud of that. That is reflective of the new size that we have realized, the confidence we have in that larger recurring management fee base, and enhanced profitability. I would not think about us continuing to revisit the dividend every quarter. We are sensitive to it; we monitor it, but it is not something I would think of as us revisiting in a meaningful way every quarter. If we get to a different place—another step up in profitability—we would revisit that. There is no philosophy change here: when we think of a return of excess capital, I would continue to think the direction of travel will be more geared toward share repurchases versus a dividend. But these things evolve. Hopefully that helps. Operator: This concludes our question-and-answer session. I would like to turn the conference call back over to Kelly Ann Young. Please go ahead. Kelly Ann Young: Thank you everyone for joining us today, and we look forward to seeing many of you at our investor forum in Boston on 05/19/2026. Have a great day.