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Operator: Good morning. I will now turn the call over to Scott Parsons. Please go ahead. Scott Parsons: Thank you, Operator, and thanks to everybody for attending Alamos Gold Inc.'s first quarter 2026 conference call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer, Greg Fisher, Chief Financial Officer, and Luc Guimond, Chief Operating Officer. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release, and MD&A, as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Senior VP Technical Services and a Qualified Person. Also, please bear in mind that all the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now John will provide you with an overview of the quarter. John McCluskey: Thank you, Scott. I am going to start with Slide 3. First quarter production was 124,000 ounces, in line with quarterly guidance, with a strong performance from the Island Gold District offsetting lower-than-planned production at Young-Davidson. The Island Gold District had a solid overall quarter, with the shaft at planned depth, the larger mill expansion advancing, underground mining rates increasing to a new record of over 1,400 tonnes per day, and a significant improvement in Magino’s milling rates over the past six weeks. The continued ramp-up of underground mining rates at Island Gold as well as improvements in mining rates and grades at Young-Davidson are expected to increase our second quarter production by approximately 20%. With the Island Gold District expected to drive further production growth in the second half of the year, we remain well on track to meeting our full-year production guidance. With our year-end disclosure in February, we guided to costs for the first quarter being above the first half guidance range. All-in sustaining costs were $1,862 per ounce and are expected to decrease by approximately 5% during the second quarter. A more significant improvement is expected into the second half of the year, reflecting an increase in low-cost production from the Island Gold District. Financially, we had another strong quarter with record revenues and margins. Relative to a year ago, our all-in sustaining cost margins nearly tripled to approximately $3,000 per ounce. This contributed to record cash flow from operations and another solid quarter of free cash flow of $102 million while reinvesting in high-return growth. Now turning to Slide 4, we had a catalyst-rich first quarter that included releasing highlights of a successful 2025 exploration program across our portfolio. This supported a 32% increase in year-end mineral reserves to 16 million ounces and included a near doubling of reserves at the Island Gold District to over 8 million ounces. This growth was incorporated into the Island Gold District expansion study, which was also released in the first quarter. The study outlined a large, long-life, low-cost operation that is expected to be one of Canada’s most profitable mines. At a $4,500 per ounce gold price, the Island Gold District is expected to generate over $1 billion in annual free cash flow and has a $12 billion after-tax NPV, making it one of the most valuable gold mines in Canada. Based on the ongoing exploration success we are seeing across the district, we believe there is further upside to come. Toward the end of the first quarter, the shaft sink at Island Gold reached planned depth of 1,381 meters. We expect to complete the commissioning of the shaft early in 2027, which will be a key catalyst driving a further increase in production and decreasing costs. With strong ongoing free cash flow generation at current gold prices and significant growth expected ahead, we announced a 60% increase in our dividend in February and will continue evaluating opportunities for additional shareholder returns. Turning to Slide 5, we had previously outlined a clear path to 800,000 ounces of annual production by 2028 with costs expected to decrease 18% relative to 2025. We expect our annual production to continue increasing to 1 million ounces by 2030 with a further decrease in costs. This growth is expected to be internally funded by ongoing free cash flow generation and the strong balance sheet with $1.2 billion in available liquidity. Our team is making strides towards our long-term plans across our asset portfolio. The completion of the Phase III+ shaft expansion at Island Gold is less than a year away. Our larger Magino mill expansion is well underway, construction activities are ramping up at Lynn Lake and PDA. These are high-return projects, all lower cost, and largely derisked, underpinning one of the best growth profiles in the sector. I will now turn the call over to our CFO, Greg Fisher, to review our financial performance. Greg? Greg Fisher: Thank you, John. Moving to Slide 6. We sold 122,000 ounces of gold in the first quarter at an average realized price of $4,829 per ounce for record quarterly revenues of $597 million. Total cash costs were $1,230 per ounce, and all-in sustaining costs were $1,862 per ounce. As previously disclosed, first quarter costs were expected to be above the first half guidance range. We are continuing to monitor the impact of ongoing inflationary pressures across our cost structure, including higher labor, contractor, diesel, and electricity costs, and expect to manage any cost pressures with ongoing productivity improvements through the year, which are expected to drive costs lower and significant margin expansion at current gold prices. Operating cash flow before changes in non-cash working capital increased to a record $338 million in the first quarter, or $0.80 per share. This included a reduction of $43 million, or $0.10 per share, for cash utilized to buy out an additional 15,000 ounces of the legacy Argonaut Gold hedges prior to maturity. Our reported net earnings were $191 million in the first quarter, or $0.46 per share. This included after-tax losses on commodity hedge derivatives of $20 million, adjustments for unrealized foreign exchange losses of $19 million, and other adjustments of $1 million. Excluding these items, our adjusted net earnings were $232 million, or $0.55 per share. Capital spending in the quarter totaled $184 million and included $45 million of sustaining capital, $127 million of growth capital, and $11 million of capitalized exploration. We continue to fund our higher-return growth internally while generating strong free cash flow. This included $102 million of free cash flow generated in the first quarter, net of $82 million in cash taxes paid. In the first quarter, we repurchased and eliminated an additional 15,000 ounces of gold forward contracts ahead of their maturity in 2026. These hedges were inherited as part of the Argonaut Gold acquisition in 2024. Existing cash of $43 million was used to eliminate these hedges, providing further upside to higher gold prices. To date, we have eliminated 245,000 out of the 330,000 ounces that were hedged by Argonaut prior to maturity. We will continue to monitor opportunities to repurchase and eliminate the remaining contracts, which total 85,000 ounces across 2026 and 2027. Our ongoing free cash flow drove a further increase in our cash position to $660 million at the end of the first quarter. We expect growing production and declining costs to drive stronger free cash flow through the remainder of the year into the next several years, while continuing to self-fund our organic growth plans. I will now turn the call over to our COO, Luc Guimond, to provide an overview of our operations. Luc? Luc Guimond: Thank you, Greg. Over to Slide 7. First quarter production from the Island Gold District totaled 61,200 ounces, in line with plan and an improvement from the previous quarter. Underground mining rates averaged a record 1,423 tonnes per day, a 23% increase from the fourth quarter and in line with our ramp-up schedule. Grades mined of 9.4 grams per tonne were also consistent with guidance. We expect a gradual ramp-up of mining rates to 2,000 tonnes per day in 2026, and higher grades into the second half of the year to drive growing production through the rest of 2026. Open pit operations continue to perform well with mining rates averaging 50,000 tonnes per day, including nearly 12,000 tonnes per day of ore mined during the quarter. Grades mined and milled were in line with guidance. Total milling rates from the Island Gold District were close to 8,800 tonnes per day in the first quarter, with the Magino mill averaging 7,500 tonnes per day and the Island Gold mill averaging 1,260 tonnes per day. Magino’s milling rates are expected to increase in the second quarter through the second half of the year, driven by recent improvements to the crushing circuit. Total cash costs and mine-site all-in sustaining costs were above annual guidance but are expected to decrease significantly in the second half of the year. This is expected to be driven by higher mill throughput at Magino as well as an increase in underground mining rates and grades at Island Gold. The Island Gold District generated mine-site free cash flow of $58 million in the first quarter, net of the significant capital investment related to the Phase III+ shaft project, the larger Magino mill expansion, and exploration. At current gold prices, the Island Gold District is expected to continue generating strong free cash flow while funding its expansion plans and a large exploration program. Moving to Slide 8, in the latter part of February, a temporary crusher was added to the Magino mill, providing supplementary crushed ore feed into the processing plant. The addition of the crusher has contributed to a substantial improvement in milling rates, which averaged 9,200 tonnes per day over the past six weeks. Milling rates are expected to remain at similar levels in the second quarter, with the SAG and ball mill liner changes and conveyor replacements scheduled for the quarter. Consistent with guidance, milling rates are expected to increase to steady-state levels of 10,000 tonnes per day by the third quarter, combined with 11,000 tonnes per day of ore in the second half of the year and into 2027. Over the long term, a number of initiatives currently underway are expected to support higher milling rates and greater operational consistency. Connecting the Magino mill to grid power will provide a more reliable source of power at substantially lower costs into 2027. Additionally, the construction of a gyratory crusher, new truck dump configuration, and ore bins will greatly improve the performance of the existing circuit by reducing rehandling of ore, ensuring a more consistent flow of ore into the mill. All of these improvements will be in place by early 2028 as part of the larger mill expansion to 20,000 tonnes per day. Moving to Slide 9, growth capital for the Phase III+ shaft expansion has been largely all spent or committed. Shaft sinking to a planned depth of 1,381 meters was completed in the first quarter, and paste plant construction is on track for completion in the second quarter. Commissioning of the shaft and other surface infrastructure is expected to be completed by early 2027. This is an important catalyst to increase underground mining rates to 2,400 tonnes per day in 2027, and ultimately 3,000 tonnes per day in 2029. Over to Slide 10, in February we announced the results of the larger Island Gold District expansion study. The study included an expansion of the Magino mill to 20,000 tonnes per day, accelerated underground development to support mining rates of 3,000 tonnes per day, and other infrastructure investments. The larger expansion is well underway with 11% of the growth capital spent or committed, primarily related to the expansion of the Magino mill to 20,000 tonnes per day. As shown on the slide, construction of the mill building is well advanced, including structural steel and exterior cladding, and all eight leach tanks erected. With all the earthworks, concrete foundations, and steel erected, the key elements of the larger expansion have been significantly derisked. The expansion remains on track for completion in early 2028 and will be a game-changer for the operation, with production expected to increase to average 534,000 ounces per year at $1,025 per ounce all-in sustaining costs starting in 2028. The Island Gold District is expected to evolve into one of Canada’s largest, lowest-cost, and most profitable gold mines. Over to Slide 11, Young-Davidson produced 30,000 ounces in the first quarter, lower than planned primarily due to lower mining and milling rates. Milling rates of 6,800 tonnes per day were below guidance, reflecting longer-than-anticipated downtime to complete scheduled maintenance as well as an unscheduled repair to a transformer in the mill. Underground mining rates were also 5% lower than planned due to a longer-than-expected timeline to complete rehabilitation work on one of the three ore passes, as well as delays in commissioning a newly constructed pass. This resulted in more rehandling of ore, reducing productivity during the quarter. With two passes now fully operational, the total number of active ore passes has increased to four. This is expected to provide greater operational flexibility and support increased mining and milling rates of approximately 8,000 tonnes per day in the second quarter and through the remainder of the year. Mine grades were also below the low end of annual guidance, reflecting higher-than-planned mining dilution. Grades are expected to return to guided levels in the second quarter. Combined with higher milling rates, we expect a substantial improvement in both production and costs through the rest of the year. Young-Davidson continues to deliver strong mine-site free cash flow, with $72 million generated in the first quarter. At current gold prices, higher production and lower costs are expected to drive further free cash flow growth through the rest of the year. Over to Slide 12. Production from the Mulatos District totaled 32,700 ounces, including nearly 27,000 ounces from Yaqui Grande. Costs were at the low end of annual guidance, reflecting the higher-grade stack. Grade stocks are expected to decrease in the second and third quarters towards the lower end of guidance, and costs increase through the remainder of the year to be consistent with annual guidance. The Mulatos District generated strong mine-site free cash flow of $61 million while funding the construction of the PDA project, a robust exploration program, and paying $51 million in cash taxes during the quarter. Over to Slide 13. Construction activities on the PDA project are well underway. Earthworks on key surface infrastructure are now substantially complete. Mill foundation work is progressing, and last week, we collared the portals and will continue underground development through the rest of the year. The PDA project remains on budget and on schedule for first production in mid-2027. PDA is the future of the Mulatos operation. Based on the PDA deposit alone, this is a low-cost, high-return project which will extend the Mulatos mine life by at least nine years. We believe this is just the starting point as the operation transitions to processing higher-grade sulfide mineralization, and we expect there is significant upside to come. The addition of the mill for PDA is opening up a number of new opportunities for additional higher-grade mineralization within the district, such as Cerro Pelon and Halcone, where we are continuing to see strong ongoing exploration results. With that, I will turn the call back to John. John McCluskey: Thank you, Luc. I will now turn the call over to the Operator, who will open the line for your questions. Operator: We will now open the call for questions. One moment please for your first question. Your first question comes from the line of Ovais Habib of Scotiabank. Your line is open. Ovais Habib: Hi, John and Alamos team. Just a couple of questions from me. My first question is on Island Gold. Really great to see mining rates averaging 1,400 tonnes per day, and those are expected to grow over the next couple of quarters. In regards to the area where you had the seismic issue, how much more work is required to completely rehabilitate that area, and do you need this area to achieve the 2,000 tonnes per day that you are targeting by the end of the year? Luc Guimond: Ovais, it is Luc here. With regards to the Island Gold mining front where we had to reestablish the escapeway, we completed that at the beginning of the year. The escapeway has been reestablished, which allows us to continue mining in that area. As far as the overall ramp-up for 2026 and what we are expecting, there is not a lot of production actually coming out of that area. We will see some production starting in the second half of the year, and we are continuing with some minor rehabilitation in this area since we completed the escapeway, which allows us to continue activities in that region. It is not critical to the overall ramp-up for 2026 and as we move forward. Ovais Habib: Good stuff. Thanks for that color, Luc. Then just moving to Young-Davidson. Good to hear mining rates are expected to now increase to average around 8,000 tonnes per day from Q2 onwards as both ore passes are now fully operational. In regards to underground grade, which got hit in Q1 due to some mining dilution, how should we look at grades into Q2 and then in the second half? Luc Guimond: As I mentioned, the issue that we had in Q1 was certainly some dilution from a couple of stopes. As we move into the rest of the year, we expect to be within our guidance of 1.90 to 2.05 grams per tonne from underground. We are on track as we move forward into Q2 and as we follow the rest of the mine plan for the year. Ovais Habib: So grade should be kind of around that 2 grams per tonne going into Q2 within the guidance that you provided, which was between 1.90 and 2.05? Luc Guimond: Within our guidance that we provided, which was between 1.90 and 2.05. Ovais Habib: Perfect. Okay. And then just moving on to exploration, and maybe this question is for Scott. Can you give us a brief overview of where you are currently focused, and especially if you continue to have any sort of success at Cline Pick? Scott Parsons: Yes, absolutely. Our 2026 exploration programs are well underway across the board at all sites. Starting with Lynn Lake, we are just concluding a program focused on testing underground potential below the MacLellan and Gordon deposits, and that was executed on time, just in time for spring breakup. At Island Gold, the focus is on continued expansion of the Island Gold deposit. We are drilling from surface, extending mineralization to the east and to the west and also at depth below the bottom of the reserves and resources; that program is well underway. The other aspect, as you mentioned, was Cline Pick. We are drilling there and excited about what we are seeing as we follow up on some of the results that we issued earlier in the quarter, really looking at some of the controls on mineralization in that system and testing it down plunge and in and around existing mine workings, with the intention of having a resource estimate by 2026. At Young-Davidson, the underground program is focused on continuing to define the hanging wall zones that we put out results on earlier in the quarter, both the Mid-Mine Conglomerate Zone and the South Syncline Zone, and that program is well underway, as well as testing from surface some of the regional targets. We completed a program in the northeast, which is a potential opportunity for additional open pit material if we can define a resource there, and that was successful, as well as some of the other regional targets in the district. At Mulatos, that program is well underway. We are really focused off the start of the year at Halcone and Cerro Pelon. We are excited about what we are seeing at Cerro Pelon and putting 200,000 ounces we defined there by 2025; I think that will be just a starting point for that target as we continue stepping out that sulfide mineralization both in and around the pods we have defined, but also within the broader Cerro Pelon region. At Halcone as well, the new discovery in 2025, we are still defining the extent of that system. That is an exciting opportunity for additional sulfide mineralization in the Mulatos District. The last point I will make: we are currently ramping up for our Kivalliq program in Nunavik in Northern Quebec, and that will be underway later in the second quarter. Ovais Habib: Good stuff. That is a lot going on. Looking forward to some results from these programs. That is it for me, guys. Again, looking forward to Q2 for improvement in production and costs, and then looking forward to the site trip in summer as well. Thanks. Operator: Your next question comes from the line of Fahad Tariq of Jefferies. Your line is open. Fahad Tariq: Hi, thanks for taking my question. There was a comment in the press release talking about managing cost pressures with productivity improvements. Can you talk about what specific productivity improvements there are across the portfolio? Greg Fisher: Yes, Fahad, it is Greg here. That is referencing what we have already identified as part of our plan in 2026 and even moving into 2027. The critical thing is ramping up our mining rates at Island Gold from 1,400 tonnes per day, which we achieved in Q1, up to 2,000 tonnes per day by the end of the year. As we increase our production from the underground at Island, that is critical for us because it is our lowest-cost structure across our portfolio. The other piece would be ramping up the Magino mill from 7,500 tonnes per day in Q1 to closer to 10,000 tonnes through at least the second half of the year. That is going to bring down our cost structure in the second half of the year. The last would be the mining rates at Young-Davidson getting back up to 8,000 tonnes per day. All of those items are going to manage those cost pressures in 2026. Then as we move into 2027, moving from ramp mining to skipping up the shaft at Island will have a significant impact on our cost structure moving forward. The last is hooking up grid power at the Magino mill, and that is something we plan to have in place by early 2027 as well. All of those go a long way to managing any inflationary pressures that we are seeing. Fahad Tariq: Okay, great. And then maybe just to follow up on that, can you talk about where you are seeing the pressures across the board on cost inflation? Greg Fisher: You highlighted the two primary ones: diesel and labor. Diesel is a cost pressure the entire industry is seeing. We are fortunate in that diesel is not a big part of our cost structure—about 5%. If you break it down, about two-thirds of that is in Canada and one-third in Mexico. In Mexico, it is a regulated system, so you do not see the same effects of higher diesel prices as we do in Canada. In Canada, about 20% of our diesel has been hedged at much lower rates than we are seeing right now. All to say, diesel is very manageable because it is a small component of our cost structure at less than 5%. On labor, the bigger pressure is more on contractor labor. We have put in place our increases for the year—very manageable and built into our budget. We are seeing a little pressure from contractors as they make sure they can fill their roles and at some increased cost there, but again, manageable based on our cost guidance for the rest of the year. Operator: Your next question comes from the line of Analyst from Stifel. Your line is open. Analyst: Thanks very much. My question is firstly on Young-Davidson and within the context of the strong recovery that we are going to see through 2026. There is some discussion around stope overbreak leading to a review of the blasting design. Is this something new that we are dealing with? Was this identified as a risk when we encountered some of the headwinds in the back half of 2025? Is the blasting review part of where we are having these stope overbreak issues, or is this part of a broader all-stope-encompassing plan? Luc Guimond: Hi, it is Luc here. Drilling and blasting review is always an ongoing process with regards to the closeout and reconciliation of each of our stopes. This is nothing new. We continue to review that on an ongoing basis. Historically, the performance has been good at Young-Davidson. We have been mining there now for the better part of 13 years. Actual results from a grade perspective usually reconcile quite well to the model, and we have a good history of that. In this specific quarter, we did have a couple of stopes that underperformed from a dilution aspect, where we typically model around 10% to 12% dilution and we had higher dilution on a couple of stopes that we mined in the quarter. The process of closing out the reconciliation is also looking at the drilling and blasting design and seeing if there are some improvements based on that reconciliation—any modifications we may need to make. It could be specific to certain regions, maybe some structures within those regions that are adding to the dilution, and we may need to change our drill and blasting pattern as a result. We take all that into consideration and do a full analysis, and part of it is certainly the drill-and-blast design as well. Analyst: Got it. As a minor follow-up, as it stands right now, do you envision the supplementary temporary crushing at Magino to be in place until the 20,000 tonne per day expansion is commissioned? Or does the existing secondary crusher, once optimized, get you to meet the plan—do you envision weaning off the temporary? Luc Guimond: We currently still have it in place. We commissioned it mid-February and initially it was to help us get through winter conditions. It provided consistency and supplemental feed into the grinding circuit. We still have it in place currently, but we will rely less on it through the summer months than we needed to in the winter months. When we have scheduled maintenance on the crushing circuit, it allows us to continue to provide mill feed into the grinding circuit, which is its advantage. Periodically, it will continue to get used through the summer months as well. Once we complete the larger mill expansion to 20,000 tonnes per day, we are going to change part of the crushing circuit—primarily adding a gyratory crusher—which will eliminate some of the winter challenges we had with the front end of the current circuit. Come 2028, we would not require the temporary crusher, though periodically it may be used. Operator: Next question comes from the line of Don DeMarco of National Bank. Your line is open. Don DeMarco: Thanks, Operator, and good morning, John and team. Great to see the growth trajectory affirmed. First question, going back to the discussion on diesel. We see that costs are expected to decrease by 5% in Q2. Does this assume that diesel prices remain flat? Greg Fisher: Correct. It is based on the spot prices that were in place at March 31, so the higher rates that we are seeing now are what we assumed when we talked about that 5% reduction in cost. Don DeMarco: Okay. And as Luc was mentioning, the Island mining rates continued higher in Q1 and are on their way to 2,000 by the end of the year. Are you stockpiling the delta between the nameplate at Island Gold, or are you putting it through the Magino mill? Greg Fisher: No stockpiling there, Don. The additional tonnes from Island underground, outside of what can be milled at the Island mill itself, end up over at the Magino mill, and we process them there. We will continue that as we move through the rest of the year with the ramp-up. Any additional tonnes that cannot be fed into the Island mill will go into the Magino mill. Don DeMarco: Okay. And then finally, do you plan to continue to settle the legacy Argonaut hedges each quarter, and are you looking at it more tactically, or the same amount that we saw in Q1 each quarter going forward? Greg Fisher: I think we will be opportunistic based on where we see the gold price going. We have been tactical all along in taking out over 245,000 out of the 330,000 ounces that we originally inherited, and we will look to continue doing that as we approach the remaining 85,000 ounces. Don DeMarco: Okay, great. Thanks, Greg. That is all for me. Good luck with Q2. Operator: Your next question comes from the line of Analyst from Paradigm Capital. Your line is open. Analyst: Hi, good morning. Thanks, Operator, and thanks Alamos team for taking our questions. Just on the Phase III+ expansion, it is good to see the shaft sink complete and essentially 100% of the growth capital spent or committed, with commissioning expected early next year. What are the remaining critical path items? Is it the paste plant that is currently on track for completion in Q2? What are the next key milestones that we should watch to keep this on track for early 2027? Luc Guimond: Things are tracking well with regards to the Phase III+ expansion. The two critical items right now: first, we have completed all of the rock work in the shaft, and now we are furnishing the shaft—putting all of the structural steel in the shaft and separating the compartments for skipping, personnel travel, and services. That will occur over the rest of this year, with a timeline to be completed early in the first quarter of 2027. The second component is ore and waste handling infrastructure required to feed the shaft. We are well advanced there as well. We are doing rock work for one of the large bins for the underground loading pocket and will be establishing our grizzly station as well as the loading pocket at 1,350 meters. That work is also expected to be completed in early 2027 in the first quarter. By mid-Q1 we should have the ore and waste handling components commissioned as well as the shaft commissioned to start utilizing it for ore and waste movement and personnel movement. Analyst: Great, that is really helpful. And then on the overall larger expansion, I think about 11% of the growth capital has been spent or committed. How much of the remaining approximately $542 million is still exposed to inflation and procurement risk and any scope changes at this point? Greg Fisher: A significant portion of the remaining spend is development, which is subject primarily to labor inflation. The other piece would be the core components of the mill. We have contracts in place for some of that, and we are still working through others. Technically there is some inflationary exposure there, although we are not hearing that we should expect much. I would characterize it as normal-course inflationary pressures of around 4% to 5%. Operator: Your last question comes from the line of Analyst from Bank of America. Your line is open. Analyst: Hi, good morning. Thanks for taking my questions. My first question is on capital allocation. We saw strong free cash flow generation in the first quarter, but there were no share buybacks. Given free cash flow is expected to improve throughout the remainder of the year, how should we think about the potential for getting more active in buybacks? John McCluskey: We have always taken a very opportunistic approach to share buybacks. We had a focus in the first quarter on increasing the dividend and we spent $45 million buying back part of the legacy Argonaut hedges. But given the opportunity we see now with our shares underperforming in the market, a good guess would be that we are being opportunistic on that front. We expect to be more active with the share buyback in Q2 and for the remainder of the year. Analyst: Thank you for the color. Maybe one on Magino. You expect meaningful cost savings from connecting the Magino mill to grid power. Can you quantify the dollar-per-ounce impact when it is fully online? Greg Fisher: It is about $5 per tonne. Analyst: Okay. Thank you. Thanks for taking my questions. Operator: There are no further questions at this time. This concludes this morning’s call. If you have any further questions that have not been answered, please feel free to contact Scott Parsons at (416) 368-9932 at extension 5439. That is (416) 368-9932 extension 5439. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Greetings, and welcome to the LSB Industries, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kristy D. Carver, Senior Vice President and Treasurer. Please go ahead. Kristy D. Carver: Good morning, everyone. Joining me today are Mark T. Behrman, our Chairman and Chief Executive Officer; Cheryl A. Maguire, our Chief Financial Officer; and Damien J. Renwick, our Chief Commercial Officer. Please note that today's call includes forward-looking statements. These statements are based on the company's current intent, expectations, and projections. They are not guarantees of future performance, and a variety of factors could cause actual results to differ materially. For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's recent Annual Report on Form 10-K. On the call, we will reference non-GAAP results. Please see the press release in the Investors section of our website, lsbindustries.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I would like to turn the call over to Mark. Mark T. Behrman: Thank you, Kristy, and good morning, everyone. I am pleased with our first quarter 2026 results. They were in line with our overall expectations and reflect the growing contribution from the impact of the operational discipline we have been building and executing over the past several years. Our progress has become increasingly evident over the past two quarters, driving improved operating and financial performance. The investments we have made to increase the safety, reliability, efficiency, and output at our facilities continue to bear fruit in the form of improving overall O&S performance, and significant year-over-year growth in net sales, adjusted EBITDA, and EPS. Our results reflect the progress we have made so far, and we expect to see additional improvement going forward. Our emphasis on production performance improvement, optimizing our product mix, and disciplined commercial execution reinforce our ability to maximize profitability. This will become even more important as current market dynamics begin to be reflected in pricing over the coming quarters. Regarding the progress of our CCS project at our El Dorado site, we feel good about meeting our projected timeline. I will provide an update later on in this call. Lastly, as we previously discussed, we have been involved in litigation with respect to engineering and procurement contracts related to the construction of the ammonia plant at our El Dorado, Arkansas facility. Earlier this month, we entered into a settlement agreement with Benham Constructors, one of the two defendants in the case. Pursuant to the terms of the settlement agreement, Benham agreed to pay us approximately $20.9 million. The settlement agreement does not release or otherwise discharge any claims, rights, or remedies we have against Leidos, including our claims for fraud and breach of contract. We plan to continue the vigorous prosecution of our filed claims against Leidos and continue to seek actual and punitive damages in excess of $300 million. The trial against Leidos is scheduled to begin in October. I will now turn the call over to Damien to provide more detail on the commercial environment. Damien J. Renwick: Thank you, Mark, and good morning, everyone. Let me start by discussing the ongoing conflict in the Middle East and the impact that it is having on our industry. This is one of the more significant and prolonged supply disruptions that we have experienced. The Strait of Hormuz alone represents 20% of global ammonia seaborne trade and 30% of global urea seaborne trade. While the situation remains fluid, these dynamics are creating meaningful supply constraints across both markets. We are seeing this manifest in two primary ways. The first is the disruption to shipping through the Strait and the ability to move product globally. Second, potentially more significant, is the impact to existing fertilizer production facilities in the Middle East, the full extent of which is not yet fully known. These dynamics are additive to the existing supply challenges across global markets, including reduced ammonia production in Trinidad, gas curtailments in India, outages in Australia, increasingly frequent drone strikes on Russian nitrogen plants, the potential export restriction of ammonia from China, as well as the ongoing export restriction of urea from China. While supply disruptions have been significant to date, global demand for ammonia and urea has remained consistent. Despite some demand destruction in phosphates globally, fertilizer and industrial demand have been reasonably strong, supported by Indian domestic consumption and fertilizer and industrial upgrades globally. Moving to natural gas, approximately 20% of the world's LNG transits through the Strait. This has been severely disrupted, and there is very little alternative supply of LNG that can offset this. We expect European natural gas prices to be increasingly elevated as they work to fill up their storage ahead of next winter. During this time, we expect to be advantaged on U.S. natural gas prices, which have been incredibly resilient and affordable. Today, it trades well below $3 per MMBtu. We also believe that the implications for the market will not be short-lived. Even when the Strait is fully opened, it will take some time before normality is restored. We expect elevated pricing throughout 2026 and even into early 2027. Our industrial business is in a sold-out position, even with our improved production volumes. During the first quarter, we optimized our production mix to maximize ammonium nitrate spot sales at above typical market prices. This allowed us to support customers whose AN supply has been disrupted. The U.S. AN market continues to be under pressure, with significantly lower domestic production available while demand is strong. We expect these constructive market dynamics to continue to impact market prices, with supply interruptions expected to continue through most of 2026. As we think about the mining market segment, we are encouraged to see a renaissance in mining. What we are seeing is not temporal, but structural. Copper demand is strongly outpacing supply, and record gold prices are incentivizing new supply. Much of this activity is taking place in the Western U.S. Quarrying and aggregate production has also been growing. Lower demand in residential construction is being offset by higher demand in private and public construction. Even coal remains resilient, supported by policy changes and insatiable demand for electricity. The chemical segment has also been positive. The antidumping duties on imported methylene diphenyl diisocyanate (MDI) have been positively finalized for five years. Generally, the chemical producers in the U.S. are feedstock-advantaged with U.S. natural gas liquids, while international peers are paying much higher naphtha inputs, which have been disrupted from the Strait of Hormuz. Moving to the domestic ammonia market, we had a good spring ammonia campaign and exited with minimal inventories. Inland prices continue to track with international prices, so we expect this to carry through to summer fill. New domestic supply in the U.S. Gulf continues to ramp up, albeit with some delays. However, this new supply is nowhere near the extent of the supply that is disrupted globally, and would only approximately offset the loss of production in Trinidad. Favorable weather windows during the first quarter allowed growers to apply ammonia, resulting in higher-than-expected shipments out of our Pryor facility and low inventory levels at the end of the quarter. Ammonia supply appeared to be constrained during March, with many customers seemingly dealing with allocations and the inability to secure enough supply to meet growers' application demand. Agricultural demand for ammonia is being supported by nitrogen pricing spreads, with ammonia trading at a significant discount to urea and UAN. Growers are especially incentivized this year to minimize input costs given the current challenging grain economics. While side-dress ammonia demand is a relatively modest percentage of total nitrogen demand, we would expect this pricing relationship to persist and growers to be incentivized to maximize ammonia purchases and application during the second quarter. Turning to UAN, grower economics, as previously mentioned, are challenging for the upcoming crop year. We believe the difficult margin environment for growers is resulting in limited risk-taking and positioning of product throughout the supply chain. We currently believe that the North American market is at risk of being short nitrogen due to uncertainty around forward urea imports. Urea pricing has strengthened since February due to the Iranian conflict and the Strait of Hormuz issues, and the U.S. has consistently priced at a discount relative to the rest of the world, putting import volumes for late April and May at risk. UAN demand has been steady throughout 2026, and we expect that to continue through the second quarter and into July. We believe that current supply chain inventory levels are low, and that demand may attempt to switch away from urea if pricing spreads or availability of urea become an issue during Q2. We are currently estimating a very low carry of UAN inventories on June 30, at around 2025 levels. Urea shortages, unplanned downtime across the U.S. production system, or reduced imports could reduce carryout even further than currently expected. Lastly, the USDA recently projected 95 million planted corn acres for the 2026 crop season, and we anticipate robust nitrogen demand through the full fertilizer application season. I will now turn the call over to Cheryl to discuss our first quarter financial results and our outlook. Cheryl A. Maguire: Thanks, Damien, and good morning. On page six, you will see a summary of our first quarter 2026 financial results. As Mark mentioned earlier, we focus consistently on improving the reliability and efficiency of our assets, and we believe these results, as with last quarter's results, reflect those efforts and the progress we continue to make, which is contributing to our ability to capitalize on tight market conditions. As shown on page seven, Q1 adjusted EBITDA grew 44% year over year from $29 million in Q1 last year to $52 million this year. This increase reflects higher pricing, coupled with stronger volumes and product mix, which were partly offset by higher natural gas and other operating costs. On page eight, you can see that our balance sheet remains solid, with approximately $180 million in cash at the end of the first quarter and net leverage at 1.4 times. Operating cash flow for the quarter was $52 million. After subtracting $15 million of sustaining capital, which is the capital required to maintain our operations, our free cash flow was approximately $37 million. This reflects strong free cash flow generation in the quarter, and we are encouraged by these results. Looking ahead, we remain focused on sustaining a high level of free cash flow generation, and our strong balance sheet gives us meaningful flexibility to invest in growth opportunities and drive long-term value creation. Looking ahead to the second quarter, we expect demand for our products to remain strong as we operate in a sold-out position. We also expect pricing to remain elevated. Tampa ammonia and NOLA UAN have averaged approximately $775 per metric ton and $480 per ton, respectively, while natural gas costs have averaged below $3 per MMBtu thus far in the second quarter. Our planned turnaround at our El Dorado facility is underway and is a key step to continued operational improvement. The outage is expected to impact ammonia production by approximately 35 thousand tons. Additionally, we expect to incur approximately $15 million to $20 million of turnaround-related expenses during the period. As discussed on our last call, we built ammonia inventory heading into the turnaround and therefore expect to operate our downstream production during the majority of the ammonia outage. Putting it all together, despite the turnaround, we expect Q2 adjusted EBITDA to be meaningfully higher as compared to 2026 Q1 and the second quarter of last year, driven by strong market fundamentals and continued improvement in downstream production. And now I will turn it back over to Mark. Thank you. Mark T. Behrman: Turning to page nine, our El Dorado low-carbon project is progressing, and we continue to work closely with senior officials from the EPA's Region 6 with a goal of sequestering CO2 by the end of this year or early next year. In addition to the previously drilled injection well, this quarter we completed the drilling of the underground horizontal pipeline that will transport CO2 from the capture equipment area to the injection well that will sequester the CO2. The next step is to complete the capture area civil work and prepare the area for delivery of the capture equipment this summer. The assembly and connection of the different pieces of capture equipment is expected to be completed in late fall this year. On the commercial front, our team continues to pursue low-carbon product supply opportunities where we can generate premiums for those products, as well as evaluate the potential to sell environmental attributes generated. We are excited as we are getting closer to completing our project and realizing our vision of decarbonizing ammonia. As I mentioned earlier, we have been highly focused over the last several years on increasing the reliability of our facilities, which has translated into higher production rates, improved product mix, and lower costs. During this time, we have often been asked about when we would begin to see the results of these investments. I think I can safely say that after two consecutive quarters of $50 million-plus in EBITDA, led by significantly improved production performance, we are beginning to see the fruits of all the hard work our teams have accomplished over the last three years. And we are not done. As we continue to invest in our business, including the El Dorado turnaround Cheryl mentioned, along with the scheduled turnaround at our Pryor, Oklahoma facility in the third quarter, we expect continued improvement in our overall production performance. In previous calls, we have laid out a path to a $50 million of annual EBITDA through specific initiatives including production targets, process efficiencies, and our El Dorado carbon capture project. A good portion of this is expected to be realized by the end of this year with the balance coming by the end of next year. We ended the quarter with a strong cash position, having generated significant free cash flow for the quarter. We also believe we will generate meaningful free cash flow for the remainder of this year. This, plus the approximately $21 million settlement payment I mentioned earlier, will provide us with financial flexibility and numerous options as we consider the best way to create value for our shareholders. We are currently reviewing several opportunities to invest capital into projects that would enable us to expand both our fertilizer and industrial production capacity. These include debottlenecking activities, as well as evaluating potential acquisition or partnership opportunities that offer the ability to increase our production while gaining meaningful scale. There is no question that the evolving geopolitical landscape, including the conflict in the Middle East and associated disruption of production facilities there, as well as the ongoing impact of important trade channels, is having a significant impact on the global availability of nitrogen fertilizers. We expect this will continue throughout the remainder of 2026 and into 2027. Our improved operating performance is enabling us to maximize fertilizer production and support U.S. farmers with additional supply in this difficult time. We are encouraged by our continued execution across the business and believe it positions us to continue supporting our customers and deliver sustainable growth and long-term value creation. Before we open it up for questions, I would like to mention that Cheryl will be participating in the Barclays Leveraged Finance Conference in Austin on May 18 and the Wolfe Research Materials Future Conference in June in New York City. Additionally, Damien and I will be participating in the Granite Research Virtual Conference Series on June 30 and July 1. We look forward to speaking with some of you at these events. That concludes our prepared remarks. We will now open the call for questions. Operator: Ladies and gentlemen, if you would like to ask a question, please press star 1 and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Lucas Charles Beaumont with UBS. Please proceed. Lucas Charles Beaumont: Good morning. Thank you. I want to get your view on where the nitrogen market is going. It seems like there has been a bit of a disconnect between what is happening in the physical market and the degree of the disruption that we are seeing. Prices have moved up a lot in certain areas, urea or UAN, but the cost curve not as much so far. We have not seen any resumption yet in trade flows, and I think even if things were to be credibly reopened tomorrow, we would probably still have four-plus weeks before production would restart over there, and then two to three months before we could start seeing deliveries again into import markets. From where we stand today, how do you see market dynamics evolving over the next couple of months and what does that mean for pricing and, ultimately, demand and demand destruction? Thanks. Mark T. Behrman: Morning, Lucas. I think you are right. There is the perception that if there was a permanent ceasefire, things would go back to normal relatively quickly, and I think that is a misnomer. First off, there is so much supply that has been taken out of the marketplace that it will take a relatively long time to make that up. Part of the reason is there has been damage to facilities in the Middle East, and I think most of us do not really understand what type of damage the production facilities have incurred, and so we do not know how long it will be before some of those plants that were damaged come back online. I also think people may be miscalculating the backup of vessels that are waiting to get out of the Strait, how long that will take, the coordination, and which vessels get priority. Big picture, we think that it is going to take certainly through the end of this year and into next year until we see things back to normal again. As far as our view on pricing and supply-demand, I will pass it over to Damien for a more current view on the ground. Damien J. Renwick: Good morning, Lucas. It has been interesting to observe how the market has responded. The U.S., particularly with urea, is priced at a fairly significant discount to market prices. India bid very heavily on the basis of their government support for tonnes, so they are in a reasonably good position now following their latest tender. You have also got Brazil trading upwards of where NOLA urea is at the moment. I think there is some concern on product availability here in the U.S. that may materialize over the next four to eight weeks as we work through the full season, and that is where it will all bear out. Also, Tampa ammonia has not settled yet; it should go upwards from where it is today. As Mark said, we have months before you see anything calm down after the Strait has reopened, and then the world gets a sense of what plants have been damaged or what the restart profile looks like, notwithstanding all of the other issues you have throughout the world with damage to Russian plants, Trinidad production being out probably for the long term, and the typical interruptions you are seeing, like with Burrup in Australia being out for many weeks. We are pretty positive, optimistic on pricing. Lucas Charles Beaumont: Thanks. That is helpful. On the industrial side, I know a large portion of your book is contracted. How is industrial demand responding more broadly and pricing there? What are you doing to capitalize most on the current market? And second, on the industrial versus fertilizer mix, where do you think the demand destruction in the industry comes from to equilibrate demand with the lower supply available this year? Damien J. Renwick: Our portfolio is weighted nicely to mining, and as I said earlier, mining activity globally, particularly in the U.S., is very strong, with a strong pipeline for new projects. That is underpinning very strong demand for ammonium nitrates for explosives, and we are leaning into that as best we can, optimizing our production mix to take advantage of the current situation, particularly in the U.S. with some supply being out of the market. We are maximizing our spot sales into that market. In terms of other industrial demand, it has been steady. We talked about nitric demand through polyurethane and MDI, and that is still strong in the U.S. The fundamentals around that industry continue to hold true, and U.S. producers are well shielded from some of the issues in the Middle East that other global producers are experiencing. We are seeing them maximize production, which is maintaining very strong levels of demand for our products. In terms of demand destruction, you will see buyers opt out when their economics get too strained, and you have already seen that in phosphates with those producers experiencing a double whammy with both ammonia and sulfur. Sulfur prices are at extremely high levels, and sulfuric acid prices have followed. You will also see, through the nitrogen molecule, some regions of the world decide not to apply nitrogen, particularly parts of Africa or Asia, and even countries that cannot get product; they will not have a choice. You will see that start to happen, and the market will act rationally and efficiently as it tends to do. Mark T. Behrman: One thought to add: security of supply is now front and center. Going back to the beginning of the Russia-Ukraine conflict and now this conflict, people are really focused on security of supply. In our industrial business, customers need product because it is either a feedstock for another product, as Damien talked about with nitric acid, or you need AN to mine copper or gold. This focus on security of supply is creating interesting opportunities for us because we have customers that desire long-term product and want to know they have it. We may have opportunities to expand at our sites—some brownfield expansion or debottlenecking—supported by customer contracts and demand. Damien J. Renwick: To build on that, with our three facilities we have the ability to support our industrial customer base through each of the three facilities with the core industrial products. That is a huge strength of our business, and our customers value that security of supply. We expect that to continue to be reflected in what we do going forward, with customers attracted to that value proposition. Lucas Charles Beaumont: Lastly, on free cash flow, it looks like you could easily do an extra $100 million this year, maybe $200 million more in free cash flow than last year, plus the $20 million from the legal settlement. You mentioned looking at new projects to deploy that. Any more detail? Should we refer back to the last Investor Day projects, or is there anything else under consideration? Mark T. Behrman: We have talked on previous calls about the ability to expand the ammonia plant production at El Dorado. We do have a USDA grant to provide some capital for that. While we have not FID’d that project, we will do our last stage of engineering before FID, and I think there is a high probability that we would move forward with that project. With the current administration focused on increasing domestic fertilizer production, we are thinking about how we can expand other parts of El Dorado and maybe even some new products at El Dorado with the support of the administration, plus the capital we have available. That would be the plan at El Dorado—figure out how to expand given the current environment and the capital we have and will generate. At our other two facilities, there are things at our Pryor facility we are looking at—whether debottlenecking, increasing nitric acid production, or other things. We have the ability with our current assets to invest that capital to get attractive returns, and we are focused on doing the work to make sure our assumptions are correct before moving forward. The administration is looking to onshore or increase domestic fertilizer production, and we want to support that. Operator: The next question comes from the line of Andrew D. Wong with RBC Capital Markets. Please proceed. Andrew D. Wong: Good morning. I wanted to follow up on the comment around the administration's support for fertilizers. There was funding from the USDA earlier. Is there anything else that has come up more recently? Is there anything larger the administration may look at that LSB Industries, Inc. could participate in? Mark T. Behrman: Morning, Andrew. I do not know that there is another USDA funding program like the original one that came out during the Biden administration. What I can tell you is I was in D.C. a couple of weeks ago as part of an industry trade group talking with the administration, and there is a fair amount of capital that the administration has and would like to commit to increasing domestic fertilizer production. I think they want to support that. They have done a number of press releases, and they are talking about the abundance and low cost of natural gas in the United States, and nitrogen fertilizers being a derivative of natural gas. They would prefer not to depend on other countries for fertilizer. They look at it as food security, which is extremely important—even to the point of, if we ever got there, being an exporter versus an importer. I do think there is capital available, and for the right projects, they would support new projects with capital. Andrew D. Wong: For this year, I understand there is a heavier turnaround schedule. How flexible is that? Are you able to hold off on some of the work and maybe have the plants come on faster given the current price environment, or is that too disruptive to the plans you already have in place? Mark T. Behrman: We are currently in our turnaround at El Dorado. We discussed whether to delay it prior to going in, but we pushed off that turnaround from last year already. When you do major project work like a turnaround, lining up the contractors and getting the right people is critical, and if you start pushing things around, you run the risk of not having the desired contractor or people. We elected not to push off that turnaround. I think we will come out of it in great shape. I am excited about that because I think not only will we increase reliability, but we have done a lot of work on the site that sets us up for the expansion I talked about—whether electrical work or other infrastructure that will allow us to leverage that to do some expansion. For Pryor, we have a turnaround in July. There is specifically one item we need to address, and we will try to get through that turnaround as quickly as we can, but we would run the risk of having extended downtime if we do not go through it. We are focused on that. I do not think we are going to see pricing fall off a cliff later in the fall, so we expect an opportunity to take advantage of the pricing market, which we think will last longer. Operator: The next question comes from the line of Robert Miles McGuire with Granite Research. Please proceed. Robert Miles McGuire: Good morning and congratulations on the quarter. MDI tariffs and countervailing duties—how are they affecting nitric acid demand and LSB Industries, Inc.'s debottlenecking plans? How do you think the tariffs and duties will shape the market from here? Damien J. Renwick: Hi, Rob. It is a very positive story for U.S. domestic producers of MDI. Our customer base is running flat out. They are contemplating their own expansions, and we are in early discussions with them about what that might look like from a supply perspective. There is a very positive tailwind in the U.S. because of that, and we are also seeing it more broadly with some other producers bringing on additional capacity. Robert Miles McGuire: Thank you, Damien. With regards to the projects, what should we be looking for exiting the turnarounds this year that relate to progress with your value creation projects? Mark T. Behrman: As I mentioned in the prepared comments, we expect to see a good portion of that $50 million in value creation as we come out of this year on a run-rate basis, with the balance occurring by the end of next year. So about half by the end of this year and the balance by the end of next year, on a run-rate basis. Robert Miles McGuire: On AN, should we be looking for a similar mix of AN and UAN in the second quarter that we saw in the first quarter? Is there room for further AN production? Damien J. Renwick: You will see the same mix. We are probably at our limit of what we can lean into, so that will continue through at least the end of the year. Robert Miles McGuire: Lastly, sulfuric acid—do you still produce and sell on a commercial basis? Can you benefit from the recent price increase, or is that not really a product at this point? Damien J. Renwick: We are still in that market, although it is immaterial to the overall profile. Yes, sulfur prices are going up, but so too are sulfur costs, so margins are pretty stable. Operator: Thank you. This concludes the question-and-answer session. I will hand the call back over to Mark T. Behrman for closing remarks. Mark T. Behrman: I appreciate everyone's interest in LSB Industries, Inc. I hope you can see that we are making progress. We are excited about the progress we have going forward, and I hope to talk to some of you at the upcoming conferences. Thanks, and have a great day. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to Air Products' Second Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Megan Britt. Megan Britt: Hello, and welcome to the Second Quarter Fiscal 2026 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we'll make forward-looking statements which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call, and in the forward-looking statements and Risk Factors sections of our reports filed with or furnished to the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we will refer to various financial measures, including earnings per share, capital expenditures operating income, operating margin, the effective tax rate, ROC and net debt to EBITDA on a total company basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo. Eduardo Menezes: Thank you, Megan. Hello, and thank you for joining our call today. Before we begin, I want to take a moment to express my appreciation to the entire Air Products team, especially the more than 3,000 employees of our direct operations and minority-owned joint ventures in the Middle East. During this period of uncertainty, our people have continued to show dedication, staying focused on safety, reliably serving our customers and supporting critical projects and operations. Now please turn to Slide 3. Earlier today, we reported results for the second quarter of fiscal 2026. We delivered a broad-based operating income improvement across our reporting segments. Earnings per share of $3.20 increased 19% compared to the prior year quarter on improved volumes, productivity and currency. We also experienced reduced headwinds from with volumes better than expected Q2 Aerospace. Our operating margin of 23.7% was also up compared to the prior year quarter, reflecting the strong underlying volumes, particularly in our on-site business as well as the continued benefit of cost productivity. Return on capital of 11.4% was in line with prior year and improved sequentially. Overall, we were able to improve our business performance during the first half of the fiscal year and effectively manage the market dynamics that have emerged due to the recent Middle East conflict. Moving to Slide 4. We remain focused on 3 key priorities for 2026, consistent with our strategic road map. On unlocking earnings growth, we are raising our full year earnings guidance which now implies an improvement of 8% to 10% at the midpoint of the full fiscal year. We expect EPS growth to be achieved primarily through our continued focus on pricing actions, productivity and new asset contributions. Additionally, we anticipate a more favorable operating environment in the second half for improved volumes in several key end markets, including refining, electronics and aerospace. On our second priority, we continue to make progress on optimizing our large project portfolio. On NEOM, negotiations on a marketing and distribution agreement with Yara are progressing in line with expectations. The project continues to make progress and is ready to produce renewable power that will be used in the commissioning of the hydrogen and ammonia plants. Notably, activities at NEOM have not been impacted by recent events in the Middle East. We continue to monitor the situation closely and prioritize safety. On the Louisiana project, we have set a high bar from moving forward where we required a reliable capital cost estimate and construction agreements that meet our project risk-adjusted return requirements. We are currently revealing construction bids from EPC firms and remain committed to reaching a go, no-go decision in conjunction with our partners by the middle of this calendar year. Finally, on our third priority, maintaining capital discipline. We are staying focused on our capital allocation, invest in growth projects and returning cash to shareholders. As we have previously indicated, we expect to reduce our capital expenditure by approximately $1 billion in fiscal 2026 and remain on track to achieve that objective. We are focused on investing in our backlog of traditional industrial gas projects and have strengthened our project pipeline in electronics and aerospace. In the electronics area, we are currently executing approximately $1 billion in ASU and hydrogen projects in Asia for several multiphase projects serving semiconductor and memory customers. We expect to add another $1.5 billion to $2 billion to backlog in the next 6 months, including the project we announced yesterday to build, own and operate multiple production facilities in both specialty gas supply systems for a new advanced fab with Samsung in South Korea. We also have announced our intent to build, own and operate a new ASU in Florida to further enhance our support for our space launch customers. Lastly, we remain committed to disciplined capital allocations that ensures that we are well positioned to continue our strong track record of returning cash to our shareholders. In the first half of fiscal 2026, we have returned $800 million to shareholders in the form of dividends. Please turn to Slide 5. As has been widely reported, recent events in the Middle East have resulted in curtailment of helium supply from Qatar. Helium is an important product line for our products with the largest end market sales in electronics, aerospace and medical. Air Products helium supply chain is very resilient with one, multiple sources in the U.S. in addition to our long-term partnerships in Algeria with Sonatrach and in Qatar with Qatar Energy. Two, a dedicated helium storage cavern in Texas, which has been operational for nearly 5 years. The cavern contains a significant volume, allowing us to provide high supply reliability to our customers when one of our sources is unable to produce as we are now experiencing. And three, a large helium ISO container fleet produced by our subsidiary, Gardner Cryogenics, which provides flexibility and responsiveness in managing supply flows during periods of uncertainty. Since the beginning of the conflict, we have activated our contingency plans, drawing product from the cavern and positioning our container fleet to bypass conflict-affected areas. We look forward to our partners in Qatar resuming normal production as soon as possible. But until we -- that can be achieved, we are well positioned to enable supply chain resilience through this current supply disruption. We are working very closely with our customers to meet our commitments to them and capture long-term volume growth in critical end markets. Moving to Slide 6 before Melissa shares detailed quarterly performance, I wanted to offer some additional context on end market conditions. Given the ongoing conflict in the Middle East, we are closely engaged with key customers in each end market. We are also working strategically beyond current events to fully participate in compelling end market growth. Entering the fiscal year, we have a relatively conservative view given muted outlook for industrial production and manufacturing growth. Now with our performance through the first half, we are more confident about a sustained level of industrial activity and the potential for continued volume growth in some areas. Though the ongoing conflict in the Middle East introduces some uncertainty, we expect a combination of favorable dynamics in core end markets and some new wins to support volume improvement. Looking at a few highlights. We see strong run rates across our refining customer base, particularly in the U.S. Gulf Coast where we serve a large number of complex refineries that can process heavy sour crudes and produce high-demand products such as jet fuel. We expect U.S. refineries continue to run hard, which will support higher on-site volumes. Moving to Chemicals. We are closely monitoring supply chain conditions that would impact volumes. In Europe, challenges securing feedstocks and high costs that customers cannot mitigate with pricing could have an impact on run rates. Beyond Europe volumes are relatively stable. Additionally, we expect to see stronger oxygen demand from our coal gasification customers in China where increased oil and LNG costs are supporting higher volumes. Electronics and aerospace continue to be bright spots. We have historically had a meaningful percentage of our sales in electronics and are benefiting from increased volumes in this end market due to a new asset onstream this year. The industry is in the midst of a historical super cycle period to satisfy AI demands with record CapEx expenditures projected between now and 2030. This expansion will generate expansion opportunities for industrial gas providers. Currently, we are working closely with our large long-term electronic customers in helium supply. Already with the long-term agreements signed during the last 6 months, we expect our hidden volumes to large electronics customers in Asia to more than double between 2026 and 2030. Finally, in Aerospace, we have continued to see volume improvement in launches, engine testing and manufacturing. We were very proud to be part of the recent NASA Artemis 2 mission where our products supply liquid hydrogen and liquid helium using our proprietary liquid helium pumps. We see a tremendous opportunity to continue to grow in the space area and our recently announced investment is expected to increase our participation of both NASA and commercial launches. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and review our 2026 outlook. Melissa? Melissa Schaeffer: Thank you, Eduardo. Hello, and welcome to those joining our call today. Please move to Slide 7 for a high-level summary of our second quarter financial results. Sales were up 9%, while operating income grew 19% on volume, currency and lower costs, partially offset by price headwind. With respect to volume, we saw growth from on-site in part due to the increased production from our U.S. refinery assets and new assets coming on stream in Asia. We also lapped a major turnaround in our Europe segment. Merchant volumes were stable, including a modest improvement in helium. On price, the headwind from helium was partially offset by pricing from non-helium merchant products, particularly in the Americas and Europe. The base business once again delivered this quarter and operating margin expanded over 200 basis points to 23.7%, despite a 50 basis point headwind from higher energy pass-through. We have seen margin expansion in part due to our productivity initiatives. We have recognized approximately $50 million in savings year-to-date from head count reduction, which is on track with our plan for the year. Earnings per share of $3.20 grew 19% from the prior year. and exceeded the top end of our guidance range due to stronger on-site volume and better-than-expected helium volume from space launches. Return on capital of 11.4% was in line with prior year, and up 40 basis points sequentially on strong base business performance while we execute our project backlog. Moving now to Slide 8. Our second quarter earnings per share of $3.20 increased $0.51 or 19% from prior year. We continue to see helium headwind driven by lower price. In line with our guidance, currency was favorable 3% as the U.S. dollar weakened against our key currencies. The base business remained resilient in an uncertain macroeconomic environment. The growth from our on-site volume, non-Helium pricing, continued progress on our productivity initiatives and lower depreciation was partially offset by fixed cost inflation and planned maintenance outages in the Americas. In addition to the strong base business performance this quarter, we also saw improved accrete affiliate income, primarily in Mexico. Moving now to Slide 9. I'll provide an overview of our results by segment. You can find additional details of the quarterly segment results in the appendix. For the second quarter, Americas operating income growth of 2% was primarily driven by on-site volume. Merchant volume was also up, including helium supplied for the space launches. Additionally, non-Helium merchant price contributed to the results. This improvement was partially offset by prior year income from a onetime customer contract addendum, lower price in helium and higher power costs and maintenance turnarounds in the quarter. Operating income grew 25% in our Asia segment, primarily due to continued productivity improvements and favorable on-site and helium volumes. We saw a modest contribution from our new assets as they continue to ramp up, which we expect to further contribute in the second half of our fiscal year. Additionally, reduced depreciation from certain gasification assets classified as held for sale also benefited our results. This improvement was partially offset by a headwind from helium pricing. Europe operating income increased 8% due to the favorable on-site volume, including a prior year turnaround, as well as favorable currency and non-Helium price. We saw higher costs in the segment, including depreciation and fixed cost inflation as well as helium volume and pricing headwind. In our Middle East and India segment, operating income improved on lower cost, while equity and affiliate income was slightly positive. Lastly, the Corporate and Other segment results improved due to lower sale of equipment cost headwinds as well as continued strong productivity. Moving now to Slide 10. Our base business continues to generate stable cash flow as we execute on our project backlog for both energy transition and traditional industrial gas projects. We remain on track to reduce capital spend by more than $1 billion relative to the prior year. Additionally, through the first half of the fiscal year, we returned $800 million in cash to our shareholders in the form of dividends. As it relates to our leverage, our net debt-to-EBITDA ratio is 2.2x. We are committed to bringing the company back to an A/A2 rating over the long term. Please turn to Slide 11, where we will review our outlook. With a strong first half and outperformance in the market volume, we are raising our fiscal full year guidance to $13 to $13.25 or 8% to 10% growth from the prior year. However, we remain cautious given uncertainty around the macroeconomic environment, especially in Europe and Asia. In the second half, we expect to see benefits from continued non-Helium pricing actions and progress on our productivity initiatives, while new assets ramp up. We still expect helium to be a headwind due to lower price while we look to capture long-term volume commitment. Specific during the third quarter, we expect to deliver earnings per share in the range of $3.25 to $3.35, representing a 5% to 8% growth from the prior year. For capital expenditures, we are maintaining our guidance at approximately $4 billion for the fiscal year. Now we'll open the call up for questions. Operator? Operator: [Operator Instructions] We'll take our first question from John McNulty of BMO Capital Markets. John McNulty: Since the last call, obviously, the Middle East conflict has hit a lot of kind of things that may have changed. I guess maybe -- we can start with one on the project. So NEOM, can you give us an update on the progress there as well as at this point, given the spike in gray ammonia prices concern about industries maybe being beholden to oil, can you tell us if the demand environment has changed all that much for your green ammonia project? Eduardo Menezes: Thank you for the call. Yes, I would say, starting from NEOM, the project, as you know, is on the West Coast of Saudi Arabia. So it has not been affected by the conflict at this point. Of course, we are taking a lot of precautions on the safety side, but we have all the materials in hand. We have the people on site, and the project is continuing normally in the, I would say. And in terms of the progress, we are basically done with the renewable power side. We just energized the substation using the grid power. The next step is to basically connect the solar park and start commissioning using our own renewable power. So it's progressing as expected over there. I would say that in terms of the ammonia price, everyone can see what is happening in the ammonia market. I think prices are getting very close to $1,000 a ton. Of course, that creates some speculation on projects and so forth. But I would say it's too early for us to understand the demand for green ammonia and the impact they're going to have in prices in the long term. Again, this is -- we consider that a temporary effect that will go for a few months. But I think in the long term, it's clear that there is some advantage to be disconnected from natural gas from some areas of the planet. So the U.S. supply of natural gas will be a winner on that perspective. And I think green ammonia produced by clean power in places like Saudi Arabia, we also can benefit from that, but it's a little early to say that. John McNulty: Got it. Okay. Fair enough. And then maybe just as a follow-up, I guess we were a little bit surprised given what's going on in the helium markets to see that you still expect about a 4% drag on EPS in 2026. Admittedly, we get, look, some of these are contracts that are multiyear and even the ones that reset last year, were going to be a drag. But I guess we're a little bit surprised to not see some updraft in contracts that might be getting signed now or on the minimal part that you have that's tied to spot. So I guess, can you help us to think about what's going on in the helium markets and maybe why that's still pretty much the same drag you expected it to be at the start of the year. Eduardo Menezes: Yes. I would say that to start with helium market, it was structurally long before the war. And of course, with Qatar representing 1/3 of the world's volume of helium the market is short now, but we all expect that we'll return to the original state in a few weeks, a few months after the crisis is over. So this is a temporary period that we have here. As I described in the prepared remarks, Air Products has a very resilient system that was designed to basically be able to continue to supply our customers in the case of interruption in one of our sources like we're having today. It's designed basically for Air Products volumes, not for the entire market. So we may have a little more volume than we had before when we push our cavern. But it's not that significant and really doesn't allow us to supply the volumes that are not present in the market today. So of course, we are trying to sign longer-term agreements. That's the objective. I think we also made a comment that this didn't start with, the conflict started before that. We were trying to sign these long-term agreements. We made the point to say that our volumes for helium in Asia for electronics will more than double in the next 4 years. In fact, I expect to be more than that. And so we are focused on that, focused on signing these long-term agreements. We may have a little gain here and there on the spot market. But it's -- at this point, it would be wrong for us to include that in the forecast, not knowing when the market will come down or come back to normal conditions. Operator: We'll take our next question from Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: When you think about the Darrow project, you spoke about making a go, or no-go decision. Is it possible that, that project could be downsized? In other words, does it make sense to make half as much ammonia given that you've already invested in equipment that you may be able to use, and then what that may do is limit the inflationary factors in building a facility. Is that a possibility? . Eduardo Menezes: Yes. We look at all that. It's a little more complicated than that. This plant, I would say there is like 3 different process units. You have the air separation plants, you have the hydrogen generation units and you have the ammonia plants, the ammonia trains, and we do not have exactly 2 trains for each process area. We have one of the process areas that we have 3 trains, which makes it very difficult for us to only execute half of the project. So I would say that this would increase the cost significantly because we would need to build a plant larger than the 50% and would make the economics even more challenging than it is to build the entire facility. Jeffrey Zekauskas: Okay. And then secondly, year-over-year, your average prices were down 1%. If we excluded helium, what would your prices have been? Would they have been up 1%, 2% for the company as a whole? Melissa Schaeffer: Yes, sure. Thanks, Jeff. I'll take that question. So from a non-Helium merchant perspective, pricing actually would have been up about 2%. Half of that we would have seen in the Americas and half of that in Europe. Asia and from a non-Helium perspective, was largely flat. Operator: We'll go next to John Roberts with Mizuho. John Roberts: I'm here for the Yara discussions. Are you and Yara basically on the same page with respect to the risk around CBAM, so that it's not a key issue to getting closure on your discussions or is that a key thing that we need to continue to watch here? . Eduardo Menezes: I think I mentioned that before, the CBAM is not part of our agreement. Our agreement is a U.S. agreement for hydrogen and nitrogen, so it's more a question for Yara. But I think we -- I mentioned that in the last question, the crisis now is making clear to everyone that the big advantage that you have is to be connected to the U.S. natural gas supply, and I think this is much bigger than the CBAM discussion. But I believe from everything I heard from Yara that they understand what the possibilities are in terms of CBAM and that's not part of our discussions with them. John Roberts: Okay. And then secondly, do you have any material customers in Asia that are down because of raw material supply constraints, either refineries or chemical plants that are taking downtime because they can't get feedstock. . Eduardo Menezes: No, not really. We -- our biggest supply for these sectors are in China. And I would say that China is basically replacing a lot of LNG with the coal facilities that they have. And in fact, we have seen a significant increase in oxygen volumes for this type of plants in China. Operator: Well, next to David Begleiter with Deutsche Bank. David Begleiter: Eduardo, on Darrow, mentioned a high bar for that project. So is the base case still it does not move forward? And if it does not, do you have projects that you could pivot to in short order with that capital? That's my first question. Eduardo Menezes: We... Melissa Schaeffer: Yes. So maybe I could take that one, absolutely. So from a Darrow perspective, I think Eduardo has said before that it is, in fact, our base case that we would not move forward. But we need to review the economics as we get the bids in from the construction party that we're talking to. And then we'll make an economic decision on if we move forward from that. From a capital perspective, we just announced the Samsung project. That is one that we see a significant area of growth in electronics that could quickly replace that capital that we were going to spend on Darrow, and we continue to be very bullish on the electronic space over the next couple of years through the hyper cycle. So again, we have a base case of Darrow of not moving forward at this point in time, but we're reviewing the economics. And again, we are very bullish on other growth opportunities if Darrow does not move. Eduardo Menezes: Yes. And I just want to make a point here. When I say base case that for Darrow to move forward, we need to reach an agreement. So until you reach an agreement, the base case is that do not -- you don't have an agreement today. But we're working on that, and we'll see what the result will be in the next 3 months. But today, we do not have an agreement yet to move that project forward, as you know. . David Begleiter: And just on the Americas margins, they were, I think, lower than 3 years. You mentioned power cost turnaround expenses. Would you expect margins to recover nicely in Q3 versus Q2 given those headwinds? Melissa Schaeffer: Yes. So when you think about margins in the Americas, one thing you obviously need to consider is the energy cost pass-through, which obviously affects margins, right? So we've seen very strong contributions in our HyCo assets, which has an impact from an energy cost pass-through. But we do expect once the energy cost to subside, then yes, our margins would continue to improve. We are continuing to see strong productivity there, which obviously will also contribute to a healthy margin moving forward. Operator: We'll take our next question from Duffy Fisher with Goldman Sachs. Patrick Fischer: Just a question on the coal gasification plants in China. So one, in the quarter, how much was the benefit from the reduced D&A for moving it out of the segment? And then two, I think you've talked about those being collectively net breakeven on an income basis since they're extensively coal to oil or synthetic oil at the end of the day. I would imagine they're much more profitable now and they're probably paying you the regulated percent where I think before you were saying that they were shorting you on paying. So can you just talk about how the economics of those plans have changed within your P&L? And does that continue to get better from here as long as oil stays above $100? Melissa Schaeffer: Yes. Duffy, thanks for the question. And so yes, we have put 2 of our coal gasification assets held for sale in China. The impact to the quarter is a little bit of twofold. So let's say, around 1%, 1.5% as far as the cancellation or the stop of the depreciation. And then you're absolutely right. Coal and methanol, it has improved from an economic perspective. So we are collecting on past dues that we did not have in our previous results because we are being prudent and fully reserving those items. And that collection is really about a 1% to 1.5% tailwind for us as well. But we are actively pursuing the sale of those assets, and we will continue to do so. Patrick Fischer: Great. And then, Eduardo, if you could maybe just pontificate a little bit. When do you think under 2 scenarios that your helium pricing stops being negative? One, if there's a fairly quick resolution with Qatar and two, if this stays semi-permanent what do you think happens with your helium pricing? Basically, when do we see the inflection that helium stops being a negative on price? . Eduardo Menezes: Yes. We were expecting helium to bottom by the end of this year. We still expect that to be the case. You need to remember that it's all a function of what we are comparing with, right? So we started from a very high price level. And we're working on signing these long-term agreements. Our agreements are on average, between 3 and 5 years. But more recently, we have been signing agreements even longer than that as people get more concerned with reliability of supply, right? So the system that we have with the cavern that we can bring product to the cavern, store as a gas and then take the gas as liquid and bring to one of our facilities to liquefy. It's very reliable, but it has a cost, right? So you just think about the just in inventory. We have hundreds of billions of dollars in helium in our cap. So this system has a cost. It is much harder to get value for that cost when the market is long. The conversations are much -- it's not easy, but it's a little less difficult to get these long-term agreements right now, and that's what we are focusing on. Operator: We'll go next to Chris Parkinson with Wolfe Research. Christopher Parkinson: Melissa or Eduardo, just the way your second half guidance kind of just works out, it implies a fairly low single-digit growth rate in terms of EPS for the fourth quarter. Is that -- is there something else going on there? Is there something we should be monitoring in terms of turnarounds, hydrogen demand, you already went over helium, baseline merchant pricing. I just -- or is that just, hey, we want to see how the year turns out -- the fiscal year turns out just based on the degree of uncertainty out of the Middle East? Melissa Schaeffer: Chris, thanks for the question. So we have raised our guide, increased about 10% or $0.10 from the mid, right? And so if you think about the strong first half that we had, if we build on that, first, we look at market volumes, right? We do expect some continued market volume improvements largely in the Americas, like we saw in the first half. We also have new asset contributions that we look to continue to increase, both in the Asia and Americas that will see some contributions continue to increase in the second half. However, we do remain uncertain about the macroeconomic environment, especially in Asia and Europe. Additionally, we're closely monitoring our customer supply chain conditions with impact on the Strait of Hormuz. And finally, we do have a turnaround that we moved from Q2. We're expecting in Q2 that will move and spread between Q3 and Q4 so that will have a bit of a headwind for us as well. So we do have some green shoots in the Americas from a volume perspective, new asset contributions, but we do want to make sure that we're monitoring closely on the macroeconomic environment in Asia and Europe as well as, again, additional turnarounds. Christopher Parkinson: Got it. And just as a quick follow-up, in the Samsung release from yesterday, you used the phrase, the greatest investment -- the largest investment in the semiconductor industry, I believe to date or something along those lines. Is that -- just to confirm definition here, considering you, I believe, did $900 million to build some in TSMC, does that imply that the multi-stages for Samsung would be in excess of that amount. Is there any more framework you could perhaps add? And also, just a quick kind of side note, is this something you expect to be more consistent in terms of bidding activity over the next 12 months or so? Eduardo Menezes: Yes. I think the message is exactly how you described. It is the largest investment we ever made in the electronics side, and we're not going to disclose the number, but the reference that you made through a previous project is correct. So that's all I can say about that. This is probably the largest site for electronics in the world today. Air Products was the first supplier for that site on the Phase 1 and the phases are getting larger in terms of industrial gas consumption. So this is the fifth phase of the site and the volumes we're going to supply under this agreement when it's completely built is approximately 3x larger than what we did in Phase 1. So that gives you an idea. So it's a very significant project for us. We are very proud to have reached this point with Samsung. And -- but it's just a start of probably a 4-year construction that we have to do in the multiple phase projects like that things. And on your other question about -- I'm sorry, the other question about the -- what we expect in terms of bid activity. As we said, there is a -- I've seen numbers in excess of $0.5 trillion of CapEx being spent by semiconductor and memory manufacturers. And of course, there is a lot of projects in industrial gases. They are growing in volume, and we're working hard to get our fair share of that. Operator: We'll go next to Vincent Andrews with Morgan Stanley. . Vincent Andrews: Just looking at Slide 17, corporate and other the operating income hit was a lot less year-over-year and sequentially. You called out lower changes to sale of equipment project estimates. Can you just give a little detail on that? And then also help us understand whether this is a good run rate for the rest of the year? Or is there just some lumpiness? And maybe the back half will be a little bit higher in the run rate will sort of mean revert higher. That's my first question. Melissa Schaeffer: Yes. Thanks, Vincent. So speaking to our Corporate and Other segment, it is a bit of a mixed bag. But you are correct that the vast majority of the improvement was the prior year cost increase that we saw on a sale of equipment project, again, which is a percentage of completion projects, so increased costs go to the bottom line. So it was a bit of a function of a prior year aspect. However, we do continue to have strong productivity in our Corporate and Other segment as well. So we will continue to see that flow through from a year-on-year perspective as we continue to reduce head count and rightsize the organization. Vincent Andrews: Okay. Maybe you could just give us a little sense of what that number should look like in the back half. And then I'd also ask, on the tax rate, it came in a bit lower than we thought for the quarter. It was down about 1 point year-over-year and about 0.5 point sequentially. So is this 18-ish percent, is that what we should be using for the back half? Melissa Schaeffer: So yes, thanks for the follow-up there. So from an ongoing perspective, I think that the run rate that we had this quarter should be consistent with what we see in corporate for the rest of the year as we should not have any more sale of equipment headwinds. So that comp will continue to flow through for the rest of the year. From a tax rate perspective, yes, 18 is the number that we should be forecasting against. We did have some U.S. investment tax credits and increased estimates for a Dutch investment incentive that reduced our ETR for this quarter, but we should see that flow through the rest of the year. Operator: We'll go next to James Hopper with Bernstein. James Hooper: First question. Can you talk about -- a little bit about the pricing dynamics for the non-helium gases through the rest of the year? Obviously, you mentioned that plus 2 from Europe and Americas. But will the kind of come in inflation mean that your Asian pricing assumptions has changed also? Eduardo Menezes: I'm sorry, I didn't get the last part. What assumptions do... Melissa Schaeffer: For Asia. Eduardo Menezes: The Asia, yes. Asia is a little different. I think the dynamics there is China is a hypercompetitive market. I think every Western company will tell you that the PPI, CPI is negative for the last several years, and it's a really difficult file to keep your prices stable in China. Outside of that, I would say, in Europe and the U.S., we consider the pass-through a separate issue. I would say that in pricing, we continue to make progress. And our goal is always to be able to pass inflation to that we experienced in our business to prices. So I expect that to continue to be the case in the near future. And with helium, of course, subsiding the effects year-over-year, as I said, by the end of the year, we hope that the helium headwind in pricing will be done as well. James Hooper: And then just in terms of the follow-up, Slide 6. Can you -- I thought it was very useful. Can you just give us a few indications of where you expect the biggest kind of shifts in your end markets to come from the second half versus the first half? For example, in chemicals. Are you seeing any European volume improvements based on some of the kind of Asian supply outages? . Eduardo Menezes: Yes. In Europe, as you know, they benefit in terms of pricing from the absence of the Middle East supply in the market. But on the other hand, they are suffering from cost inflation on oil and natural gas. So it's a difficult dynamic. I don't think the European industry is structurally changing the issues that they have, the chemical industry. I think they will be back when the conflict is over. But I think in this window now, we are basically seeing things a little stable, but Air Products is not a very large supply of the chemical industry in Europe. So you probably can find -- get better answers from other companies on that. I would say the segments in general, as I said, electronics is a big bright spot for us. We are working to capture that. Same thing with aerospace energy in U.S. because of our connection in the pipeline system in the Gulf Coast with refineries, this is running at record levels at this point. So our hydrogen volume never been so high as it is right now. So that's going okay. And the auto segments like food and medical, they are very stable, and they are less cyclical than other segments here. Operator: We'll take our next question from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Can you speak to your degrees of freedom on the supply side of the helium market? I appreciate you have large inventory buffer and you're taking steps to maintain highly reliable supply. But in the scenario where we have a prolonged conflict, what are you doing differently? How much might you be able to increase sourcing arrangements and liquefaction? Maybe you could just kind of frame out how you're operating today versus 2 or 3 months ago. Eduardo Menezes: Yes. I would say, Kevin, most of our flexibility comes from the position that historically we have in Kansas in area that we are on, we were connected with the BLM. We're still connected, but we get very low volumes there. We have some other private volumes that we are able to liquefy in our plan, but we have access liquefaction capacity. And our project with the cavern was connected to that. So the constraint that we have is really the ability to move the products from Texas to Kansas and then the second constraint would be the liquefaction capacity that we have over there. So we are working to maximize both points to eliminate these constraints. It is not an easy supply chain because you have to -- from East Texas to Kansas, like 900 miles one way. but we are working on that to maximize that. But we can probably cover one of our sources being down. As you know, in Qatar, we are connected to, which is a different source. It's not the LNG source is the local natural gas grid there. So we are able to replace that, but not much more than that. So I would say that the design was for -- to cover our customers. And if this thing gets prolonged for a long time, it will be a tough time for the market. But I would say that at the end, the customers that need the product the most, I think the market will find a way to keep them supplied. That's my guess at this point, but I can only talk about products in our supply. Kevin McCarthy: Very helpful. If I may ask a second question. Can you speak to what you're baking into your financial guidance for volume growth in the back half of the year? I think your 4% number in the fiscal second quarter was the best in 3 years. And it seems as though some of the impetus behind that is to do with the energy market changes, right? Refinery hydrogen and maybe some gasification as well. But I think PMIs have been broadening and improving. So how are you approaching the back half in terms of call it, nonenergy-related demand trajectory? Eduardo Menezes: Yes, Kevin, we had a lot of debate on that on how to set our guidance. And as you imagine, it's not an easy situation, right? We -- the conflict -- we are in the middle of this conflict. What we have now is a ceasefire, right? So no one can tell you what the situation will be 1 month from now, 2 months from now, what the oil prices will be, what will happen in the LNG market, what will be the energy prices in Europe and so forth. So in the absence of clarity on this point, what we did was basically, we adjusted the guidance based on the beat that we have in the second quarter. And at this point, it would be premature for us to change what we forecast before for the second half of the year. I hope that will be better. But again, anything can happen, right? We didn't expect this conflict to happen. I don't think anyone did. And when the impact we've seen in helium, for example, was not one of the scenarios we expected. We had a scenario of one of the Qatar plants being down for technical reasons. That always happen, but we never had a scenario that 3 plants will be down at the same time because this trade is closed or because one of these facilities impacted by the war. We understand that one of these facilities trying to bring it back to production. The one that we have connected is supposed to come back in a year -- in the next few months. Of course, there is the issue of how we move that product considering the logistic issues that you have right now, but there is a lot of uncertainty in the market. And based on this uncertainty, we decided that the prudent thing to do was to keep our second half of the year guidance that we had before. Operator: We'll go next to Patrick Cunningham with Citi. Patrick Cunningham: Just on Helium, just additional follow-ups there. If the supply disruption persists, would you need to put customers on allocation? How long does it take alternative supply sources to get qualified with some of the larger semiconductor customers? . Eduardo Menezes: Again, we -- from the products perspective, we have the inventory, and we're working to replace the volumes that we were taking from Qatar. In fact, the plant that supplies in Qatar was down since December. So we were not taking product from Qatar since December. So it didn't change the conflict didn't change that much. The situation that we have, and we have enough product to supply our customers, and that will be our position going forward. Patrick Cunningham: Understood. And could you provide an update on the Alberta project in terms of offtakes timing and any update to costs? Eduardo Menezes: There are no updates on the project. We continue to find a way to improve the conditions. There is some -- on the regulatory side, there is things that are moving in Canada. We're trying to understand exactly what the final regulation will be and the impact that we have in the project, and we have been working with the government of Canada and the government of Alberta to try to improve the conditions the best we can for this project. Operator: We'll go next to Josh Spector with UBS. . Joshua Spector: I was wondering if you could give us a size of what your backlog is now for profit contributing projects, considering you've signed a few more versus where you were at 6 months ago. Can you help us think about what comes online over the next few years or just a total number for us to be thinking about? Melissa Schaeffer: So we look at our backlog in a pretty consistent way, right? So this is things that are contributing, have been approved by the Board, but one thing, obviously, we have talked about is the NEOM project that has been variability in the impact of that as we lead up to the 2030 when CBAM and RFNBO is fully in ramp. But right now, again, the backlog is $9 billion. I do feel positive about the growth in the electronic space that we'll see continued contributions and winning our fair share of projects in that space. And we've given the 5-year forecast. Previously that shows our mid- to high single-digit growth from an EPS perspective, both from contributions on the base and market growth as well as new assets coming on stream. And as I've mentioned previously, we have 2 new assets that will be contributing to the back half of this year, and we see that continuing as far as contributions similar throughout the rest of the next 5 years. Joshua Spector: Okay. Appreciate that. And maybe I should have qualified and said, excluding NEOM, Darrow and all the projects that you guys have highlighted is nonprofit contributing. What does that trim that $9 billion down to? Melissa Schaeffer: So we have a little over 2.5 in our, what we would call our traditional industrial gas backlog. A significant portion of that is in the electronics space. . Operator: We'll go next to Mike Sison with Wells Fargo. Michael Sison: There's a relatively sizable IPO coming at the summer in space. Just curious if you could give us your thoughts on your business in that sector, how big is it and where are you positioned? Eduardo Menezes: Yes. It's a segment that is growing very fast, as you know, from the news, it's the situation basically changes every week or every day with the commercial launches. Air Products has a very traditional business in aerospace. We work with NASA since the 60s, and we are a large supplier of hydrogen, liquid hydrogen, liquid helium to the traditional space program, and we are working now to increase our share with the commercial launches. You see forecasts that are -- go from extremely high to out of this world volumes in the segment and I think like everyone else, we need to see how this will develop and if they're going to really get to the point that they will launch a rocket every day. So we are trying to make some investments on the areas to try to grow our participation in the traditional separation gases for the segment, but I cannot give you more specific information on that at this point. Operator: And at this time, there are no further questions. Eduardo Menezes: Thank you. So I would like to thank everyone for joining our call today. We appreciate your interest in Air Products, and we look forward to discussing our results with you again next quarter. Have a safe day. Thank you. Bye-bye. Operator: This does conclude today's conference. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to the SiriusXM's First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jennifer DiGrazia, Senior Vice President of Investor Relations. Thank you, Jennifer. You may begin. Jennifer Digrazia: Thank you, and good morning, everyone. Welcome to SiriusXM's First Quarter 2026 Earnings Call. Today's discussion will include prepared remarks from Jennifer Witz, our Chief Executive Officer; and Zach Coughlin, our Chief Financial Officer. Following their comments, we will open the call for questions. Joining us for the Q&A portion are Scott Greenstein, our President and Chief Content Officer; Wayne Thorsen, our Chief Operating Officer; and Scott Walker, our Chief Advertising Revenue Officer. . I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I'd like to remind our listeners that today's call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation. Additionally, please find a supplemental earnings presentation and trending schedule on our Investor Relations website for your convenience. With that, I'll turn the call over to Jennifer. Jennifer Witz: Good morning, everyone, and thank you for joining us today. We are off to a strong start in 2026, executing with focus and discipline against our 3 strategic priorities we outlined in December 2024, strengthening our subscription business by delivering exceptional in-car listening experiences, accelerating growth across our advertising business and leveraging our scaled SiriusXM portfolio to drive efficiency and long-term value. In the first quarter, we made meaningful progress across each of these areas, supported by solid performance in our core business and strong operational execution. On the subscriber side, we delivered significant year-over-year improvement in net additions, grew ARPU and achieved the lowest first quarter churn and highest subscriber satisfaction scores in our history. Through our recently announced landmark partnership with YouTube, we will significantly enhance our advertising capacity, and we continue to expand margins through our enhanced focus on efficiency, capturing $45 million toward our $100 million 2026 cost savings target. Before turning the call over to Zach for a more detailed review of our financials, I would like to offer a few observations. Starting with our subscription business, performance in the quarter was strong with a meaningful year-over-year improvement in self-pay net additions to negative 111,000, an improvement of 192,000. This reflects the growing adoption of companion subscriptions among our most loyal customers, ongoing progress with our continuous service initiative and momentum in our automotive dealer extended duration plans. Together, these offerings expand SiriusXM's presence across multiple vehicles and users within a household and make it easier for subscribers to seamlessly maintain service as they transition between vehicles, deepening engagement and reinforcing long-term loyalty. While we remain mindful of a more measured auto sales environment and its potential impact on trial volumes, our resilient in-car foundation and focus on controllable levers continue to support performance. Churn remained a standout, improving to 1.5% despite our February price increase, which contributed to a 1% year-over-year increase in ARPU to $14.99. The combination of pricing discipline supported by continually adding value to our packages and the ongoing impact of our customer experience initiatives underscores the durability of our subscription model. Our strong retention is also supported by high customer satisfaction levels. Our latest studies showed year-over-year improvement across all 5 core metrics: satisfaction, perceived value, likelihood to continue, likelihood to recommend and the essentialness of our service. Notably, both loyalty and perception metrics rose in tandem, an important signal of not only current satisfaction, but also growing confidence in the long-term value of our offering. We are also seeing traction across key demographics with the majority of the increase in satisfaction being driven by Gen X and Y. Gen X delivered strong gains, particularly in perceived value, intent to continue and essentialness, while millennials showed meaningful improvement in satisfaction and value, highlighting both the progress we are making and the opportunity that remains. Content is a defining strength of SiriusXM and a key driver of perceived value and engagement. We continue to expand and evolve our programming in ways that fuel fandom and deepen engagement across music, sports, comedy and culture. In the first quarter, we introduced exclusive full-time artist-led channels from Global Stars, Morgan Wallen and John Summit, alongside pop-up channels from BTS, Luke Combs and Robin as well as distinctive programming such as John Mayer Grateful Dead listening Party. We deepened our partnership with Metallica with the launch of the live call-in show, Tallica Talk, expanded Alt2K to our full subscriber base following 8 consecutive quarters of audience growth and broadened our comedy offering with a dedicated 24/7 channel featuring Sebastian Maniscalco. Our news and top category is also gaining momentum with consumption up 15% sequentially. This reflects continued investment in both independent and exclusive voices from the launch of Como Mornings to the strong performance of the Megan Kelly channel, where listening has grown 28% since its launch in November. We are also creating distinctive high-impact moments for listeners from intimate performances to major cultural events, featuring artists like Noah Kahan during Super Bowl Week, Kenny Chesney at Flora-Bama, Morgan Wallen in Nashville and a recent SmartLess taping in Hollywood. In sports, our offering is unmatched, spanning every major league and premier event from the NFL, MLB, NBA and NHL to college athletics, auto racing, golf and more, making SiriusXM a true year-round destination for fans. Our college sports offering continues to build momentum as a core part of our bundle with listening hours for March Madness and the College Football Championship up 22% and 37% year-over-year, respectively. At the same time, our hardware and software evolution continues to enhance the listener experience. As 360L expands across nearly all major OEM lineups, we're driving sustained growth in 360L-enabled subscriptions and increasing adoption of more personalized nonlinear listening. This is fueling double-digit growth in both usage and time spent with features like extra channels and artist-seated stations, deepening engagement. Turning to our advertising business. Momentum is accelerating. Advertising revenue grew 3% to nearly $407 million in the quarter, driven by a 37% increase in podcasting ad revenue. This reflects strong traction in video and social through our Creator Connect strategy as well as accelerating programmatic demand, where revenue more than doubled year-over-year through Google TV 360. Our partnership with YouTube marks a significant step forward. As the exclusive U.S. advertising representative for YouTube's audio inventory, we are expanding our reach to 255 million monthly listeners, nearly 90% of the U.S. population aged 13 and older. For the first time, we will offer advertisers scaled access to premium audio across a wide range of content from iconic franchises like SNL to leading creators like Mr. Beast as well as podcasts beyond our own network and streaming music. Beginning this fall, advertisers will benefit from expanded high-quality inventory paired with advanced targeting and measurement capabilities. By combining SiriusXM Media's leadership in audio advertising with YouTube's scale and always-on engagement, we are delivering high attention inventory through a more seamless buying experience while advancing a more open connected ecosystem for advertisers. In podcasting, we remain the #1 podcast network in the U.S. by weekly reach. As a launch partner for Apple's new video podcasting experience, we are helping shape the next evolution of the medium by unlocking dynamic video ad insertion and expanding access to a significantly larger advertising market. This uniquely positions us to power monetization across audio formats with greater flexibility and optionality for both creators and advertisers. These efforts reflect our commitment to an open podcast ecosystem that enables creators to grow across platforms. Across the portfolio, we are leveraging our scale, data and technology to unlock new growth opportunities and deliver stronger outcomes for advertisers. At the same time, we remain focused on building a high-performing, future-ready organization. We recently welcomed Yves Constant as Chief Legal Officer, bringing deep expertise across media, technology and content and further strengthening our operating discipline in support of our strategic priorities. Our progress is also being recognized externally. We were named by Forbes as one of the best brands for social impact and by Newsweek as one of America's greatest workplaces for culture, belonging and community as well as for women. Turning to our outlook. Our disciplined approach gives us confidence in delivering on our 2026 full year guidance, relatively flat revenue and stable adjusted EBITDA. While subscriber trends are expected to be modestly lower year-over-year, our focus remains on strong execution and driving continued free cash flow growth. Importantly, the fundamentals of our business remain strong. We have a durable subscription model, predictable and growing cash generation and a unique combination of assets, including premium content, unmatched in-car distribution, scaled audience reach and leading ad technology. We believe these strengths position SiriusXM well for the future, and we remain committed to disciplined execution, thoughtful investment and delivering sustainable long-term value for our shareholders. With that, I'll turn it over to Zach for more detail on the financial results. Zachary Coughlin: Thanks, Jennifer, and thank you, everyone, for joining us today. We delivered a solid start to the year with 3 key financial takeaways. First, we delivered revenue of $2.09 billion, up 1% year-over-year, supported by the strength of our subscriber base and continued momentum in advertising, where revenue increased 3%. Second, our disciplined cost management and a continued focus on efficiency drove approximately 6% growth in adjusted EBITDA to $666 million. And third, the strength and stability of our earnings and cash flow continues to create significant shareholder value with net income up 20% and free cash flow more than tripling year-over-year to $171 million. Together, these results underscore the steady progress we are making against our long-term strategic initiatives to enhance profitability and drive free cash flow generation. Looking first at the top line, consolidated revenue was nearly $2.1 billion, including $1.6 billion of subscription revenue, also up approximately 1% year-over-year. This growth reflects the early benefit of our recent February price increase as well as the full year impact from the 2025 rate adjustment, partially offset by a smaller average subscriber base. Advertising revenue increased 3% to $407 million as strength in podcasting, higher programmatic demand and technology fees more than offset softer demand in streaming music advertising. Turning to profitability. Adjusted EBITDA grew 6% year-over-year to $666 million, with margins expanding 140 basis points to 31.9% -- this improvement was primarily driven by revenue growth, complemented by disciplined expense management across our customer service, product and technology and personnel-related costs. Importantly, we captured $45 million towards our goal of delivering an incremental $100 million in gross cost savings this year, which includes $27 million in operating expense run rate savings and $18 million in CapEx savings. As a result, we generated strong bottom line performance with net income improving 20% to $245 million and earnings per diluted share growing 22% to $0.72. Free cash flow was $171 million, more than tripling year-over-year, primarily driven by higher adjusted EBITDA and lower capital expenditures. Turning to the segments. SiriusXM generated $1.6 billion in first quarter revenue, with subscriber revenue up 1% to $1.5 billion, supported by ARPU increasing 1% to $14.99. This reflects the benefit of recent pricing actions, including the February adjustment and the carryover benefit from the March 2025 change. SiriusXM advertising revenue declined 10% to $35 million, primarily due to softness in news, while equipment and other revenue at $41 million and $31 million, respectively, were relatively flat year-over-year. Gross profit increased 3% to $966 million, with margin expanding to 61%. While a softer auto environment, particularly following last year's tariff-driven pull forward in vehicle sales, created headwinds for trial starts, new acquisition programs and retention are supporting healthier subscriber trends. Self-pay net additions were negative 111,000, a 192,000 increase versus the prior year period. This was driven in part by growing adoption of companion subscriptions, which contributed 124,000 incremental self-pay net additions in the quarter. As a reminder, the companion offering is targeted to our most loyal subscribers and engagement has remained strong with continued marketing support and early indicators showing improved retention among those taking advantage of this benefit. This performance was further supported by continued progress in our continuous service initiative as well as momentum in automotive dealer extended duration plans, more than offsetting lower conversion rates. The stability of our subscriber base remains a core strength, reflected in first quarter self-pay churn of approximately 1.5%, the lowest first quarter level in our history. Notably, churn remained resilient despite recent pricing actions as we continue to evolve our packaging and pricing structure to better meet demand across different customer segments. With more than half of our subscribers having been with us for over a decade, we believe this performance underscores the strength of our enhanced value proposition and sustained customer satisfaction. Moving now to the Pandora and off-platform segment. Revenue increased 3% to $501 million. Advertising revenue grew 5% year-over-year to $372 million, driven by a 37% increase in podcasting revenue and higher programmatic demand and technology fees, partially offset by lower advertising demand for streaming music. We continue to expect modest growth in advertising for the full year 2026. Subscription revenue declined 2% to $129 million due to a smaller subscriber base. Segment gross profit for the quarter was $139 million with a margin of approximately 28%, representing a slight decline from 29% in the prior year period. As part of our ongoing efforts to simplify the business and sharpen our focus on higher return initiatives, we recorded a $6 million charge in the first quarter associated with restructuring and severance costs, which compares to $48 million in the prior year period. I'd also like to provide some context on the higher depreciation this quarter. As part of our ongoing portfolio optimization, we have begun decommissioning and planning the de-orbit of our FM6 satellite, reducing its useful life from 15 to 13 years. With XXM10 now in service, this capacity is no longer needed. We expect approximately $60 million of incremental noncash depreciation in 2026, including $3 million in the first quarter. This has no impact on free cash flow, but will reduce reported net income and EPS. Capital expenditures were $105 million in the first quarter, down from $189 million in the prior year period, primarily reflecting lower satellite spend and the timing of capitalized software and hardware investments. We continue to expect approximately $400 million to $415 million in non-satellite CapEx for the full year. Over time, total CapEx should trend lower with variability driven by the satellite replacement cycle. Near term, spending remains elevated as we complete our next generation of satellites, after which we expect a step down to more normalized levels. Now moving to the balance sheet. During the quarter, we completed a successful $1.25 billion refinancing, allowing us to retire all 2026 notes and redeem $250 million of 2027 notes, effectively extending maturities and strengthening our overall capital structure. And we remain on track to achieve our target leverage range of low to mid-3x by the end of this year. We also continue to return capital to shareholders, including $91 million in dividends and $21 million in share repurchase, driving efficiencies, optimizing the portfolio and prioritizing high-return investments. This positions us to reaffirm our 2026 outlook for relatively stable revenue and adjusted EBITDA modestly lower self-pay net additions versus 2025 and continued growth in free cash flow to approximately $1.35 billion with a path to $1.5 billion in 2027. The durability of our subscription model and the consistency of our cash generation continue to provide a strong foundation as we navigate the current environment and remain focused on long-term value creation. With that, I will turn the call back over to Jennifer to address recent headlines in the media. Jennifer Witz: Before we open the line for Q&A, I want to briefly address recent media speculation regarding SiriusXM. As a matter of policy, we do not comment on rumors, and we ask that you keep today's questions focused on our operating and financial performance. Our Board and management team are always focused on creating long-term value for our shareholders, and we'll continue to pursue that objective in a thoughtful and disciplined way. With that, I will turn the call back to Jen so that we can begin our Q&A session. Jennifer Digrazia: Thank you, Jennifer. Operator, we are ready to take our first question. Operator: [Operator Instructions] And our first question comes from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Jennifer, maybe on spectrum, it's become very much top of mind over the last few weeks. I would be curious just to get your latest thoughts around the opportunity that you see for SiriusXM to monetize some of its excess spectrum, perhaps the types of opportunities you're considering, whether that's building adjacent services, partnering with someone or an outright sale? And then how soon do you feel like these opportunities could come into focus here for the company? Jennifer Witz: Sure. Thanks, Stephen. Before we jump into Spectrum, I just want to acknowledge all that our team has accomplished since we refocused our strategy in December 2024. We are doing exactly what we said we would do. And as a result, we're seeing momentum really across the business. We continue to launch new in-car subscriber acquisition programs and maintain record low churn and high customer satisfaction. We are growing our ad revenue and leveraging our unique strength to support a significant new partnership with YouTube, which we'll talk more about today. And we're finding incremental efficiencies to lower our cost structure, resulting in an improving outlook for both revenue and EBITDA. And we're growing free cash flow to our target of $1.5 billion in 2027, reaching our leverage target later this year and giving us the opportunity to expand capital returns to shareholders. And then on top of all this, there's what you're asking about, which is how we're exploring ways to highlight the value of our spectrum. So I'm going to start on that, and then I'm going to hand it over to Wayne to give a bit more detail. But clearly, recent activity in the market has supported the point that high-quality spectrum is increasingly strategic and particularly as these new use cases have emerged like direct-to-device. So from our perspective, just as a reminder, we have a very unique position. We control 35 megahertz of contiguous spectrum in the 2 gigahertz band, which is a scarce and valuable asset. And of course, 25 megahertz of that today supports our core satellite radio broadcast operations. And we also recently acquired the 10 megahertz of WCS C&D block licenses, which are the 2 5 megahertz bands around the Starz band. These already support emergency and public safety services, but also obviously act as a guard band against potential interference from adjacent terrestrial use alongside Starz. So we have been regularly assessing monetization opportunities in our normal course of business. And as we have said in the past, we are in discussions with potential partners regarding various options because we see a path to value creation as starting with incremental partnership-driven opportunities, and that's going to allow us to capture some value while we maintain flexibility and upside over time. So maybe I'll turn it over to Wayne to give a few more details. Wayne Thorsen: Yes. And just to add to that, importantly, we do see the path to value creation being partnership focused as well as evaluating things internally, which we've said in the past, and our position there remains consistent. We've also said previously that we're engaged in discussions around potential opportunities with partners, and we continue to evaluate those as part of our broader effort to maximize the value of these spectrum assets. That said, we're not going to comment on specifics of any discussion as is our policy. What I would emphasize, though, is that we view spectrum as a strategic asset with meaningful long-term potential. And our priority here is ensuring that any potential use, whether internal or with third parties, fully protects our core services while creating the opportunity to generate incremental value over time. That includes support for, of course, our public safety initiatives, any new partnerships discussions, the in-house services that we may make use of given our dramatically increasing footprint of our wideband chipset and then, of course, making sure that we meet all of our regulatory commitments. Operator: Our next questions are from the line of Jessica Reif Ehrlich with Bank of America. Jessica Reif Cohen: I have 2 questions. The second one is a bit of a multiparter, so I'll start with the first. As media -- and I mean like video and audio continues to consolidate around scaled platforms, how do you think about the importance of incremental audience and advertiser reach, particularly across podcasting, streaming, national versus local ad sales relative to your current portfolio? And if you do conclude that there are assets or capabilities that could accelerate your strategy, how should we think about your willingness to use your balance sheet for more flexibility versus staying firmly within your current leverage framework? That's one, and I'll come back to the second. Jennifer Witz: Okay. I'll let Zach handle leverage in a minute. But first of all, I'm very pleased to have Scott Walker, our Chief Ad Revenue Officer and the Chief Architect of our partnership with YouTube on the call today. So I'm going to turn it over to him in a minute. But I think YouTube is so core to what you're asking about. So scale for us is 255 million listeners, which is access to 90% of the U.S. population, 13 and older. So we are very focused on this as our opportunity to expand scale. And a good way, I think if I just take a step back, to understand this partnership is to first focus on the consumer behaviors that you alluded to about video and audio and how these behaviors aren't necessarily fitting into these neat format boxes we've used as an industry, right? So consumers are moving more fluidly between formats. They're watching and listening as they go about their days. And for instance, they might start a video on their phone and then minimize the screen on their commute while they keep listening. So this behavior is happening at enormous scale on YouTube. And as a result, YouTube has become one of the largest audio consumption platforms in the U.S. So there are numerous examples of this, whether it's listening to music on smart speakers or listening to a podcast or an interview while your phone is in your pocket. All of these are examples of content consumed the same way people use traditional audio platforms. And this partnership that we have with YouTube brings that massive amount of untapped audio-first engagement to advertisers for the first time. And that's alongside a native ad format that actually matches the listening experience. So again, combined with our existing portfolio across music streaming, podcasting and SiriusXM, we will now reach 255 million monthly listeners, which is massive scale. And this tremendous reach positions us not only to grow overall ad spend, audio ad spend, but also to capture a greater share of that audio ad spend over time. And maybe, Scott, you can give a couple of more comments, and then we'll go to the sort of broader leverage question. Scott Walker: Sure. Thank you, Jennifer. I want to touch on one of the things that Jennifer mentioned anytime you can match up the ad format and natively integrate it based on how consumers are actually experiencing the content, it's better for the user and better for the advertiser in terms of performance, and that's exactly what we're doing here with this partnership with YouTube. In the battle for finite attention that is increasingly scarce to your question, we've just unlocked this massive untapped opportunity based on the insights that Jennifer referred to earlier, that consumers are much more fluid in how they use YouTube, switching back and forth across listening and watching. And one of the reasons why we are so confident in this opportunity is that it's a true partnership with YouTube. We are co-developing proprietary technology in terms of integration with our scaled systems with Google's ad platform, ensuring that we can scale our go-to-market and deliver a product that we know meets the criteria of the world's most discerning and largest audio buyers. Zachary Coughlin: Okay. And then Jessica -- sorry, to your question, Jessica, around the balance sheet -- sorry about that. Our capital allocation framework remains consistent with what we've outlined previously. First, we're prioritizing investing in the business, funding those initiatives that support our key strategic priorities. And I think we saw in the first quarter, those investments are increasingly translating into tangible financial results, especially in profitability and free cash flow. Second, we remain committed to a disciplined balance sheet. Our target leverage in the mid- to low 3x range, which we've communicated previously. We ended the first quarter at 3.6x and feel confident in our path to reach that target by year-end. And from there, it's really focused on returning capital to shareholders. We have a consistent dividend that we intend to maintain, and we see share repurchases as an important lever from that. So while buybacks have been more modest recently, as we've been working on deleveraging, achieving that leverage target will create additional capacity, giving us flexibility to potentially increase repurchases. So I think -- and finally, we'll remain opportunistic around incremental value creation, areas like our spectrum assets, which we've talked about a moment ago, or places we see longer-term optionality to unlock additional value as well as selective inorganic opportunities that must meet our strategic and financial criteria. So I think we see -- overall, it's a balanced and disciplined approach, both investing in the business, strengthening the balance sheet and positioning ourselves to enhance shareholder returns as we execute against those leverage goals. Jessica Reif Cohen: If I could just -- my second question is actually more specific on YouTube. If you could just dive a little deeper into like how you see this evolving. Google owned TV 360, which you mentioned earlier, does that now become your main programmatic DSP? And actually, maybe you can unpack a little bit about what you're seeing in programmatic in general, how -- what percentage is, how fast it's growing. But the other part of YouTube is that it is a global platform. And you have so many channels that lend themselves to global audience. I know this hasn't come up in probably years, but would you rethink that strategy? Jennifer Witz: So Scott Walker, why don't you start on the advertising side? And then Scott Greenstein pick up the content side. Scott Walker: Sure. On the programmatic question specifically, we feel like we're strongly positioned with our proprietary ad technology platform, as was in terms of our ability to plug into all of the major DSPs in order to make that buying as flexible and easy as possible. And as it pertains to this YouTube partnership, specifically, initially, programmatic is not part of the partnership, but we see a massive opportunity to unlock advertiser demand based on this incremental reach that we speak to despite that. In terms of where programmatic is growing, it's certainly growing as a percentage of the overall spend in digital media. And that trend continues in our business as well. Programmatic is growing at a healthy rate. Our partnership with the Amazon DSP is an example of where we see incremental budgets being unlocked. And programmatic with respect to podcast is also growing. Jennifer mentioned triple-digit growth rate year-over-year in Q1, reaccelerating. Scott Greenstein: Great. And Jessica, on the international question, the podcasts are currently distributed where they make sense overseas on that side. And then as far as the content goes, we're open for any deal or any licensing situation. It just has to make sense. The good news is with the amount of content we have under license, a lot of it is worldwide and the relationships are there. So if ever it comes a point where whether it's through technology or a licensing deal, the relationships will be there, and it will be a pretty easy transition to open up negotiations to go further on that. And we also have the unique ability to create content for any market that might be adjacent to what we're doing. Jessica Reif Cohen: Million more questions, but I won't hog the call. . Operator: Our next question is coming from the line of Barton Crockett with Rosenblatt Securities. Barton Crockett: Okay. Great. Congratulations, again, on the YouTube deal. To kind of ask a little bit more about this deal there could be such a large kind of funnel of revenue flowing through. But I was wondering if you could give any sense of the degree to which the lion's share of that would be stay on Google's kind of side of the ledger and how much of that you guys might be able to extract for your efforts? How do you kind of think about the take rate essentially on the deal? Anything you can say about that? Jennifer Witz: I think -- look, there's -- right now, we're prepared to talk about the size of this, the magnitude of the scale and how we're going to increase our reach. And we expect to launch in the fall, as we've said. And I think we're going to ramp this up over time. I don't think it will have a meaningful impact on this year's numbers. But as we go into 2027, we'll have the opportunity clearly when we provide guidance to give you a better sense as to the magnitude. But we've given you some general numbers on the scale of it. And I think we will be watching, obviously, the magnitude of the incrementality of this audience reach relative to where we are today, which is very significant, obviously, with $1.8 billion in ad revenue across our properties. So that's what we're prepared to share today, but we do believe it's a significant opportunity for us, and we can share more on general economics as we get closer to the end of the year. Barton Crockett: Okay. All right. That's fair. And then I apologize if this has already been covered, but with all of the kind of activity around space with SpaceX and with Globalstar and Amazon and the recent kind of SEC weird space NPRM giving you guys some telemetry trafficking and control capability potential with your spectrum if that moves ahead. To what degree do you think there's potential for you guys to be meaningful players in the space ecosystem, leveraging some of your spectrum rights? And how could that kind of play out? Jennifer Witz: So look, I think you mentioned the weird space testing, so I'll just touch on that. We have had discussions with the FCC related to this. And from our perspective, this is a constructive step as it continues to formalize, clarify the rule of TT&C. And it's a legitimate important use of satellite spectrum. And so it recognizes that we have the right to be protected from interference and also helps direct how other parties could use the satellite spectrum productively. And look, there's going to be a lot of different ways that I think spectrum -- the use of spectrum evolves over time. And this is a good example of where multiple tenants could use the same spectrum in a very methodical way. And we -- that's one of the examples, I think, of the things that we could look at going forward to unlock more monetization opportunities. Wayne Thorsen: Yes. Thanks, Barton. This is Wayne. And I would add that we do see optionality here, as we've mentioned previously, but we see this optionality will be realized over time. So not through a single step, but along a multiyear glide path sort of shaped by what we think of as 3 factors. First, the subscriber and hardware ecosystem that we have. We have an installed base throughout the entire satellite radio band, including on the legacy Sirius band and more importantly, millions of vehicles on the road with embedded radios and OEM commitments tied to the spectrum. Second, the technology migration. So we're already developing next-generation chipsets and 360L hybrid radios that can use both Sirius and XM bands. And so this gives us increasing flexibility over time to make use of this. So today, we have millions of vehicles that are already enabled with this new chipset. We expect this to grow to more than 65 million by 2029. And then third, regulatory obligations. Like our licenses come with requirements to provide specific services that, of course, we will need to continue to meet. Operator: Our next question comes from the line of Bryan Kraft with Deutsche Bank. Bryan Kraft: I had a couple on advertising as well. I guess, first, could you talk about the capabilities that 360L has the potential -- sorry, the capabilities 360L has the potential to bring to your advertising business? And what plans you have to activate those capabilities? And also things like addressability, measurement, those sorts of opportunities? And could you give an update on the advertising supported tier and at this point, where you see that going? And then I just had a follow-up on YouTube. Google is obviously quite a large sophisticated player in digital advertising with scale and technology. Can you just talk about why a player like YouTube would view working with Sirius as better than doing it themselves? And if you could also talk about whether you see this partnership maybe leading to additional major partnerships in the future? Does it sort of open the door to more opportunities like this? Jennifer Witz: So I'll let Scott address the second part, and I'll talk a little bit about 360L and Play. With 360L, we do believe there's an opportunity for more addressability for audio advertising in the car. And we're expanding, obviously, the volume of vehicles on the road that have 360L -- we haven't yet unlocked real targeted ad capabilities inside 360L. We are looking to do that over the course of this year even potentially. But clearly, the focus now is on executing on YouTube and making sure that we can launch that as it's a much bigger scaled opportunity. And then on Play, I'd say it's similar. We are leveraging play as an opportunity to broaden the top of the funnel as with many other of our lower-priced packages, and it's been helping there to do that. The ads inside of it are -- today, the scale isn't as significant because, again, we're using it as a way to market and get customers into higher-priced packages. But in the future, as we unlock more addressability in the car, obviously, it would benefit Play as well. And Scott, do you want to handle YouTube? Scott Walker: Sure. When YouTube first came to us, the insight that they brought was that audio is a unique channel. And relative to other media channels, YouTube is very much considered a default video platform, and that was the focus for most of the advertisers. And the awareness that there was massive listening behavior happening on the platform was just not there. So the first point is that the recognition audio is a unique channel that requires a sales team that has honed a different approach or a different craft in terms of the relationships with the buy side, the creative nuances around audio, our measurement expertise, and we have a proven track record of over 20 years of defining the digital audio category and really the ad market within that. So I think our reputation in the market with advertisers and with creators speaks for itself and Google and YouTube recognize that. And on that last piece, it was clear that we have delivered for YouTube creators on the podcast side. Some of our biggest podcast creators in our network, whether it's Mel Robbins, Konan O'Brien, Alex Cooper, they're all massive players in terms of usage and engagement on YouTube. And we have clearly demonstrated best-in-class monetization through our embedded sponsorships on YouTube, and that was yet another signal that we were the right partner for this opportunity. Bryan Kraft: And the last part of it was, do you think that this is something that could open up additional partnerships? YouTube is obviously very unique, but are there other potential players that may see this, what you're doing with YouTube and say that's probably a party that we ought to join? Scott Walker: Yes. We have certainly expanded and diversified our advertising business over the years by broadening into a larger network of both streaming partnerships with the likes of SoundCloud and our #1 podcast network, where we have the most shows in the top 20, 4 of the top 10 and #1 position in terms of weekly reach. So this was a natural evolution of that strategy of diversifying and leveraging this amazing demand engine that we've created on the audio side to help YouTube monetize this content. And success here and demonstration of our ability to be successful, I think, opens up doors beyond this certainly. Operator: The next question is from the line of Sebastiano Petti with JPMorgan. Sebastiano Petti: Just closing the loop on the spectrum stuff. So I guess, Wayne, based on your comments to "protect core services and that this will take a number of years and FCC obligations as well as OEM obligations. My interpretation is that any notion that you could "force migrate subscribers off of the lower 12.5 megahertz is probably outside the bounds of probably something you guys are contemplating? That's my first quick question, and then I have a follow-up. Wayne Thorsen: Yes. Thank you, Sebastiano. I'd say that we don't have any plans at this point right now to force migrate, of course, but we're always evaluating how we can best serve our customers, and we have millions of customers currently on this band. And so as we're thinking about the opportunities to do something more strategic or create more strategic value here, certainly, we're thinking about timing. But timing in all of these cases, the timing of a start of an opportunity is, of course, different than the timing of being able to catalyze an opportunity. So we're -- all of these plans need to be thought through in multiyear stages, even if other things happen first and with partners or others. Sebastiano Petti: Got it. And then in terms of timing, I mean, my understanding, I think, is you're unable to really kind of do anything with this lower 12.5% until it is fully cleared. And I think based upon I think, Jennifer, you may have touched upon in previous conferences recently, but we're looking at, what, 5 years for the spectrum to still be cleared. And so is that like the inside of how we should think about when monetization could potentially occur on the spectrum? Jennifer Witz: I don't want to be too specific because as we've said in the past, we've had a long runway on the spectrum with the subscribers there being very sticky. But I would suspect it's inside of 5 years. We've also talked about C&D, where there's maybe more opportunities in the nearer term, the 10 megahertz on either side. But I also think just with the NMPRM about weird space stuff, again, that there are some opportunities to do things while we have active subscriptions in that spectrum, probably limited, but there are opportunities. And of course, I think Wayne touched on this a little bit. There's just -- there's a long runway for how another potential partner would actually execute on this. And so that timing actually could be quite consistent. Operator: The next question is from the line of David Joyce with Seaport Research Partners. David Joyce: You had impressive uptake with the companion strategy earlier this year. Do you see that continuing? What strategies do you have to keep driving that for the overall subscriber platform? Jennifer Witz: Sure. So first of all, we're very pleased with our Q1 subscriber performance, especially after a strong Q4 last year. And the companion subscriptions clearly contributed to that, and we noted that they were 124,000 in the first quarter and as well as continuous service and expansion of our auto dealer extended duration plans. And with companions, the great thing about it is that we've been talking about kind of 2 themes as it relates to our subscriber performance and future growth as well as revenue, one being enhancing subscription value and the other being expanding access. And companion really does both, right? It expands access to SiriusXM to more listeners across the household and also enhances the value and improves retention of that subscription household. So we're really pleased. I think the question really is, as we -- we've been successful in the marketing, I think beyond our expectations actually. But how long does that last? And does the -- sort of do the take rate start to mature at some point over the course of the year. But we're also looking at where it may make sense to expand availability. So that's why we're being cautious and not changing the context we've provided about subscribers for this year. That as well as what Zach noted earlier in terms of auto sales and how those could materialize. There's still pressure on gas prices and impact on the consumer. Operator: The next question is from the line of Kutgun Maral with Evercore ISI. Kutgun Maral: I wanted to ask another one on advertising. You made a lot of progress building out the ad business with new capabilities and innovative partnerships. But it still feels like that opportunity doesn't get full attention from investors given the much larger satellite subscription revenue base. So as you think about the portfolio from here, is there any interest in reshaping the business to better highlight your advertising capabilities and opportunities, whether it's through additional scale via M&A or potentially a clear separation between the satellite subscription business and the Pandora and off-platform side. And I know we're, of course, not talking about specific deals, but what I'm really trying to get at more so is if there's a big focus right now to better match what I see as the strong execution you're demonstrating on advertising against unlocking value in the share price? Jennifer Witz: So we have the 2 segments, which gives you, I think, some exposure to the Pandora and off-platform segment, which is the vast majority of our advertising. And so -- and we provide a fair number of metrics there, but it's a good point. And obviously, with the increasing scale, we will find ways to provide, I think, more metrics around the advertising business going forward. I do want to touch on M&A because you mentioned it. And just note that we see significant opportunity within our existing businesses and whether that's obviously executing and expanding our reach through partnerships like YouTube, but also improving monetization across our ad-supported businesses, like we've done with Creator Connect or Apple Podcast better targeting and measurement tools and of course, enhancing the value of in-car subscriptions and unlocking the value of our spectrum assets like we've talked about. So these are the areas we're focused on day-to-day, and we believe they offer the clearest line of sight to high-return opportunities. And Zach mentioned that we'll continue to look at and be opportunistic on inorganic M&A and inorganic growth, but we're going to be very disciplined about that. Operator: The next questions come from the line of Steven Cahall with Wells Fargo. Steven Cahall: So I just wanted to make sure I understand the subscriber guidance for the year. I think you said that you'll see modestly lower self-pay net adds. I think you lost around 300,000 last year. So should we kind of think about companion as slowing as you get through the rest of the year? Could we annualize what you did in the first quarter for companion for the rest of the year? I'm just kind of trying to understand what core net adds are doing. I don't think companion comes with any revenue contribution. So just trying to understand kind of what the core base looks like, excluding companion. And then I have a quick follow-up. Jennifer Witz: So I can ask Zach to comment on the sort of context we provide around subs. But I do want to note that you're correct about companion in terms of not adding specific revenue for those subscriptions. However, it was part of our strategy to ensure that we're adding value before we increase subscription prices. And so we've now done this 2 years in a row very successfully. And we see actually higher retention among households that are taking companion subscriptions. And it's logical because there is more engagement across the household. So it does result in not only providing a benefit for us to successfully execute on rate increases, but also just driving more engagement. So I do believe it translates through to overall revenue. And as I mentioned a bit before, we're just being cautious, I think, about the year in general. But on companion specifically, that we continue to market and look for other opportunities to perhaps use it, especially perhaps in acquisition as more of a family plan. But I would expect the program to mature as we offer it to a specific set of our full-price subscriptions. Zachary Coughlin: Yes, for sure. I think you've got it right, Stephen, regarding our guidance and the numbers around the self-pay net adds. I think one thing to add to what Jennifer was saying, just numerically, if we take a look at ARPU, we're actually really pleased with that as well. So we're getting the subscriber growth, partially companion program, and we're also seeing ARPU up 1% versus last year. Obviously, the primary driver of that was pricing, reflecting the rate actions. But I think what's important is that the ARPU growth is not coming at the expense of the broader health of the business. Alongside the higher ARPU, we're seeing improved subscriber trends, record low first quarter churn stronger engagement and continued gains in customer satisfaction. So I think you have to look at all these together. And as is really a measure of the quality of the subscriber base. So we're driving higher monetization while strengthening retention and overall customer value. And I think this is our third quarter of ARPU growth, and we would expect that to carry through the rest of this year as well. So I think the composition of all of that shows the strength of sort of the actions that we're taking. Steven Cahall: And just a quick follow-up on conversion. I think there's a few things going on in conversion. So I think a tailwind for how you account for the auto dealer duration plan. So can you give us any more color on contribution from those plans, which seem really positive? And then you did call out a little bit lower conversion, I think, on self-pay. I think those historically were in the mid-30s. Any sense of where they're kind of running today? Jennifer Witz: Yes, Steven, we continue to see some of the same trends we've seen in the past on conversion rates. And we have had slight declines as younger car purchases come into the trial funnel and then, of course, used conversion rates lower than new. And the good news is that we just have so much more data. And with all the personalized marketing capabilities we're building, and are coming even later this year, we can address customers in a much more personalized way in our marketing, whether they're listening or not or based on their content preferences. So I think the single biggest opportunity for us continues to be with 360L rollouts. And we're at about, I think, 55% of sales by the end of the year with the OEMs that are ramping, we'll be at 70%. And we do continue to see 360L conversion rates better than non-360L. And as we ramp 360L on AAOS, which can be updated much more quickly, we see those conversion rates even higher. So these are the tailwinds. Our extended duration plans also help. And we're hopeful that we can start to stabilize some of these trends and we're intently focused on conversion rates as a measure of demand, but we also have many other demand-focused programs in place that wouldn't necessarily show up there, right, such as companion subscriptions or Podcast Plus and some of these other programs that we put in place. Operator: The next question is from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Jennifer, you started the Q&A talking about the way the team has executed over the past couple of years. First quarter results are pretty encouraging. I'm wondering if you could provide some color given the reaffirmation of the full year guide, just how you're thinking about growth in the balance of the year. Jennifer Witz: Yes. Maybe I'll let Zach take that one. Zachary Coughlin: Yes, for sure. I think thanks, Cam, for the question. I mean it was a really good first quarter, revenue growth of the 1% and importantly, growth across subscriber revenue and advertising, both sides of that. And then combined with the strong cost discipline, EBITDA growth of 6%, net income, 20% EPS, 22%. So some really good metrics. And I think in cash flow, cash flow -- free cash flow tripled and free cash flow per share increased 217% to $0.51. So when we provided guidance last quarter, we talked about how important it was to provide the stable outlook, and we're off to a great start. So I think beyond that, we feel very good about the start of the year and the progress we've made, which does increase our confidence in the plan. But that said, it's still early in the year, and there's a lot of time ahead of us. When we look at the full year outlook, the underlying assumptions of our plan really haven't changed. But we are continuing to monitor the auto environment closely. We've seen some softness there, particularly in the OEM funnel. And while we haven't seen any change in customer behavior to date, churn and engagement remains very strong. We're also mindful of the broader macro backdrop. So given that, we just think at this point in time, it's appropriate to remain disciplined order outlook while staying focused on executing through the rest of the year. So as we continue to see strength in the business, it's something we'll revisit as the year moves forward. Operator: Our last and final question is from the line of Clay Griffin with MoffettNathanson. Clayton Griffin: I just got a quick one on the inventory scope attached to this YouTube partnership. Just if you could put some detail around what exactly it includes, for example, does this include the inventory on the ad-supported version of YouTube Music -- and then maybe just sizing the overall sort of impression scale at this point, given that, obviously, YouTube is dominated by video ads today. And then as a follow-up, just to confirm, Jennifer, it sounds like that this deal is likely to be accounted for on a net basis. Did I hear that right? Just maybe just walk through the mechanics of the accounting. Jennifer Witz: No, it will be like our other ad representation deals where it's growth, and it will be in the Pandora and off-platform segment. And Scott, do you want to address the inventory? Scott Walker: Sure. Thanks for the question. So in terms of the scope of this, -- the primary use cases are both YouTube Music, the ad-supported YouTube Music tier and the YouTube main app, where listener -- where users of YouTube are primarily listening versus watching. So this could be static image music videos or LYRIQ videos. This could be YouTube connected via Android Auto or CarPlay in the car. This could be long-form content, whether it's podcast or interview content on smart speakers in the home. All of these are examples. And the scale here is matched or commensurate with the reach. We talked about the Edison research that we recently conducted where the reach of this YouTube listening-first audience is 212 million monthly listeners. And combined with our 170 million across our podcast network, our Pandora streaming network, et cetera, we're now reaching 255 million users overall. So the scale of this is significant. I'll reiterate Jennifer's earlier comments about the ramp of this. We are launching this in the fall during the Q4 planning cycle. So we expect the growth and the ramp to happen more in '27 and beyond. Jennifer Witz: Okay. So in closing, thank you all for joining. I'd just like to say that we're very pleased with the strong start to the year. and the early progress we're making across each of the strategic priorities we laid out in December of 2024, and we continue to see that strategy translating into tangible results. whether that's the strength of our in-car subscription model, our growth in advertising or the broader efficiencies across the organization. And we are well positioned to build on this progress as we move throughout this year. and we remain thoughtful and disciplined in how we allocate capital and invest for future growth. So our focus remains on execution. And we're confident in our ability to deliver on our full year objectives and our guidance and drive sustainable long-term value for shareholders. So thank you for joining us this morning. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Wayfair First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference call over to Ryan Barney, Investor Relations. Ryan, please go ahead. Ryan Barney: Good morning, and thank you for joining us. Today, we will review our first quarter 2026 results. With me are Niraj Shah, Co-Founder, Chief Executive Officer and Co-Chairman; Steve Conine, Co-Founder and Co-Chairman; and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer. We will all be available for Q&A following today's prepared remarks. I would like to remind you that our call today will consist of forward-looking statements, including, but not limited to, those regarding our future prospects, business strategies, industry trends and our financial performance, including guidance for the second quarter of 2026. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2025, our Q for this quarter and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance, including contribution profit, contribution margin, adjusted EBITDA, adjusted EBITDA margin and free cash flow. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded, and a webcast will be able for replay on our IR website. I would now like to turn the call over to Niraj. Niraj Shah: Thanks, Ryan, and good morning, everyone. We're pleased to discuss our first quarter results with you. Wayfair has been off to a solid start to the year despite a volatile macroeconomic backdrop. Our net revenue grew by 7% in the first quarter, driven by order growth of 3% and AOV expansion of 4%. The home furnishings category has had a choppy start to the year with weather disruptions in the front part of the quarter, leading right into a broader pullback in consumer spending, driven by elevated energy and fuel prices. Sometimes we get asked why weather would impact an online business. And the answer is pretty simple. Weather disrupts our customers' lives and when you have no power or your children are home from school, you're simply not shopping for home goods. By our estimates, the home furnishings category was down in the low single-digit range for the first quarter, suggesting that we outperformed the market by a high single-digit spread. However, our share spread success has held strong. We're thrilled with the customer engagement we saw during Way Day this past weekend, and we had a terrific opening to our Atlanta store earlier in the month. Our strong revenue performance in Q1 translated to noteworthy profitability. Our 5.2% adjusted EBITDA margin in the first quarter is the best Q1 result we've delivered in 5 years, and it approaches what we reported in the first quarter of 2021. Years of work to optimize our capital structure puts us in a place to take advantage of the market dislocation to repurchase more of our convertible bonds in Q1. This functions essentially as a stock repurchase. This effort reduced potential dilution by more than 4 million shares. Our plan remains consistent, increasingly outperformed the category to drive top line growth, follow that growth through in a manner that maximizes EBITDA dollars and grows them faster than revenue and deploy our excess cash to manage both our upcoming maturities and dilution. We're sticking closely to this plan even as the macro environment remains turbulent. We have heard many questions from investors regarding the impact of higher energy and fuel costs. Our platform puts us in a strategically valuable position here. While we face higher cost for fulfillment, those are reflected in the end retail price via the take rate. Suppliers ultimately decide the level of cost burden, they're willing to bear as they determine the wholesale price they want to charge for each item. Ultimately, we see that suppliers are focused on remaining competitive, especially in such a demand-constrained period. And so prices remain generally stable. This is a critical feature of our model. At every price threshold, we can ensure that we're offering the best value for shoppers due to the vast selection on our platform and the intense competition among suppliers to win each order. We're continuing to closely watch the broader economic implications and how consumers are managing their wallets as they face higher prices at the gas pump. We understand concerns that a high-ticket long consideration discretionary category, like home furnishings, would be impacted in a more meaningful economic pullback. However, it's helpful to contextualize the category's current state. It has seen steady contraction starting in 2022. The category tracked down in the double digits for most of 2022, 2023 and 2024 and saw some modest improvement to low to mid-single-digit contraction in 2025. By our estimates, in Q1 of 2026, the category is now down between 25% to 30% versus the peak in 2021 and clearly below the 3% long-term CAGR from the 2019 pre-pandemic baseline. This data holds whether you use Census Bureau, credit card panel or any other available data source. This is a cyclical category, which is clearly in a down cycle in a category that has historically always returned to trend over time. While we believe we're due for a mean reversion, the timing remains hard to predict. We take confidence in knowing that whichever direction the macro turns, Wayfair will be a key share winner because our scale gives us the ability to build a customer experience that cannot be matched. And to be clear, our plan to accelerate growth is not dependent on the mean reversion. We're very excited by how our share gain is widening and will continue to widen in this tough environment. The years of investment we've made to continually improve our core recipe, develop a global logistics network and replatform our technology architecture benefit every customer we serve. This work extends beyond our Wayfair.com business to benefit our professional offering, our retail stores, our luxury business, Perigold as well as what I'd like to focus on today, our international markets. We made great progress since we last updated you, so I'd like to spend a bit of time highlighting the exciting work we're doing internationally. If you zoom out and look at the total addressable market across the U.S., Canada, the U.K. and Ireland, we're talking about a category that approaches nearly $0.5 trillion, over $100 billion of which comes outside the U.S. While our U.S. business naturally commands a lot of attention given its scale, Canada and the U.K. represent large, highly attractive markets with similar demographics and a similar online penetration rate. We've taken a deliberate long-term oriented approach of building a global infrastructure that can be leveraged to support our efforts internationally and we think we're set to reap the benefits. In both countries, despite macro headwinds, we're seeing clear structural share gains. Particularly in a tough market, there's an opportunity for the strongest platforms to pull ahead. We're seeing this in both the U.K. and Canada, driven by a combination of: one, focused execution against the basics of our customer offering; two, the leverage gained through our global technology infrastructure; and three, our ability to deliver relevant local nuance in our marketing flywheel to maximize impact and loyalty. Let me start with the core recipe, offering the best possible selection, sharp pricing and fast reliable delivery. This is the fundamental consumer value proposition that wins in the home category anywhere. In Canada, which is our most mature international market, we achieved our highest non-COVID market share last year with growth nicely outperforming the market. Historically, Canadian consumers faced a subpar retail experience compared to the U.S., defined by smaller assortments, higher pricing and the friction of cross-border shipping. Since launching our Canadian business 10 years ago, we've been focused on dismantling those barriers and delivering a best-in-market offering. We offer nearly all of the 40 million products we show to U.S. customers to our customers in Canada. This means we have one of, if not the most extensive catalog in the country because we integrate across our entire North American supply chain. Our supply chain enables forward positioning locally in Canadian CastleGate warehouses while also fulfilling cross-border orders seamlessly utilizing our U.S. CastleGate sites. Our global footprint and advances in supply chain optimization has allowed us to shave nearly 2 days off of our delivery speeds over the past year. This operational agility also enables us to pivot quickly to meet the needs of the local shopper. In response to rising interest in domestic goods, we made it easier than ever for customers to find Canadian-made products and products that ship from Canada through curated events, site navigation filters and targeted marketing. These local-first initiatives are resonating deeply driving a 15% increase in customer engagement among this product segment. In the U.K., the story is very much the same. Despite intense consumer headwinds and pressure in the broader market, we've seen consistent share gains. We've grown our U.K. catalog to over 6 million products. Having the right item at the right price is only part of the recipe, getting it to the customer quickly and safely is where we truly differentiate. Similar to our U.S. business, we see our post order service as a key differentiator in this complex category. 60% of our large parcel orders are now delivered within 2 days. We've added room of twist delivery as well as both assembly on delivery and assembled post delivery to ensure a seamless experience from the moment of purchase all the way to enjoying it at home. We make it easy for a customer to buy a heavy bulky item and have it assembled in their living room, which builds the type of loyalty that gets a shopper to come back time and time again. And similar to the advantage in Canada, we offer substantially all of the 6 million items to customers in Irelan and other underserved markets. This brings me to the second pillar of our international momentum, our scale advantage and technology. We have a technology organization of more than 2,000 talented engineers, data scientists and product managers. Our technology development is done centrally, which means we don't need to build from zero for each market, a durable competitive advantage that allows us to raise the bar on the customer experience every day. Now where is this more evident than in our rapid deployment of generative and agentic AI? We're not just experimenting with AI, we're actively using it to widen our competitive moat. In Canada, localization is critical, particularly for our French-speaking customers in Quebec. Historically, translating and merchandising a catalog of millions of items with the necessary nuance and interior design context was a monumental highly manual task. Today, we're leveraging advanced AI capabilities to execute in-depth merchandising and product detail page translations for our French catalog at incredible speed and accuracy. We're also using AI to speed up the time it takes to launch new products on our site. In the U.K., we're deploying agentic AI to autonomously enrich our catalog data. We built this capability for our U.S. business and are now rolling it out across our platforms. We are operating agents that automatically enrich and correct product attribute details across tens of thousands of products. This means that when a customer searches for a very specific aesthetic or finish, the results they see are highly accurate, visually inspiring and complete. This kind of technological leverage allows us to use resources more efficiently, while simultaneously delivering a richer and more intuitive shopping experience. And finally, let me touch on the third pillar driving our success abroad, our marketing power and our intense focus on customer loyalty. As we have scaled our brand awareness to household name status in both Canada and the U.K., we're evolving our marketing mix to mirror our U.S. strategy, moving beyond traditional channels to aggressively lean into platforms like TikTok, Connected TV and streaming audio. Central to this approach is speaking to the consumer in a voice they recognize through local influencer and celebrity collaborations. In Canada, we scaled our Creator program from 0 to more than 1,000 creators in the past year, generating tens of millions of views. That manifests in visuals of homes that feel familiar with a style and aesthetic that is highly relevant to local market trends. We can speak to and resonate directly with the consumer looking for inspiration for her home in the suburbs of London or the heart of Toronto. Acquiring a customer is only the first step. Our goal is to earn their repeat loyalty. In the home category, a customer may only make a purchase a few times a year. Our aim is to ensure that every time they think about their home, they think of Wayfair. And that's why we're so excited about the international rollout of Wayfair Rewards. We spoke at length about the program last quarter and continue to see terrific response from our customers. We launched this program in Canada last month, and we just launched in the U.K. a couple of weeks ago. We're seeing Reward shoppers come back more frequently and at a lower acquisition cost, all of which contribute to a meaningful expansion in customer lifetime value. When you step back and look at the whole picture across Canada and the U.K., you see a business that is widening its gap to the market through a combination of our value proposition with local customers and our structural advantages versus local competitors. We're leveraging the considerable investments we've made in our proprietary global logistics, our expansive technology stack and our data-driven marketing engine and are bringing their full weight to bear on these international markets. We have a clear playbook. We have the right team in place, and we're incredibly excited about the compounding growth and profitability that lies ahead. And I'm excited to say that we're now entering a new phase where we have ramping programs that allow us to focus on profitable growth, focus on accelerating our rate of taking market share despite the tough macro, an opportunity to even further increase it when we get to a good macro, but always in a manner that optimizes for the growth of EBITDA dollars. Ultimately, delivering terrific value to our customers and helping our suppliers to grow their business enables us to continually expand our market share in a manner that maximizes our profit. This is the outcome we have been and are expressly focused on delivering. This year, you will hear us talk about the levers to do this. They include things that we've discussed, like stores, verified and rewards, but we'll also increasingly include new topics like improvements on the consumer technology front. AI tools for suppliers, enhancements in our consumer financing options and new convenient delivery offerings. These all drive up customer satisfaction and loyalty to our platforms and resulted in market share gains and more growth in EBITDA. Thank you, and now let me turn it over to Kate for a review of our financials. Kate Gulliver: Thanks, Niraj, and good morning, everyone. Let's dive into our results for the first quarter before talking through guidance for Q2. Revenue for the first quarter grew by 7.4% year-over-year, with the U.S. up by 7.5% and our International segment up by 6%. We delivered another impressive quarter of outperformance against a challenging macro backdrop by approving day in and day out that our core recipe of fast delivery, broad availability and sharp pricing combined with the growth of newer initiatives like Wayfair Loyalty and Verified stands on its own against our peers. Let me continue to walk down the P&L. As I do, please note that the remaining financials include depreciation and amortization, but exclude equity-based compensation, related taxes and other adjustments. I will use the same basis when discussing our outlook as well. Gross margin for the first quarter was 30.1% of net revenue. I tapped at length in February about how the componentry of gross margin will evolve over 2026. As we scale up programs like rewards and other investments in the customer experience, we increasingly see that maximizing profit takes our reported margins slightly lower, but leads to higher profit dollars. You can see that very clearly in the top line results. We're making gross margin investments, which drive our share spread wider. And net result year was another quarter of very healthy order growth at 3% versus the first quarter last year. Within that, we saw new order growth of nearly 7% in the quarter, our best result since 2021 and saw our active customer growth finally flipped to positive year-over-year after multiple quarters of positive sequential growth. Customer service and merchant fees were 3.8% of net revenue, while advertising was 11.2%. The net of these delivered a contribution margin of 15% in the first quarter, up by 70 basis points against the year ago period. Selling, operations, technology, general and administrative expenses came in at $356 million for Q1, the lowest it has been since the second quarter of 2019. We're hearing many questions around efficiency, especially in light of all the ways AI is augmenting productivity across our corporate staff. I find it's helpful to remind investors where we are and how much we've already accomplished. From our peak in 2022, we've taken SOTG&A down by nearly 40% on an annualized basis, which translates to more than $800 million in run rate reduction and even more when you factor in stock-based compensation and capitalized labor. This efficiency has been coded into our DNA for years. And as we drive more productivity in our workforce, we expect to further lever our fixed costs as revenue grows by billions of dollars. In total, we generated $151 million of adjusted EBITDA in the quarter for a 5.2% margin on net revenue, up by 130 basis points year-over-year. We ended the quarter with $1.1 billion of cash and equivalents and $1.5 billion of total liquidity when including our undrawn revolver. Cash for operations was an outflow of $52 million and capital expenditures totaled $54 million for the quarter. Free cash flow was a negative $106 million in Q1 and an improvement by $33 million from Q1 of 2025, which is simply a function of our typical negative working capital cycle after a successful Q4. On the capital structure front, we made further progress in both leverage reduction and dilution management. Our gross leverage ending Q1 was 3.8x ,down a full 3 turns from where we stood just a year ago. We issued a partial redemption for $250 million of principal on our 2027 convertible notes and repurchased roughly $56 million of principal on our 2028 convertible bonds as well. The over $300 million of principal reduction is the equivalent of more than 4 million potential shares of dilution which we essentially repurchased. We wanted to continue to take further advantage of the equity dislocation, so we bought back another $43 million of principal of the 2028 in April through a 10b5-1 repurchase plan. Our convertible exposure is quickly dwindling away. Today, we have just over $700 million of principal remaining on the 2027 and 2028 convertible bonds, nearly half of what the original size of those issuances were as well as the $39 million stub on our 2026 bonds. You've seen us be strategic about the ways we've managed these obligations. This is one more area where we are firmly in control of our own destiny and taking the right steps to maximize free cash flow per share. Now let's turn our attention to guidance for the second quarter. Beginning with the top line, we would guide you to mid-single digits year-over-year growth for Q2. We often hear a lot of questions from investors on how we formulate our guidance. So let me give a brief explanation. When we think about top line performance for the full quarter, we look at how the category has performed so far and how our share spread has trended. From there, we build in any specific changes to the promotional calendar or other items that would impact the comparable to get to a final figure. So in this case, we're looking at a category that has been volatile in April so far, trending down in the mid-single-digit range. Our share spread has been holding nicely in the high single-digit range. Promotional intensity over the remainder of the quarter is expected to look very similar to the year-ago period. So the combination of those factors get us to lease where we expect mid-single digits year-over-year growth from a weakening macro even as our share spread widens. Turning to gross margins. We would guide you to a range of 29.5% to 30.5% of net revenue. As I mentioned a moment ago, with the ramp of Wayfair Rewards and broader consumer price elasticity, we see new opportunities to make investments out of gross margin, which should lead to benefits on adjusted EBITDA dollars and margin as we scale order volume faster. Consistent with prior quarters, our expectation for customer service and merchant fees is just below 4%. We expect advertising in a 10.5% to 11.5% range, reaching a contribution margin of roughly 15% once more. SOTG&A is expected to continue to hold in the $360 million to $370 million range. Working your way down the P&L, this guidance suggests a second quarter adjusted EBITDA margin in the 6% to 7% of net revenue range. Now let me touch on a few housekeeping items. We expect equity-based compensation and related taxes of roughly $70 million to $90 million. Depreciation and amortization should be approximately $63 million to $69 million. Net interest expense of approximately $38 million, weighted average shares outstanding of approximately $132 million and CapEx in a $55 million to $65 million range. As we wrap up, I want to zero in on the 2 core themes we hope you've taken away from the call this morning. Our success on share capture and our ability to drive durable and expanding profitability. You'll see us widen both these over the course of 2026 as we focus on raising the bar on the customer experience and earning a greater share of our shopper spending. We're not going to wait for the macro environment to normalize, we can drive growth on the basis of our outperformance, and you'll see us deliver on that over the rest of 2026 and beyond. Our model is now honed to drive substantial incremental flow-through from that growth, giving us the platform to meaningfully expand owner's earnings and free cash flow per share in the quarters and years ahead. Thank you. And with that, Niraj, Steve and I will take your questions. Operator: [Operator Instructions] Your first question comes from the line of Christopher Horvers with JPMorgan. Christopher Horvers: So the first question is, I want to try to diagnose what's going on in the environment. Obviously, it got volatile in the back half of March, April continues to look that way. But at the same time, you had stimulus that helped the customer and help drive, I think, overall retail spending. Do you think that actually helped in your category and your results in the first quarter? And then as you think about the second quarter, last year, you extended Way Day, I think an extra day, but you didn't do it this year. So that seems to provide signal some confidence in your outlook. So just trying to unpack what's going on, do you think stimulus helped such that maybe you're misreading what the trend business might be. Niraj Shah: Thanks, Chris, for your question. So yes, so here's my view. Let me start with the macro environment and then I'll do some micro comments on our business. I think the overall macro environment, it's -- I would think of home as being a category that's still out of favor. I would think of it as kind of bumping along the bottom. I think in terms of how it's comping, you think of maybe that category comping like low single digits or something right now. You probably saw the Wall Street Journal article... Kate Gulliver: Negative. Niraj Shah: Negative low single digits. You priced out the Wall Street Journal article the other day we said, hey, prices, there's been some inflation. Anything has had some inflation is basically seen consumer spending drop and they cite furniture as an example of that. So I don't think the category is going off a cliff, but I don't think the category is actually great. What I do think is happening though -- and on your question about stimulus like tax rebates, there, I think those clearly have been healthy, but I also think like good spending is not fantastic. And so -- sorry, let me take a sip of water. And so I don't know, with the gas prices, oil prices, the headlines, I'm not sure that tax refunds have driven a lot of spending in the category, which I think is part of the Wall Street Journal sort of article that I referenced. So what do I think has happened? I think we're doing particularly well, right? So I think we -- our share spread to the market, I think it's basically a double-digit share spread. And why? I think it has a lot to do with the programs we're driving, things like stores, verified rewards, we have a new delivery program, launching what we're doing with the app, what we're doing with our B2B sales force. And I think most of those are compounding programs, and almost all of them are relatively early in the impact they can have. On the Way Day extension, I think that's just an other example of us optimizing our promotional calendar in a category that's out of favor promotional events are a great way to get the category to be top of mind. And what we found is that you could have a longer event or you could have more events in the quarter. And we basically have optimized how the we try different things and we've basically optimize it from what gets us the maximum benefit. So I wouldn't overly read into the Way Day event being 3 days versus 5 days. So I think we basically set ourselves up through our own actions to actually accelerate the rate of taking share for us to grow EBITDA faster than we grow revenue. And I think we're set up pretty well to aggressively take share in what is continuing to be a down market for the category. Christopher Horvers: Makes sense. And as a follow-up question, I looked at your most recent investor presentation, at least one before today. The bridge to the 10%-plus adjusted EBITDA was taken out of the presentation, I know you're very focused on driving EBITDA dollars and contribution margin. But just was wondering, is there a signal there that we're supposed to read into it in terms of how you now think about the long-term profitability of the company? Niraj Shah: No, we're absolutely on track to get to 10%-plus EBITDA over time. So I'm not sure exactly what you're referring to. But the way we're going to grow the business, EBITDA is going to grow faster than revenue. And the way that's going to happen, a lot of that is through very profitably growing the size of the business because we have a lot of fixed costs in the business. That's how EBITDA percentage grows. And the share spread is a great indicator of how we're going to do that, and that's going to continue to expand. But let me turn it over to Kate. Kate Gulliver: Yes. Chris, I think you're referring to the IR presentation that we updated a year in February. And we just took out the bridge slide that was a few years old at this point, but we still left the 10% goal on the profitability. And in fact, Niraj and I have both said, I think several times, we actually believe it can go north of 10% adjusted EBITDA margin. We're quite confident in the path there. And if anything, you've seen us continue to build on that last year, this year in the guide for this coming quarter, right? So that's nicely picking up. And as Niraj spoke to, it's a result of the combination of share capture, and that really nice solid flow through. Operator: Our next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: Maybe sticking on the longer-term topic. Niraj, in your shareholder but last quarter, you talked about a 20% plus organic growth rate that you guys are targeting berg stock is not reflecting that type of growth looking forward. So perhaps you could provide some high-level background and some of the bridge dynamics in order to get to that growth level. Niraj Shah: Yes. Thanks, Peter. And the team here in the room is pointing out that I sound like I just got back from a 9-day business trip, which includes spending a weekend in High Point, North Carolina, which turns out to be true. But they just handed me some throat lozenges, which are hopefully helping now. So to answer your question about the 20% plus organic growth rate, yes, the reason I pointed that out in the shareholder letter is that I understand folks want to model a quarter, talk about the current quarter, model the next quarter after that, et cetera. I prefer to think about how this business is going to durably grow over the meaningful long term, midterm, et cetera. And a 20% growth basically is where we think that this business can get to in the not-too future, through our own actions. And so what are some of those actions? And I've kind of recapped a bunch of those programs before, but let me just talk through maybe a little more than I have in the recent past. So we talked a lot in the last year about Rewards, about Wayfair Verified and about what we're doing with brick-and-mortar stores. And if you think about those 3, they are meant to be meaningful moats relative to other competitors, and they are meant to be compounding advantages. And what do I mean by that? Well, on average, a customer is spending $600 a year with us right now. And that's out of a $3,000 or $4,000 spend, and that's in a year where they're not moving. And can we get more share of wallet? Then can we get more new customers? Can we grow that base of customers who in 600 starts saying $700 or $800 a year with what we think we can with the loyalty program is meant to bend that curve. Something like stores where the majority of customers are new to file, that's a great way to get new customers. And by the way, our Atlanta store just opened a few weeks ago, the grand opening was a couple of weeks ago. It's opened stronger than Chicago opened. It's a great proof point. It's hard to draw a line with 1 point. We now have 2. You can draw a line. We'll assume we'll have 3 this summer with Columbus, Ohio, up 4 in November with Denver. We have more than 3 opening next year. We're pretty excited about what we're seeing there. These are profitable ways to grow the customer base and profitable ways to grow the dollars per customer per year. Well, those are 3 we're going to be talked a lot about. But then if you think about the consumer tech investments we're making now we're post replatforming, what we're doing with the native apps. If you in about the brand marketing, and hopefully, you've seen some of our new adds. I think our new ads are some of the best ads we've run in the last decade. I think our ads have gotten a little stale. And now I think they're a lot fresher and they're meant to really help people understand what we offer and frankly, draw in a lot of new customers. That's part of why you also see them running in places like NBA games and NFL games and the NCAA Final 4. This is all inside an ad budget that's actually, on a percentage basis come down pretty nicely and on a dollar basis, frankly, gotten a lot leaner. I think that's meaningful. In our B2B business, we've made a lot of change to how we run the sales force there. We think that's got a big runway ahead of it. We have emerging categories like home improvement, where we sell things like cabinetry and large appliances, things we're not known for, which we're seeing some nice growth in and we're seeing in the super early days on that. So how do we get to 20% growth over time? It's not one of these things. It's the aggregate of these things. And I think we're in the early days of proving that we can do that. We started last year at 0% year-over-year. We ended last year at 7% year-over-year. That was a year where the category probably comped down mid-single digits or something like that. And so we did that against a headwind that basically remained. This year, the headwind is probably a little less, but there's still a headwind. I don't know what we're headwind is right now, but let's call it low single-digit negative. But we're going to see that our rate of growth is going to accelerate as we go through time. Peter Keith: Okay. That's helpful. It does sound like the throat lozenge is working, but we'll pivot the next question to Kate... Niraj Shah: This is a cherry one. I would have picked lemon if I had a lot of choices, to be honest. Peter Keith: So Kate, just to parse out the guidance for mid-single-digit revenue growth in Q2, it does sound like the industry has stepped down and gotten a little bit worse in April, as you said, negative mid-single. But the Q2 guide is similar to the Q1 guide. So kind of walk us through the logic on getting to that mid-single-digit number when you -- the industry is weakening, do you think your share gains are accelerating? And I do believe that compared to get a little bit tougher as the quarter progresses. Kate Gulliver: Yes. I mean I actually think you just hit on it in the way you frame the question, and it aligns with Niraj's answer that you just gave, which is we do believe the share gains are accelerating. And so we're quite confident in that guide even with ongoing compression in the category. And I think it speaks to all of these pieces that we're working on really building and combining together. So rewards, verified physical retail, improvements in the site experience, implements and marketing. And that gives us that conviction around that widening share spread. Operator: Our next question comes from the line of Oli Wintermantel from Evercore. Oliver Wintermantel: So Niraj, maybe you can help us walk through that EBITDA bridge over time a little bit because at your last Analyst Day, we heard that gross margin should be a help to get to that 10% EBITDA margin. And now it looks like gross margins for a period of time is going the other way. So maybe you could talk a little about that. And then on the gross margin itself, maybe frame it how you think transportation cost, gas prices are a headwind there? And how you think contribution margins are going to develop over the year? Niraj Shah: Yes. Thanks for the question. So let me say a few thoughts, and I'm going to turn it over to Kate. So a few thoughts I want to share. So we gave that bridge in the summer of 2023. And so we're kind of, call it, roughly 3 years later and a few meaningful things have changed since then. Just to rattle off a couple, like one is we launched our loyalty program. Our loyalty program is a great program to grow revenue faster and grow EBITDA faster. It does lower the gross margin percentage, for example, but it does lower the ad cost percentage. We started launching brick-and-mortar stores. Brick-and-mortar stores actually where the costs get accounted for brick-and-mores stores go in different lines. So a lot of the store staff goes into Saka, for example. So I would say, at some point, we need to update the bridge for you all with the updates we have now. But the long-term numbers we can get to haven't changed. The order of operations, I would say, of what we get to when could have changed. And so I think it's important not to worry about the intermediate lines, but actually to focus on the top line and the bottom line because those are really what matter. All the changes we've made are meant to basically facilitate the top line getting better and the bottom line getting better, which I think would be the 2 numbers everyone would care about the most. But basically, in the long term, nothing has changed. And on gross margin, what do I mean by that? Like how can we get gross margin up with rewards perhaps being a drag on it, and we want to get more members in rewards. So maybe that will be more of a drag. Well, the answer is that as you scale the business, there's a lot of benefit to gross margin percentage as individual items get a lot more volume, the economics on individual items get better. And then the fixed cost of logistics is another item that gets a lot of leverage because a lot of logistics is variable, but there's actually -- we operate 20 million square feet of logistics space across, I think, roughly 70 buildings -- and there's a fixed cost nature to how that works. So there's a lot of puts and takes, but the trajectory of where we're going hasn't changed at all. But let me turn it over to Kate. Kate Gulliver: Yes. I'll add a little bit more color there, and then I'm happy to answer your second question about energy prices. So I think on the sort of componentry to get from where we are today to the 10% as Niraj mentioned, things in the business evolve and that can move around a bit, but the conviction around getting to the north of 10% obviously is still there. On the gross margin piece, in particular, on that slide, we talked about 3 things that were going to drive gross margin. The supplier adds, so the retail media piece, leverage in the business and from CastleGate and then the merch margin mix. And all of those things still exist. So I think it's really important to understand that none of those pieces are actually operating differently than we expected. We're seeing really nice gains in CastleGate. I think if you've been at High Point, you would hear that from folks. We're seeing really nice gains in the Retail Media business. But as we constantly evaluate where are the right places to invest in the customer and the customer experience, where do we see things on sort of the optimal curve there, that may make sense for us to invest in that customer experience like in the form of rewards and actually then see the result of expanding gross profit dollars. So we actually -- you saw that guide down, we're talking about over $1 billion of gross profit dollars in the second quarter. That's where you see that expansion. So things may move around, but the levers are all still there, and I think that's really important to understand. We also, in that bridge showed a little bit of leverage that we might get on SOTG&A. But throughout this year, we -- or last year, we continue to show significant improvement in SOTG&A. In fact, we're back to 2019 levels on SOTG&A with $3 billion more in revenue on the top line. So you're seeing efficiency pickups every stage of the game here. And then the other piece that I just want to point out is on that bridge, we sort of show the path to 10%, but we said we believe that we can get to well north of 10%. And so 10% is obviously a stop on the way, but we think we can continue to exceed that. On your question around energy prices weighing on GM, I think you mean in the form of transportation. Obviously, the way that our model works is we have the wholesale cost. We add from our suppliers. We add on top of that the cost to deliver, incidents and damage and then our take rate. And so effectively, we can maintain that gross margin even with fluctuations in the energy prices. Operator: Our next question comes from the line of David Bellinger with Mizuho Securities. David Bellinger: I just want to follow up on an earlier one, where you're talking about the higher energy prices, some of the macro issues. Can you talk about the cadence of sales growth through Q1? Are you seeing any of this actually show up in your business day-to-day to date? And is there also any evidence that the category may be shifting even further online during these times of higher gas prices and maybe just store visits are starting to dwindle a bit more. Is there any evidence of that digital shift starting to take shape even further? Niraj Shah: David, thanks for your question. The energy prices, I would say, I don't think energy prices have had a direct -- I don't think it's affected like sales moving online or anything like that. I would say that, obviously, in a world where customers have noticed prices going up, it doesn't help optically that they see the gas prices having jumped up 20% year-over-year. or all the headlines are basically about how inflation stubborn or there's new spikes to it. And so I think why is the category still comping negative low single digits after being down for 3 years in a row and why is it down fourth year in a row. I think that's mainly that people are not moving categories out of favor. But none of these headlines help matters. But I think the category is just bumping along. I don't think these are having particular effects. But I don't know, Kate, do you have any... Kate Gulliver: Yes. I mean I think we've long talked about the impact of consumer sentiment on the category. And so certainly, that creates incremental challenge for us. But -- we go back to what can we can control right now, and we think we can continue to control the pace of our share gain. And so we're focused on expanding those share gains even while the category may be compressed. David Bellinger: Got it. And then I just like to follow up on the consumer-facing genic AI. I know this is a very early stage. You're doing a lot with Google Gemini and their UCP. Any additional data points you can share around the traffic that's being driven to your digital properties? Or just any data points around how referrals are looking and what this could mean over the next 6 to 12 months and adding to this share capture? Niraj Shah: So let me give you the answer. There's kind of 2 sides to it. So 1 is the same way as the media landscape evolved. We were an early partner with Meta, an early partner with Google, an early partner with Pinterest helped develop [ ad news ] with all of them, still do that and all the alphas and betas with those guys. And so we want to be everywhere. We want to be there early, and we want to help shape the direction. That's the way we think about agentic commerce. So early partner with Perplexity, early partner with OpenAI, early partner with Google and what they're doing with Gemini, so on and so forth. Whether that be on shopping, the shopping protocols like UCP, whether that be with new advertising formats, the different ones of them are trying. And a number of them have publicly cited is, we're effectively partnering with them all, and we're early in partnering with them all. At the same time, as I say that, the traffic levels we're talking about today are de minimis. They're very small. A lot of people talk about the growth rate of that traffic with a high percentage, but that is a little bit misleading because you have to put a high percentage on a very low number. So where could that be over time, it could be meaningfully higher. But I tend to think that, frankly, a lot of what's going to happen in agentic commerce will really impact 3 categories of goods. One is going to be replenishment-type items where agents can just execute replenishment for you, whether that's paper towels or dish soap or whatever. You know what you want, it knows what you want cheapest way to get it by whatever you want it. Second will be like commodity items. You want a few more iPhone cables, they give me some high-quality one inexpensively and can get it for. And the third will be technical items. You want a 55-inch TV. "Hey, what's the best premium 55-inch TV out there right now? What's the best budget 55-inch TV out there?" And it can figure out the right 1 for you. And they all look the same. You probably don't care what logo is on it. You care about getting the best value, best quality, one, et cetera. Categories like fashion, beauty, home, I think there's a lot that a consumer learns through the process of shopping. There's a lot of motion there and consumers actually don't want to own the same items as each other. So to be honest, I think the role that these platforms will play will be different than I think the way a lot of it's talked about today, which hits those 3 use cases, but we're going to be there early. We're going to help shape the direction and that's the same role we kind of played with tech platforms historically. Kate Gulliver: I think we shared a bit on previous calls and some of our other remarks and even on the call today about how we're using AI to actually improve the customer experience. So there's -- what you were asking about, which is sort of off-site shopping, but there's also how do we -- we are 1P from the perspective of the data that we have into the consumer and how do we leverage that to actually make a much better experience? So we talked about AI stylists at Shopko. We talked about on the call today how we use AI to improve the merchandising of products. On the 2 calls ago, we had Fiona Tan, our CTO on the call talking about how we're using some of the personalization trends on site. And so what we are really excited about is we have this rich data set. We have engineers that have been using various forms of machine learning for years, how do they use AI to really accelerate how the consumer discovers and engages with the site. Operator: Your next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: My first question is 2 parts on the financial model. So first, the gross margin, I guess, pull back that is that entirely due to the loyalty program investments? Are there any other puts and takes to it? And then should we be less focused on an incremental margin more focused on an EBITDA dollar growth for the near term? And then I'll have a follow-up on agentic. Niraj Shah: I'll just say one thing and turn it over to Kate. But what I would say, I actually think if you net out the loyalty program, gross margin actually would be neutral to up, not down. But let me turn it over to Kate. Kate Gulliver: Yes. I mean I think the way we've talked about the gross margin investment is there are a few pieces to that. Certainly, the loyalty program weighs on gross margin, although it gives you improvements elsewhere, right? And we've talked nicely about the incrementality that we get in the customers from the loyalty program. We've also mentioned there are other ways that we think about investing in the customer experience, whether that be in the form of price on certain segments of the catalog or category in the form of delivery speed. So I would think about sort of multiple things that we look at on that gross margin line and we say, "Hey, these investments sense because they're going to drive greater gross profit dollars over time." And so therefore, it is the right thing to make those investments. You also asked about EBITDA incrementals and dollar growth rate. I think you've heard us say a few times that EBITDA dollars and margin, right? So EBITDA margin will continue to grow quite nicely and that EBITDA dollars should accelerate at a pace that's faster than top line growth. still seeing really nice EBITDA dollar growth. The one thing I want to point out is as you may be looking at in the '25 incremental relative to '24, you did have some sort of astounding incremental that year where we were comping over some unusual periods. And so as we spoke about at that time, those were a little bit unusual given the comps. But I think what you're seeing now is really steady profitability improvement. Simeon Gutman: Got it. Okay. And there is a follow-up on this agenetic idea. Is there a scenario in which some of the vendors, whether it's even importers, wholesalers have a way to get to the customer without using platform. I'm sure that's always exists, but do you think agentic is an enabler. And then it could decrease the value of a marketplace or your platform. And I'm wondering if that is tied into some of the loyalty you're working on now, and then the share capture that you're focused on or if those are just 2 separate thoughts. Niraj Shah: The main reason to drive the loyalty is basically 2 things. One, obviously, you want to grow the dollars per customer per year. And the second is you want to do that and basically not be paying the advertising costs of having to reach that customer repeatedly and you'd rather give the value to the customer, which effectively, if you think about the benefits of rewards, that's what effectively rewards does, it gives value directly to the customer and incent them to just come direct to us, right? So that's the trade there. In terms of suppliers wanting to go direct to customers, there's basically a few big problems with that notion. And they're obviously welcome to do that. But the problem they find is that it's expensive to reach the customers. They have a relatively narrow catalog in context of how customers want to shop the category overall was they're making a purchase decision. But the biggest issues have to do with customer service and logistics to actually deliver these items economically in a manner that avoids damage and basically successful, it's quite difficult to do that. And so suppliers -- this is why suppliers effectively in this industry don't go direct. In fashion, for example, you see them go direct. And the reason is that an article of clothing, you can actually ship very easily and you can take a return very easily because you just think about putting an article clothing in a polybag, he logistics, the service on it and the return product is actually fairly trivial on a relative basis. And so that's a big hurdle for these folks. So I don't think anything around agenetic would change how the supply chain would operate. Operator: Our next question comes from the line of Colin Sebastian with Baird. Colin Sebastian: Yes, really good to see the ongoing share gains here, and that's not with a shortage of competition, obviously. And I guess within that context, I know there's been some chatter about some of the more value-oriented marketplace is trying to move upmarket. So I wonder if you're seeing that? And I guess related to that, given what Niraj, you've sort of articulated on agentic commerce if being more focused in the middle and higher end of the consumer market, how is agenetic benefiting you in terms of those integrations with agents that may be more price-oriented than a traditional means that people in your focus -- focused on what the market might be shopping, if that makes sense. Niraj Shah: Yes. Let me take a shot, but I'm not 100% sure I understood your question, but let me answer what I think your point. So I think you're saying at the commodity end of the market, at the opening price point and where you could shop on a Walmart, on an Amazon, on Wayfair and you can get that inexpensive commodity item, that $29 bar sell from anybody. How does agenetic change that because it's a price-driven commodity purchase. And I would say that, that's a great example of the closest our category gets when I mentioned agentic, I said there's replenishment, there's commodity. There's technical as a 3 class of goods, I think, are most likely to be impacted by agentic. I think what you're saying is like there's a portion of the category that's commodity. And that's true. What I would point out is that commodity end is not where we really do much volume. And that commodity end is, in fact, where -- you can go to Target, you go to Walmart, you go to Amazon, you go to us, you got a to, you go to TikTok, you go wherever, but it kind of -- there's really no margin in that volume. And that volume is not where the differentiation occurs. And that's why we, as a category specialists do particularly well is that we actually become very strong as you come up off of that as you shop all the way through the middle and then if you think of our specialty retail brands up through the upper middle. And then as you think about Perigold and luxury, all the way up through the top. And so I think that's part of the point that I would make about agentic doesn't impact us in the same way that I think it impacts some others because the tranche of our market that would be impacted is not really -- that is not the tranche that we are particularly strong in. But is that what you were asking about? Colin Sebastian: Yes. Just in terms of the benefits that you see from integrating with agentic commerce if the agents sort of facilitate more of that price orientation. And then also if you're seeing some of the more value into marketplaces move upmarket. Niraj Shah: Yes. So -- okay. So 2 thoughts on that. I think it's hard for folks to move upmarket or downmarket. If that's not what they're known for, not what they specialize and if that's not where their supplier base is, and that's not the type of goods that they know how to merchandise and sell. So I don't know that agentic enables that movement in the same way you're thinking. Kate Gulliver: Yes. Maybe you're going to that agentic could enable more price discovery. We've long operated in a world of price discovery. And I think that's where parts of our catalogs that are more differentiated, the way that our delivery and service experience, we've spoken on this call quite a bit about actually the complexity of the category differentiate our ability to service the customer in that way. Niraj Shah: And I guess one last comment on that as well. because I've rattled off a bunch of reasons why our share spread and our growth rate can keep climbing. And when I answered Peter's question about how we get to 20% plus, it's one of the things I rattled off. But I talked about what Verified. We just zoom in on Wafer Verified for a moment. Wafer Verified is where we actually do an editorial review kind of like the old -- for those who are old enough to remember, consumer report style kind of review of an item that gets it like what the item really is to set expectations so that customers can make good choices are very happy. We do that on a selection of goods. Those goods are increasingly exclusive to Wayfair. And so that's the other thing to think about as we scale exclusive items give us differentiation because to your point about price competition, when you have an item that's exclusive and you have the merchandising and the information to support why it's a great item. So I might be able to find something that looks like it but you have no certainties around quality or knowledge of what the item will be. And I think everyone on this call is probably have an experience where you order something and what you get is not what you thought you were getting. And I think that's a concern for customers. It's yet another way that we can build a milk around what we provide. Operator: Our last question comes from the line of Brian Nagel with Oppenheimer. Brian Nagel: So I've got two. The first question, and again, at the risk of being a little repetitive here. Just with -- I guess it's more for Kate. With regard to what we're seeing in gross margin, the question I want to ask is, if I'm hearing you correctly, the impact here is largely a function of the loyalty program. But then obviously, as you discussed essentially, there positive offsets elsewhere. So I want to ask, I mean, how big is royalty now? And presumably, as loyalty continues to grow, is that going to -- does that suggest there's going to be an increasingly large impact upon the gross margin rate? Or are there some type of offsets there? And then I have a follow-up question. Kate Gulliver: Yes. So yes, certainly a component of the gross margin is the loyalty program. We said on the last call that we ended 2025 at a little over 1 million members, and we obviously intend to continue to grow the program in '26. That's contemplated, of course, in the guide that we gave for the second quarter and the way that we've talked about gross margin throughout the year. I would focus you back to sort of how do we think about EBITDA dollars and EBITDA margin growth and the accelerating EBITDA dollars throughout '26. And what we said there is that even as we make investments in some places, there will be offsets throughout the P&L, such that EBITDA dollar growth accelerates faster than revenue growth. And you've seen that this quarter. You will continue to see that. And I think that, that's an important piece to keep in mind. So that's income in the form of certainly ACR, but also in the form of how we think about leverage on the SOTG&A line and the efficiency there. Brian Nagel: Okay. That's helpful. And then my follow-up question, a different topic, but you continue to make very nice progress with regard to your balance sheet. So I guess as you is you're sort of saying improving the balance sheet. I mean how do you think about this from a -- how to manage dilution, your leverage ratios and then any type of capital return to shareholders? Kate Gulliver: Yes. Thanks for the question. Obviously, in Q1, we continue to make nice progress on there. We essentially bought back roughly $300 million of face value of the '27 to '28 million. That's roughly the equivalent of managing 4 million shares of dilution, right? So you're seeing us make progress on this potential dilution that we had overhang of the '27 and '28 as we continue to buy that back. And I think that speaks to how we're trying to manage ultimately to this free cash flow per share continuing to grow. And part of that piece is obviously on growing the numerator, but part of that is on how do we continue to take that denominator and make that as efficient as possible. And you're seeing that in the way that we're managing the '27 to '28. You've also seen us manage that in the way that we've managed net withholding on the sort of employee share pieces. And so nice progress there. As we look going forward, what we said is we want to remain opportunistic about how we continue to grow -- or how we continue to manage these -- how we continue to manage these pieces on the '27 and '28, how we continue to do that in a way that sort of manages further dilution. And then eventually, you get to a place where you're sort of talking about outright repurchasing of shares. And I think that's been a goal of ours and a place that we're excited to keep making progress to get to that point. Operator: We have now reached the end of the Q&A session. I will now turn the call back to the Wayfair team for closing remarks. Niraj Shah: I'll just leave you with -- first, thank you all for your interest in Wayfair. I'll just leave you with 2 thoughts. You can decide which one is more important. One is we're definitely very focused on how we can profitably grow the business, and that's really about accelerating the rate at which we grow the revenue which will include spreading the share growth over the market in an increasing way. You'll see that manifest in the growth in EBITDA dollars and margins. And the second thought I'll leave you with is that it turns out throats just work really well. So thank you all for your interest in Wayfair. Talk to you in next call. Kate Gulliver: Thanks very much. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Aflac Incorporated First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to hand the call over to David Young, Senior Vice President of Capital Markets. Please go ahead. David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated's First Quarter 2026 Earnings Call. This morning, Dan Amos, Chairman, CEO of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide more detail on this quarter's financial results, including our capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO video update on investors.aflac.com. For Q&A today, we are also joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Driisland, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S. GAAP measures and related earnings materials are available on investors.aflac.com. I'll now hand the call over to Dan. Dan? Daniel Amos: Thank you, David, and good morning, everyone. We're glad you've joined us. Although we have just 1 quarter under our belt, the first quarter marked a good start to the year. Aflac Incorporated reported net earnings per diluted share of $1.98 and adjusted earnings per diluted share of $1.75. These results reflect our focused execution of our strategy, thus creating long-term value for our shareholders. Starting with Japan, as you will recall, last year, Aflac Japan implemented a marketing and sales transformation, which helped deliver the strong results and sales momentum we saw in 2025. And again, in this quarter, this transformation was a major strategic initiative driven by Aflac Japan's corporate strategy and marketing and sales team. I would highlight the leadership of Deputy President, Shinsuke Mary Moto, first Senior Vice President, Mitchiero Eto; and Chief Marketing Officer, Yumi Saito, working together with Executive Vice President, Yoshizumi, to make it happen. As a cohesive management team, they delivered strong results. I'm excited [indiscernible] and innovation that they have produced and will continue to bring to the organization moving forward. With this in mind, I am pleased with Aflac Japan's sales increase of a 25.5% increase for the first quarter. These strong sales results were driven largely by our newest medical product, Onsen Tallett and Miraito, our latest cancer insurance product. As part of our ongoing strategy, we continue to emphasize and promote the importance of third sector protection to new and younger customers with our innovative first sector product, [indiscernible]. The value of our policies resonates with millions of policyholders, and this reinforces how Aflac's overall strategy is effective and reputation is important. By maintaining strong persistency while adding new premium through sales, we seek to offset the impact of lapses and reissue as well as policies reaching paid-up status in the future. Maintaining strong persistency continues to be important to the future of Aflac Japan. Our broad network of distribution channels, including agencies, alliance partners and banks continually leverage opportunities to help provide financial protection to Japanese consumers. For the quarter, all of our distribution channels generated increases in sales, which is significant considering that we prioritize being where the customer wants to buy insurance. We will continue to evaluate the needs of each channel and support those needs as we work together to provide Japanese citizens with financial protection. Turning to Aflac U.S. I am encouraged by the 2.9% year-over-year increase in sales and the momentum we are seeing within all areas of our group business especially our group voluntary products. More importantly, we maintain strong premium persistency of 79.3% and increased net earned premium of 3.5% for the quarter. We continue to focus on driving our profitable growth with strong underwriting discipline and maintaining strong premium persistence. We believe this will continue to drive net earned premium growth. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintaining a strong pretax margin as Max will expand upon shortly. Across Japan and the United States consumers are feeling the increasing burden of out-of-pocket medical expenses. That's where we step in. Our management teams, employees and sales distribution partners are united to be there for the policyholders when they need us most. As the pioneer in cancer insurance and a leader in the industry, our team and sales partners show up every day to help ease the burden, providing financial protection with genuine compassion and care. As an insurance company, our primary responsibility is to fulfill the promises we make to the policyholders while being responsive to the needs of shareholders. We generated strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be pleased with our investments producing solid investment income. Our financial strength is the foundation that backs up our promise to our policyholders balanced with the financial flexibility and tactical capital deployment. I am very pleased with the company's financial strength, which supports our capital deployment. We treasure our 43 consecutive years of dividend increases and remain committed to extending this record. Combining share repurchase and dividends, we delivered $1.3 billion back to the shareholders in the first quarter. In doing so, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry. In today's complex health care environment, Aflac stands out as a trusted partner, combining relevant products, financial strength, a powerful brand and broad distribution to help consumers manage the financial strain of out-of-pocket medical expenses. The ongoing foundational strengths of our business and our capacity for continued growth in Japan and the United States, 2 of the largest life insurance markets in the world, support our leading position and build on our momentum. I will now turn the program over to Max to cover more details of the financial results. Max? Max Broden: Thank you, Dan. For the first quarter adjusted earnings per diluted share increased 6.6% year-over-year to $1.77, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $82 million, reducing benefits, with $23 million or $0.04 per diluted share above plan. Variable investment income ran $14 million or $0.02 per diluted share below our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement increased 0.2%. The adjusted ROE was 12.8% and 16.4% excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment. Net earned premiums in yen terms for the quarter declined 3.8%. Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies and deferred profit liability, declined 1.3%. We believe this metric provides a clearer insight into long-term premium trends. Japan's total benefit ratio came in at 62.9% for the quarter, down 290 basis points year-over-year. We estimate the impact from reserve remeasurement gains exceeding plan to be approximately 70 basis points. We continue to have favorable trends in cancer and hospitalization. While persistency was down, it remains strong and in line with our expectations at 92.8%. We continue to see an uptick in lapse and reissue on our cancer insurance product. Lapses on our first sector savings block remained low and in line with previous periods despite the increase in yen interest rates. Our expense ratio in Japan was 19.5% for the quarter, down 10 basis points year-over-year. For the quarter, adjusted net investment income in yen terms was up 4%, primarily driven by higher U.S. dollar fixed rate income on higher volume and higher variable net investment income compared to last year, partially offset by lower dollar-denominated floating rate income due to lower volume and rates as well as reduced call income. The pretax margin for Japan in the quarter was 35% and up 320 basis points year-over-year, a very good result. Turning to U.S. results. Net term premiums were up 3.5%. Premium persistency remained solid at 79.3%. Our total benefit ratio came in at 47.2%, 50 basis points lower than Q1 2025, driven by favorable incurred claims for individual voluntary benefits products and group disability. We estimate that reserve remeasurement gains impacted the benefit ratio by approximately 230 basis points in the quarter, which is about 80 basis points above plan. Our expense ratio in the U.S. was 38.3%, up 70 basis points year-over-year, primarily driven by higher DAC amortization and commissions along with timing of advertising and investment spend. Adjusted net investment income in the U.S. was down 0.5% for the quarter, primarily driven by lower short-term rates, offset by higher variable net investment income. Profitability in the U.S. segment was solid with a pretax margin of 20.4%, a 40 basis points decrease compared with a strong quarter a year ago. Corporate & Other reported breakeven pretax adjusted earnings, down from a $43 million gain last year, driven by lower adjusted net investment income, higher interest expense and operating costs and runoff impacts from closed blocks of business. Adjusted net investment income was $17 million lower than last year due to a combination of lower hedge benefits, partially offset by lower volume of tax credit investments. Our tax credit investments impacted a net investment income line for U.S. GAAP purposes negatively by $5 million in the quarter with an associated credit to the tax line. There were no benefit in first quarter earnings from tax credit investments. We are pleased with the overall performance of our investment portfolio. During the quarter, we recorded $19 million of charge-offs on our loan portfolio. Additionally, we did not foreclose on any properties in the period. We recorded $24 million of impairments on our real estate owned portfolio to reflect the continued depressed valuations in the commercial real estate markets. However, we continue to believe that the current distressed market does not reflect the true intrinsic value of our portfolio, which is why we continue to manage them through this cycle and maximize our recoveries. For U.S. statutory, we recorded $12 million of impairments on invested assets and a $1 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On our Japan FSA basis, securities impairment reversals led to a net realized gain of JPY 66 million in Q1. And we booked a valuation allowance of JPY 201 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital. Effective March 31, Aflac Re Bermuda entered into a transaction in which it assumed a block of whole life annuities from Japan Post Insurance. This transaction itself is immaterial to Aflac Inc.'s financials, but it marks a strategic milestone as we expand our reinsurance franchise, targeting the Japan market. Aflac Inc. unencumbered liquidity stood at $3.4 billion, which was $2.4 billion above our minimum balance of $1 billion at the end of the quarter. Our adjusted leverage was 21.2% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 65% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in U.S. dollar terms. Our capital position remains strong. We ended the quarter with an estimated regulatory ESR of 227%. If including the undertaking specific parameter, or USP, this would add 16 points to the regulatory ratio and results in an ESR with USP of 243%. We estimate our combined RBC to be approximately 560%. These are strong capital ratios, which we actively monitor, stress and manage to withstand market volatility and credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $315 million in Q1, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. I will now turn the call back over to David. David Young: Thank you, Max. [Operator Instructions]. Operator: [Operator Instructions] And our first question comes from Tom Gallagher of Evercore ISI. Thomas Gallagher: First question is just on capital generation. Max, can you talk about -- can you help quantify how much benefit you got from that external reinsurance deal? And were there any ESR headwinds that emerged in Japan that might have been impacted? Max Broden: So the the reinsurance transaction we executed in the first quarter with an external party. The impacts to capital were relatively small. This was a relatively small block in the scheme of -- compared to the overall enterprise. So it wasn't really meaningful to either the ESR or FSA earnings in the quarter. And in terms of the movements in the ESR, as you recall, we're down a little bit compared to the full year. The main driver of that is subsidiary dividends being moved up from Aflac Japan to the holding company in the quarter. Other than that, you have our sensitivities and they work pretty well in terms of estimating the other impact. Obviously, higher yen rates has a slightly negative impact to the ESR because of the increased capital charge associated with mass lapse risk. At the same time, you also saw a little bit of a yen weakening that is benefiting the ESR. So relatively small impact from capital markets inputs to the ESR. Thomas Gallagher: Okay. And then my follow-up is just can you -- I think there was a change in the lapse and reissue activity during the quarter, normally, it's much older policies, and it was less so this quarter. Can you talk about what does that mean for -- from an IRR perspective for Aflac when there's somewhat younger customers that are doing lapse and reissue? Are those still positive IRRs when you think about your economics? Max Broden: Thank you, Tom. So when you have a policy that is a little bit shorter in its duration because that policy is now lapsing and now moving into a new policy, what tends to happen in that scenario is obviously the policyholder is doing this for -- in order to get a better coverage. And once you have gotten that better coverage, you're probably more likely to improve the persistency post the lapse and reissue activity. So when you think overall, we think when we analyze this through the totality of the overall block, relatively minor impacts on the IRRs. There will be -- if you take a snapshot of one specific policy that just lapsed, obviously, that IRR is a little bit lower than originally assumed, but we now think about that new policy it is moving into, the duration of that policy is likely to be longer, and that might actually improve the IRR of that new policy that is being written. So that is sort of working a little bit as a balancing impact. So the overall impact to IRRs across the whole in-force is expected to be quite minor. Operator: The next question comes from Ryan Krueger of KBW. Ryan Krueger: I had a question on the Japan benefit ratio. It's towards the high end of your target in the quarter and a little bit above, I guess, excluding favorable experience. Can you just talk about the key drivers of expected improvement in the benefit ratio as the year goes on towards the 60% to 63% outlook? Max Broden: Yes. Thank you, Ryan. So when we think about the different drivers being underlying experience, that being the lower net premium ratio established in the third quarter of last year and then also different types of lapse activity, we would expect going forward, the favorable experience that we didn't have in this quarter, and we've had for a long time. We think that we will continue to generally have those trends in place. When we think about the net premium ratio, that has been set more or less, and that's more driven by mix of business as it relates to the current year benefit ratio. And obviously, we will update our net premium ratio with our long-term assumption unlock in the third quarter of this year. Then the last piece being the mix of lapsation. We did have a mix in this quarter with a little bit less of old age cancer and a little bit higher lapsation of more recently issued policies. And when that happens, you naturally have less of an impact on the reported GAAP benefit ratio because the younger policies have less of a reserve being built up relative to old policies. Especially old policies with a CSV could have quite an impact on the reported benefit ratio given the release of those reserves. So as we then think about these impacts and trends running through our results for the full year, we still feel very confident with the outlook range that we gave at the beginning of the year of 60% to 63% for the Japan benefit ratio. Ryan Krueger: Great. And then you did -- I know it was smaller as a starting point, but on the first third-party Japan reinsurance transaction, but could you talk a little bit about how big of an opportunity you think that is perhaps for Aflac, I guess, over time? And could that move the needle some on your growth in Japan? Max Broden: Well, these transactions, while this one was a relatively small transaction, could be material to us over time. These can be pretty sizable blocks when executed and they would then be immediately accretive to our earnings profile. So Japan, obviously, is a very sizable market. I don't think that we will target the whole market. We will be selective in the way we approach it, both in terms of the target niches and also the type of products and risks that we go after. But it's obvious to us that we think that we have a balance sheet that is quite attractive for counterparties to transact with a AA rating. We think that we have a certain expertise in how to navigate and transact in the Japanese market, and we now built a platform that is ready to do so. So we do think that adding also some risks, i.e., that being mortality, longevity risk and spread risk to our balance sheet can be quite attractive to us from a risk management standpoint as well. So there are many factors at play that makes this quite attractive from a financial standpoint for us. So I think this will be -- it will take time for this to build up. But over time, we certainly expect that this would be material to the company. Operator: The next question comes from Les Carmichael of Wells Fargo. Wesley Carmichael: First question on Japan cancer sales Miraito, do you expect sales to sequentially improve in the next quarter relative to the first quarter? I know it's competing a bit now with the new medical product. Koichiro Yoshizumi: [Interpreted] This is Yoshizumi from Aflac Japan. Medical cancer insurance merits momentum is continuing, and we expect the 2026 sales to be equivalent to the 2025. We have created a system whereby the entire 3 products, starting with the cancer reinsurance Miraito, medical insurance and [indiscernible] and Sumita to be sold concurrently. Wesley Carmichael: Appreciate that. And then second question just was on the corporate segment. I know there was breakeven in the quarter, maybe a little bit of impact from tax credits, but it's bounced around a little bit. I was wondering, Max, is there any help you can give us with an expected run rate of earnings power there? And I realize there's a few moving pieces. Max Broden: Yes. So you tell me where short-term rates are going to go and I give you the answer is a little bit of the -- how this works. The main driver that is swinging our Corporate and Other segment around is the net investment income that we generate on our cash and liquid assets. So obviously, depending on how much capital we hold at the holdco times the short-term rates, to some extent, drives that. The other component to it is we -- this is where we hold our internal -- sorry, all our reinsurance treaties and because these are runoff blocks, there's a natural decay roughly about 8% per year. So that also drives down the earnings contribution year-over-year unless we add and do more either internal or external transactions adding to the earnings of that segment. So as we go into Q2 right now, I would say that I would expect this segment to be slightly negative in terms of pretax earnings given current volumes and rates and what we see from our reinsurance blocks. Operator: Next question comes from Joel Hurwitz of Dowling & Partners. Joel Hurwitz: Max, I wanted to go back to the external reinsurance transaction that you did with some of your first-sector business in Japan. If I look at the ceded premiums and the tick-up quarter-over-quarter, it looked like you had like a 1.5 point impact to net earned premium. Should we think that the earnings impact is similar to that premium impact over time? Or is there another way we should you thinking about earnings impact from that deal? Max Broden: So on that transaction, it negatively impacted our Aflac Japan earnings in the first quarter by mid-single-digit U.S. dollars in millions. That transaction or that block of business will initially have a negative impact along those lines for the next couple of quarters, but then over time, it will go towards more of a zero impact. So in the near term, we expect a negative earnings impact from that ceded business and that it will go closer to zero over time as those policies reach paid-up status. Joel Hurwitz: Got it. That's helpful. And then switching to the U.S. There were some headlines in the past month that a state regulator was forcing rate cuts on some of your products. Are you seeing pressure from other states? And just how should we think about a potential impact to top line earnings in the U.S.? Virgil Miller: Joel, this is Virgil. No, we're not seeing any additional pressure like that. As a matter of fact, in the U.S., I'm pleased with how we are looking going forward with the year. It's still we're still being consistent and balanced with our approach, but we're really seeing no material impacts at all. Operator: The next question comes from Suneet Kamath of Jefferies. Suneet Kamath: Just wanted to start on strategy maybe with Dan. So this reinsurance opportunity in Japan sounds interesting, but I guess another read could be sort of it's an indication that maybe the core business over there has less growth than maybe it previously did, and you're looking for other opportunities to sort of stimulate growth. So just curious, is that not the right read of this? Daniel Amos: No. What I would say is that we're always looking for opportunities. We -- our position on reinsurance was as we've taken a slow methodical approach by starting by doing a reinsurance with another company, then we ended up taking it internally. And what we've seen is success in the reinsurance business for us. And now the next thing is to do a deal with our biggest and closest partner, Japan Post, and then from there, we'll see where it goes. We still believe there's a lot of opportunity to grow our business in Japan. And so this is a natural fit for us that we'll continue to watch. But what I like is evolution, not revolution. And so we continue to methodically take this on and continue to grow the business. Suneet Kamath: Got it. Okay. And then I guess for Virgil, last quarter, you gave us some good color in terms of the mix of sales, sort of the group business versus kind of the core agent business. Just wondering if you could give us an update on what happened here in the first quarter, and how you think things will trend for the balance of the year? Virgil Miller: Yes. Thank you. So as mentioned [indiscernible], overall, I'm pleased with the quarter. It's consistent as now the color I gave on the group business, I'll give you some more insight, very similar. So in the quarter, if you look at what we found is group products, that would include our [indiscernible] vision line, our Core VB, and then you look at what we've been doing now with our group life and absence disability. If you add those 3 categories up, we were up about 12.4% for the quarter. What we've been calling by the bill, this is the investment we made with the [indiscernible] property. What we made, we will call them a plant, let's just call it group life absence and disability, and then with our direct-to-consumer platform that we refer to as consumer markets. When you add the 3 of those to -- those 3 entities up to buy the bills, we were up 25% for the quarter. So strong performance, very, very pleased with those. If you look at the [indiscernible] property, I fell on the sword maybe a couple -- over a year ago and tell you that we were going to invest in improving that business and get it back going. So we're up 52% for the quarter. Strong performance. I believe that the -- you'll continue to see solid performance in those categories. And again, I am pleased with how we're trending. And overall, you add in a point of the fact that we still have consistent, strong persistency, 79.3%, and that is how you're seeing, though, the overall increase in our premium income at 3.5%. If you look at the premium income, since the pandemic, we've seen steady increase. And now I'm pleased with where we're sitting with that metric. Suneet Kamath: But is the core business, like the agent business shrinking still? Or like what's going on with that piece? Virgil Miller: Yes. That's why you don't see the overall tremendous growth that you've seen in just the group space. That particular business, we've got some investments we're doing right now to try to get growth out of that business, but what you're seeing right now is slightly down to flat. What's going to improve that is I'll continue to focus on recruiting agents and then making sure that we convert those agents. So in the first quarter, we had a 16% conversion rate of new agents. That's where I continue to focus, and we continue to have strong productivity. The productivity with our agent group was about 8%. So that's how we continue to focus. But you're right, we're not seeing growth out of our core traditional business. We've also invested in improving and enhancing our enrollment process. What it really means is we've made it easier for new agents to be onboarded and have given them tools where they can go out and sell quickly and get going. We all know that when you're in a market where you're having people come on that are getting paid commission, the best thing to do is get money in their hands as quickly as possible and get some accounts in the book. There's a metric that much behind the scenes, call it, new agent success. And what that really measures is can we get an agent to produce about $25,000 in the first 3 months and add 3 new accounts, and that metric is up also 8%. So I think we're heading in the right direction. But with the market going toward group product and then group product continuing to go toward the smaller employee groups down now to 100 and some below 100 lives, we just had to continue to make sure that we are putting innovative product and technology, and that's what we're investing in. Operator: Next question comes from Jack Maton of BMO Capital Markets. Francis Matten: Just a follow-up on the U.S. business. I guess just given there's been some kind of incremental impact from inflation and higher gas prices in recent months, is Aflac seeing anything changing around consumer behavior for voluntary products or regarding agent recruiting? I mean it sounds like you just like your persistency has been stable so far. But just wondering if there's any other perspective you offer. I think one of your peers caught out somewhat lower VB persistency. Virgil Miller: Thank you for the question. Now you can see our persistency has maintained consistent and actually, we had been showing steady increase. So that 79.3% is strong. So we haven't seen an impact of that. Recruiting is tough in the market. It's not easy, but however, I can tell you that we're going to be on track to recruit about consistent with what we've been for the last 2 or 3 years. We've been at that 10,000 to 11,000 range now. That's what I expect to see again this year. But again, the focus would be on taking those and making sure we convert and making sure we maintain those going forward. But we're not seeing any material impact that that's worthy of calling out. Francis Matten: Got it. That's helpful. And then maybe just a follow-up on the Japan business growth outlook. I mean, Aflac has been seeing very strong sales growth following the marketing transformation you all did and some of the new product introductions over the past year. But that underlying earned premium growth rate still hasn't going to tick higher. So just wondering what, if anything, you think would need to change that inflection to occur? Daniel Amos: Yoshizumi? Well, I'll take it, I guess. Go ahead. Koichiro Yoshizumi: [Interpreted] Excuse me, could you say that question once again, please? Francis Matten: Yes. I mean just in light of the strong sales growth that Aflac side over the past year or so, it's been impressive, but the underlying kind of earned premium growth rate still hasn't picked higher. So just wondering what would need to change for that inflection to occur? Max Broden: Maybe I can kick it off and maybe Aflac add to the answer. If you look at the profile of earned premium, we are currently sort of running a relatively predictable lapsation in about roughly JPY 90 billion right now. And that means that in order to get back to earned premium growth, that's the kind of sales level that you basically need to get to in order to achieve 0 or flat in-force period-over-period on an annual basis. So that's what we need to get to. Obviously, Aflac Japan has a strategy that they're executing on. And in that, we have a line of sight of getting to that level. Over time, we do expect to get to both flat and into the growth mode as it relates to earned premium as well. But for the time being, we have been sort of hovering in this range of negative 1% to 2% on the underlying earned premium, and that's what we expect for the full year. Masatoshi Koide: [Interpreted] This is Koide speaking from [indiscernible]. Our midterm management strategy is to grow the new business. And by doing so, we aim to stop the stagnation of the earned premium. Operator: The next question comes from Wilma Burdis of Raymond James. Wilma Jackson Burdis: Aflac has been declining again. Does Aflac have plans to raise any debt? And if so, could you talk a little bit about uses of capital? I think in addition to that, you have quite a bit of excess capital. So maybe just talk a little bit about that. Max Broden: Yes. Thank you, Wilma. So leverage down to 21.2%. That is partially a function of the yen-dollar exchange rate. As you may recall, we hold about 2/3 of our debt denominated in yen and 1/3 in U.S. dollars. And this is a part of our enterprise FX hedging program that we run in order to neutralize the impact from the yen-dollar exchange rate to the overall enterprise. What that means is that as we operate within the leverage corridor of 20% to 25%, we have significant benefits from borrowing in the yen, that being from a lowering risk standpoint as it relates to FX to enterprise, also accessing a broader investor base and also accessing lower interest rates, all of those very beneficial to us. But what it also means is that it does expose our leverage ratio to volatility in the yen-dollar exchange rate. So we need to stress test that and make sure that we can -- we don't necessarily breach the leverage corridor even in a significant yen strengthening scenario. So that's why we always sort of stress test that under different scenarios, especially when we are looking to add new debt to our capital structure. At this point in time, we don't have any real plans to increase our leverage per se. We have significant capital and liquidity at the holding company in order to deploy that into our operations and also back to shareholders. And we have significant flexibility across the company as it relates to the capital that we hold inside of the regulated entities. And layer on top of that, the ability to then also utilize reinsurance to both create in the near term, more capital and eventually further liquidity available to the holding company gives us -- puts us in a very strong position to execute whatever plans we want to execute on. Wilma Jackson Burdis: Aflac has so much excess capital. That's really the #1 question I get is there what can you do with that? Is pursuing these external reinsurance deals something that you think you could deploy more sizable amounts of capital? And if so, what would you look for in a larger deal? Max Broden: So as it relates to our external reinsurance strategy, that is something that will consume capital. That being said, I don't expect it to be consuming that much capital that we would alter our capital deployment back to shareholders as we have pursued over the last couple of years. This is more as an add-on strategy. And if we can do that at good IRRs and grow our overall business and earnings power, we think that, that can be quite beneficial overall to the company. And certainly, also, it would diversify our earnings stream a little bit and also diversify the risk profile of the company, all of those being ultimately positive. Operator: The next question comes from Pablo Singzon of JPMorgan. Pablo Singzon: So first on the U.S. benefits ratio, sort of the reverse of Frank's question. So 1Q was much better than your outlook. Is there any reason why the benefit ratio should increase from here? Or basically, is your view that claims are just too good in 1Q? Max Broden: Thank you, Pablo. So the benefit ratio guidance for the full year remains 42% to 52%. In the first quarter, we did benefit from remeasurement gains that was over and above our internal expectations by about 80 basis points. So on an underlying basis, if I add back those 80 basis points, puts our first quarter underlying benefit ratio spot on 48%, i.e., at the very low end of the full year range. In this quarter, we did benefit both from favorable experience on cancer, but we also benefited from a low benefit ratio on our group disability block as well. This is something that can be quite volatile from quarter-to-quarter. So I would keep that in mind. So while we're very encouraged by the start of the year, we still think that 48% to 52% is a good range for the full year for our U.S. benefit ratio. Pablo Singzon: And then my second question, other group insurance companies have started talking more about [indiscernible] family. Can you talk about your current involvement in the product? Today, I think you will see admin services. And if there are goals are intended to eventually start fully ensuring risk at some point in the future? Virgil Miller: This is Virgil again. So yes, let me just give you a little bit more color on our overall block and what we do. Of course, our focus is on the administrative service portion. We provide services for more than about 3 million constituents out there. The main thing we talk about is the services we provide for the state of Connecticut. We want and add it now in the state of Maine, but we also oversee and provide services for other entities, other business entities. Inside those business entities, though, if you look at that, we do provide insurance coverage also. So we get about -- approximately about $40 million in premium on that side of the business is not material to our overall U.S. block. But from an administrative services fee, we get probably about $90 million from that side. So it kind of gives you a little bit more color into the size and again, is providing services about more than 3 million constituents overall. Overall, this has been very good for our overall book of business. We've been able to demonstrate that we are certainly serious and a player in this space. We provide high touch, very high standard of service. It's excellence that we provide, and we have been able to achieve and get good feedback from where we're providing those administrative services. And we look cautiously to expand where necessary out of the market because it's been a good business for us. Operator: The next question is a follow-up from Tom Gallagher of Evercore ISI. Thomas Gallagher: Just wanted to try and tie a few things together from different responses I heard to make sure I am understanding this correctly. Max, the number to get to flat premium growth in Japan you said would require around $90 billion of yen sales for the year. Did I understand that part correctly? Max Broden: Yes, you did. Thomas Gallagher: Okay. And then I think the earlier response on the expectation for Japan sales for '26 was the same level as '25, which was JPY 74 billion. So that would leave you about JPY 15 billion, JPY 16 billion short. Is that the right math to think about here? Daniel Amos: Well, let me just say, this is Dan. I think the number will be higher than last year's number. Thomas Gallagher: Got you. So Dan, you expect -- and if you wouldn't mind opining a little bit further on that, Dan. What are you thinking overall relative to JPY 74 billion was the baseline for '25? How do you -- what's your best guess for how that emerges in '26? Daniel Amos: Well I would say closer to JPY 80 billion. That's what I'd like. I'm not going to say that the company won't be satisfied with a little less, but I'd like JPY 80 billion. Virgil Miller: You want me talk a little bit about the product, Dan? David Young: Yes, go ahead. Virgil Miller: Yes. Just to say, you can see just looking at consistency now with the growth we're seeing in the new cancer product. You can also see though that [indiscernible] Pallet, the medical product we introduced to the market, has come out strong in Q1. So we are very encouraged by the new sales of those 2 products. And then we continue to be focused on [indiscernible]. [indiscernible] came out very strong for us, but we still -- we're adjusting our rates were necessary, and we've still been a major player in there. So when you combine those 3 things, I think that's what has us all encouraged about what we're seeing with Aflac Japan. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks. David Young: Thank you, Andrea, and thank you all for joining us this morning for our call. If you have any additional questions, please reach out to the Investor and Rating Agency Relations team. We'll be happy to follow up and we look forward to talking to you soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good morning. My name is Victor, and I'll be your conference facilitator today. Welcome to T. Rowe Price's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded and will be available for replay on T. Rowe Price's website shortly after the call concludes. I will now turn the call over to Linsley Carruth, T. Rowe Price's Director of Investor Relations. Linsley Carruth: Hello, and thank you for joining us today for our first quarter earnings call. The press release and a supplemental materials document can be found on our IR website at investors.troweprice.com. We'll start the call with our Chair CEO and President, Rob Sharps and CFO, Jen Dardis discussing the company results, after which [ Glenn August ], CEO of OHA, will provide an update on our alternatives business. Then we'll open it up to your questions at which time will be joined by Head of Global Investments, Eric Veiel. We ask that you limit it to one question per participant. I'd like to remind you that during the course of this call, we may make a number of forward-looking statements and reference certain non-GAAP financial measures. Please refer to the forward-looking statement language and the reconciliations to GAAP in the supplemental materials, as well as in our press release and 10-Q. Discussions related to the funds is intended to demonstrate their contribution to the organization's results and are not recognitions. All investment performance references to peer groups on today's call are using Morningstar [indiscernible] for the quarter that ended March 31, 2026. Now I'll turn it over to Rob. Robert Sharps: Thank you, Linsley. Before I get started, I'm pleased that [ Glenn August ], CEO of OHA and member of our Board, is with us today. He will provide an update on our Alternatives business and the opportunities we see across wealth, insurance and the broader institutional market. We will hear from Glenn after Jen's update on our financial results. After a relatively stable first 2 months in the quarter, markets declined in March in response to the conflict with Iran, which pushed energy prices sharply higher and introduced additional uncertainty into global economic growth expectations. Though these declines have reversed in the early part of the second quarter with the market recently reaching new highs. With recent volatility and broadening of markets, our active management approach, [ rooted ] in strong fundamental research and a consistent long-term focus, positions us to take advantage of the opportunities this climate brings. While we continue to face outflows in our equity and mutual fund businesses, our teams are making progress in stabilizing flows and are advancing innovative strategies, new vehicles and compelling solutions to meet the needs of our clients. Around half of our funds outperformed with [ 39, 56, 43 ] and 59% of our funds beating their peer group medians on a 1-, 3-, 5- and 10-year basis. On an asset-weighted basis, our long-term performance remained strong with 71%, 46% and 78% of our funds outperforming on the 3-, 5- and 10-year basis. However, the 1-year time period remains challenged. Across our equity funds on an asset-weighted basis, 63% outperformed for the 3 year and 73% for the 10-year time periods. Performance was softer for the 5-year, with 41% of fund assets outperforming and 21% for the 1 year. Our fixed income funds continued to deliver strong performance. On an asset-weighted basis, over 3/4 of the funds outperformed for the 1-, 3-, 5- and 10-year time periods. In our target date franchise, long-term performance remains strong. with 94%, 54% and 98% of fund AUM outperforming their peers on a 3-, 5- and 10-year basis. The 1-year performance remains challenged with only 8% of AUM outperforming, but the most recent quarter had strong performance with 86% of AUM outperforming peers. Last quarter's strong performance was driven by security selection and our active equity strategies, as well as our tactical asset allocation decisions. We advanced a number of important initiatives in the first quarter that strengthen our ability to deliver outcome-oriented solutions and expand our distribution relationships. A few examples of this work include, our target date franchise continues to resonate in the market with notable growth in blend and hybrid products. Our collaboration with Goldman Sachs is progressing with momentum building in model portfolios and product development advancing for the launch of an interval fund and Target Date sister series later this year. Our ETF and SMA businesses continue to grow. We launched 2 ETFs this quarter, bringing our line up to 32 ETFs. 8 of the 32 ETFs had scaled to [indiscernible] $1 billion in AUM at the end of March. Our ETFs generated over $2.8 billion in net flows in the first quarter. As of last week, our ETF assets under management surpassed $25 billion. We are also developing plans to launch our first ETFs in Europe. Our SMA platform expanded to 42 offerings with more than $17 billion in AUM and over $900 million in net flows in the [indiscernible] quarter. We closed our first T. Rowe Price managed CLO in early April, extending our floating rate capabilities into larger markets and diversifying our opportunity set. We advanced our partnership with First Abu Dhabi Bank from planning into execution, with preparations underway across marketing, training and client support for a targeted mid 2026 launch. We are making progress in our partnership with [ Aspida ] for which we manage both public and private assets totaling over $0.5 billion at the end of March. Our experience with Aspida is informing our approach to the substantial opportunity in insurance more broadly. We also formalized a new operating arrangement with OHA, and are excited about our ongoing collaboration and the capabilities their team brings to the overall T. Rowe Price business. None of this progress would be possible without the exceptional talent and dedication of our associates, whose focus on clients and disciplined execution drives us forward. And now Jen will share an update on our financial results. Jen Dardis: Thank you, Rob, and hello, everyone. I'll review our first quarter financial results before turning it over to Glenn. Our adjusted earnings per share of $2.52 for Q1, 2026 is up 3% from Q4, 2025, and up 13% from Q1, 2025. The increase from the prior year was driven by higher revenue growth from higher average AUM, while lower expenses drove the increase in EPS from Q4, 2025. A lower tax rate and a reduced share count also contributed to the increase in this quarter's adjusted EPS. As previously reported, we ended the quarter with $1.71 trillion in AUM, and $13.7 billion in net outflows. Our average AUM of $1.78 trillion remained nearly flat from the prior quarter after [indiscernible] the period and is up 9.6% from Q1, 2025. Multi-asset, fixed income and alternatives all delivered positive net flows for the quarter, while equities, particularly U.S. growth-oriented strategies remained in outflows. Our Target Date franchise continued to deliver solid growth with $4.9 billion in net inflows, driven by the sustained momentum in our blend products. International bond and U.S. equity research also had strong net flows in the quarter, and our ETF and SME businesses were positive was $2.8 billion and $962 million of net inflows, respectively. Moving to the income statement. Our Q1 adjusted net revenue of over $1.8 billion was up 5% from Q1, 2025, driven by higher investment advisory fees and accrued carried interest. Investment Advisory revenue for the quarter was almost $1.7 billion, up 5.3% from Q1, 2025, and down 3.2% from Q4, 2025. The decrease over the prior quarter primarily reflects the decline in our effective fee rate, as well as 2 fewer days in the quarter. Our Q1 annualized effective fee rate, excluding performance-based fees of 38.4 basis points is down from Q4, 2025. From an investment strategy basis, the effective fee rate decline is driven by the growth of our Target Date franchise, including the [ Blend ] series and outflows from our higher fee equity strategies. On a vehicle basis, the growth of trust and separate accounts, coupled with outflows from the mutual fund vehicle are also compressing effective fee rate. These ongoing trends align with the current demand for and our investment in solutions-oriented products and lower fee vehicles. Our Q1 adjusted operating expenses, excluding accrued carried interest were $1.14 billion, a 1% increase from Q1 2025, and a 7% decrease from Q4, 2025, as certain expense categories run seasonally higher in the fourth quarter. Adjusted operating expenses in both the current and prior quarters also reflect cost savings delivered through our ongoing excess management program. We continue to expect 2026 adjusted operating expenses, excluding carried interest expense, to be up 3% to 6% over 2025 [indiscernible] $4.6 billion. While it's still too early to narrow our guidance, our expense forecast, which includes our investment in strategic priorities and market-driven expenses, remains comfortably within this range even with the market volatility experienced year-to-date. Following the outsourcing of certain technology capabilities in connection with our expense management program, we have reclassified third-party technology-related costs from G&A to technology, occupancy and facilities costs to better reflect the nature of the expenses. Page 20 of the supplement includes recasted operating expense categories, reflecting this change for 2025 and 2024. Turning to capital management. Our balance sheet is strong, with over $4.1 billion of cash and discretionary investments. Returning capital to our stockholders continues to be a priority, highlighted by our 40th consecutive annual increase in the quarterly dividend to $1.30 per share. During Q1, we leveraged periods of market dislocation to increase our level of stock buybacks, purchasing $340 million worth of stock, largely toward the end of the quarter. As of March 31, we had 214.9 million common shares outstanding. And now I'll turn it over to Glenn. Unknown Executive: Thanks, Jen. As everyone knows, we are in a particularly dynamic period for the credit markets. So I am particularly pleased to join today's call to share my perspectives on the current environment and discuss how OHA is seizing on the opportunity. First, I'd like to provide a quick overview of OHA. For more than 30 years, OHA has been one of the leading credit-focused alternative asset managers. We invest across four main strategies. First, private credit comprised mainly of senior direct lending and junior capital for larger corporate borrowers. Second, opportunistic credit with a focus on distressed investments, special situations and real assets. Third, structured credit, which is primarily OHA-managed CLOs and third-party CLO debt and equity. And finally, liquid credit, which is leveraged loans, high-yield bonds and multi-asset credit. Our client base is global and predominantly institutional. We mainly serve pension funds, sovereign wealth funds, endowments and family offices. In fact, we manage capital for 7 of the 10 largest U.S. state pensions, 8 of the 10 largest global sovereign wealth funds, as well as many of the largest insurance companies. While the institutional market is the core of our business, we also have a growing presence in the wealth channel, which I will comment on later. Geographically, North America is currently our largest market with nearly 60% of our capital, where we also have a large investor base across Europe, the Middle East and Asia. As of March 31, we have $112 billion of total assets under management, which includes committed capital and leverage, up meaningfully from approximately $88 billion at year-end 2024. The recent volatility we have witnessed across financial markets has been driven by a confluence of factors. First, market was shaken by the [indiscernible] risks that emerged in Q3, Q4 last year on several high-profile frauds [indiscernible]. This led to broader concerns that the easy financial conditions of the past several years may have resulted in [indiscernible] underwriting standards and that further issues could emerge. At the start of this year, markets were [indiscernible] by rapid AI advancements that resulted in concerns at disruption risk among the incumbent software providers. These concerns were most acute in the syndicate and private loan markets, which have financed a number of large software deals in recent years. This, in turn, created a flurry of negative headlines and elevated redemption activity in non-traded [ BDCs ]. The Iran war [indiscernible] another driver of uncertainty and geopolitical risks. The war has disrupted global trade, upended energy supplies and caused a massive spike in energy prices. This has resulted in renewed inflation concerns and a recalibration [indiscernible] Fed strategy. The combination of all these events has resulted in heightened volatility across markets. However, in our view, market fundamentals generally remain positive, and the economy has again shown [indiscernible] macro and geopolitical shocks. And while the impact of AI disruption will create winners and losers, these dynamics will play out over time. The strong rebound in equity markets reinforces that risk appetites remain healthy and that investors are willing to look beyond the current set of issues. Ultimately, we believe the challenges in the credit markets, including AI risk are idiosyncratic, not systemic. We also believe that the current market backdrop is creating opportunity for OHA to show greater differentiation among managers. We have been engaging with our clients throughout the period. In general, they are continuing to seek the benefits of alternative and private market investments to complement other exposures in their portfolios. We are seeing significant interest across our product suite, and we are engaged in constructive dialogues on how to capitalize on the current opportunity set. We believe there is a distinction to be made in the behavior of institutional clients versus individual investors. Institutional clients have a longer time horizon and they are viewing the current environment as an opportunity to lean in. Meanwhile, individual investors have shown to be highly sentiment driven and more reactive to negative headlines. Request for liquidity across non-traded BDCs, which [indiscernible] products have increased meaningfully across the industry with many vehicles receiving requests in excess of the 5% quarterly limit. However, it's important to put these developments in context. Retail products only represent approximately 20% of the broader corporate private credit market and the liquidity mechanics exist in these vehicles to prevent an asset liability mismatch. That, combined with the cash flow generation of the underlying investments is therefore unlikely in our opinion, to result in widespread for selling of BDC assets. While the retail segment is a relatively small part of OHA's overall business today, we and T. Rowe Price jointly [indiscernible] as an important growth opportunity, and we currently have two co-branded wealth products. OCREDIT is our perpetual nontraded BDC with approximately $3 billion of investments at fair value as of [indiscernible] The fund was launched in 2023, generated regular distributions and has had zero defaults since inception. In fact, the fund had redemptions well below the 5% limit during the first quarter and generated positive net flows for the period. Our second product for the wealth channel is [ OFlex ], a new multi-strategy credit interval fund that was recently registered. This strategy has exposure to various asset classes, including private credit, structured products, special situations, and liquid credit among others as part of its mandate. On the insurance front, T. Rowe Price invested in a strategic partnership with [indiscernible] in early 2025, and [ TRP ] and OHA now manage certain public and private assets on behalf of Aspida, a $30 billion life insurance and annuity platform. This partnership is 1 example of OHA's growing presence in the insurance market, and the broader convergence of asset management and insurance. We have seen interest from many insurance clients for private credit CLOs and asset-backed strategies as well, and believe this sector represents another growth opportunity. I believe that OHA is well positioned for the current market environment. We have a 30-plus [indiscernible] record of generating attractive results for our investors across multiple economic cycles and market environments. We also have demonstrated the ability to introduce innovative products that provide solutions for our clients and allow us to capitalize on compelling investment opportunities. One example is [ OLED ], fund focused on senior direct lending. In Q4 2025, we held the final closing with a total of $17.7 billion in capital. This was the largest single fundraise in our firm's history. [indiscernible] contributed to 2 consecutive years of record fundraising at OHA with nearly $40 billion of capital raised in 2024 and 2025 combined, including leverage. In aggregate, we currently have over $30 billion in dry powder across our various strategies. This positions us exceptionally well to be front-footed and opportunistic in deploying capital in an environment where spreads have widened, liquidity premiums have increased and documentation and terms are more favorable for lenders. We also are confident in our existing portfolios. We have always utilized a highly selective and disciplined investment approach, characterized by robust underwriting and a focus on downside protection. This rigorous approach has led to investments in resilient portfolio companies that have generally been faring well in the current environment. We are excited about being a part of T. Rowe Price and the collaboration between the teams at OHA and T. Rowe Price continues to deepen. [ TRP's ] distribution platform, including its retirement wealth and institutional channels, has been an important accelerant for OHA's growth, and we're still in the early innings. The Goldman Sachs strategic collaboration announced last September further expands OHA's opportunity set with co-branded target date strategies, model portfolios and multi-asset offerings, incorporating private investments, all in development, several of which are expected [indiscernible] mid-'26. These partnerships position our investment capabilities in front of an even broader set of investors. None of this happens without the exceptional people at OHA. We have 435 professionals across 6 global offices with deep continuity across our leadership team. Our culture of close collaboration, fundamental underwriting and deep partnership with our clients and our borrowers is what has driven our results for more than 3 decades, that's what will continue to drive them in the future. I'm excited about the opportunities ahead. Thank you. We will now take your questions. Operator: [Operator Instructions] Our first question will come from the line of Dan Fannon from Jefferies. Daniel Fannon: Glenn, I appreciate your comments and I was hoping you could expand upon a few topics, specifically on the deployment opportunity you're seeing today with spreads being a bit wider, maybe some less competition, if you could talk about that. And then also, you talked about some of the challenges private [indiscernible] seeing. But could you discuss what OHA's exposure is to software and some of this AI disruption that's clearly an overhang here? Unknown Executive: Sure. Thanks for the question, Dan. I'm delighted to be part of this call. The market clearly has widened in spread based on kind of classic supply-demand dynamics with demand a little lower were meaningfully lower in the wealth channel, the spread widening on new deals is probably in the neighborhood of 25 to 50 basis points, and it could widen out. On the other side, the supply of new deals, the private equity market has been relatively quiet during this period given the given the [indiscernible] disruption. And so I think that the market is waiting, I think, for the war to be over to see more deal activity, and I think we'll see a lot more interest in. With regard to the AI disruption, what I'd say is that we've been doing software credit for 40 years. We have $40 billion track record over a 9% unlevered return. And I think there's real differentiation in the credit space in software. We've avoided ARR loans, we've avoided technology risk. Excuse me, we focus on [indiscernible] mission-critical software and contractual recurring revenue models. And so we feel very well positioned. Operator: Our next question will come from the line of Ken Worthington from JPMorgan. Kenneth Worthington: So credit spreads late last year were at record, or near record tight levels. And while spreads, as you've mentioned, have widened a little, they're still very narrow by historic standards. Can you give us a sense of what a turn to normal spreads over the course of, say, a year might do to returns? To what extent are institutional and wealth investors prepared for a return to normal in credit spreads. And if we're in a more normal spread environment, how are Oak Hill products positioned to perform relative to peers? Unknown Executive: So credit spreads have moved over the decades. I've been doing this now for almost 40 years, as I said. And while credit spreads are narrower today, they're actually in line with historic averages. Again, you need to separate out the moments of wide -- spread widening during a period like COVID, or during the [ GFC ] and the credit quality underlying today's leverage finance market is better than it was. If you look at the high-yield market as an example, over 55% of the market is BB today. And so you really need to do that adjustment on credit spreads. And you also need to look at the backdrop of the public equity market, which is at record highs. And so from our perspective, the deals are getting done today with 50% to 60% equity cushion. The credit spreads are reasonable. So I don't see necessarily a return to spread widening. And in fact, we're seeing a lot of institutional demand from around the world who basically look at the opportunity to say, if I can make 300 to 400 basis points in the liquid credit market or 500 basis points in the private credit market off of today's absolute rates, that's a very attractive risk-adjusted return profile. So I don't see -- I don't have a major concern of a moment here of spread widening in general. Operator: And our next question will come from the line of Michael Cyprys from Morgan Stanley. Michael Cyprys: I was hoping to ask about ETFs and the success that you're seeing there. I was hoping maybe you could help unpack how much of your ETF growth is coming from new client acquisition versus migration from existing mutual fund assets? And then more broadly, if you can just update us on your ETF strategy, how you're finding success and some of the key initiatives as you look out over the next 12 to 24 months? I think you mentioned Europe as well. Robert Sharps: Yes, thanks for the question. Growing our ETF platform is one of our top priorities. Our data shows that we're both reaching new clients and serving existing clients, which does include some direct switching. It's pretty clear that much of the flow into active [ ETFs is ] coming from investors that historically used open-ended mutual funds. Regardless, we believe that a significant portion, and I'd go as far as to say a majority of our ETF business is coming from investors that we would not have reached with traditional open-ended funds. In terms of our product strategy, we have 3 core tenets. The first is making sure that we have compelling active ETF offerings that cover all of the Morningstar categories. The second is providing key components for asset allocation models, both proprietary models, as well as home office models given the increasing role that models are playing in overall active ETF flows. And then finally, developing innovative and new strategies to deliver our evolving investment capabilities. We're also exploring both mutual fund ETF conversions and over time, ETF share classes in certain of our mutual funds. And I think we're making substantial progress. Real time, we're over $25 billion in AUM. We now have 32 tickers across asset classes, representing versions of many of our most broadly placed strategies on wealth platforms across equity and fixed income, so think large cap growth, capital appreciation, municipal bond. Sector-oriented offerings, leveraging our deep research in areas like technology, health care, natural resources, but also unique offerings, things that we haven't offered in open-ended fund, such as [ Active core ], capital appreciation, premium income, innovation leaders. So as the scale and build compelling track records, we're going to invest in our ability to support our clients, emphasizing gaining placement on more platforms, earning more focused less recommendations at the home office, while also providing more focused sales support in the field to help advisers serve their clients. And again, we're really focused on the role that our active ETFs can play in models going forward. So we think we have a really big opportunity there. And I'll see if any of the rest of the team has anything to add. Operator: Next question will come from the line of Glenn Schorr from Evercore ISI. Glenn Schorr: [indiscernible] big picture one first. We have end markets at all-time highs in a really strong April. I heard all Glenn's comments on the credit side with wider spreads and some interesting opportunities. So my biggest question is you could spill in a little, hey, what's going on in April so far? What have you seen? But the big part of it is what is the institutional pipeline shaping up to be? Are we -- should we expect to see really big reallocations in client portfolios? Or is that more of a slow-moving train? Robert Sharps: Yes, Glenn, thanks for the question. I would characterize the institutional pipeline more as the latter. I mean, I think institutions are very deliberate with regard to their underlying asset allocation and the construction of their overall portfolio. They tend to be relatively disciplined with regard to rebalancing. And I would say that that's true not only for traditional institutions, sovereign wealth funds, line benefit tons of plans, endowments foundations but also a number of the large wealth platforms that we serve where they have home office models. They have a very disciplined approach to making sure that their clients have balanced portfolios with attractive risk reward in certain instances, employing tactical asset allocation. I have not seen any -- kind of any significant shift in the nature of interest of the institutional pipeline based on the market dynamic. What I would say is that the equity markets, in particular, feel like there is a new dynamic where you have return from parts of the market away from the hyperscalers where energy has performed well, where sectors that are exposed to the AI infrastructure build-out, whether it's semiconductors in technology, or areas like power, or kind of certain componentry have really, really benefited from the accelerating CapEx of the hyperscalers and of the AI-oriented firms. So it's a dynamic where the market is broadening. We've seen better performance from some cyclical areas of the market. We've seen better performance from some different parts of the market cap spectrum. And my sense is that, that can really play to our strengths given the depth and breadth of our research coverage across equities and our active approach. Unknown Executive: Yes. The only thing -- I agree with what Rob said. The only thing I would add is we did see a trend towards non-U.S. assets beginning back at the end of last year. There was a bit of a pause on that trend. But I think that is something that has picked back up again in the most recent sort of [ 4 or 5 weeks ]. Robert Sharps: [indiscernible] to make one comment on the credit front on the institutional side. I will tell you that during this period over the last couple of months with all the [indiscernible], we are getting incredible inquiry from around the world from our largest institutional investors. Many have come to us asking to make proposals on dislocation funds. If the market softens a little bit more, many are allocating capital to us right now. And so it is just the juxtaposition of where the institutional market is versus the retail/wealth market is really striking to me. Operator: Our next question will come from the line of Alex Bond from KBW. Alexander Bond: Glenn, maybe a question for you on how you're thinking about the path forward in terms of retail offerings. You mentioned you think this is an important growth area, an opportunity for OHA despite what's going on in terms of the elevated redemption requests across the industry at the moment. Are there additional products in the prospective pipeline that maybe you can speak to? And also, are there certain areas in the retail space where you feel like OHA can really stand out and provide a unique offering. Robert Sharps: [indiscernible] I think that OHA story is still in the process of being told in the wealth channel, and we've made a lot of progress over the last couple of years. We [indiscernible] of the Year award. We -- T. Rowe has made additional investments in our distribution team. And I do think the whole story of OHA being one of the world's leading alternative credit managers for the institutional market, as I mentioned in my prepared remarks, having gated the top 10 sovereign wealth funds, having 7 of the top 10 U.S. pension plans. We manage capital for the largest investors in the world. And I think we are out there telling our story. And there was a perspective in the market that there was very little differentiation between managers. And I think when you look at the BDC market today, both public and private, you're starting to see that differentiation. And so I'm actually quite excited about our ability to tell our story and to show what has basically been nearly 4 decades of differentiation in credit selection. And I do think there will be different performances by the different managers. In terms of new products, we're excited about our [ OFlex ] product which is an interval fund and a multi-strategy fund across the credit spectrum, not just senior direct lending, we think investors are looking for ways to add to their exposure in the interval fund format is exciting. We're certainly in development with T. Rowe and at OHA internally about thinking about other products to add to the channel. And I do think that we will ultimately, together with T. Rowe build a global brand in the wealth channel, that we are building today, and we're looking forward to build meaningfully, and I'm excited about that. Unknown Executive: I would just add that I'm really optimistic about our opportunity to continue to work with Glenn and his team to grow our presence in alternative credit and alternatives more broadly across channels. I think we have a very big opportunity in wealth. I'm excited that [ Bill Cashes ] joined us to lead our alternatives effort in the wealth channel. I also see substantial opportunity in insurance and retirement. And while OHA is certainly front and center, and deeply involved with our collaboration with Goldman Sachs, I think across OCREDIT, [ OFlex ], other things that we have the option to develop with OHA, we have a product road map with Goldman with our interval funds with models, as well as delivering our own late-stage venture capability that's really beginning to build out our alternatives offering and giving us the opportunity to engage with and support our wealth partners as they incorporate more private market alternatives into their solution set, from ultra-high net worth to all the way down ultimately to mass affluent. Operator: And our next question will come from the line of Ben Budish from Barclays. Benjamin Budish: Maybe Jen, if you could give us a little bit color on the expense outlook for the year. It looks like in the first quarter, at least you came in pretty below what the Street was expecting. Just anything you could share on the shape of expenses? What does the recovery in markets mean for comp in Q2? Just anything else that would kind of help us as we're fine-tuning our models here. Jen Dardis: Yes. Thanks for the question. I think typically, what you'll see is Q1 expenses will be softer than Q4 because our compensation -- our year-end compensation is struck in Q4. So that's one impact that we'll typically see coming from Q4 into Q1. The other thing I would say is we came into Q1 with some tailwinds from our expense management exercises. So things that we executed either at the late part of Q4, or the early part of Q1 where we saw some [indiscernible] related to that. Those are things like some realignment within our marketing teams continued execution against our sourcing strategy, where we've looked at certain capabilities where we can leverage vendors and also rationalization of our real estate footprint. Offsetting that, as we go forward for the balance of the year, setting into the 36% expense guide range is our continued investment in strategic initiatives. So I expect we'll see some of that pick up through the year as we absorb some of these tailwinds in Q1. Robert Sharps: Yes. I would just add that we are very focused on driving efficiency but also committed to investing in our business and particularly our strategic areas of focus. Retirement-oriented outcomes and solutions, modern portfolio of building blocks with ETF, SMA and interval funds and developing advice capability for our individual inter and retirement plan services businesses. So I feel like we've got a lot to do. I feel like we have the capacity to drive efficiency to self-fund a significant portion of that. But we're really focused on investing in growth areas to drive the business forward. Operator: Our next question will come from the line of Brennan Hawken from BMO. Brennan Hawken: Glenn, I'd like to circle back on the question around software and AI disruption. It was pretty standard disclosure for all [indiscernible] disclosed the software exposure across the portfolio. I don't think you talked about it aside from talking about your comfort. So it would be great to get that number. And also, just more importantly, process-wise, AI is not new. The disruption in the public market sort of concern about it is far more elevated than it had been. But I'd be interested in hearing about how you integrate the assessment of AI risk into your underwriting process? Because usually, the exposure to potential disruption goes way beyond software and tech is really an integral part of a lot of private equity portfolios. So I really think that understanding the process would be really helpful here. Robert Sharps: Happy to do that. So first, with regard to your first question on allocation. We are basically in line with the market. The market has been in the neighborhood of 15% to 20% allocation to software credit. There's a broad range. There's also, what I would say, to your point, software and AI disruption as a theme is much broader than what's going on in software. And I share your view that there's been all this attention on the private credit markets, but the reality is if you look at software equities, they've gone down dramatically. If you look [indiscernible] EM stock, which went down $80 in a 6-week period because of an [indiscernible] threat to its [ cobalt ] business. So -- so to our perspective, AI disruption is a major, major theme, and it didn't just happen overnight. Although it seemed like in February with [indiscernible] issuing its new [indiscernible] version, there seem to be a lot more attention to it. In terms of the underwriting, I want to just take a step back from the beginning question of this call and add [indiscernible] a bit here. So I mentioned that we've done software investing for [indiscernible] for basically 20 years, $40 billion of capital. And it really has all been about a theme of large-cap mission-critical players that are really embedded. And if you look at our portfolios versus many of our peers, they're very, very differentiated. We averaged probably $300 million to $350 million of EBITDA in our companies. We are senior -- the senior positions at 40%, [ 35%, 35% ], 40% loan to value. They're actually performing quite well today. And again, one of my comments I often make is that proving against a hypothetical and the future product that might come out in a few years is a challenge. But we feel like we have very, very good businesses. And so we are continually underwriting and reunderwriting. We have AI risk management -- risk management tools in terms of rating each one of our companies. And to your point, it's not just software. It's what happens in a bunch of the services sectors like accounting, other areas. And we continuously we underwrite our [ Oak Hill's ] track record over 4 decades is having extremely low default experience, our credit selection as example, in the bank loan area over 25 years in our CLO business. We averaged about 30 basis points of default rate for the market that was [ 2.25% ]. So the reason why we believe large institutional investors have chosen us to be one of their major credit partners is because of the rigor of our underwriting process. Unknown Executive: Yes, we see that, that was a big part of what attracted T. Rowe to OHA when we first engaged over 5 years ago. And I think they have deep fundamental research capabilities and are extraordinarily exacting in their credit underwriting process. And I think that's really aligned with T. Rowe Price's culture and our focus on fundamental expertise. Operator: And our next question will come from the line of Patrick David from Autonomous Research. Patrick Davitt: You mentioned an aspiration to being bigger in alternatives and some of your competitors have been successful in becoming more relevant there inorganically. So could you update us on your appetite to use your strong balance sheet position to get aggressive with M&A and accelerate that shift? Unknown Executive: Yes. We have said that the industry is consolidating, and we believe that we'll participate in that consolidation over time to the extent that we find the right opportunities, the right opportunities have to have cultural fit. They have to bring additional capabilities to us, or allow us to reach new clients or, kind of, have deeper relationships with our existing clients. And from an alternative perspective, I think we've talked pretty consistently about [indiscernible], about partnership and about organic options to develop our -- the breadth of our capabilities. So we continue to evaluate opportunities across each of those and have ultimately have aspirations, not only to be bigger but to be excellent in alternatives, to deliver differentiated investment outcomes and capabilities to partners across the different channels. Robert Sharps: Yes. I might just add that clients ultimately, whether it's the wealth channel, the institutional channel, the insurance channel, they want to have deeper, stronger relationships with firms that offer multiple products. And what we've seen over the years as we've grown our product capability to OHA, we do more with the largest clients in the world. And so again, whether it's buy, whether it's build, whether it's team lift-outs, to add additional capabilities, I think that we will look to do that over the next number of years [indiscernible] our platform. But not growth for growth's sake growth, because we think we can service our clients better and add to our capabilities. Unknown Executive: And to the broader question, just with regard to capital allocation, I mean, as -- we reported [indiscernible] noted, we purchased $340 million worth of T. Rowe Price stock in Q1. Year-to-date, we've repurchased over 4 million shares for just under $400 million. And you'll note that that's a higher pace than we've had in recent history, and I think that reflects the value that we see in our share price. We do have the capacity to deploy a significant amount of capital both from ongoing cash flow as well as from our balance sheet, and we're constantly evaluating our options. In addition to M&A, include more share repurchase or investing in our business in multiple different ways, including through seed and co-invest. And at a high level, we're going to be opportunistic and selective, but we should be active in each of those areas. I don't see any need for our cash levels to build from here. But look, I do feel strongly that having significant deployable capital has real value. And that value kind of often manifests itself during periods of market stress and dislocation. So they will evaluate opportunities to deploy capital. We acknowledge that we have significant cash. And we're going to be really judicious with regard to ultimately how we deploy that. Operator: And this concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good day, everyone, and welcome to the Everest Group Limited First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Matt Rohrmann, Senior Vice President, Head of Investor Relations. Please go ahead. Matthew Rohrmann: Thank you, Jamie. Good morning, everyone, and welcome to the Everest Group Limited First Quarter 2026 Earnings Conference Call. The Everest executives leading today's call are Jim Williamson, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We are also joined by other members of the Everest management team. Before we begin, I will preface the comments by noting that today's call will include forward-looking statements. Actual results may differ materially, and we undertake no obligation to publicly update forward-looking statements. Management comments regarding estimates, projections and future results are subject to the risks, uncertainties and assumptions as noted in Everest's SEC filings. Management will also be referring to certain non-GAAP financial measures. Available explanations, reconciliations to GAAP can be found in the earnings release, investor presentation and financial supplement on our Investor Relations website. With that, I'll turn the call over to Jim. James Williamson: Thanks, Matt, and good morning, everyone. This is the first quarter reporting under the new segment structure we previously announced, and the early read is consistent with what we committed to, a more focused, more profitable, more capital-efficient Everest. Both core businesses contributed meaningful underwriting income, investment income remained a durable earnings engine, and we accelerated capital return to shareholders. There is more work to do, but the quarter offers clear evidence of the strength in our lead market reinsurance treaty franchise and that the strategic reset within our new Global Wholesale & Specialty segment is beginning to take hold in the numbers. Group operating income for the quarter was $648 million, producing a net operating return on equity of 16.7%, and an annualized total shareholder return of 16.1%. This performance was delivered despite a more challenging market environment. The combined ratio was 91.2% with $130 million of pretax catastrophe losses net of recoveries and reinstatement premium, including a $58 million provision for the conflict in Iran. Excluding the Legacy segment, the combined ratio for the quarter was 89.3%. Net investment income was $567 million supported by fixed income portfolio growth and strong limited partnership returns. Gross written premium was $3.6 billion, down year-over-year 18%, largely due to the completed exit of our commercial retail insurance business and continued runoff of legacy U.S. casualty exposures. Excluding the impact of divestitures and deliberate runoff, underlying premium declined 6.4%. Consistent with the strategy we laid out in October, we will continue to prioritize profitability and shareholder return over top line volume, and Q1 is a clear example of that philosophy at work. Treaty Reinsurance delivered an excellent quarter, generating $315 million of underwriting income on an 87.2% combined ratio. Gross written premium was $2.7 billion, down 8.9% year-over-year, driven primarily by continued casualty discipline, and selective reductions where pricing or structure did not meet our return thresholds. Since January 2024, we have reduced casualty premium by more than $1.2 billion. Over that same window, the portfolio has rotated meaningfully towards short tail and specialty lines, where we continue to see opportunities for attractive risk-adjusted returns. The April 1 renewal reflected the market conditions we anticipated on the last call. Property Catastrophe pricing continued to soften with rate down 13% on our book globally. However, terms and conditions held, attachment points held and structural discipline remained intact. Our lead market position and preferred counterparty status allowed us to shape signings towards the most attractive deals. Bound premium at 4.1 decreased 14.6% versus expiring but expected returns on the written portfolio remain above our thresholds. Looking to the midyear renewals, we see continued competitive conditions. Florida will be an interesting dynamic with strong demand by cedents and meaningful tort reform benefits that we are clearly seeing in our data. We will continue to deploy capacity where the math works and pull back where it does not. Mt. Logan continues to build momentum with assets under management now exceeding $2.6 billion. Our pipeline of investor interest is strong across multiple strategies, and Logan is playing an increasingly important role in our overall capital model, supporting underwriting capacity and enhancing our return on capital. Turning to the Global Wholesale & Specialty segment. As a reminder, this business includes our London market operation, U.S. wholesale, Global fac and a number of specialty groups with deep expertise in their respective markets. This is the first quarter printed results for the go-forward platform, a 96.8% combined ratio on $793 million of gross written premium, producing $23 million of underwriting income. Premium was up modestly year-over-year, driven by growth in specialty lines and Accident & Health, partially offset by continued reductions in U.S. casualty, especially in our facultative business. A word on how to read the results. Underlying attritional loss performance in the quarter was strong, improving 3.8 points to 58.9%. This was achieved by repositioning the portfolio into higher-margin lines and by underwriting improvements in each of our portfolios. Rate achievement in key U.S. lines, including GL, umbrella access and auto liability remains strong. The operating expense ratio at 12.6% continues to reflect a drag tied to mix, and modestly lower underwriting leverage, which we expect to improve as we scale the business over time. The team is executing a clear plan, sharpening underwriting driving operating leverage and concentrating on the Specialty & Wholesale segments where Everest has genuine competitive advantage. Meanwhile, the transition of our retail business to AIG is progressing as planned, and we continue to expect meaningful capital release from this transaction to become visible in the back half of 2026. Moving to reserves. We completed our customary Q1 reserve assessments across the group. The overall reserve position remains robust, especially in reinsurance, with favorable development in the quarter of $33 million, driven primarily by short-tail lines. Consistent with our expectations following the comprehensive actions we took in 2025, there were no material movements in U.S. Casualty. Our approach to current year loss picks remains prudent across both businesses and in every line, particularly in U.S. Casualty, where we continue to build risk margin. Now a word on capital. In the quarter, we repurchased $331 million of shares at an average price of $330. We also repurchased an additional $100 million in April. Effective this quarter, we are raising the quarterly floor on share repurchases from $200 million to $300 million, absent major external dislocation. This reflects our continued conviction that Everest share price today does not accurately reflect either the current value or the true earnings power of the company. And as we have demonstrated in the past 2 quarters, we have a willingness and ability to exceed the floor repurchase amount. Stepping back, this quarter shows what the new Everest can produce, focused businesses centered on markets where we have a right to win, disciplined underwriting, deploying capital only where return expectations are clearly above our threshold, a strong balance sheet underpinned by prudent loss picks and reserve practices and a growing third-party capital base and a clear capital return trajectory. While this quarter is a meaningful step in our journey, we are not declaring victory. Market conditions are more competitive than a year ago. The legal environment in the U.S. remains hostile, and we will have to continue earning our results, deal by deal, renewal by renewal, quarter-by-quarter. But Everest is better positioned today than it has been in years, and the team has confidence in where we are taking this company. Before I turn it over to Mark, let me take a moment to thank him for his service as our CFO over the last 5 years. He has been an important partner to me as we've moved Everest to a stronger position. On behalf of the entire Everest Board and management team, I want to wish him the best of luck in his retirement. Over to you, Mark. Mark Kociancic: Thank you, Jim, and good morning, everyone. Everest delivered a strong first quarter, building upon the momentum of -- from the strategic actions taken in the prior year as both underwriting income of $316 million and net investment income of $567 million drove operating earnings per share of $16.08. This resulted in net income of $653 million and an annualized total shareholder return of 16.1%. Now turning to our group results. Everest reported first quarter gross written premiums of $3.6 billion, representing an 18.5% decrease in constant dollars while excluding reinstatement premiums from the prior year quarter. When excluding our Legacy segment, which now includes our commercial retail insurance business, gross written premiums decreased 6.4%. Combined ratio improved to 91.2% for the quarter, net favorable prior year development of $33 million from well-seasoned property reserves in our Reinsurance Treaty segment contributed a 90 basis point benefit to the combined ratio. Catastrophe losses contributed 3.6 points to the group combined ratio, largely driven by a $58 million provision for the Iran war and several other weather-related events globally. The group attritional loss ratio improved 2.8 points to 59.4% in the quarter. Aviation losses contributed approximately 2 points to the prior year first quarter attritional loss ratio. When excluding this, the improvement was driven by improved expected loss experience and a lower proportion of Retail Casualty premium. The commission ratio increased to 23.1% in the quarter, with the increase driven by mix the underwriting-related expense ratio improved 10 basis points to 6%. In the other income and expense line, we recognized a net expense of $81 million associated with the sale of the commercial retail insurance renewal rights to AIG in the quarter as well as expenses associated with the sale of other primary operations, principally Canada. As I previously noted, we expect there will be approximately $150 million of restructuring charges throughout 2026 associated with our exit from the commercial retail insurance business and we still expect some elevated real estate related costs in the fourth quarter, which we expect to mitigate through subleasing opportunities and these costs will be reflected in our other income and expense line within operating income and will not impact the combined ratio. Moving to Reinsurance Treaty. Gross written premiums decreased 8.5% in constant dollars versus the prior year quarter when adjusting for reinstatement premiums during the quarter. Property growth of 1% in the quarter when excluding reinstatement premiums, was largely driven by a 9.4% increase in Property CAT XOL. And this was more than targeted decrease of 23.9% in Casualty Pro-Rata and 13.3% in Casualty XOL. The combined ratio improved to 87.2% in the first quarter 2026. The quarter benefited from a relatively lighter amount of catastrophe losses, which contributed 3.7 points to the combined ratio versus 19.7 points in the prior year first quarter. Favorable prior year reserve development contributed 1.4 points to the improvement. The attritional loss ratio decreased 270 basis points to 56.7%, largely due to aviation losses in the prior year first quarter. And consistent with prior quarters, mix benefits were balanced by our proactive approach to embedding prudence into our U.S. casualty loss picks. And moving to Global Wholesale & Specialty gross premiums written increased 1.6% in constant dollars to $793 million, growth in accident and health, professional liability and other specialty was more than offset by decreases in property lines and reduced writings in casualty lines. Combined ratio was 96.8% in the quarter, and included 4.2 points of catastrophe losses versus 3.1 points in the prior year first quarter. CAT losses in the quarter were largely driven by losses associated with the Iran war as well as U.S. winter storm activity. And while it's early, we believe mix benefits from our actions to shift the portfolio towards short-tail lines and to strengthen the quality of the portfolio are driving improved loss experience. These actions contributed a 3.8% improvement in our attritional loss ratio to 58.9%, while we continue to set prudent loss picks. The underwriting-related expense ratio was 12.6%, with the increase driven by reduced casualty earned premium and the commission ratio increased 1.6 points to 21.2%, with the increase largely driven by mix. Now moving to our Legacy segment. The segment generated a modest drag to group results, largely due to higher ceded premiums as well as a modest increase in property loss activity. We continue to expect the segment to run at a combined ratio above 110% combined ratio for fiscal year 2026 driven primarily by higher expenses as we transition the commercial retail insurance book to AIG. Now moving to reserves. While we are seeing early evidence that our remediation actions are leading to improved underwriting results in our U.S. liability insurance portfolio, we will continue to maintain elevated loss picks as we did in 2025. While rates in U.S. casualty lines continue to increase, there remains uncertainty in loss cost trends and we expect these lines to continue to represent a smaller percentage of our overall mix. Moving on to investments. Net investment income increased to $567 million for the quarter, largely driven by strong alternative asset returns, which generated $156 million of net income in the quarter versus $55 million in the prior year quarter. Overall, our book yield remained stable at 4.5%, which is consistent with our current new money yield, and we continue to have a short asset duration of approximately 3.5 years and the fixed income portfolio benefits from an average credit rating of AA-. Our operating income tax rate was 11.7% in the first quarter 2026 which was below our working assumption of 17% to 18% for the full year, and this was driven by a onetime benefit from the takedown of an accrual of U.K. Pillar Two tax due to the U.K. updating its tax laws in the first quarter to conform with the most recent OECD guidance on global minimum tax. Operating cash flow for the quarter of $649 million decreased from $928 million in the prior year first quarter. And shareholders' equity ended the quarter at $15.3 billion, were $15.7 billion when excluding $369 million of net unrealized depreciation on available for sale fixed income securities. Book value per share, excluding unrealized depreciation on available for sale, fixed income securities ended the quarter at $393.02, an improvement of 4% from year-end 2025 when adjusted for dividends of $2 per share. In the first quarter, we repurchased approximately 1 million shares amounting to approximately $331 million at an average share price of $330.01 per share. When factoring in the lower growth environment for the industry, in combination with the strategic actions announced last year and the sale of our Canadian retail insurance operations, we would expect an elevated payout ratio for 2026 assuming a relatively normal level of catastrophe activity and other risk factors. As Jim mentioned, we now expect $300 million to be a quarterly floor for common share repurchases in 2026. Lastly, I wanted to take a moment to acknowledge that this will be my last earnings call for Everest, and the company has gone through a period of meaningful transformation over the years and I'm particularly proud of being able to be a part of the accomplishments to set Everest on its trajectory. I'm confident that Everest is in a strong position to deliver attractive results. And on a personal note, it has been a privilege to work with my Everest colleagues and the many fine people within the P&C industry over the years. And with that, I'll turn the call back over to Matt. Matthew Rohrmann: Thank you, Mark. Jamie, we're now ready to open the line for questions. We do ask you limit your questions to 1 question plus 1 follow-up, then you'll rejoin the queue if you have additional questions. Jamie, over to you. Operator: [Operator Instructions] Our first question today comes from Andrew Andersen from Jefferies. Andrew Andersen: Into Florida renewals, how much incremental demand are you seeing at an industry level? And how are you considering Everest deployment there, just given some [indiscernible] reform benefits, but also considering the current pricing market? James Williamson: Sure, Andrew. Thanks for the question. I mean, look, I'm not going to quantify the demand forecast, but I do think there's some pretty strong tailwinds in terms of clients looking to procure more limit. We have, as you probably know, a preferred position in the Florida market. I think we are a lead reinsurer for all of the best local underwriters. Obviously, the renewal is very much still in flight. It's early days. But so far, we're actually reasonably optimistic about where things will land. And I think you should expect us to be pretty consistent in terms of capacity deployment, assuming that rates move in a reasonable direction. I do think we are seeing, as I indicated in my prepared remarks, very strong statistical evidence that the tort reforms have worked, which obviously is a great positive given where our book is. Andrew Andersen: And on Casualty Reinsurance, still seeing some premium declines there, but are you seeing any improvement in terms that could warrant reengagement down the line? Or is that line still not at the return hurdles you would like to see? James Williamson: Well, to step back, I think the way I would frame this is our view of Casualty Pro-Rata, particularly given what's happening in the U.S. tort environment, is that we want to continue to partner with our best cedents who have a firm bead on how to underwrite in a fairly adverse environment, whose claims expertise, data analytics are world-class. And we're going to continue to do that. Now what that has meant for us is that we've had to reduce total premium levels, over $1.2 billion in the last 2 years. And I think that's just an indication of the level of discipline we're bringing to the equation. I think what we would need to see for that trend line to significantly reverse would be, first of all, ceding commissions on Casualty Pro-Rata remain quite elevated. I think that needs to change. And I also think you need to see some sort of normalization in the U.S. legal environment. So obviously, we're prepared to pivot when conditions warrant. But right now, I feel really good about how we're positioned. Operator: Our next question comes from Elyse Greenspan from Wells Fargo. Elyse Greenspan: My question -- my first question is on the Global Wholesale & Specialty segment. The attritional was 92.6% in the quarter. I know you guys highlighted, right, just an elevated expense level to start in the segment. But I'm just thinking away from just the expense comment. Would you highlight anything one-off in the quarter, just when we think about the margin profile of that segment from here? James Williamson: Sure, Elyse. Thanks for the question. A couple of things. First, while I do think there's a drag in the expense ratio, we're starting from a pretty decent spot. And I think we have some clear strategies in place that will help us to manage that, but that's going to happen over time. So that will be something that we're working on for a while. And there were really no one-offs in the quarter. What I would tell you is what's critical to laddering up this attritional loss ratio that drives that combined is the things that I talked about in my prepared remarks. The team has done an excellent job positioning the portfolio in terms of its mix. And that's something that we're going to continue to focus on. And then the quality of the underwriting really across lines of business has been very strong. And so again, over time, I think those things can inure to our benefit. At the same time, it's a very complex primary insurance market, as you know. We have a lot of rate movement in multiple directions across lines of business. And so we'll just navigate it very carefully and make sure that we're printing very prudent loss picks in each of the quarters that we print going forward. Elyse Greenspan: And then my second question, we've seen industry losses come up for the Baltimore Bridge event. I just wanted to get a sense of your thoughts there and just how you're thinking about Everest's risk exposure? James Williamson: Sure. Yes. So when the loss first occurred, I think a lot of people were sort of settling into about $1 billion industry loss range if memory serves. We had, as you may recall, put up a pretty prudent initial reserve of $70 million. Like you, we're gathering information regarding the settlements that are occurring around that loss. Those seem to indicate that we'll be looking at a larger overall industry loss level. But we're still very much assessing that. And what I would suggest, based on just sort of early indications, if they prove to be correct, we could be looking at a few tens of millions of dollars of incremental loss reserve needed which would flow through in a future quarter, whether that's Q2, Q3, we'll see through our prior year development line. Operator: Our next question comes from Meyer Shields from Keefe, Bruyette, & Woods. Meyer Shields: I just had a question on Global Wholesale & Specialty. I was hoping you could update us on the amount of casualty talent that you have relative to what you would want? I understand that the market is challenging for all the reasons that you laid out. But I just want to get a sense as to your assessment of whether the current underwriting team is all intact or whether we should anticipate incremental hires? James Williamson: Yes. Thanks for the question, Meyer. I feel -- one of the things I feel just exceptionally good about across really all of Global Wholesale & Specialty and certainly Reinsurance in the rest of the company is the quality of the talent that we have. if you sort of rewind the clock, remember, we started the remediation process in North America Casualty a couple of years ago. We made significant changes, and I would say, upgrades to that team. We've had a chance to continue to do that in the meantime. And so when I look at the team on the field today, whether it's in our evolution business, our U.S. programs business, or other parts of the group where we're writing U.S. Casualty, I think we have best-in-class talent. Now we are investing in Wholesale & Specialty across a number of dimensions. Technology would be an area where particularly with the retail divestiture, we now have more resources to devote to the Global Wholesale Specialty business. So we're investing in tech. And we are also selectively hiring. But I really view that as an augmentation as opposed to needing to rebuild teams. We're in a really good spot talent wise. Meyer Shields: Okay. Great. That's very helpful. And then second question, obviously, for some specialty lines exposed to the Iran conflict, there have been meaningful rate increases. I was hoping you could talk to how Everest is responding to that? James Williamson: Yes, absolutely. I mean we're in active -- we're an active underwriter in the region. We have a very robust reinsurance operation centered on the Middle East. And we also obviously underwrite a number of specialty coverages out of our London market operation in both businesses. And so as these events occur, there will be rate movement and our teams are very nimble, and they will be leaning in where they see appropriate risk-adjusted returns to both securing those rate increases and potentially deploying more capacity. Now as you can imagine, at this moment, given the level of uncertainty around where the conflict is going to go, we're being very judicious on what we're writing but I would expect it to inure to the benefit of the portfolios in terms of rate movement. Operator: Our next question comes from Josh Shanker from Bank of America. Joshua Shanker: First of all, just congratulations to Mark on his retirement. Wish him the best in all your endeavors. Quickly, you have a new floor setting of a minimum $300 million repurchase per quarter. Historically, we've seen reinsurance companies slow the roll a little bit around the early summer period in anticipation of the outcome of the hurricane season. Do you expect a programmatic purchase or will you just be continuing to buy at the same pace regardless of where we are in the calendar? Mark Kociancic: Josh, it's Mark. Yes, thanks for the kind remarks. Regarding the share buyback, I expect more of a programmatic approach throughout the year and with possible augmentation later in the year, just depending on how cat season plays out and as well as the development of the release of capital stemming from the legacy operation reserve runoff. So I think you'll see potentially more buybacks later in the year as well. Joshua Shanker: And notably, there was $33 million of favorable development in the quarter on the going-forward businesses. If I go back and look at Everest results for most of the past, there's always been almost no volatility in the reserves. [indiscernible] result in any quarter. This is always a little confusing. There's always new information, obviously, that you get about your reserves. But the truth is, I understand it. We just don't know what the future claims trend are going to be. With the portfolio throwing off [ PYD ] in this quarter, does that signal a change in how you're thinking about conveying your -- what new information comes into the actuaries? And also given, Mark, your retirement and Elias not having joined yet, why is this happening now? Mark Kociancic: Well, it started last year. I think in the second quarter, we had some favorable PYD also offset a bit through Russia Ukraine adjustments. But in general, we made a point a year ago that the reserves in property, which is where this is coming from a really well seasoned and significant enough where we felt comfortable to start releasing it. So we feel very good about the level of embedded margin in the reinsurance property reserves, especially given the seasoning we're going to play it, I think, close to the vest in terms of casualty, given the loss trend uncertainty, be prudent there. But there's a really nice embedded margin, I would say, on the property side that I think is available going forward. Joshua Shanker: And if you'll indulge me just one quick one other one. The Legacy segment, will it be small enough in 2027 that won't need to be disclosed anymore? Or is that getting ahead of myself? Mark Kociancic: Probably getting ahead of yourself. Look, the reserves will still be meaningful. The P&L, I would expect to be smaller simply because the net earned premium will have essentially become de minimis. But we set up this segment a couple of years ago under the nomenclature of calling it the other segment because we did have a few pieces in there. [indiscernible] this environmental plus Specialty program through [ Ryan ] Specialty. So I expect some level of much smaller levels of premium as this year progresses and still something in '27, I doubt it will go away, but it will definitely be much smaller. Operator: Our next question comes from Michael Zaremski from BMO Capital Markets. Michael Zaremski: Good to see a cleaner print. Just curious on the move kind of increased PMLs and kind of move into short-tail lines, is it fair for us to kind of bump up our cat loads a bit as we think about '26? Mark Kociancic: Mike, it's Mark. I think the cat load percentage back when we did the Investor Day in '23, we were saying approximately 7%-ish. We're in that same ZIP code today, you've obviously got a higher load for the Reinsurance segment and a lower one for the Global Wholesale & Specialty. It's a lot more diversified the portfolio in terms of the zonal PMLs and the risk that we're taking. And I think that it's something that will mechanically potentially increase a bit as the legacy premium diminishes and really depending on the growth environment for the company going forward as you've seen premium reductions year-over-year in some of the lines. So mechanically, it could have a slight increase given the fact that we still find property -- property cat very attractive and we are diminishing some of our casualty exposure. James Williamson: Yes. And Mike, this is Jim. The only thing I would add, I think Mark's explanation is spot on. There is that mechanical reality just driven, frankly, more by what we're doing with casualty to anything happening in property. When I look at the actual net PMLs though, and I know you don't have the 4/1s, but what I'm seeing is our net PMLs across, I think, just about every peak zone maybe with 1 or 2 exceptions are coming down now, just given the portfolio management we're doing in the market. So -- and that -- I think all other things being equal, that would continue to occur certainly during the course of 2026. Michael Zaremski: Got it. That's helpful. Just switching gears to capital management. Mark, you mentioned expect maybe higher capital management at the back of the year. But I think you just mentioned the AIG transaction, but I believe you also sold the Canadian property for a very nice multiple. So I think is it fair for us to kind of put a small placeholder for some capital return from that transaction as well in the back half of the year if that closes this year? Mark Kociancic: Yes, I think it will be a component. Clearly, the transaction still has to settle. That's probably 6 months away, and we'll see how that gets handled at the end of the year, but it will be accretive to that discussion for sure. Operator: Our next question comes from David Motemaden from Evercore ISI. David Motemaden: And Mark, I also want to extend my congratulations on your retirement. I guess maybe just quickly, Jim, on -- just hoping to get a little bit more texture on your expectations for the 6/1 and midyear renewals. Just -- I know you spoke about property cat pricing continue to soften down 13%, globally at 4/1. Maybe you could split that out between U.S. and internationally and how you're thinking about both pricing and terms in midyear? James Williamson: Yes. So thanks for the question, David. Just let's cover 4/1 and then we can pivot into 6/1. On 4/1, look, I think pricing similar North America to international. Obviously, you had some really big international renewals. And in particular, you had a lot of drag from a pricing perspective from the Japanese renewal where I think pricing levels were very robust. It's been a loss-free market for a while. And so you saw a little bit of a sharper takedown in that market. And then the other one I would call out as sort of anomalous is in India, which is becoming a much more meaningful reinsurance market. where everybody decided to get into India. We've had a very nice book of business in that country with terrific sedans for a number of years, unlike, I think, frankly, most carriers in that market, we make a fair bit of money providing that coverage and pricing was down sharply at 4/1 and we substantially cut our book of business in response to that. So that's certainly affecting the rate view. And the one thing I would sort of add before I get into 6/1 is each of these renewals are so different. 1/1, 4/1, very different renewal structure for the reasons I just cited, and then 6/1, obviously very much centered on Florida. In terms of what to expect for Florida, a couple of things to note. First of all, I do want to certainly give our reinsurance team an enormous amount of credit for how they executed in 2025 because that sets up the story. I think we had a very clear beat on the fact that 2025 pricing was well above our threshold of expected return. And we leaned into that and grew meaningfully. And I think that was exactly the right thing to do at the time, and you see that playing through in our Q1 cat growth rates ex reinstatement premiums being pretty solid. I think for this 6/1, what we're seeing is rates are definitely going to be coming off. I think there's a fair degree of rationality among underwriters regarding the exposure because it is. It's a peak zone for a reason. It's [indiscernible] peak zone. And so I think that will put a bit of a floor under things. I think terms and conditions will look good. The vast majority of our deals in Florida are on a nonconcurrent basis, and we're advantaged that way. So I think that will advantage us. And it's early days, though. I mean we've worked on, whether it's 25% or 1/3 roughly of our renewals are sort of getting some indications on them. So very early. But I would expect rates to come off maybe in the mid-teens zone, time will tell. And I think we'll have an opportunity to do quite well. It may include taking a few chips off the table. But overall, feeling really good. David Motemaden: Got it. That's very helpful. And then maybe just for my follow-up. Mark, the underwriting expense ratio 6% here this quarter, I mean, that's pretty much where you guys had said you were expecting to be exiting the year. So is -- should we be thinking about maybe a little bit lower on like continuing at this level? How should we be thinking about next year as well? Are we talking about this getting into like the low 5s, just as you guys work on some of the expense efficiencies to help offset some of the top line pressure? Mark Kociancic: I think the 6% to 7% range we talked about is still in order, a lot of different moving parts. So let me put some of those on the table. We're still benefiting materially in the first half of the year from net earned premium stemming on the commercial retail runoff that we have. So that's helping to absorb some of that expense load. I think you've also -- you're seeing in the industry and for us, reduced premium writings this first part of the year. And if that continues, that will also put a damper somewhat on the net earned premium development, which will mechanically increase the ratio. However, we're obviously aware of all this. We run fairly lean or efficiently, I'd say, on the corporate side. I think there's attention, good attention on the corporate expense load of the company to manage it in a disciplined fashion as we exit the retail and navigate whatever the premium environment is going forward. But I still think on a relative basis, we'll keep our expense advantage that we have. It's just that number could move, but not that much. I don't think it's going to be something that's problematic I just wouldn't be prepared to say you're going to be under 6% for any meaningful period of time in the next year. Operator: Our next question comes from Alex Scott from Barclays. Taylor Scott: First one I have is on the reinsurance reserves, sounded like [indiscernible] was net favorable this quarter. I just wanted to check to see if you could give us any color on was there any unfavorable if you look specifically at Casualty? And I mean, from the commentary in the presentation, it sounded like short-tail is doing well. So I'm just trying to understand if there's some level of offset to the positive commentary being made about short-tails or the property comments you made on the call that we need to consider? Mark Kociancic: No, it's doing well, Alex. No problem in Q1. We feel good about the loss picks. We took even more prudent approach, I'd say, with the 2026 loss picks for Casualty Pro-Rata, so feeling good about that. We did the review last year. The roll forwards continue every quarter. We've got our reserve studies coming in the summer, the cedent data that we're getting is pretty much in line with our expectations, and we're seeing good strength from other lines of business outside of Casualty Pro-Rata. So for now, it's steady as she goes. Taylor Scott: Got it. Very helpful. And then just on the investment portfolio, can you talk at all about any exposure you have to private credit, whether it's in your alt portfolio or your fixed maturities? Mark Kociancic: Yes, sure. So we do have private credit exposure. It's roughly 7% of our assets under management, roughly $45 billion of AUM in the company. It's something we've had for a meaningful chunk of time, a lot of diversified type holdings that we have. Direct lending, I'd say, slightly more than half, a lot of first lien secured loans attached to it as well. Software pretty much on the smaller side, I'd say it's probably 15% of that overall 7% that I'm mentioning. But it's performing well. We're not seeing anything meaningful in terms of impairments or watch list exposure. We're not adding to it, but we're quite comfortable with where we are right now. Operator: And our next question comes from Tracy Benguigui from Wolfe Research. Tracy Benguigui: You said you were in your early days with respect to the Florida renewal season. And I heard yesterday from one of your competitors that they placed the half so far. So I just want to talk about the cadence of this renewal season. If tort reform is making the market more attractive, do you think renewal discussions will wrap up earlier, this go around that you typically see? And what does that mean for pricing trajectory? Like is it better to get in sooner? James Williamson: Sure, Tracy. I mean I think every renewal season is the renewal season when we say we're going to get things done earlier and more -- in a more orderly fashion. It hasn't happened yet, but hope springs eternal. Look, I think we are -- as I said, we're a lead market in the Florida market. We have preferred client relationships. The renewal is well underway. And again, I think conditions overall will be fairly strong, given the dynamic of, yes, there is tort reform, which makes it more attractive, but there's also increased demand. And you always have to remember, it's a peak zone for a reason. And I think underwriters across the industry are well attuned to the risks involved in underwriting Florida property. And then as I would just remind everybody, just to repeat something I said earlier, north of 80% of our deals in the Florida market are with nonconcurrent terms, which I think puts us in a terrific position. Tracy Benguigui: Good. And as properties becoming more meaningful in your book, are you deemphasized -- as you're deemphasizing casualty, taking a step back, for prudence, have you made any material changes in your cat modeling process like adding additional loads? Or is it more status quo? James Williamson: Sure. I would say that our cat modeling capability is second to none in the industry, and it's a core competitive advantage of ours. So we're always enhancing our cat models. We have a fully dedicated team of PhDs, math experts, seismologists, volcanologist, you name it, on staff who are always incorporating the best scientific research, whether it's trends around climate change, views of the legal environment, et cetera. So we always want to be on the cutting edge of where we are on modeling. And -- and again, I think that's a core advantage of ours. Operator: Our next question comes from Yaron Kinar from Mizuho. Yaron Kinar: First, congratulations, Mark, on the retirement. Couple of questions. One, and I apologize for asking you, Jim, to pull out the crystal ball here. But I think you said that property cat rates remain above adequate at this point. So assuming that we have like a normal hurricane season this year, at what point would you think that the industry inflects back to flat or even property rate -- property cat rates increasing? James Williamson: Sure. It's a good question, and my crystal ball is out of order at the moment on that to mention, Yaron. I mean, look, here's what I would say. The first thing, and I know others have said this over the last few days, but -- while rates are coming down, there is also this underlying sort of floor of discipline that's occurring as well, which really gets reflected in terms and conditions, attachment points are very strong which tells me that underwriters are alive to the risks that we're taking and they're allowing rates to fall because pricing is above the levels they think they need to achieve in order to earn a reasonable return for the risk. I think there's probably still -- there's still some room, but our view and the communication we're having with our clients is, we've been a consistent supplier of cat capacity. We're a lead market. We want to get paid reasonable levels. And our view is that pricing shouldn't continue to fall. So we'll just have to see how it plays out. I think one thing that I take away from some of what I've heard in the market over the last few days from others is that you do see the lead markets taking chips off the table. And I think that's a very good sign that the market will find a reasonable rest in place from which we then can have sort of a normal market cycle. And I've said pretty consistently since the January 2023 renewal that it's my view that, that renewal was a reset around which you would see a market oscillation. And I think that's playing out and it will be up to the lead underwriters to sustain their discipline if -- when we're talking about the January 1, '27 renewal and beyond to ensure that, that is in fact what comes to pass. Yaron Kinar: That's very helpful. And then my second question is, can you size the earned premium base associated with the loan loss provision? The reason I asked this is I just want to make sure that as we think about underlying loss ratios that we have the right base here to the model into the future? James Williamson: I mean I can give you some indications. But one thing to keep in mind is a lot of the covers that are going to get affected are global in nature, especially a lot of the covers coming out of the London market. So how much of that premium is attributable to that particular region is really an impossible game. What I would tell you is if you look at our Middle East reinsurance business, meaning we have a team that's an exceptional team that's been writing in that region for a long time. And they write 4 clients based in the Middle East. That business alone is in the neighborhood of $300 million a year in gross premium. So the reinsurance loss that we've pegged for Iran is $40 million. So it gives you an idea. It's a meaningful kind of a cat number against the $300 million, but not outsized. For the rest of it, again, it would be sort of impossible to attribute an actual market size, too. But I think a [ $57 million ] provision, which we feel is quite prudent, given where the conflict is at the moment relative to a global diversified insurance and reinsurance business is a pretty modest number. Operator: And our next question is Ryan Tunis from Cantor. Ryan Tunis: First off, congrats to Mark. Jim, I wanted to go back to the attritional loss ratio in Global Specialty, the 58.9% -- make sure I'm thinking about this right. On the pro forma, that's like more than 4 points lower than what you did in 2025, which seems like quite a bit. Is that just lowering a loss pick just based on just a brand-new view of profitability? Just help me wrap my mind around that just a little bit better. James Williamson: Sure, Ryan. Happy to unpack that. I think there's a number of things happening. The first thing to keep in mind is that we have shifted the mix pretty meaningfully over that time. And some of it you see when you look at it by line, if you look at, for example, in the quarter, the growth of our Specialty businesses has a pretty meaningful impact on that number. I think then even beneath that, there's dramatic changes to the underlying portfolio. So for example, if you go back a couple of years to our U.S. wholesale business, we might have been writing a fair proportion of open -- what I would call open market E&S Casualty business. Just submissions are coming in, you're writing excess umbrella, often lead umbrellas, loss ratios on those are very elevated. I mean we've moved almost entirely away from that kind of business. What are we writing today? Well, we have experts that we've built that great team. I got a question earlier about the team we built. They're writing, for example, new risks around data centers. We have deep expertise in the area. We have a specialized product. It's still casualty. But if you look at liability profile, we might be writing an umbrella limit, a $5 million limit that might have used to be a $10 million. It's not lead anymore. We're farther up in the tower. Pricing is dramatically better. I mean those things do start to inure to your benefit in the loss pick. And I can tell you, we've been incredibly conservative in how we've reflected any of that in the number. But it's been so dramatic that I do think it justifies some movement, and that's how you get to the number where we are now. Now I do want to reiterate and maybe expand a little bit on something I said earlier in terms of where does this go from here? I feel good about the picks. Mix is really going to make a meaningful difference. And when you're in an environment where you have pricing moving in all directions. So property pricing is coming down in the core market, but casualty pricing is accelerating in a number of areas. We've got a bunch of specialty businesses. I think the relative growth of those businesses could move that average loss pick up or down and still result in really terrific overall results. So just be aware that there's some of that going on. Ryan Tunis: Got it. And then I guess just for modeling purposes, just thinking about how the invested asset base moves this year is just a little bit weird with the AIG runoff. I mean is there any rough rule of thumb on how we -- how you guys are thinking about growth there relative to the decline in premiums that's coming from those net retail business? Mark Kociancic: Ryan, it's Mark. I would expect it to be more marginal AUM growth. So part of it, to your point, is the reduction in the retail business. You've got, at least in the first quarter, diminishing gross written premium also being somewhat of a headwind. And you're seeing us emphasize buybacks, which is clearly a good thing, but a drain on AUM. So the other side of it, we'll see how the reserve paydowns progress, particularly in the Legacy segment, that will be something that also impacts it. So I would probably go with more of a flat to marginally -- marginal growth in that area. But it's dependent on all these factors on a quarterly basis. Operator: And with that, ladies and gentlemen, we'll be concluding today's question-and-answer session as well as today's conference call. We do thank you for joining. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 FTAI Aviation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference will be recorded. I would now like to hand the conference over to your first speaker today, Alan Andreini, Investor Relations. Please go ahead. Alan Andreini: Thank you, Marvin. I would like to welcome you all to the FTAI Aviation First Quarter 2026 Earnings Call. Joining me here today are Joe Adams, our Chief Executive Officer; David Moreno, our President; Nicholas McAleese, our Chief Financial Officer; and Stacy Kuperus, our Chief Operating Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements. including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Joe. Joseph Adams: Thank you, Alan. The first quarter was a solid start to the year for us, and we'd like to begin this morning by highlighting the key objectives for each of our businesses in 2026 and the progress we made during this first quarter. Across aerospace products, strategic capital and power, we are scaling platforms with strong structural demand in a disciplined manner in deploying capital to support growth where we see the most attractive long-term returns. I'll start with aerospace products. First, a top priority for us in 2026 is to focus on accelerating our market share growth. As our production capabilities, parts procurement strategies and overall MRE customer adoption reach an inflection point, now is the time for us to take full advantage of our competitive moat and focus on market share growth. As a reminder, we're only 5 years into building our aerospace products business, and as the business continues to mature and grow, we have the opportunity to leverage our enhanced execution capabilities to take more market share more quickly from traditional engine maintenance shops. Second, as the market for the CFM56 and V2500 engines continues to mature, we've seen a notable increase in demand for leased engine solutions from top-tier airlines. even those with in-house engine MRO capabilities. We offer flexibility customized pricing and scale that no one else can fulfill and these large programs are very sticky. It's a key priority for us in 2026 to win more of this business. Third is production. We've always talked about expanding production capacity well ahead of growth as well as adding maintenance facilities in parts of the world where we see strong traction with our customer base. It's notable today that when you look at the map, we have no major maintenance facilities east of Rome, Italy. I'd expect this to look different when we are in next year's first quarter call. Turning to results. Aerospace Products results support the objective I just outlined with top line revenue growth accelerating both year-over-year and quarter-over-quarter, up 104% year-over-year and 32% quarter-over-quarter, respectively. First quarter adjusted EBITDA of $223 million is an increase of 70% year-over-year and up 14% from $195 million in Q4 of 2025. EBITDA margins for the quarter of 30% are indicative of an increased mix of deals with large airline customers and a larger mix of full performance restoration shop visits. We expect this to be the trend line going forward as our capabilities have been built out, and we're able to bring volumes to the market that others simply cannot. Shifting now to strategic capital, where our top priority is completing the deployment of the 2025 SPV or special purpose vehicles. Our deployment pace for the first vehicle has been strong, and our engine maintenance focused approach to adding value to aircraft ownership has been well received by the market. As we approach the end of the second quarter, the 2025 SPV will be fully invested, and we will shift from the deployment period to the harvest period where quarterly distribution will now begin. David will share more with you about the goals for adding value to the portfolio during this phase. As an active asset manager, we're always pursuing ways to enhance the returns above what is the contractual lease stream. Our second area of focus for strategic capital is the launch of the 2026 SPV. We continue to plan to have a first close at the end of the second quarter, and we'll start acquiring aircraft in the third quarter of this year. The investment strategy 12- to 15-month deployment period and size of the vehicle will be consistent with the 2025. Last, to support the build of the Strategic Capital business we've added to the team and now have over 40 dedicated individuals focused on sourcing, underwriting and servicing the portfolio across offices in Dublin, Dubai, Cardiff and New York. The growth ambitions and differentiated strategy around engine maintenance has resonated in the market and we've been able to attract great talent to supplement our existing team and scale the platform. Finally, the FTAI Power business continues to make strong progress towards its commercial launch in the fourth quarter of this year. This week, we signed an important joint venture agreement with the Jereh Group for packaging and customer conversions that are in advanced stages, both of which David will share more details about shortly. Before I pass it over to David, I want to address the conflict in the Middle East that began at the end of February the broader geopolitical environment our industry is navigating today. We are hopeful for a peace of resolution and a return to more normal energy trading and prices but we're also realistic about some of the challenges of today's environment. Beginning with aerospace products, our exposure to the Middle East is limited. Less than 3% of our global current gen narrow-body fleet is based in the region, and we have very little customer exposure. More generally, we've not seen any meaningful change in shop visit demand to date. That said, elevated oil prices and fuel prices do negatively impact our customers' financial situation, and while this can create some volatility, it's the exact environment where our FTAI value proposition becomes even more critical to the customer. When an airline is facing a multimillion dollar engine shop visit in comparison to a faster, lower-cost engine exchange with FTAI, the decision is even easier to make when liquidity is top of mind. It's also worth remember that airlines cannot meaningfully change their fleets in response to short-term volatility. New aircraft orders are locked in for the next 4 to 5 years. and the current generation aircraft will continue to be a vital part of the global fleet for many, many years. In short, market share gains in aerospace products are much more consequential to us compared to overall market growth. Our strategic capital periods of volatility create opportunities -- investment opportunities, when liquidity is tight, sale-leaseback transactions help raise funds and avoid future shop visits. As the only lessor in the world that covers all engine maintenance for its aircraft portfolio, we are uniquely positioned to help airlines in this matter. pAnd lastly, for Power, our business is largely insulated from the geopolitical dynamic today. The MOD 1, our product runs predominantly on natural gas. And to the extent we see additional aviation retirements that will just provide additional feedstock to grow our conversion efforts. So I will now hand it over to David Moreno David. David Moreno: Thanks, Joe. I will start by providing an update on aerospace products production. We refurbished 270 CFM56 module this quarter across our 4 facilities, an increase of 96% compared to Q1 2025. This is a good start to our 2026 production goal of 1,050 modules and continues to reflect the hard work of our fast-growing team. As Joe mentioned, we have built a strong aerospace products foundation over the last 5 years, and we are ready to further accelerate our market share growth. From a commercial perspective, we are seeing customer engagements expand to larger, more programmatic partnership as airline adoption accelerates. This is driven by both the overall market tightness as well as FTAI's capabilities continuing to broaden to now include engine and module exchanges, engine leasing and aircraft leasing. We can't emphasize enough the stickiness that's created as our relationships with airlines and asset owners expand. We become a solution provider that is integrated into the operational plans for the airline's future growth. Our close relationships with airline customers is something we are very proud of, and we believe this will continue to accelerate our market share in the years to come. Next, I'll share a further update on our strategic capital. To support the full deployment of the 2025 SPV, we upsized the vehicle's warehouse debt facility at the end of March, adding $1 billion of committed capacity. This facility is now $3.5 billion in size across 10 lenders, creating a strong roster of partners for our significant debt capital needs in the business going forward. As we mentioned last quarter, capital deployment for the 2025 is largely complete. We have closed 165 aircraft as of the end of Q1. And after we sign a few LOIs that are in process, all new aircraft will go into the -- all new future aircraft will go into the 2026 SPV. With the 2025 SPV transitioning from investment mode to harvest mode, we are very focused on maximizing the value of potential cash flows for our investors. We do this through active management of maintenance events, both airframe and engines as well as through lease extensions. We continue to see strong desire from our airlines to fly current gen aircraft as long as possible. especially when they do not have to worry about engine shop visits. Our all-in-one solution of combining leasing and engine maintenance has resulted in many lease extensions, and we believe this will continue to be an important trend in the portfolio. Finally, on FTAI Power. I want to share updates on the timing of our commercial launch, our packaging integration and progress with customers. First, we remain firmly on track to commercially launch the MOD 1 in the fourth quarter and our prototype testing is actually running ahead of schedule. We have completed all the major mechanical testing milestones, including testing our redesigned Mod 1 fan stage at synchronous speed and we expect to wrap up final testing in the third quarter. The results to date have exceeded our expectations. We have been also hosting customers on-site to observe the Mod 1 prototype directly, and that has become an important part of how we sell this product. Second, as Joe mentioned, we signed a joint venture agreement with Jereh Group, one of the leading packagers for mobile gas turbines. This is a foundational step for the program as Jereh will be our primary partner responsible for taking our turbine and combining it with the mobile package that includes the key components like the generator and gearbox. Through the joint venture, we will draw on Jereh's manufacturing footprint across the United States, the UAE, Canada and China, which gives us scale, geographic reach and a clear path to global product rollout. The joint venture derisks our supply chain accelerates our speed to market and align the incentives of both parties across the long-term success of the platform. Third, we are building a customer base committed to the long-term deployment of the Mod 1. The customer momentum we discussed last quarter has accelerated meaningfully. We are indeed in active negotiations with leader across the energy and digital infrastructure landscrape, and every one of these deals is anchored by long-term service agreement or LTSA on the turbine. One exciting element is that customers are coming to us with a range of commercial structures in mind from outright purchase to lease, which speaks to the flexibility of our model and the strength of the underlying demand. The interest in lease structure in particular, fits naturally with our strategic capital initiatives and gives us the ability to offer customers a sought-out after leasing solution while preserving capital efficiency. Several of these conversations are framed around multiyear multi-block deployment plans, which gives us visibility well beyond 2027. Last, what has resonated most with customers is the maintenance model. The ability to swap a turbine in place in just 2 days rather than taking the unit offline for an extended overhaul is a capability that the industry -- the power industry has not had access to before. and it translates directly into a lower levelized cost of energy or LCOE for the customer. Based on these conversations stand today, we expect to be mostly sold out of our 2027 target production in the near term with a meaningful portion of 2028 spoken for. Before I hand it over to Nicholas, I want to take a moment to congratulate him on his promotion as CFO; as well as Mike Hasan on his promotion to CIO. Both Nicholas and Mike have been key contributors to our operational success and their new leadership roles they are positioned to have a large impact on our future success. With that, I'll now hand it over to Nicholas to talk through the first quarter numbers in more detail. Nicholas McAleese: Thanks, David. The key metric for us is adjusted EBITDA. We started 2026 with adjusted EBITDA of $325.6 million in Q1 of 2026, which represents a 17% increase compared to $277.2 million in the fourth quarter of 2025. The $325.6 million EBITDA number was comprised of $222.6 million from our Aerospace Products segment, $153 million from our aviation leasing segment and negative $50 million from Corporate and Other, including interest segment eliminations and start-up expenses associated with our power initiatives. . Aerospace Products delivered another good quarter with $222.6 million of EBITDA and an overall EBITDA margin of 30%. This is up 14% sequentially from $195 million in Q4 of 2025 and up 70% year-over-year compared to $131 million in Q1 of 2025, reflecting continued momentum from production growth and operating leverage. Turning to Aviation Leasing. The segment continued to perform well, generating approximately $153 million of EBITDA in the first quarter. This included $45 million of insurance recoveries, $12 million in gains on sale, $25 million from 2025 SPV management fees and co-investment returns and $71 million from leasing assets held on our balance sheet. For insurance recoveries, in addition to the $45 million recognized in the first quarter, we continue to expect approximately $5 million to be settled later this year, consistent with our previously communicated $50 million for 2026. When combined with the $65 million recovered during 2024 and 2025, this brings total recovery since the outbreak of the war in 2022 to approximately $115 million against the $88 million we rolled off in 2022. For gain on sales, we began the year with $127.5 million in asset sale proceeds, generating a 9% gain or $12.1 million. as we closed the first 9 of 14 aircraft expected to be sold to the 2025 SPV this year and divested several noncore assets during the quarter, including airframes and an Orbi211 engine. Overall, as we continue to launch new strategic capital vehicles on a programmatic basis, we expect the mix of leasing EBITDA to increasingly shift towards strategic capital-driven earnings as we further pivot away from balance sheet aircraft leasing and toward a more capital-light fee-driven asset management model. This shift in our business model is also driving continued improvement in our financial profile. We began the year at approximately 2.3x leverage on an annualized basis, now below our targeted range of 2.5 to 3x agreed with our rating agencies. meaningfully lower than the leverage levels of approximately 5x in 2022 and 4x in both 2023 and 2024 before we pivoted to an asset-light strategy. In April, we also upsized our revolving credit facility from $400 million to $2.025 billion and extended the maturity of the facility through 2031 on improved pricing terms, providing SPI with a long-term source of liquidity. The facility was significantly oversubscribed and are supported by a diverse syndicate of 15 lenders, including several institutions that also finance the debt facility of our 2025 SPV. As we continue to scale our asset management platform, this alignment across financing relationships enhances flexibility, lowers our cost of capital and delivers tangible financial benefits to the public company. Finally, in the first quarter, we generated $158 million of adjusted free cash flow, reflecting several strategic investments made early in the year to position the business for further growth in 2026. These included approximately $75 million in prepayments under our multiyear CFM56 parts agreement with the OEM, approximately $81 million in induction prepayments for V2500 engines, where demand for full performance restoration remains strong, a $19 million of incremental inventory for FTAI Power to build working capital in support of a targeted 100-unit production run in 2027. Excluding these growth investments, adjusted free cash flow for the quarter totaled approximately $333 million, reflecting the strong underlying cash generation capability of the business. With that, I'll hand it back over to Joe for final remarks. Joseph Adams: Thanks, Nicholas. I'd like to reiterate how encouraged we are by the start of 2026. Despite a dynamic geopolitical backdrop, demand across our customer base remains robust, execution across our 3 platforms is extremely strong and the strategic investments we're making today position FTAI well for continued growth in 2027 and beyond. While developments in the Middle East remain fluid and could present both challenges and opportunities, we continue to see strong underlying fundamentals across our business and a durable competitive advantage in all of our platforms. Consistent with our view, we reaffirm our 2026 total business segment EBITDA outlook of $1.625 billion, comprised of $1.05 billion from aerospace products and $575 million from aviation leasing supported by growing and accelerating demand across our proprietary aerospace offerings. Based on this outlook, we also remain confident in our expectation to generate approximately $915 million of adjusted free cash flow in 2026, which reflects continued execution against our annual production plan of 1,050 CFM56 modules to meet customer demand while prioritizing excess cash flow for reinvestment in high-return growth initiatives, including M&A, minority investments in the 2026 SPV and the continuing development of FTAI Power. As a result of this confidence for the third consecutive quarter in a row, we're announcing an increase to our dividend from $0.40 per quarter to $0.45 per share per quarter. The dividend will be paid on May 26 to shareholders of record as of May 13. This marks our 44th dividend as a public company and 59th consecutive dividend since we started. As we look ahead to the rest of 2026, our focus remains on building a durable, scalable and differentiated platform that delivers value over the long term. The investments we are making across aerospace products, strategic capital and power are designed to strengthen our competitive position, expand our addressable markets and support sustainable growth for many years to come. And I want to recognize the teams -- fabulous teams across our organization for their continued focus on execution and delivery in a demanding operating environment. And I also want to thank our customers and partners for the trust they place in FTAI as we help them navigate capacity constraints and rising demand and our shareholders for their ongoing support as we continue to scale our business. We are focused on executing against the opportunities in front of us and remain confident in FTAI's ability to deliver. With that, I will pass it back to Alan. Alan Andreini: Thank you, Joe. Marvin, you may now open the call to Q&A. Operator: [Operator Instructions] And our first question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Nice quarter. I have 2 questions, if that's okay. First one is on Aerospace products. Market share continues to climb higher, up from 10% to 12% while the margin rate is healthy, but has taken a step back. Can you maybe talk about some of the puts and takes? How much came from higher work scope versus the market share in new customers. Joseph Adams: Yes. I mean we really don't have a specific breakout of the components. It's really a mix of things that go into it. And as we mentioned previously, as the customers get bigger, the potential orders get bigger, the work scopes get bigger. We are consciously going for a higher market share and to drive faster growth in EBITDA in an absolute dollar amount. And we think that moves the needle much more than anything else and really the opportunity to take advantage of this scale that we have today. and really capture as much of the market as possible is something that we've been working hard to get ourselves in a position to be able to do for years, and we feel like we're there at this point. David Moreno: Yes. And this is David to add to that, right? I think as Joe mentioned, the scale is intentional. It's obviously intentional on the aerospace products, but it's also intentional across the value it creates on our -- on the entire business, right, our strategic capital and our power business. So when we look about -- think about the value creation, there's no better lever than increasing market share for us as a top priority. Sheila Kahyaoglu: Great. And then maybe, David, you mentioned much of the '27 '28 modules should be committed to in the near term. Can you give us some flavor of what your customer set looks like and the underlying assumptions in terms of volumes and packaging capability as you get into the 2028 time frame? David Moreno: Yes. So we've made meaningful progress with customers. As I mentioned, we've had customers on site as well to look at the prototype, understand that. I think that's a very important piece of the sales process. So to give you a little more color, the customers really consist of 4 types of customers. #1 hyperscalers, #2 data center operators; #3 gas distributors and #4 financial sponsors. There's a lot of activity from financial sponsors who are actually -- who are providing a lot of capital in this space. We feel very good about being where we're at and we expect to be, as I mentioned, in a short matter of time sold out of 2027 volumes. The conversations we're having are beyond '27, they're multiyear multi-block conversations. So we're talking about conversations or orders into 2028 and beyond. And I think that's a very important piece is when we built this, we wanted to create a diverse group of customers, really with the intention of having them operate this base load for a long term. And I think we seen that, and we're very happy with the progress. And as I mentioned, I think we're kind of in the final steps here, and we hope to update you guys shortly. Sheila Kahyaoglu: Got It. Share in Aerospace and Power, makes sense. Operator: Our next question comes from the line of Ken Herbert of RBC. Kenneth Herbert: Joe and David and Alan and Nicholas. Maybe, Joe or David, can you just talk a little bit more about the relationship with your JV partner, Jereh Group? And maybe how that came about, why you picked them and the value uniquely they sort of bring to this FTAI Power opportunity? . David Moreno: Yes, this is David, Ken. So I can take that. Yes, we're very excited about our partnership with Jereh Group. They're one of the largest oil and gas equipment manufacturers across the world. And what they're going to be doing with us is they're going to basically handle everything except the turbine, right? What that means is the actual trailer, all the key components on the trailer, including the generator, the gearbox and all the controls. And that will allow us to focus on the Mod 1, which is our -- obviously our specialty around the turbine. Jereh, we selected Jereh because of their scale in manufacturing. They have manufacturing facilities across the U.S. Canada, the UAE and in China, so that scale is obviously an important theme, and it's something that we're going to continue to talk about as well as they have a lot of experience with aeroderivative packaging package turbines for, let's say, folks like GE Venova, Baker Hughes, Siemens, and that they can create a lot of value and everything but determined. So I think it's a really good marriage between both companies, and we have shared incentives to continue to work and scale this business together. Kenneth Herbert: Does the work with Jereh at all impact sort of your access to the post sales economics and we think around maintenance and spare parts and other ways to sort of monetize obviously, the FTAI power? David Moreno: Yes, I would say there's no real change to how we've talked about economics, right? So the overall unit economics will remain roughly the same in line. right? But obviously, a part of this will come through a joint venture. So the way that I will look on the face of the financials may be a little different, meaning revenue may be slightly lower and then we'll have earnings piece of this earnings through earnings in a joint venture. But overall, the unit economics remain the same. Obviously, as part of the Jereh Group handling the packaging. That means for us, we'd have to invest less in working capital around the packaging piece of the equation, which is obviously a good part -- but overall, they're best in class. They can package at scale and they're vertically integrated. So they add a lot of value there. So it does not have any impact on our overall margins. Yes. And I think we talked about this on the call, but we're obviously very focused on the long-term service agreement when we talk about economics to FTAI on the turbine. What that is, is effectively customers will pay for us to service the turbine. And I would think of that as very similar type economics as our aerospace business, where effectively, customers will pay us based on usage. And depending on usage, every 3 to 6 years, turbines will have to get replaced. And we're going to be handling that through our exchange business, which we're very excited. And what that means is, effectively, we can replace these turbines in 2 days or less. And we're excited because typically, the lead times of doing maintenance on turbines is actually a bit longer than the aerospace business. So we think that's going to be a huge competitive advantage. as well as a revenue stream, which we're very excited about. . Operator: Our next question comes from the line of Kristine Liwag of Morgan Stanley. Kristine Liwag: Maybe, David, since you're talking about power, I just want to touch a bit more on some of the things you said. So I just want to clarify, when you said that you're mostly sold out for 2027, does this mean that these things are accounted for and you're just waiting for ink to dry on the orders? That's the first question. And also the second question, can you provide more color in terms of how your interactions are with these hyperscalers? What's important to them? When you talk about being able to service these engines these turbines at a shorter period. Is that a key differentiator? Are they valuing this? And ultimately, how competitive is your offering to what they're considering right now? David Moreno: Yes. Yes. So we're in advanced negotiations. I'd say we're in kind of the final steps, and we expect, let's say, to be sold out imminently. So that's the first question. As far as the second question, what differentiates our product and what's important for our customer really it's 3 things, right? Number 1 is speed to power, right? So customers want units now, right? There's really a shortage of equipment out there. And our unit is mobile, and it can be installed in less than 2 weeks. So that's a big value add, very different than, let's say, an EPC or construction that takes, let's say, could take up to 18 months. Number 2 is scale. Customers want scale. I think now between our ability on the turbines as well as Jereh's ability on the packaging we have really scale that no 1 has today. And then number 3 is really reliability of the product, which includes, obviously, the reliability of the turbine. So it's the CFM56, it's the most durable engine ever produced and then as well as the maintenance or the servicing of it, which is a huge advantage, right? Ultimately, if you can service a unit in 2 days versus 6 months, that ultimately means you need less units and it's lower operating costs for our customers. So all that's very important, and I think they're very excited about the Mod 1. And again, we we've really been thoughtful about building the customer base, not just thinking about 2027, but thinking about the longevity of this platform. Kristine Liwag: Super helpful, David. And then you guys have historically talked about the power margins would be better or equal than aerospace products. With your investment now in higher market share for aerospace products within the margin pressure that that's yielding. Can you talk about where you think power margins could be in the long run? I mean, compared to when you guys have talked about the power initiative, this ability to turn around the maintenance in 1 to 2 days, it seems like a very significant opportunity. So does that materialize in better pricing, better margins. Anything to level set us on power margins and what to expect for '27 and '28 8 would be helpful. David Moreno: I would say our margins, right, when we talked about it, are going to be in line to our historical Aerospace margins, right? So I would say there's no changes based on our growth in market share on aerospace, that has no impact on power. We're obviously going to be providing more color as we progress through the specifics of these contracts. But you're right, the long-term service agreement is a key differentiator. It's really value add for the customer. And for us, it's recurring revenue, right? It really sets up a long-term base. Typically, the type of contracts we're going to enter are going to be long term in nature. so let's say, 10 years plus. And I think that's a very important piece because it's not only the day 1 sale, but it's also the ability to provide services on that equipment, which is a huge differentiator for our customers and something they prioritize when talking to us. Operator: Our next question from the line of Giuliano Bologna of Compass Point. Giuliano Anderes-Bologna: Congratulations on the continued impressive results in the scaling of the business. The one thing I'd like to focus on is the real acceleration in the module count in producing 270 this quarter. Can you tell us more about what's driving that acceleration in the module production because it seems like a pretty impressive acceleration in your production volumes. And be curious about the durability and where things should go from there because it very well. versus your stated targets for the year. David Moreno: Yes. No, no, we're proud of the execution from the team, right? And as we said all along, right, we've been really focused on execution, and that includes adding the capacity, which we've done. Number 2 is the people, right? We've been focusing on adding the right people and we've talked about the trading academy so that continues to be humming. And then obviously, number 3 is execution. So we're very excited. I think that's playing out in the numbers. As you mentioned, we went from 138 modules in Q1 in 2025 to 270. So pretty dramatic increase year-over-year. And I would point out that Rome and Lisbon are still ramping up. So I think we see a lot of momentum from those facilities and a lot of growth coming. So we're very excited. . I think Joe also mentioned this earlier, we continue to look for additional capacity east of Rome. I think that's a key priority for the business. We want to get ahead -- well ahead of capacity as we continue to go for market share. Joseph Adams: And I think also having a part supply deal from the OEM helps us scale as well, and that's a huge provider of parts, you need parts people and facilities to build an engine. And so we've really concentrated the last year on all 3 of those. And the result is we're able to double production year-over-year. Operator: Our next question comes from the line of Josh Sullivan of JonesTrading. Joshua Sullivan: Just wanted to touch base on the conflicts in the Middle East? I know your exposures be limited. But if this is a projected broader event, given the cost saving tools that FA offers, are you seeing any early conversations with new customers who might feel they're exposed to preparing? Joseph Adams: Well, I think -- I mean, when you get into these environments, liquidity becomes #1, 2 and 3 for airlines to focus on. And so any time that happens, you start having increased on sale-leaseback opportunities, asset sales avoiding engine shop visits. So yes, it's a direct result of when you get into these environments, the priorities change for the airlines customers, and we're there to partner with it. We're always offering help. We've done this in other past crisis. If you think about COVID or back when airlines have been -- the Russian situation. So we're always flexible, and we have a lot of access to capital. and we can save -- so we really go in and try to sort of sit down and work with the clients to figure out what they want -- what they need and what we can do and how to how to help them as opposed to sort of an adversarial relationship. It's really a partnering approach, which has worked very well. Joshua Sullivan: And then I guess kind of relatedly, are you seeing any acceleration in engine assets for sale in the Middle East or Europe becoming available as a result of the conflict. And I guess it's really a question on the retirement dynamic and how that's playing out in your view. David Moreno: Yes. No, it's early. So we're not seeing that yet. As Joe mentioned, obviously, for us, we want airlines to do well, the entire aviation industry is better when airlines are doing well, but we're well prepared with the tools that we have, right? I mean, Joe covered it, but the ability for us to do a sale leaseback with engine management really has 2 benefits. day 1, you create liquidity and day 2, you avoid the expensive shop visits. So we're really 1 of 1 that can execute at that scale. So it's still early, but we're prepared to help when the time is right. Joseph Adams: I mean the only thing you see in the beginning are if people were flying A340s or 747s or sometimes some regional jets that are either high -- really high cost or low revenue those can be taken out of operation, and that's sort of what you see in the early periods. But core fleets that people need to operate their schedule and they plan over multiple years and you can't get replacement capacity. It's been such a tight market. We don't expect to see much, if anything, on that changing in the next few months, even if this goes on. Operator: Our next question comes from the line of Brandon Oglenski of Barclays. Brandon Oglenski: Joe, can you speak maybe a little bit more on the customer profile of these larger airlines that you had in the quarter? And looking forward, as you seek to get more market share here. I think this might actually be very much a validation of the model that you have here. But I don't know, maybe you want to elaborate? Joseph Adams: Yes. I mean it's a great question because I mentioned last time that if I was talking to some of the big airlines 12 or 18 months ago, they would have been somewhat, we don't need this product, and we're a little bit more dismissive. But now we talk to airlines, virtually everyone in the world is a potential customer, if not an actual customer today. And the reason is, you can go to an airline and say, you tell me what you think you're going to spend to rebuild an engine, and I'll match that price or beat that price for you. And I'll get rid of all of the expenses you have to incur to manage that event like spare engines, engineering departments and the risk that the cost becomes -- you have a negative surprise in the cost overrun, all that goes away. And it's like who wouldn't want to do that. So it is a great pit. So when airlines hear that, and they think about it and say, why shouldn't I -- particularly if I'm moving into the new technology that believe and even if I have my own maintenance capabilities, why shouldn't I begin to use this product, at least for a portion. And then ultimately, a conversation becomes or if you like it for 10% of your fleet, why not 100% of your fleet. And we have conversations now where we go into an airline and we might have acquired some aircraft on lease to an airline through SCI, and the airline says, we go in and say, "Great news. You never have to do another engine shop visit on that fleet ever again. So you don't have to fight with our lessor, and you don't have to manage the engine shop visit and end up spending a lot more money, and they like, that's fantastic. Why don't you go try to buy all of my other leased aircraft from other lessors and convert those? And so they're actually helping us to expand the relationship. And ultimately, the goal is to manage for an airline -- their entire fleet. And once you get to the level of comfort, like why wouldn't they want to do that? So I would say virtually every airline in the world, I can't think of maybe a handful that might not, but almost everybody in the world is an actual or potential customer. Brandon Oglenski: And Nicholas, I think you -- congrats on the new role, but you improved liquidity with a larger revolver, but I think also enhanced the warehousing facility on SCI. Is that correct? Nicholas McAleese: Yes. Thanks, Brandon. So I think it's probably important to clarify first, they are 2 independent facilities from each other. So the revolver is related to the public company and is the primary source of liquidity. The warehouse upside was all related to closing out the deployment of capital for SEI One as we tracked about $6 billion number. But said that, we do have lenders in both facilities. across them. And then so as we become a bigger and bigger player on the SCI, we're able to see financial benefits. And we're both very pleased with the outcome of this is that we're able to improve terms on the public company given we're becoming a much larger player on the SCI. Brandon Oglenski: And can you just put that in context of your expected capital commitments or capital cost at the corporate level looking out the next year or 2? Nicholas McAleese: Yes. So for the first SCI, we did -- we have 19% of the $2 billion that we closed earlier in the year. the capital call for that, there's approximately $95 million remaining from that as of 3/31. We do expect that to be closed by Q2, and that will fully close that. As a reminder, SCI 1 is a closed-end fund -- so once we commit that capital, we'll then switch from being in investment mode to harvest mode. And at that point, we'll start doing distributions back to all of the institutional LPs, including FTAI for its 19%. Related to SCI 2, we are actively now in the equity fundraising mode. So from that, we will expect to deploy capital in the second half of the year. but the timing of that will ultimately relate to the cadence of when we first do our equity closing. Operator: Our next question comes from the line of Brian McKenna of Citizens. Brian Mckenna: Okay. Great. So there's clearly a lot of noise across private credit today, although most of that is within corporate direct lending, but what are your dialogues like today for SCI 2. We've been hearing that institutional allocators continue to deploy capital in a big way across private credit despite all the rhetoric out there, specifically into ABF opportunities. So I'm curious what you're seeing on this front. And then from your seat, what's ultimately driving such strong demand for your product? Joseph Adams: Well, I would say, ultimately, it's returns. And these are -- we're not seeing any impact from whatever the private credit side is experienced in withdrawals or redemptions because our investors are all committed into private equity style vehicles and nonredeemable structures. So it has no impact on our ability. And really what people like is an uncorrelated asset-based return that has high contractual cash flows. And that's a sweet spot in the market. It always has been. It is -- and we hit that perfectly. So -- and what we're able to show people is a higher return with lower risk, which is another thing that every investor I've ever met is always trying to find that. So we're able to show better returns than a traditional approach given our engine maintenance exchange program. and lower risk because we have less residual value exposure. So there's really nothing -- what we offer is a great product in today's world. And all of the investors in the first SPV or we're doing this with an idea that it would be a program and they would be able to do this over multiple funds over the next few years, and they're seeing great returns. And so they're very happy with what we've been able to do and are very committed to continuing to invest. Brian Mckenna: That's helpful. And then you're clearly building a great network here of alternative asset managers and large institutional allocators for SCI, but I'm curious. A lot of these large investors also own or are invested in data centers and energy-related infrastructure. I think you guys alluded to this a little bit, but is there an opportunity to leverage some of these relationships on the SCI side to further enhance the adoption and distribution of your power product over time? David Moreno: Yes, this is David. And the answer is absolutely. So we're -- we've talked about the demand being -- a lot of demand for leasing, long-term leasing. And we're thinking about it very similar to the way that we thought if you think about our Aviation business, where we can create these long-term contracted cash flows. And then our capital partners are very much wanting to invest in these type of assets. So we feel very good about being able to scale that. And I think that's a very capital-efficient way to do so. So absolutely. Joseph Adams: It also further differentiates our product because most equipment sellers don't offer financing. And so we -- when we go to the customer, we say like we did in aviation on the power side, you can either buy it and you can lease it or you can have a power purchase agreement. You tell us what you want. And that flexibility is hugely beneficial to today's world where there's a lot of demand for capital, as you can see. And people are trying to figure out how to make it go farther. So the flexibility that we can offer on the financing is extremely well received, and it's a perfect structure for an SCI power vehicle. Operator: Our next question comes from the line of Shannon Doherty of Deutsche Bank. Shannon Doherty: First one for Nicholas and congratulations on your new role. After the additional $5 million of expected insurance proceeds this year, will you be completely finished with the insurance claims? Nicholas McAleese: Thanks, Shannon. Yes, that's correct. So we settled on $44.6 million in Q1, of which we received $20 million -- $27 million of that -- the balance of that will be received in Q2 from cash proceeds. And then remaining that $5 million is consistent with our original guidance of $50 million. After that, that will be ultimately it and closed. Shannon Doherty: Great. And for my second question, any update on the progress of getting the remaining PMA parts approval with the -- we all know that parts inflation is an issue for everyone in the industry right now. So maybe you can provide us with some more color on levers that you can pull to manage costs? Joseph Adams: Sure. So -- I mean, just to recap, there are 5 parts in total that [indiscernible] has been working on 3 are approved. Those 3 represent about 80% of the total cost savings. So the last 2 parts are in process to getting approved. But the majority of the cost savings is already with parts that are already available in the market. So -- but they are in the works in terms of getting approval for those last 2. Operator: Our next question comes from the line of Myles Walton of Wolf Research. Unknown Analyst: This is Greg Dalberg on for Myles. I just had a quick follow-up on Giuliano's question regarding module production. I wanted to focus more on Miami and Montreal specifically just because looks like Montreal is down sequentially in 1Q in Miami was well above the full year run rate. So can you just talk about the dynamics specifically in 1Q and kind of how those play out through the year? David Moreno: Yes, I can take that. So Montreal is our most mature shop which that means they're going to handle the heaviest work scopes. So the product production mix is based on -- truly on work scope. So Montreal is doing, let's say, heavier shop visits while Miami is doing a bit lighter and then Rome today and Lisbon are doing the lightest work scopes. Unknown Analyst: Got it. And then a quick 1 for Nicholas. Just given the corporate expense in 1Q was embedded with some of the power costs. Can you talk about the full year expectation? Nicholas McAleese: Yes. So we had approximately $10 million in incremental expenses related to power, that's R&D expense, and that's -- but that's also incremental head count from building out the teams of engineers, technicians and support staff. So decomposing that you can assume that we will be approximately slightly less on an annualized level related stuff for 2026. But as in the future years, we plan on growing this into 100 unit production growth, we will be increasing headcount. So in outer years, you can expect that our expenses for Power will continue to grow. But ultimately, there is some onetime expenses in Q1, Q2, Q3 as we do or indeed that will immediately hit our P&L rather than being capitalized. Joseph Adams: But probably in 2027, it will be a segment, and we will not have it in corporate. It will be a sizable business, and we'll set it up as a separate reporting segment. And so all those expenses will be attributed -- allocated to the Power business at that point. Operator: Our next question comes from the line of Andre Madrid of BTIG. Andre Madrid: This is the first quarter in a while that I can remember at least that we didn't see some kind of acquisition being announced. Obviously, still remains a capital deployment priority. I guess just could you give more color as to what the M&A pipeline looks like? Maybe obviously not too deep in the details, but color around scale and maybe geographic location and capability. Joseph Adams: Yes. I didn't realize we've built an expectation. We have an M&A every quarter. But it is hard to control that. But I would say, on M&A, the activity is in 2 different categories. This one is adding capacity to the overhaul business. And we did allude to the fact that we expect by this time next year, that we'll have another facility somewhere east of Royal, Middle East. So we are -- we do have some candidates. We're working on that. it's often hard to control the timing of M&A. So -- but we've been very disciplined and we found great assets to add. And when we get the right structure and the right asset, we can move quickly. So we -- we're working on deals in that category. And then the second area where we've been active is in piece part repair and part manufacturing. And we have several deals that we're looking at in that space as well. So we'll continue to vertically integrate in our product offering. Anytime we can undertake an activity to reduce the cost of overhauling and building an engine. We're going to be very aggressive about that. And we've added -- last year, we added Pacific Aerodynamic and prime through the Bauer partnership. So we'll keep looking and hopefully add additional capability in the repair and piece-part manufacturing business in the future. Operator: I see no further questions at this time. I would now like to turn it back to Alan Andreini for closing remarks. Alan Andreini: Thank you, Marvin, and thank you all for participating in today's conference call. We look forward to updating you after Q2. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, and welcome to Alkami's first quarter 2026 financial results conference call. My name is John, and I will be your operator for today's call. [Operator Instructions] I would now like to turn the conference call over to Steve Calk. Steve, you may begin. Steve Calk: Thank you, John. With me on today's call are Alex Shootman, Chief Executive Officer; and Cassandra Hudson, Chief Financial Officer. During today's call, we may make forward-looking statements about guidance and other matters regarding our future performance. These statements are based on management's current views and expectations and are subject to various risks and uncertainties. Our actual results may be materially different. For a summary of risk factors associated with our forward-looking statements, please refer to today's press release and the sections in our latest 10-K entitled Risk Factors and Forward-looking Statements. Statements made during the call are being made as of today. We undertake no obligation to update or revise these statements. Unless otherwise stated, financial measures discussed in this call will be on a non-GAAP basis. We believe these measures are useful to investors in understanding our financial results. A reconciliation of the comparable GAAP financial measures can be found in our earnings press release and in our filings with the SEC. Now I'd like to turn the call over to Alex. Alex Shootman: Good afternoon, and thank you for joining us. We delivered a strong first quarter, achieving 29% revenue growth and over $22 million in adjusted EBITDA, both above expectations. We closed 6 new digital banking relationships, including 2 banks and 3 Digital Sales & Service Platform clients. In addition, we introduced our first integrated capabilities for the Digital Sales & Service Platform and a new product called Alkami Engage. Our first quarter performance continues to demonstrate Alkami has the potential for long-term durable growth and increased operating leverage. Alkami operates an attractive and predictable business model in a resilient, large and growing market. Our target market is over 2,000 regional banks and credit unions that rely on legacy infrastructure incapable of providing a modern digital experience. A portion of growth comes from displacing these systems. Given industry-standard 5- to 7-year contracts combined with stable win rates, we maintain good visibility into the long-term ARR growth that comes from new logo additions. Once on the Alkami platform, our investments in service and reliability, the mission-critical nature of our platform and high switching cost drive gross retention rates 8 to 10 points above typical SaaS companies. High retention rates, combined with clients adding users and adopting more of the platform, results in reliable long-term client growth. Every 5 years, our clients grow by more than 100% of their original platform investment, with our 2021 through 2023 cohorts spending above 2x their landing ARR and clients 2016 and older spending close to 4x their landing ARR. Additive to the land retain and growth algorithm for Alkami is our entry into the bank market. Four years ago, we launched an effort to use commercial banking capabilities built for large, complex credit unions to pursue market leadership serving community banks. At that time, banks represented 2% of our live online banking clients, and today banks are at 13%. Over this four-year period, we tripled revenue, expanded gross margin by over 700 basis points, and improved operating leverage by more than 2,000 basis points. Through different macroeconomic distractions and volatility in the financial services sector, Alkami has continued to deliver by adding new clients, keeping our clients, expanding our product offering and increasing margins. Client decision cycles create a unique characteristic for Alkami. Our online banking platform is in a replacement market with prospects on legacy platforms under long-term contracts. There are usually fewer than 300 potential clients in our target market that renew contracts in any given year. Within this group, a portion choose not to convert, given the effort and perceived risk. Among those who make a change, we consistently win 30 to 40 new clients per year. For example, the 6 new logos in Q1 is slightly above our historical Q1 average. New logo growth is consistent and will not spike unless customers choose to exit contracts early or see enough value to overcome conversion resistance. This consistency is a strength, but it also means the next phase of our growth will be driven by expanding the value we deliver within each financial institution. Increasing the value of the platform not only drives expansion, it also improves conversion, and this is why the MANTL acquisition was so strategic. The MANTL acquisition adds platform functionality to encourage conversions and expands our install base. Standalone MANTL new logo creation has been outstanding, with 61 clients added since the beginning of 2025. These are now Alkami clients we can target to cross-sell online banking. In addition to the new logos, at our recent customer conference we demonstrated differentiated capabilities that materially improve how financial institutions acquire and engage customers. Two weeks ago, we concluded Co:lab, our annual client conference. The conference continues to set records with over 600 customer attendees, of which 83 were prospects. Since the MANTL acquisition, we've been building deep technical connections between our online banking and origination platforms to deliver an integrated front end that enables our market to compete with mega banks and neo banks like Chase and Chime. We built this capability with seven clients as design partners, six of which have the code in production. We demonstrated live product with real results at Co:lab. In a side-by-side comparison against 2 leading mega banks and a digital-first fintech, we showed a complete customer journey from account opening through digital engagement. Using a live environment and real workflows, Alkami's Digital Sales & Service Platform, or DSSP, completed that experience in under 2 minutes compared to an industry benchmark of 5 minutes and to 3 contestants in the 3- to 4-minute range. DSSP has continued to perform for Alkami. Since the beginning of 2025, we've gone from 11 to 48 clients who have all 3 products that make up DSSP. Over half of all new logos since Q2 of last year have been DSSP. DSSP new logos see a 30% uplift in ARR versus our historic online banking offering. Our intent with DSSP is to increase the number of clients willing to convert, expanding our opportunity within the existing market constraints. We have not reflected this in our long-term model, and our outlook under current new logo assumptions continues to support attractive long-term growth for Alkami. Last quarter, we introduced a 2030 framework, and that model assumes 40% of ARR growth coming from new logo additions at numbers consistent with our historical average and 60% of ARR growth from expanding within our client base. Alkami is evolving from a vertical application in a replacement market to a vertical platform provider that drives growth for bank and credit unions, and this transaction is occurring because the market demands it. Historically, community banking technology was defined by core providers that controlled the system of record. Everything else, digital banking, onboarding, payments, was built around that core. For years, that architecture defined how financial institutions operated. That reality has changed. Digital has become the primary way customers experience their financial institutions. Our clients need technology not just to process transactions, but to sell and service financial products in a digital-first world. This is the role of the Digital Sales & Service Platform, a platform that provides a long tail of growth opportunities for Alkami and positions us to become the new primary technology partner for community financial institutions. In this market, leadership will not be defined by the number of institutions served, but by generating the most economic value from each financial institution on the platform. The investments we've made to integrate our acquisitions creates the functional capabilities of Alkami's DSSP that are winning in the market. However, the platform investments we've made create compounding value for Alkami and our clients. Alkami is a single instance, multi-tenant, industry specialized platform, and this gives us the opportunity to provide AI capabilities our clients are requesting. For details on Alkami's AI perspective, please review my prepared comments from our last earnings call. In the February 25 call, I spent over 50% of my time on AI and Alkami. Since that earnings call, I've had 39 face-to-face customer meetings, and AI was discussed in every one of them. Not one client mentioned building their own digital banking or origination platform, but every client wanted to talk about AI as an enabler for personalization, underwriting, fraud management, customer service, analytics, offer management, and more. With over 23 million account holders on our platform, we have a unique foundation to apply AI capabilities at scale. At our customer conference, we demonstrated working AI prototypes built on this platform. These included capabilities that allow clients to tailor Alkami to their needs through prompt-driven development, use natural language to query platform data and better understand their account holders and operations, and deploy co-pilots that support both banker workflows and account holder experiences. These capabilities are powered by our platform, including our data infrastructure and telemetry from Alkami Engage, a new product which captures real-time user interaction data across the customer journey. Importantly, these are not conceptual demonstrations. We're actively working with a small group of clients to test these capabilities and determine the appropriate commercial models. Given our platform foundation, bringing these capabilities to market is less a technical challenge and more a question of how to package and price them effectively for our clients. In closing, we are pleased with the integrated product capabilities we built into Alkami's Digital Sales & Service Platform. The market reaction has been positive. DSSP provides a foundation we can continue to build upon to differentiate Alkami. We are evolving Alkami from a system of record to a system of action, delivering measurable outcomes for our clients and increasing the value we create within each financial institution relationship. I'm proud of our business results this quarter and grateful to more than 1,200 Alkamists who continue to get it done and do it right. I'll now hand the call to Cassandra to discuss our financial results. Cassandra Hudson: Thank you, Alex. Our first quarter results exceeded our expectations, highlighted by strong adjusted EBITDA performance that underscores the durability of our model and the progress we're making in driving operating leverage. We continue to execute with discipline, delivering consistent growth while expanding profitability and investing strategically to support long-term value creation. Let me start with our updated outlook. For the second quarter of 2026, we expect revenue of $128 million to $129 million, representing growth of 14.2% to 15.1%. As a reminder, our second quarter revenue outlook includes the impact of a sizable termination fee recognized in the second quarter of 2025, which represents an approximate 3 percentage point headwind to year-over-year growth in the quarter. In the second quarter, we also expect adjusted EBITDA of $17.9 million to $18.7 million or 14.3% margin at the midpoint. This outlook incorporates the impact of our annual user conference, which is reflected in our normal seasonal expense pattern. For the full year, we expect revenue of $527.1 million to $530.9 million, representing growth of 18.8% to 19.7% and adjusted EBITDA of $94.9 million to $97.9 million or 18.2% margin at the midpoint, reflecting continued operating leverage as we scale the business. Our revenue outlook reflects several underlying assumptions consistent with what we shared last quarter. We expect continued cross-sell momentum across the platform, along with a steady cadence of ARR launches throughout the year. We also expect high single-digit ARPU growth, reflecting strong expansion within the base, partially offset by a modest moderation in user growth among existing clients. We expect a meaningful decline in termination fee revenue in 2026, which will reduce reported growth by a few percentage points. This headwind is partially offset by the contribution from MANTL. We expect growth to moderately accelerate in the third quarter due to a more favorable year-over-year comparison. Turning to profitability, we expect a full year non-GAAP gross margin of approximately 65%. In the back half of 2026, we expect adjusted EBITDA margin to be north of 19%, weighted toward the fourth quarter and in line with our typical seasonal pattern. Overall, we expect approximately 500 basis points of margin expansion for the year, driven by operating leverage in the model, efficiencies from our offshore operations, and continued cost discipline while also funding targeted investments in AI that we believe will drive product innovation and long-term efficiency. Lastly, we expect stock-based compensation to be approximately 14% of revenue for the year. As we discussed last quarter, our long-term model framework reflects what we believe are achievable targets based on the strength of our business today and the visibility provided by our long-term contracts. We continue to expect to achieve Rule of 45 by 2030. From a growth perspective, we expect a gradual increase in banks new logo wins supported by our Digital Sales & Service Platform alongside continued leadership in credit unions, reflecting the replacement-driven nature of our market. We also expect consistent execution in our add-on sales efforts and volume growth from existing customers together driving ARPU expansion and contributing significantly to our long-term growth. As well as total dollar churn of approximately 2% to 3% annually, with about half associated with our digital banking clients. Importantly, our long-term outlook does not assume incremental M&A. From a profitability standpoint, we expect non-GAAP gross margin approaching 70% over time as we improve execution on implementations and drive support efficiencies. Approximately 300 basis points of annual adjusted EBITDA margin expansion driven by scale and continued operational improvements, particularly across R&D and G&A, and stock-based compensation declining to approximately 10% of revenue. Turning to first quarter performance, revenue was $126.1 million, up 29% year-over-year. Subscription revenue grew 30% and represented 96% of our total revenue. As a reminder, we closed the MANTL acquisition on March 17, 2025. This timing contributed approximately 14 percentage points of year-over-year growth to Q1 2026. Growth rates will become fully comparable beginning in the second quarter. We increased ARR by 22% and exited the quarter at $494 million. Importantly, we have approximately $71 million of ARR in backlog pending implementation, representing 40 new clients and roughly 1.4 million digital users. We expect the majority of this backlog to go live over the next 12 months. As Alex highlighted, we continue to see strong momentum with our Digital Sales & Service Platform. From a financial perspective, DSSP is important because it is driving higher quality revenue across several dimensions. Clients adopting multiple components of the platform tend to have higher initial contract values, longer contract durations, and stronger retention profiles over time. This is already contributing to ARPU expansion and ARR we're seeing across the business. Additionally, as we integrate MANTL and expand our platform capabilities, we are increasing our ability to land with a broader set of products and expand within the client over time. This reinforces our land and expand model and supports the long-term durability of our revenue. We exited the quarter with 307 clients and 23 million registered users, an increase of 2.5 million users or 12% year-over-year. Over the past 12 months, we implemented 35 clients supporting 1.2 million digital users, and existing clients increased their digital adoption by 1.5 million users. Our contracts provide strong visibility into attrition, typically several quarters in advance. Over the past three years, we have churned less than 1% of our digital banking ARR annually. For 2026, we currently expect to churn four digital banking clients, which again represents less than 1% of ARR. This speaks to the mission-critical nature of our platform and the strength of our long-term client relationships. Revenue per user increased to $21.46, up 9% year-over-year, driven primarily by MANTL's contribution, strong cross-sell execution, and increased user adoption among existing clients. Remaining performance obligations were approximately $1.7 billion or 3.5x live ARR, providing strong visibility into long-term revenue. First quarter non-GAAP gross margin was 64.4%, roughly flat year-over-year, driven by the higher database technology costs we discussed last quarter. We view these costs as temporary and expect them to decline by the end of 2026. First quarter operating expenses were $59.4 million or 47.1% of revenue, representing 530 basis points of year-over-year improvement realized across all areas of operating expense. Adjusted EBITDA was $22.3 million above the high end of our expectations, with an Adjusted EBITDA margin of 17.7% and expansion of approximately 540 basis points year-over-year. We ended the quarter with $77.6 million in cash and marketable securities. In the first quarter, our operating cash flow improved 15% year-over-year. Free cash flow was consistent with prior year, and we repaid the remaining $15 million of our revolving loan. Finally, today we announced that the board of directors has approved our inaugural stock repurchase program of up to $100 million. This is an important milestone that reflects our confidence in both our long-term growth and our robust cash flow generation capabilities. We continue to believe in a disciplined and balanced approach to capital allocation that enables us to grow through additional acquisitions, delever the balance sheet through debt reduction, and opportunistically repurchase shares to deliver increased value to our shareholders. In closing, our results this quarter reflect continued execution against our strategic priorities and the strength of our platform. We are scaling with discipline, balancing growth and profitability while investing in the capabilities that we believe will further differentiate Alkami over time. The visibility in our model and continued momentum across the business position us to drive sustained long-term value. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Cristopher Kennedy from William Blair. Your line is now open. Cristopher Kennedy: Cassandra, you have the grow over in the second quarter, but you also talked about accelerating growth in third quarter and fourth quarter. Can you just provide a little bit more clarity as to the confidence in accelerating growth? Cassandra Hudson: Sure. Yes just to clarify, Cristopher, that growth acceleration will be in the third quarter in particular, and is really driven by a more favorable year-over-year comparison, just some timing dynamics that we experienced in 2025. As it relates to the headwind in the second quarter, that's really timing of termination fee revenue. You know, we do have that headwind in every quarter this year, but it is a little bit more pronounced in the second quarter in particular, which is why I called it out on the call. Cristopher Kennedy: Okay. Got it. Understood. Alex, you mentioned it, but any additional takeaways or observations from Co:lab when you were talking to your customers and kind of how they're viewing the current environment and AI? Thanks for taking the questions. Alex Shootman: First of all, Co:lab was an amazing event. You know, once again, we set record in terms of number of attendees. It was great to see 83 prospects, a good balance between credit union prospects and bank prospects. A couple comments. There was no let up in digital transformation. You know, this is a pretty big market. As I mentioned, over 2,000 credit union and bank customers that all have legacy technology. They're all smart. They all understand what they need to do. They are a little bit captive to these long-term contract dynamics that we talked about. Just continued demand in terms of demand for digital transformation. What was really exciting to see. For our market, and for those of you that don't bank with a regional bank or credit union, you may not really be able to appreciate this. For our market, what's been critical for them to compete with these large money center banks and fintechs is what we would call an integrated front end, a digital front door, whatever you might want to call it. It is the integration of digital banking and a deposit origination platform and a loan origination platform to be able to attract a customer, convert them into a customer, have them in digital banking, have them with a digital with additional products and all of that seamless, and so that the customer or prospect doesn't even know that they're in multiple different products. That has been the benchmark that these institutions have looked for, and that's what we showed from stage. I think what I was most pleased with is the audience reaction to real technology that we showed that will make a real difference for this market. Operator: Your next question comes from the line of Aaron Kimson from Citizens. Please go ahead. Aaron Kimson: Alex, you spoke again today in your prepared remarks about more banks being open to separating online banking from their core provider. Can you talk about what's driving that willingness, whether it's increased acceptance that the standalone digital providers like Alkami have the superior solution for online banking, the maturity of your solution with MANTL, or a change in the ease of integrating a standalone digital provider solution into the core, or maybe something else I'm missing? Thanks. Alex Shootman: Thanks. Once again, let's talk about the difference between the bank market and the credit union market. In a previous earnings call, I've got the specific numbers, so I'm going to give you the round numbers. I know we've got the specific numbers. In the credit union market, it's probably in the mid-40%, 45% of the customers that have an online banking application that is supplied to them from their core provider. In the bank market, it's been north of 75%. That's the part that we're beginning to see unwind. I actually talked to a prospect at Co:lab who is going to pay off four years of their remaining digital banking contract to move to a different digital banking platform from their from their core. I asked them, I said, "This is one of the first times that I've ever heard this. Why are you doing this?" They said, "In our market, we have to compete with Wells Fargo and KeyBank, and we're at the point where our digital capabilities are insufficient, and if we don't make this change, it's going to impact the business of the bank." You're starting to see that demand push create these conversions. The flip side of that is the more customers that see somebody come onto a platform like Alkami successfully go through the conversion, successfully bring their customers on board, then they're willing to make the change. It's ultimately a decision of value versus risk. That's why the integration of the data marketing platform and the onboarding platform and digital banking is so critical because when a bank sees the outcome of speed to bringing on a new customer, reduced cost to bringing on a new customer, increased speed to cross-sell, they start to have the conviction to make the change. Aaron Kimson: That's really helpful. Thank you. The second one is a little bit more direct. You've incurred $2.8 million in shareholder matters related expense over the prior 2 quarters with $2.2 million in 1Q. Can you provide any color on the nature of these expenses and if you anticipate them to be ongoing or settled for the near term after you added 2 new board members on March 31st? Thanks. Cassandra Hudson: Sure. Thanks for the question. You know, those costs are really defense related in nature. You know, we do expect to incur additional costs related to this item. You know, obviously it's difficult for us to predict how much they will be, though I don't think that we're going to be scaling at $2.8 million every quarter from here on out. You know, I think so we saw a little bit of a higher cost in Q1, and I would expect those to moderate from here on out. Operator: Your next question comes from the line of Jacob Stephan from Lake Street Capital Markets. Your line is now open. Jacob Stephan: Maybe just first kind of a note-keeping one here. Maybe give a deeper dive into the bank versus credit unions in the backlog. Cassandra Hudson: Let's see. I guess banks versus credit unions, it's pretty, I would say, evenly split, in terms of their size. You know, right now we have 13 banks in the backlog, and the rest would be credit unions. Jacob Stephan: Okay. Second one for me. I know you've kind of given some in-depth detail on user adds in the past. I'm wondering if you could kind of help us think through the adds in the last quarter and maybe over the last several quarters in terms of existing clients, how many of those were newly implemented customers, and just that kind of trend. Cassandra Hudson: I mean, in the past, you can kind of think of the trend as roughly half and half new versus existing. In Q1 in particular, just kind of flipping back to my script. We implemented 1.2 million digital users over the past 12 months and then 1.5 million related to existing clients. A little bit more weighted to existing clients over the past year here. Operator: Your next question comes from the line of Jeff Van Rhee from Craig-Hallum Capital Group. Please go ahead. Daniel Hibshman: Hey, this is Daniel on for Jeff Van Rhee. Just on MANTL and the pace of logo adds there, the 14 this quarter, maybe if you would want to compare that to previous quarters or expectations, just how MANTL is tracking relative to expectations. Cassandra Hudson: I mean, I think they continue to track very well, right? You know, with all of our products there is a bit of a cyclical nature to the sales cycle. You know, for us, Q1 tends to be a bit of a lighter quarter and Q4 tends to be our strongest quarter. You know, I think we continued to see really good performance, in Q1 for MANTL coming off of a really record 2025. Alex Shootman: I would just point back to the reason why we're pleased is you go back to beginning of 2025 and our DSSP clients, so that's clients that have acquired MANTL have gone from 11 to 48. And in the same period of time, standalone MANTL new logo clients of 61. You know, you figure that's a 5-quarter period of time. You know, I'm the ever-optimistic CEO, but I consider that to be outstanding performance to to make an acquisition like that. Just take a step back. The acquisition closed in Q1, right? We needed to integrate the two companies, and in that period of time delivered that kind of both new logo and cross-sell performance at the same time as integrating the technologies together into one experience that unites the front end of digital banking and origination. I'm frankly just super proud of the team for what they've done. Daniel Hibshman: Yes. Great. Alex, maybe if you could just talk a little bit. I liked your line about Alkami evolving from being a system of record to a system of action. If you could just expand a little bit more on what that means to you and in particular any examples you'd have of that. Alex Shootman: Yes. You know, what our customers are asking for is, historically the digital part of the financial institution was somewhat passive, right? It's relying on the account holder to know what they want to do and then come in and take action. As we all understand how systems have changed and how we interact with systems, now what our institutions are asking for is, "You have all of this data. You've got transactional data, you've got telemetry data, you've got core transactional data. I want you to start predicting things that we want the account holder to do, and then I want you to notify the account holder and ask them to do that. That's what I mean in terms of making a shift from a system of record to using the data and the analytics capabilities that we have and the predictive capabilities that we have. Now I want you to tell me to take an action or tell our account holders to take an action. Right? I notice that I know that. To give you an example: "I know that at this time of the month, every single month, your balance starts to drop, so I'm going to reach out to you and recommend an action for you to take so that you don't get into a bad financial situation." That's the kind of thing that I'm talking about when I say move from a system of record to a system of action. Operator: Your next question comes from the line of Andrew Schmidt from KeyBanc Capital Markets. Your line is now open. Andrew Schmidt: The sales force, the shift to a separate bank and credit union, sales forces. How has that evolved? Has that been effective in terms of building the pipeline, typically on the bank side? I hear you on the backlog. I'm just curious how that has progressed. Thanks so much. Alex Shootman: Yes. Thanks for the question. Our pipeline remains balanced. It's pretty evenly split between banks and credit unions. For us, the transition has been effective. It allows us more specialization in the bank market, and we remain happy that we did it. Andrew Schmidt: Got it. That's helpful. You know, obviously everyone is thinking through sort of more efficient organizational structure when we think about AI development, et cetera. I know you're probably pretty heavy users of this internally, but is there any like structural changes or process changes that need to be made as a result of just increases in model productivity, things like that to consider? Is it more kind of just product velocity output increasing on that side of things? Thank you. Alex Shootman: I mean, you could imagine that we're using every single model provider in all parts of the organization right now. We're not yet at the point where we're ready to come to our investors and say, "This is the benchmark productivity that we're going to run after." I think the biggest thing that we're seeing in terms of change is the front end of the software development life cycle. If you think about DevOps did a lot for us in the back end of the software development life cycle, in terms of how we would test code, how we would release code, how we would support code. That's where a lot of that transformation occurred. A lot of the transformation that we're seeing right now is just the speed in the front end of the software development life cycle and how quickly we go from what used to be something that was in a PRD that is no longer in a document at all and is now a fully functional prototype that we're reviewing with a client instead of having conversations through PowerPoint or through documents. That's where I see a lot of, frankly, a lot of promise for the organization. Within the support organizations we've fully wired the company from a data perspective for access for all of the support organizations to try to speed up the time at which it takes to respond to customers, and then ultimately the cost that it takes to respond to customers. I'm probably like every other software executive right now where we're watching our companies transform in months what we used to see happen in years. It's, it's actually a pretty fun and amazing to be in a software company. Andrew Schmidt: Yes. Makes sense. A lot of progress in a short period of time. It's great to hear. If I could just squeeze one more modeling question in. I think I heard the acceleration in the back half revenue perspective, because that makes sense as we move past the term fees, et cetera. Is it possible to have a 3Q, 4Q breakout of the cadence to expect and then for both revenue and EBITDA? I just want to make sure we have that right and we're not caught off guard, if that's possible. If not, that's fine, but thought I'd air that out. Thanks so much. Cassandra Hudson: No, no worries. Couple points, and I'll kind of talk about top line and EBITDA separately. On revenue, the acceleration is very specific to Q3. And it is due to a more favorable year-over-year comparison. There are some timing elements in the prior year that's driving that acceleration. You know, if you just kind of think about the nature of our model, right? It's very predictable. We have a steady amount of ARR launches happening this year. Very consistent dynamics from existing customer and ARPU growth. Just given that I think that kind of you can calculate what that implies from a revenue perspective for our model. Alex Shootman: Can I just say one thing, Andrew? Andrew Schmidt: Yes. Alex Shootman: Because you've followed us for a while. I, and I'm not trying to be coy, but I would just really encourage you to go back and look at the post Q2 commentary from last year, where we were very specific and said, we actually took down Q3 last year because we had a termination fee that accelerated into Q2. That's exactly what Cassandra's talking about, right? That's the exact -- it's no more complicated than that. Andrew Schmidt: Yes. No, it makes sense. Just to wrap it up, EBITDA? is EBITDA [ largely track ]. Cassandra Hudson: For adjusted EBITDA, we typically see adjusted EBITDA builds each quarter throughout the year. Q4 typically is the highest, both in, obviously, in terms of dollars, but more importantly the EBITDA margin. That trend we expect to continue. Alex Shootman: We got to give you props for trying to get Cassandra to go ahead and give you a Q3 guide. Andrew Schmidt: Exactly. You know I'm always pushing the envelope, Alex. I appreciate it. Operator: Your next question comes from the line of Elyse Kanner from J.P. Morgan. Please go ahead. Eleanor Smith: First maybe for Alex. As banks start to grow as a, as your total customer mix and backlog. Are there any unique challenges of serving banks or differences you observe from serving credit unions? Alex Shootman: For sure. It's really, I would call it, let's call it product technology and skills. From a skills perspective, what we've had to bring into the organization are people that understand how to do commercial data conversion. Converting a a complex business account and the data in the complex business account into Alkami is very different than converting the data from a retail account. That can be account data, payment data. All of that data set is very different, bank versus retail. From a product perspective, I think what we've mentioned over several calls is we've got a 3-phase treasury management build-out. The first phase of our treasury management build-out was to put ourselves in a position where we could effectively move a bank that was on a legacy core provider's platform into Alkami. That's the work that we've been doing over the last 12 months. I think we you know, we largely finish up that work at the end of, at the end of this quarter. There's capability build-out that we have to do. The cores themselves bank cores operate more from a batch perspective. Credit unions cores operate more from a real-time perspective. The core integration themselves and the way that we have to have Alkami, which is a data-hungry application. It's data-hungry because we want to create a great user experience. You create a great user experience by having all the information in front of the user. We've had to do some things with the way that Alkami interacts with the bank cores to make sure that the clients get good performance for their customers. Three big differences. The skills that we have to have in the organization, the application functionality that we have to create, and then the technical integration to the cores themselves. Eleanor Smith: Perfect, Alex. That makes a lot of sense. For Cassandra, are there any unit economics considerations that we should be aware of if Alkami signs a DSSP client versus a regular new logo digital banking client? Specifically, what are the implications to revenue ARR and profitability that we should consider? Cassandra Hudson: Well, I mean, one of the big benefits of DSSP is really around obviously we're selling all three products at once, and we typically see about a 30% higher ARPU on our DSSP deals as compared to a traditional new logo. That would be one. You know, that lends itself naturally to higher ARR especially over time as these banks and credit unions grow with their user base. You know, very, very profitable customers for us. I would say consistent unit economics from a implementation cost perspective. You know, we have to implement all three products and we kind of do that over the first 12-month term. Otherwise, I would say the dynamics there are relatively consistent. Alex Shootman: The part that is untested but we have optimism about, what we've delivered so far is just the first phase of functionality of the Digital Sales & Service Platform, and that's that those couple of use cases I shared. We're not going to stop building. What I get excited about is the opportunity to build new products that we have an opportunity to charge for, assuming that there's value in them, to bring to the clients. From my perspective, those would go into the Digital Sales & Service Platform at a a lower cost of sale in terms of what the customer is buying. Remember, what we just shared is 11 to 48 customers in five quarters. There's not yet a long track record where we're able to say, "This is the change in the unit economics. Operator: Your next question comes from the line of Saket Kalia from Barclays. Please go ahead. Saket Kalia: Alex, maybe for you, just to piggyback off that last question on DSSP a little bit. You know, clearly that tool, as you folks just talked about, adds a lot more value at landing. Maybe that's a little bit of a longer sales cycle. I mean, you talked about the 11 to 48. I guess as you look back, how is that sort of performing versus what you expected? As you think about that sales cycle, is that about in line with what you expected or is it longer or shorter? Curious about how it's sort of progressing so far across that still relatively small sample size. Alex Shootman: I got to tell you, completing an acquisition and then within a 1 year having that kind of cross-sell, that blew me away in terms of expectations. I'm pleasantly surprised. We don't have the data yet, but I actually think... If you think about what we're showing our client in terms of the experience that they have bringing on a customer, you get two kind of things folks are looking for. Can I attract a new customer, and can I sell more products? Having this integrated front end, when people see it, and they know how hard they've been trying to deliver it for the last 20 years across a set of 10 different technologies, my expectation is that the sales cycle's not going to be any longer. I don't want to predict anything. To me, I would hope it's shorter, but it's still governed by the market dynamics that we talked about, right. This is the market dynamics or the long-term contract. That governs the sales cycle more than anything else, really. Saket Kalia: Got it. That makes a ton of sense. Cassandra, maybe for you..... Alex Shootman: Yes, let me just... Saket Kalia: I'm curious -- sorry, please. I'm sorry. Alex Shootman: Yes. Sorry for talking over you. We don't have this in our model. Remember, the most important thing for us is not, can we win against a competitor? The most important thing for us is can we increase the number of people that decide to convert off their legacy technology? This is not included in our model at all. What I'm hoping is that DSSP creates enough value so that some of those folks that didn't want to go through the conversion effort decide to go through the conversion effort, and we unlock more opportunities within the market constraint that we have. Saket Kalia: Got it. Very clear. Thanks for that, Alex, by the way. Cassandra, maybe for my follow-up for you, I'm and it's a little bit of a broader question. I'm curious if there's anything that we should keep in mind this year from just a renewal perspective. You know, over the years, we've just been growing the customer base, and of course, those customers are going to renew. I mean, is there anything that we should keep in mind this year just around potential tailwinds to ARPU or gross margins or anything like that as you think about that renewal pool sort of steadily growing over time? Cassandra Hudson: Thanks for the question, Saket. I what I would point to is certainly there's gross margin benefit as we achieve higher levels of scale, and more and more of our customers have been on the platform for quite some time now. That does lend itself to higher gross margin. You know, upon renewal, we typically see customers increase their total contract value with us. They might buy additional product, and obviously continue to grow their user bases. Those benefit us, and we see that in increased ARPU as well as our NRR trends. I guess those would be kind of the three areas I would point to in terms of the renewal impact. You know, we don't have any real big concentrations in any one year where we have an outsized number of renewals. It's pretty evenly spread, just given how long our business has been humming here. Operator: Your next question comes from the line of Adam Hotchkiss from Goldman Sachs. Your line is now open. Adam Hotchkiss: I guess to start on the Alkami Code Studio launch. Curious, I realize it's incredibly early, but curious, as to sort of initial customer and prospect reactions to that. Any indications as to how you might charge for that going forward would be helpful. Thank you. Alex Shootman: Yes. Let me make sure that I've got some clarity. The product that we announced is Alkami Engage, and that's the product that is collecting the account holder telemetry information. The reference to Code Studio, if you look at my prepared remarks, what I shared was that we showed a prototype technology demonstration. That is not a product that we have decided to release yet, and it's for all the reasons that you framed. We had it in our innovation studio. People loved working with it. The two things that we're trying to work out really with any of these AI products are the more the commercial terms than necessarily the the technical terms. It's do we price it simply and then take the cost risk? I'm pretty sure if Cassandra and I showed up and said tokens are our profit guide, y'all wouldn't give us a pass. It's do we price simply and then take the cost risk, or do we introduce a usage metric that's not a usage metric that the client has any history with, and so it's hard for them to model? You know, I actually mentioned four different prototypes that we showed. You talked about Code Studio. That was just one of the four. That's what we're in deep discovery with our customers right now. We have a handful that are using each one of the prototypes to try to understand what the most effective commercial terms are for the, for the product. Given the platform that we have, The complication for us is not really, I don't want to minimize how hard it is to build a new product, but it's not really can we build AI capabilities? It's really how do we monetize these AI capabilities in a way that it's easy for the customer to buy and it's safe for the company from a profitability perspective. Adam Hotchkiss: Yes. No, that's incredibly helpful, Alex. I think that makes a lot of sense, especially given what's happened to token costs. Just to follow up on that, I'd be curious how that impacts your. And I realize it's maybe a bit difficult now, but how does that impact this launch and some of the beta testing you're doing impact your sort of 3 to 5-year view of the platform? Do you see Alkami becoming more customizable since the cost and accessibility of development is ultimately going to be coming down and you're going to be adding new features more quickly, using third parties, first party, et cetera, beyond what you currently have in DSSP? Is that sort of the goal in the roadmap, or am I missing the mark and there's something else to read into there? Thanks. Alex Shootman: Look, I don't mean to come across as snarky when I say this. That's not my intent. Like, all of our holy grail is to get more revenue and have it cost us less to deliver it. That's what we're really looking at all the time. We're not yet ready to change the long-term model that Cassandra's talked about. You know, Cassandra had talked about a long-term model that guides the Rule of 45. If and when we have enough evidence within our operations, either in terms of revenue lift or in terms of cost efficiency to change that model, then we'll announce that we're changing the model, and we'll give you the reasons why we're changing the model. We don't have enough evidence yet to change that longer term model. Operator: That concludes the Q&A portion of the call. Thank you for joining us today. You may now disconnect.
Operator: Good day and thank you for standing by. Welcome to CONMED's First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, its plans and objectives. These statements represent the forward-looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future events, performance or results. The company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed under the forward-looking information in today's press release as well as the company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call, except as may be required by applicable law. You will hear management refer to non-GAAP or adjusted measurements during this discussion. While these figures are not a substitute for GAAP measurements, management uses these figures to aid in monitoring the company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by the company to be special or outside of its normal ongoing operations. These adjusting items are specified in the reconciliation supporting the company's earnings releases posted to the company's website. With these required announcements completed, I will turn the call over to Pat Beyer, President and Chief Executive Officer, for opening remarks. Mr. Beyer? Patrick Beyer: Thank you. Good afternoon, and thank you for joining us for CONMED's First Quarter 2026 Earnings Call. With me on the call today is Todd Garner. The search for our new CFO is progressing well, and we look forward to providing you with an update soon. I ask Todd to join me today as he is assisting us as our adviser with our Q1 earnings report. I'll start and provide you with an update of our first quarter results and updates on our strategic priorities. Todd will then take you through the financials and our 2026 guidance in more detail before we open the call for your questions. Before turning to the quarter, I want to recognize our teams around the world for their continued focus and execution. Across the business, their work is making a real difference for our customers and for the company. During the first quarter, we reached an agreement to divest certain GI products. And in April, we reached a second agreement to divest our remaining GI products. As is customary, we will provide transition services under TSAs through the end of this year and into 2027. This decision was intentional and strategic. It allows us to concentrate resources and investment on our higher growth, higher-margin offerings and better focuses the organization on driving improved execution and delivering long-term shareholder value. I'll start by briefly reviewing our first quarter results. Total sales for the quarter were $317 million, a decrease of 1.3% compared to the prior year quarter. Excluding the impact of our previously announced exit from our gastroenterology product lines, total sales increased 3.8% year-over-year as reported and 2.1% in constant currency. Orthopedics delivered sales growth of 4.5% on a constant currency basis, while general surgery sales declined 7.4% in constant currency but were flat after adjusting for the gastroenterology exit. From an earnings perspective, excluding special items that affected comparability, our adjusted net income of $27.1 million decreased 8.5% year-over-year, and our adjusted diluted net earnings per share of $0.89 decreased 6.3% year-over-year. These were, of course, impacted by the exit of our GI business. Now I want to turn to our 3 key growth platforms: AirSeal, Buffalo Filter and BioBrace. These platforms sit at the center of our long-term strategy and provide a durable foundation for growth and margin expansion. Our decision to exit gastroenterology and place a strategic focus on minimally invasive surgery, smoke evacuation and orthopedic soft tissue repair reflects our intent to allocate capital, talent and attention towards the area where we see the greatest opportunity. I'll walk through each platform and highlight what we're seeing develop in the market. Starting with AirSeal, our clinical insufflation platform that is supported by 2 durable growth vectors, robotic and laparoscopic surgery. AirSeal benefits from a large installed base of over 10,000 systems globally, which continued to grow in quarter 1, giving us broad clinical presence and deep surgeon familiarity. AirSeal plays a critical role in complex procedures where conventional insufflation systems may be less reliable. AirSeal's clinical differentiation underpins its role in robotic surgery, particularly as these procedures continue to expand across subspecialties and migrate into ambulatory surgery centers. AirSeal follows surgeon preference. Beyond robotics, the laparoscopic opportunity remains significantly underpenetrated. In the United States alone, more than 3 million laparoscopic procedures are performed annually. And today, AirSeal is used only in 6% to 7% of those cases. We continue to see good traction in laparoscopy market, including continued growth in the first quarter. Taken together, AirSeal's installed base, differentiation among high acuity specialists, importance in ambulatory environments and expanding laparoscopic adoption support our confidence that AirSeal can deliver high single-digit to low double-digit growth over the long term. Turning to Buffalo Filter, our smoke evacuation platform. This continues to be one of our most compelling long-term growth opportunities. On the legislative front, we now have 20 U.S. states with smoke-free operating room laws on the books, covering approximately 51% of the population. We continue to see additional states moving towards legislation and expect this trend to persist, giving the safety benefits for health care professionals. We are continuing to see traction internationally, particularly in the Nordic countries, Canada and Australia. On the product side, our PlumeSafe X5 launched in the first half of 2025 continues to gain traction. Its smaller footprint, quieter operation and faster smoke clearance are resonating in outpatient and ambulatory environments. Importantly, we remain disciplined in how we are scaling this area. Our strategic focus is on direct smoke evacuation, where we control the customer relationship and capture the full margin profile. While OEM remains part of the portfolio, over time, we expect direct smoke to represent a larger share of smoke evacuation revenue, consistent with our broader focus on higher growth, higher-margin opportunities. Our third key growth platform is BioBrace, which continues to perform exceptionally well and remains a signature element of our sports medicine strategy. BioBrace is increasingly recognized by surgeons as a differentiated solution in soft tissue repair, addressing both the mechanical and biologic drivers of failure. It is the only FDA-cleared implant that delivers structural reinforcement while also promoting biologic healing, a combination that is reshaping how surgeons approach complex repairs. As surgeons gain experience with the technology, we are seeing broader utilization across both primary repairs and more complex cases. Clinical validations remain a critical component of the platform's long-term value proposition. There are currently over 30 published studies on BioBrace. Our 268-patient randomized controlled trial remains on track to complete enrollment in 2026 with publication expected in 2027. In the interim, the growing body of existing clinical data, along with the American Academy of Orthopedic Surgeons guidelines recommending augmentation in rotator cuff repair are reinforcing surgeon confidence and supporting adoption. We believe BioBrace is still early in its life cycle. As BioBrace becomes further embedded into surgical workflows and expands across additional soft tissue procedures, we see a long runway for sustained growth and increasing contribution to our orthopedics portfolio. From an operational standpoint, we finished 2025 strong and continue to improve supply chain performance during the first quarter. We are moving into a position in which we are able to provide customers with the consistent service they expect. This allows our orthopedic sales team to get back on offense and engage more proactively with surgeons and accounts. To support this momentum, we continue to expand capacity across both our internal manufacturing footprint and through qualified external partners. This dual approach gives us greater flexibility, improved resilience and positions us to support sustained growth. Importantly, these improvements are now showing up in our results. Orthopedics delivered mid-single-digit growth in the first quarter, marking the third consecutive quarter of at least mid-single-digit growth, a trend that reflects improving supply reliability alongside continued strength in our core platform. We are making sustained progress, and we believe we are on a clear path toward where we ultimately want to be, operating a more durable, high-performance supply chain that can support long-term growth. Our capital allocation priorities remain unchanged. We continue to balance organic investment in innovation, manufacturing and commercial effectiveness, disciplined acquisitions that strengthen our existing platforms and returning capital to shareholders, supported by strong and consistent cash generation. Our balance sheet continues to strengthen, and we believe CONMED is well positioned to invest in our business while maintaining financial discipline. In summary, we enter 2026 with a focused portfolio, improving execution and differentiated growth drivers operating in attractive markets. We remain committed to delivering reliable performance and creating long-term value for our shareholders. With that, I'll turn the call over to Todd, who will provide a more detailed analysis of our quarter 1 financial performance and discuss our 2026 financial guidance. Todd? Todd Garner: Thank you, Pat. All sales growth numbers I reference today will be given in constant currency. The reconciliation of GAAP to constant currency is included in our press release. The organic numbers referenced exclude GI sales from 2025 and 2026. As usual, we have included an investor deck on our website that summarizes the results of the quarter and our financial guidance. It also includes a reconciliation of GAAP to constant currency organic growth. For the first quarter of 2026, our total sales decreased 2.9% year-over-year. Organic sales increased 2.1% year-over-year. For Q1, total sales in the U.S. decreased 5.8% versus the prior year quarter, and total international sales grew 1.0%. Organic sales in the U.S. increased 2.8% and organic international sales grew 1.3%. Total worldwide orthopedic sales grew 4.5% in the first quarter. Total U.S. orthopedic sales increased 5.5%. And internationally, orthopedic sales increased 3.9%. Total worldwide general surgery sales decreased 8.5% in the quarter. Organic worldwide general surgery sales were flat over prior year. Total U.S. general surgery sales decreased 10.4% while total international general surgery sales decreased 3.8%. Organic U.S. general surgery sales increased 1.5% while organic international general surgery sales decreased 3.3%. AirSeal and direct smoke both grew in Q1, and we continue to expect AirSeal and direct smoke to be in the high single-digit to low double-digit range for the full year. But as expected and included in our original guidance for the year, in Q1, both product lines were below our expected range for the full year. We are seeing positive signs with AirSeal as more capital units entered the market in Q1 than robotic systems from the market leader. We are also seeing good early returns from our increased focus on laparoscopic procedures. The data points we can see give us confidence that AirSeal should continue to grow in the high single-digit to low double-digit range in 2026. The OEM smoke products were again a meaningful headwind in Q1. These non-focused products for us can be very lumpy quarter-to-quarter, and that was the biggest drag on general surgery sales in Q1. Now let's move to the expense side of the income statement. We will discuss expenses and profitability in the first quarter, excluding special items which are detailed in our press release. Adjusted gross margin for the first quarter was 57.4%, which is 100 basis points higher than the prior year quarter, driven by favorable product mix and positive foreign currency impact. Adjusted research and development expense for the first quarter was 4.8% of sales, 80 basis points higher than the prior year quarter. This increase was driven primarily by increased investment into our key growth drivers. First quarter adjusted SG&A expenses were 40.0% of sales, 130 basis points higher than the prior year quarter. As we said in January, we expect the first quarter to be the highest quarter of the year. On an adjusted basis, interest expense was $5.8 million in the first quarter. The adjusted effective tax rate in Q1 was 24.2%. First quarter GAAP net income was $13.8 million compared to $6.0 million in 2025. GAAP earnings per diluted share were $0.45 this quarter compared to $0.19 a year ago. Excluding the impact of special items, in the first quarter, we reported adjusted net income of $27.1 million, a decrease of 8.5% compared to the first quarter of 2025. Our Q1 adjusted diluted net earnings per share were $0.89, a decrease of 6.3% compared to the prior year quarter. Turning to the balance sheet. Our cash balance at March 31 was $35.0 million compared to $40.8 million at December 31. Accounts receivable days at March 31 were 65 days compared to 62 days at March of 2025 and 60 days at December 31. Inventory days at quarter end were 246 compared to 222 days a year ago and 207 on December 31. As we continue to focus on service levels, we have purposely built more inventory. Long-term debt at the end of the quarter was $860.2 million versus $834.2 million as of December 31. Our leverage ratio on March 31 was 3.1x. Q1 is typically our biggest cash outlay, and we continue to expect this ratio to hold at roughly 3x as we balance debt leverage and share buybacks. In Q1, we bought back approximately 858,000 shares for a total of $37.4 million. Cash flow provided from operations in the quarter was $13.5 million compared to $41.5 million in the first quarter of 2025. Capital expenditures in the first quarter were $2.9 million compared to $3.8 million a year ago. We continue to expect operating cash flow for the full year to be between $145 million and $155 million and capital expenditures between $20 million and $30 million, resulting in free cash flow around $125 million. No change from our prior guidance at the beginning of the year. Now let's turn to financial guidance. We'll start with revenue. We are pleased to be able to raise our organic growth expectation for 2026 to 5.0% to 6.5% from our prior range of 4.5% to 6.0%. Pat outlined the good signals we are seeing in the business, and we are pleased with the improving outlook. Currency has also improved slightly, and we now expect foreign exchange rates to be a tailwind to revenue of between 40 and 50 basis points. When we provided initial 2026 revenue guidance in January, we had recently announced our strategic intention to exit the GI product lines, but the only transaction that was complete was the agreement with Gore that was announced in December. In January, we did not have clarity on how or when we would exit the remaining product lines, and our guidance included that lack of clarity. In March, as Pat said, we closed on the sale of certain GI products to Micro-Tech. And in late April, we closed on the sale of the remainder of our GI portfolio to a strategic acquirer who we will be able to disclose in the coming few weeks. As Pat said, these agreements include a period of us providing product and services that may likely extend beyond 2026. So we now have much better clarity on what to expect for the remainder of 2026. In January, we estimated that we would sell between $21 million and $25 million of GI product lines in 2026. With these 2 agreements complete and happening faster than originally anticipated, our 2026 revenue guidance for the GI product lines is now between $14.5 million and $17.5 million, which is about a $7 million reduction from our prior guide at the midpoint. Fortunately, the lower revenue also comes with lower costs. And so our EPS guidance of $0.45 to $0.50 impact for the full year is still consistent with our January expectations. Because of our improving growth profile, despite that approximate $7 million of lower GI revenue for the year, we are raising the lower end of our reported range by $5 million and keeping the high end of the range the same. That results in expected reported revenue between $1.35 billion to $1.375 billion for 2026. We expect reported revenue in Q2 to be between $336 million and $340 million. And we've provided a detailed look at the assumptions of the organic growth and currency impact for the remainder of the year in our investor deck. We expect to refinance our debt during Q2 before the outstanding convertible notes go current. We have strong banking partners, and we are seeing attractive rates and plenty of capacity available to us. Given the historic trough in med tech multiples, we have determined that issuing new convertible notes at this time would not be in the best interest of CONMED shareholders. So our intent is to refinance with bank debt, which we expect could increase our full year adjusted interest expense, impacting adjusted EPS for the full year by at least $0.10. Despite this increase, thanks to the strength in the profitability we saw in Q1 and the increase in our organic growth profile, we are able to keep our adjusted EPS guidance for the full year unchanged at the range of $4.30 to $4.45. For Q2, we expect adjusted EPS to be between $1.09 and $1.14. With that, we'd like to open the call to your questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Travis Steed of Bank of America. Gracia Mahoney: This is Gracia on for Travis. On the first one, I wanted to ask a little bit more about the debt refinancing that you called out that you're starting in Q2. And just a little bit more about the strategy and what levers you can do to mitigate potential EPS dilution both in 2026 and then also in 2027 as well. And then I had one follow-up. Todd Garner: Sure. Thanks, Grace. So we're starting those discussions with our banking partners. We have a very strong banking group, some of the best banks in the world. We have ample capacity. We're seeing good rates. The change from what we thought -- what we planned for the full year is we thought that there would be a mix of bank debt and convertible notes that was in the prior original kind of intention. As we look at the historic low multiples in med tech, we determined that it was not in the best interest of CONMED shareholders to do new convertible notes at this time. So that raises the cost of capital just a little bit. As I said in my script, we see that as at least $0.10. I'm not being terribly precise there, obviously, because the negotiations are not done. We don't know exactly what we're going to get. And there's a lot of year left in cash flows and what the rates may do. And so it's going to be more than we originally thought as we laid out 2026, but thankfully, the strength in the business the results of Q1 allow us to keep EPS the same despite that increased headwind from interest expense. Gracia Mahoney: Great. Helpful. And then the second one, earlier this morning, just saw a company come out and talk about inflationary pressures. So I think that's top of mind. I was sort of wondering what you're seeing on the macro front in terms of inflation impacting margins and any framework to think about how that could impact CONMED over the rest of the year and what is sort of implicit in your margin guide there as well? Patrick Beyer: Grace, it's Pat here. Thanks for the question. Again, any macro geopolitical or economic margin pressure or price pressure would be included in guidance. I just want to let you know that. We are seeing some pressure on some commodity products like oil, gold that are affecting our cost of goods sold, but we're working hard with our vendors and our partners and our supply chain to mitigate as much as we can there. At a macro level, we're seeing some component prices go up. We're partnering with our supply chain to mitigate those, and we're also partnering with our hospital systems to partner with them on cost-effective clinical solutions. And we don't expect any more of the macro influences on the cost side to impact our guidance here. And so we've included that in there. Operator: Our next question comes from the line of Ross Osborn of Wells Fargo. Ross Osborn: Starting out with AirSeal, and apologies if I missed this, but what was the attach rate to DV5 during the quarter? Patrick Beyer: Ross, Pat here, and welcome. We did not state the attachment rate for the quarter. What I would say to you is the attachment rate for AirSeal in quarter 1 followed the guidance that we have given in the past, and that was on the DV5. We have guided between 10% and 20%, and we continue to be in that zone, Ross. Ross Osborn: Okay. Sounds great. And then for my second question, what is your level of visibility into state legislation on ORs may result in a tailwind? Patrick Beyer: And I'm sorry about that. And you're talking about smoke evacuation? Ross Osborn: Yes. Just curious regarding guidance, how much is baked in for new states coming on board? Patrick Beyer: Again, anything would have been built into it. Again, I think we stated 20 states have enacted 45% of the hospitals in the U.S., 51% of the population. We have line of sight of 13 additional states have bills pending, and we believe Maryland and Massachusetts are the most likely ones to pass. In fact, Maryland is actually at the governor's desk. And so we continue to see legislation play a role in the background as well as the clinical benefits of it, and societies continue to play as equal or more important role as societies like AORN are pushing for legislation and action from hospitals to standardize on smoke evacuation. Operator: Our next question comes from the line of Robbie Marcus of JPMorgan. Robert Marcus: Congrats on a nice quarter. Two for me. Hoping you could walk us through the bridge on second quarter. It seems like a larger-than-normal step-up in dollars. And I realize the last few years maybe aren't the best proxies for 1Q to 2Q. I know 2Q is historically a stronger quarter. Maybe just give us a bridge of how you get there on a dollar basis. What's getting better and how to think about that? And then I have a follow-up. Patrick Beyer: Sounds good. Todd can talk you through the dollars. And then if there's any questions on the background and clinical spaces, I'll jump in on that side. Todd Garner: Yes. And I know, look, we're only half an hour from releasing the deck on our website. But Robbie, I do want to make sure you see the deck, specifically, I think it's Slide 5. We provided much more granularity on the pieces of organic, the GI sales and currency. So that will just give you some extra visibility. And I would say, in general, if you remember, Q4 was a pretty strong quarter for us. Because of that, we were pretty cautious on the Q1 guide. It came in better than we expected, but we were right in that Q1 was a little softer because Q4 was so strong, particularly internationally. And so it is true that we are expecting to see an acceleration in Q2 better than what we saw in Q1. But I think that fits with how we saw the year to start with, and the signals we're seeing in Q1 have given us confidence that the Q2 numbers are in a good place. Robert Marcus: Yes. I see the slide. I guess I'm asking what businesses are getting better because it's just -- it's a larger dollar amount from first quarter to second quarter, especially with the GI numbers going down year-over-year. So I was wondering if you could kind of give us a bridge. What's getting better in second quarter to get us to that dollar amount? Patrick Beyer: Robbie, I'm going to be focused on the growth drivers. And so our orthopedic business and BioBrace will continue to accelerate its growth. We will continue to work through our supply chain historical challenges that have gotten a lot better, and we're moving more towards on offense. So you can expect the orthopedic business to continue to accelerate, number one. Number two, we called out that international would be much slower in the first quarter because of the big quarter 4 they had. Their absolute value dollars will accelerate in quarter 2. Then you're going to see the natural drivers of AirSeal and our smoke evacuation from a dollar standpoint and a growth standpoint accelerate there. The AirSeal business, although it grew, the absolute growth wasn't as much as we would have liked to have seen, but the absolute capital units that have hit the market were pretty attractive for us, and they accelerated in quarter 1, and we expect to see the disposable trends grow in quarter 2 and throughout the year. So that will also play a role in accelerating that absolute dollar growth value from quarter 1 to quarter 2, Robbie. Robert Marcus: Perfect. And then just quickly on gross margin. You had a really good result, your best one in many quarters. Any color there and just how to think about that through 2Q through 4Q? Todd Garner: Thanks, Robbie. We did -- we grew 100 basis points over the prior year quarter. Our full year guide for gross margin was 50 to 100 for the year. So we were at the top end of that for Q1. As we look at the rest of the year, we think we should be in that 50 to 100 every quarter. So Q1 was good at the top of the range, and we continue to have the guide of 50 to 100 basis points of improvement in 2026. Operator: Our next question comes from the line of Matthew O'Brien of Piper Sandler. Anna Runci: This is Anna on for Matt. I want to touch on the laparoscopic opportunity in AirSeal specifically. I know you've mentioned that market penetration is fairly low there for a while now. So I'm just wondering what the gating factor is there and how we should think about the laparoscopic application as a growth driver long term for AirSeal and then any investments you're making to accelerate penetration into that market. Patrick Beyer: Thank you. So as we think about laparoscopy, historically, we've done a strong job internationally where the robotic penetration was lower. Internationally, we're selling AirSeal in the laparoscopic market successfully. So we know there's an economic and clinical benefit to the hospital systems and patients around the world. To give some detail on the U.S., there are over 3 million procedures in the U.S. laparoscopically, and we address -- and we have a penetration rate of about 6% to 7%. So we have a strong programs in the United States towards standardization in the laparoscopic market. We know that the clinical benefit and the economic benefit is there, but we're taking a pretty focused approach. For example, in the laparoscopic market, 2 procedures, colorectal and hysterectomy have over 350,000 procedures done laparoscopically. These are complex surgeries in nature. They're 3 hours plus in length of procedure, and we know the benefits of AirSeal and stable low-pressure clinical insufflation make a real difference. And so we have an active program in the United States around standardization and laparoscopy. We had a good quarter 1 where our pipeline is growing strongly. And I commented that the actual units of AirSeal going into the market in the United States was really strong in quarter 1. We put over 50% more in quarter 1 in the market than we did in quarter 1 2025. So some good moves are happening there. Anna Runci: Awesome. That's great to hear. Super helpful. And then I also just wanted to ask on the supply chain. Just any additional color on the progress you've made there. And then once these issues are fully subsided, I'd imagine it might take some time for you to recoup any lost business or any dislocated business. So just wondering if there is an expected lag there and when you expect to fully be back on offense with the supply chain issues? Patrick Beyer: Yes. So I appreciate the question. So I'll remind you that at the end of 2025, we said we made real progress. The good news was it wasn't a moment, it was a movement, and we've continued to make progress. And the gains we made at the end of 2025, we've sustained. That's number one. Number two, it's allowed us to grow our orthopedic business, and we commented that we've had 3 quarters in a row where we've actually achieved minimum mid-single-digit growth. The good news is BioBrace had never gone on back order. So our sales professionals, even though they weren't on offense on our core orthopedic product lines, they were connecting with clinicians, taking care of clinicians, clinical issues and maintaining their relationships. So we believe that while we will not take all of the previous business we may have lost back quickly, we believe our relationships are strong with the hospitals. And as contracts continue to come up and we have opportunities, we'll continue to take the appropriate market share that we deserve and we've earned. And again, I would remind you, the sports medicine market is a large market, growing mid-high single digits. And our expectation is we're a winning company, and we would expect to, over time, move to that mid-single-digit, high single-digit growth trajectory. Operator: [Operator Instructions] Our next question comes from the line of Mike Matson of Needham & Company. Michael Matson: So just on Buffalo Filter, the OEM business, is there any way you can help us understand how big of a part of Buffalo Filter, that general surgery business that is? And what's the expectation around when that stops potentially being a drag on Buffalo Filter overall? Like when does it kind of get small enough or level off in terms of the declines? Patrick Beyer: Mike, the Buffalo Filter piece of our smoke evacuation is smaller than our direct, number one. We grew our direct business in quarter 1. And we believe over time, it will continue to get smaller. And we believe the leading indicators we saw in quarter 1 tell us that total smoke will in 2026 be high single digits, low double digits. And so over time, it will phase away, and we'll continue to focus on our direct business. Michael Matson: All right. And then just on the interest expense commentary. So it sounds like you're saying that there's -- it's going to be -- and I know it's rough numbers at this point, but approximately $0.10 greater impact from the added interest expense than you previously expected, but you're able to kind of absorb that and you're maintaining the EPS guidance. But I guess looking into '27 then, and I know you're not giving guidance for '27, obviously, but I mean, is it -- it's probably going to kick in midyear. So is that like a $0.20 annualized impact? And would that $0.20 be kind of a headwind in '27? Todd Garner: Yes. Fair question, Mike. We don't want to get ahead of ourselves. Obviously, we said that with where things are right now, we've determined to not access the convertible part of the market. That doesn't mean that we wouldn't between now and '27, right? So there's a lot of things that can move between now and then. We have a very strong cash engine. And so we'll give '27 guidance at the right time. But -- so I'd ask you to just kind of stay open-minded to where this goes. And I will remind you, we said at least this is still a little bit of a moving target. So we don't want to be too precise with it, and we certainly don't want to be precise into next year. Operator: Thank you. I would now like to turn the conference back to Pat Beyer for closing remarks. Sir? Patrick Beyer: Thank you, Latif. I want to thank everybody for joining us on the call. We entered 2026 with a clear focus on execution. We are concentrating on our key growth platforms and continuing to build a strong foundation for long-term performance. Exiting the GI portfolio further sharpens our focus and positions CONMED as a more disciplined company going forward. I'm really proud of our team and the positive impact they're having on patient outcomes as well as their continued commitment to creating value for our shareholders. Thank you for joining us today, and I want to thank you for your continued interest and support. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, everyone, and welcome to the CBIZ First Quarter 2026 Results Conference Call. [Operator Instructions] Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Chris Sikora, VP of IR and Corporate Finance. Please go ahead. Chris Sikora: Good afternoon, and thank you for joining us on today's call to discuss CBIZ's first quarter 2026 results. We posted an investor presentation that tracks to our prepared remarks, and it is available on our Investor Relations website. Before we start, I'll remind all participants that you will hear forward-looking statements during this call. These statements reflect the expectations and beliefs of our management team at the time of the call, but are subject to risks that could cause actual results to differ materially from these statements. You can find additional information on these factors in the company's filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date. We will also discuss certain non-GAAP financial measures on today's call. As noted on Slide 3, a reconciliation between GAAP and non-GAAP financial measures can be found in the supplemental schedules of the presentation. Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; Brad Lakhia, Chief Financial Officer; and Peter Scavuzzo, Chief Information and Technology Officer. I will now turn the call over to Jerry, who will start on Slide 5. Jerry Grisko: Thanks, Chris. Good afternoon, everyone, and thank you for joining us. We entered 2026 with a clear plan, and our overall first quarter performance was in line with our expectations. We delivered year-over-year growth in revenue, profitability and free cash flow while returning value to shareholders through highly accretive share repurchases. Our organic growth improved throughout the quarter and is up sequentially compared to the fourth quarter. We remain confident that we will exit the year growing at our mid-single-digit organic growth target rate and be in a position to return to our long-term growth algorithm. As we will discuss on the call, we also advanced our strategic growth priorities and made meaningful progress on our efficiency initiatives while continuing to invest in our AI capabilities, and we believe that we're positioned to be the clear leader in the middle market. I want to thank our CBIZ team members for their exceptional performance as we completed our first busy season as an integrated company, a significant milestone for our organization. Our teams delivered strong results for clients, coordinated effectively across the platform and maintained solid utilization during our most critical period. We are operating fully as one company with unified teams, aligned culture and vision, common systems and a strengthened go-to-market approach, and our scaled operating model is beginning to work as intended. In the fourth quarter of 2025, organic revenue growth was flat as we completed a year of significant transformation and integration. As we moved into 2026, we are beginning to realize the benefits of the foundation we put in place. Combined with a more favorable market backdrop, organic revenue growth improved as we progressed through the first quarter. Our Q1 growth in Financial Services was still impacted by headwinds related to prior client exits tied to our risk and profitability standards and residual integration-related productivity impacts that shifted some tax revenue into the back half of the year, as previously discussed and contemplated in our full year guidance. We estimate that these temporary factors reduced reported organic revenue growth by approximately 200 basis points in the first quarter. We continue to expect these impacts to abate by the second half. With our solid start to the year, we are reaffirming our revenue, adjusted EBITDA and free cash flow targets while increasing our adjusted EPS outlook, reflecting confidence in our underlying earnings power and the impact of our accretive share repurchase activity. Now moving to Slide 6. We are advancing our 4 strategic priorities to drive growth. These priorities will strengthen our ability to win new business, retain and expand client relationships and enhance pricing. First, CBIZ continues to attract, retain and elevate top talent. We are proud to have been recently named a Top Workplace in the nation by USA TODAY for the sixth consecutive year and see that reflected in our strong employee retention performance across the company. Also, we are capitalizing on the greater scale and investment opportunity of our new platform by bringing in high-caliber talent to CBIZ. Within Financial Services, our lateral hiring initiative is identifying and advancing high-impact, high-producing MDs with several new hires recently completed and a robust pipeline of senior candidates who are drawn to CBIZ. Within Benefits and Insurance, we have added a variety of net new quality producers in the quarter and expect high momentum to carry to the second quarter as we work towards our full year target of approximately 15% increase in producers. I'm also pleased to have Peter on the call today. With Peter's appointment as Chief Information and Technology Officer and President of CBIZ Technology, we're making a deliberate convergence, one leader, one platform, one road map. Peter brings close to 20 years of industry experience and is widely regarded as one of the leading voices in technology and AI in our profession. Second, we recently launched our spring national brand campaign, featuring targeted national televised ads across our key markets. This year, our focus remains on translating increased visibility into stronger engagement for our services and reinforcing our position as a trusted partner during transformational events. Our brand and marketing investments are a key complement to both our go-to-market and talent recruitment strategies. We have already seen these investments paying dividends with early traction reinforcing brand awareness and strengthening our connection with clients and talent. Our 12 industry verticals are an increasingly important driver to how we go to market and serve our clients. This structure was designed to lead with insights, anticipate client needs and deliver coordinated, tailored solutions that drive stronger retention, accelerated growth and reinforce our value-based pricing. We are making meaningful progress implementing this strategy, including the development of new industry-focused managed services that bring together capabilities across tax, advisory and benefits to address specific client needs. We are seeing positive results from the greater connectivity these industry verticals provide for our national experts. In Alternative Investments and Real Estate, collaboration between our national experts is enabling us to secure a variety of new engagements in areas where clients were unaware of our capabilities. As we continue to strengthen our industry practices, we are seeing increased new client pipeline activity across several key verticals, including Consumer and Industrial Products, Capital Markets, Alternative Investments and Construction. Finally, we are delivering a more coordinated client experience across our service offerings. With our highly recurring revenue base and strong client retention, our most immediate growth opportunity is expanding relationships with existing clients. We are already seeing good progress as we take a more systemic approach to cross-selling across services and geographies. We are systematically increasing the number of clients using multiple services, and we expect these efforts to contribute to organic growth over time. Taken together, we believe strong execution against these 4 priorities positions us to drive attractive levels of growth in 2026 and beyond. Now moving to Slide 7. I've asked Peter to join us today to provide you with a more detailed walk-through of how we're advancing our AI road map. But first, let me briefly reiterate how we're thinking about AI and why we believe our strategic approach to AI will be a catalyst for CBIZ breaking away from many of our competitors. Our business is built on long-standing client relationships and services, often delivered in regulated environments that require licensed professionals to take accountability for outcomes. These engagements serve as a critical third-party validation for lenders, investors and regulators, which creates a high bar for substitution and reinforces client stickiness. Further, our middle market clients rely on us for judgment, context, expertise, intuition and ethics and typically do not have the scale or capital to build and govern AI-driven solutions themselves. The combination of our trusted relationship with our clients and our continuing investment in improved tools, processes and systems, including AI, create a defendable moat around our position with our middle market clients. We have also largely transitioned to a value-based pricing model, which positions us to benefit from the AI-driven efficiencies. As we adopt AI, we expect it to enhance our ability to deliver insights, expand wallet share and improve margins while reinforcing and not replacing the valued role we play for our clients. With that, I will turn it over to Peter to share more detail on what we're delivering. Peter Scavuzzo: Thanks, Jerry. We spent the last several quarters building the foundation for how we deploy AI across the organization, and we're now entering the next phase of that work. Let me share what that will look like internally and externally and how we see it creating shareholder value. Just last week, we began the full rollout of our latest internal capabilities company-wide, moving from primarily AI-assisted workflows to more advanced agentic-based AI solutions. We intentionally timed this rollout following busy season to ensure our teams could remain fully focused on client delivery during our most critical period. The maturity of large language models, combined with the accessibility of advanced features within AI platforms and our own internal talent and execution has brought us to an inflection point where deployment risk is manageable and the productivity and efficiency payoff is measurable. Building on our commitment for ongoing AI-driven talent development, our latest platform release further strengthens professional growth and retention. Professionals join and stay where they're empowered to do meaningful work. By significantly reducing manual repetitive tasks, our AI initiatives are improving retention and making us a more attractive destination for the next generation of talent. We are already seeing this in our recent lateral hiring discussions. As it relates to the technology itself, our recent advances in AI-based data extraction and structuring capabilities position us to deliver faster, more insight-driven solutions for clients across a wider range of services. For example, on the work we are performing in one of our [ attest ] services, for year 1, our AI-based data extraction workflow is producing 20% efficiency with our anticipation in subsequent years that this efficiency will grow to 40%. At the same time, we are also using agentic AI to support revenue growth by enhancing how we generate and pursue revenue opportunities. We are developing AI-driven workflows to improve the speed, quality and consistency of RFP responses and enabling us to pursue opportunities we previously could not due to resource constraints. Beyond new client wins, AI-driven insights create natural conversation starters with existing clients. For example, enabling us to benchmark client performance and flag opportunities that our professionals can then act on. This is one way in which we will expand our relationship and wallet share. As these capabilities scale, we expect improved win rates, faster time to market and more differentiated offerings that support sustained growth and long-term value creation. Lastly, a critical part of our AI strategy also includes our partner ecosystem, which is the foundation for the tools we are putting in place. We are leveraging leading technology partners with deep expertise in our industries and combining those capabilities with our new AI platform, proprietary workflows and our domain knowledge. All of this is packaged together to drive productivity and efficiency and provide innovative solutions to our middle market clients, which are historically underserved from a market perspective. Our approach allows us to move faster, reduce execution risk and build a secure enterprise-grade foundation while remaining focused on what we do best, serving clients and delivering high-quality outcomes. Over time, this model gives us a scalable and flexible platform that can continuously evolve as AI capabilities advance. While still early on, we are making strong progress, and we'll continue to update you as our capabilities develop and we drive results. Jerry, back to you. Jerry Grisko: Thanks, Peter, and congratulations on your new role. We believe that companies that successfully implement AI and automation will reap the benefit of significant efficiency gains with the savings following through to the bottom line, resulting in margin expansion. We expect that industry leaders will then take a portion of these savings and redeploy them to capture new revenue opportunities and accelerate organic revenue growth. By freeing our professionals from manual, time-intensive work, we expect a favorable mix shift towards higher-value, higher-margin advisory project-based services, the deployment of a new AI-enabled offerings where compliance and professional judgment matter most and improved win rates as our scale and technology investments differentiate CBIZ from smaller competitors. We believe that AI will be a turning point for our industry with several breakout firms that have the scale and ability to invest in and train professionals to use technology to better serve our clients. At the moment, we believe that we are at the forefront of investing in and using these new technologies. Overall, we believe we are building the right foundation to leverage AI in a disciplined and scalable way, and we're excited about the role we will play in creating long-term value for our clients and our business. Slide 8 details how offshoring continues to be a meaningful opportunity for CBIZ. We are on track to achieve our target of increasing offshore hours from approximately 6% in 2025 to 10% in 2026. Our partners in the Philippines and in India are delivering high-quality work, and our U.S. teams are better engaging our global teams, which gives us confidence that we can accelerate our initial investment time line to further expand our global capabilities. Over the next several years, with the benefit of our existing offshore delivery centers, we plan to expand hours completed outside the U.S. to more than 20%. We believe achieving these levels, which are consistent with comparable companies, will drive significant growth and margin opportunities over time. To wrap up my remarks, I want to comment on the current business climate and our outlook. As I shared last quarter, our assumptions regarding the level of project-based activity largely drive the range of our 2% to 5% organic revenue growth outlook. With that in mind, I'd like to highlight a few encouraging trends we've seen since our last call. First, the market environment for advisory work has continued to be favorable with notable wins across risk advisory, credit risk, valuation and private equity driving strong pipeline momentum. Second, we are seeing increased activity in our Capital Markets group with more clients evaluating transactions as market conditions improve. Third, we are very pleased to have a favorable pipeline of new prospects across both Financial Services and B&I, and we expect our pipeline to continue to grow. It is our expectation that revenue growth should continue to improve each quarter as we move through the year. Finally, as Brad will discuss in more detail, we are pleased with the strong free cash flow we are generating, and we'll continue to redeploy that into debt repayment and opportunistically repurchasing stock at highly accretive valuations to create value for our shareholders. Now I'd like to turn the call over to Brad for our financial review. Brad Lakhia: Thank you, Jerry, and hello, everyone. My comments begin on Slide 10. Our first quarter results represented a solid start to the year and were in line with our overall expectations. Consolidated revenue increased 1.3% year-over-year to $849 million, with organic revenue growth of 1%. Adjusted EBITDA increased $3 million year-over-year to $244 million, and adjusted EBITDA margin increased slightly by 10 basis points. Adjusted diluted earnings per share was $2.50 compared to $2.33 in the first quarter of last year, a 7% increase, reflecting the strength of our business model, synergies we are capturing through enhanced size and scale and a lower share count. Turning to Slide 11. We remain very pleased with our free cash flow performance, which drives and supports our capital allocation priorities. Free cash flow improved $64 million year-over-year, primarily due to $53 million of proceeds received from the final purchase price adjustment. This improvement balanced our typical peak seasonal working capital use and enabled us to fund approximately $63 million in share repurchases through the end of April. Net leverage decreased to approximately 3.4x compared to approximately 3.9x at the end of the first quarter of 2025. The improvement was primarily driven by growth in pro forma adjusted EBITDA, along with modestly lower debt levels. Our weighted average fully diluted share count, which includes all future shares to be issued as part of the acquisition, declined by 2.6 million shares year-over-year. April year-to-date, we have repurchased approximately 2 million shares through open market transactions and under our Right of First Refusal Program. Moving to Slide 12. Please note a presentation update for this quarter. Our Financial Services segment now includes our former National Practices segment, which is now part of our Technology Services business. All figures presented today reflect this change and are on a comparable year-over-year basis. Turning to performance. Financial Services had a solid start to the year with results in line with our expectations. Revenue increased 2.1%, driven by strength across core accounting, tax and advisory and resulted in reported organic growth of 1.8%. As Jerry noted, results continue to reflect elevated but transitory client attrition related to the integration. We estimate this reduced first quarter Financial Services revenue by approximately 200 basis points versus last year. Excluding this impact, first quarter organic growth would have been approximately 4%. Looking ahead, we expect organic growth to accelerate as we lap these attrition and integration-related productivity impacts in the first half and benefit from our growth initiatives in the second half. We remain encouraged by year-to-date new wins and a strong pipeline. And in addition, favorable market demand for our advisory businesses continues with clear visibility 60 to 90 days out. On pricing, we continue to expect mid-single-digit rate increases, which are embedded in our planning assumptions. Our long-term financial services growth algorithm is unchanged, targeting mid-single-digit organic revenue growth and continued adjusted EBITDA margin expansion driven by top line growth and operating efficiencies. Turning to our Benefits and Insurance results on Slide 13. First quarter revenue was $108 million, representing a 4% decrease year-over-year. Coming into the quarter, we expected revenue to be down in the first quarter due to tough comps on project-related work and contingent commissions. Contingent commission declines are primarily driven by client attrition that occurred in 2025. The remaining portion of the decline was primarily driven by the unexpected departure of a single producer and his team in February. This was an isolated departure, and we do not anticipate any similar departures. On the contrary, we expect our net number of producers to continue to increase. As a reminder, our producers are subject to certain restrictive covenants, which we have successfully enforced in the past and intend to do so with this departure. Within the recurring portion of the B&I business, which is consistent with the overall CBIZ split of recurring versus nonrecurring revenue, demand fundamentals were strong and our pipeline remains healthy. In addition, we continue to attract and develop new validated producers, and our industry-focused growth initiatives are gaining traction. The recurring portion of our business, when normalized for the producer departure, was up approximately 4% in the quarter. B&I adjusted EBITDA in the quarter was primarily impacted by the flow-through impact from the nonrecurring revenue items as well as planned incremental marketing investments to support our growth initiatives. We're confident in our ability to grow at historical growth rates for the remainder of the year with B&I supporting our full year overall growth expectations. Turning to our 2026 outlook on Slide 14. We continue to expect revenue to be between $2.8 billion and $2.9 billion, representing 2% to 5% year-over-year growth. Our adjusted EBITDA is effectively unchanged, but is updated to a range of $465 million to $475 million to incorporate the comparative stock-based compensation adjustment. We've increased our adjusted EPS to reflect a lower share count driven by our share repurchases through April and our stock-based compensation adjustment. Adjusted EPS is now expected to be in the range of $4 to $4.10 per share, which assumes a weighted average fully diluted share count of approximately 60.5 million. Free cash flow guidance is unchanged and expected to be in the range of $270 million to $290 million, representing a 60% conversion at the midpoint of our adjusted EBITDA outlook. While our improvement in the first quarter was largely driven by a onetime benefit, we see ample runway in the near term to drive a higher conversion through lower integration-related spend, lower interest and improved DSO. On Slide 15, our capital allocation priorities are unchanged and are supported by strong free cash flow generation. Our first priority remains funding organic growth and maintenance capital. Second, we remain committed to delevering, targeting a net leverage ratio of less than 2.5x in 2027. And at our current valuation, we view share repurchases as highly accretive and a compelling use of capital and therefore, intend to remain active and opportunistic. The strength and scale of our business model, combined with our meaningful free cash flow gives us confidence in our ability to invest in growth, return capital through repurchases and achieve our leverage targets over time. With that, I'll turn the call back to Jerry. Jerry Grisko: Thanks, Brad. Our top priority in 2026 remains reigniting our growth engine and leveraging our scale. We have clear strategic growth priorities and efficiency initiatives that we are confident will drive value creation for all of our clients and our shareholders. We believe we have the building blocks in place to deliver on our long-term growth algorithm. Now looking forward, we're focused on compounding value through multiple growth engines. We see tremendous opportunity to not only retain business and expand within existing clients, but also to land new clients who seek the multiservice capabilities we now offer. The work completed in 2025 has built a strong foundation for operating margin expansion as we increasingly deploy technology and leverage global resources. And importantly, we remain committed to our high-return capital allocation priorities that are supported by strong and consistent cash flow. Finally, I want to thank our CBIZ team for your continued hard work and our shareholders for your ongoing support. We look forward to further engagement with you all in the months ahead. And with that, operator, please let's open the call for Q&A. Operator: [Operator Instructions] Our first question today comes from Jeff Silber from BMO Capital Markets. Jeffrey Silber: Peter, let me start with you. I really appreciate you being on the call. Given the tools that are out there, do you think it's possible that some of your clients might be able to do some of the work that you're doing from an AI perspective on their own, perhaps unbundling some of the services and perhaps putting some pricing pressure on some of the services you're providing? Peter Scavuzzo: Thanks for the question. I don't think the tools are able to provide the expertise and knowledge we can offer in the profession. That's a requirement in the regulated environment that we operate in. They could certainly produce some anecdotal information, but the profession requires, especially in the regulated industry, for us to provide all that expertise and know-how that we've created or built over the last several decades, which are critical for delivery. So I don't see that as being a pressing concern. Jeffrey Silber: Okay. That's great. And you gave some examples, one in terms of using AI a bit more efficiently in terms of answering RFPs. Are there other examples maybe from an expense perspective that you might be able to use some of the tools to help improve margins? Peter Scavuzzo: I think it's too early for us to speak on all of the things we're working on right now. We just took this next phase moving from an assistive to an agentic AI strategy. I would expect as the quarters unfold in the future, we'll have more examples that we can provide similar to ones that you just brought up. Operator: Our next question comes from Thomas Wendler from Stephens Inc. Tom Wendler: Happy to be up to speed on the company finally. I'm going to start off with the Benefits and Insurance. You had a departure there this quarter. Can you maybe remind us of the pace of increase to the producer count there in 2026? Jerry Grisko: Yes. Tom, this is Jerry. We are planning on having about 15% increase year-over-year. It's a little lumpy from quarter-to-quarter, but we're off to a good start, and we have a very strong pipeline. So we're confident that we'll be able to achieve that 15% target for the full year. Tom Wendler: Perfect. And can you maybe speak to the cross-servicing opportunity there as you get some of those Benefits and Insurance hires fully up to speed? Jerry Grisko: Yes. It's a great question, Tom. It's actually often why producers join us, right? So when you think about our go-to-market through industry, and let's just say you're a construction client, that construction client not only needs the tax work that we do and the attest work that we provide and the valuation work, but they also need surety bonds. And they also need -- they have a workforce and they need payroll and they have to provide them with health insurance. So what's a very attractive kind of draw to outside producers into CBIZ is that they have all of those arrows in the quiver now and they could bring it to life through those industry groups. So it might be a combination of, like I said, P&C, might be a combination of payroll benefits provider or an employee benefits plan, a 401(k) tax audit, a whole host of services. Brad Lakhia: Yes. Tom, this is Brad. Thanks, first of all, for initiating coverage. We're certainly glad to have you on board. I appreciate you and the Stephens team. I would just add to what Jerry said, if you look back about a year ago, we formally stood up the 12 industry groups. And so as we think about the last 12 months and not only the work around integration, but bringing these industry teams together, forming them, we are seeing a lot of really, really positive traction across the 2 segments, across all the service lines within the segments. And so we're really encouraged about the pipeline of opportunities that those industry groups are starting to pull together and seeing some early wins as a result of that collaboration. Tom Wendler: Perfect. And maybe I'll sneak one more in here quick. You guys are pretty active in the repurchase this quarter. Can you maybe give us some color on how we should be thinking about the pace of repurchases moving forward? Jerry Grisko: Yes, Tom, thanks. Appreciate the question. First and foremost, I'll restate the priority -- capital allocation priorities that I highlighted earlier. I won't restate them because I think you heard them loud and clear. But we feel right now, our valuation is it's candidly what we feel is quite undervalued. So as we think about current valuation levels, the level of accretiveness of share repurchases is quite compelling, as I commented on. So we're going to remain active. We still have a lot of flexibility to do that, driven by our strong cash flow supported foundationally by the recurring nature of our business model, the stickiness that comes with our client relationships and the strong retention we have. So we just feel like fundamentally, our business can support being more opportunistic there. But I'd also just say, Tom, we're going to continue to be focused on those opportunities to strengthen free cash flow, the things I mentioned, DSOs. You'll see lower integration spend as we move into 2027 next year. That will help our conversion and also help us accelerate our delevering strategy as well. Operator: Our next question comes from Andrew Nicholas from William Blair. Andrew Nicholas: I want to start off on price. I think you mentioned in your prepared remarks that you continue to expect price increases in the mid-single-digit range. Any color you can add to kind of recent pricing conversations, whether you're supported by kind of the macro backdrop, whether there's any pushback from a technology perspective? I know last year, amidst a choppy macro, there's a little bit more pushback. So just kind of curious for color on how those pricing conversations have gone over the past couple of months. Jerry Grisko: Yes, Andrew. First of all, we're just coming out of busy season. So we're not having a lot of pricing conversations now. We would have had those kind of at the -- entering into the season and as we firm up our engagement letters. But I will tell you, we're highly confident in our mid-single-digit pricing that we've put into the plan for the year. That is consistent with the pricing that we've achieved kind of historically through CBIZ. It was a little higher maybe in '23, '24, which is part of the conversation in '25. But in '26, at the mid-single-digit level, quite comfortable there and are not hearing really pushback on that pricing. I will also say around technology and AI and those things, we really value-based price. Our clients expect that we're going to get efficiencies from a number of sources like offshoring, AI, automation, et cetera. So we're really not seeing pricing pressure there either really in a big way. Brad Lakhia: Yes. And the favorable market conditions within the more nonrecurring advisory pieces of our business, Andrew, have continued, and we have line of sight to that, as I commented here over the next couple of months at least. So we see that as fundamentally pretty strong in terms of pricing within those parts of our business. Andrew Nicholas: Great. And maybe just to kind of follow up on the macro piece. It sounds like the backdrop has continued to improve, understanding that, that's one of the major kind of deltas or factors driving you between the top and bottom end of your top line guide. Just kind of curious as where we sit today, are you a little bit more constructive on those things outside of your control than you were when you gave the initial guide? And just kind of broadly, if you could expand a bit on the comment that organic growth improved as you move through the quarter. Is that predominantly a macro comment? Or are you getting some integration improvements that's helping you on a month-to-month basis as well? Brad Lakhia: Yes, Jerry and I'll probably team up on this one, Andrew. There's several things maybe to unpack there. I would say in terms of the guide, just like we said a couple of months ago when we put it out, the top end was predicated more on continued favorable market conditions, those conditions that we saw in the second half of last year. We're encouraged by the fact that we see that -- we've seen those continue in the first quarter. We have line of sight here for at least the next few months. So I would say a quarter doesn't make a year. And certainly, as we get here to the second quarter, if the conditions remain the way they are as we look to the second half of the year, that would give us encouragement to the top side. Also, just as a reminder, we're -- the back half of the year, we'll be lapping some of the integration related -- start lapping some of the integration-related productivity impacts and some client impacts as well. So as you think about the back half growth rates relative to last year and some of the comparability there, I'd ask you to keep that in mind. And then there was a third part, I think, to your question, Andrew, I'm sorry, I could not... Andrew Nicholas: Yes. I talked about kind of the month-to-month, you said organic growth month-to-month... Brad Lakhia: Yes. So I think a few things there. One is January started off a little bit more challenging for us than maybe we expected, largely just because of the fact our teams were really working together for the first time in busy season. That includes them using technology during busy season for the first time that for many of them was either new or updated across the entire service line in some cases. So we had some just bumpiness in January. We feel like we fully overcame that and then potentially some as we progress through the quarter. But then if we just strip that aside and look at some of the real growth as we looked at February of this year versus last year, March of this year versus last year, we're starting to see the improvement, the real more core organic improvement as well. So encouraged by that and gives us some encouragement -- further encouragement around just meeting our overall guidance as well. Andrew Nicholas: Perfect. And if I could just squeeze in a quick modeling question. I think last quarter, you outlined kind of a rough mix between first half and second half on both revenue and EBITDA. I think it was 55-45 on revenue and 70-30 on EBITDA. Is that still a good way to think about how the year plays out or any kind of puts and takes a quarter later? Brad Lakhia: Yes. No, I still say that applies. There might be some very, very minor tweaks. But overall, that's still what we're expecting. Operator: Our next question comes from Faiza Alwy from Deutsche Bank. Faiza Alwy: I wanted to follow up on the macro question. So I know this is obviously the busy season for you. 1Q is your highest revenue quarter. And so I'm curious, as we think about the improvement in organic growth from flat to up 2% this quarter, like how much of that is driven by sort of improving market conditions versus maybe better execution on your end in part because it is a busy season. So I just wanted to get a bit more color around that, just given the different mix of business through the course of the year. Jerry Grisko: Yes. Faiza, it's Jerry. I would say not improved macro conditions, I would say continued favorable macro conditions, right? So as you indicated, this is really kind of a heavy -- we just -- we're exiting a heavy compliance portion of our seasonality of our business. We'll have another one kind of in the third quarter. But in between there, it's a lot of more project-based discretionary advisory type work, which takes the type of climate that we're in to support that work. We're very comfortable, very pleased actually with the demand that we saw for that type of work in Q1. We're very pleased with the pipeline. We have about a 60-, 90-day visibility into that pipeline. Very pleased with that pipeline that we're seeing now. And so long as those conditions hold kind of constant through the year, we're quite bullish on our ability to hit the guidance that we had laid out earlier. Brad Lakhia: Yes. And then I'd just add, Faiza, if you weren't covering us this time last year, but the front half of last year had some, I'd say, comparability things I'd just like to highlight. One is market conditions in the front half of last year were more challenging and uncertain, although we came into the year thinking they were going to be better. So there's a year-over-year comparability and that nonrecurring advisory part of our business is very, very strong. So we're encouraged by that. And then just sequentially, because I think you may have been referring to like Q4 versus Q1 growth rates. It does -- we are seeing improved productivity from the integration itself, which is very, very encouraging. We expect that to only get better as the year progresses. Faiza Alwy: Okay. Great. That all makes sense. And actually, I wanted to follow up on that sort of productivity question. Maybe you can just give us an update on the integration progress. I believe for 2026, you had a couple of remaining items like just the common practice management system and the real estate footprint. And I guess where I'm getting at is you talked about sort of some of the lapping, some of the churn in the business in part due to the acquisition. And so I guess just asking for the level of confidence that you really are lapping that and that there aren't any incremental things to consider there? Jerry Grisko: Yes, Faiza, what gives us comfort on the churn and the client churn is that we're not seeing the same conditions that we saw last year. So obviously, that churn related to predominantly 2 things. One was some conflicted clients. Of course, those are -- that was transitory, that's out of the system. And the second one was really kind of the profile of the client, the risk profile, profitability profile. We're not seeing those same kind of conditions exist now because we've already kind of addressed that in 2025. The other thing that gives us confidence is as we look at the strength of our pipeline kind of across the board, just the new clients that we've won, the size, the profile of those clients and the pipeline of new clients on both sides of the business, both Financial Services and Benefits and Insurance, all point very favorable for us. So really encouraged there. Brad Lakhia: Yes. Let me add. Last year, as we were coming out of busy season and we were looking to obviously kind of go out win clients, address the pipeline that we had. We made some things difficult on our team as we came together, particularly around the attest side of our business, just around our client onboarding processes. So we've addressed that. We addressed that mid- start of last year. That's going very, very well. Our onboarding process for our clients has notably improved. Our teams are giving us that feedback. And as Jerry emphasized, the win rates that we're seeing and the quality of the wins is really strong, backed by a really, really, really strong pipeline. So I just want to reemphasize what he just said. Operator: [Operator Instructions] Our next question comes from Chris Moore from CJS Securities. Christopher Moore: Yes. Maybe another one on AI and efficiencies and just perhaps looking at it a little bit differently. So rather than looking at it from can your clients duplicate what you're doing on the AI side, a lot of the conversations that I've been having with investors is just the fear from a competitive standpoint that your clients will be looking for price reductions because there will be alternatives out there driven by AI. So I guess really the question is, from a competitive standpoint within the middle market, generally, you're competing with other firms that don't have the capability to invest what you're investing in AI? Is that the thesis? Or I was just trying to understand a little bit better how you're thinking about that. Jerry Grisko: Yes, Chris, exactly as you just described it. When we think about how well we're positioned today with our size, our scale, the investments that we're making in this area, the number of resources that we put against it, the tools that we now have, we could never have made those investments 18 months ago. And so when I think about competing in the market against firms that are substantially smaller than us, I believe that there's a great opportunity to take market share for no reason other than, again, they will not be able to make those investments. They will not be able to upskill their workforce in the same way and really kind of create new products and solutions to bring to the market. We wouldn't have been able to do it without the size and scale, and I'm sure they won't either. That creates a great opportunity for us in 2 ways to take market share kind of from that next level of competitor in the market. And also, we've had a little bit of kind of comments around others coming down market. It also allows us to go upmarket. So we see great opportunity from a market share perspective, both upmarket and downmarket as a result of the investment we're making in our size and scale in this area. Peter? Peter Scavuzzo: Yes. Just one added comment. I feel that AI and automation is strengthening our position and not weakening, and it's going to increase our ability to be more competitive. Christopher Moore: I appreciate that. Maybe just on the project work. So Jerry, you went into that a little bit. But specifically with respect to margins, are there certain buckets that are meaningfully kind of higher margin contribution than others? Jerry Grisko: I would say, Chris, overall, our advisory work is, in fact, higher margin than the more compliance work. Now it's -- let me remind you of the attributes of the business, 72% recurring, right, essential services. So we like that feature, right? That's a feature that's very stable, allows us to perform kind of regardless of the business climate, et cetera. But we also like the other kind of 28% that tends to be more project for all the reasons we talk about in the environments like we're facing now, like we're having now favorable environment, it allows us to bring greater value to the client relationship. It is, in fact, higher margin. At times, it can be higher growth. So very favorable there, too. And again, overall higher margins, the mix of those margins vary by service. Operator: And with that, ladies and gentlemen, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Chris Sikora for any closing comments. Chris Sikora: Thank you for joining the call today. If you have any questions, please feel free to reach out to the CBIZ Investor Relations team. Thanks, and have a great rest of your day. Operator: The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the VICI Properties Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this conference call is being recorded today, April 30, 2026. I will now turn the call over to Samantha Sacks Gallagher, general counsel with VICI Properties Inc. Samantha Sacks Gallagher: Thank you, operator, and good morning. Everyone should have access to the company's first quarter 2026 earnings release and supplemental information. The release and supplemental information can be found in the Investors section of the VICI Properties Inc. website at viciproperties.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, believe, expect, should, guidance, intends, outlook, projects, or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. I refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our website and our first quarter 2026 earnings release, our supplemental information, and our filings with the SEC. For additional information with respect to non-GAAP measures of certain tenants and/or counterparties discussed on this call, please refer to the respective company's public filings with the SEC. Hosting the call today, we have Edward Baltazar Pitoniak, chief executive officer; John W. Payne, president and chief operating officer; David Andrew Kieske, chief financial officer; Gabriel F. Wasserman, managing director of business development; and others on the team. Edward and team will provide some opening remarks, then we will open the call to questions. With that, I will turn the call over to Edward. Edward Baltazar Pitoniak: Thanks, Samantha, and good morning, everyone. This morning, you will hear from John W. Payne on our recent investment and growth activities, and you will hear from David Andrew Kieske on our financial results and updated 2026 earnings guidance. To start, I would like to thank the members of the VICI Properties Inc. team for their continued hard work. Contributions to the business, including their efforts around the deal activity we announced this quarter, are essential to our success and ability to deliver value to our owners. Today, I would like to share with you, in abbreviated form, the thoughts I shared in my recent annual report letter. I will begin with this: The leaders of any business should always have a clear and cogent answer to the question, what business are you in? At VICI Properties Inc., the high-level answer to that question is, we are in the business of sourcing, allocating, and stewarding capital invested accretively in experiential real estate of enduring value. That could be the answer offered by any REIT or real estate investment management firm in America, save for one word: experiential. The 28 other REITs currently in the S&P 500 all have their own distinct adjectives in front of real estate, whether those modifiers be logistics, data center, office, residential, lodging, retail, self storage, etcetera. Property types may differ, but we all wrestle with the key real estate investment attribute of relevance—and on the opposite end of the investment spectrum, obsolescence. The more relevant the real estate is to its intended end users, the greater the likelihood that the income and value of that real estate will be sustained and potentially grow. The relevance of a property is ultimately determined by the people who use the real estate for its intended purpose. And for that reason, I believe that real estate investment insights are ultimately cultural insights. To evaluate the current—and moreover future—relevance and value of real estate requires the development of insights and forecasts into how people will live, work, play, heal, gather, create, and otherwise manifest the experience of living their lives now and over the lifespan of the investment. As I noted a moment ago, at VICI Properties Inc., we are strategically and organizationally committed to investing in experiential real estate, and that commitment is anchored in the insights and forecasts we have developed around the experience economy during our first eight years as a company. Spending trends support our thesis. According to Mastercard, during the period of 2019 to 2023, when the COVID pandemic led to a spike in goods purchases, global spending on experiences nonetheless rose 65%, while spending on things only increased 12% over the same period—a more than five-to-one growth ratio favoring experiences. This momentum has persisted after the post-COVID boom. TD Cowen’s January 2026 report on the experience economy showed that experience-related services, like gaming, accommodations, sports, air travel, and other leisure-related spend, have seen an average annual growth rate of 5.2% from 2023 to 2025 compared to average annual total personal consumption expenditure, or PCE, growth of 2.9% during the same period. The durability and persistence of this trend across multiple economic cycles, demographic shifts, and technological innovations supports the thesis that preference for experiences is not transient and instead signifies a deeper and enduring secular change. At VICI Properties Inc., we balance our secular focus with sharp attention to what is going on in the here and now. At any given time, we at VICI Properties Inc. believe we are responsible for managing our relationship and exposure to three key dimensions of impact: secular trend impact, cyclical trend impact, and idiosyncratic impact unique to VICI Properties Inc. Let me take each one of these dimensions of impact in reverse order. By idiosyncratic impact, I mean developments unique to VICI Properties Inc. arising out of our specific business conditions. These can be issues or situations that generally do not have secular or cyclical causes, beyond our management control. These are issues that we can and must address through our own management actions. By cyclical trend impact, I mean cyclical developments and trends in our economy and our society. These are fluctuations that are likely beyond our—or any management team’s—control, but VICI Properties Inc.’s business model and our revenue income streams as a net lease REIT are generally not highly subject to material cyclical fluctuation. We also strive to invest in businesses and sectors that have lower-than-average cyclicality to mitigate cyclical risk. By secular trend impact, as I noted above, I mean material and impactful changes in the ways in which people are living, working, playing, healing, gathering, creating, and otherwise manifesting the experience of living their lives. As with cyclical trends, secular change is beyond our management control. But what is within our control is identifying, understanding, and preparing for those changes, and consequently developing and executing responses that enable us to capitalize on positive developments and manage our risk exposure to potential negative developments in and around the experiential economy. As investors in large-scale, long-duration real estate, we work hard to be right about the secular. If you get secular trends wrong, as a real estate investor, it is hard to overcome the value-eroding impact of negative secular impact. If you get secular trends right, you have more management capacity to seize opportunity and manage cyclical and idiosyncratic developments. The VICI Properties Inc. executive team was in Las Vegas two weeks ago, and around every corner, we witnessed the secular power of experiences. Secular is long term. Getting secular right represents long-term competitive advantage. And with that, I will turn it over. John W. Payne: Thanks, Edward, and good morning to everyone. VICI Properties Inc. had an active first quarter with approximately $1.2 billion in new capital commitments. The last two quarters—Q4 2025 and Q1 2026—represent the first consecutive quarters during which VICI Properties Inc. has announced more than $1 billion in new capital commitments sequentially in the company’s history. This quarter, we announced an expansion of our long-term strategic relationship with Cain and Eldridge Industries by providing a $1.5 billion mezzanine loan as part of the construction financing for the One Beverly Hills development project. The mezzanine loan represents a $1.05 billion incremental commitment beyond our previously announced $450 million investment. Construction on the development commenced in 2024, with vertical works beginning in fall 2025, and phased delivery is scheduled to commence in 2028. VICI Properties Inc. also had international gaming real estate activity during the quarter. We announced the pending $144 million acquisition of four real estate assets located in Alberta, Canada, at an 8% cap rate in connection with Pure Casino Entertainment’s pending take-private acquisition of Game Host. This transaction is emblematic of VICI Properties Inc.’s ability to help our existing tenants execute on their growth strategies through the monetization of their real estate. Having worked alongside IGP and Pure for the last few years, we have appreciated their ability to operate and grow a very effective gaming platform. Subsequent to quarter end, we entered into a new lease agreement with Clairvest in connection with the closing of Clairvest’s acquisition of Northfield Park in Ohio from MGM. This transaction added VICI Properties Inc.’s fourteenth tenant, further diversifying our tenant roster, which has always been a core portfolio management objective since VICI Properties Inc.’s inception, and there was no change to total rent collected by VICI Properties Inc. Last week, we also announced that all gaming regulatory and shareholder approvals have been met for the previously announced $1.16 billion Golden transaction; we expect this acquisition to close today. This transaction reflects VICI Properties Inc.’s strategic entry into real estate ownership in the Las Vegas locals market, which has deeply rooted, loyal customer bases and attractive demographic tailwinds, and it highlights our ability to transform relationship-building efforts into constructive growth for our shareholders. To continue on the thread of Las Vegas, operator reports this week have demonstrated improvements in Q1. There was strong convention-related activity during the quarter with about 140 thousand ConExpo/Con-AGG attendees in March, and operators are continuing to address the value issue with MGM and Caesars offering promotional deals catering to value-oriented consumers. There are plenty of demand drivers, particularly around professional sports and entertainment, that continue to make Las Vegas a draw for a wide range of consumers for the foreseeable future. Construction on the A’s stadium has started. The NBA has voted to pursue a Las Vegas franchise. And the annual spring WWE event brought over 100 thousand attendees to the city a few weeks ago. Furthermore, our tenants continue to invest heavily in the assets we own on the Strip—from MGM Grand’s $300 million room remodel to the Omnia Day Club development out front of Caesars Palace, to the renovation of the Mirage and the building of the absolutely incredible Hard Rock guitar tower. We acknowledge the emerging changes that exist in the gaming space, from iGaming’s expanding presence to the growing, though largely unregulated, prediction markets, to the stabilization of online sports betting. But we do believe that brick-and-mortar gaming assets in the right markets, operated by the right operators, will retain sticky consumer bases and continue to perform well. At the same time, we will continue our broader long-term strategy that includes diversifying our tenant base, continuing to invest in other experiential real estate, and managing a portfolio set to benefit from the secular trends Edward mentioned in his opening remarks. Now I will turn the call over to David, who will discuss our financial results and guidance. David Andrew Kieske: Thanks, John. I want to start with a few numbers that I believe best capture what VICI Properties Inc.’s business has been designed to do. In the first quarter, on a year-over-year basis, we grew AFFO per share by 4.5% while only increasing our share count by roughly 1%. This sustainable, efficient growth is made possible by the fact that our business generates about $650 million of free cash flow annually, and we have been able to deploy that free cash flow into incremental investments without having to dilute our shareholders. Furthermore, VICI Properties Inc. has an AFFO payout ratio of approximately 75%. We are focused on maintaining our ability to continue to grow our dividend, which we have done every single year since we have been public in 2018, posting a peer-leading eight-year dividend growth CAGR of 7%, and intend to continue to protect the sanctity of the dividend as we strive to continue to grow the business both organically and externally. Each year’s growth is supported by a strong balance sheet. Our total debt is $17.1 billion, and our net debt to annualized first-quarter adjusted EBITDA is approximately 5x, at the low end of our target leverage range of 5x to 5.5x. We have a weighted average interest rate of 4.46% as adjusted to account for our hedge activity, and a weighted average 5.7 years to maturity. As of 03/31/2026, we have approximately $3.1 billion in total liquidity comprised of approximately $480 million in cash and cash equivalents, $142 million in estimated proceeds available under our outstanding forwards, and $2.4 billion of availability under our revolving credit facility. I would note that subsequent to quarter end, we settled all remaining outstanding forward equity to partially fund the Golden transaction, which, again, as John mentioned, is closing today. Turning to guidance, we are raising AFFO guidance for 2026 in both absolute dollars as well as on a per-share basis. AFFO for the year ending 12/31/2026 is expected to be between $2.665 billion and $2.695 billion, or between $2.44 and $2.47 per diluted common share. As a reminder, our guidance does not include the impact on operating results from any pending acquisitions without announced expected closing dates, possible future acquisitions or dispositions and related capital markets activity, or other nonrecurring transactions or items. With that, operator, please open the line for questions. Operator: Thank you. As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please limit yourself to one question and one follow-up. One moment for questions. Our first question comes from Barry Jonathan Jonas with Truist. You may proceed. Barry Jonathan Jonas: Hey, guys. Good morning. Thank you for taking my questions. Your loan book is expanding again. Curious how you think about the right mix there versus traditional sale-leaseback. David Andrew Kieske: Yeah, Barry. It is a strategic tool that we have in our toolkit to develop long-term relationships. And, as you know, some of the loans have direct pathways to real estate ownership, and others have the ability to learn about sectors that we would like to own the real estate in over time. We feel pretty good about where the size is right now. We are at high single digits in terms of percent of total assets, and we are very mindful of the fact that these loans will get repaid over time. But we have developed very good relationships with the sponsors and the operators and the owners of these businesses such that there may be future opportunities to deploy these proceeds either into real estate or incremental credit opportunities going forward. Barry Jonathan Jonas: Thanks, David. That is really helpful. Then just for a follow-up, I would just broadly ask what the pipeline is looking like right now. If you could maybe talk about how the mix between gaming and non-gaming is looking, that would be helpful. John W. Payne: Hey, Barry. Good morning. Not much different than the past couple of quarters. We continue to spend quite a bit of time on the casino side. We obviously have announced over the past couple of quarters some deals with some new tenants that we are very excited about—not only the deals we have with them, but where we could potentially grow in the future. So we continue to look at opportunities in the casino space. We also are spending time in the same categories that we have talked to you about, whether that is unique attractions, university and professional sports or surrounding development, golf, and pilgrimage resorts, and unique opportunities. The other thing, we are spending some time with our current tenants—are there new amenities at their existing properties that we can continue to build out with them on a larger scale? So I guess all three pillars are active at this time. I could not give you a pie of where I am spending my time, but I would say all three we are spending time on. Operator: Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. You may proceed. Caitlin Burrows: Maybe just a follow-up on that last point. You mentioned that new amenities at existing properties is one of your opportunities. I know when you guys initially announced the partner property growth fund opportunity with the Venetian, like, two years ago now, there was a potential incremental $300 million of funding, which I feel like you have not talked about in a while. So is that not potentially happening, or what can we expect there? David Andrew Kieske: Hey, Caitlin. Good to hear from you today. It is still potentially happening. If anybody has walked the Venetian over the last couple of years, you can see the transformations that the team has done, led by, you know, Patrick Nichols and Rob Brimmer and all the folks that go to work very hard every day within the proverbial four walls of that asset. They have put in new assets, room remodels, updated the convention space, and it initially used $400 million of our capital, and we are in constant dialogue about their future capital plans and what they might continue to add to that asset to continue to grow the revenue base there. John W. Payne: There are probably some other opportunities with tenants as well we continue to speak about. We are just not prepared to talk about that today. Caitlin Burrows: Okay. So as it relates to the Venetian one, sounds like just wait and see over the next six months or so to see if that materializes or not. David Andrew Kieske: Yeah. I think that is right, Caitlin. And, look, our capital is flexible, and there is an outside date on it, but if they wanted to go longer, we would be willing to go longer with that. Caitlin Burrows: Yeah. Makes sense. Okay. And then in the earnings release, you mentioned that you guys entered into forward interest rate swaps, which I guess I was a little surprised by since you do not have that much floating rate debt. I was wondering if you could just go through the thinking there and under what circumstance you expect to use that? David Andrew Kieske: Yeah. No, you are right, Caitlin. We do not have any floating rate debt other than our revolver, but these are forward-starting interest rate swaps to start to leg our way into an interest rate hedge portfolio ahead of our upcoming refis, which we have maturities in September and December this year, and then turning the corner into February 2027. In the interest rate market, you can either do forward-starting swaps or treasury locks, and we have started to build up a portfolio of forward-starting swaps to lock in the base rate. Caitlin Burrows: Got it. Thanks. David Andrew Kieske: Thank you. Operator: Our next question comes from Smedes Rose with Citi. You may proceed. Analyst: It is Nick Joseph here with Smedes. Curious what feedback you are getting from tenants just on underlying demand trends, given the relatively fluid macro outlook? John W. Payne: Yes. We have watched, as you have, many of our tenants who are in the public markets announcing about the consumer and their results. And you can see that in their results. Obviously, the regional markets have performed steady is the best way I would describe it. Las Vegas is going through a transition. You can see that it turned the corner from some of the slowness that they had. They are making adjustments to their business models, which you have heard from us for over eight years. These are the best operators in the world. They know how to adjust their businesses accordingly, and they are doing it right now. They will also get the bumps over the coming years of new attractions coming to Las Vegas, which always has benefited that market. So as new assets open up, as new product opens up, trial will open up. They can price their business accordingly a little bit faster in the regional markets than they can in the Las Vegas markets, but you can see from the results that they are quite good. Analyst: Thanks. And then just hoping you could give an update on the Caesars regional leases—how those assets are performing right now. And then, obviously, there have been some press reports about Caesars—any potential impact if there is a privatization there? Edward Baltazar Pitoniak: Yeah. Maybe to take those questions in reverse order, Caesars has not confirmed anything, and thus everything that is being talked about is rumors. And, as a fundamental practice, we do not comment on rumors. As concerns Caesars’ regional trends, you obviously saw their results, which they released on Tuesday. What we are certainly seeing is the benefits of the CapEx that Caesars has very smartly invested in a number of regional assets over the last couple of years—notably places like New Orleans and now Lake Tahoe. And I think what we are clearly seeing—and I believe the market is seeing as well—are the benefits of that CapEx. And I think it is also notable to see the narrative reemphasis Caesars is putting on its database. They spoke about the importance of its database in relation to its digital strategy during their earnings call on Tuesday. And I think it is key to remember that so much of the database—and John knows way better than I do—so much of that database is generated by the regional spokes in the Caesars hub-and-spoke system. Operator: Thank you. Our next question comes from Chris Darling with Green Street. You may proceed. Chris Darling: Regarding the Cain Eldridge relationship, can you speak to your vision for that partnership over time? I find the notion of partnering with a private capital source interesting in terms of furthering your own growth plans, particularly if you may not feel comfortable issuing equity capital at various points in time. Edward Baltazar Pitoniak: Yeah. Good to talk to you, Chris. What we have learned about Cain and Eldridge over now, I guess, almost two years that we have been partnering with them is that they have a vision of the world and the experiential economy that is very, very synchronous and aligned with ours. And what we really value in Cain and Eldridge is, frankly, the energy of their animal spirits in terms of identifying and seizing opportunities globally. And they are obviously an example, Chris, of the power of insurance capital pools at this particular moment in time and at this particular phase of global capital formation. And so, very much to your point, we believe that as responsible stewards of VICI Properties Inc.’s capital, we need to constantly be monitoring the landscape of global capital formation and identifying pools of capital that may be very valuable to our business—the growth of our business, the durability of our business—wherever that capital may come from. And we are certainly not the first to do that. You have certainly seen over the decades very great REITs like Prologis pursue such a strategy. I would not say that we are necessarily going to mirror that strategy, but we are certainly going to look to grow with great partners. And Cain and Eldridge are certainly an example of that. Chris Darling: That is helpful. And then maybe just switching gears for a follow-up. With the Golden deal closing today, can you speak to how that team is thinking about growing their business? And specifically, I wonder if there is anything related to new acquisitions, reinvestment into the existing portfolio—anything like that where you can play a role in the near term. John W. Payne: Yeah. It is a great question. One of the things that we are excited about and have been excited about since we started meeting with the Golden team—and, obviously, as we announced, that transaction will close today—is we will begin that work. This transaction closes today; we will begin that work on areas where we can grow together. I do know the team there is anxious to continue to look at unique opportunities to see their portfolio be diversified. And our capital can help them in many ways—to your point—not only as we look together at acquiring new assets, but how can our capital help them at their existing assets, adding amenities that can attract new consumers and grow their EBITDA. We had initial talks on those, and we will continue, now that the deal is closed, to really refine those over the coming months and years. Operator: Our next question comes from John G. DeCree with CBRE Capital Advisors. You may proceed. John G. DeCree: Hi, guys. Thank you for taking my questions. Edward, you just kind of talked about attractive pools of capital, I guess kind of in the equity sense. Maybe Edward or David, curious if you thought about other pools of capital or sourcing debt capital—international financing sources. I noticed the financing in Canada for the Pure Gaming deal. I would say base rates are a bit lower there. One of your tenants went for the yen carry trade—they obviously have a project, MGM in Japan. But curious if there are opportunities for more creative debt capital uses to kind of tick down your overall cost of capital. David Andrew Kieske: Yeah, John. Always good to hear from you. It is a great question and one that we have talked about since our inception. You go back to the beginning of VICI Properties Inc., and we kind of had a very unnatural balance sheet for a REIT, and we worked hard to transition that balance sheet into a more standard—and obviously investment-grade—balance sheet. And we have always been trying to be forward-looking around where we can source alternative forms of both debt capital as well as potentially equity capital at some point in the future, and you are spot on with our recent acquisitions in Canada—there could be an opportunity to issue debt up there. We have, on and off, looked at things overseas and looked at the various financing markets that other triple-net lease REITs and even other REITs take advantage of, whether it be euro- or sterling-denominated. And then we watch what other net lease REITs have recently done—some of the larger REITs—in terms of accessing private capital. And so, as Edward said, being a good steward of capital and finding the most attractive pools, partners, and opportunities for us is something we work hard at every day. John G. DeCree: Thanks, David. John, in your prepared remarks, you highlighted the increase in investment activity the last couple of quarters. Is there anything you attribute that kind of success and increased activity to? Is it just the kind of stars aligned? I know these transactions and investments take quite a while to bake, but is there anything changed? Or what would you attribute the ability to get some capital to work the last couple of quarters? John W. Payne: Hey, John, good to hear from you. I do not think anything has changed. I think you described it very well at the beginning of the question, which was some of these larger deals take time. When we are doing billion-dollar acquisitions or credit deals, they take time. I am not saying that a $50 million deal does not take time, but we need to be diligent about our evaluation of the deal, and it simply works out—the timing just works out when we are ready to execute. Edward Baltazar Pitoniak: And, John, I just want to add that I had a little bit of a bet with my colleagues that despite all the activity in Q1—and thank you for recognizing all that activity—that somebody would use the term “quiet” to describe the quarter. And indeed, a couple did. But I have been very proud of myself for not blowing a gasket. John G. DeCree: Great. I appreciate it. It is always good to talk to you. David Andrew Kieske: Thanks, John. Operator: Thank you. Our next question comes from Ravi Vijay Vaidya with Mizuho. You may proceed. Ravi Vijay Vaidya: Hi there. Good morning. Hope you guys are doing well. I wanted to ask a little bit more about the Caesars regional lease here. Are there active negotiations or discussions regarding a lease? Or are we seeing if the recent CapEx improvements at a number of these assets—it seems like they are off to a good start in producing improvements in property-level NOI—are we kind of in more of a wait-and-see mode regarding how those initiatives kind of flow through and subsequently improve the coverage there? Edward Baltazar Pitoniak: Yeah. So, to the first part of your question, Ravi, we are not going to—and never will—comment on those kinds of discussions with any tenant. And then I will just reiterate what I said earlier about, yes, the positive evidence in terms of the CapEx paying off and the renewed focus on the part of Caesars to the power of the hub-and-spoke system as powered by the database, so much of which is developed at the regional level—brick-and-mortar location by brick-and-mortar location. John W. Payne: Can I add one thing to that? Because I do think at times people judge where you put in capital—that is how you, that is the only way you grow the business. This is a business that ebbs and flows. It is controlled at times by the databases Edward described and the way the business can be—the incentives can be done—and understanding the consumer segments and targeting them in different ways often can move the business up and down. So capital is absolutely an important part of the business, but it is not everything about what drives revenues. There is loyalty. There is service. There is execution. There are offers. And that is important to understand when you look at a complex business like the casino business. Ravi Vijay Vaidya: Got it. That is really helpful color. Just one more here. Can you offer any comments on what is going on with Century Casinos? It seems that they have been under a strategic review for a little while, but I think the coverage is pretty healthy on those assets. Maybe discuss the disconnect between corporate credit and strong four-wall credit on that lease? Thank you. David Andrew Kieske: Yeah, Ravi, you summed it up well. They have hired a bank and announced a strategic review. The asset-level coverage is very strong. They have very good execution at the asset level. And we do not have any inside baseball or anything that we could share about what is going on with the process. I think if you look at their leverage, it may be a little bit higher than some of the others, but they have a couple years to deal with that term loan that sits on their balance sheet. You would have to ask that question directly to them for an update on what is happening there, but we feel good about the operations and the folks on the ground that go to work every day in our assets. John W. Payne: And we like the results of the incremental capital in our property growth fund that we put in with them a few years ago at the Missouri asset. So we spend a lot of time there understanding that capital and what it has led to at this business. David Andrew Kieske: Thank you. John W. Payne: Thank you. Operator: Thank you. Our next question comes from Daniel with Capital One Securities. You may proceed. Analyst: Hello, everyone. Thank you for taking my questions. You all have a lot of leases linked to U.S. CPI in one way or another. Are there any particular months where you are really looking at the 8 a.m. report because it will have an outsized impact the following year? Edward Baltazar Pitoniak: Yeah. Hi, Dan. The Caesars lease, the measurement period is July, August, September for a lease that resets every year on November 1. Beyond that, I believe Venetian resets in March, so the measurement period would be January. So, yeah, we follow it, obviously, but it is nothing we have any control over. We just wait until the score gets posted, and then we know what is going to happen from there. David Andrew Kieske: Okay, Dan, the only thing I would add—and saw that in your note this morning—there is nothing assumed in guidance other than the base rates in our escalators. Analyst: Okay. Great. Thank you. And then, you all own a few properties in New York and Atlantic City. One of the full commercial casinos opened in New York City recently. Are there any competitive pressures that you all or your gaming operator partners are thinking through there? Any color would be helpful. John W. Payne: Well, it is a great question. Most likely, it should go to our tenants right now. Obviously, the Resorts World that opened in New York with table games happened two days ago, but I am sure the secret shoppers have started from our tenants. It is something we will continue to monitor. And our tenants will continue to monitor, and we will have conversations about that—where those customers are coming from. Is it a radius of 20 miles, 15 miles, 50 miles? They will learn over time. But, clearly, if any new market opens up—whether that has been New York starting to open up, Virginia opening up in the past, Nebraska opening up over previous years—it is something that our tenants are aware of, and they continue to track and adjust their plans accordingly in their offices. Analyst: Great. Thank you. John W. Payne: You are welcome. David Andrew Kieske: Thank you. Operator: Our next question comes from an analyst with Morgan Stanley. You may proceed. Analyst: Hey, great. Just my first one on the commentary of experiential real estate in the opening comments. Just thinking about the supplement and some of the sectors that you have not quite made it in yet, whether it is professional sports or theme parks or anything like that. Any updated commentary on how you are thinking about that opportunity and if we are getting closer? Is it sort of still wait and see? John W. Payne: Well, it is hard to tell you exactly the timing of when a deal can be announced. What I would tell you is if you asked me that question a year ago compared to what I know today, it is very different. Our knowledge base of the players in whether it is university and professional sports infrastructure, whether it is the understanding of how surrounding developments around these arenas and new stadiums or universities—how they get done, how they take place, where our capital can be effective—we sure do know a lot more today than we did a year ago. When I can tell you we can put our capital to work, or if we put our capital to work, I cannot answer that. But what I can tell you is we continue to see a large opportunity in professional and collegiate athletics, particularly in sports infrastructure. Analyst: Great. That is really helpful. And then if I could just go back to the Cain and Eldridge—just a nonbinding sort of agreement. You do not often see these nonbinding agreements and so forth. Just a little bit more color around there. Is it sort of just the messaging that there is a partnership happening? Why not do something a little bit more binding? Edward Baltazar Pitoniak: Well, it would be hard to do anything binding without a very clear sense of what the future will bring. To bind each other to what we might do together three or four years from now would seem very unnecessary and very unwise. And I think rather than focusing on whether an agreement is binding or nonbinding, for us the most important thing is alignment of views, alignment of values—probably most importantly—and establishing a relationship, as we have done through One Beverly Hills, that is founded on trust and a real desire to understand each other’s needs and how we can best serve each other’s needs. David Andrew Kieske: Great. Analyst: That is it for me. John W. Payne: Thank you. Operator: Thank you. Our next question comes from Richard Hightower with Barclays. You may proceed. Richard Hightower: Hi. Good morning, guys. Thanks for squeezing me in here. David, since you brought it up in one of your earlier answers, I will assume it is fair game. But just to go back on the idea of VICI Properties Inc. sourcing private capital in some form going forward. I am assuming that you might have been referring to the Realty Income multiple announcements recently. And so if I think about those particular announcements, in each case it sort of solves a very unique problem for both counterparties—whether it is in terms of, obviously, cost of capital to the REIT but also a particular group of assets, the cadence of deal flow, a particular risk profile that is sort of well suited for the other counterparty. And so, if I think of that as a template, what does that look like with VICI Properties Inc.? What form does that take, and how does that compare to just an institutional partner coming in and buying the stock at what is obviously a very attractive level here? David Andrew Kieske: Yeah, look, Rich, I think your intro to the question hit on a lot of the things that we think about. But taking a half step back, the biggest thing we think about is where are alternative pockets of capital. And, obviously, Prologis started it many, many years ago with their fund business. Others have emulated that. I am not saying we are going into the fund business, but we watch and learn what others do. There is a whole lot of focus on these high-grade capital solutions or these insurance pockets of capital, and it is something we are studying and learning and seeing if there might be a use for it—whether it be with existing assets or potentially future acquisitions. And it is a way to just continue to diversify. We want to diversify the portfolio of real estate, and it is important to have a diversified pool of capital sources to continue to execute on our growth ambitions over time. Richard Hightower: Okay. That does make sense. And I guess maybe to follow up, if I think about your regular-way deal flow capacity—given that we have sort of exhausted the forwards, obviously got liquidity in other forms—but just help us put pencil to paper on what maybe your current total acquisition capacity is as the balance sheet stands today. Thanks. David Andrew Kieske: Yeah. We sit at the low end of our leverage range, so we have got incremental debt capacity. As I mentioned in my comments, we have $650 million of true free cash flow—it is after dividends—on an annual basis. And, look, the stock is at a level that is not all that attractive to us right now, but we are not sitting on our hands. John and the business development team are hard at work every day sourcing opportunities. The uniqueness about our business is that things take time, and as you have seen, they are lumpy and chunky, but we are confident that we can continue to execute our external growth plans with the sources of capital that we have available today. Richard Hightower: Got it. Thank you. David Andrew Kieske: Thanks, Rich. Operator: I would now like to turn the call back over to Edward Baltazar Pitoniak for any closing remarks. Edward Baltazar Pitoniak: I will just close out by thanking everybody who is on the call today. I recognize it is a very busy day in a very busy earnings season. We appreciate your time and support, and we will look forward to talking to you again in late July. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the first quarter 2026 Employers Holdings, Inc. earnings conference call. There will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Senior Vice President, Treasury Investments. Please go ahead. Matthew: Thank you, operator. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause the actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls, and webcasts. In our earnings press release and in our remarks or responses to questions, you may use non-GAAP financial measures. Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the Investors section on our website. I will now turn the call over to Katherine Holt Antonello, our Chief Executive Officer. Katherine Holt Antonello: Thank you, Matthew. Good morning, everyone, and welcome to our first quarter 2026 earnings call. Joining me today is Michael Aldo Pedraja, our Chief Financial Officer. I will begin by providing highlights of our first quarter 2026 financial results and then hand it over to Michael for more details on our financials. Before our Q&A, I will come back to you with some additional thoughts. If I had to characterize this quarter in a single word, it would be discipline. We made a deliberate choice to prioritize underwriting quality over volume, and the numbers reflect that conviction. Our underwriting expense ratio improved, our actuarial estimates came in on target, and we returned $83 million to shareholders while growing book value per share, including the deferred gain, by 8.9%. That same discipline positions us well to capitalize on favorable market development, including the continued shift in the California rate environment. The California Bureau voted earlier this month to submit a second consecutive double-digit pure premium rate increase to the Commissioner, consistent with the underwriting conditions we have observed throughout the state. As we discussed last quarter, we expect pricing and underwriting actions will pressure growth throughout 2026. Our earned premium was essentially flat year over year, down 1%. The steps we took in certain jurisdictions and segments in 2025 are working as intended. New growth opportunities are now taking shape, including entering new underwriting segments, appointing new agents, and our recently launched excess workers’ compensation product. Profitable growth remains our North Star. Our first quarter actuarial review confirmed the adequacy of our prior-year reserves, with no strengthening required. We recognized a current accident year loss and LAE ratio of 72%, which is consistent with our 2025 accident year ratio. After delivering a record level of $215 million in capital to our shareholders in 2025, we continued our commitment by returning an additional $83 million in the first quarter through share repurchases and regular quarterly dividends. We also completed the $125 million new debt issuance associated with the recapitalization plan through cost-effective sources of $105 million from the Federal Home Loan Bank and $20 million from our credit facility, resulting in a weighted average pretax interest rate of 4.1%. These capital management steps reflect our continued confidence in our financial position, and commitment to delivering value to our shareholders. Along with our operational performance, these actions increased our book value per share, including the deferred gain, to $51.26. We believe our focus on disciplined underwriting, prudent risk management, and strategic investments continues to position us strongly in the workers’ compensation insurance market. With that, Michael will now provide a deeper dive into our first quarter financial results, and then I will return to provide my closing remarks. Michael Aldo Pedraja: Thank you, Kathy. Gross premiums written were $181 million compared to $212 million for the prior year, a decrease of 15% due primarily to a reduction in new business writings. Our losses and loss adjustment expenses were $129 million versus $121 million a year ago. The current quarter did not include any prior-period developments on our voluntary business, and the current accident year loss and LOE ratio of 72% is consistent with our 2025 accident year ratio. Commission expense was $24 million for the quarter, versus $23 million for the prior year, an increase of 3%, primarily driven by a nonrecurring 2025 favorable adjustment. Underwriting expenses were $41 million for the quarter, versus $43 million for the prior year, a decrease of 5%. The improvement in underwriting expenses for the quarter was due primarily to our continued expense management efforts, including reduced personnel costs and other variable costs such as policyholder dividends. Excluding returns from private equity partnership investments, our first quarter net investment income exceeded last year’s by $1.5 million. This outperformance was aided by the increased book yields and investment redeployment achieved through last year’s investment rebalancing. Our fixed maturities maintained a modified duration of 4.4 with a strong average credit quality of A+. Aided by our investment rebalancing, our weighted average book yield was 4.9% at quarter end, compared to 4.5% for the prior year. Our adjusted net income, which excludes net realized and unrealized investment gains and losses, and the benefit of our LPT deferred gain amortization, was $10.3 million for the quarter compared to $21.3 million last year. During the quarter, we repurchased over 1.8 million shares of our common stock at an average price of $42.42 per share, or $76.9 million. The average repurchase price represented a 17% discount to our book value per share, including the deferred gain. During the period from 04/01/2026 through 04/28/2026, the company repurchased a further 353 thousand 547 shares of its common stock at an average price of $42.21 per share. As we have highlighted, we aim to be good stewards of our shareholders’ capital. At current price levels, we are convinced that Employers Holdings, Inc. stock is meaningfully undervalued, and executing share repurchases at these price levels produces a compelling return on investment and generates significant value for our continuing shareholders. With that, I will turn the call back to Kathy. Katherine Holt Antonello: Thank you, Michael. Yesterday, our Board of Directors declared a second quarter 2026 dividend of $0.34 per share, representing a 6.25% increase from the prior quarter. In addition, the Board approved a new $125 million share repurchase authorization through 12/31/2027. Operational discipline continued to drive results. Our underwriting expense ratio improved to 22.6%, compared to 23.4% a year ago. As I highlighted last quarter, we are convinced that our utilization of artificial intelligence tools will be a force multiplier, allowing our colleagues to be more efficient and effective. Last month, we brought together approximately 400 employees from across the country to introduce our strategy for implementing AI throughout the organization. The enthusiasm both at the event and in the weeks since have been overwhelmingly positive, and we believe we are creating an innovative culture that will drive differentiated results. We have now moved from AI experimentation to deployment of products using AI. Our vision is that AI will play an increasing role in how we operate going forward. The capabilities that supported our rapid entry into excess workers’ compensation are now being used to improve underwriting insights, automate premium audit and claims operations, and engage our customers. We are convinced that our monoline focus, relatively small size, and flat organizational structure will be an advantage for us as we accelerate AI into every aspect of our company. We recently became the first insurance carrier to bring quoting directly into ChatGPT, made possible by our patented technology, which we designed to reach business owners where and how they engage. Rather than waiting for the industry to define this channel, we defined it ourselves. That is the kind of culture and capability that distinguishes Employers Holdings, Inc., and it is what we will continue to build on. We believe Employers Holdings, Inc. is well positioned and well capitalized to achieve our goals. With total capitalization of approximately $1 billion, a strong A.M. Best A rating, and technology-enabled distribution that can reach customers where they engage, we are in a position to deliver lasting value for our shareholders, customers, and colleagues. We will now open the call for questions. Operator: As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Our first question comes from Mark Douglas Hughes with Truist. Your line is open. Mark Douglas Hughes: Hey, Kathy. Hey, Michael. Good morning. Could you talk about the competitive environment in California? You described the proposed another double-digit rate increase. How much are you realizing in the California market? Is the broader market—the competition—did they follow suit with the first rate increase? How do you see things developing there? Katherine Holt Antonello: Yes. Let me talk, if you do not mind, about pricing in general and then we can get into California. When I think about pricing across workers’ compensation, especially in guaranteed cost, I would say I used to characterize the pricing environment as competitive. I would now say it is closer to getting somewhat irrational in some jurisdictions and premium bands. Specifically, I would call out guaranteed cost middle market. We are seeing that there are some diligent carriers—and I think we are included in that group—exiting certain states and classes. Some of the states that I would mention, not specific to us but just across the market that we have seen exits, are New York, California, and Massachusetts. We are also seeing tightening risk selection in states like Florida, where there is not a lot of pricing flexibility to begin with. For us, we pulled back significantly in Massachusetts, and we have also pulled back in certain class codes. We have also cut ties with a few MGAs that we feel were underperforming. I do not believe that all companies are being as forward-looking as we are in terms of rate adequacy. In certain jurisdictions, including California, it is possible that the market in certain jurisdictions has really crossed over into what I would call cash flow underwriting. You asked about the rate that we are achieving. When we look at our book of business and when we adjust for changes in the mix of business, meaning class code mix, and we compare 2026 to 2025, payrolls were up about 0.5%, and our average rate on renewals countrywide increased about 6%. So that is quarter over quarter, 2026 to 2025. I would say a significant portion of that is coming from California, where we are getting double-digit rate increases on our renewals. When we look at where our opportunities for growth are, I would include segments where we have a differentiated distribution strategy. I am speaking to payroll partners and digital agents/marketplaces; we are still seeing a lot of growth opportunity there. We have also identified some jurisdictions where we have opportunities to increase our market share and where the pricing margins remain very attractive. So we are focusing heavily on those areas, and I would include what I said in the prepared remarks: we are appointing more agents in the areas where we feel like there is better pricing margin, and perhaps in certain states where we entered that state maybe four or five years ago pre-COVID, but we feel like it is now a good time to increase our market share there. I would like to add that at the top of our funnel, when we look at submissions coming in, California does appear to be a hardening market to some extent because submissions were the highest that we have seen across the company—and specifically in California—in 2026 that we have ever seen. So submissions at the top of the funnel, including both count and premium, are very high at this time. We are just being very specific about where we are willing to quote, and where we feel like the pricing is unreasonable, we are just not playing there. In terms of growth, I would also say our appetite expansion effort has been huge. It has been an area of growth for us over the last four years since we started doing that, and we are going to continue to do that going forward and enter into new products like excess and others that we have on the horizon. Mark Douglas Hughes: Appreciate all that detail. When you describe closer to irrational, can you apply that broadly? You talked about specific jurisdictions where you are seeing pressure, but if you were to categorize the whole market, would that closer to irrational still apply? Katherine Holt Antonello: I would not broad-brush it. Specifically, I would say the first place that we saw this happening—and this was even last year—in the middle market space, the first-dollar middle market space became very competitive and continues to be competitive, to the point where we are just not willing to quote in certain instances where we feel like the margin is not there. Mark Douglas Hughes: How about the outlook for reserve development? You have talked about you know, only maybe a Q2/Q4 where you do the reserve development, you have the potential for favorable or adverse, I guess. On a go-forward basis, would you say at least for the time being it is probably balance sheet—you would be protecting the balance sheet rather than recognizing any favorable that might emerge—or will that be more dependent on just what you see? Katherine Holt Antonello: I think it would be the latter. It is going to be more dependent on what we see and how compelling the numbers are. You are correct in stating we do an actual versus expected analysis at the end of Q1 and Q3. At the end of Q2 and Q4, we do a full analysis where we reselect development factors, and it is a much deeper dive. We have always said that in Q1 or Q3, if we saw something very compelling, we would likely make a move; we would not wait. This quarter, there are always puts and takes depending on how you divide the data, but everything came in right around where we expected, so we did not feel compelled to make a change. We will wait and see how things develop in Q2 and make a decision then as to whether or not we would act on favorable development. Mark Douglas Hughes: Michael, the audit premium impact in the quarter—how much did it help or hinder the growth? Michael Aldo Pedraja: It is relatively small—about a $5 million adjustment in the first quarter. We are seeing premiums generally, and as we talked about last time, payrolls moderating. Payroll increases are not developing as they were after COVID. We see a really moderating level of payrolls currently, and we see that into the future. Mark Douglas Hughes: Kathy, what are your spidey senses telling you about what NCCI is going to say in a week or two about reserve adequacy, medical inflation—kind of the hot button? Katherine Holt Antonello: I am not deep into the numbers like I used to be. I do not have as much insight being an outsider from NCCI now. But my gut would say that accident year 2025 will continue to show a slight increase, and that has been the case over the last few years. I would expect the level of redundancy for the industry as a whole to decrease. In terms of inflation, we are not seeing anything significant that is impacting our book of business. We continue to track—we have an internal prescription drug index—and it is up slightly, but it is not what I would call anything alarming. You would expect it to be up slightly. From what I am expecting them to present, I would not see anything significant come through on inflation or medical severity. Mark Douglas Hughes: Thank you very much. Operator: Thank you, Mark. As a reminder, to ask a question, please press 11. Our next question comes from Karol Chmiel with Citizens. Your line is open. Karol Chmiel: Hi, good morning. Just a question regarding the top line. With the quarterly decline, and with the context of the planned multiquarter nonrenewal of certain business classes, would you categorize it as ahead of expectations in terms of timing? Michael Aldo Pedraja: Yes. Hey, Karol. How are you? I think this is exactly as we expected and planned. Last quarter we indicated that we expected to continue that level of teens-type reduction. We expect to have that same level of performance throughout the rest of the year. Katherine Holt Antonello: I would agree, and having said that, we are opening new markets and new segments like I mentioned earlier in my response to Mark. We are expecting something similar throughout 2026, but we will be introducing new areas throughout the year too. Michael Aldo Pedraja: That is a really good point. I think towards the end of the year you will start to see all the adjustments we have made flow through, and then we expect to see that transition start to be visible through the results. Karol Chmiel: Excellent. Thank you for the detail. Katherine Holt Antonello: Thanks, Karol. Operator: Thank you. Again, that is 11 to ask a question. I am showing no further questions at this time. I would now like to turn it back to Katherine Holt Antonello for closing remarks. Katherine Holt Antonello: Thank you, Daniel, and thank you, everyone, for joining us this morning. We look forward to meeting with you again in July. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Balchem Corporation First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1. If you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn the call over to Martin Bengtsson, Chief Financial Officer. You may begin. Martin Bengtsson: Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31, 2026. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President, and CEO. Following the advice of our counsel, auditors, and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem Corporation’s most recent Form 10-Ks, 10-Q, and 8-K reports. The company assumes no obligation to update these forward-looking statements. Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details. I will now turn the call over to Ted Harris, our Chairman, President, and CEO. Ted Harris: Thanks, Martin. Good morning, and welcome to our conference call. We were extremely pleased with the financial results for the quarter and the overall performance of our company as we kicked off the new year with positive momentum from the strong performance throughout 2025. Our healthy growth continues to be fueled by ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems, and the favorable “better for you” trends within the food and nutrition markets that are well aligned with our food ingredient formulation systems and capabilities. We delivered record first quarter consolidated sales, adjusted EBITDA, adjusted net earnings, and adjusted EPS, as well as strong cash flows. We also delivered year-over-year sales and earnings growth in all three of our reporting segments. The first quarter of 2026 was the twenty-seventh consecutive quarter of quarterly year-over-year growth in adjusted EBITDA for Balchem Corporation. We are very proud of this accomplishment, particularly in light of the market environment within which we have operated over the last twenty-seven quarters. Before we get into more detail on the quarter, I would like to make a few comments about the overall market environment, including the evolving geopolitical and macroeconomic situation, as well as some of the progress we have made on several important strategic initiatives. We continue to see healthy demand across the vast majority of our end markets. Our Human Nutrition and Health segment continues to perform very well, driven by healthy demand for both our unique portfolio of minerals, nutrients, and vitamins and our food ingredients and solutions, which are benefiting from trends toward nutrient-dense high-protein, high-fiber, and low-sugar or “better for you” foods where our nutrient portfolio and our formulations expertise bring considerable value to our customers. In the Animal Nutrition and Health segment, we delivered another quarter of year-over-year growth on improved demand in both our monogastric and ruminant businesses as a result of further market penetration of our rumen-protected precision release encapsulated nutrient portfolio and the ongoing improvement of market conditions in the European monogastric market. And we remain encouraged by the overall performance of our Animal Nutrition and Health product portfolio. Within our Specialty Products segment, both our performance gases and our plant nutrition businesses are performing well, driven primarily by higher demand within performance gases as a result of healthier market conditions and successful margin management and geographic expansion growth within plant nutrition. As we have shown over the years, we have been able to deliver strong historical performance while facing significant market volatility. We believe we remain well positioned to effectively manage through this current geopolitical and macroeconomic environment as well. We are once again entering a period of significant inflation, largely petrochemical-based and primarily impacting our Animal Nutrition and Health segment, as well as potential supply chain disruptions due to the ongoing conflict in the Middle East. We will once again leverage our robust global supply chain, our procurement expertise, and our strong market positions to raise prices where necessary to help manage through this dynamic market environment. While we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, particularly within our Animal Nutrition and Health segment, we do expect to deliver continued quarterly year-over-year growth on a consolidated basis over the coming quarters. We will continue to monitor the developments closely and adjust accordingly as we have done effectively in the past. Additionally, I would like to share some significant progress we have made on several important strategic initiatives that will further support our future growth. A newly published peer-reviewed research study using functional magnetic resonance imaging, a noninvasive safe neuroimaging procedure that measures brain activity by detecting changes in blood flow and oxygenation, was published in the peer-reviewed journal Nutrients. This important study examined the effects of Balchem’s Vidacholine nutrient on working memory-related brain activation and functional connectivity in postmenopausal women. The results showed that Vidacholine intake significantly enhanced functional connectivity within the working memory network, improving brain efficiency within three hours of consumption. This study helps highlight the benefits of Vidacholine across different life stages, with previous research showing that Vidacholine supports fetal brain development during pregnancy and lactation with lasting effects beyond birth. It also suggests that Vidacholine may help enhance cognitive health in older adults. We are excited about these results, and we will continue to invest in both research and marketing around Vidacholine to raise awareness and drive market penetration of this important essential nutrient. Additionally, on April 22, Earth Day, we released our 2025 sustainability report highlighting our sustainability initiatives and accomplishments. Guided by our core values and our vision of making the world a healthier place, our sustainability report demonstrates our commitment to bringing innovative solutions for global health and nutrition needs and to operate with excellence as strong stewards of our employees, customers, shareholders, and communities. We are very proud of the progress made on our 2030 sustainability goals to reduce both greenhouse gas emissions and water usage by 25% compared to our 2020 baseline. In 2025, we successfully reduced scope one and two greenhouse gas emissions by approximately 31%, surpassing our 2030 goal, and we reduced water withdrawal by approximately 16%, showing substantial progress toward our water usage reduction objective. Now regarding the first quarter financial results. This morning, we reported record quarterly consolidated revenue of $271 million, which was 8.1% higher than the prior-year quarter. We delivered record quarterly GAAP earnings from operations of $56 million, an increase of 9% versus the prior year. Consolidated net income closed the quarter at $40 million, an increase of 8.7%. This quarterly net income translated to diluted net earnings per share of $1.25 on a GAAP basis, up 10.6%. On an adjusted basis, we delivered record quarterly adjusted EBITDA of $74 million, an increase of 12.1%. Our quarterly adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share, up 9%. Overall, it was an excellent quarter for Balchem Corporation, marked by strong financial results and meaningful progress made on our strategic priorities. With that, I am now going to turn the call back over to Martin to go through the first quarter financial results in more detail and the results for each of our business segments. Martin Bengtsson: Thank you, Ted. The first quarter was a strong start to 2026. Our record first quarter net sales of $271 million were 8.1% higher than the prior year, driven by strength across all three segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. The impact from foreign currency exchange, driven primarily by the stronger euro, had a favorable impact to our sales growth of approximately 2% in the first quarter. Our gross margin dollars were $101 million, up 14.6%, and our gross margin percent expanded to 37.3% of sales, up 210 basis points. The gross margin performance was driven primarily by the sales growth and manufacturing efficiencies, partially offset by raw material inflation. Consolidated operating expenses for the first quarter were $45 million as compared to $37 million in the prior year. The increase was primarily due to higher compensation-related costs and an increase in professional services. GAAP earnings from operations for the first quarter were a record $56 million, an increase of 9%. On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $61 million were up 9.5%. Adjusted EBITDA was a record $74 million, an increase of 12.1%, with an adjusted EBITDA margin rate of 27.4%. Net interest expense for the first quarter was $2 million, a decrease of $1 million, primarily driven by lower outstanding borrowings and lower interest rates. Our net debt was $96 million with an overall leverage ratio on a net debt basis of 0.3. The effective tax rates for 2026 and 2025 were 23.3% and 22.7%, respectively. The increase in the effective tax rate on the prior year was primarily due to an increase in certain state taxes. Consolidated net income closed the quarter at $40 million, up 8.7%. This quarterly net income translated into diluted net earnings per share of $1.25, a 10.6% increase. On an adjusted basis, our first quarter adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share. Cash flows from operations were $40 million with free cash flow of $34 million, and we closed out the quarter with $73 million of cash on the balance sheet. As we look at the first quarter from a segment perspective, our Human Nutrition and Health segment saw sales of $172 million, up 8.3%, driven by growth in both our nutrients business and our food ingredients and solutions businesses. Earnings from operations were $40 million, up 5.4%, driven by the higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $43 million, up 6%. We were encouraged by the continued momentum in Human Nutrition and Health, where our differentiated ingredients and solutions align with a consumer shift toward “better for you” nutrition. We believe this positions us well to further leverage our formulation expertise and portfolio of differentiated branded ingredients to drive sustained growth. Our Animal Nutrition and Health segment delivered sales of $62 million, up 8.6%. The increase was driven by higher sales in both the monogastric and ruminant businesses. Animal Nutrition and Health delivered earnings from operations of $6 million, up 8.7%, driven by the higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $6 million, up 8.2%. We delivered another quarter of improved performance in our Animal Nutrition and Health segment. We continue to drive adoption of our EnCaPPS encapsulated rumen-protected nutrients in the dairy market. Our U.S. monogastric business remains steady, and our European monogastric business continued to improve following the EU antidumping duties. Looking ahead, we are paying careful attention to the conflict in the Middle East and the potential impacts it may have on the animal nutrition markets. We are seeing increases in raw material input costs along with increased freight costs, which will need to be offset or passed on to our customers. We feel good about the momentum we have built within our Animal Nutrition and Health segment, and while we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, we remain confident in our ability to continue to drive growth in this segment over time. Our Specialty Products segment delivered quarterly sales of $35 million, up 4.4%, driven by healthy growth in Performance Gases. Specialty Products delivered a record quarterly earnings from operations of $12 million, up 24.5%, driven primarily by higher sales and a favorable mix. First quarter adjusted earnings from operations for this segment were a record $13 million, up 21.2%. We were very pleased with the performance of Specialty Products, delivering yet another quarter of solid growth, and we believe Specialty Products is well positioned to continue to deliver consistent profitable growth as we look forward. Overall, the first quarter was another strong quarter for Balchem Corporation, and we are really pleased with the results. While the global geopolitical and macroeconomic environment remains dynamic and includes areas of uncertainty, we believe we are well positioned to continue executing our strategy and to deliver continued growth through the rest of 2026. I am now going to turn the call back over to Ted for some closing remarks. Ted Harris: Thanks, Martin. We were very pleased with the financial results reported earlier today. We executed well within a dynamic and evolving macroeconomic and geopolitical backdrop, delivering another strong quarter of solid growth while at the same time advancing our strategic initiatives. Looking ahead, we remain excited about 2026 and confident in our ability to deliver continued top and bottom line growth while further advancing our long-term growth platforms. I will now hand the call back over to Martin, who will open up the call for questions. Martin Bengtsson: Thank you, Ted. This now concludes the formal portion of the conference. We will now open the call for questions. Operator: Thank you. 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. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Robert James Labick from CJS Securities. Your line is open. Robert James Labick: Good morning. Congratulations on another record quarter. Martin Bengtsson: Thank you, Bob. Thanks, Bob. Robert James Labick: Thanks. One of the keys to your growth and success has been the branded ingredients. And, Ted, you spoke a little about Vidacholine already. I know you are early-ish on a branding strategy so far, but what percent of sales are branded out of what is applicable now, and what could that look like in five or ten years? Ted Harris: Yeah. Again, Bob, thanks for your comments. Our branded ingredients—and let us just talk about Human Nutrition and Health—make up about, I would say, 40% to 50% of our Human Nutrition and Health business today. That does not mean to say on the other 50% to 60% we do not have brands, but they are more B2B brands. The power brands, we refer to them, like Vidacholine that you talked about, K2 Vital and K2 Vital Delta, Opti MSM, Albion Minerals, for example, are brands that obviously we are selling to supplement and nutritional beverage manufacturers but are recognized by the consumer. Those are the ones that we are really investing in. So let us say 40% to 50% of H&H today, and that part of the business is obviously growing faster than the other parts of the portfolio. So over time, it will clearly become a bigger and bigger part of our portfolio. Robert James Labick: Okay. Great. And we have talked on previous calls about the Jets partnership and the new customers that have come, notably in Vidacholine and, I think, energy drinks in particular. Are there other areas of expansion still to come from this? Are there opportunities for just more general sports drinks versus energy drinks? Or how do you take the company down that path if possible? Ted Harris: Yeah. So, you know, obviously, historically, supplements have been our primary targeted market, but as you mentioned, we have had pretty significant success more recently relative to sports beverages, energy drinks, and the like. As you can imagine, it is a great application for our products, partly because you do not have the capacity or volume limitation that you can have in a supplement or a multivitamin, and we have found it to be an excellent application for our products. Trends are leading to significant growth in those areas. So I do think that that will continue to grow and, you know, kind of that word “energy drink” versus “nutritional beverage,” I do think many of these products started to be more in the energy drink category, and now those drinks are expanding much more broadly to more of a nutritional beverage focus, meal replacement focus, a much healthier product—or “better for you” product—to use those words, than the historical energy drinks. We really believe that the nutritional beverage market is a significant opportunity for us and will grow rapidly over time. So I think that is really where the predominance of our opportunity lies in the near to midterm. Relative to investing marketing dollars in the brands, it does expand far beyond partnering with an NFL team. We are already partnering with a women’s professional soccer team in Europe, the Bayern Munich women’s team. We are investing in other influencer areas, digital media areas, and so forth. We do continue to expand that effort in other areas. I think we talked about on calls many quarters ago that the investment in the Jets was a pilot to some extent. We certainly look back on that as being a pilot and one that we want to now expand through other consumer marketing awareness campaigns, some of which I just mentioned. Robert James Labick: Okay. Super. And one last one for me. I will jump back in queue. Looking at the P&L, the gross margins—the 37.3%—surprised on the upside. It was really strong, in fact. So maybe just give us a little more detail on what drove that. And I know with raw material cost pressures coming, how should we think about gross margins going forward? Martin Bengtsson: Yeah, Bob, strong performance on the gross margin, as you point out, and as you are familiar, we have talked about in the past that we do have a favorable tailwind in our portfolio from the fact that our higher-margin businesses are the ones growing the fastest—so minerals and nutrients in H&H being an example of that. Similarly, on the Animal Nutrition side, ruminant being higher margin and generally growing faster than monogastric. Just from a portfolio perspective, we have that tailwind that supports expansion of the margins. On top of that, we have been fairly effective more recently at managing the balance between price and inflation and driving some benefits that way as well, along with having effective manufacturing operations here supporting the P&L. So everything has just been working fairly well from a gross margin perspective, and you are seeing that come through. The reference we made to seeing inflation is true and real. We do see inflation coming, and we see that accelerating a bit with what is happening in the Middle East. As you know from the past, when we went through this with COVID, we have been quite effective historically at managing that both through our supply chain and our procurement, but also in terms of pricing that through to our customers where needed. But it tends to have a little bit of a dilutive impact—if your costs go up a dollar and you price through a dollar, mathematically, your margin rate goes down. I think we will see a little bit of that to a modest extent as we go forward in this inflationary environment. So while we continue to grow our margin dollars, we may see a little bit of a margin rate compression as a result of the environment. Robert James Labick: Okay. Got it. Thank you, and congrats again. I will get back in queue. Operator: Your next question comes from the line of Ram Selvaraju from H.C. Wainwright. Your line is open. Ram Selvaraju: Thanks so much for taking our questions. First, I was wondering if you could comment on the ongoing evolution of your thinking regarding the positioning of Vidacholine, and in particular, how you are thinking about optimizing the value of this franchise, especially given the most recent data that you cited published in the peer-reviewed journal Nutrients, and how this might evolve going forward when you think about, historically, the work that has already been done demonstrating that choline is an essential prenatal nutrient. Now you have data showing that it has applicability to enhance potentially cognitive health in older adults. Just give us a sense of how you are thinking about the evolution of that brand and how best to position it, particularly from the perspective of promotional and marketing strategies that you may not necessarily have employed in the past. Secondly, I think it would be helpful if you could give us a sense, particularly in light of the most recent geopolitical developments, how this might affect the industrial side of Balchem Corporation’s business, especially when we think about potentially increased U.S. stateside-based oil and petroleum production that may include enhanced fracking activity. And then lastly, Martin, I was wondering if you could just comment on the effective tax rate. It was a little bit ahead of what we had originally projected, so I was wondering if we should use that as the serviceable tax rate assumption going forward, or if you anticipate the effective tax rate to modulate a little bit over the course of the remainder of this year. Thank you. Ted Harris: Thanks, Ram, for your questions. Maybe I will take the first two and Martin can answer the last one. I will start with your second one around industrial. As everybody knows, we no longer report out industrial separately. But that business has continued for a number of years at a very low level, I would say, but that business is clearly up. It is still not a measurable contributor to our overall results, but regardless of that, the results are up, sales are up, demand is up, which is what you would expect given the current situation with increased activity in that part of the economy. So we are seeing new business from that. Again, it is not to a material nature, and we strongly believe it will never return to what it once was, but it is nice to see higher demand in that area based on the increased activity. Relative to the ongoing Vidacholine positioning, we are really excited about the results of this most recent study, specifically for servicing postmenopausal women in that community and that targeted market, but it does suggest that older adults can benefit from Vidacholine intake more broadly. That is a huge market compared to the prenatal market that you mentioned. Historically, choline was a product that was sold into infant formula and really did not even appear that much in prenatal vitamins. I think we can look back and say we were very, very successful in doing the science and having the studies to support the prenatal market, and today it really is broadly part of a prenatal vitamin regimen. It is incredibly rare for me to ask a pregnant woman what her vitamin regimen is and it not to include choline. I think we have been very successful there. The reality is that is a relatively small market. So this could be an absolute breakthrough from a Vidacholine perspective and really open up that, as I used the word earlier, huge adult cognition market. I think it is an early study. It is a study that has definitive results for postmenopausal women. We need more studies for sure to show effectiveness across a wider segment of the population in that age group, but this is a good first start, and we always expected this to be the start. So we are investing in some more studies. And then, as we have also learned, we need to support that science and those studies with marketing. Obviously, marketing to aging adults that either are experiencing cognitive issues or are concerned about cognitive issues is a very different marketing campaign to positioning Vidacholine as a nutrient that athletes should take, as we were doing for the New York Jets. So we will have to reposition our marketing efforts—or newly position our marketing efforts—to support the emerging science in this area and to build awareness in the aging population and ultimately to drive market penetration of Vidacholine in that category. That is exactly what we are going to do. With that, I will hand it over to Martin to talk about tax. Martin Bengtsson: Yes, Ram. As we spoke about in the past, we tend to use a 23% effective tax rate as the planning rate, and I think when we spoke last time, I thought we would probably err on the side of doing better than that. In Q1, we had 23.3%, so a bit above that just based on timing of various items and some changes in state tax laws that impacted that negatively, and also various discrete items that hit the quarters differently. As we look forward here, I think the rate will be higher in Q2 as well versus that 23%, and then I think it will be lower in the back half of the year as we work our way towards that 23%. I think it is still a good planning rate to use—the 23%—as you model things for the full year. Ram Selvaraju: Thank you so much, and congrats again on a very solid quarter. Operator: Your next question comes from the line of Daniel Harriman from Sidoti. Your line is open. Daniel Harriman: Ted, Martin, good morning. Thank you so much for taking my questions, and again, congratulations on continued execution and great performance. I have two questions this morning. I will start with one for Ted. Last quarter, I touched on—or asked you about—international growth, and I was just wondering if you might be able to provide us an update or if there is anything going on that we should pay attention to there across the three businesses. And then, Martin, on the European monogastric side of things, I was just curious if you could give a little bit more color about where we are in the recovery there and if there is more room for you in terms of both volume and pricing. Really appreciate it. Thank you. Ted Harris: Yeah. On the geographic expansion and international growth, that continues to be a primary strategic focus area for our company, and one that we feel really good about the progress we are making. Part of that progress involves hiring people in the various international regions around the world. We are doing that, and we are hiring really good people. I would say when you look at our OpEx this quarter, Martin talked a little bit about it being higher than normal, and part of that, at least, is driven by some one-time items, but part of it is also driven by an investment in sales and marketing around the globe as we do invest in geographic expansion. So we are making good progress in hiring people, building out the infrastructure that we need to drive geographic expansion, and the results are showing. We are seeing higher growth rates in most international locations versus the U.S. We are still driving really good growth in the U.S., but the international growth rates have been better for us because of the low base that we are starting from. We are focused on it. It is a primary strategic objective for us, and we are making really good progress relative to that strategic initiative. Martin Bengtsson: Yeah. On Animal Nutrition in Europe and the recovery of the monogastric business there, we are clearly seeing an uptick following the antidumping. In Q1, we did see a double-digit volume improvement, so it is definitely there, combined with improved pricing. There is clearly an upwards trend in that business that I think has the potential to continue to strengthen further. The impacts that we are keeping an eye on right now are really stemming from the Middle East conflict and whether or not that will have an impact to the European end markets, given the higher input costs that they will be facing going forward. But in terms of the EU antidumping, we are clearly seeing benefits from that at the moment. Daniel Harriman: That is really helpful. Thank you again, guys. Operator: Your next question comes from the line of Artem Chubara from Rothschild Redburn. Your line is open. Artem Chubara: Thank you. Hello, Ted and Martin. Congrats on a good quarter. I would like to ask two questions. The first one, H&H—any color on how nutrients or food ingredients business performed in the quarter would be helpful just to understand the magnitude of growth and whether you expect these to persist. And the second question is on Specialty Products. Obviously, you have reported quite exceptional improvement in profitability, so it would be helpful to understand where it came from—perhaps whether it was price or volume—and how that developed by region, whether it was Europe or the U.S. Thank you. Ted Harris: Sure. Maybe I will take a stab at this and Martin can chime in as needed. We were really pleased with the overall performance of H&H, really as we have been for many quarters. The story, I would say, in Q1 was very similar to the story that has played out over previous quarters, so not much changing. The minerals and nutrients portfolio is growing very strongly—I would say double-digit growth—fueled particularly by growth in our minerals business, which is performing outstandingly broadly speaking, but all of the nutrients are growing nicely. That business is performing well and is really fueled by, yes, to some extent the “better for you” trends, but also the adoption of supplementation and the inclusion of nutrients in beverages, as we talked about earlier. So a little bit more of the same, which I view as positive. The food ingredient and solutions business grew, I would say, lower- to mid-single digits. Again, it continues to grow at what I would say are nice rates for that business. That growth truly is being fueled by the “better for you” trends—whether it is meat sticks that we have talked about before where some of our ingredients are included, or high-protein bars, high-fiber beverages, organic high-fiber cereals—those kinds of products are really all performing very well for us and really driving the vast majority of growth within H&H. Again, I would say that story has been true for quite a number of quarters. Overall, we are very pleased with the performance of H&H, and we continue to believe that that story will continue for some time to come. We think it is quite sustainable. Relative to Specialty Products, it is a little bit of a different story. The favorable growth really is driven primarily from the Performance Gases part of Specialty Products. Again, very pleased with the overall performance of Specialty Products, but this quarter it was primarily driven by Performance Gases, where we are seeing healthy demand both in the U.S. and in Europe. It seems odd a number of years later to still be talking about the pandemic, but those were markets that were pretty severely impacted by the pandemic and it had a long played-out impact, I would say, on those markets. We would say those markets today are back to where they were—very healthy—and our business is doing very well, both in the U.S. and Europe, just on healthy demand. The growth, as we talked about, in Plant Nutrition has been primarily driven by geographic expansion over time. We did not deliver growth in Q1, but we are bullish about the performance of Plant Nutrition over the course of the year. We had significant margin improvement in that business in Q1, delivered healthy geographic expansion growth, and generally speaking, it is a healthy planting environment right now. Again, we feel good about our ability to deliver growth in that business this year. So really pleased with the performance of Specialty Products as well, and we believe that this performance that we have been delivering in that segment over the last number of quarters and in Q1 is sustainable. Hopefully that answers your questions. Artem Chubara: It does indeed. Thank you very much. Operator: That concludes our question and answer session. I will now turn the call back over to Ted Harris for closing remarks. Ted Harris: Yes, thank you very much. Once again, thank you all for joining our call today. We are very pleased with how we have started 2026, and we really appreciate your support and your time today. We look forward to reporting out our Q2 2026 results in late July. In the meantime, we will be participating in the Wells Fargo Industrials and Materials Conference in Chicago on June 10, and the CJS Summer Investor Conference in White Plains, New York on July 9. We certainly hope to see some of you there. Thanks again. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. And welcome to Blue Owl Capital Inc.'s First Quarter 2026 Earnings Call. During the presentation, your lines will remain on listen only. After the presentation, there will be a question and answer session. To ask a question, please press star 1 on your telephone keypad. I would like to advise all parties that this conference call is being recorded. I will now turn the call over to Ann Dai. Ann Dai: Thanks, operator, and good morning to everyone. Joining me today are Marc S. Lipschultz, our co-chief executive officer, and Alan Jay Kirshenbaum, our chief financial officer. I would like to remind our listeners that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the shareholder section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Blue Owl Capital Inc. fund. This morning, we issued our financial results for the 2026 reporting period, including fee related earnings, or FRE, of $0.25 per share, and distributable earnings, or DE, of $0.19 per share. We declared a dividend of $0.23 per share for the first quarter payable on May 27, 2026 to holders of record as of May 13, 2026. During the call today, we will be referring to the earnings presentation, which we posted to our website this morning, so please have that on hand to follow along. With that, I would like to turn the call over to Marc. Marc S. Lipschultz: Great. Thank you so much, Ann. As we highlighted this morning in our results for 2026, we operate three differentiated platforms at scale, each of which has contributed to Blue Owl Capital Inc.'s expansion. Revenues increased by 13%, fee related earnings by 14%, and distributable earnings by 11% compared to 2025 against a backdrop of geopolitical uncertainty, interest rate volatility, and increased attention to private credit. Our financial results reflect stability, driven by our durable capital base, and growth driven by fundraising and ongoing capital deployment. We raised $57 billion of capital over the last twelve months, our second highest capital raise since inception, and $11 billion in the first quarter, which represents approximately 14% annualized on our AUM at the end of 2025. These fundraising results reflect investor interest across client channels and across our credit, real assets, and GP strategic capital platforms. In recent months, we spent time with clients and other stakeholders addressing the questions that have arisen around private credit. Our approach has been straightforward: answer those questions with facts across the business. Fundamental performance remains strong, portfolios remain strong, and the portfolios continue to behave in line with the discipline with which they were built. Compared to the last quarter, there is certainly more uncertainty in the macro and geopolitical landscape, and investors across all asset classes are faced with more questions than answers about the near-term environment. As we have observed in the past, times of heightened volatility and uncertainty tend to favor those with patient capital and longer duration, and market share has moved towards private players during those periods in the past. While we continue to see a healthy balance between the public and private markets, momentum has shifted in our direction in recent months, offering attractive investment opportunities that we are selectively leaning into. As it relates to fundraising, we continue to see good interest from a broad range of investors across an increasingly diverse set of strategies, resulting in $11 billion raised across equity and debt platform-wide during the first quarter. Institutional capital represented two-thirds of total equity raised for the first quarter, or $6.1 billion. These inflows came from approximately 80 institutional investors, with 47% of those commitments coming into our credit platform, 40% in real assets, and 13% in GP strategic capital. We received commitments from 33 new institutional clients during the quarter, and 14 existing Blue Owl Capital Inc. investors committed to new strategies, further deepening these relationships. We took in capital from institutional investors across every major market, with an increasing amount coming from non-U.S. investors over the past few years. In our private wealth channel, we raised approximately $3 billion of equity in the first quarter, primarily across net lease, direct lending, alternative credit, and digital infrastructure, highlighting that individual investors continue to allocate to alternatives. In particular, demand for real asset strategies has been solid, with over $7 billion raised in wealth for real assets over the last twelve months, a 2.5 times increase from the prior twelve-month period. Taken together, our fundraising results in the first quarter highlight three major takeaways. First, institutional and individual investors continue to allocate to products and strategies across the Blue Owl Capital Inc. platform. We think this speaks to our ongoing education efforts with investors through the years, and the differentiated returns we have generated as a result of rigorous underwriting, deliberate and thoughtful product construction, scale benefits, and ultimately long-dated strong performance. Second, the evolution and diversification of Blue Owl Capital Inc.'s platform has been and will continue to be an important driver of fundraising and earnings. As you can see on slide five in our earnings deck, today, direct lending represents only 37% of Blue Owl Capital Inc.'s AUM. To put this in context, real assets is now 27% of AUM, and GP strategic capital is 22%. Nearly three-quarters of equity capital we have raised over the last twelve months has been outside of direct lending. Alternative credit and net lease have grown their AUM by roughly 40% year-over-year, reflecting strong interest in these asset classes. Our digital infrastructure strategy, which is approximately 6% of AUM today, has significant runway ahead as we face unprecedented demand for data center capacity and continue to work closely with some of the largest, most innovative, and best-capitalized companies in the world. In fact, just a couple of months ago, Amazon announced a $12 billion data center campus with investment from Blue Owl Capital Inc.'s digital infrastructure funds and development by Stack Infrastructure, our scaled designer, developer, and operator of sustainable digital infrastructure. This marks the fourth data center project above $10 billion announced in less than eighteen months for which Blue Owl Capital Inc. will play a critical role. We held the final close of the first vintage of our GP-led secondary strategy, BOSE, during the quarter, above target at approximately $3 billion. We think this is a great outcome for a first-time fund, and it makes us a market leader in dedicated capital raised for GP-led secondaries. And as it relates to fundraising channels, institutional investors drove 67% of total equity capital raised in the first quarter, and in private wealth, nearly 70% of flows came from real assets, GP strategic capital, alternative credit, and GP-led secondaries during the first quarter. These strategies themselves constituted about 60% of private wealth flows over the last twelve months. These figures highlight an increasingly diversified set of high-quality in-demand strategies that offer investors significant income and downside protection. Finally, it is worth keeping the recent attention on our nontraded BDC flows in perspective. While the level of debate around private credit has resulted in elevated industry-wide redemption requests, the actual impact to Blue Owl Capital Inc.'s revenues and earnings for the first quarter was quite modest. During the quarter, net outflows of roughly $170 million from OCIC and OTIC were less than six basis points of our beginning-of-period AUM. As a reminder, these two funds collectively comprise less than 17% of our total AUM. For OCIC, redemption requests were concentrated, with 1% of investors representing a majority of tenders, and approximately 90% of the investor base elected not to tender at all. Generally, requests have been more investor-led than adviser-led, highlighting continued strong support from our partners in what we believe has been a headline-driven, not fundamental-driven, redemption environment. Notably, gross repurchases for our net lease nontraded REIT, Orent, were less than $134 million compared to inflows of $1.1 billion, resulting in net inflows of approximately $1 billion for the quarter compared to about $8 billion of fee-paying AUM at the end of 2025. Moving on to performance, which remains resilient across credit, real assets, and GP strategic capital. Our strategies have delivered attractive absolute returns and, on a relative basis, have generally outperformed their public indices since inception through a wide range of economic and market environments. To give a few examples, our direct lending strategy generated gross returns of 8.5% over the last twelve months and, more specifically, our largest nontraded BDC, OCIC, has delivered an attractive 9.1% annualized return over approximately five years since inception, demonstrating durability across a range of market environments. Over this period, Class I shares of OCIC have outperformed leveraged loans by more than 300 basis points, high-yield bonds by approximately 500 basis points, and traditional fixed income by approximately 900 basis points. In alternative credit, gross returns of 11% over the last twelve months have compared favorably to leveraged loans as well, outperforming by more than 600 basis points. Our net lease strategy has returned 14.7% over the last twelve months, outperforming the FTSE REIT index by over 1,100 basis points, and 1034% across funds three, four, and five. These funds are top quartile of DPI, and we were honored recently to be named the top large buyout firm in 2025 by HEC Paris Dow Jones in a category of nearly 700 firms, which we think recognizes our outstanding performance across these key metrics. I mentioned earlier that we were seeing the market move our way as a result of volatility, and GP stakes is a good example of this. Not only is fund performance strong, but we have substantial dry powder, and the pipeline continues to grow for this business. To bring this back to where I started: performance remains the clearest measure over time. What matters most in periods like this is whether the portfolios are behaving as expected, whether the underwriting is holding up, and whether the structural protections in the business are doing the work they are designed to do. On those measures, the quarter reinforced the stability and durability of the business, supported by continued growth and strong underlying fundamentals. We plan to continue communicating with our stakeholders transparently and candidly, and look forward to speaking with all of you in the weeks and months to come. With that, let me turn it to Alan to discuss our financial results. Alan Jay Kirshenbaum: Thank you, Marc, and good morning, everyone. Today, we reported another quarter of solid earnings growth and broad fundraising across the platform. As Marc noted, during the first quarter, we raised $11 billion of capital across a diverse set of products and strategies. As you can see on slide 14, while the first quarter is typically a seasonally lighter quarter for fundraising, we continue to see fundraising across a broader and more diversified platform, driven by ongoing diversification across products, strategies, and investor base. Compared to the first quarter of last year, equity capital raised grew by 35%. Staying on the theme of 1Q 2026 results versus a year-ago quarter, management fees are up 13%. You can see on slide 10 that we broke out management fee offsets this quarter, which we think helps investors get a better sense of the core trends across our business. FRE grew 14% and DE grew 11%. We modestly increased our FRE margin, expanding to 58.4% for the quarter versus our FRE margin for 2025 of 58.3%. AUM not yet paying fees increased to $30 billion, representing approximately $350 million of expected annual management fees once deployed. This is equivalent to approximately 14% embedded growth off of our 2025 management fees. Turning to our platforms, in credit, the $4 billion of equity capital we raised during the first quarter included about $1 billion raised in our nontraded BDCs, and over half a billion dollars raised for each of GP-led secondaries, alternative credit, and liquid and IG credit. During the quarter, we held the final closes for both our GP-led secondary fund, BOSE, and our alternative credit opportunities fund, ASOP 9, around $3 billion each, with both closing above their targets—strong outcomes in the current environment. In direct lending, last twelve-month growth and net originations were $39.4 billion and $8.2 billion, respectively. Repayments in the portfolio were $6.4 billion for the first quarter and over $27 billion in 2025, highlighting significant liquidity in our direct lending funds just from repayment activity alone. As Marc mentioned earlier, the market conditions that create volatility in public markets also tend to result in spread widening and a decline in available capital across asset classes. We are beginning to see this in the origination pipeline, with spreads at least 50 basis points wider. More importantly, the portfolios continue to behave in line with the discipline with which they were built. We have included some additional slides and disclosure in the supplemental information section of our earnings presentation. Slides 24 and 25 show a series of KPIs for each of our BDCs as of December 31, which we will update through March 31 in our investor presentation. Slide 26 compares some of these KPIs with the leveraged loan and high-yield markets. And finally, slide 27 compares the performance of our BDCs to the leveraged loan and high-yield markets. Now to run through some of these here: in direct lending, underlying portfolio company growth has remained healthy, with no meaningful adverse movement in metrics such as our watch list, nonaccruals, amendment requests, or revolver draws. Our average annual loss rate remains a very low 12 basis points, an important factor in driving our continued outperformance to leveraged loan and high-yield indices. On average, our borrowers have delivered last twelve months revenue and EBITDA growth in the mid to high single digits. In our tech lending portfolio, we have continued to see higher growth compared to our overall diversified lending portfolio, with LTM revenue and EBITDA growth in the high single-digit to low double-digit range on average. LTVs have picked up modestly, incorporating moves in public comps and broad-based spread widening. As a result, LTVs are, on average, in the low forties across our platform and in the tech lending portfolio, continuing to illustrate meaningful equity cushion below our senior secured positions even in the face of compressed equity market multiples. And outside of direct lending, we deployed an additional $2.8 billion on a gross basis across our other credit strategies in the first quarter. And as Marc mentioned, the opportunity set is expanding across the risk-reward spectrum, and we are engaging where the risk-adjusted return is compelling. In real assets, net lease contributed about $3 billion of the $4 billion of equity capital raised in the first quarter, roughly split between the wealth and institutional channels. In total, we have reached $5.8 billion raised for the latest vintage of our net lease flagship and continue to expect to hit our hard cap of $7.5 billion by the end of this year. For Orent, our nontraded REIT, over $200 million of the $1.1 billion raised in the first quarter came from 1031 exchange structures, and Orent experienced its lowest percent repurchase quarter in seven quarters. Deployment in real assets continued to accelerate, increasing more than 100% year-over-year to approximately $20 billion over the last twelve months, supported by the completion of build-to-suit projects in net lease and new commitments in digital infrastructure. In net lease fund six, we have fully committed the fund and have reached two-thirds of capital called, with visibility to be virtually fully called by this summer, in line with our prior expectations and within three years of its final close. Our net lease pipeline remains around all-time highs with $50 billion of transaction volume under letter of intent or contract to close. In digital infrastructure, we are also seeing a substantial pipeline of over $100 billion and have now called over 75% of the capital in fund three, just a year after its final close in April 2025. We continue to be on track for an initial close of the next vintage of our flagship fund in the back half of this year. In our real assets platform, we now manage $85 billion of AUM, up 27% over the last year, and specifically for net lease, up 38% year-over-year. We are seeing these strategies resonate with investors looking for income-oriented returns backed by mission-critical assets and investment-grade counterparties across logistics, manufacturing, healthcare, and data centers. In GP strategic capital, we raised $900 million primarily in our flagship vehicle and co-invest during the first quarter, with the total raised in our sixth vintage approaching $10 billion inclusive of co-invest. In March, we made an investment into Atlas, a leading investment platform with a differentiated owner-operator model within the industrial, manufacturing, and distribution space, and we continue to see a robust pipeline for deployment in our latest flagship fund, which is now about 40% committed on our target. Finally, I would like to offer some high-level thoughts on a few items. First, we remain focused on disciplined expense management. We demonstrated FRE margin expansion in 1Q, and continue to see a path to achieve our goal of 58.5% FRE margins for 2026. We declared our quarterly dividend, which we had announced on our last earnings call. We remain committed to paying out our $0.92 dividend for 2026. Our business is broader and more diversified than it was even a few years ago, and we will continue to measure ourselves by performance, portfolio behavior, and the consistency of our results over time. Thank you very much for joining us this morning. Operator, can we please open the line for questions? Operator: We will now open the call for questions. Thank you. Star 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. We ask that you limit yourself to one question, and please rejoin the queue if needed. Thank you. Your first question comes from Craig Siegenthaler with Bank of America. Your line is open. Craig William Siegenthaler: Good morning, Marc, Alan. Hope everyone is doing well. My question is on the $6 billion of institutional fundraising in the quarter. Can you help us size the credit inflows and also which specific funds saw the inflows? I saw your broad comments on direct lending and strategic equity. I was hoping to get a little more detail on the fund, help us think about the fee rate dynamics, and also the sustainability too. Thank you, guys. Marc S. Lipschultz: Sure. Thanks, Craig. You as well. We continue to see flows come through up and down across our credit platform. We continue to see flows into direct lending products like ODL and SMAs. We certainly had about $1 billion come into our nontraded BDCs, OCIC and OTIC, so we saw inflows there. We continue to see, as you noted, ASOP 9; we did our final close. Alt credit continues to grow in line with what we talked about last quarter. Continued very strong growth from the alt credit business. Alan Jay Kirshenbaum: So it is really coming through up and down the board there. Marc S. Lipschultz: One add-on, which I will call more qualitative. We are noticing institutions are observing that direct lending and credit at large is actually working very, very well. In contrast, perhaps, to what the sentiment is in the air, I think institutions are actually seeing that this is an appealing time to look at credit. In fact, some who perhaps had paused credit might be very well coming back. Remember, spreads are starting to widen again, and these moments in time, as I commented a moment ago, when markets are like this, generally speaking, have tended to favor opportunities in private markets, and I think institutions know that. Ann Dai: Thank you, Craig. Thank you. Operator: Your next question comes from Bill Katz of TD Cowen. Your line is open. William Raymond Katz: Thank you very much. I appreciate the extra disclosure. Super helpful. Just coming back to wealth—excuse me—wonder if you could provide a little more color. You mentioned that a lot of the redemptions were driven by investors rather than financial advisers. Can you give us a sense of what you are hearing from the gatekeepers around a couple different dynamics here? Number one, how they are thinking about maybe the appetite for direct lending given spreads are widening out. Where are you seeing the flows going if they are in fact leaving direct lending, on-listing in your ecosystem and just moving to other vehicles like Orent, etc.? And then I think you mentioned that spreads are widening out a little bit. Can you give us a little bit of an update on maybe gross and net deployment into the new quarter? Thank you. Alan Jay Kirshenbaum: Sure, Bill, thank you for the question, and thank you for your feedback on the added disclosure. When we are on the road, we talk to folks. Folks have asked for added disclosure, and we want the opportunity to show the markets what we are seeing in direct lending, as Marc just commented on a minute ago. So there is a little in your questions I want to unpack. First, our discussions with financial advisers, generally speaking, they want the products to work as designed: 5% tenders per quarter, not more. The reason for the 5%, and the reason clients want us to keep it, is so that shareholders benefit from the asset class and the illiquidity premium that they are receiving. And as we pointed out, back to your comment, in our earnings presentation and the supplemental information, that has worked as designed. Our products have meaningfully outperformed the public loan markets. With these structures, the assets are matched duration with the structure, and better. What do I mean by that? For example, paydowns in OCIC were almost $3 billion this quarter, regular-way paydowns, versus the gross redemptions at $1 billion this quarter. So we are three times covered. That is before we talk about fundraising inflow or the DRIP, or liquidity at the BDC drawing on committed debt or cash on hand. Just level setting on all this: because of the anxiety around private credit—and we understand that—the industry is going through another period of softer inflows and higher redemptions. But periods of softness in certain asset classes are natural, and your question is exactly that. What is also natural is that sentiment tends to move to other asset classes, which as a diversified manager like ourselves, we are well positioned to benefit from. I talked last quarter—now shifting to those other capabilities. I talked last quarter in the Q&A session about some of the attributes for what it takes to be successful in the private wealth channels and how we go about expanding and continuing to grow in environments just like this. We have large, high-quality, and most importantly, well-performing products. We have a diversified suite of capabilities, as I just mentioned, which makes us really well suited to capture shifting sentiment like what we are seeing now. The track record of our non-direct lending capabilities supports exactly what I just said. Orent delivered an 11% return last year and is up 2.5% in 1Q. OwlCX, our interval fund—our alternative credit product—is 11% over its first year and up 2.2% in January. ODiT, which is newer—we just launched that at the end of last year—is up 2.3% in January. We have significant scale in these products. OwlCX is the smallest at about $2.5 billion of AUM. Not leaving off, of course, our nontraded BDCs; they continue to demonstrate strong performance. OCIC has delivered a 9.1% annualized return since inception, over about five years, which is meaningfully outperforming the leveraged loans market, high-yield bonds, and traditional fixed income. Strong returns, scale, and a diversified suite of products are what is needed to broaden to other channels and markets, new geographies. We have talked in the past about model portfolios, 401(k)s, the resources we have dedicated to private wealth globally, the new product origination capabilities, and deep focus on emerging trends and opportunities. We have scaled distribution across all channels. Our business is an industry leader in a market where there is massive opportunity and significant barriers to entry. This is not easy to build. Thank you, Bill. Operator: Your next question comes from Brennan Hawken with BMO Capital Markets. Your line is open. Brennan Hawken: Good morning. Thank you so much for taking the question. I had a couple questions on fee rates, both in credit and real estate. First in credit, excluding Part I—so excluding that noise—the underlying fee rate went up eight basis points quarter-over-quarter. I believe you had a solid fundraising in BOSE, and I think that is in that segment. Were there catch-ups in that, and maybe could you quantify that, or maybe some other onetime-type items or any noise? And then the real estate fee rate also looked better than expected. Was there any noise in that business as well? Thanks. Alan Jay Kirshenbaum: Of course. Thanks, Brennan. Appreciate the question. For credit, we did have some BOSE onetime catch-up fees. Overall, management fees were up a little, Part I fees were down a little. Management fees were driven by the BOSE onetime catch-ups, but also things like ASOP 9—I just mentioned that. The interval fund continues to grow, and so that is what I would point to for the fees in credit. There is always some mix shift when you look at fee rates quarter versus quarter. Nothing in particular that I can think of that I would flag for real assets. Operator: Your next question comes from Mike Brown of UBS. Your line is open. Michael Brown: Hey, good morning. Thanks for taking my question. Dry powder certainly represents an embedded growth opportunity here for you guys, and certainly positive that spreads are widening. How should we think about the timing and phasing of deployment here? And as you think about—just give us a quick update on April. How has activity been in the month of April? And then when we think about software and tech, are those areas that you will lean into—are opportunities attractive there—or is that an area that you will pull back from as you think about deployment? Thank you. Marc S. Lipschultz: Let me start with the latter, and then Alan can share a few comments on how to think about deployment of that $30 billion or so of dry powder. Let us talk about the ecosystem first. At the highest level, the overall M&A environment is fairly tepid right now. It is active, and therefore, our business is active. We are seeing a nice number of opportunities to invest in. Most importantly, we like what we are seeing, and we like them at higher spreads, and we like them in an environment like this to originate. These are the kinds of environments where we are perfectly happy to be in a position with a good amount of capital to deploy selectively and certainly happy to continue. This is, of course, the feature of the business: loans get paid back. They are getting paid back regularly. Alan just talked before about the many billions of dollars that have gotten paid back. When those come back in—and generally speaking, those are at lower spreads—and we put them back to work at higher spreads, that is a really good thing for our investors. That is the environment we are in in aggregate: a bit of that rotation out of some of the lower spread product into higher spread product. That is a good thing. In terms of activity, it is probably a little more about geopolitics overlaying the market than it is anything else. I would not claim to know when that air clears and when the M&A environment picks up steam as a result. Activity is perfectly healthy, and so we are going to continue to deploy at a steady pace in lending. Frankly, in other areas of the firm, we are seeing tremendous acceleration in deployment. You have seen this sort of pipeline in triple net lease and in data center digital infrastructure in particular; the pipelines are just so compelling, as are, fortunately, the risk-return. I think we all saw overnight the big tech announcements, and there were a couple consistent themes. There are some pretty good numbers, but most notably, just about every single company talked about increasing their CapEx even more. That just flows directly to our digital business and our triple net lease business. It does depend by area. In our GP stakes business, this is a good time for what is happening. We are seeing people return. Remember, there was a time when lots of people thought they were going to become public companies. There was a time when the M&A market was extremely active. That is not the current moment. That brings people back to, how do I continue to finance a great business? How do I continue to fund their growth? We should look at the credit market right now as the M&A market is fine, and we are going to be following, really, no particularly greater or lesser than the overall M&A market activity levels. I expect as the air clears in the world, we will see those accelerate again. There is certainly plenty of dry powder in the hands of private equity firms, as we all know. We are seeing a really robust pipeline, particularly in real assets, and accelerating engagement around GP stakes. I would say the path ahead looks pretty appealing as we look into the back half of the year. Alan, any comments on pacing? Alan Jay Kirshenbaum: Really well said. On pacing, I would think that what we saw in credit is a good environment, as Marc just said, to lean in selectively on the right opportunities. Markets are functioning well. On the other side, we were paid down on over $7 billion of loans across the credit platform, so hard to tell how that will play out any given quarter on a net basis. In real assets, we continue to see very strong deployment there—huge pipelines. You should expect us to continue to draw down on products like Net Lease 6. I mentioned that is fully committed. We think that will be fully drawn by this summer, so pacing is going well there. Marc commented on GP 6—we actually have six really interesting investments in the pipeline, five of which are new investments, one is an add-on—so we are really excited about that as well. Ann Dai: Thanks, Mike. Operator: Your next question comes from Glenn Schorr of Evercore ISI. Your line is open. Glenn Paul Schorr: Hi. Thanks a lot. And I do want to say thank you—slides 24 through 26 are great. Now, here is my question. If you looked at those statistics, you would not know anything is going on in the world—meaning those are all healthy stats of some portfolios. People are looking forward. The public markets crushed the equities in some of these underlying companies, wider spreads, and public BDCs trade at big discounts. I wonder if you could drill down a little bit more on the color of “nothing has changed on our watch list,” how you quantify that, and then most importantly, if you look at the tip of the spear, there is a software maturity wall coming in 2028 and 2029. In normal times, I think the current lender would be part of the process of refinancing, especially in private lending. Who is going to do that if the current lenders are in redemption mode, and what kind of conversations are you having? What is the equity investors’ behavior? What is that like right now? I thought that would be helpful insight to how we should all think about the go-forward. Thanks. Marc S. Lipschultz: Thank you very much, Glenn. On those additional credit stats, a couple of comments and then we will jump into the specifics. We are out talking to all our shareholders, who we work for. What we heard is: we want to understand. We are reading a lot of narrative; help us with the facts. We tend to try to be very data-driven in our business. This is additional disclosure that we hope helps people understand what we are seeing at a portfolio level, as you are observing, because headlines are pretty different from the underpinning facts in this context. We want to try to share as much as we can so people can see what we see, transparently, for the good and the bad. In this case, as you observe, there is a lot more to like than to dislike. With that said, let us look forward. We do not have a crystal ball, but a few things we can observe—and we will get to the software point specifically. More generally, we have seen no material negative developments in our portfolios in terms of amendments, in terms of PIK; in fact, PIK has been on the decline as a percentage of the portfolio, again contrary to what people might intuit. No material change in watch list, no material change in nonaccruals. Those are observable and important facts, and are probably a little different from what people tonally would suggest would be happening. That is a very healthy place to be, number one. Number two, things in our business have a lot of visibility, and things do not move fast—by which I mean that companies, as they are going from being very healthy—and our average portfolio company, remember, is still growing in the high single digits, revenue and EBITDA; these are growing businesses—to go on average from that and no material changes in those other gates, and they are gates, not just indicators. You do not go from “I am a healthy company” to “I have a tremendous problem.” We have huge visibility on that. That is why we have watch lists. That is why we have conversations about amendments and other topics. It is one of the great advantages of having tight documents and being in the private market. We have visibility on people going from one stage to the next. We can say with a lot of comfort that in the foreseeable future, portfolios are likely to remain very healthy. The further you go out, the more variables come in, which brings us to the software topic. None of us knows the future state of the world transformed by AI. The center of gravity of that conversation today is software, but it ripples across the whole economy. Here is what we can say: we are lenders. We are not equity owners. That is not a small distinction. We choose that position for a reason in our strategies. Our job is to be prepared, and that means doing great due diligence, good underwriting, good documentation, and importantly, being the senior capital where there is a lot of equity capital beneath us. In our tech portfolio, remember, some of the very largest companies are there. Average EBITDA, say, is $320 million. We all understand where the pressures can come from from AI, but you are starting at $320 million with companies that in many instances have equity checks from very sophisticated sponsors of billions and billions of dollars. We have maturities that are three to four years on average. I will come to your maturity wall question. Three to four years really says that today, by and large, the question at hand is really an equity question, not a debt question. Not a monolithic answer, but if you took a step back, you would probably logically conclude there is a set of companies that will be beneficiaries of AI and the agentification of the business. There will be a set of companies in the middle of that range that will probably be harmed in terms of profitability and growth, but that is far from mortal. That is all equity, both those categories. Then there will be some companies that get themselves in more substantial trouble. That is where our preparation and our work always comes to bear. This is not new. Credit is not intended, never expected, to be a flawless exercise. We have had defaults before. We will have defaults in the future. The key then becomes minimizing that number and then doing well in recoveries. We have gone back and studied all of the cases where we have had restructurings or material amendments driven by performance issues. The actual statistics are: our average principal recovery in those cases has been $0.80 on the dollar. When you incorporate that we actually had several coupons in on average in those instances as well, our actual recoveries in total on our problem situations have been 1.1x to 1.2x. Not suggesting that means you cannot have worse outcomes, and there could be some of those in the world of software—probably a good place to watch—but you are down to very much a subset of a subset of a subset, and our job will be to manage through that. As for the conversations: these have very, very large equity checks involved. That does not mean that some of them will not be handed over to the lenders. Some will. In all likelihood—and we experienced an analogous circumstance with COVID—good sponsors are going to look and say, let us take a $10 billion buyout. They may think it is worth $10–$12 billion. We may think it is worth $6 billion, and it has $3 billion of debt. In either case, you are now about someone’s several-billion-dollar equity check, and they are very likely to logically want to continue to sustain that. What does that mean, which brings us to your software wall question? Yes, there are a number of refinances that are going to have to take place. There will be different categories of software performance, which will be a lot clearer a few years from now than it is now, as to who fits in what category. When we get to that place, it is safe to say that, as today, we are working down our exposure to software given the level of uncertainty. We will all know a lot more in a few years. To cut to the chase, you are going to end up in a circumstance where you are going to need to see a lot of equity injected by private equity firms into these companies in order to continue forward, even when they have many billions of dollars of equity value that they understand they have. It is going to be working together with those sponsors. Most will work quite amicably. Some will be a little more challenging. Again, that is what we have done since the day we started. It happens to be in the software arena this time. It has been in other arenas before. Do not minimize it, but do not overstate it. We will come to a point where there will be a subset of companies that will be the more contentious ones, and then we will work our way through, and that is what leads to having some amount of loss rate, which is endemic to not just private credit. It is going to be in public credit. It is going to be in high-yield. It is going to be in equities. Last comment: we have all seen a lot of volatility, certainly a downward direction for sure in software equities. Year-over-year, the change in the software indices is actually quite modest, and yet here we are talking about things that are down in the 40% on average loan-to-value. There is a lot of spring and cushion, and our job is to be prepared and ready, and we are. Ann Dai: Thank you, Glenn. Operator: Your next question comes from Brian McKenna with Citizens. Your line is open. Brian J. Mckenna: First off, great to see the resiliency in results to start the year. Can you just remind us how much exposure you have in your direct lending funds to SpaceX? I know this is just one investment. I think it is important to understand how and where you invest and how these portfolios are structured. Can you just remind us how these gains ultimately help offset future credit losses across these portfolios? Alan Jay Kirshenbaum: Maybe I will take the last one first. If you go to slide 25, you can see net gains since inception for both OTF and OTIC, whereas you would normally expect some sort of modest annualized net loss rate since inception. Investments like that certainly contribute to what you see as an outlier—a net gain since inception—on our returns. Marc S. Lipschultz: Specifically at SpaceX, just as an example, we made about 10x our money on that investment. We have sold about half of it at a $1.25 trillion valuation, still holding about half of it. The reason I highlight that is not because, in the context of our funds, that is going to change the fundamental flight path, but as Alan said, those are the ways we, even when we do have—and we will have—some credit losses, can offset some of those losses. The other thing I would note is about our ecosystem. The reason we have that position is because we were one of the very earliest lenders to SpaceX. We made a loan to the company and had the privilege of getting to know them very well and then participating in ongoing conversations about other financing opportunities and ultimately, in this case, an equity investment. We have that elsewhere in our ecosystem. Part of being a one-stop shop and delivering capital solutions gives us a lot of ways to win on behalf of our LPs, and of course, when we win on behalf of our LPs, we win on behalf of our shareholders. Alan Jay Kirshenbaum: And create these very long-term partnerships with our borrowers and the sponsors. Brian J. Mckenna: Very helpful. Thank you. Operator: Your next question comes from Steven Chubak with Wolfe Research. Your line is open. Steven Joseph Chubak: Hi. Good morning, Marc and Alan, and thanks so much for taking my question. I wanted to ask on the FRE margin outlook. You delivered strong expansion in the first quarter, encouraging that you reaffirmed the 58% target. Amid the slowdown in retail fundraising, it would be helpful if you could frame some of the assumptions underpinning the FRE margin guidance and the levers that you could pull to hit the target if gross BDC flows remain subdued and redemptions stay elevated over the next couple of quarters. Alan Jay Kirshenbaum: Sure. Of course. Happy to do that, Steven. We have talked a little bit about this. We are very focused as a management team on showing progress on the FRE margin line. I noted in our prepared remarks, we remain very focused on disciplined expense management, and we continue to see that path to achieve the goal of 58.5% FRE margins for 2026. We certainly have comp and non-comp, right—G&A—and we have levers that we can pull across the board to make sure that, knowing we expect to continue to be in a softer environment in wealth, you saw strong institutional results. In an environment like this, you certainly saw good results out of our wealth products away from the nontraded BDCs. Even in our nontraded BDCs, you saw about $1 billion of inflows. Assuming that the environment remains soft for, let us say, the remainder of this year or the next number of quarters, we expect to continue to maintain that 58.5% FRE margin. Steven Joseph Chubak: Great color. Thanks for taking my question. Alan Jay Kirshenbaum: Of course. Thank you, Steven. Operator: Your next question comes from Patrick Davitt with Autonomous Research. Your line is open. Patrick Davitt: Hey. Good morning, everyone. Alan Jay Kirshenbaum: Hi, Patrick. Patrick Davitt: Kind of in the vein of Steven's question, last quarter you said you thought you could do low double-digit FRE growth this year. I would be curious to hear your thoughts on how that might have shifted given the now much lower flow outlook for the retail credit products. Thank you. Alan Jay Kirshenbaum: Of course, and it is a good question. We have talked about the challenging environment for the industry. We have talked about assuming this environment continues—for the industry and for us as well—there could be a wider range of outcomes for revenues. This ties right back to, keeping that in mind, remaining focused on disciplined expense management. When we look at something like the Visible Alpha consensus numbers for us, we think we can beat those numbers for 2026. Operator: Your next question comes from Wilma Burdis with Raymond James. Your line is open. Wilma Burdis: Hey. Good morning. You gave some good color on software earlier, but if you could give us a bit of a preview of what the software LTVs would look like today—sort of an update of those 2024 to 2026 slides. I know you touched on it. Public comps are down a little bit. You still expect the portfolio to remain healthy, but we would think the LTVs would come up a little bit. Alan Jay Kirshenbaum: Of course. Happy to. I will kick that one off, Wilma. What we have seen in the last few quarters leading up to this quarter is LTVs in the low forties for diversified lending and low thirties for software lending. What we saw this quarter is LTVs coming up across the portfolio into the low forties. We saw a move in software LTVs—obviously a lot happening with public marks over the last three months—and so LTVs came from low thirties to low forties, matching the diversified side, which still gives us a significant amount of cushion—about 60%—to the equity. Marc S. Lipschultz: A couple of additional observations on that. We do not mark our own credit books; we get the marks from a third party. When we take those marks and apply them, and then we look at LTV based on current facts and the current market environment—Alan just said this, but it is important to understand that indeed there has been deterioration in the value of software companies. We are a lender. That is reflected. Yes, we have come from low thirties to low forties by virtue of that deterioration. That is a tremendous amount of remaining cushion. Again, that is about preparation. That is about being in places with lots of underlying equity in the system. I would dare say that really speaks to the strength and durability of the underwriting and positioning. We are seeing—where we all acknowledge the challenges of software—and with those challenges understood and quantified as best they can be today, we have a lot of cushion in the system to continue to get strong returns and strong recoveries, and you continue to see strong loan repayments. Alan Jay Kirshenbaum: Thank you, Wilma. Thank you. Operator: Your next question comes from Kristen Love with Piper Sandler. Your line is open. Kristen Love: Thank you. Good morning. Appreciate you taking my questions. Can you discuss the fundraising outlook for 2026, maybe parse that between institutional and retail? Fundraising trends have remained solid looking at that top-down in recent quarters, and Alan, you did mention the first quarter seasonality, which I do appreciate. But looking at slide four, you did see softer private wealth year-on-year, which is not a surprise. How do you view the outlook differences between key investor channels and products as planned for the rest of the year, and then what that cadence could look like given seasonality in fundraising? Alan Jay Kirshenbaum: Of course, Kristen. Thank you for the question. We have talked about near-term softness in particular in the nontraded BDCs in wealth. I also mentioned earlier about having these other non-direct lending capabilities with very strong returns on a relative and absolute basis. We are very encouraged looking out over the horizon to see what we can continue to do with products like Orent. It has been the number one fundraiser in the market, the number one returns; it has been a very strong performer. The interval fund ODiT. Shifting to more institutionally—but not solely institutionally—we have more products and more strategies that cover more geographies than we ever have. We continue to see a lot of traction and success across a number of these products and strategies. To reference the two recently closed funds, GP-led secondary strategy, BOSE—we talked about that—closed at approximately $3 billion, and for a first-time fund, that is a great accomplishment. In alt credit, ASOP 9 also closed at approximately $3 billion. In both cases, we exceeded our fundraising goals. We have three real assets first-time funds in the market. Net Lease Europe, sitting around about $1.25 billion raised to date—original goal of $1–$1.5 billion—so we have already hit that goal and think there is a little more upside here. Products like real estate credit and data center credit—the goal has been to raise about $1 billion plus between the two of them in total—and we think we can exceed that goal this year. Focusing on our bigger flagship funds, wrapping up Net Lease 7—we are sitting at about $5.8 billion today; we mentioned in our prepared remarks, we think we will hit that hard cap of $7.5 billion by the end of this year. We are wrapping up GP Stakes 6—we are at about $9 billion in the fund, $10 billion with co-invest. We are going to close out fundraising here this year. Launching BODI 4—we have talked about that as well—our next digital infrastructure fund, setting up for our first close there in the back half of this year. This is a subset of the products and strategies that I am talking about. As a reminder, deploying our AUM not yet earning fees—that is $350 million of incremental annualized management fees that we would expect over the next twelve to eighteen, probably eighteen to twenty-four, months. Overall, we are continuing to see strong interest. We will see how the rest of the year plays out, but we are cautiously optimistic with many of these products and strategies. Taking a step back to close out, a number of these new products or strategies could be, in three, four, or five years, part of our series of big flagship funds for Blue Owl Capital Inc. We are really focused on how we start to generate more of these big flagships a number of years down the road, and we have a number out there that we think could absolutely fit that bill. Marc S. Lipschultz: Just adding briefly onto that, we have strategies that are built for all weather. They are built to be durable, predictable, generate current income, and provide good downside protection. The corollary to an uncertain environment is that really serves a strong purpose in people’s portfolios. I think we are seeing that appetite, particularly in the real assets arena, where we are really serving a very powerful need. For both institutions and individuals alike, the idea of how you participate in, I think it is now $700 billion of CapEx planned by the hyperscalers—how do you do that in a fashion that is also about predictability and stability? ODiT, our digital infrastructure product, is exactly the way people can access that opportunity set and work with companies like Amazon. We just announced a couple of weeks ago another Amazon project, a $12 billion project that we are doing. That is our fourth greater-than-$10 billion project in the last eighteen months, and these are under long-term contract to some of the very best credits in the world. It is a great opportunity and time, and both institutions and individuals alike are seeing that, and we have created pathways for them to participate. Orent has been a tremendously successful product, and continues to thrive. Our triple net lease business continues to turn in really strong returns. ORET, in fact, we actually just raised the dividend yield last quarter. There are a lot of ways to participate across our now ever more diverse platform, and we are seeing the benefits of that. Kristen Love: Great. Thank you, Marc, Alan. I appreciate all the color there across the platform. Alan Jay Kirshenbaum: Thank you. Operator: Your next question comes from Ken Worthington with JPMorgan. Your line is open. Kenneth Worthington: Hi. Good morning, and thanks for squeezing me in at the end here. What is the outlook for direct lending fee-paying AUM as we look out to the end of the year? Is it more likely to be higher, lower, or flat from where we are today given what you see as the deployment opportunities and your dialogue with investors? Alan Jay Kirshenbaum: It is a good question, Ken. Thank you for asking. I will answer two questions. Fee-paying AUM growth—as you saw, meaningful institutional dollars came through in 1Q—that typically will go into AUM not yet earning fees, and then as we deploy that capital over time, it shifts over to fee-paying AUM. I would expect, as we continue to see the successes we are seeing across our products and strategies, including credit, to continue to see fee-paying AUM grow as we go through the year—in particular for credit, but across Blue Owl Capital Inc. Kenneth Worthington: And any comment on direct lending specifically? Alan Jay Kirshenbaum: I would have the same comment for direct lending. Sorry, I was focused on direct lending; I was using the word credit. Everything I just said would echo for direct lending specifically. Kenneth Worthington: Okay. Great. Thank you very much. Ann Dai: Of course. Thanks, Ken. Operator: Your next question comes from Benjamin Budish with Barclays. Your line is open. Benjamin Elliot Budish: Hi, good morning, and thank you for taking the question. Maybe another one for Alan. If you can comment a little bit on how you are thinking about compensation—something investors tend to focus on a lot. I am curious if you have any thoughts that you could share around the trajectory of stock-based comp, how you are thinking about cash versus equity for employees, and how we should think about that from a modeling perspective. Thank you. Alan Jay Kirshenbaum: Sure. Of course, Ben, I appreciate the question. We gave guidance on this last quarter. The numbers will move around a little bit in any given quarter, but we are in line with our guidance for the stock-based comp “other” line. That is $365 million—my guidance from last quarter—which is about upper-teens growth. Keep in mind, as I mentioned last quarter as well, the business combination line also winds down to zero by the end of this year. Overall, we saw an increase this quarter in stock-based comp, but our guidance continues to be in line with what we are expecting for the rest of this year. On the acquisition-related, you are going to see that bump around in any given quarter. We use a combination, as we have talked about, of cash and stock for compensation. At the end of the day, from an overall expense perspective, of course, we point back to the FRE margin line—58.5%. But specifically for stock-based comp, we are very in line with our guidance of the $365 million last quarter. Benjamin Elliot Budish: Okay. Great. Thank you, Alan. Alan Jay Kirshenbaum: Of course. Thank you. Operator: Your next question comes from Alex Blostein with Goldman Sachs. Your line is open. Alexander Blostein: Hey, everybody. Good morning. Thank you for the question as well. Alan, I was hoping we could hit on the balance sheet—pretty meaningful increase in the revolver sequentially. I was hoping you can walk us through the sources there. More importantly, as you think about the dividend dynamic—obviously not fully covered here—but as you think about the forward, both on the dividend and how you guys are managing the debt level at the corporate level, that would be helpful. Alan Jay Kirshenbaum: Of course. Thanks, Alex. I appreciate the two questions, so let us hit both. On the balance sheet, 1Q always steps up, and by 4Q it comes back down. You can look back to last year—same path; the year before that—same path. We make our TRA payment; we pay bonuses in 1Q, and then you will see that come down each quarter as we get to April. On the dividend, we are committed to paying the dividend of $0.92 for 2026. Our business is growing—you have heard a lot about that today—and we are excited about that. We expect our payout ratio is coming down naturally. It is going to take a couple of steps, as we talked about in the past, to bring that payout ratio back to, call it, the 85% general target that we have over the course of the next few years. We are focused on the payout ratio. We are committed to the dividend. Our business is growing. We feel good about all of those aspects. Appreciate the question, Alex. Thank you. Operator: That is all the time we have for questions. I will turn the call to Marc Lipschultz for closing remarks. Alan Jay Kirshenbaum: I had one last quick follow-up, which was there was a question on catch-up fees in the credit business. It was about $7 million for our BOSE product. Ann Dai: Over to you, Marc. Thanks, Alan. Thank you all very much for the time. Marc S. Lipschultz: We appreciate the opportunity to have a detailed, fact-driven conversation. We are always available. We are going to keep sharing as much as we can share. We are quite optimistic overall about the forward path of the business and look forward to sharing that information with you as we go forward. Thanks so much. Have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good day, and welcome to the CNX Resources Corporation First Quarter 2026 Question and Answer 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. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to hand the call to Tyler Lewis, Senior Vice President of Finance and Treasurer. Please go ahead. Tyler Lewis: Thank you, and good morning, everybody. Welcome to CNX Resources Corporation's first quarter Q&A conference call. Today, we will be answering questions related to our first quarter results. This morning, we posted to our Investor Relations website an updated slide presentation and detailed first-quarter earnings release data such as quarterly E&P data, financial statements, and non-GAAP reconciliations, which can be found in a document titled "1Q 2026 Earnings Results and Supplemental Information of CNX Resources Corporation." Also, we posted to our Investor Relations website our prepared remarks for the quarter, which we hope everyone had a chance to read before the call, as the call today will be used exclusively for Q&A. With me today for Q&A are Alan Shepard, our President and Chief Executive Officer; Everett Good, our Chief Financial Officer; and Navneet Behl, our Chief Operating Officer. Please note that the company's remarks made during this call and answers to questions include forward-looking statements which are subject to various risks and uncertainties. These statements are not guarantees of future performance, and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors in CNX Resources Corporation's business is contained in its filings with the Securities and Exchange Commission and in the release issued today. Thank you for joining us this morning, and operator, please open the call for Q&A at this time. Operator: We will now open the call for questions. Our first question comes from Leo Mariani of Roth. Please go ahead. Leo Mariani: Yes, hi, good morning. I was hoping to hear a little bit more about the Utica. I see you brought three wells on here in the first quarter. Any comments on well performance or costs? I know you have been working hard to continue to improve the play over time, so just wanted to see if there was an update there. Alan Shepard: Hey, Leo. Good question. We are continuing to develop the Utica program. The most recent pad was turned to sales late in the quarter, so we are a little ways off from providing any production results from that. Everything we have seen so far, as we have mentioned on previous calls, is very consistent with our expectation of the reservoir. We are continuing to make progress on the cost side, but nothing new to update at this time. The way to think about it is that toward the end of this year, we will be in a position to provide a more fulsome update. We will have a solid data set to provide to the market toward the end of 2026 or early 2027 once these wells have had enough duration on them. Leo Mariani: Okay. And would you envision that, as you develop a more robust data set, if the play continues to progress nicely, we could see a little bit more allocation to the Utica versus the Marcellus in the next handful of years? Or do you think that the Marcellus is still probably going to be a little bit economically superior based on current rates? Alan Shepard: I think the Marcellus has the advantage of having the infrastructure already in place. We optimize for the best economics per well, and right now, with the SWPA Marcellus, you generally do not need to build new infrastructure because of the legacy investments there. You will see us blend in more Utica over time as that is the longer-term position for the company, but in the SWPA Marcellus we are in harvest mode, and you will continue to see those wells for the next few years. Leo Mariani: Okay, that is helpful for sure. I just wanted to ask on your NewTech business. Any updates there on business lines other than the environmental credit monetization that you have been consistently doing? Specifically, anything on AutoSet or on the CNG or LNG businesses you have mentioned in the past? Alan Shepard: Everything is consistent with where we thought it would be at this point in 2026. We are still waiting for final guidance on 45Z, but we do not think that is going to impact any of the projections we have made so far. Nothing new to update there, Leo. Operator: The next question comes from Jacob Roberts of TPH. Please go ahead. Jacob Roberts: Good morning. On hedging, you typically transact on a longer-term basis than a lot of your peers. Given what seems to be the prevailing theory of an improving gas base in that 2028-plus timeframe, can you give some context on what you are seeing in the 2028 market? I think you added another 13 Bcf to the book with this update. Curious what you are seeing on that longer-dated market at the moment. Everett Good: Yes, again, on our longer-term hedges, we are in a position to be more opportunistic, with patience, than we have been in the past. As we see price move up, we have also seen basis differentials tighten, and that has helped us get to a better all-in realized price in the California market. We are targeting to bring that up over time as we approach that year. Jacob Roberts: Okay, perfect. I appreciate that. And then I know you made some changes to the balance sheet. Just curious what the next steps are from here on that front. Everett Good: Yes, we did a very positive refinancing of our 2029 notes into new eight-year notes at 5.875% in the quarter. Generally, we have been very consistent in pushing out maturities to make sure that we are at least two to three years out before our next maturity. The next one up for us is a 2030 maturity that we will handle well ahead of time. It is all about keeping the maturity profile extended and making sure that we do not have periods with large maturity towers in front of us. Jacob Roberts: Thanks. I appreciate the time. Operator: Thank you. Our next question will come from Michael Stephen Scialla of Stephens. Please go ahead. Michael Stephen Scialla: Hi, good morning. I wanted to ask about in-basin demand. Some of your competitors are becoming a lot more confident on that, talking about it growing by more than 10 Bcf per day by the end of the decade. Do you share that enthusiasm, and is there anything you can share that the company may be doing to capture some of that demand? Alan Shepard: I would agree that we certainly see the same long-term optimism on the demand side. Some of the announcements that have come out are mind-boggling when you think about a nine-gigawatt power center plan; there have been multiple of those proposed. We see the announcements, and we are monitoring as RFPs come out for gas supply and are participating in those. The magnitude of gas that will be demanded in-basin in Appalachia is going to need to be sourced by multiple producers. If you think about folks like us that have the resource depth and the creditworthiness to enter into long-term arrangements with these new demand sources, we will certainly benefit. The only question in my mind is timing: is it three years, five years, or seven years? Michael Stephen Scialla: Alan, do you see that developing more on the Ohio side? It looks like it is maybe ahead of Pennsylvania, and can you participate as much over there if that is the case? Alan Shepard: For an Appalachian producer, given the interconnectedness of the pipes, we are pretty agnostic to where it develops. You can wheel gas around between the states pretty easily. As a macro observation, Ohio has shown itself to be a little easier to do business with in terms of speed. It is a little bit flatter there for some of the data centers, and they have intersection points with the long-haul pipelines like Clarington that make it very attractive. Pennsylvania is also competitive—you have the Homer City plant and the NextEra projects; they are still working on site selection but have indicated the Mon Valley area, which is certainly in our footprint. Bigger picture, we are agnostic; we are excited about the growth in demand. And as Everett mentioned, you are starting to see differentials tighten up in the out years, and we hope that trend continues. Michael Stephen Scialla: Got it. I wanted to ask on your convertible notes. Can you say when during the quarter you expect that remaining $[inaudible] to convert? I am just trying to estimate the diluted share count for the second quarter. Everett Good: That maturity is on May 1. So those shares will be issued—approximately 12 million shares net issuance—later this week. Alan Shepard: And when we say net, that includes the effect of the cap call that we structured when we entered into the converts. So the 12 million is the net out the door. Michael Stephen Scialla: Great. Thank you. Appreciate it. Operator: This concludes our question and answer session. I would like to turn the call over to Tyler Lewis for any closing remarks. Tyler Lewis: Great. Thank you again for joining us this morning. Please feel free to reach out if anyone has any additional questions. Otherwise, we will look forward to speaking with everyone again next quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I will now turn the conference over to James Lynch, Senior Vice President. You may begin. Thank you, Demi. James Lynch: Welcome everyone to our first quarter 2026 results call for California Water Service Group. With me today is Martin A. Kropelnicki, our chairman and CEO, and Greg Milleman, our vice president of rates and regulatory affairs. Replay dial-in information for the call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until 06/29/2026. As a reminder, before we begin, the company has a slide deck to accompany today’s earnings call. The slide deck was furnished with an 8-K and is also available on the company’s website at calwatergroup.com. Before looking at our first quarter 2026 results, I would like to cover forward-looking statements. During our call, we may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company’s current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the company’s disclosures on risks and uncertainties found in our Form 10, Forms 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. And now, I will turn the call over to Martin A. Kropelnicki. Martin A. Kropelnicki: Thanks, Jim. Good morning, everyone, and thank you for joining us this morning to review our first quarter 2026. There are six primary areas that we want to talk about today. The first one being, obviously, the quarter, and I would say Q1 results were in line with our expectations given the fact we had a delayed 2024 general rate case. To remind everyone, in March we did get a proposed decision and there is a comment period that follows that proposed decision, which is 30 days. Our comments were filed, and then yesterday we received what is called a revised proposed decision that I have asked Greg to talk about a little bit more in detail later in our discussion today. I will generally say that the revised proposed decision we are very happy with, and we are on the docket day for approval at the California Public Utilities Commission. In terms of the quarter, again, the delay of the rate case meant there were items we could not book because of the delay. But given where we are, results were in line with expectations. I think the highlight of the quarter is the fact that our infrastructure investment for the first quarter was up 17%, and we continue to make good progress on our PFAS treatment and cost recovery from the polluters who polluted the grounds and the waters that we treat. On the business development side, there are two areas. We are focused on the Nexus acquisition deal, as well as we filed our change of control in Texas to advance our purchasing of a minority interest in BVRT, which is the Texas partnership that we have been involved in for the last five years. Yesterday, at our Board of Directors meeting, our board declared a 325th consecutive quarterly dividend, and that follows, of course, the 59th annual dividend increase that we had in January. Additionally, as I mentioned on our year-end earnings call, we have officially kicked off our centennial year of operations, which means we have been going out to the regions that we operate doing employee and customer celebrations, which has gotten off to a very good start. I will talk a little bit more about that later today. Before I get into some of the details in these six subject areas, I am going to turn it over to Jim to go through the financial results. Jim, I am going to hand it off to you, please. James Lynch: Alright. Thanks, Marty. As Marty mentioned, the proposed decision on our California 2024 general rate case is expected later this afternoon. Having said that, our first quarter results do not include the impact of the revenue requirement or any of the other provisions included in the revised proposed decision. Recall that the company does have an interim rates memorandum account and that does authorize us to retroactively apply the decision back to January 1 once it is finalized. So we are not losing out on any of the potential benefit from the rate case for the time that decision has been delayed. In 2026, revenue was $214.6 million compared to $204 million in 2025. Net income for the quarter was $4 million, or $0.07 per diluted share, compared to the prior year first quarter of $13.3 million, or $0.22 per diluted share. Moving to slide six, you can see the impact of activity during the quarter. The primary earnings drivers were rate increases, which added $0.11 per diluted share, and accrued and unbilled revenue, which added $0.06 per diluted share. The accrued and unbilled revenue increase was due primarily to warm and dry weather during the last month of the quarter. The revenue increases were partially offset by an overall decrease in consumption for the quarter, increased depreciation and interest expense related to new capital investments, and an increase in the effective income tax rate due to a reduction in tax credits, which, when combined with other items, reduced EPS by about $0.32 per diluted share. Turning to slide seven, we continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water. As Marty mentioned, our capital investments for the quarter were up 17.6% to $129.5 million. Our total planned capital investments for 2026 are $627 million, and this reflects the amounts included in the revised proposed 2024 California rate case decision. It also includes our estimated expenditures in the other states. The constructive impact our capital investment program is having on regulated rate base is presented on slide eight. If approved as requested, the 2024 California GRC and Infrastructure Improvement Plan, coupled with planned PFAS investments and capital investments in our utilities in the other states, would result in a compounded annual rate base growth of over 11%. Moving to slide nine, we continue to maintain a strong liquidity profile to execute our capital plan. We continue to pursue tuck-in M&A opportunities as we progress on the acquisitions of Nevada, Oregon, and VBRT. As of 03/31/2026, we had $58.1 million in unrestricted cash and $45.6 million in restricted cash, along with approximately $470 million available on our bank lines of credit. We maintain credit facilities totaling $600 million that are expandable to $800 million, with maturities that extend into March 2028. We also have over $340 million remaining on the shelf we filed in connection with our ATM program, after completing approximately $6.1 million of program sales during the first quarter. Importantly, both Group and Cal Water maintained strong credit ratings of A+ stable from S&P Global, underscoring the strength of our balance sheet. Turning to slide 10, we just declared our 325th consecutive quarterly dividend of $0.335 per share. We also announced our 2026 annual dividend of $1.34 per share. This is our 59th consecutive annual increase and is 8.1% higher than 2025. And with that, I will now turn the call over to Greg to discuss the revised proposed decision on our rate case. Greg Milleman: As Marty mentioned earlier, we received a revised proposed decision on our 2024 California general rate case yesterday, and a final decision is expected later today or shortly thereafter. The revised proposed decision provides clear visibility into revenue growth, including approximately $91 million in 2026, followed by $43 million in 2027, and $49 million in 2028. Importantly, it continues key regulatory mechanisms like the Monterey-style RAM, and authorizes cost balancing accounts such as our pension cost balancing account, health care cost balancing account, and a new general insurance liability balancing account, which help stabilize earnings despite variability in customer usage and certain operating costs. While decoupling was not included, the decision introduces a new sales reconciliation mechanism and an updated rate design that better support fixed cost recovery. Overall, we view the revised proposed decision as constructive and supportive of continued infrastructure investment and long-term earnings stability. And now Marty will take us through the remainder of the deck. Martin A. Kropelnicki: Thanks, Greg. Just echoing what I said early on, I am very happy with the PD that is going to the Commission today for approval. When it is approved, we will issue an appropriate press release and related 8-Ks with more of the details of what is included in that final decision. I think it is fair to say from Greg’s perspective managing our rates department and Jim’s perspective as our CFO, we are very happy with the outcome and look forward to getting the rate case wrapped up and moving on with our plans for 2026. Moving on to slide 12, just a quick update on where we are with our Nexus project. As you may recall, we announced that we reached an agreement with Nexus to acquire their Nevada and Oregon operations. We have continued to progress very well working with Nexus. They are a great company to work with. We did file our change of control applications with both the State of Oregon and the State of Nevada. The State of Nevada has a six-month statutory decision timeline. Oregon does not. We are hoping the two will stay on track around the same time, and we could drive to close these transactions as early as by the end of the year. In the interim, the subject matter experts continue to work very well together, and we are mapping their processes into our systems. I have also had the pleasure of visiting all the sites in Oregon and Nevada and am very happy to say I was very pleased with all the employees that I met with. They are very professional and very sound operators, as well as an outstanding management team. In addition, since we last talked, I have had meetings with all the commissioners in the State of Oregon as well as the commissioners in the State of Nevada and their staffs. Those meetings have all gone well. When we conclude this acquisition of the Nexus assets, essentially, it will give us almost 100 thousand connections outside of the State of California in total, which is about 20% of our total connections, again diversifying out of California and expanding our footprint on the West Coast. In addition, and I think this is significant and we do not talk a whole lot about it, for those of you that have been with us for a long time, if you remember in 2008 and 2009, we started talking more about water and the wastewater business and recycled water. Back then, we really had one to two wastewater treatment plants that we operated. When we get this deal closed with Nexus as well as BVRT final buyout of the minority interest, we will have over 24 wastewater plants that we will be operating in the western half of the U.S. I think that shows our diversification out of California into wastewater and water, which I believe will play a very important role for water in the western half of the United States. Looking at slide 13, on the BVRT slide, we did file the change of control application with the Texas Commission. That is on file with them. In addition, we added another 210 connections to our existing system. We are waiting for the Texas Commission there as well, and then we will close on the minority interest that still remains in GVRT, and then that will become a wholly owned subsidiary of Texas Water Service Company. Moving on to slide 14, we have started officially celebrating our centennial anniversary. I would encourage everyone to take a look at our annual report. Our corporate communications team headed by Shannon Dean did an outstanding job going through “then, now, and next,” which is the theme of the annual report. I am also very happy that we have had over 41 thousand people visit our centennial website, which has a lot of information about the company, the rich history of the company, and how we grew from the idea that started with three World War I veterans to being a multibillion-dollar company that we are today. If you are interested in that site, I encourage you to look at it at 100years.lwatergroup.com. In celebrating our 100-year anniversary, we have scheduled a number of events throughout the State of California that include both employees as well as local officials. We held our first one in Bakersfield. That was a big success. We will have another one in Southern California in June. The overall goal of the program in celebrating this at a regional level is it allows us to increase awareness of the company’s track record among our local communities and our public officials that we are allowed to serve. In addition to getting people together to celebrate our success, we also are getting a lot of proclamations and resolutions, for example, from the Speaker of the California State Assembly, the City of Visalia, the City of Chico Chamber of Commerce, the Central Valley Asian Chamber of Commerce, and the San Joaquin Hispanic Chamber of Commerce, and there is more to come. It is fun to be out there talking about 100 years of service and reflecting on where we started to where we are today. We will now open the call for questions. Yami, let us open it up for our Q&A, please, for the guests on the call. Operator: Thank you. You will need to press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of an Analyst with Baird. Your line is open. Analyst: Hey, good morning, Jim, Greg. Good morning, guys. Thank you so much for the time, and I appreciate all the information here. Two questions for me, maybe a PFAS question and then a balance sheet question. I will start with the EPA talking recently about microplastics and potentially regulating some other substances outside the initial PFAS guidelines. Do you have any early thoughts on this, and specifically, might these be treatable within your current plans, or would this require further capital investment beyond what you have already laid out? Martin A. Kropelnicki: Good question, David. Some of you have heard me talk about UCMR, which is the Unregulated Contaminant Monitoring Rule list that the EPA publishes, and they update that list every so many years. If you really want to see what is coming down the pipe—no pun intended—on water regulation, you want to monitor that UCMR list, and microplastics have shown up and evolved on that list. It is certainly a hotter topic at the EPA right now, and it is something that is in water supply. You will likely see regulations established and an MCL to make sure there are no microplastics in the water. There is more to come from the EPA on that. Obviously, they go through a scientific process and come up with standards. Those standards get handed off to the states, and the state Departments of Health are responsible for implementing those standards at the state level. I believe we will ultimately have a standard on microplastics. I do, and I think as a society we have gotten a lot better at not putting microplastics into the ground or into the ocean. I think that part of it is improving, but I do think at some point we will have a standard that will evolve that we will have to treat for. As part of that process, the EPA will also talk about the appropriate methods and techniques to treat water that has microplastics in it. I think it is uncertain right now whether or not the current treatment that we are putting in place for PFAS will be effective for microplastics, and that will depend largely on the EPA. Analyst: Super helpful, thank you. Maybe then just turning to balance sheet. I appreciate all the comments on liquidity and available credit, but could you talk a bit about how you are thinking about equity issuance and capital needs more broadly throughout the balance of the year? James Lynch: I think—we feel very confident that we will be successful in closing both BVRT and the NexSys acquisitions in Nevada and Oregon. That will be incremental to our normal cadence of debt and equity issuances. We will take a look at the timing on when we anticipate that is going to occur and determine the most efficient way to approach the capital markets to fund those transactions when the time comes. There are some interesting instruments out there relative to forwards that will allow us to time it closer to minimize any dilution that could occur in terms of the difference between the time we raise the equity and the time we actually close the transactions, so we will be looking into that. We believe when the transactions close, it would likely occur towards the end of the year, and that is when I would look to raise the capital for those. Otherwise, we would continue to rely on our ATM and our normal lines of credit taken out by longer-term debt as we work through our capital programs and fund our other capital needs. Once again, everyone— Martin A. Kropelnicki: Jim, if you do not mind me jumping in, Dave, it is probably worth mentioning too—as you recall, we have our PFAS program, which is fairly substantial, and we have a separate application before the Commission that we are waiting to hear on because that will add further pressure on Jim on the capital side. But the flip side is we have been very successful on the litigation side. Just last week, we received another $6.5 million gross from the polluters’ trusts that have been set up. We have recovered about $66.5 million in gross receipts in our recovery process going after polluters, which nets us just about $50 million. That $50 million will be a direct offset to our PFAS program and help keep those costs lower for our customers. So we are approaching 20–25% of those estimated PFAS costs being covered through our legal efforts, and our legal team continues to do a very good job leading our industry efforts at getting recovery on that. That will help a little bit. For some perspective, we initially anticipated two segments of the program: one is treatment and one is well replacement, with our objective to get the treatment in by 2028, and the well replacements will take longer. Of the total amount we plan to spend on PFAS, about $60 million is for the wells and the remainder is for treatment. Analyst: Super helpful detail. I appreciate it very much, and best of luck tonight with the meeting on the GRC. It has been a long road and I am excited to have it behind us. Thank you. James Lynch: Thank you. Appreciate it. Thanks, Davis. Operator: If you would like to ask a question, press star 1 on your telephone keypad. There are no further questions at this time. I will turn the call back over to Martin Kropelnicki, CEO, for closing remarks. Martin A. Kropelnicki: Thank you, Demi. Thanks, everyone, for joining us today. The big thing to watch for moving forward is what happens at the Commission today. We are hoping for approval, and we are very happy with the revised proposed decision that is on the docket for today. As we move into the second quarter, what are we going to be focused on? We have to implement the results of the rate case. While that sounds like an easy task, there is a lot involved in doing that. There is a retroactive piece that goes back to January 1 that Jim and his team will have to work on, and we will give a lot of clarity around that as we wrap up the quarter and have the appropriate disclosures in our financials for our second quarter 10-Q. In addition, there are thousands of table changes that have to take place on the billing cycle with the new tariffs. The rates team, working with our customer service team, the accounting team, and the IT team, will be making those tariff changes and doing the appropriate testing to make sure our tariffs are accurately being billed. Assuming an approval today, we anticipate starting billing the new tariffs on July 1 of this year. In addition, we are staying very focused on our M&A side and really the Nexus transaction and the BBRT transaction, answering the Commission’s questions on the change of control applications, as well as doing all the integration work and being ready to quickly close, integrating those assets onto our platform once approved by the appropriate commission. It is going to be a busy second quarter, and then throw in the 100-year celebrations on top of that. We have a lot going on, but the team remains laser-focused on the tasks at hand. The last thing I want to do before we hang up is note this is Greg Milleman’s last earnings call with us. If you know Greg, he is not a person that wants a lot of hoopla or fanfare, but I could not let the morning go without recognizing his contributions to California Water Service Group. We recruited Greg from Valencia Water in 2013, where Greg served as senior vice president of administration. Believe it or not, we are Greg’s third job out of college. He started off with Arthur Andersen, then went to Valencia Water, and then he joined us. We brought Greg in as a manager of special projects. We were very impressed with him when we met Greg and did not really have a spot for him, but we thought he was a quality hire, a senior hire from within the water industry. Within a year, he was promoted to the director of operations, helping the operations team focus on deploying capital more quickly and more efficiently and making sure that plant is getting into service as quickly as possible. In 2017, he was named the interim director of rates to help lead our rate case efforts. In 2019, he was named vice president of rates for California, and then in 2022, when Paul Townsley retired, he took the helm as our vice president of rates and regulatory affairs to lead our overall rate strategy for all of our operating companies. Greg has only been with us 13 years, and from a Cal Water standpoint, that is not a lot of time—we have many employees with 30 and 40 years of service with the company—but Greg’s impact on the company has been nothing short of amazing. If you look at our rate cases over the decade that he has been with us, we have done the best with our rate cases under his leadership and his team. I would be remiss if I did not take this opportunity to tell Greg thank you and to wish him and Jen all the best in retirement, and we look forward to keeping in touch as we do with all of our retirees. So, Greg, thank you, and with that, Demi, we will wrap it up, and we will see everyone next quarter. Thank you very much. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.
Operator: Good morning. My name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Provident Financial Services, Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. I would now like to turn the call over to Michael Perito, Head of Investor Relations. Please go ahead. Thank you. Michael Perito: Good morning, everyone, and thank you for joining us for our first quarter 2026 earnings call. Today’s presenters are President and CEO, Anthony J. Labozzetta, and Senior Executive Vice President and Chief Financial Officer, Thomas M. Lyons. Before beginning their review of our financial results, we ask that you please take note of our standard caution as to any forward-looking statements that may be made during the course of today’s call. Our full disclaimer is contained in last evening’s earnings release which has been posted to the Investor Relations page on our website, provident.bank. Now I would like to hand it off to Anthony J. Labozzetta, who will offer his perspective on our first quarter. Anthony? Anthony J. Labozzetta: Thank you, Michael. And welcome, everyone. I appreciate you joining us today to discuss Provident Financial Services, Inc.’s first quarter 2026 results. I am pleased to report that we delivered another strong quarter of financial performance, demonstrating the continued momentum of our business and the effectiveness of our strategic initiatives. For the first quarter, we reported net earnings of $79 million, or $0.61 per share, representing solid profitability as we continue to execute our growth strategy. Our annualized return on average assets was 1.29%, while our adjusted return on average tangible common equity was 16.6%. Pretax pre-provision net revenue of $108 million, which grew 13.5% year over year, benefited from higher net interest income and notable growth in contingency income from our insurance platform, Provident Protection Plus. This represents 1.75% of average assets on an annualized basis, compared to 1.61% for the same quarter last year. We continue to focus on our balanced approach to sustaining growth across our business lines while also managing risk appropriately and generating sustainable positive operating leverage. Turning to our balance sheet, our commercial loan team generated new loan production of $649 million in the first quarter, up 8% compared to the same quarter last year. This production contributed to our commercial loan portfolio growth of $161 million, or 3.9% annualized. Commercial and industrial loan activity was particularly strong, growing at a 10% annualized rate. Commercial loan payoffs during the quarter were down significantly to $191 million, and overall, we remain positive about our loan growth guidance for 2026. Our commercial loan pipeline reached a record $3.1 billion as of March 31. This pipeline is well diversified and comprised of $1.3 billion in CRE, $1.1 billion in C&I, $400 million in specialty lending, and $200 million in middle market loans. This is the first time in our company’s history that both the CRE and C&I pipelines have exceeded $1 billion, reflecting the investments we have made in our commercial banking group to generate sustainable, diversified loan growth. Switching to deposits, our total nonmaturity core business and consumer deposits increased $66.5 million during the quarter, or 2.2% annualized. Seasonal municipal deposit outflows and an intentional reduction in brokered deposits during the quarter impacted our total deposit balances, which were down sequentially. Our average noninterest-bearing deposits were relatively stable, and we remain focused on deposit generation strategies to build core deposits in consumer, small business, and commercial verticals. While the overall deposit environment remains very competitive, our focus on relationship banking combined with our expanding digital capabilities and treasury management solutions positions us well to continue attracting quality deposit relationships that support our loan growth objectives. Provident Financial Services, Inc.’s commitment to managing credit risk and generating top quartile risk-adjusted returns remains unchanged. During the first quarter, we experienced net charge-offs of $3.1 million, representing just 6 basis points of average loans. Nonperforming loans increased to 73 basis points of total loans from 40 basis points in the fourth quarter, with the increase primarily attributable to a bankruptcy that impacted four related commercial loans totaling $82 million. I would like to provide additional context on this relationship. These loans have no prior charge-off history and require no reserve allocations due to strong collateral values. Appraisals received in 2026 reflect loan-to-value ratios for the collateral properties of 32.9%, 51.7%, 61.3%, and 81.9%, respectively. We are expecting resolution of these credits by year end. Based on the current cash flow and occupancy rates of the properties and our secured position, we do not foresee a material loss to the bank. Outside of this relationship, we would have seen improvements in all credit metrics during the first quarter, including levels of loan delinquencies, nonaccrual loans, and criticized and classified assets. Shifting to noninterest income, we are pleased with the performance during the quarter. Our Provident Protection Plus insurance platform, in particular, delivered exceptional results in the first quarter, with customer retention rates continuing at approximately 95% and significant year-over-year growth in both new business and contingency income. The strong contingency income we received this quarter reflects the quality of the relationships with our clients and carriers, and the effectiveness of our risk management approach. We are seeing increased collaboration among our insurance platform, the bank, and Beacon Trust, which is creating meaningful cross-sell opportunities and deepening client relationships across our organization. The pipeline in our insurance business remains strong heading into the remainder of 2026, and we continue to invest in talent and capabilities that will drive sustainable growth in this differentiated revenue stream. Beacon Trust remains focused on retaining and growing its customer base, and we are optimistic that the recent hires will help accelerate growth over the balance of 2026. Additionally, we have a strong pipeline for further SBA gain-on-sale over the remainder of the year. Our strong financial performance continues to build our capital position well beyond regulatory requirements. We delivered another quarter with significant year-over-year growth in earnings per share, profitability, and tangible book value, with our tangible common equity ratio ending the first quarter at 8.6%. During the quarter, we opportunistically took advantage of market volatility and bought back $12.4 million of our shares. Having said that, our top capital priority remains unchanged: driving sustained organic growth across our franchise while achieving top quartile risk-adjusted profitability. I am incredibly proud of both the efforts and production of our employees. I would now like to turn the call over to Thomas M. Lyons for his comments on our financial performance. Tom? Thomas M. Lyons: Thank you, Anthony, and good morning, everyone. As Anthony noted, our net income increased 24% versus 2025 to $79 million, or $0.61 per share, with a return on average assets of 1.29%. Adjusting for the amortization of intangibles, our core return on average tangible equity was 16.6%. Pretax, pre-provision earnings were $108 million, or an annualized 1.75% of average assets, a 13.5% increase from $95 million, or 1.61% of average assets, reported for 2025. Despite a lower day count, revenue topped $225 million for the second consecutive quarter, driven by net interest income of $194 million and record noninterest income of $31.5 million. Average earning assets increased by $264 million, or an annualized 4.7% versus the trailing quarter, with the average yield on assets decreasing 13 basis points to 5.53%. This reduction in asset yield was largely offset by a 12 basis point decrease in the cost of interest-bearing liabilities to 2.71%. Interest-bearing deposit costs fell 21 basis points versus the trailing quarter to 2.39%, while total deposit costs declined 16 basis points to 1.94%. While a reduction in net purchase accounting accretion attributable to lower loan payoffs resulted in a 4 basis point decrease in our reported net interest margin versus the trailing quarter, to 3.04%, our core net interest margin increased by 3 basis points to 3.04%. Given the macro developments since the start of the year, we are now modeling no further Federal Reserve rate actions for the remainder of 2026, versus three cuts in Fed funds in our initial modeling. As a result, we are slightly tightening our NIM outlook to 3.40% to 3.45%, inclusive of purchase accounting accretion. We also now expect approximately 3 basis points of core NIM expansion in the second quarter. Period-end loans held for investment increased $144 million, or an annualized 3% for the quarter, driven by growth in commercial, multifamily, and commercial mortgage loans, partially offset by reductions in mortgage warehouse, construction, and residential mortgage loans. Total commercial loans grew by an annualized 3.9% for the quarter. Our pull-through adjusted loan pipeline at quarter end was $1.9 billion. The pipeline rate of 6.24% is accretive relative to our current portfolio yield of 5.85%. Period-end deposits decreased $178 million for the quarter, or an annualized 3.8%. The decrease was driven by seasonal outflows of municipal deposits expected to return in subsequent quarters and a tactical decision to reduce brokered deposits in favor of lower-cost FHLB borrowings. More specifically, the pricing of brokered deposits was notably elevated in March, and we elected to utilize more borrowings at a cost savings of approximately 20 basis points, driving a more favorable impact to our net interest margin. Asset quality remains strong despite the increase in nonperforming loans that Anthony previously detailed, with nonperforming assets representing 58 basis points of total assets. Net charge-offs were $3.1 million, or an annualized 6 basis points of average loans. We recorded a net negative provision for credit losses of $2.1 million for the quarter, as required specific reserves on individually evaluated impaired credits declined, there was modest improvement in our CECL economic forecast, and changes in our portfolio mix warranted lower pooled reserves. This brought our allowance coverage ratio down 5 basis points from the trailing quarter, to 90 basis points of loans at March 31. Noninterest income increased to $31.5 million this quarter, with solid performance from our insurance and wealth management divisions, as well as increased BOLI claims and year-over-year increases in core banking fees and gain on SBA loan sales. Noninterest expense increased to $117.1 million this quarter, reflecting increased compensation and benefits costs and occupancy expense. Expenses to average assets and the efficiency ratio, however, both improved from the prior-year quarter to 1.95% and 52%, respectively. We now project quarterly core operating expenses of approximately $117 million to $119 million for the remainder of 2026, with the run rate in the second half of the year being higher than the first half. As we noted last quarter, in addition to normal expenses, we will be upgrading our core systems in 2026 and expect additional nonrecurring charges of approximately $5 million in connection with this investment, largely to be recognized in the third and fourth quarters. Our continued sound financial performance supported earning asset growth and again drove strong capital formation. Tangible book value per share increased $0.33, or 2.1% this quarter, to $16.03 per share, and our tangible common equity ratio increased to 8.55% from 8.48% last quarter. Common stock buybacks for the quarter totaled $12.4 million and 589 thousand shares, and we have 2.2 million shares remaining on our current authorization. We reaffirm our previous full-year 2026 guidance of 4% to 6% loan and deposit growth, noninterest income averaging $28.5 million per quarter, and core ROA targeted at 1.2% to 1.3%, with a mid-teens return on average tangible common equity. That concludes our prepared remarks. We will now open the call for questions. Operator: At this time, I would like to remind everyone if you would like to ask a question, please press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Your first question will come from Feddie Justin Strickland with Hovde Group. Feddie Justin Strickland: Hey, good morning. Just wanted to start on credit and the senior housing facilities. It seems like you do not really expect material losses there, but can you speak any more to the collateral, location, and the types of senior housing facilities these were or are? Thomas M. Lyons: Yes. They consist of independent living, assisted living, and memory care—no skilled nursing—and minimal exposure to Medicaid. There is strong demand for the properties, which is one of the reasons why we expect to see minimal loss as the bankruptcy gets resolved, in fairly short order, we think. As to location, East Coast. Properties range from $15.1 million to, for our share, $31.8 million as the highest loan amount. LTVs, as we disclosed in the release, go from 51.7% to 81.9%. Probably noteworthy is the highest LTV is actually on the lowest loan amount—that is the $15.1 million credit. More specifically, the properties are in New Jersey, Connecticut, Maryland, and Florida. Regarding fees, I think it is just an acknowledgment of some of the volatility in some of those line items; a piece of that was BOLI income. We do expect to see some seasonality in the insurance business, but we are anticipating continued improvement in the wealth management revenues as well over the course of the year to offset some of that to a degree. On SBA, that will be lumpy as well depending on production and where the gain-on-sale margins are at any point in time, so there may be a little bit of conservatism in that $28.5 million average. On loan accretion, there was a significant reduction in payoffs this quarter, which we actually like to retain the asset. If we are looking for 3 basis points of core margin expansion to roughly 3.07%, we are still anticipating a margin in the 3.40% to 3.45% range for the balance of the year, the difference being purchase accounting accretion. Operator: Your next question will come from Timothy Jeffrey Switzer with KBW. Timothy Jeffrey Switzer: Hey, good morning. Thanks for taking my questions. Really quick follow-up on your comments on the NIM. Can you talk about maybe how a Fed rate cut would impact, not necessarily 2026 numbers, but perhaps 2027? Is it accretive to earnings going forward if we get one or two cuts? And then on your loan backlog reprice, I know you have a good amount of loans over the next year or so. Can you update us on how much there is and what the gap is on new yields versus old? And lastly, could you walk us through some of the benefits and new capabilities the core upgrade from FIS will bring you, and whether there are any new products it will enable? Thomas M. Lyons: It is, Tim. I think consistent with last quarter when we talked, each cut is about 2 to 3 basis points of benefit to us on the current balance sheet. On the loan backlog reprice, the loan pipeline is just under 6.25%, and we still have loans coming off in the mid-5s, so there is some pickup. We have isolated that benefit to the NIM to be about 2 to 3 basis points over the 12-month period. It is about $5 billion in the total loan portfolio subject to repricing, but only roughly 60% of that we get a benefit from because about 40% relates to Lakeland-related portfolio dynamics affecting repricing. Anthony J. Labozzetta: So, Tim, to add a bit more color, the loan pipeline is at about just under a 6.25% rate. We can get you the exact dollar amounts offline, but the general impact to margin is the 2 to 3 basis points Tom mentioned as legacy mid-5% loans reprice toward the low-6% pipeline levels. Anthony J. Labozzetta: On the core upgrade, at a high level we will have more robustness around the lending area in terms of information and data flows. Branch account opening will be much faster and more robust. It also creates the foundation for us to attach other applications through APIs that work more efficiently. The FIS core is much more functional for a more complicated commercial bank that has a lot of verticals, so we can get the full benefit on the current core—those are some of the expected benefits. Operator: Next question will come from Stephen Moss with Raymond James. Stephen Moss: Good morning. Maybe just starting off here on the loan pipeline—looking good—just curious how you are thinking about the pull-through given economic uncertainty. I realize you updated or increased the loan growth guidance, but how you are thinking about those things? Anthony J. Labozzetta: I look at our pipeline, pull-through, and commitments—they are looking good. We are still thinking the guidance is good. We might overachieve the guidance depending on what happens with prepayments and market conditions, but I do not see anything right now, given the geopolitical circumstances, that would affect the guidance we have provided. Depending on prepayments, that will determine whether we can overachieve or come close. It is also a pretty good dynamic at Provident Financial Services, Inc. because of the way growth is distributed—it is very diverse. Just by normal dynamics, without us doing anything and just achieving our pre-loan objectives, we can still see the CRE ratio coming down because of capital build and diversification into other books like C&I, specialty lending, and middle market. That is a pretty good dynamic we are accomplishing here, which is our strategic focus. Thomas M. Lyons: As I indicated in my comments, the pull-through adjusted pipeline is about $1.9 billion. If you do the math, that is about a 60% to 61% pull-through rate. In terms of mix, about 47% is commercial real estate and multifamily, C&I is about 49%, and the balance is consumer at about 4%. Stephen Moss: And then on the deposit side, what are you seeing for competition these days, and how are you feeling about funding cost trends? Anthony J. Labozzetta: Competition is probably more heightened than I have seen in the last bunch of quarters. It is getting tougher not only on the deposit side but on the lending side. We are seeing spreads coming down and creative structures on deposit programs—people waiving fees or certain conditions, and pricing pressure. We are responding. We see good dynamics in our consumer and small business sides. On municipals, we have good RFPs moving into the second quarter. Our focus is to get our regional teams and TM teams more expanded so we can get more scale. We feel good about the prospects, but competition is stronger than I have seen in a while. Stephen Moss: On the reserve, with the CECL move down, should we think of this as a one-time adjustment, or how are your thoughts on where this reserve goes? Thomas M. Lyons: A lot of that is dependent on the forecast going forward. I would not expect material continued improvement in that forecast, given macro events. A big piece was the reduction in specific reserves. We had a really strong quarter for resolutions with very minimal losses. You saw net charge-offs of $3.1 million; about $2.5 million of that was previously reserved for, so no need to replenish those reserves. There are limited specific reserves on the remaining impaired loans that have been identified, and we are very positive on resolution prospects for a number of those credits in the coming quarter. We do not see a lot of loss content in the book overall. We also had some improvement in the portfolio, with construction loans reducing a bit, which required less pooled reserves as well. Overall, 6 basis points of charge-offs—we feel strongly about the quality of our underwriting and our credit quality going forward. Stephen Moss: Following up on the credits with the senior housing—are those nonperformers cross-collateralized? Any chance you have a weighted average LTV? Anthony J. Labozzetta: They are not cross-collateralized. They are in Delaware statutory trusts. The specific LTVs are outlined in the release; they go from 32.9% up to 81.9% on the smallest dollar credit. To give more color, these loans went into NPA not because of cash flow issues but because of the bankruptcy of the holding entity that caused payments to stop. That is why we feel strong about ultimate resolution: cash flows are intact, LTVs are strong, and we just need to go through the bankruptcy process. We feel a resolution can happen this calendar year, with minimal to no loss to us. It is hard to say absolutely no loss, but we think it is going to be a positive resolution. Operator: Your next question will come from David Storms with Stonegate. David Storms: Good morning, and thank you for taking my questions. I wanted to start with noninterest income. It was mentioned in prepared remarks that there has been cooperation between insurance and the rest of the business, helping to drive insurance growth. How much more integration or cooperation could there be here, and how applicable could that be to the wealth segment? And then a follow-up on the efficiency ratio, which has hovered in the low 50s—what appetite or ability is there to keep dialing that lower, and do any of the core updates have a significant impact on that? Anthony J. Labozzetta: We are seeing huge momentum. Insurance revenue grew about 21% year over year. The cross-functional dynamic of working with the commercial bank, Beacon, and the retail side is very integrated. Referrals are tracked, but it has become natural—people are doing it because of the value it creates for customers. There is ample room for continued insurance growth, and our focus is staffing up to support demand. There is still a lot of business within the bank that we can refer across, and the same is happening on the Beacon side—we saw positive flows this quarter and good referrals from the bank and insurance back into Beacon. We need to continue building the Beacon salesforce to handle inbound referrals. It is a differentiated revenue stream we can continue to build. On the efficiency ratio, we are constantly looking for operational efficiencies. A big part of today’s ratio reflects investments we have made in technology and infrastructure over the last several quarters; we are seeing revenue benefits from those investments. We will continue branch optimization and deploy technology tools for efficiency. Expect a “do more with less” approach going forward. I would expect the efficiency ratio to continue to trend down over time, though it will be sawtooth as we invest and then recapture positive operating leverage. Thomas M. Lyons: The new core system will help on efficiency—straight-through processing, onboarding, and automated boarding/closing should reduce manual touch and improve cycle times, supporting lower unit costs as we scale. Anthony J. Labozzetta: Kerry, before we move to the next question, I wanted to respond to the last question to Steve: the weighted average LTV on the four properties is 53%. They are not cross-collateralized, but that gives a sense of the size of the issue. Operator: Your final question will come from Manuel Antonio Navas with Piper Sandler. Manuel Antonio Navas: Good morning. Can you revisit the buyback pace going forward and how it is impacted with greater loan growth in the second quarter? You mentioned being opportunistic—what pricing would get you involved? And could you update us on places on the periphery of your geography where you have added talent or offices and their growth ramps so far? Thomas M. Lyons: The pace will depend on market conditions and our expectations for growth. You saw a significant bump in the pipeline rate, but we believe we have adequate capital and capital formation to continue to take advantage of market conditions when warranted. I do not want to define a specific price. We try to keep the earn-back on buybacks in the low three-year range at a maximum level, but it really depends on our current view about asset generation and capital formation at any point in time. Anthony J. Labozzetta: We have added talent in the Westchester market; down the Main Line in Pennsylvania around the Philadelphia area; and we are adding talent into the Cherry Hill area. As part of our growth strategy, that includes lending and deposit gathering, and we are also moving some of our business partners, like insurance and wealth, into those markets to penetrate further. Our strategic plan contemplates further expansion over time. Operator: There are no further questions at this time. I would like to turn the call back over to Anthony J. Labozzetta for any closing remarks. Anthony J. Labozzetta: Thank you, everyone, for joining the call and for your questions. Before we end, I would like to take a moment to congratulate Thomas M. Lyons. This is his last official earnings call. He has been a great leader here and has done so much for Provident Financial Services, Inc. You have been a great partner, Tom, and you will be missed by me and all of your colleagues at the bank. Thank you, Tom. We look forward to speaking with you all soon, and thank you very much. Operator: Thank you for your participation. This does conclude today’s conference. You may now disconnect.
Operator: Greetings, and welcome to the NWPX Infrastructure, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Scott J. Montross, President and CEO. Please go ahead, sir. Scott J. Montross: Good morning, and welcome to the NWPX Infrastructure, Inc. First Quarter 2026 Earnings Conference Call. My name is Scott J. Montross, and I am President and CEO of NWPX Infrastructure, Inc. I am joined today by Aaron Wilkins, our Chief Financial Officer. By now, all of you should have access to our earnings press release, which was issued yesterday, April 29, at approximately 4:00 p.m. Eastern Time. This call is being webcast and it is available for replay. As we begin, I would like to remind everyone that statements made on this call regarding our expectations for the future are forward-looking statements, and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended 12/31/2025 and our other SEC filings for discussion of such risk factors that could cause actual results to differ materially from our expectations. We undertake no obligation to update any forward-looking statements. Thank you all for joining us today. I will begin with a review of our first quarter performance and our outlook for 2026, and then Aaron will walk you through our financials in more detail. We delivered a strong start to 2026. Net sales were up 19% year-over-year to $138.3 million, reflecting meaningful growth across both our Water Transmission Systems (WTS) and Precast businesses. Our strategy delivered record first quarter consolidated gross profit of $26.7 million, up 38% from last year, with our gross margin expanding 260 basis points year-over-year to 19.3%. That strength carried through to the bottom line, highlighting the operating leverage in our model and continued execution across the organization. We generated record first quarter profitability with earnings of $1.08 per share, and produced strong free cash flow of $25.7 million, or $2.62 per share, reinforcing the strength and consistency of our earnings profile and the resilience of our cash flows. Turning to our WTS segment, revenue reached a first quarter record of $93.5 million, up 19% year-over-year with strong margin improvement. Our performance reflected higher production volume, with tons produced up 18%, supported by strong project execution. This growth came despite adverse weather that caused unscheduled downtime across three WTS facilities early in the quarter. Selling prices were up 1% year-over-year driven by changes in product mix, and we also benefited from favorable project timing across several large water transmission jobs. In addition, we saw one of our strongest booking quarters to date with robust bidding activity and the emergence of a significant previously unplanned project that is under NDA, which will contribute positively to our 2026 result, all of which contributed to a substantial increase in our backlog, reinforcing the strength of demand across our markets. WTS backlog, including confirmed orders, ended the quarter at a record $430 million, up from $346 million at year-end and well above the $289 million level we reported this time last year. Looking ahead, we expect the 2026 bidding environment to be moderately stronger than 2025. WTS gross profit increased 42% year-over-year to $17.3 million, resulting in a gross margin of 18.5%, up 300 basis points from last year. This improvement reflects higher volume supported by strong customer demand, and the related efficiency gains and higher overhead absorption that come with that level of production, favorable product mix, and the overall solid operational execution across the segment. Now turning to our Precast segment. Precast revenue increased 19% year-over-year to a new record first quarter level of $44.8 million. Our performance was driven by a 14% increase in selling prices from a favorable change in product mix, and increased sales volume reflecting continued growth in the nonresidential portion of our business. At Park, production increased 30% year-over-year with strong growth in revenue per yard shipped. Despite borrowing costs that remain elevated as the Fed held interest rates steady in 2026, we are continuing to see signs of improvement in the nonresidential demand trajectory as we progress through 2026, specifically related to data center projects that have been instrumental in buoying the commercial construction demand. At Geneva, production and shipments had solid year-over-year gains of 78% respectively, despite seeing a moderate slowdown in the residential construction market, which has more than been offset by growth in Geneva’s nonresidential business. Leading indicators remain solid early in 2026 with the Dodge Momentum Index up 26% in March versus March 2025. The commercial sector was up 29% and institutional was up 20%, indicating positive signals for nonresidential construction activity this year and into 2027. Our Precast order book ended the quarter at $55 million, down modestly from $57 million at year-end and below the $64 million level at March 31. The Precast order book has remained stable for the last several quarters and continues to keep pace with higher levels of production and customer shipments. Stronger volumes and pricing drove a 30% year-over-year increase in Precast gross profit to $9.3 million, resulting in a gross margin of 20.9%, up from 19.1% last year. These results show that absorption rates are improving with higher throughput. We expect margins to continue recovering as nonresidential demand builds. Now turning to our strategic growth initiatives. As previously discussed, we are making solid progress expanding Precast capabilities across our network. We are also looking at where it makes sense to bring Precast into additional WTS facilities through our product spread strategy, which remains an integral part of our long-term growth plan. As part of that endeavor, we are seeing better capacity utilization at our Precast plants, strong momentum at our Geneva operations in Utah, and steady progress as we introduce Park and other Precast-related products into more WTS locations. At the same time, we continue to evaluate M&A opportunities in the Precast-related space that can accelerate our strategy, expand our manufacturing capabilities and efficiencies, and broaden our geographic reach and product portfolio. Consistent with this approach, we are looking at both single-plant acquisitions and larger opportunities that can support long-term growth and help us advance our Precast expansion. As previously announced, we completed the acquisition of Bouton Precast, a single-site producer in the high-growth Pueblo, Colorado market during 2026. The integration is off to a strong start and we are encouraged by the long-term growth potential we see in the Colorado market. I will now turn to our outlook for 2026. In our Water Transmission Systems segment, we expect higher revenue and margins compared to both 2025 and the prior quarter, driven by more favorable volume and product mix and the emergence of a significant previously unplanned project. We entered 2026 with a robust WTS backlog and elevated bidding levels, and both strengthened further in the first quarter, providing even greater visibility into near-term demand. Based on what we are seeing today, we expect full-year bidding levels to be stronger than what we saw in 2025 and we expect backlog to stay elevated throughout 2026. We remain encouraged by the level of activity across current and upcoming water transmission projects, which continue to come with improved economics and margins. For a more complete view of these projects, please refer to our investor presentation on our website. Turning to Precast, we maintained a stable and healthy order book in 2026 and we expect a stronger year for the Precast business overall. Demand remains healthy in the nonresidential market, supporting continued momentum across our Park and Geneva platforms. For the second quarter, we expect Precast revenue to be higher than the second quarter of last year and the prior quarter with stable margins driven by solid demand, higher production levels with improved absorption, and a strengthening order book. On a consolidated basis, we expect the second quarter to be stronger than we have seen in recent years. We believe 2026 is shaping up to be a historic year for NWPX Infrastructure, Inc. Continued momentum in our Precast business combined with strong bidding activity in our WTS business is indicating the potential for another record year. In addition, the significant previously unplanned WTS project noted earlier is additive to what we already expect for a record year. In closing, I am very pleased with our results, which set new first quarter records across nearly every metric. Our teams delivered exceptional execution throughout the quarter, and I want to thank everyone at NWPX Infrastructure, Inc. for their commitment to our strategy and to maintaining a strong safety culture. With the WTS backlog that is stronger than ever, a healthy bidding environment, and solid momentum in our Precast order book, we feel well positioned to carry this performance forward and continue building on the progress we have made across both segments. As we look ahead, our near-term priorities remain: one, maintaining a safe and rewarding workplace; two, focusing on margin over volume; three, intensifying our pursuit of strategic acquisitions; four, implementing cost efficiencies across the organization; and five, returning value to our shareholders when M&A opportunities are limited. I will now turn the call over to Aaron, who will walk through our results in greater detail. Aaron Wilkins: Thank you, Scott, and good morning to everyone joining the call today. Before I begin, I would like to mention that unless otherwise stated, all financial measures in my remarks refer to 2026, and all comparisons will be year-over-year comparisons versus 2025. I will begin with our profitability. We delivered record first quarter consolidated net income of $10.5 million, or $1.08 per diluted share, up from $4 million, or $0.39 per diluted share, reflecting the improving operating leverage on higher revenues and the continued strength in execution across the business. On the top line, consolidated net sales grew 19.1% to $138.3 million from $116.1 million last year. Our Water Transmission Systems segment also posted a record first quarter, with sales rising 19.1% to $93.5 million versus $78.4 million. This growth was driven by an 18% increase in tons produced due largely to project timing and a 1% improvement in selling price per ton due to product mix. Precast delivered a record first quarter as well, with sales up 18.9% to $44.8 million compared to $37.7 million. The results benefited from a 14% increase in selling prices due to product mix and a 4% increase in volume shipped. As a reminder, the products we manufacture are unique, and the average sales prices for both of our operating segments, as well as the Precast shipment volumes and WTS production volumes, cannot always be relied upon as comparable metrics due to variations in the mix between periods. We also achieved record first quarter consolidated gross profit supported by higher volume and favorable pricing and mix. Gross profit was $26.7 million, up 37.7%, representing 19.3% of sales, a 260 basis point improvement from $19.4 million or 16.7% of sales. In Water Transmission Systems, gross profit increased 42.3% to $17.3 million, or 18.5% of segment sales, a 300 basis point improvement from $12.2 million or 15.5% of sales. The increase reflects higher production volume and the associated operational efficiency gains, as well as favorable changes in product mix. Precast gross profit also reached a record first quarter, rising 30% to $9.3 million or 20.9% of segment sales, compared to $7.2 million or 19.1% of sales. The 180 basis point improvement in gross margin was largely driven by higher selling prices tied to product mix. Selling, general and administrative expenses were $14 million, up 1.5%, and represented 10.1% of net sales, a 180 basis point improvement from 11.9% of net sales a year ago, even with modest increases in incentive compensation expense. For the full year 2026, we now expect consolidated SG&A to range between $53 million and $55 million. Depreciation and amortization expense was $4.8 million compared to $4.4 million, and we continue to expect a full-year expense of approximately $20 million to $22 million. Interest expense declined to $0.3 million from $0.6 million, reflecting lower average daily borrowings. Income tax expense was $2 million, resulting in an effective income tax rate of 16% compared to $1 million or a rate of 19.8% last year. The effective rates for both quarters were primarily impacted by tax windfalls recognized upon the vesting of equity awards. Our tax rate can vary based on the level of total permanent differences relative to pre-tax income. For the full year, we currently expect an effective tax rate of approximately 24% to 26%. I will now turn to our financial condition. At 03/31/2026, cash and cash equivalents improved to $14.3 million from $2.3 million at year-end. Our debt balance totaled $10.7 million, and there were no outstanding borrowings on our credit facility at March 31. This resulted in a net cash position of $3.5 million as we continue to drive cash to the balance sheet to support our growth and shareholder return priorities. Our improved profitability, coupled with favorable changes in working capital, drove strong net cash provided by operating activities of $29.2 million, reflecting a more than 500% increase from $4.8 million last year. Capital expenditures were $3.5 million compared to $3.7 million last year. For the full year 2026, we continue to expect CapEx in the $20 million to $24 million range, including approximately $6 million for investment projects to support our Precast product spread strategy and broader Precast growth initiatives. As a result, we generated $25.7 million of free cash in the quarter compared to $1.2 million last year. For 2026, we are raising our full-year free cash flow outlook to $50 million to $56 million, up from a prior range of $40 million to $46 million. In terms of capital deployment for the quarter, we spent $8.9 million to complete the purchase of Bouton Precast, repurchased approximately 33 thousand shares of our common stock at an average price of $67.17 for a total of $2.2 million, and repaid $1 million in debt. These activities highlight our ability to continue to grow NWPX Infrastructure, Inc. while concurrently returning value to our shareholders. To close, we delivered a strong start to the year, with first quarter records for revenue under the current configuration, gross profit, and earnings. We also generated very strong free cash flow, further strengthened our balance sheet, and remained disciplined in our capital deployment. Our record Water Transmission Systems backlog and our solid Precast order book, coupled with the commercial team’s focus on pricing and our track record of superb operational execution, position us to achieve new heights in financial performance as we move through the remainder of 2026. Thank you to our employees for their continued concentration on workplace safety and to our shareholders for their continued support. I will now turn it over to the operator to begin the question-and-answer session. Operator: We will now open the call for questions. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question today comes from Julio Alberto Romero with Sidoti & Company. Julio Alberto Romero: Thanks. Good morning, Scott and Aaron. Scott, I appreciate the significant previously unplanned project is under NDA, so to the extent that you can, could you maybe help us understand, at a high level, how additive the project is to your 2026 outlook? Does it go beyond 2026, potentially to 2027? And then secondly, should we think of this as kind of a one-off, or does it have the potential to lead to additional phases or repeat business with that customer? Scott J. Montross: Yes, and like you said, we are under NDA. It is a government-related project. It is being produced at multiple of our plants. What I would tell you is it looks like this piece of the project, because there are, from what we understand, multiple other pieces of this project as we go forward into the future, is right in the area of about $50 million. The real question is it is a relatively short-fuse job that is scheduled to be produced in the late second quarter, third quarter, going into about the mid-fourth quarter of this year, and that segment is expected to be done. I think one of the challenging things right now is there is a little bit more of a question on how quickly you can get all the steel to do it, so there is a potential that some of it could leak into next year. But the understanding we have of these projects is there are multiple phases that are planned right now that go out into the future that could be additive to other years as we go into the future, and I think that is probably as clean of a look as I can give you, Julio, on the thing. Julio Alberto Romero: Absolutely. I really appreciate the color you gave with that answer. On your cash flow in the quarter, it was very strong, and it looks like your net contract asset position improved pretty meaningfully, driven by contract liabilities. Can you give us any more color on what drove that increase, and is it tied to that project, or any other larger WTS projects? Aaron Wilkins: Yes, hi, Julio. The cash flows for the business obviously can be a little bit challenging to forecast because they can at times be a little lumpy, which is normal. Really what happened, and what continues to be a focus for our Water Transmission Systems commercial teams, is to drive what I call special billings—trying to get the steel billed in advance of the project, get MOH payments and progress payments throughout the job. That is something that over the span of the last three years we are seeing growing success at. It is still negotiated individually with specific customers, but we are able to do that more often than we used to be able to do it. What happened was we had a $20 million collection on one of those special billings come in in the month of February or March. You will notice that our accounts receivable remains elevated, which means that we are still doing a great job of billing customers. That is because we have, also on a completely separate job, billed another customer for a little over $20 million, and that has since been received. The business model really has been driven to get the cash flows as a focus, and that is why, in part at least, I raised our guidance range for free cash for 2026. I think we are going to be more successful. I think there are more opportunities for the WTS team to do these special billings in the year compared to 2025, which was also a very successful year, by the way. And I think that the new job that Scott just talked to you about, those two elements were worthwhile for raising the range so quickly into the year. I will tell you, though, Julio, the thing that could still come, depending on the success—there is always timing, right? You could always be paid on January 1 for something that really was attributed this year, which is why I may be a little bit gun-shy. But it is very possible that cash flows could go up another clip of $10 million or more in the ranges to be broadcast in the future. So it is not unheard of to think of $60 million or more of free cash this year for the company. Julio Alberto Romero: Understood. Very helpful there. And one more for me: you have record backlog of $430 million in WTS, including confirmed orders. Can you help us think about where your capacity utilization stands for that segment, and would you be able to take on additional work from here? Scott J. Montross: Yes. We can take on a lot more work than we have right now with the capacity we have spread across the country in our plants. We would need to move stuff between plants, but we have plenty more room to take on additional work as we go forward. Capacity utilization—if we are much over probably 70% or 72% in the Water Transmission Systems business—that is probably about a high point for us at this point. You can obviously add additional shifts too if we need to, which we do at certain plants at certain times when it is busy enough. So yes, we have a lot more room to produce a lot more, Julio, and are ready to do so. Julio Alberto Romero: Excellent. Thanks for all the color, and best of luck. Scott J. Montross: Thank you. Thanks, Julio. Operator: As a reminder, if you would like to ask a question, please press star 1 at this time. We will pause for just a moment. At this time, there are no further questions. I would like to turn the call back over to Scott J. Montross for closing remarks. Scott J. Montross: I would just like to wrap up by saying thank you to everybody for joining the call, like always. We delivered a very strong start to 2026. I think we are at a point now where we can say that NWPX Infrastructure, Inc. is hitting on all cylinders with the things that we are seeing. The bidding, outside of the project that is under NDA, in the first quarter in Water Transmission was probably the strongest we have seen, and really probably the strongest booking quarter that we have ever had on the Water Transmission side of the business. So we have significant momentum going forward on the Water Transmission side. On the Precast side, again, we are seeing a lot of work around data centers. Data centers are one of the things that are really buoying the commercial construction side of the business now, and the two states that we are in on the Precast side—primarily in Texas and in Utah—are very strong data center centers. I think there are something like 140 projects going on in Texas that we are taking part in, and other projects going on in Utah, which is becoming more of almost a giga site for data centers where there are really large ones being built. Even with a little bit of the slowdown that has been discussed in the press on the residential side of the business, we are still seeing very strong Precast business, and where we have seen slowdown on the residential side—for example, at our Geneva business—that is being picked right up on the nonresidential side, and the Precast business continues to grow. The biggest thing is we continue to advance our strategy going forward with both organic growth and M&A; we are going to continue to do that. We expect a strong second quarter. When we looked at the projections for 2026, even before we had this special project come forward, we were projecting another record year and stronger than 2025, and this big project is just additive to that. We are hitting on all cylinders. We appreciate your support as shareholders and our analyst support. Thank you, and we will see you in late July. Operator: Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.