加载中...
共找到 17,823 条相关资讯
Operator: Greetings, and welcome to the NOG's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Evelyn Infurna, Vice President, Investor Relations. Thank you. You may begin. Evelyn Infurna: Good morning. Welcome to NOG's First Quarter 2026 Earnings Conference Call. Yesterday after the close, we released our financial results. You can access our earnings release and presentation in the Investor Relations section of our website at noginc.com. We will be filing our March 31, 2026, 10-Q with the SEC within the next few days. I'm joined this morning by our Chief Executive Officer, Nick O'Grady; our President, Adam Dirlam; our Chief Financial Officer, Chad Allen; and our Chief Technical Officer, Jim Evans. Our agenda for today's call is as follows: Nick will provide introductory remarks followed by Adam, who will share an overview of NOG's operations and business development activities, and Chad will review our financial results. After our prepared remarks, the team will be available to answer any questions. Before we begin, let me remind you of our safe harbor language. Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward-looking statements. Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and free cash flow. Reconciliations of these measures to the closest GAAP measures can be found in our earnings release. With that, I'll turn the call over to Nick. Nicholas O'Grady: Thank you, Evelyn. Welcome, and good morning, everyone, and thank you for your interest in our company. I'll be very brief this quarter by highlighting 9 key points. Number 1, business activity remains stable with few observable changes since we last reported. Number 2, potential changes to activity in 2026 remain a TBD for us as the effect of the Iran war is only now going to be potentially seen in AFE activity. We will update our investors accordingly throughout the year. Number 3, the higher long-dated pricing stays, the more likely we see a sustained change in activity, especially as we head into 2027. Number 4, in the meantime, we've seen a reversal of curtailments in the Williston, and this will drive better capital efficiency throughout 2026. Number 5, it was a banner first quarter for our ground game with an incredible 41 deals done, while overall capital remains controlled. Number 6, the current geopolitical storm is showing some key benefits and a few negatives to the business. We are seeing wide swings in oil differentials, which are likely benefiting our realizations materially, some in the Permian, but particularly in the Williston. On the gas front, Permian production remains hamstrung by limited takeaway for the time being, but we remain financially well insulated with significant basis hedges at less than $1 off Henry Hub. Number 7, our leasing program remains materially underappreciated as through this effort, we've added over 70 net locations in the last year. Free cash flow yields aren't free when comparing us to peers that are just depleting away their inventory. Number 8, while all eyes are on Iran and the wide swings in spot prices, it is the longer-dated strip that matters. The improvement in the 2027 and 2028 strip are what drive growth in undeveloped activity and in asset prices, and these improvements should help stabilize activity going forward, lubricate the M&A market, reduce bid-ask spreads and drive up our competitiveness. We have several exciting large-sized package prospects in evaluation and more coming as the M&A market heats up. The backlog has improved in both size and quality, which is highly encouraging for our business model. Number 9, regardless of what happens in Iran, we believe things have been set in motion that will materially improve the long-term strip's outlook, absent significant economic turmoil. That bodes well for activity, acquisitions and for our investors. Given our hefty free cash flow generation despite adding inventory, our improved balance sheet and our reputation in the marketplace, there is a huge opportunity for our business to find meaningful growth paths. Again, thank you for your interest in our company. We remain focused on growing our enterprise the right way, and as always, our company run by investors for investors. With that, I'll turn it over to Adam. Adam Dirlam: Thank you, Nick. As a whole, Q1 activity was in line with expectations. Production was strong, particularly in Appalachia, where we continue to see promising results from our growing asset base and with our Q1 program right on plan, showing strong IPs. The Williston also outperformed as multiple operators contributed meaningful return to sales volumes from prior curtailments, along with performance gains from recent IPs. Uinta and Permian rounded out the quarter with performance in line with expectations. We ended the quarter with 43.7 net wells in process and 9.2 net AFEs, with the Permian representing roughly 1/3 of our wells in process and approximately 60% of AFE inventory. Well proposals have held steady at 216 consents, squarely in the 200 to 230 range we saw throughout 2025. And based on our conversations with operators, our forward activity view is unchanged from what we laid out on the fourth quarter call. However, the next few months will be instructive for activity changes as it pertains to the expectations for the remainder of the year and 2027. On the ground game, we set a new quarterly record with 41 transactions in Q1, adding over 5,100 net acres and 6 net wells. Our Appalachian leasing program continues to perform well, but we were also able to close deals across all of our respective basins. Most transactions occurred early in the quarter ahead of rising commodity prices, and our pipeline continues to deliver as we diligently evaluate opportunities. Our ground game will stay central as we leverage NOG's proprietary infrastructure to grow our portfolio through smaller acquisitions and evaluate further joint development opportunities. Larger M&A opportunities have also picked up, and we are evaluating over $10 billion in assets across 8 transactions that are currently in the market. As expected in this environment, there is a fair amount of variability in asset quality, but it has been encouraging to see higher quality assets coming to the forefront. Given the consistent number of opportunities afforded to us, we remain discerning and, as always, will prioritize packages that are resilient in any commodity environment and those that create long-term value. With that, I'll turn it over to Chad. Chad Allen: Thanks, Adam. In the interest of time and to avoid repeating standard financial metrics available in our release and presentation, I will focus my comments on the overall performance drivers and outlayers encountered in the quarter. Our first quarter financial results and production cadence were largely in line with internal expectations with no major disruptions. And despite the persistent macro volatility faced by the industry, NOG's diversified and scaled platform continued to deliver, outperforming internal estimates on production and EBITDA for the quarter. First quarter total average daily production was over 148,000 BOE per day, up 6% sequentially, a record for our company. Our oil-to-gas ratio was an even 50-50 split as our Appalachian JV reached its peak in terms of well deliveries. GAAP net income was impacted by 2 noncash items. The first was a noncash mark-to-market loss on derivatives of approximately $521 million, which was the result of a huge run-up in oil prices during the quarter due to the war in Iran. Hedges settled in the quarter was only $17.6 million loss, comprised of an $11 million gain in natural gas hedges, offset by a $28 million loss on our oil hedges. The second item impacting net income was a noncash impairment charge of $268 million. As we have discussed on prior calls, NOG accounts for its assets under the full cost method as opposed to the successful efforts method, which does not perform historical price-based asset test. We are one of the only companies among our peers that utilize the full cost method. I should mention, given the recent change in oil prices, if they stay at current levels, this should be the last impairment charge for the year. We also continue to evaluate a potential shift to successful efforts longer term to avoid such optics. Moving on to pricing. Natural gas realizations have continued to be weak in the first quarter, coming in at 72% of benchmark prices, reflecting ongoing Waha market weakness due to constraints in the Permian. We expect gas realizations, specifically in the Permian to remain weak for at least the next couple of quarters until planned infrastructure projects come online in the back half of 2026. I do want to point out that inclusive of our Waha basis hedges, our gas realizations in the Permian were 53% or $1.86 per Mcf versus a negative 1% or negative $0.02 per Mcf that are included in our corporate gas realizations. So we are well insulated from a risk management perspective for the rest of the year. CapEx in the quarter, excluding non-budgeted acquisitions and other was $270 million, which includes the success we had in our ground game. The $270 million of capital was very balanced with 31% to the Permian, 27% to Appalachia, 24% to the Williston and 17% in the Uinta Basin. Approximately $227 million of the total spend in the quarter was allocated to organic development capital. We still expect CapEx cadence to track at approximately 60-40 split between the first half and the second half of the year, subject to change with activity behavior from our operating partners. After closing our joint Utica acquisition during the quarter, we exited the quarter with debt well within our comfort zone and our balance sheet remains in a healthy spot. Our leverage and liquidity were further enhanced by the nearly $230 million equity offering we completed late in the first quarter. We currently have over $1.2 billion of liquidity available to us with an additional $175 million of untapped liquidity. And given all the work we've done on the maturity wall last year, we have plenty of runway to execute for years to come. With respect to our 2026 guidance, we have not made any updates given the significant level of volatility in commodity prices, our industry and in the macro generally. Directionally, we are currently trending towards the higher end of the low activity scenario we laid out last quarter, but we still got a wide range of potential outcomes for the year. I'd anticipate that we'll be able to start tightening those ranges and narrowing our 2026 guidance by our second quarter call. That concludes our prepared remarks. Operator, please open up the line for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: Nick, my first question is just on incremental activity. Specifically, you all mentioned in your prepared remarks and release that you suggested operator activities remained flat. But I'm just wondering, based on your recent conversations and what you've seen sort of happened historically, both in this period and prior, what in addition to the 12 months now surpassing $80 do you think has to happen in order to see what I'd call more sustainable change in activity? And if -- when and if this happens, do you believe it occurs sort of equally in your Bakken, Permian and Uinta plays? Nicholas O'Grady: Yes. Thanks, Neal. Good morning. I'd say this, one, when you think about our original guidance, it didn't contemplate a war, right? And so it really -- it comes into the fact that we're seeing obviously a huge surge in short-term prices and a decent surge in the long-term strip. But because it's being driven by geopolitical things, I think you're seeing a little bit more caution than you normally would from operators. One of the reasons we haven't made any substantive changes to guidance just yet is just that there is a lag factor, which is that I do think, and as I mentioned in my prepared comments, it's likely that we will see an increase in activity over time. And that's really going to be driven by the long-term strip. The average spud to sales time is -- it can be faster, but I'd say, on average, it's sometimes around 150, 160 days. And so when you're making that decision today to pick up a rig to drill an additional pad, you're not capturing $100 spot oil, right? You have to make those decisions based on the future. And I think nobody from our operators, they don't want to have egg on their face and commit to a bunch of new activity, sign up a bunch of stuff and then have some resolution in the Gulf and suddenly, they feel like they're falling on their face. That being said, as we continue to draw oil out of storage, I think what's inevitable is that the long-term strip is going to have to reflect that, right? And so it's around $70 on a 2-year basis today. I think the reality is that's probably enough in order to certainly incentivize activity, M&A, all those sort of things. But I think you may see it creep higher just to really give people a buffer to ensure they can feel good about making those investments because that's really what drives that. For us, I think, frankly, just right now, what happened in early March really only starts to affect us right now, and we're really just asking for some grace to really see over the next several months of how this plays out. I do -- but I do think -- look, I think we've talked about this from a guidance perspective. I think we're certainly confident in the high end of the low end. And then I think from there, I think we just want a little bit more time in order to narrow that band. But I think we'll certainly get it done by, call it, the second quarter. Neal Dingmann: That's more than fair. And then my second question, just on -- typical on capital allocation. Specifically, I know talking to some of the operators, they seem to simply look at oftentimes just sort of mid-cycle pricing assumptions as what I'd call a primary driver between deciding if you're just leaning into share buybacks or more, I guess, ground game and M&A. But again, you all seem unique because you seem to have more ground game opportunities than most. So again, I'm just thinking, when it comes to capital allocation, is it simply looking at a mid-cycle price and how cheap your shares are or versus a ground game return? Or what's involved in that? Nicholas O'Grady: Yes, that's right. I mean I think what I'd tell you is that we have to manage a bunch of things, right, which is that like, at the end of the day, a share buyback is a high return proposition, especially when prices were low, and we did do some buybacks at the end of last year. But I'd also tell you that one of our goals as a company, one of the long-term goals is you really have to -- you have to grow your business over time, and it's not what a share buyback does where you just now own more of the same thing. And so ultimately, the opportunity when prices are low countercyclically to acquire assets, which is why we were really so busy in January and February, ultimately can provide some of the best long-term value when you talk about that mid-cycle. I mean, I think oil was $57 in January or February, right? That's certainly below what we would view as a mid-cycle oil price. And so anything you're acquiring during that period of time is likely to deliver a really high return, as do buybacks. And I think it can all be part of the mix, but it's really about that balance. Operator: And the next question comes from the line of John Davenport with Johnson Rice. John Davenport: So from the previous quarter, you guys kind of beat on natural gas pricing, specifically in Appalachia. I was just curious if that's going to be an ongoing trend both for next quarter and the second half of the year? I know the strip for natural gas hasn't looked all too strong in the past couple of months. So just curious what your thoughts are on that. Nicholas O'Grady: Yes. Yes. Well, as a 2-stream reporter, it's a little bit different, right, because our NGL yield is in there. So what I would tell you is that, as it pertains specifically to Appalachia, certainly -- and some of our Appalachian gas is getting kind of on-water NGL prices, right? So we're certainly getting a huge benefit there. Appalachian differential is the bulk of our prices at M2 and M2 has certainly been better. I mean it's one of the few basis areas where we're actually losing money on our hedges. So M2 has been sort of tighter and it appears even it obviously tends to dip seasonally, but it's certainly been better than what the averages have been for the last several years. And so we're definitely seeing an improvement there. In terms of our overall differentials, I think Chad talked a little bit about this in guidance, but I would tell you that we're seeing likely significantly better-than-expected oil differentials, which is really the biggest driver to our revenue given it's about 80% of our revenue. And then we're seeing, in aggregate, worse gas differentials, and that's 100% driven by Waha pricing. At the financial level, it's not having as much of an effect at the bottom line because of our hedge position. But at the end of the day, at the actual spot realizations, I think there's probably downward pressure in the short term. Obviously, I'm not -- I think there's something like 4 Bcf a day of expansions going on in the Permian. So I think it certainly will improve from some of the doldrums we've seen in April, but that's going to take some time this year. John Davenport: Okay. Yes. Perfect. And I was also curious, you mentioned you are evaluating, call it, $10 billion in potential large M&A transactions. Curious where -- what the locations of those might be along with -- just give us some characteristics that you guys are looking for on those opportunities. Nicholas O'Grady: I'll set the table, I'll let Adam finish it, but I'd say this, one, it's been -- and consistent with the last several years, it's definitely more diversified. There's some stuff all over the place. And as our capabilities have expanded, obviously, we've seen more than we ever have from, call it, Canada to every single subbasin in the U.S. What I would tell you is that we are seeing -- typically, people are willing to sell PDP latent properties even in low price environments, especially in the days of ABS and things like that, where they view they're getting relatively good prices for them. When the long-dated strip was $57 coming into this year, people -- that -- if you think about a DCF exercise, that's what drives the value of undeveloped inventory. And so assets with strong undeveloped inventory, which are the characteristics we're looking for, really, we're starting to dry up on the oil side. That has obviously inverted completely. We're seeing higher-quality Permian assets in particular, coming to market. And so I think, for us, you are right now at a little bit of a -- it might seem counterintuitive given how high spot prices are. But with the strip closer to what we would view as a mid-cycle price today, it really does help the long-dated M&A. And so my point would be, if oil prices went from $100 to $75 in the spot market today, it's not going to have as much of an impact on the value of those assets versus that long-dated stripping to here. Adam, I don't know if you want to add to that? Adam Dirlam: That's right. I mean I think the biggest difference that we're seeing between kind of 2025 and where we stand today has been kind of a pivot from the gas-weighted quality assets that we were looking at last year to more of the oil weighted, which is obviously expected. I think you've got a number of operators post consolidation now starting to kind of socialize their assets. You've got private equity groups that are obviously taking a look at the strip and coming to market. And so based on my prepared remarks, you're certainly seeing a fair amount of variability, but the quality is starting to improve, especially on the oil side. Operator: And the next question comes from the line of Paul Diamond with Citi. Paul Diamond: I just wanted to quickly touch on you guys hedge book. Looking forward to the curve and the big -- I guess, big bug of swaps you guys hold, how should we think about any strategic shifts for the rest of the year given the volatility, and as you said before, the war that no one expected? Nicholas O'Grady: Yes. I don't think that you'll see much in terms of fireworks in terms of the swaptions. We don't really have that many swaptions remaining this year to be candid. And what few ones we have will either be exercised or roll forward. But I wouldn't expect any major shifts to our hedge book specifically for this year. And then for next year, we've started hedging, Paul, but not in a significant action at this point. And I think it's just -- we're just trying to be patient as we go through the -- we really want to see the conclusion of what happens in the Middle East before we really make a call on 2027. Paul Diamond: Got it. Makes perfect sense. And then as you guys talked about the net wells in process, the current split is I guess third Permian, third Williston and then split even otherwise. Any reason to think with what you see in that range right now that, that shifts? Or is that kind of -- should we think about that as more locked in for the next year or so? Nicholas O'Grady: Being an expert, I'll leave it to you. Adam Dirlam: Yes. I mean, I guess what I would be looking towards is probably more like the election activity, right? And so if you look at that, you're seeing about 2/3 related to the Permian and you're starting to see a fair amount of Williston acceleration as well. And so I would expect kind of the Permian and the Williston to be the front runners. Obviously, we've got a fair amount of activity in Appalachia, and that will also be dependent on, obviously, the transaction that we just closed as well as the ground game leasing program that we've got in place. And then the Uinta is really just kind of steady as it goes. So Permian and Williston is probably where I'd be looking to. Nicholas O'Grady: Yes. And I'd say, I think my guess would be just given the gas situation in the Permian right now, that the acceleration you see there really is probably later in the year just as you get closer to a resolution there. And on the Uinta, I think there are some options for some acceleration, but we'll have to see [indiscernible]. Operator: And the next question comes from the line of Noel Parks with Tuohy Brothers. Noel Parks: I was wondering, and it's definitely interesting to hear about the different parties, the private side coming to the table and so forth and -- but I was wondering, for operators, where do you think things stand now around sort of basin rationalization in the wake of some of the big transactions of the last year or so now being fully digested? And I guess I'm just curious if you think overall across your basins, you're seeing operators more inclined to sort of expand their footprint or sort of core up and narrow them down right now? Nicholas O'Grady: Yes. No, I don't know if I want to speak for them completely. I would say this that we -- Adam had talked extensively last year about that he thought that post a lot of this consolidation, we would see rationalization. We are starting to see that. So we're seeing several large companies put packages of noncore assets sometimes in good basins to sell. And so I do think that we're seeing some rationalization. We're seeing that in the Permian, the Eagle Ford, I'm trying to think of where else. I think there's a large Williston package coming at some point this year. And so we're definitely seeing that to some degree. I think, look, consolidation is a trend that I think continues. It both benefits and hurts us sometimes. Obviously, it tends to hurt us in the sense that you probably have less aggregate activity, but it helps us from a cost efficiency and from a returns perspective. And so I don't know if you want to add to that, Adam? Adam Dirlam: Yes. I mean, going back to your initial question, I would just say that 2 things can be true at the same time. And ultimately, it's going to be dependent on the philosophical approach from the operator, right? And who did they consolidate with, where are those positions? And then ultimately, what does that integration difficulty look like? Because from our experience in talking with our operating partners who have gone through this, some can go very smoothly and others cannot. And so I think you're going to see some large asset packages, but then you're also going to see other operators that might take small pieces, non-op and kind of just kind of layer that out into the market kind of as they go. So I think you're going to see a little bit of everything. Noel Parks: Got it. And I'm just wondering, are you seeing anything happening kind of in the sort of off the beaten path gas plays? I'm thinking a little bit about Mid-Con, Rockies, just as people look ahead to longer-term supply and sort of thinking about underutilized infrastructure and so forth and maybe some capital finding its way there? Nicholas O'Grady: Yes. I mean, look, there have been some major consolidations on the private side in like Rockies gas and some of the legacy assets, and there have been some companies that have put together some really good assets. And in some cases, some of the wild swings in differentials out there over the last couple of years have made those really, really sound investments. I'm not sure that's necessarily something for us per se. And I say I'm not sure we really haven't evaluated a ton of it. So we don't -- things like the San Juan Basin or the Piceance, we just -- we've never really evaluated them at any extent. So I can't really speak to them. I'd say this in general, though, if you think about the life cycle of shale, and this is consistent with my public comments everywhere, in general, there is more life in the core basins of gas in the U.S. than there is in the core basins in oil. And so I think the necessity to really step out isn't quite there. We have decades of gas inventory internally here alone. We don't really write in our core basins. I don't know if you'd want to add to that. Adam Dirlam: No. I think the only other thing I would add is, I mean, you obviously have seen kind of the ABS market come into play with maybe some more PDP-heavy type assets, Mid-Con, Eagle Ford, things like that. And typically not the sandbox that we play in, but we're always having conversations about how we could potentially be helpful there. So we'll continue to explore it. So... Nicholas O'Grady: Yes. I mean we've done a number of -- as you know, we don't have any assets in the Mid-Con. We've have done dozens of evaluations at this point. And it's just a more complex area. It's not really as uniform. And so it doesn't mean it's bad, but I think we'd have to be really highly selective if we ever enter that basin just -- with them, and most likely, we would do it with an operating partner. Adam Dirlam: And then what are we looking at relative to what's in our own backyard. Nicholas O'Grady: Correct. And so far, it has sort of lost in the tug of war from a return on capital perspective that is amenable forever. It's just we have yet to find an asset that really... Adam Dirlam: Compete. Nicholas O'Grady: Compete it, that's right. Operator: And the next question comes from the line of Phillips Johnston with Capital One. Phillips Johnston: Just wanted to follow up on the earlier question about the oil swaptions and just ask about some of the accounting nuances for those swaptions. I think most of us understand that the vast majority of those swaptions that expire at the end of this year are required to be listed for 2026, even though the majority of them would actually turn into swaps for '27 or even beyond rather than this year if they're ultimately exercised. So I guess I understand that nuance, but I just kind of wanted to square that with the makeup of the hedge liability on the balance sheet where it looks like close to 65% of the hedge liability is classified as current. Chad Allen: Yes. That's because of the expiry, right? Just as you stated, Phillips, right? We have to -- because of when that expiry is being, in some instances, or most instances 12/31/2026, it's got to sit into the current bucket there. Phillips Johnston: Okay. Okay. So that makes sense. It's basically the same... Chad Allen: Yes. For accounting purposes, it's got to be treated for the bank's counterparty election date. Nicholas O'Grady: But it's not really how it works. Chad Allen: That's not how it works. No. And you'll see in our 10-K -- or 10-Q, sorry, some updated disclosures with respect to kind of how the swaptions roll out. But again, like what we've mentioned before, Phillips, we certainly -- we actively manage this portfolio. Nicholas O'Grady: It's a nothing burger to be candid. Chad Allen: Yes, it is. Operator: And I'm showing no further questions at this time. I would like to turn it back to Mr. Nick O'Grady for closing remarks. Nicholas O'Grady: Thanks very much for your time this morning. We look forward to talking to you in the coming weeks. Appreciate it. Operator: Thank you. And ladies and gentlemen, this concludes today's call. You may now disconnect.
Operator: Good morning, and welcome to the Highwoods Properties, Inc. First Quarter 2026 Earnings Call. All participants are in a listen-only mode. After the speakers' remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Brendan Maiorana, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead. Brendan Maiorana: Thank you, Operator, and good morning, everyone. Joining me on the call this morning are Theodore J. Klinck, our Chief Executive Officer, and Brian M. Leary, our Chief Operating Officer. For your convenience, today’s prepared remarks have been posted on the web. If you have not received yesterday’s earnings release or supplemental, they are both available on the investors section of our website at highwoods.com. On today’s call, our review will include non-GAAP measures such as FFO, NOI, and EBITDAre. The release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Forward-looking statements made during today’s call are subject to risks and uncertainties. These risks and uncertainties are discussed at length in our press releases as well as our SEC filings. As you know, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. With that, I will turn the call over to Theodore. Theodore J. Klinck: Thanks, Brendan, and good morning, everyone. We had an excellent quarter executing on our key initiatives. Leasing volume was strong across our in-service and development properties. This is clear from the 50-basis-point increase in our leased rate on our in-service portfolio and an 800-basis-point increase in our leased rate on our developments. Both of these will deliver meaningful upside in NOI, cash flow, and FFO over the next few years as occupancy ramps. During the quarter, we invested $108 million in best-in-class, commute-worthy properties in BBD locations in Dallas and Raleigh through joint ventures, and sold $42 million of non-core properties in Richmond. All of this activity improves our portfolio and further cements the foundation for pushing our growth rate and cash flows meaningfully higher, and will result in long-term value creation for our shareholders. Even with our strong performance in the quarter, we recognize the broader narrative that advances in AI could reshape the workforce and therefore affect long-term office demand. The range of potential outcomes is wide and varied, and at this point, there are many unknowns. What we do know, however, is that customers and prospects have not diminished their appetite for space and are making long-term commitments to their in-office strategies, and activity across our portfolio, our markets, and our BBDs is strong. Leasing was solid in the quarter. Our leasing pipeline remains robust. High-quality space across our BBDs is dwindling, and there is little to no new supply expected during the foreseeable future. This flight-to-quality dynamic creates a strong backdrop for gains and rent growth, both of which we experienced in the first quarter. Additionally, creditworthy customers are willing to make long-term commitments, as evidenced by our weighted average lease term on second-generation lease volume of 7.5 years, more than one year longer than our recent average lease term. Further, demographic trends across our footprint are favorable, with business relocations and expansions reaccelerating, driving healthy population and job growth. We firmly believe high-quality, commute-worthy properties in BBD locations, owned by well-capitalized landlords, are best positioned to capture increasing demand and improving economics. Turning to the quarter, we delivered solid financial performance with FFO of $0.84 per share, and we maintained our outlook for the year. Our leasing performance was excellent. We signed 958,000 square feet of second-generation leases, including over 300,000 square feet of new leases. We delivered GAAP rent growth of 19.4% and cash rent growth of 4.8%. Net effective rents were the second highest in company history, and 9% higher than the prior five-quarter average. Expansions, which we include as renewals, outpaced contractions at a ratio of nearly two to one. In addition, we signed 107,000 square feet in first-generation leases across our development properties. Customers and prospects recognize that blocks of high-quality, BBD-located office space with well-capitalized owners are diminishing across our footprint, which gives us strong pricing power in the best submarkets. We placed in service more than $200 million of 87% leased development properties during the quarter. GlenLake III, comprising 203,000 square feet of office and 15,000 square feet of retail, is now 94% leased. Across the street, we delivered GlenLake II Retail, which is 100% leased to Crooked Hammock Brewery. The addition of 24,000 square feet of food and beverage options elevates GlenLake’s offerings and complements the nearly 1 million square feet of office we have here. This has supported our ability to push rents across this park in West Raleigh. We also placed in service Granite Park 6 in Dallas’ Legacy BBD. This 422,000-square-foot best-in-class office property is 80% leased. We also made strong progress leasing up our two remaining development properties. 23 Springs, our 642,000-square-foot development project in Uptown Dallas, continues to garner strong activity with the leased rate now 83%, up from 75% last quarter and 62% twelve months ago. We have strong prospects to bring our lease rate at 23 Springs into the 90s. In Tampa’s Westshore BBD, our 143,000-square-foot Midtown East development is now 95% leased, up from 76% last quarter and 39% twelve months ago. The office component at Midtown East is 100% leased. On a combined basis, the properties placed in service during the first quarter and in our remaining development pipeline are 86% leased but only 48% occupied. As the leases commence, we will capture significant growth in NOI, cash flow, and FFO. We are starting to receive interest from build-to-suit and sizable anchor prospects for potential new development. It is still early, and it is hard to say whether any of these discussions will result in new projects, but the increased interest is encouraging and signifies limited inventory companies face when searching for large blocks of high-quality space. On the disposition front, we sold a non-core portfolio in Richmond for $42 million. As reflected in our outlook, we expect to sell roughly $200 million of additional non-core assets by the middle of this year and are marketing other assets for sale. We believe we will be able to redeploy capital from non-core asset and land sales on a leverage-neutral basis that will further strengthen our cash flows and result in higher growth. As we announced last week, we may also use non-core disposition proceeds to repurchase up to $250 million of outstanding shares of common stock on a leverage-neutral basis. We continue to evaluate acquisition opportunities and highly pre-leased developments; the repurchasing of our shares is another capital deployment option we now have in our arsenal. Before turning the call over to Brian, I want to reiterate the priorities we have highlighted over the past few years that will drive long-term value creation for our shareholders. First, we will continue to drive occupancy towards stabilized levels in our operating portfolio. Second, we will deliver and stabilize our development pipeline. Third, we will improve our portfolio quality and long-term growth rate by recycling out of non-core, CapEx-intensive assets in non-BBD locations and invest in properties with better cash flows and higher long-term growth rates. And fourth, we will do all this while maintaining a strong and flexible balance sheet. We made meaningful progress on each of these priorities during the first quarter. We believe the focus on these four areas, combined with a strong fundamental backdrop in our core BBDs due to the healthy demand and limited new supply, will drive significant growth in cash flow and long-term value over the next several years. Brian? Brian M. Leary: Thanks, Ted, and good morning, everyone. Our operating results continue to reflect the advantage of owning commute-worthy, amenitized assets in the best business districts of high-growth Sunbelt metros. Fundamentals across our markets continue to improve, as evidenced by vacancy rates and sublease space declining. Rents are up, which combined with steady concession packages has resulted in higher net effective rents. As far as supply goes, the best of the best and the best of the rest are in high demand. With office construction at historic lows, or non-existent in many markets, new office inventory is in scarce supply. With demolitions outpacing deliveries nationwide, the flight to quality has become, in many cases, an all-out sprint to quality, with users proactively inquiring for early extensions to lock in location and terms. A common theme across our markets is that office rents pale in comparison to the investment customers have in their people, and that exceptional environments and experiences yield superior results when their people are in the office and being better together. Customers are choosing well-located, highly amenitized, Class A buildings with well-capitalized owners and customer-centric operations, and they are willing to pay for it. They are moving to metros that continue to win people and companies with the highest quality of life and most business-friendly outlooks. This is the Highwoods Properties, Inc. portfolio, this is the Highwoods Properties, Inc. team, and these are our Sunbelt markets and BBDs. Starting with Dallas, the Metroplex remains one of the country’s premier destinations for corporate headquarters and expansions, which should not be a surprise at this point considering it is Site Selection Magazine’s number one city for headquarter relocations and is in the state Chief Executive Magazine has deemed as the best for business 21 consecutive years. From 2018 through 2024, Dallas landed roughly 100 headquarters, with 11 more in 2025. The region continues to attract diverse firms across financial and professional services, advanced manufacturing, logistics, and life sciences, seeking a central location, business-friendly environment, and a deep labor pool. That macro story is consistent with the office fundamentals you see in the Q1 broker data. According to Cushman & Wakefield, DFW recorded 117,000 square feet of positive net absorption in 2026, its fifth consecutive positive quarter, with nearly 340,000 square feet of positive absorption in Class A as Class B continues to shed space. Our Dallas portfolio is in Uptown, Legacy, and Preston Center, which is the tightest submarket in the region with less than 6% vacancy and is home to one of our latest acquisitions, The Terraces. These BBDs are squarely in the path of demand. The mark-to-market we are realizing via second-generation leasing, both at McKinney & Olive and The Terraces, is significant, generating GAAP rent spreads of 27%. Turning to Charlotte, the city is increasingly recognized as a strategic hub that is being validated by headline corporate decisions. Among the 104 metros that Cushman & Wakefield tracks, Charlotte was number one for job growth. To that end, and subsequent to our most recent earnings call in February, three global financial institutions have made major new job announcements. Already with an established home in Charlotte’s SouthPark BBD, where we have almost 800,000 square feet, JPMorgan recently announced plans for an eventual 1,000-job regional hub, with 400 of those to be hired by 2028. Two new entries to the market include Capital Group’s planned new home in Uptown, with 600 new employees, and after a nationwide search, Sumitomo Mitsui Banking Group, one of Japan’s largest banks, selected Uptown as well for their second U.S. headquarters, creating 2,000 jobs by 2032, with an average salary for these 2,000 jobs projected to be over $165,000 a year. This macro backdrop aligns perfectly with Q1 office fundamentals; CBRE noted approximately 410,000 square feet of positive net absorption in the first quarter and total leasing volume of roughly 1.4 million square feet, up nearly 74% year-over-year, with about 70% of that volume in Class A buildings. In Uptown, the denominator is shrinking as millions of square feet of office space are being taken out of inventory for conversions to residential, hotel, and retail uses. Strong demand for high-quality space and limited new supply are yielding a landlord-favorable environment for driving leasing fundamentals. Our Charlotte assets are directly benefiting from this demand, which is why we are seeing strong rent roll-ups and net effective rent growth in Charlotte. In Raleigh, the long-term story of in-migration and organic growth remains intact. Recent census estimates show the Raleigh metro is one of the 10 fastest growing in the country between 2024 and 2025, and statewide, North Carolina ranked first in domestic net migration and third in overall population gain for the same period, adding an estimated 146,000 residents. CBRE’s tech report noted that the Raleigh area also produces nearly 5,000 tech graduates annually, reinforcing a sustainable pipeline of skilled workers. Office fundamentals reflect that strength in the best business districts, and our team was busy for the quarter, signing over 200,000 square feet of second-generation space. Our two new developments at GlenLake offer a mix of uses and are 95% leased, and Block 83, our recent mixed-use JV acquisition, which is 97% leased in Raleigh’s CBD, is directly aligned with where both in-migration and corporate demand are strongest. Finishing in Nashville, where strong population growth and a diversified economy continue to attract brand-name employers, just last month Starbucks announced a $100 million plan to open a Southeast corporate office in Downtown Nashville for 2,000 employees, with some relocating from Seattle and the balance of new hires in Nashville. Office data for the first quarter shows that demand is focused on newer or newly amenitized Class A nodes, and our 287,000 square feet of quarterly leasing with a weighted average lease term of 9.8 years, and cash and GAAP rent spreads of 9.4% and 26.5%, respectively, bears witness to this data. Across our footprint, we are aligning capital with the metros and submarkets that continue to win people, jobs, and corporate investment. We are making sure our portfolio and people are prepared to deliver commute-worthy experiences to our customers and their teams. Our success this quarter supports this strategy, and we are confident it will continue to serve us well. Brendan? Brendan Maiorana: Thanks, Brian. In the first quarter, we delivered net income of $31.3 million, or $0.29 per share, and FFO of $94 million, or $0.84 per share. The quarter included a $17 million property sale gain from our disposition in Richmond that was included in net income but not included in FFO. During the quarter, we received a term fee at an unconsolidated JV for a net $2.2 million, or $0.02 per share, from a customer moving from McKinney & Olive to 23 Springs, and we sold our interest in a third-party brokerage services firm, resulting in a $1.4 million gain. These two items were included in FFO and were factored into our original FFO outlook. Otherwise, there were no unusual items in the quarter. You may have noticed some minor changes to our supplemental package we released yesterday that we believe will make it easier to derive our share of joint venture NOI. We also broke out Dallas as its own market now that we have three in-service properties in Dallas, which will increase to four upon stabilization of 23 Springs. Our “Other” markets now primarily consist of our non-core Pittsburgh and Richmond portfolios. We are pleased with our first quarter financial results, which demonstrate the resiliency of our operations and cash flows. Even more consequential was this quarter’s leasing activity on both the in-service portfolio and development pipeline, which positions us to increase occupancy and deliver NOI growth during the remainder of 2026 and beyond. Our leased rate is 89.7%, up from 89.2% one quarter ago. The spread between our leased and occupied rates of 470 basis points is three times our normal historical spread, a strong indicator for future occupancy gains. We reiterated our year-end occupancy outlook of 86.5% to 88.5%, which implies a 250-basis-point increase at the midpoint over the remaining three quarters of the year. Our balance sheet remains in good shape. We had over $650 million of available liquidity at the end of the quarter, and subsequent to quarter-end, we closed a $100 million secured mortgage at Granite Park 6, resulting in over $50 million of capital to Highwoods Properties, Inc. We expect to close one or more additional financings at JVs during the remainder of the year, which will repatriate capital back to Highwoods Properties, Inc. and improve our liquidity and unencumbered debt-to-EBITDA ratio. Based on our current expectations of NOI growth, and assuming $200 million of non-core asset sales, we expect to end the year with debt to EBITDA in the low- to mid-6s, with additional reductions likely in future periods as NOI grows. We have only $40 million of remaining capital needed to complete our share of the development properties. These properties, combined with the developments placed in service this quarter, will deliver over $20 million of annual NOI growth compared to the Q1 2026 run rate. As Ted mentioned, we have maintained our FFO outlook of $3.40 to $3.68 per share. It is still early in the year, and while we are off to a strong start with our leasing activity, most of these leases will have a financial benefit to 2027 and thereafter. Before we turn the call over for questions, there are a couple of items to note. First, I mentioned the term fee and gain on sale were recorded in the first quarter. We do expect some additional term fees in the remainder of the year, as is typical, but these are expected to be lower in subsequent quarters. We also expect some additional other income items in the second half of the year. In total, these items are expected to be around $0.06 to $0.07 for full-year 2026, which is approximately $0.05 lower than 2025. Second, capitalized interest is expected to be lower for the foreseeable future, as we will no longer capitalize interest expense at 23 Springs or Midtown East. There is significant embedded NOI growth at these properties due to leases that are signed but will not be fully online before 2027. Third, as is typical, G&A was higher in Q1 due to the expensing of annual equity grants. G&A is expected to be lower for the remaining quarters of the year. Given these factors and our expectation of steadily increasing occupancy during the final three quarters of 2026, we expect FFO to increase in the second half of the year. Operator, we are now ready for questions. Operator: Thank you. To ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Seth Eugene Bergey from Citi. Please go ahead. Your line is open. Seth Eugene Bergey: I just wanted to go back to some of your comments in prepared remarks about discussions around potential new developments and the share repurchase authorization. How are you thinking about capital allocation priorities, and how do those opportunities compare to each other today? Theodore J. Klinck: Hey, Seth. It is Ted. Looking at the best ways to improve our long-term growth rate, strengthen and make our cash flows more resilient, and improve the quality of the portfolio, I think our stock buyback gives us another option and optionality. Over the years, we have proven to be disciplined allocators of capital. We have rotated between acquisitions and development throughout various cycles, always looking at the best risk-adjusted return. The stock buyback just gives us one more option to consider. Last year we were very active on the acquisition side; we acquired, on our share, about $580 million worth of assets at what we consider very attractive pricing. Now, as you alluded to, we are becoming more constructive on development. There is a shortage of high-quality space, so we are fielding calls, whether it be build-to-suits or pre-leased office development. Development is hard these days—expensive, hard to finance, interest costs are higher—but we think there are opportunities for well-capitalized developers to earn attractive risk-adjusted returns. We look at everything, and development is certainly becoming more constructive. Seth Eugene Bergey: Thanks. And then on the potential opportunity for dispositions, given the move in the 10-year and maybe some macro headlines around AI, are you seeing any changes in the type of capital interested in office product and any changes in pricing? Theodore J. Klinck: The short answer is no, at least not yet. Since early 2025 through the disposition we had in January, we sold about $270 million roughly at an 8% cap rate, which matched up with our acquisitions. We have a lot of assets out in the market. We have said we are trying to get $190 to $210 million done by midyear—we are on track—and we have other assets in the market at various stages. We have not seen changes in the profile of buyers. Seth Eugene Bergey: Great. Thank you. Operator: Our next question comes from Blaine Heck from Wells Fargo. Please go ahead. Your line is open. Blaine Heck: Great, thanks. Good morning. You have had a solid start to the year on the leasing side. Can you comment on the leasing economics you have seen thus far and how you would expect rent spreads and concessions to trend during the full year of 2026? Theodore J. Klinck: Maybe I will start, Blaine, and then Brian or Brendan can jump in. As you alluded to, we had a great start to the year with almost 5% up on cash and 19% plus on GAAP. It can vary quarter to quarter with mix, but in general, the macro setup is pretty good for office owners over the long term. Demand remains strong in our markets. We are not seeing any impact from AI; in fact, it has been a net positive—we signed a couple of AI-related users. There is absolutely, as Brian said, a dwindling supply of high-quality space in the BBDs. There is going to be a shortage of this space in the next couple of years given that new construction is at a historic low. That should accrue to the benefit of office owners. We do not know exactly what the metrics will look like quarter to quarter, but it is a good setup for owners of high-quality office space in our BBDs. In-migration is a tailwind across our markets, notably Charlotte and Dallas, among others. The supply-demand backdrop feels pretty good right now. Brian M. Leary: Blaine, I might just add an anecdote. We have been proactive in connecting with customers well in advance of expirations to push out extensions, and now they are reaching out to us too. They want to secure where they are and secure terms, and not get caught at a mark-to-market a few years down the road. While the recovery is not universal, we feel the great majority of our portfolio is on the top side of that K-shape and we are benefiting. Blaine Heck: That is helpful color. And then, Ted, on the potential for build-to-suit opportunities, are there specific markets where you are seeing demand increase? Any color on the profile of tenants you might be talking to? And would those potential build-to-suits occur on land you already own, or might you need to acquire some land? Theodore J. Klinck: Market-wise, it is various markets—multiple—and in some of our top, larger markets. I do not want to get too specific as we are competing, and some are still multi-state competitions. Customer-wise, it varies—financial services, corporates—no single theme other than a shortage of space in the submarkets they want to be in. On land, it is both on land we already own and potentially on sites we would control specifically for a build-to-suit. We would not go out and buy land to land bank; any land purchase would be tied to a specific build-to-suit. Our land inventory is more likely to go down from here. Operator: Our next question comes from Peter Dylan Abramowitz from Deutsche Bank. Please go ahead. Your line is open. Peter Dylan Abramowitz: Thank you for taking the questions. I think last quarter you talked about needing around 700,000 square feet this year of vacancy leasing that would actually take occupancy to hit the midpoint of guidance, and mentioned a retention rate of around 35% to 40% under 2026 expirations. Of the 300,000 square feet of new leasing you did this quarter, how much will go toward that 700,000 for the full year that will actually take occupancy before year-end? And is the math still the same on the retention and renewal side? Brendan Maiorana: Hey, Peter. Good question. The math pretty much rolls forward from everything we did in the first quarter. We had talked at the beginning of the year about 1.2 million square feet of leases signed that would commence by the end of 2026. We moved a number of those into occupancy during the first quarter, but we replaced that, so we still have about 1.2 million square feet of signed leases that will commence by year-end. On expirations, out of what remains, there is somewhere in the neighborhood of 850,000 to 900,000 square feet of likely move-outs. That leaves us positive net absorption from 3/31 of 300,000-plus square feet, which means we have another 300,000 to 400,000 square feet to sign and start this year. That is down from the 700,000 we mentioned at the beginning of the year. If we keep roughly 100,000 square feet of new per month, that puts us on track to the midpoint of the year-end occupancy range of 87.5%. Peter Dylan Abramowitz: That is helpful, thanks. On the Richmond sales, what was the cap rate specifically on that portfolio? Theodore J. Klinck: It was at the upper end of the blended range we discussed—call it a very low double-digit cap rate—and that is incorporated in the overall blended number of around 8%. Peter Dylan Abramowitz: Got it. One more: in the same-store pool, operating expense growth was a little elevated in the quarter. Anything unique to Q1 we should be mindful of going forward? Brendan Maiorana: As you might expect from the winter, we had some pretty cold weather, particularly in February, so utility costs were up significantly year-over-year. That really drove the increase in expenses. We were negative 60 basis points on same-store in the quarter and expect roughly flat for the year. That likely means low again in Q2 and then positive in the back half to average out to flat on a cash basis and positive on a GAAP basis. Operator: Our next question comes from Ronald Kamdem from Morgan Stanley. Please go ahead. Your line is open. Ronald Kamdem: Following up on the same-store thread, can you give some breadcrumbs as we think about 2027? As occupancy ramps, presumably you will be at a better pace comping into next year. Any other puts and takes for potential acceleration? Brendan Maiorana: Thanks, Ron. The second-half 2026 improvement in same-store should, in all likelihood, carry into 2027, so you should see good same-store results. From an earnings perspective, breadcrumbs from first half versus back half of this year: in Q1 we had the gain on the third-party brokerage sale and the term fee—combined $0.03. G&A is similarly about $0.03 higher in the first quarter, so those offset. Capitalized interest will go away on 23 Springs and Midtown East—probably a couple of pennies—partially offset by a little higher NOI. We also expect about $200 million of dispositions in Q2; that will be a little dilutive as we pay down the line of credit and keep the remainder in cash in preparation for paying off the 2027 bond. All that likely means Q2 FFO is a little lower than Q1, and then a meaningful ramp in the back half to get to the midpoint of guidance excluding land sale gains. That is positive as you think about 2026 into 2027. Ronald Kamdem: On capital recycling, on the buy side it sounds like Dallas is interesting. Are acquisition opportunities all in existing markets, or any new markets? And on the sell side, an update on the Pittsburgh portfolio situation and timing? Theodore J. Klinck: On acquisitions, we are primarily focused on our existing footprint. We are very pleased with it and do want to grow in Dallas over time, but you go where the opportunity is; for now it has been entirely in existing markets. On dispositions, no real update on Pittsburgh. We will be bringing one of the smaller assets to market soon. For the big asset, PPG Place, no update—we are continuing to get some leasing done before bringing it to market. Capital markets are improving on both debt and equity, so we are getting closer to launching, but have not set a date yet. Operator: Our next question comes from Dylan Robert Burzinski from Green Street. Please go ahead. Your line is open. Dylan Robert Burzinski: Thanks for taking the question. On the build-to-suit opportunities, what sort of stabilized yield on cost do you require to kick one of those off in today’s environment? Theodore J. Klinck: Dylan, it is hard to generalize. We do not disclose targets given competitiveness, and every deal is different based on market, submarket, credit, term, and annual bumps. On a risk-adjusted basis, we think there are attractive opportunities right now. Dylan Robert Burzinski: Thinking about 2027—understanding no guidance—retention around 40% this year for 2026 expirations: is that the low point as we think about 2027 and beyond, or is there any one larger tenant in 2026 that makes 40% not a good assumption for 2027? Brendan Maiorana: Your number is correct on 2026 in the ~40% range as we were migrating into 2026. Keep in mind the adverse selection bias: we early-renew folks, and those not renewed remain in the expiration schedule. For 2027, as of now, we are probably in the 50% to 60% retention range on what remains, and even that is probably lower than the ultimate outcome given a number of 2027 expirations where we have the underlying tenant but they have subleased to someone else. Our retention calc assumes the underlying tenant vacates and then we sign the subtenant as a new lease, so that would show as a move-out and new lease, not a renewal. We think we will do well on 2027 retention, creating a good environment to continue driving occupancy higher from year-end 2026 through 2027. Operator: As a reminder, to ask a question, please press star followed by the number one. Our next question comes from Vikram Malhotra from Mizuho. Please go ahead. Your line is open. Vikram Malhotra: Good morning. Two quick ones. First, on the trajectory from here, what do you need to do new-leasing-wise for the rest of the year to hit the higher end or midpoint of the year-end occupancy? And is there anything new in terms of additional move-outs we should keep in mind going into next year? Second, on AI and leasing—are you hearing any AI-oriented firms looking for space or expanding away from the West Coast in your markets? Brendan Maiorana: On leasing needed to hit the year-end occupancy range—at the midpoint—we probably need roughly 100,000 square feet of new leasing per month through June or July. Those leases are likely to move into occupancy by year-end. To continue pushing occupancy higher into 2027, we would like to see that pace continue in the back half, which should set us up well for 2027. We do not have significant 2027 expirations we are particularly worried about. Theodore J. Klinck: On AI, as I alluded to earlier, we signed one AI-related tenant focused on data centers in Dallas. Otherwise, across our markets, we have not seen much AI demand yet. Vikram Malhotra: Thank you. Operator: Our last question comes from Nicholas Patrick Thillman from Baird. Please go ahead. Your line is open. Nicholas Patrick Thillman: Good morning. One quick question on overall utilization and sublease availability within the portfolio. Do you have a number on occupied space currently listed for sublease? Theodore J. Klinck: Our sublease space is going down—down 6% to 7% last quarter. Some does convert to direct vacancy, but some is being taken off the market and utilized by our customers. We have a little over 500,000 square feet in our portfolio currently being subleased. It is getting better in our portfolio and in the market as well. Nicholas Patrick Thillman: That was it for me. Thanks, all. Theodore J. Klinck: Great. Thanks, Nick. Operator: We have no further questions. I would like to turn the call back over to Theodore J. Klinck for any closing remarks. Theodore J. Klinck: Thanks, everyone, for joining the call, and thank you for your interest in Highwoods Properties, Inc. We look forward to seeing you all at NAREIT, if not before, or on the next call. Operator: Thank you. This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to Seacoast Banking Corporation of Florida's first quarter 2026 earnings conference call. My name is Kate, and I will be your operator. Before we begin, I have been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements. Seacoast Banking Corporation of Florida will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and its comments today are intended to be covered within the meaning of that act. Please note that this conference is being recorded. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seacoast Banking Corporation of Florida. Mr. Shaffer, you may begin. Chuck Shaffer: Okay. Thank you, Kate, and good morning, everyone. And thank you for joining us. As we move through today's presentation, we will reference our first quarter 2026 earnings slide deck, which is available on our website, cecosbanking.com. Joining me today is Tracey Dexter, our chief financial officer, Michael Young, our chief strategy officer, and James Stallings, our chief credit officer. The Seacoast Banking Corporation of Florida team delivered another great quarter, highlighted by robust deposit growth, particularly in noninterest-bearing deposits, meaningful expansion in the net interest margin, and solid progress towards financial guidance we introduced last quarter. Commercial loan production momentum remains strong, up 35% year over year, and as expected, the first quarter loan growth was seasonally softer and further impacted by elevated payoffs. Importantly, our loan pipeline remains strong, and we expect payoffs to moderate in the coming quarters, supporting a return to stronger loan growth as the year progresses. Asset quality remains exceptional with limited charge-offs, no change in criticized and classified assets from the prior quarter, and a modest uptick in nonaccrual loans. Noninterest income continued to perform well, driven by strength across wealth management, insurance, treasury, and our mortgage businesses. And our expansion in The Villages is already delivering results, with solid mortgage production and growing demand for wealth management services. Expense discipline remained excellent this quarter. Overhead was well controlled. Adjusted efficiency ratio was 55%, and the ratio of adjusted noninterest expense to tangible assets remained near 2.1%, even as we continue to invest deliberately in growth. Our strategy to drive improved shareholder returns remains firmly on track. Excluding merger-related costs associated with the Villages Bank Corporation, our return profile continues to strengthen. For the quarter, adjusted return on assets was 1.31%, and the adjusted return on tangible equity was 16.3%. These results underscore the strong earnings power of the combined franchise. Looking ahead, we remain confident in our 2026 outlook. As outlined in the slide deck, we continue to expect full-year earnings per share in a range of $2.48 to $2.52 despite two fewer rate cuts. And finally, capital and liquidity remain exceptionally strong. We continue to operate with a fortress balance sheet and remain one of the strongest banks in the industry. With that, I will turn it over to Tracey to walk through our financial results. Tracey Dexter: Thank you, Chuck. Good morning, everyone. Beginning with slide four and first quarter performance highlights, Seacoast Banking Corporation of Florida reported net income of $31.9 million, or $0.29 per share, in the first quarter. Reported results include a $39.5 million pretax loss related to the strategic repositioning of a portion of our available-for-sale securities portfolio, which we executed in January. On an adjusted basis, net income was $67.8 million, or $0.62 per share, increasing 42% from the prior quarter and 111% year over year. These results reflect meaningful improvement in our core earnings power, driven by expanding net interest income, disciplined balance sheet management, and continued execution on organic growth initiatives. During the quarter, we delivered 7% annualized organic deposit growth, including 29% annualized growth in noninterest-bearing demand deposits. We also delivered a 13 basis point decline in the cost of deposits to 1.54% and a 9 basis point decline in overall cost of funds to 1.71%. Expansion in the net interest margin was a highlight this quarter, driven largely by lower deposit costs and the bond portfolio restructure. On an adjusted basis, return on average assets was 1.31%, and return on average tangible equity was 16.26%. Our capital position remains very strong. We also were more active in share repurchases, buying back over 317 thousand shares. Turning to net interest income and margin on slide five, net interest income totaled $178.2 million, up $1.9 million from the prior quarter. The net interest margin expanded 17 basis points to 3.83%, and excluding the impact of accretion on acquired loans, margin expanded 13 basis points to 3.57%. This improvement was driven by lower deposit costs combined with higher securities yields. Moving to noninterest income on slide six, reported noninterest income was a net loss of $12.6 million. Adjusted noninterest income, which excludes the securities repositioning, totaled $26.9 million, down 6% from the prior quarter and up 22% year over year, reflecting continued growth in fee-based businesses with the growth of the franchise. Wealth management remains a key contributor with revenue up 36% year over year and assets under management increasing 33% year over year, including $125 million of new organic assets under management added during the quarter. Mortgage banking income declined from the fourth quarter primarily due to volatility in mortgage servicing rights acquired in the Villages transaction. Underlying loan volumes and pipelines remain strong in the business. Insurance agency income benefited from a seasonal contingent commission payment, increasing $200 thousand year over year. Moving to slide seven, our wealth management team delivered another quarter of strong results, with income growing 36% year over year and AUM balances growing 33% year over year, with a 21% annual CAGR in the past five years. We expect to continue to see strong volumes throughout 2026. Moving to slide eight, noninterest expense totaled $122.2 million in the first quarter, which includes $8.5 million of merger and integration costs. On an adjusted basis, noninterest expense was $113.6 million, just slightly higher than the prior quarter. Importantly, we saw continued improvement in operating leverage, with the efficiency ratio improving to 59.5% and the adjusted efficiency ratio at 55.3%, reflecting disciplined expense control alongside core revenue growth. Moving to loan growth and portfolio composition on slides nine and ten, loans ended the period at $12.6 billion, up modestly from year end. Production remained strong with growth largely offset by elevated payoffs during the first quarter. The commercial pipeline increased to over $1 billion at quarter end, supporting continued organic growth as we move through the year. Our loan portfolio remains well diversified by asset class, industry, and loan type, with average loan sizes that reflect the granular nature of our franchise, and exposure levels that remain well within regulatory guidance and that provide significant flexibility for forward growth. On credit quality shown on slides eleven and twelve, asset quality metrics remain solid. The allowance for credit losses totaled $176 million, or 1.39% of loans, three basis points lower than the prior quarter. Combined with the remaining $138 million of unrecognized purchase discount on acquired loans, we continue to maintain meaningful loss absorption capacity. We saw a modest increase in nonperforming loans compared to the prior quarter, to 0.75% of total loans, though still well within the range of low historical levels. The increase in nonaccrual loans during the first quarter reflects the movement of two commercial credits to nonaccrual status, each having collateral values well in excess of balances outstanding and, therefore, no credit loss is expected. Accruing past-due loans declined. Net charge-offs remained low at 11 basis points annualized, and criticized and classified loans were stable sequentially. Turning to deposits on slides thirteen and fourteen, total deposits increased $382 million during the quarter, or 9.5% annualized. Excluding brokered balances, growth remains solid and relationship-driven with organic growth of 7% annualized. Deposit costs are lower by 13 basis points. Transaction accounts represented 50% of total deposits, and the deposit base continues to be highly granular, with the top 10 depositors representing only 3% of total balances. Moving to slide fifteen in the investment securities portfolio, as I mentioned, we took advantage of constructive market conditions and repositioned a portion of the available-for-sale portfolio in late January, which will enhance forward earnings while maintaining balance sheet flexibility. We sold securities with proceeds of approximately $277 million, resulting in a pretax loss of $39.5 million impacting first quarter results. The proceeds were reinvested in primarily agency mortgage-backed securities with a tax-equivalent book yield of approximately 4.8%. Turning to capital and liquidity on slide sixteen, Seacoast Banking Corporation of Florida continues to operate with a fortress balance sheet. Tangible equity to tangible assets was 9.2%, and capital ratios remain very strong, providing significant flexibility to support organic growth, disciplined capital deployment, and opportunistic actions, as the approximately 317 thousand in share repurchases completed during the quarter. On slide seventeen, we reiterate the guidance we provided last quarter. The adjusted earnings per share outlook remains unchanged at $2.48 to $2.52, with the potential for slightly lower revenue resulting from the change in previously expected rate cuts, but with no change to bottom-line results. In summary, our results demonstrate meaningful improvement in core profitability, strong funding trends, and continued execution against our strategic priorities. We remain focused on disciplined growth and long-term shareholder value creation. With that, Chuck, I will turn the call back to you. Chuck Shaffer: Alright. Thank you, Tracey. And, Kate, I think we are ready for Q&A. Operator: We will now open the call for questions. At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Woody Lay with KBW. Your line is open. Woody Lay: Hey, good morning, guys. I just wanted to start on loan growth, and, you know, higher payoffs impacted the growth in the quarter. But I just wanted to get a sense of how the pipeline was shaping up in 2Q 2026, especially given some of the macro uncertainty that is out there? Chuck Shaffer: Thanks, Woody. And just to go back to the quarter itself, payoffs were very elevated. We notated in the release and in the slides; you can see what it was year over year. In particular, in the first quarter, we did have three larger credits pay off, in aggregate, $150 million amongst the three. It was multiple loans to a couple borrowers in there. The good news is they paid off; they are great borrowers. The bad news is we got paid off, but that is the way the business operates. When we look forward into the remainder of the year, the pipeline remains strong. We expect to return to high single digits here in the coming quarters and remain very confident throughout the remainder of the year. The impacts of the geopolitical concerns are unknown at this point, still probably too early to tell, and we will have to see how that all plays out over the back half of the year. But for now, we remain confident in the guidance and expect to return to high single digits. Michael Young: Hey, Woody. This is Michael. Just adding on one thing at the end. We had 15% annualized growth in the fourth quarter. Our average loan growth in the first quarter was still high single digits, kind of 9% plus. We just had a lot of pull-through of the pipeline late in the quarter. We still feel like we remain on track and consistent; it is just our normal kind of seasonal trends here with strong fourth-quarter production and growth, and then first quarter generally as expected being a bit softer, severely impacted by the payoffs. And maybe one callout headed into the second quarter, we have a stronger first-quarter seasonal deposit growth, and then second quarter we do see that come back a bit before we have seasonal trends return to tailwinds in the back half of the year. Woody Lay: Got it. That is helpful. And then maybe on deposits, I believe the first quarter is typically a seasonally stronger quarter, but the noninterest-bearing deposit growth you saw in the quarter was really strong. Just trying to get a sense of how much you think that is seasonal versus actual core deposit growth? Michael Young: Yeah, it is a good question. We typically see outflows related to tax payments at the end of first quarter and early second quarter. We did see that normal seasonal trend, but it is not that all of that came from DDA or noninterest-bearing deposits. Certainly, some did, but we expect to hold higher levels of noninterest-bearing deposits as we move forward, given growth in aggregate across the franchise and growth in customer count. We certainly see some tax-related outflows here in April, but not enough to backslide us on noninterest-bearing deposits. Woody Lay: Got it. And then maybe just last for me. So you have The Villages conversion coming up here this summer. Can you just remind me how much cost saves are still set to come out of the run rate? Michael Young: Yeah. We articulated a 26%–27% cost out at announcement. As we talked about on the last call, we have an expense step-up here in the second quarter with our normal annual pay cycle and increase. We will expect maybe a little tick up in the efficiency ratio headed into conversion as well in the second quarter, and then we will see the cost outs come in the back half of the year as our efficiency ratio begins to step back down into the fourth quarter. We are also hiring and growing as well, and that will offset some of the expense saves that are just discrete from the deal. Chuck Shaffer: And I would just remind you to push back to the guidance we laid out last quarter that is reiterated in the slide. We think a full-year efficiency ratio is somewhere between 53%–55%. So as you are modeling, that is the ballpark where we expect to be for the full year. Woody Lay: Perfect. Well, thanks for taking my questions. Congrats on the good quarter. Operator: Thanks, Woody. Your next question comes from the line of Russell Elliott Gunther with Stephens. Your line is open. Chuck Shaffer: Hey, Russell. Russell Elliott Gunther: Hey, Chuck. Maybe to start on the core margin, would be helpful to get a sense for how you are expecting that to trend going forward. Maybe touching on incremental commercial loan yield versus deposit cost, and then on that last front, as it relates to the cost of deposits from here, do you think you have the ability to continue to lower, or is there, perhaps with the Fed on pause, an upward bias to deposit costs embedded in the revenue guide? Michael Young: Hey, Russell. This is Michael. A couple questions in there, so I will try to hit each one. First, on the margin progression, we do expect continued margin expansion here in the second and third quarter. You saw we exited the quarter with lower deposit costs than we started the quarter as we continued to blend the rate/volume mix down. We are still at a 75% loan-to-deposit ratio, so we are in a really strong balance sheet position there. But as we have approached the 1.30% ROA and 16% RoTE that we have been targeting, we do want to be on the offensive and grow. We will continue to try to do that throughout the year while maintaining the profitability levels and the guidance that we talked about. We do expect continued, pretty nice margin progression in the second and third quarter. On the deposit cost side, without Fed cuts, as you saw, we revised the revenue guidance low end by one percentage point. That is basically our rate sensitivity to two cuts. We could see some stabilizing or increasing deposit costs potentially later this year without Fed rate cuts as we grow the deposit balances from here. On the loan yields side, we still saw add-on yields in the low 6% this quarter. We are seeing a little more mix of residential mortgage retention as we have talked about before, which, with the long end of the curve at higher levels, is pretty attractive rates and good risk-adjusted returns. On the commercial side, there have been competitive forces at play, but we are really holding around the 6% level. Russell Elliott Gunther: Okay. Thank you, Michael. Maybe switching gears on the expense side, follow-up to the discussion already, appreciate the glide path. Maybe some color or clarification in terms of your efficiency target and how tethered that is to revenue. So if we are at the high end of revenue, should we be at the low end of efficiency, or is there some flex there? And then post conversion, how do you think about a normalized growth rate for Seacoast Banking Corporation of Florida given the franchise investment you see ahead of you at least on the lending hiring front? Chuck Shaffer: Yeah, I would think about it this way. We put the guide out there, the 53% to 55%, to give you a sense of where we think we will land full year. If revenue is higher, I think that does fall to the bottom line and push us to the lower end of that range. Given the fact that, as Michael laid out, we may not have two Fed cuts, that will probably not drive as low deposit costs as we thought we would see in the back half of the year, and as such, that is going to require us to tighten a little bit on the expense side to navigate through that. But we are confident in our ability to deliver on the overall EPS range. We will feather that depending on what the back half of the year looks like, but we have given ourselves room to be 100% confident delivering the EPS range. Long term, we would like to run the company in that same range—53% to 55% efficiency ratio—is probably where we land. The way we are thinking about the business is running with a return on tangible equity north of 16%, ROA north of 1.30%, and high single-digit growth rates with a 53% to 55% efficiency ratio. That delivers really strong shareholder return compounding over time. That is the optimal run rate for the company and what we are working to deliver to shareholders. Russell Elliott Gunther: Very helpful. Thank you, Chuck. Thanks, guys, for taking my questions. Chuck Shaffer: Thanks, Russ. Operator: Your next question comes from the line of Liam Cooley with Raymond James. Your line is open. Liam Cooley: This is Liam on for David Feaster. Chuck Shaffer: How are you doing? Hey, Liam. Liam Cooley: So I appreciate all the color on loan and deposit growth. I am curious, where in your footprint have you been seeing the most success, and where do you expect the most opportunity to be moving forward? Is a lot of that deposit growth coming from The Villages, or is it more of the core markets? Chuck Shaffer: It is broad-based. I would say that we are seeing good solid growth in The Villages. Some of the new offices in The Villages’ two developments are growing nicely. We have been very pleased with that. Some of the expansionary markets up into North Florida—up towards Gainesville and Ocala—have seen really solid growth as we continue to expand what was the legacy Drummond franchise, and then we layered on a really strong banking team up in that market. And Atlanta is also off to a really nice start. So it is fairly broad-based, with most of the growth coming from The Villages and the expansionary markets, some of the new markets we have opened up. Liam Cooley: Great. Thanks. And then on deposit costs, do you expect noninterest balance growth to be the larger driver of total deposit cost reductions into the back half of the year, especially if we are assuming more of a stable rate environment? Michael Young: Yeah, it is a good question. We have been optimizing particularly on the CD rate side, letting some of the higher-rate CDs roll down, which has been a driver along with growth in noninterest-bearing and just repricing the money market as the Fed cut rates. As we move forward, some of it will be mix-driven. Certainly, that will improve cost of funds or maybe keep cost of funds from going up as much over the medium term. Over time, it is really about the pace of growth. If we need to grow at higher paces, then we will see a little more pricing pressure. So I think it is more geared to overall balance sheet growth and how quickly we are growing the deposit portfolio. Liam Cooley: That makes sense. And last thing for me to touch on—it is really impressive to see the wealth management balance growth in a quarter where the market was down almost 5%. With new asset growth continuing and the market rebounding in April, would it be unreasonable to expect some nice balance growth into 2Q? Chuck Shaffer: We do expect that to continue to grow. What we are really excited about in the first quarter is we saw almost $1 million of new AUM coming out of The Villages and $15-plus million coming out of what was the legacy Heartland market. It is great to see new opportunities coming out of those two new acquisitions from last year. The business is operating exceptionally well, and we expect it to continue to grow throughout the year. I remain very bullish on that business inside of Seacoast Banking Corporation of Florida. It continues to drive really solid returns on capital. Ideally, as we move through time, we will continue to get opportunities in The Villages’ footprint and the remainder of the franchise. So far, everything is going right according to plan. Liam Cooley: Appreciate all the color. Thanks, guys. Chuck Shaffer: Awesome. Thanks, Liam. Operator: Your next question comes from the line of Kyle Girman with Hovde Group. Kyle Girman: Hi. This is Kyle on for David Bishop. Good morning. Chuck Shaffer: Hey. Good morning. Kyle Girman: In your prior guidance, you referenced plans for a meaningful banker headcount growth into 2026. I believe it was around 15%. I was wondering if you could update us on the progress so far this year, your target for net new producers for 2026, and how that hiring pace factors into your efficiency and revenue guidance. Chuck Shaffer: I will take that. We are about halfway there—that would be a way to describe it. Through the first quarter, we got about half of what we wanted to get done. Through the remainder of the year, we will see what opportunities emerge. We are going to be thoughtful about making sure we manage efficiency and manage the EPS guide we have given, but we will see what opportunities emerge for us. So far, so good. We continue to focus on that, and particularly, as I mentioned earlier, in some of the expansionary markets, we continue to add bankers and remain excited about what is out there for us. Kyle Girman: Thank you. And then maybe I was wondering how your M&A appetite has evolved heading into the back half of 2026, especially with The Villages conversion approaching. Are you actively evaluating in-market or adjacent opportunities in your Florida and Georgia markets, or is near-term focus squarely on the integration and organic growth? Chuck Shaffer: Thanks. Great question. At the moment, it is heads down focused on integration. Obviously, the impacts of this transaction are substantial on the earnings profile of the company. We want to get this absolutely 100% right, and we are going to deliver a flawless conversion. The team is heads down, very focused on it, and I am confident we will get that done. As we come out of that, we would be available to do M&A. We remain focused only on Florida from an M&A perspective. There are only about a handful of banks left that are big enough and in the right markets to be impactful, and if one of those were to emerge, we would certainly look at it. But there is a limited opportunity set as we move through time under that structure. It could be there; it might not be there. Right now, it is focused on The Villages. Kyle Girman: Thank you for taking my questions. Operator: I will now turn the call back over to Chuck Shaffer for closing remarks. Chuck Shaffer: Alright. Well, thank you all for joining us this morning. I am really proud of the Seacoast Banking Corporation of Florida team this quarter. They continue to do an excellent job growing the franchise while working exceptionally hard to deliver an upcoming conversion. A lot of hard work is going on with building around other new tools and AI products, and we are going to come out of 2026 much stronger than we came into it. I could not be more excited about the year ahead, and thank you all for being on the call. We are available for follow-up calls if anybody has them. That will conclude our call. Thank you, Kate. Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good morning, and welcome to the Renasant Corporation 2026 First Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your request, please press star then 0 on your telephone keypad. Please note this event is being recorded. I would now like to turn the conference over to Kelly W. Hutcheson, Executive Vice President and Chief Accounting Officer with Renasant Corporation. Please go ahead. Kelly W. Hutcheson: Good morning, and thank you for joining us for Renasant Corporation's quarterly webcast and conference call. Participating in the call today are members of Renasant’s executive management team. Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Such factors include, but are not limited to, changes in the mix and cost of our funding sources, interest rate fluctuation, regulatory changes, portfolio performance, and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site www.renaissance.com at the press releases link under the news and market data tab. We undertake no obligation, and we specifically disclaim any obligation, to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. I will now turn the call over to our President and Chief Executive Officer, Kevin D. Chapman. Kevin D. Chapman: Thank you, Kelly, and good morning. Two years ago, we challenged ourselves by setting aspirational goals to improve our financial performance. At that time, we targeted 2026 as a key measuring stick that would show the financial benefits of our work. Frankly, the strong results for the first quarter exceed our goals. Adjusted earnings per share were $0.93 in the first quarter, representing a 41% increase year over year. For the quarter, adjusted return on assets grew from 95 basis points in 2025 to 133 basis points in 2026. Our adjusted return on tangible equity grew from 10.3% to 16.3%. And last of all, the efficiency ratio improved from 65.5% to 55.7%. I am extremely proud of our team's accomplishments to remain customer-centric while we went through our largest merger, conversion, and integration. As we move forward, the team is engaged and focused on the priorities for our company to continue to grow customer relationships and hiring talented bankers. I will now turn the call over to Jim to give more details on the financial results. James C. Mabry: Thank you, Kevin, and good morning. Looking at the balance sheet, loans were down $71.8 million on a linked-quarter basis, or 1.5% annualized. Deposits were up $626.4 million from the fourth quarter, or 11.8% annualized. Reported net interest margin decreased 2 basis points to 3.87%, while adjusted margin decreased 1 basis point to 3.61% on a linked-quarter basis. Our adjusted total cost of deposits decreased 3 basis points to 1.94%, while our adjusted loan yields decreased 7 basis points to 6.04%. From a capital standpoint, all regulatory capital ratios remain in excess of required minimums to be considered well capitalized. We recorded a credit loss provision on loans of $8.1 million, comprised of $4.2 million for funded loans and $3.9 million for unfunded commitments. Net charge-offs were $2.3 million, and the ACL as a percentage of total loans increased 2 basis points quarter over quarter to 1.56%. Turning to the income statement, our adjusted pre-provision net revenue was $118.3 million. Net interest income decreased $3.8 million quarter over quarter. Noninterest income was $50.3 million in the first quarter, a linked-quarter decrease of $0.9 million. The decline in noninterest income is primarily related to the recognition in the fourth quarter of a one-time gain of $2.0 million resulting from the exit of low-income housing tax credit partnerships. The absence of this gain in the first quarter was partially offset by strong performance on SBA loan sales. Noninterest expense was $155.3 million for the first quarter. Excluding merger and conversion expenses of $10.6 million in the fourth quarter, this is a linked-quarter decrease of $4.9 million. I will now turn the call back over to Kevin. Kevin D. Chapman: Thank you, Jim. We believe that Renasant Corporation is uniquely positioned to capitalize on organic growth opportunities. We appreciate your interest in Renasant Corporation and look forward to further discussing our results with you this morning. I will now turn the call over to the operator for questions. Operator: Thank you. We will now open the call for questions. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. Please press star then 2 to withdraw your question. At this time, we will pause momentarily to assemble our roster. The first question comes from Michael Edward Rose with Raymond James. Please go ahead. Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions. Just wanted to start on expenses. Obviously, a lot of hard work has been done on the first cost savings. The step down was maybe a little bit better than I think you guys talked about last quarter. Maybe, Kevin, if you can just give us an update on where the merger cost savings stand. I would assume that you have got most of them at this point, but wanted to see if there is anything left. Maybe you can also talk about the reduction in employee headcount that you have had and if we can assume that there would be a little bit of growth off of this $155 million rate that we saw in the first quarter? Just trying to get a near-term outlook. Thanks. James C. Mabry: Michael, it is Jim. I will start, and I am sure Kevin will add some color. We are really pleased with what has happened in that line item. It has been a focus, as you know, for the company for a number of years, and we started to see real progress beginning, call it, 18 months ago, even before we started to see the benefits from the merger with First, we could see it start to bend down. That has been a focus and remains a focus. In terms of where we go from here, as you point out, we hit our goals with respect to expense saves from First, so very pleased with that. I do not see a lot of savings associated with the merger from this point on; I think we have realized most of those expense saves. That is not to say that we cannot do more just as a company as a whole, but I think expenses that are truly related to the merger are pretty much in this run rate. Looking forward, there are a couple of things. We will have merit increases, obviously, in the second quarter, and there is a day-count factor as we look to Q2 and beyond. Those things will cause expenses to drift up moderately. The other variable is we have seen and are seeing opportunities to hire. As you know, there is a lot of dislocation going on in the marketplace, and we have seen that already and expect to see more of it. I would say that is the part of the picture on noninterest expense that will be a little hard to predict because, as Kevin points out, we see opportunities to be opportunistic and we intend to pursue those. From Q1, probably a low single-digit percent increase is a fair expectation, and that factors in some of the hiring Kevin is talking about, but that piece is tough to forecast. At its base, day count and merit are probably low single digits, and then we will see what comes from the hiring that will add to that. Kevin D. Chapman: Yeah, will do. Thank you, Jim. And Michael, good morning. I will just add, you mentioned headcount. If you go back to June 2024, which is when we announced the merger with First in July, but if you look at just our combined FTEs, we were just shy of 3,400 employees. If you take us plus them, that is what our FTEs were. At 3/31, that number will be about 2,950. So we have carved out 450 employees over that time period. Not all of them were due to the cost saves of the merger. Prior to that, Renasant Corporation was highly focused on accountability and ensuring that we had the right team for what we wanted to be. I agree with Jim that our cost save number has been achieved, but the accountability measures and the requirements to be higher performing at Renasant Corporation have not changed. We will continue to focus on that, find incremental ways to improve costs, and reallocate expenses to higher-performing endeavors. That effort will not change. That did not occur because of First; that was happening long before that. Jim also mentioned the new hires. One thing that is hidden in the focus on expenses that we have had over the past couple of quarters is the hiring we have been doing. The cost saves are cost saves, and the expenses where they land today include new hires that we have been making along the past several quarters. In Q1, we hired 18 revenue producers. In Q4, we hired 6, and in Q3 of last year, we hired 9. So if you look at the real cost saves associated with the merger and accountability measures, it is much deeper than what we are showing optically in the numbers. We are extremely excited about the hiring opportunities we have and the market dislocation that is giving us the opportunity to have conversations with extremely talented bankers all throughout the Southeast. And I think we have said it in the past: we grade out your employees A, B, C, D, and S. We will always hire A-rated talent when it is available, and maybe I will say it a little bit more pointedly: we will not flinch at the opportunity to hire A-rated talent. We are seeing that opportunity all around us right now. Michael Edward Rose: That is great color. So not trying to pin you down, but just as a starting point, it sounds like with the puts and takes, a couple of million bucks higher in the second quarter is what we could expect. Is that fair? Just trying to better appreciate a starting run rate and the seasonality aspect. James C. Mabry: I would say from Q1, probably a low single-digit percent increase, and that factors in some of the hiring Kevin is talking about, but that is variable and hard to predict because, as Kevin points out, we see opportunities to be opportunistic and we intend to pursue those. So that is the piece that is a little tough to forecast. But at its base, day count and merit are probably low single digits, and then we will see what comes from the hiring that will add to that. Michael Edward Rose: Perfect. Appreciate that, Jim. Maybe just as a follow-up, I think the one thing you point to this quarter was just the loan contraction. It looks like production was down maybe a little bit more than some of us expected, and down year over year as well despite the addition of First. Maybe you can update loan growth expectations from here. I think last quarter, you talked about mid-single digits for the year. That could be a little tough just given the starting point. Any puts and takes, and then maybe what paydowns would look like? Thanks. Kevin D. Chapman: Yes. We recognize loan growth was slightly down, but it has not changed our outlook for our growth profile. We think we are squarely a mid-single-digit grower. Michael, when I listen to conversations and get feedback from our team, they are active and engaged. If you break down Q1 into the three months, January and February we had good growth. In March, that growth evaporated a little bit. Two things caused that. One was some macro events. We saw some of our pipeline and some opportunities get pushed into Q2. Right now, at the beginning of the quarter, our pipeline is up 30% from where it was at the beginning of the year. So I think some of it is our pipeline got pushed with some macro events. The other thing is that we saw some very aggressive pricing and terms from some incumbent banks that were being aggressive to retain customers. Those two things led to the slight decrease in our loan growth in Q1. We think one of those corrects with that pipeline being pushed into Q2, and we will continue to operate in a very competitive environment and make decisions that are best for Renasant Corporation. In some cases, we may try to match terms; in other cases, we may not. In talking with our team, we still have confidence that over the course of several quarters, we are a mid-single-digit grower. Michael Edward Rose: All right. So it sounds like you are reaffirming the outlook for the year. I will step back. Thanks, guys. Operator: Thank you. The next question comes from Catherine Mealor with KBW. Please go ahead. Catherine Mealor: Thanks. Good morning. I see you reaffirmed the mid-single-digit growth outlook. The deposit growth was really strong this quarter. Can you talk about if any of that was seasonal or should pull back, and how you are thinking about deposit growth relative to loan growth for the year? And with the deposits, what you are seeing on incremental deposit costs as well? Thanks. James C. Mabry: Sure. Catherine, good morning. The first quarter was a good quarter in terms of deposit growth, and there was some seasonality to it, much of that in public funds. We felt some of those tailwinds reverse in Q1 after public fund outflows in the latter half of last year. So a meaningful, call it 50% or 60%, of the growth we saw in Q1 came from public funds, and the balance was core deposit growth. Looking forward, we will have some seasonality here in April with tax season, plus we will start to see some of those public inflows moderate as we go throughout the year and trend downward. Our outlook overall for the year is mid-single-digit growth in deposits. That is the goal and what we are focused on in terms of growing core deposits in that mid-single-digit range. We want that growth to be roughly parallel with loan growth, and that is still our outlook for the year. Kevin D. Chapman: Catherine, I may just add that we recognize public funds are creating some noise. But if you look through that and tie this back to the market disruption, we have seen an uptick in April in new account openings on deposits, and it is a marked improvement. One data point I learned this morning: over the last four days, we have opened up 340 deposit accounts. The normal trend line in 2025 was probably a couple of hundred accounts per month, and over the last four days, we have opened over 300. I think that is an interesting data point that will ultimately show up in the numbers. It also speaks to how our team is responding throughout our markets and meeting the needs of customers who may be uncertain at this moment. As we get into Q2 and Q3, we will see how it plays out with balance sheet growth. Catherine Mealor: That is great. Thank you. Then maybe thinking about average earning asset growth, it looks like the bond book increased this quarter, and maybe that replaced some of the slowness of the loan growth this quarter and that is temporary. Do you expect to continue to grow securities as we move through the year, or do you think the back half of the year is really more geared towards loan growth and the bond book will be a little bit more flat? James C. Mabry: That is the outlook we would hope for. As you pointed out, we did not have quite the loan growth that we anticipated, and that was some of the reason you saw the growth in the bond book. As we go through the year, our securities portfolio is roughly $4 billion, plus or minus, and that is comfortably $1 billion above where we feel comfortable. So there is plenty of capacity there to fund loan growth, and we would expect and hope that the securities portfolio starts to trend downward as we have that loan growth. Some of that will depend on what we see on the deposit side, but you are correct to point out that was a function of strong deposit growth and lower-than-average loan growth in Q1. Catherine Mealor: Great. Thank you. Great quarter, guys. Kevin D. Chapman: Thank you, Catherine. Operator: The next question comes from Matthew Covington Olney with Stephens. Please go ahead. Matthew Covington Olney: Hey, thanks. Good morning. I wanted to follow up on the net interest margin discussion. I think last time we talked on the call, we talked about the margin being relatively flattish for the year with the expectation of a few rate cuts. Would love to hear updated thoughts on the net interest margin absent any rate cuts and any kind of sensitivity you have if the Fed does cut from here? Thanks. James C. Mabry: Good morning, Matt. Our guidance is really unchanged on the margin. Our current forecast does not have any rate cuts in it, even though, as you point out, we had two cuts in our prior model when we had the fourth quarter call. It really does not change the outlook for NIM that much. The outlook from here is stable in the core NIM. If we get a couple of cuts, we do not think that really influences it very much. So I think it is steady as she goes on core NIM for the balance of 2026. Matthew Covington Olney: Appreciate that, Jim. Following up on that, deposit costs look great this quarter and moved down a little bit more. Any more opportunities on the overall funding side for improvement from what we saw in the first quarter? James C. Mabry: I would say not much, Matt. I think we have exhausted much of what we are going to see in terms of repricing opportunities on the deposit side. We still do have, on the left-hand side, loans maturing. I think we have $1.2 billion to $3.0 billion over the next 12 months at about 5% or 5.1%. So that represents some repricing benefit, but not so much on the deposit side. Kevin D. Chapman: Okay. Great. Thank you, Matt. Operator: Next question comes from David Jason Bishop with Hovde Group. Please go ahead. David Jason Bishop: Hey, good morning, gentlemen. Kevin, I am curious—you talked about the hiring opportunities within the market. Are there any specific niches or segments that maybe you are not in that are enticing you here? Or are these the tried and true commercial C&I bankers that you are going to be targeting? Thanks. Kevin D. Chapman: Yes. Not so much niches per se, but we are seeing the opportunity to build out some areas outside of your traditional commercial bankers or bankers in a specific market. We are seeing the ability to more fully develop and mature some business lines that we already have, whether it is some of our secured lending conversations or, in the case of a line of business like wealth management, we are seeing opportunity there. We already have some of these throughout our footprint; this gives us the ability to get more depth and reach in those business lines. We are not necessarily looking to add a new vertical in a lending unit; it is really about adding more bench strength within already established lines of business or some of our established secured lending lines. That is outside of your traditional C&I or market-specific banking team. The opportunity for conversations and hiring is all throughout. With the disruption and how we overlay with the disruption—we created an internal map that overlays our footprint with the markets that are going through disruption—and we overlay nicely with that. To quantify the opportunity, there is over $90 billion in deposits that are currently going through a transformational merger. I am not saying we are going to pick up $90 billion, but it shows the level of disruption that is happening. We also firmly believe there is going to continue to be M&A in the Southeast, and that disruption just gets louder. To be in a position where Renasant Corporation is today—converted, merged, integrated, and focused on customers and employees—that is a very good place to be right now in a world of disruption. Stability is a great place to be in a world of disruption. Specifically to your question, we are having conversations with people that bring sticky business and sticky revenue that will enhance and complement what we do. David Jason Bishop: Great. And one follow-up on the buyback and the aggressiveness there. Holistically, is there any targeted CET1 or regulatory capital ratios that govern how aggressive you are going to be? Thanks. James C. Mabry: Thanks, Dave. Our outlook there is similar to what we talked about in the Q4 call. If we pick CET1 as a ratio, we started the year at roughly 11.25%, plus or minus. Our desired outcome would be to roughly finish somewhere in that range at year end. Balance sheet growth will play a role in that, but our expectation is to take care of whatever balance sheet growth comes our way and make sure we capitalize that, and then continue to lean into buybacks. As you saw, we were active in Q1, and we continued that activity in early Q2. Our goal is to continue to avail ourselves of buybacks. We are very optimistic about our performance outlook as a company, and we like the opportunity to invest in our stock, bearing in mind those capital guardrails. Our goal is to continue to take advantage of opportunities to buy back our stock. David Jason Bishop: Great. Appreciate the color. Operator: The next question comes from Stephen Kendall Scouten with Piper Sandler. Please go ahead. Stephen Kendall Scouten: Yes, thanks, guys. Good morning. Maybe a little bit following up on that line of questioning, but just wondering how aggressive you would see yourselves being in this macro environment—the level of cautiousness versus the opportunity set before you—and a mindset of always wanting to hire A talent when it is out there. How do you balance that as you look ahead to the rest of this year? Kevin D. Chapman: Great question, and I will be very holistic because I think it speaks to our capital plan. This is a long-term plan, and if you look at what we have been doing over the last couple of quarters, we have been fully enacting this. That plan starts with a strong balance sheet, strong capital ratios, and a strong allowance for loan loss. We try to think in terms of optionality and being best positioned in a variety of scenarios. We believe we are well positioned to be opportunistic to deploy capital for future hiring and have capital allocated for future growth. If things get bad from a macro level—if you start looking at the stability of a balance sheet or the strength of a holding company, the cash on hand at a holding company, or in a stress scenario with allowance—we are going to screen out very well in that draconian scenario as well. We can be opportunistic in a good environment or defensive in a bad environment. That is a great place to be in a world of uncertainty where the whole world can change in a matter of minutes. From a return on tangible common equity or return on Tier 1 capital, being at 16% gives us a lot of optionality. It gives us the ability to pay roughly a 30% dividend payout ratio, stockpile capital for future growth, and have extra capital to either stockpile for future M&A, stockpile for future hires and their growth, or look at the option of buying back in the form of a stock buyback. With where we have gotten the profitability of the company, particularly from our return on Tier 1 capital and return on tangible common equity, that gives us a lot of optionality to choose which way we want to lean based on how we see hiring, performance of the stock, M&A, or simply being defensive. We feel like we are well positioned to have that option in our control as opposed to being behind as the environment changes, and it could change rapidly. Stephen Kendall Scouten: That is great color, Kevin. I appreciate the idea of the optionality there. One follow-up: as you think about the concentration of new hires, would you say it has been more about where those opportunities exist currently based on dislocation, or has there been any incremental effort to deepen the newer markets that you entered into from First? Where are those hires concentrated, if at all? Kevin D. Chapman: They are really targeted in markets where we do not necessarily have the market share that we want to have. For example, in North Mississippi, we have done some selective hiring, but our teams have mainly been focused on customer acquisition as opposed to talent acquisition because of the overlap. In other areas and markets, it has given us the opportunity to build bench strength. There are certain parts of our company where it always feels like we are a player or two behind; this has given us the opportunity to get a player or two ahead in those areas and build bench strength, taking pressure off of our current employees. They do a great job, but we want to give them additional support. We are also taking the opportunity to pick up back-office talent. Our back office has tremendous talent, and this gives us the ability to build bench strength and extend our runway to have the potential to grow to higher levels than we are currently contemplating. By adding that staff today, it will give us that runway and optionality to become a bigger bank without immediately meeting growing pains. We are being very selective, but I would say most of it is targeted in either new markets where we want to build out additional footprint and market share, or very selective places where we are adding talent to provide more bench strength. Stephen Kendall Scouten: Great. Very helpful. Congrats on a great start to the year. Operator: The next question comes from Analyst with TD Cowen. Please go ahead. Analyst: Good morning. You have already touched on it, and I understand that payoffs and paydowns you can never really predict precisely. But is it realistic to assume that your CRE loans are going to continue to decline from here and a lot of your growth will be coming from C&I? Or do you have a line of sight into where the low point is on CRE and things are likely to improve in 2026? David L. Meredith: Janet, good morning. This is David Meredith. We will look at it a few different ways. One, CRE is not an area we intend to shrink. We continue to have a great deal of focus on our commercial real estate business. We have some great lines of business that continue to pursue commercial real estate, so it is a dedicated effort we have. There is a lot of noise in commercial real estate. We have had the expectation for an increased level of payoffs for some time based on interest rates and the aging of some properties, so there is going to be a certain level of rotation or volatility in that space as some of them pay off. But we continue to look at new opportunities and continue to be aggressive in that space. Looking at increasing commitments over the last couple of quarters, we have increased commitment levels in our construction book. With the level of equity going into construction projects, it may be six to nine months before you start to see fundings, but we are growing our commitment levels in those areas, and we have done those for the past couple of quarters as well. We will continue to see, based on the interest rate environment, some rotation of loans as they have matured. In the normal course of business for commercial real estate opportunities, borrowers are going to either sell the asset, go to the private debt market, or look for private placement long-term rates—things that are not traditionally a bank-type financing vehicle. So we will continue to see some volatility in that space, but it is definitely an area we are still pursuing at a high level as part of our growth strategy. Along with that, we have seen increased levels of C&I. As you pointed out, we invested in those lines of business—the factoring, asset-based lending, and the corporate C&I effort—and we continue to focus there. But it is a broad base; it is commercial real estate and C&I. We are not being specific in any one area. Analyst: Got it. Thank you for that. It looks like the first quarter fee income saw some strong performance on the SBA loan sales. Where do you see the most upside in terms of fee income opportunities? It looks like there are different puts and takes within the specific line items within fee, but overall it has been growing nicely. How should we think about the pace of your fee income growth from here? James C. Mabry: Good morning. I would say, as you mentioned, SBA is one area that has done really well, and our outlook for the balance of the year would be that, while there are some puts and takes, generally the first quarter is a pretty good jumping-off point. I think there is a chance for some modest improvement there, but it is a good run rate to think about. Mortgage had a good quarter in Q1; it was up a bit from Q4. SBA was good. We did not see—and this relates to some of the commentary about loan production—the capital markets performance that we typically do in Q1. As we start to see that production fall through and become loan growth, I would expect capital markets would exhibit higher levels of fee income. Lastly, wealth is an area that has been very steady. I think that holds promise as we look forward for solid single-digit, mid-single-digit growth and potentially better down the road. We are putting a lot of effort and energy into that area, and with the things we are doing internally with legacy Renasant Corporation and the dislocation around us, I see that as an area that will do well in coming years. Kevin D. Chapman: Jim, I may just add that some of the hiring we have done has enhanced wealth management. You will start to see that revenue lift as we start to exit Q2 and get into Q3 and Q4. I do want to take the opportunity to talk about mortgage. Mortgage was an interesting quarter. If you go back to February, prior to the macro Middle East conflict events and the subsequent rise in rates, the 30-year rate had gotten down to a five handle on a conventional mortgage, and our pipeline popped immediately. It really speaks to how we have built mortgage with the retooling of production we have added. As rates cooperate, that pipeline’s revenue immediately shows up. I know we are not in a position where rates are cooperating with mortgage today; they will continue to slug it out and be profitable. But when rates cooperate, you will see almost an immediate impact for mortgage. You see that a little bit in Q1 because of what happened with rates in February. We wait for the day that we do not have to apologize for mortgage and for being in the mortgage industry. We continue to be well positioned and invest in that arm of our company, and feel like we are really well positioned if rates ever cooperate with us. Operator: We have a follow-up from David Jason Bishop with Hovde Group. Please go ahead. David Jason Bishop: Yes, just a quick follow-up on credit. Trends look fairly well behaved. It looks like there is a little bit of inflow on the nonaccrual side. Maybe some color there. And then, Kevin, holistically, you have taken pride in the reserves as a rainy day fund. Do you think the ACL on loans sits in this mid-1.50% range as you go through the year, or is there a little bit of a bleed if things improve from a macroeconomic perspective? Thanks. David L. Meredith: David, good morning. On the NPL question, we did see a little bit of an inflow and that number has increased somewhat over the last couple of quarters. That increase has been broad-based; there is nothing in particular. For the period, we had about a $24 million increase—about $69 million of new NPLs on $45 million of outflows. We continue to resolve our NPL loans. The inflow was centered in a few larger-dollar transactions—about $7 million in CRE, $19 million in C&I, and a little bit in construction and development—and it was centered in just a handful of loans that we believe we are in a position to work out. The composition of our NPL book continues to be somewhat consistent quarter over quarter. There is not any one area concentrated from an asset type or a geography standpoint. Our average NPL size is small. Looking at our general asset quality, we see some positives. Our 30–89 day numbers continue to be low, and within the breadth of our portfolio, we do not see a broader level of losses. Our charge-offs in Q1 were only 5 basis points. Over the last 12 months, we resolved a high level of NPLs with minimal charge. We feel comfortable that our underwriting is solid and that we are structuring loans properly as we continue to resolve those problems. We will continue to work through NPLs and have processes in place to identify loans early so we can resolve them quickly and mitigate any loss. Kevin D. Chapman: And Dave, I will just add on the allowance. As we look around, credit quality is stable. One thing that concerns us—and this goes back to when we built the allowance in 2020—is all the volatility and uncertainty that is out there putting strain on either consumers’ or commercial businesses’ cash flows. We do not think the macro concerns have alleviated yet. Take what happened in March with energy costs; all you have to do is go fill up your car, and you saw a 30% to 40% increase in 30 days in what it costs just to fill up your car. Ultimately, that has to catch up with people in some way in their cash flows. We will continue to keep what we think is an appropriate level of allowance given the uncertainty. As we have clearer pictures from a macro level, at that point in time we will reevaluate the sufficiency of the allowance. Right now, there is enough macro uncertainty—even though it may not be showing up quantitatively in our credit quality numbers—to keep the level of reserve where it is. David Jason Bishop: Excellent. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Kevin D. Chapman, President and CEO, for any closing remarks. Kevin D. Chapman: Thank you, and thank you to all of those that have joined us this morning. We appreciate your interest in the company and look forward to meeting with you throughout the quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Unknown Speaker: Goodbye.
Operator: Hello and welcome. My name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Carpenter Technology Corporation CRS Third Quarter Fiscal Year 2026 Earnings Presentation Call. Please note that this call is being recorded. After the prepared remarks, there will be a question and answer session. If you would like to ask a question during that time, please press [inaudible]. Thank you. I would now like to hand the call over to John Huyette, Vice President of Investor Relations. You may now go ahead, please. John Huyette: Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology Corporation Earnings Conference Call for the fiscal 2026 third quarter ended March 31, 2026. This call is also being broadcast over the Internet along with presentation slides. For those of you listening by phone, you may experience a time delay in slide movement. Speakers on the call today are Tony Thene, Chairman and Chief Executive Officer; Tim Lain, Senior Vice President and Chief Financial Officer; and Brian Molloy, President and Chief Operating Officer. Statements made by management during this earnings presentation that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter Technology Corporation’s most recent SEC filings, including the company’s report on Form 10-K for the year ended June 30, 2025, Forms 10-Q for the quarters ended September 30, 2025, and December 31, 2025, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when management discusses sales or revenue, that reference excludes surcharge. When referring to operating margins, that is based on adjusted operating income, excluding special items, and sales, excluding surcharge. I will now turn the call over to Tony. Tony Thene: Thank you, John, and good morning to everyone. I will begin on Slide 4 with a review of our safety performance. We ended the 2026 with a total case incident rate of 1.3. We continue to make progress as a result of targeted actions we have implemented across the organization centered on standardized work and disciplined safety practices. As always, we remain committed to our ultimate goal of a zero-injury workplace. Let us turn to Slide 5 for an overview of our third quarter performance. Carpenter Technology Corporation just delivered another record quarter, reflecting the accelerating demand across our high-value markets and our continued strong operational execution. This record performance is best understood through four key takeaways that highlight the strength, durability, and trajectory of the business. One, record earnings. In the third quarter, we generated $187 million in operating income, exceeding our previous record set in the second quarter by 20%. We have earned a reputation for setting meaningful financial targets and then exceeding them, and we did it again this quarter. The ability to increase earnings by 20% sequentially over what was a record quarter, and in a market that is still accelerating, must be recognized as superior performance. We are extremely proud of the Carpenter Technology Corporation team for their commitment to performance and their focus on continuous improvement. Importantly, these record earnings translated directly into another step-change in cash flow generation. In the third quarter, we generated $193.5 million in cash from operating activities and $124.8 million of adjusted free cash flow. Two, expanding operating margins. The SAO segment delivered an adjusted operating margin of 35.6% in the quarter, another new record for the business. This margin compares to 33.1% in the prior quarter and 29.1% a year ago. This meaningful margin expansion clearly demonstrates the impact of ongoing productivity gains, product mix optimization, and pricing actions. As a result of the expanding margins, the SAO segment recorded $208 million in operating income, an increase of 19% sequentially and another all-time record for this segment. Three, strengthening market demand. We see clear and accelerating demand signals across the aerospace and defense end-use market, reflected in both OEM production plans and order intake. Notably, bookings for aerospace structural materials continue to increase, up substantially this quarter. Remember, the submarket for aerospace structural material has been the most impacted by the OEM build rates. Therefore, increasing orders from our aerospace structural customers is a clear signal that the supply chain is accelerating the ramp to support the expected OEM build rate going forward. And four, pricing continues to be a tailwind. As I have said many times, pricing has been and will continue to be a tailwind for the business. Against a backdrop of strong demand, customers are prioritizing security of supply, and we are continuing to realize pricing that reflects the value we deliver. While no long-term agreements were completed in the quarter, several are currently in negotiation. These long-term agreements support attractive economics for us while providing our customers with the supply chain certainty they need, making them strategically beneficial for both sides. Now let us turn to Slide 6 and have a closer look at our third quarter sales and market dynamics. In 2026, we delivered strong top-line growth, with total sales excluding raw material surcharge up 10% year-over-year and up 11% sequentially, reflecting higher volumes and continued pricing strength. The higher volumes were the result of increased operating time, improved productivity, and increasing demand for aerospace materials, primarily in the aerospace structural submarket. Looking ahead, we expect continued productivity improvements and healthy demand across our core end-use markets to support further sales growth. Now let me review our key end-use markets starting with aerospace and defense. Sales in the aerospace and defense end-use market were up 13% sequentially and up 17% year-over-year. Our sales growth reflects accelerating activity across the aerospace supply chain as OEMs continue to push towards higher build rates. Let me give some color on what we see happening in the aerospace market. With backlogs of new plane orders reaching new records every quarter, Boeing and Airbus are ramping production. Notably, Boeing is now consistently producing 42 737s per month. As reported on their recent earnings call, they are poised to go to 47 per month this summer and have their sights set on 52 and beyond due to the growing demand. As a result, the supply chain is building confidence, and our customer order intake has been increasing. Even with the increasing orders, OEMs are still concerned that the supply chain is not ordering material fast enough. We agree. We have seen order intake increase significantly, but we know from experience that it is still not enough to support the desired ramp. Over the last three months, we have had customers reach out requesting urgent deliveries to avoid line shutdowns for specific applications. We also continue to have customers across engine programs telling us our material is needed sooner. The Boeing comment that inventories which had been helping with recent output are now coming down is significant, and it will drive urgency to yet another level. We expect this urgency will continue to spread throughout the chain as inventories run short, further tightening the market for our materials. Moving on to the medical end-use market, our sales were down 9% sequentially and 29% compared to the prior-year third quarter. On a positive note, bookings were up significantly in the quarter, supporting our expectation the medical end-use market will begin to recover and return to growth in the near term. In the energy end-use market, sales increased 32% sequentially and 44% year-over-year, driven by higher volumes supporting industrial gas turbine builds. The demand from our IGT customers, primarily driven by the growing energy needs of data centers, remains strong across multiple platform types and OEMs. Keep in mind that the production flow for the IGT material goes across similar flow paths as aerospace material. As a result, quarterly sales for IGT material can fluctuate due to order timing and production scheduling. Taking a step back, we are clearly operating in an accelerating demand environment across our highest value end-use markets. Combined with our differentiating capabilities and capacity, this positions Carpenter Technology Corporation for meaningful growth, both in the near term and over the long term. Now I will turn it over to Tim for the financial summary. Tim Lain: Thanks, Tony, and good morning, everyone. Start on the income statement summary on Slide 8. Starting at the top, sales excluding surcharge increased 10% year-over-year on 15% higher volume. Sequentially, sales were up 11% on 10% higher volume. The improving productivity, product mix, and pricing are evident in our gross profit, which increased to $251.8 million in the current quarter, up 25% from the same quarter last year and up 15% sequentially. Selling, general and administrative, or SG&A, expenses were $65.3 million in the third quarter, up roughly $2 million both sequentially and versus the same quarter last year. The SG&A line includes corporate costs, which were $27.3 million. This is up $1.1 million sequentially and up $2.9 million from 2025. For the upcoming 2026, we expect corporate costs to be between $25 million to $26 million. Operating income was $186.5 million in the current quarter, which is 35% higher than our 2025 and up 20% from our recent second quarter. As Tony mentioned earlier, this represents another record quarterly operating income result, breaking the previous record set last quarter. Moving on to our effective tax rate, which was 21% in the current quarter. This quarter’s effective tax rate was lower than anticipated, primarily due to discrete tax benefits associated with changes to the estimate for certain tax positions taken in the prior year. For the upcoming 2026, we expect the effective tax rate, excluding discrete items, to be about 23%. Finally, the earnings per diluted share were $2.77 for the quarter. Now turning to the next slide to talk about our cash generation and capital allocation priorities. In addition to the strong earnings performance, we generated meaningful cash flows driven by higher earnings and ongoing efforts to manage working capital closely, particularly inventory. To date in fiscal year 2026, we generated $364.9 million of cash from operating activities. This is roughly two times the operating cash flows when compared to the same period last year. The cash generated from operations more than supports the capital spending in fiscal year 2026. To date, we have spent $157.6 million in fiscal year 2026. This includes the annual targeted capital expenditures of $125 million as well as the brownfield capacity expansion project. As anticipated, capital spending ramped in our recent third quarter, totaling $68.7 million as activities around the capacity expansion project accelerated. A brief update on this project: The brownfield capacity expansion project remains on budget and on schedule. The construction phase is well underway, key equipment deliveries have begun, and the project team remains focused on not only completing construction and installation of equipment, but also preparing for activities to ensure a smooth start-up of operations. As we look to the balance of the year, we expect capital expenditures for fiscal year 2026 to finish at about $260 million. This is below the expectation we set at the beginning of the year based solely on changes in the estimates we made for the timing of cash spending related to the project. This does not change our outlook for the full project that we set out when we announced the expansion. With those details in mind, to date in fiscal year 2026, we have generated $207.3 million in adjusted free cash flow. We are increasing our outlook for free cash flow and currently expect to generate at least $350 million of adjusted free cash flow in fiscal year 2026. As we have said many times before, our adjusted free cash flow generation is important as it enables us to deploy a balanced capital allocation approach that includes investing cash in attractive and accretive growth projects like the brownfield capacity expansion and returning cash to shareholders. To that end, we continue to execute against our repurchase authorization and repurchased $133.9 million of shares in fiscal year 2026. This brings the total to $235.8 million spent to date against the $400 million authorization that we announced in July 2024. In addition to the buyback program, we also continue to fund a recurring and long-standing quarterly dividend. Finally, our ability to deploy capital is also supported by our healthy liquidity and strong balance sheet. Last quarter, we talked about the refinancing actions we took to strengthen both our balance sheet and liquidity. As of the most recent quarter end, our total liquidity was $793.8 million, including $294.8 million of cash and $499 million of available borrowings under our credit facility. Our credit metrics remain very strong, with our net debt to EBITDA ratio remaining well below one times. Altogether, we believe our strong balance sheet and outlook for significant cash generation position us well to fund continued growth and deliver significant shareholder returns. With that, I will turn the call to Brian. Brian Molloy: Thanks, Tim, and good morning, everyone. I will provide some commentary on each of our segments for the quarter. Starting on Slide 11 with our Specialty Alloys Operations segment. SAO delivered an exceptional third quarter marked by strong top-line growth, record margins, and another step-change in operating income performance. SAO’s performance was supported by continued improvements in productivity across our facilities, pricing realization, product mix optimization, and higher available uptime versus the prior quarter. Net sales excluding surcharge were $585 million in the quarter, up 13% year-over-year and 11% sequentially, with both comparisons driven by higher volumes. The growth was led by improving demand in the aerospace and defense market, as well as continued strength in energy, especially from IGT customers. Adjusted operating margin increased to a record 35.6% in the quarter, marking the seventeenth consecutive quarter of margin expansion and exceeding the prior record set just last quarter. Keep in mind, there are short-term factors that could impact what operating margins can be in any given quarter, most notably the mix of products. While quarterly margins can vary based on product mix, the underlying trajectory remains clearly upward, supported by our core structural drivers: productivity, mix, and pricing. As a result of top-line growth and expanding margins, SAO delivered operating income of $208 million in the third quarter, the highest quarterly result in the segment’s history and a significant sequential increase. The SAO team has clearly risen to meet the challenge and is operating at a high level across the organization, from the commercial team working with customers to provide solutions, to our production planning team optimizing our manufacturing system to ensure that the highest margin materials are prioritized across flow path, and to the manufacturing team, the backbone of our operations, improving productivity at each shift to ensure we consistently produce at high levels to meet the growing demand. But the SAO team is not content with our current success. We believe we can do better and are looking forward to continuing to demonstrate record-breaking performance. Looking ahead to the fourth quarter, SAO remains focused on sustaining this momentum by optimizing product mix for margin, closely managing production planning and capacity, and continuing to drive productivity and cost discipline. Based on current visibility, we expect SAO to generate operating income in the range of $24 million to $228 million in the fourth quarter, representing yet another strong step forward for the segment. Now turning to Slide 12 and our PEP segment results. Net sales excluding surcharge in 2026 were $90.6 million, up 17% sequentially and down 6% from the same quarter a year ago. The sequential improvement in sales was driven by increasing sales in aerospace and defense. Year-over-year, aerospace and defense sales were also higher but were more than offset by a year-over-year decline in medical sales in our titanium business. The softness in the medical market continues to be in certain titanium products for a specific set of medical distribution customers, which has had an outsized impact on our titanium business. As Tony mentioned in his comments, we are seeing an increase in bookings and are optimistic about a return to a growth trajectory in the medical market. Our teams in DiaMed continue to focus on what they can control, like productivity, equipment reliability, and overall consistency—very similar to the dynamics in SAO. More recently, although a smaller piece of PEP, a bright spot has been our additive business, where our material solutions continue to benefit from strong demand. The growing demand in additive is driven primarily by the aerospace and defense end-use market, where our value proposition for highly specialized products and capabilities supports our customers’ needs. PEP reported an operating income of $6.7 million in the current quarter, which is, as we expected, largely in line with our recent second quarter. We currently anticipate the PEP segment’s operating income for the upcoming fourth quarter to be in line with 2026. With that, I will turn the call back to Tony. Tony Thene: Let me close as I have the last couple of quarters with why Carpenter Technology Corporation is a compelling story for existing and potential shareholders. One, we have an enviable market position in the industry. We are at the beginning of a major growth cycle, especially in the aerospace and defense end-use market, with the accelerating aerospace build rates driving higher demand for our materials. A fundamental supply-demand imbalance in nickel-based superalloys will continue to tighten. Our leading capabilities are differentiated by stringent qualifications necessary to supply advanced materials for aerospace and defense and other key end-use market applications, and our world-class collection of unique manufacturing assets are difficult, if not impossible, to replicate. Two, we have demonstrated a commitment to a balanced capital allocation approach. As Tim noted, we have a healthy liquidity position and a strong balance sheet combined with an impressive cash flow generation outlook, with a long-standing dividend and a robust share repurchase plan. In addition, our strong performance enables us to invest in highly accretive growth projects that accelerate earnings growth but do not materially impact the nickel-based supply-demand imbalance. And three, we continue to deliver record financial results with a strong earnings outlook. We just completed another record quarter of profitability, driven by significant margin expansion in our SAO segment. It is important to keep in mind that we are delivering record earnings even at a time when the aerospace and defense market is at the beginning of this growth cycle. Today, we increased our operating income guidance for fiscal year 2026 that implies at least a 33% increase over a record fiscal year 2025. I do not know if anyone in our industry can say they have a stronger earnings outlook than Carpenter Technology Corporation. Looking forward, our current fiscal year 2027 earnings target is outdated and does not reflect our current earnings momentum. Further, with the demand environment accelerating, especially in aerospace and defense, we are confident our financial outlook will continue to improve beyond fiscal year 2027. We will provide an updated view, including fiscal year 2027 guidance, on our next quarter’s earnings call. Carpenter Technology Corporation checks every important shareholder criteria box. To date, we have created significant shareholder value, but we are only at the beginning of this growth journey. The best is still to come. Thank you for your attention. I will now turn the call back to the operator. Thank you. Operator: We will now open the call for questions. Your first question comes from the line of Gautam Khanna of TD Cowen. Your line is now open. Gautam Khanna: Hey, thanks. Good morning, guys. Just wanted to ask if you could comment on lead times—if they changed at all broadly—engine and other key submarkets. Also wanted to get a sense for what you think is possible with respect to increasing output. I know you guys are kind of 24/7 full out, but as we think about 2027 and 2028, outside of pricing, how much tonnage could grow over those couple of years? Thanks. Tony Thene: Yes, sure. On lead times, they remain fairly consistent quarter over quarter, but I do anticipate those starting to push out here in the near term. As you well know, we kind of cap lead times anyway based on our order activity, but I see those pushing out as we go over the next couple of quarters even higher than they are right now. Your second question is a really good one, and that is one of the reasons I alluded to the fact that we are producing record earnings when the aerospace market specifically is still accelerating. It is also the reason why we have noted a couple of times the order intake acceleration of aerospace structural materials. Because although you say we are operating 24/7, which is correct on specific process or production flow paths—particularly on the engine side—on some of the other aerospace submarkets, we are not. We have pockets of opportunity there because the structural market was not ordering. So we have a very nice opportunity from a volume standpoint in some of those submarkets over the next couple of quarters and over the next couple of years, as you stated. And I think Brian mentioned in his prepared remarks, we have done a tremendous amount of work on productivity—that just jumps off the page—but there is still a lot more to do there. So from a volume standpoint, Gautam, to summarize my answer, there is still a lot left in the tank for us. Gautam Khanna: Thank you. Appreciate it. Operator: Your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open. Scott Deuschle: Hey, good morning, Tony. For the transactional price increases that you mentioned in the press release, is that mostly referring to favorable transactional pricing for aerospace structural alloys, or are you seeing those transactional prices creep up more broadly across the portfolio? Tony Thene: Scott, remind me. I am not sure I specifically mentioned price in my prepared remarks. I talked about order intake increasing in that specific submarket. I will say that we continue to see pricing as a tailwind for us. Again, you know this very well, but if you see our price per pound potentially being flat, that is good news for our overall earnings because you see structural business being a bigger ratio of our total volume. That is good. It does have a relatively lower price point than, for example, engines. But if you look at aerospace in total, you will still see a positive trend there. So come back with a follow-up if I did not quite answer your question. Scott Deuschle: Okay, yeah, that is fine. And then has the frequency of expedite requests been increasing pretty steadily each month this year, or have those expedite requests been pretty erratic each month? Tony Thene: That is an interesting question. There is a feel that they are a little bit unpredictable from that standpoint, but we are getting those on a pretty regular basis. I think those are going to increase if history is any indication. As I said in the prepared remarks, we share the same sentiment as the OEMs, where they do not believe that the order intake, although increasing, is enough yet. There is concern from the OEMs that suppliers are not ordering enough material fast enough. We agree with that, and I think as that continues to step up, you will get more and more emergency orders. Also, as you all know, I really do not want to be in the emergency order business. I would like for all the customers to order at a nice, consistent pace so we can plan our facilities the best possible way we can. But I do see that increasing for us over the next couple of quarters. I think that is pretty well an absolute. Scott Deuschle: Okay. And then last question. Tim, can you say how much IGT revenues specifically were up in the quarter? And then can you give us an updated sense of how much of the energy mix is now IGT at this point, as opposed to oil and gas? Tony Thene: You see on that one slide, you showed the total energy that was almost 100% driven by IGT. Right now, IGT is dominating that space. Oil and gas is rather subdued from quarter to quarter. So IGT was the big driver of this quarter. Keep in mind also, a big increase in IGT—remember last quarter, I believe, you had a pretty material decrease, and that is just the order patterns of IGT. So I do not get too excited if I see a plus 36% because you had a big order come in; you could be minus 20% the next quarter. But over several quarters, we have seen significant and consistent increase in the IGT business. Scott Deuschle: Thank you. Operator: Your next question comes from the line of Josh Sullivan of Jones Trading. Your line is now open. Josh Sullivan: Hey, good morning. Hey, John—wanted to say congratulations, Tony, to the next phase here. Great job taking Carpenter to these heights. And to Brian, congratulations on the next leg here. Unknown Speaker: Thank you. Josh Sullivan: To follow up on the aerostructures question, Boeing made some comments that above 47 it would take a bigger investment on the supplier inventory side versus some of the previous jumps. When you talk about supply chain underordering, is it your sense that the supply chain is going to see that and tighten up in the near term, or do you think we need to be at above 47, as Boeing is talking about, to really see the supply chain react? Tony Thene: That is a really good question. In many ways, that is the million-dollar question—what is that last piece of information that drives that increased behavior? We speak regularly to our customers about that. I would say every month, you see more and more activity. I do not necessarily think that it needs to be 47 before you see a big jump in activity, particularly on the structural side, only because we have already seen a nice jump up. Now, it is not enough. Another really important point that I made there too, Josh, is where Boeing stated that they have basically exhausted their inventory. That is a key piece of information. Let us see how it plays out, but I do not necessarily think we have to wait for the 47 to see that next push up in orders. Let us see how it goes over the next 30 to 60 days. Josh Sullivan: Got it. And then relatedly, on the cash flow profile for Carpenter Technology Corporation—whenever that does happen and you start to see that order intake, is there any working capital build? I know you guys are out so far in your lead times, maybe not. Just curious when that bow wave does finally hit, is there any thought process on the cash flow profile, or should it be pretty consistent? Tony Thene: I will leave that one to Tim. Tim Lain: I would say it is pretty consistent, Josh, over time. We still think inventory is an opportunity for us. That would be the biggest impact, other than sales increasing and AR and days and things like that. We view all the work that is being done on productivity—inventory is an opportunity. So I do not see us investing heavily in inventory just to meet demand. Josh Sullivan: Got it. And then just one last one on more of the jet engine aftermarket bookings characteristics for the quarter—more aftermarket-related activity given the broader air traffic environment and maintenance market. Any comments you might have there? Tony Thene: Usually, Gautam asks me this question. Engines were up sequentially 24% in sales; year-over-year, 44%. So we still see very strong sales on the engine side. Fasteners were up 9% to 10% sequentially, about 20% year-over-year. We see good movement there. Orders were pretty much in line. We had a big quarter last quarter, and another big quarter this quarter in orders. As I have said before, I think you will continue to see that increase over the next couple of quarters. Josh Sullivan: Thank you. Operator: Your next question comes from the line of Bennett Moore of JPMorgan. Your line is now open. Bennett Moore: Good morning, Tony, Tim, Brian. Congrats on the quarter, and thank you for taking my questions. I wanted to come to defense and wondering if you have seen any uptick in defense-related orders since the onset of the conflict, and maybe if you could provide any color on where you might have more exposure within those submarkets—for instance, munitions versus jets, etc.? Tony Thene: It is a great question. We saw increased activity even in advance of the Middle East conflict with the Department of Defense wanting to revitalize and restock. Just as a reminder, as you start talking about different submarkets there, we are a supplier on many platforms: fixed wing, rotorcraft, naval, missile, armored vehicles. We are across multiple submarkets that are all very program specific. It is a more lumpy order pattern depending on the program. But we see this as a submarket that is going to continue to increase. In many ways, the impact of the conflict has not been felt yet. There could potentially be another push upward on orders just to do that replenishment. That is not always an immediate signal that we see through the supply chain. I think there is probably more to come on the order intake from a defense standpoint, which was already elevated and could go to the next level. Bennett Moore: Thanks for that context. I think this quarter’s buybacks were the strongest since the program started, and despite the Athens CapEx, the free cash flow outlook is improving. How might this impact any capital allocation decisions? Could we expect to see a relatively higher quarterly buyback run rate moving forward? Tony Thene: It is possible. It is a good position to be in. I think it is very important—and I said it in my prepared remarks, and it is critical to our shareholders—that we are going to stay balanced. We are going to have a repurchase program. We are working on our current brownfield—that is our focus. You should anticipate that balance being pretty close to the same going forward. That is how we are going to run the company. I have Brian sitting here right next to me, and he is shaking his head. That is exactly the way he feels as well. Bennett Moore: Understood. Thanks for the context, and best of luck. Operator: Your next question comes from the line of Andre Madrid of BTIG. Your line is now open. Andre Madrid: Tony, Tim, John, thanks for the question, and good morning. I wanted to dig into LTAs a little bit further. I think in the release you talked about, and in your comments as well, a willingness to further advance some of those LTAs. There are some that are in the works right now, really pushing for volume visibility and pricing consistency. Is that an indication that you think LTA mix might increase through the coming quarters and years? I am trying to figure out how that mix might evolve with where we are in the demand environment. Tony Thene: That is a good question. Total Carpenter—our percent LTA is in the 40% range. If you look at aerospace only, it jumps up quite a bit; you are in the low 60%. So 60% to 65% of aerospace revenue is under some type of LTA. Honestly, I do not see that changing a lot going forward. There are some customers that do not operate under an LTA based on their preference. What is changing is that customers who historically have been doing business with us under an LTA would like for those to be longer—of course. That is another data point to suggest that they also believe in the tightness of the market, and it is only going to get tighter. That is why they would like to have it longer. We work with each of our customers individually on what is best for both of us. At a high level, I do not see that percentage changing drastically going forward. Andre Madrid: Got it. Pivoting back to aerostructure orders—what kind of quantifiable color can you give there? I remember last quarter you said January month-to-date orders were higher than any month in ’25. Is there a similar metric you can give now to show where demand is for structures? Tony Thene: Without getting into specifics on all the submarkets, you had continued strong order demand for structural last quarter, and you saw a similar type of increase this quarter. So no pullback on the structural side. I think that is going to continue, and that is why we made the point that I do not think the order rate that is coming into us, although it is increasing significantly, is enough yet. Speaking on the structural side and those more distribution value-add customers, even though it has increased significantly, I think there is still a lot more to go there. Andre Madrid: That is really helpful, Tony. I will leave it there and jump back in the queue. Thanks so much. Operator: Your next question comes from the line of Samuel McKinney of KeyBanc Capital Markets. Your line is now open. Samuel McKinney: Hey, good morning. It sounds like some of that fiscal year 2026 CapEx has been pushed into next year. Could you give us a little more color on the reasons behind the delayed cash spend at the brownfield expansion? Tim Lain: Yes, Sam. You are right. We did defer about $40 million of the expected— we set a number for CapEx at the start of the year around $300 million. We are down, and that includes the annual $125 million of targeted CapEx in addition to the brownfield capacity. It is a pretty complex project. You make a set of assumptions on the activities that are going to happen, and then on top of that, you have to project what you think cash payments are going to be relative to different milestones and payment terms—again, a lot of variability. Throughout the year, we were looking relatively positive. We just finished Q3, and we had a good handle on what is going to happen in the next 90 days. It is an indication of the cash, not necessarily an indication of the progress on the project. The project is still on track from a timing and budget perspective. It is really just the timing of cash payments, which is why we reduced the estimate to $260 million for the year for CapEx. Samuel McKinney: Okay. Then I asked this because I know we all get asked about it on our end, and I know you said you would touch on it next call, but the release generally talked about continued momentum into next year. Did you give any thought to updating that existing EBIT guide range for next year given the commercial aerospace production momentum has clearly improved meaningfully since you gave that outlook last year? Tony Thene: It is a good question, Sam—did we give any thought to giving that update this quarter? Yes. We have a very detailed process. I can tell you at a high level what ’27, ’28, ’29, and ’30 numbers are. But I want to drive ownership down throughout the entire organization. We have a process that we do our first cut in the fall. We come back in the spring, and we do a bottoms-up cut of that again—where the commercial team does customer by customer, product by product; operations folks come in piece of equipment by piece of equipment—what the productivity rates are going to be. We are in the process of doing that right now. Brian and I both know what that number in ’27 needs to be, but I want the ownership of the people out on the shop floor that they are not only going to hit that number but exceed that number. I do not want to interrupt a process that has worked very well for us over the last several years. We will be wrapping that up here shortly, and then the next time we speak publicly will be the fourth quarter. You will get it in the fourth quarter. That is how we have done it the last couple of years. That works for us, and that gets buy-in from our entire organization. As I said in my notes, it is clear that the 2027 number as it stands now is outdated, and we will be doing much better than that. Samuel McKinney: That is completely fair. I understand. Thanks, Tony and Tim. Operator: If you would like to ask a question—your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open. Scott Deuschle: Tony, did I hear you right that jet engine revenue was up 44% year-over-year? And then was there any submarket within A&D that moved against you in a meaningful way to offset that? Tony Thene: I did say that. Total A&D was up 17%. You will have different pockets that were plus and minus a little bit. Fasteners were up as well. You had a really, really big structural sales quarter last quarter. This quarter, the structural distribution was actually down from a sales standpoint a little bit, but the orders were high. You know how that works, Scott—it does not always match up in that tight 90-day window. Scott Deuschle: Okay. That is helpful. Thank you. Operator: Your next question comes from the line of David Strauss of Wells Fargo. Your line is now open. David Strauss: Good morning. Thanks for taking my question. The incremental margins that you have been putting up ex-surcharge at SAO have been extraordinary—I think this past quarter, 80-some percent. It looks like you are forecasting or baking in something similar in Q4. How should we think about what might be more normal incremental margins for that business as the structural piece becomes a bigger portion going forward? Tony Thene: David, number one, welcome to the call. We appreciate you picking up coverage. I am going to get Brian involved here to give a high-level comment on operating margins, and then I can fill back in afterwards. Brian Molloy: As you have seen, we have delivered steady SAO margins, and we are very happy with the efforts of the commercial and operating teams to achieve the 35.6% this quarter. We have a strong performance mindset and action plans in place to continue to grow from here. Quarter by quarter, the margin expansion is not going to be linear. There are a lot of factors we mentioned in our prepared comments that can impact operating margins in any given quarter, but overall, we see a positive trend upward. I am not going to start forecasting quarterly operating margins, but I will say that my expectation is that 35.6% is not the ceiling. Expect the dynamics that are driving margins today to only get stronger in the coming years. Tony Thene: I would just add to that because you mentioned structural specifically, and that is a very good point. Certainly, as the market grows—and we want it all to grow—and you see that structural business get higher, that could have an impact. Now, just because something is at lower price does not necessarily mean it is a lower margin because it has a different process flow. We have been able to offset any of the mix movements with some of our other levers. Hopefully that answers your question. David Strauss: Yeah, that is helpful. And then on the price per pound discussion with regard to SAO, how do we reconcile flattish price—relatively flat year-over-year—with engine up so much year-over-year? My understanding is engine price per pound would be higher than structural and fastener. How do we reconcile that? Tony Thene: I do not want to get into a habit of giving price movement by every submarket, but it is a good question. Remember, we are about 65% aerospace. The number you saw was total CRS. You saw some higher sales in some of our non-aerospace markets that have traditionally a lower price. I will give you this: if you look at aero only, year-over-year, price was up almost 10%. That is the real driver. It is so mix dependent. As you see other non-aero submarkets increase in volume—a good thing for overall earnings—that could have a lowering impact on the overall Carpenter total price per pound. David Strauss: Okay. Got it. Thanks very much. Operator: Thank you. I would now like to hand the call back to John Huyette for closing remarks. John Huyette: Thank you, operator, and thank you, everyone, for joining us today for our fiscal year 2026 third quarter conference call. Have a great rest of your day. Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Omega Healthcare Investors, Inc. First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I will now turn the conference over to Michele Reber. You may begin. Michele Reber: Thank you, and good morning. With me today is Omega CEO, C. Taylor Pickett, President, Matthew P. Gourmand, CFO, Robert O. Stephenson, CIO, Vikas Gupta, and Megan M. Krull, Senior Vice President, Data Intelligence and Government Relations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, potential transactions, operator prospects, and outlook generally. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company’s filings with the SEC. During the call today, we will refer to some non-GAAP financial measures, such as NAREIT FFO, adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega Healthcare Investors, Inc. I will now turn the call over to C. Taylor Pickett. C. Taylor Pickett: Thanks, Michele. Good morning, and thank you for joining our first quarter 2026 earnings conference call. Today, I will discuss our first quarter financial results and certain key operating trends. First quarter adjusted funds from operations, AFFO, of $0.82 per share and FAD, funds available for distribution, of $0.78 per share reflect strong revenue and EBITDA growth principally fueled by acquisitions and active portfolio management. Our dividend payout ratio has dropped to 82% for AFFO and 86% for FAD. Our exceptional first quarter results reflect our high-quality capital allocation throughout 2025 and 2026. We continue to find and close RIDEA transactions while still allocating meaningful capital to SNF facilities and UK care homes. We expect our capital allocation and active portfolio management will drive significant future AFFO and FAD growth. Our active portfolio management is highlighted by our planned and partially completed second quarter sales generating $480 million in proceeds. We expect the redeployment of this capital will result in approximately $0.03 of annual AFFO and FAD accretion. I will now turn the call over to Matthew. Matthew P. Gourmand: Thanks, Taylor, and good morning, everyone. We have spoken in previous calls about the team’s focus on creating shareholder value by growing FAD per share on a sustainable basis, and we saw this focus continue to bear fruit in the first quarter, as our FAD per share increased 9.5% over the same quarter last year. This along with a robust pipeline of investment opportunities gave us comfort to be able to increase the low end of our AFFO guidance, moving the midpoint up by $0.02 to $3.22. At the same time, our first quarter investments reflect the breadth of our capital allocation focus. We invested in both triple-net and RIDEA structures, in skilled nursing, seniors housing, and long-term care real estate across the United States, the UK, and Canada. And we closed on our equity investment in Sabra’s operating company. In addition, we are in the process of selling a portfolio of 18 CommuniCare assets for $480 million. Vikas will provide additional details around the sale. However, from an overarching perspective, it was about putting assets into the hands of strong stewards at a price that made sense for each party while also enhancing our credit with CommuniCare. While we would not expect to see this be a core element of our capital allocation strategy, we will continue to evaluate our portfolio and work with our operating partners to find innovative ways to both protect and enhance shareholder value over time. Finally, I would like to thank the team who continue to work tirelessly to execute on our vision as well as our operating partners and their staff who work every day to look after some of the sickest and most frail members of our community. Without them, none of this would be possible. I will now turn the call over to Vikas. Vikas Gupta: Thank you, Matthew, and good morning, everyone. Today, I will discuss the most recent performance trends for Omega Healthcare Investors, Inc.’s operating portfolio, including an update on Genesis, additional detail on our strategic sales, Omega Healthcare Investors, Inc.’s investment activity year to date, and an update on our pipeline. Turning to portfolio performance, core portfolio coverage continues to trend in a favorable direction. Above average coverage levels with our trailing twelve-month operator EBITDAR coverage for our triple-net and mortgage core portfolio as of 12/31/2025 at 1.58x, compared to our third quarter 2025 reported coverage of 1.57x. This represents the highest coverage in our portfolio in over a decade and reflects the combination of a relatively favorable operating backdrop combined with our active portfolio management, where we have focused on strengthening the lease credit across our portfolio. The Genesis bankruptcy process continues to move forward, with a few notable events having taken place in recent weeks. In March, we committed to fund up to $26.7 million, or one third, of a new aggregate $80 million DIP loan. As of the end of the first quarter, we have funded our $25 million of the initial $75 million advance. Proceeds from this new superpriority DIP financing are used to fully repay the original DIP loan and to fund working capital needs. Additionally, the debtor has been advised that 101 West State Street has submitted a qualified financing commitment as required by the asset purchase agreement. The closing date, which can contractually be extended to the end of the third quarter, is conditioned on several factors including receipt of regulatory change-of-ownership approval. We anticipate that 101 West State Street will assume our Genesis master lease and our DIP loan and term loan will be paid off from the consideration received by the debtors at close. We remain confident that our term loan is fully collateralized based on the underlying collateral and the ascribed value of the Genesis estate. These assumptions, along with all elements of the bankruptcy process, are subject to further developments and events in the bankruptcy proceeding. As Taylor and Matthew mentioned, we are in the process of a strategic sale of 18 CommuniCare assets located in Maryland and West Virginia for a contractual purchase price of $480 million and a rent discount at a blended 7.7%. Subsequent to quarter end, 12 Maryland facilities were sold; we expect the remaining 6 West Virginia facilities to be sold in the second quarter. While asset sales are not typically a core component of our capital allocation strategy, the strong pricing offered for these facilities combined with the improvement of our credit with CommuniCare presented an opportunity to realize significant value for our shareholders. Turning to new investments, our transaction activity for 2026 started strong, with $326 million in new investments year to date. Similar to previous quarters, these transactions varied in size and asset type, demonstrating our ability to continue to develop, underwrite, and close accretive transactions in our core asset classes. We continue to support the growth of existing and new operators in the U.S. skilled nursing space and UK care home space, as well as expand our new senior housing RIDEA portfolio. As Matthew said earlier, our primary goal is to allocate capital with a focus on growing FAD per share on a sustainable basis. During 2026, Omega Healthcare Investors, Inc. completed a total of $251 million in new investments not including $13 million in CapEx. These new investments included the previously announced purchase of 9.9% of the equity interest in Sabra’s operating company, the $109 million acquisition of 13 Georgia skilled nursing facilities, and a $10 million investment in an Alabama senior housing RIDEA transaction. Our other first quarter investments included the purchase of a UK care home for $7 million and $27 million in real estate loans. The weighted average yield on these leases and loans was 10.9%. Subsequent to quarter end, we closed $75 million of additional investments. We purchased two Indiana skilled nursing facilities for $33 million and three senior housing facilities in Rhode Island for $42 million. The skilled nursing facilities will be leased to a current Omega Healthcare Investors, Inc. operator at a lease yield of 10%. The senior housing facilities will be operated by Omega Healthcare Investors, Inc. and managed by a third-party manager via a RIDEA structure. Turning to the pipeline, our pipeline includes both marketed and off-market opportunities in the U.S. and UK. A large component of these opportunities are U.S. senior housing assets that will be structured and operated using our new RIDEA platform. As mentioned previously, we have built out our infrastructure at Omega Healthcare Investors, Inc. with an experienced team of investment professionals that are finding deals that meet our investment criteria and then coupling them with proven third-party managers who we believe will deliver on those underwritten expectations. We continue to pursue deals that will achieve IRRs in the mid-teens range. In addition to senior housing RIDEA deals, we are aggressively pursuing both U.S. skilled nursing and UK care home deals. In the UK, we have built out our team to help find off-market transactions and quickly evaluate opportunities with existing and new operators in order to continue deploying meaningful capital through both triple-net and RIDEA structures. I will now turn the call over to Bob. Robert O. Stephenson: Thanks, Vikas, good morning. Turning to our financials for 2026, revenue for the first quarter was $323 million compared to $277 million for 2025. The year-over-year increase is primarily the result of the timing and impact of revenue from new investments completed throughout 2025 and 2026, annual escalators, and active portfolio management. Our net income for 2026 was $159 million, or $0.47 per common share, compared to $112 million, or $0.33 per common share, for 2025. Our adjusted FFO was $260 million, or $0.82 per share for the quarter, and our FAD was $247 million, or $0.78 per share, and both are adjusted for several items outlined in our NAREIT FFO, adjusted FFO, and FAD reconciliations to net income found in our earnings release as well as our first quarter financial supplemental posted to our website. Our first quarter 2026 adjusted FFO and FAD were both $0.02 greater than our fourth quarter AFFO and FAD, with the increase primarily resulting from incremental net income from $585 million in new investments completed during the fourth and first quarters, and revenue from annual escalators of $2 million. These were partially offset by income related to $53 million in asset sales and $88 million in loan repayments over the past two quarters, resulting in a $1.4 million reduction to our first quarter adjusted FFO and FAD, as well as the impact from the issuance of a combined 7.7 million common shares of stock and OP units over the past two quarters to fund the new investments. Our balance sheet remains incredibly strong. Our debt is well laddered, and we have significant liquidity. At March 31, we had $425 million in borrowings on our credit facility. However, we also had $26 million in available cash and assets held for sale which we expect to sell for approximately $480 million. Additionally, we have over $1.5 billion in available capacity on our $2 billion revolver, with our next scheduled debt maturity not until April 2027. At quarter end, our fixed charge coverage ratio was 6.3x and our leverage remained flat at 3.5x. We are excited as our balance sheet and cost of capital continue to position us to accretively fund our active pipeline. Turning to guidance, as we press released yesterday, we narrowed our full year adjusted AFFO guidance to a range between $3.19 to $3.25 per share. This is a $0.02 increase over the midpoint of our February guidance. I would like to take a moment to highlight a few of the guidance assumptions we outlined in our earnings release. Our guidance includes the impact of new investments completed as of April 27, and does not include any additional investments not outlined in our press release. It includes the impact of scheduled loan repayments and expected asset sales. Of the $159 million in mortgages and other real estate loans that are scheduled to mature in 2026, it assumes $65 million will convert to fee simple real estate and that the balance will be repaid. Additionally, $224 million in non–real estate-backed loans at 03/31/2026 are expected to be repaid throughout 2026, which includes approximately $159.5 million in Genesis loans. The 18 CommuniCare facilities and assets held for sale are expected to be sold for $480 million. Our Q1 rent related to these facilities totaled $9.2 million. The high end of the range in our guidance includes, but is not limited to, timing or potential extension of loan repayments and asset sales, additional cash from Maplewood as well as other cash-based operators, and G&A at the lower end of the guidance range, just to name a few. Our 2026 adjusted FFO guidance does not include any additional investments, asset sales, or capital market transactions other than what I just mentioned or that was included in the earnings release. I will now turn the call over to Megan. Megan M. Krull: Thanks, Bob, and good morning, everyone. With the budgetary season well underway in most states, we continue to watch for any signals of state reactions to the OVBBA as it relates to long-term care. As expected, things have been relatively quiet, with most meaningful discussions not expected until sometime next year. On a separate note, over the last year or so, Medicare Advantage has come under scrutiny due to allegations of upcoding, high denial rates, delayed payments, and cost savings not keeping pace with expectations. Last week, bipartisan legislation was introduced in Congress, applauded by industry associations, which addresses just these types of concerns. While I noted last time that Medicare Advantage represents a relatively low portion of our operators’ business, the momentum behind fixing these issues is important to our industry, as similar issues arise in managed Medicaid. Indiana, for instance, which implemented managed Medicaid back in 2024, has decided to unwind that program specifically for the long-term care population in nursing homes for very similar reasons that we see in Medicare Advantage. We applaud these efforts to deal with these fundamental structural problems head on to ensure that our payment systems align with the needs of this frail and vulnerable population. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press star then the number one on your keypad. And if you would like to withdraw your question, press star 1 again. We do request for today’s session that you please limit to one question and one follow-up. Your first question comes from the line of Nicholas Joseph with Citi. Your line is open. Nicholas Joseph: Hi. This is Marlon for Nick. Could you please elaborate on the rationale behind the CommuniCare asset sales and whether or not they are indicative of broader conditions in the Maryland and West Virginia markets? Vikas Gupta: Thanks. Matthew P. Gourmand: Hi. Yes. The primary reason for the disposition was opportunistic. We had an opportunity to sell assets and enhance our credit with CommuniCare. We were able to get a bid that we thought was fair to both parties. I think a little bit of it is a reflection that these are both relatively hot markets right now. Both Maryland and West Virginia are markets that people are looking to acquire in, so we took advantage of that to a certain extent. But I do not think you can expect us to be doing this as part of the core business. Occasionally, we will look to divest assets. In this situation, we were also able to enhance our credit, so to the extent that we can continue to do that, we will. But as we look out through 2026, I do not think you are going to see any large dispositions like this happening in the next few quarters. Operator: Got it. Thank you. Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Your line is open. Richard Anderson: Thanks. Good morning, everyone. So when you think about your external growth strategy through all the different layers you mentioned—SHOP, skilled, and care homes—can you talk about your comfort level on the initial yield? How low on the initial yield spectrum are you willing to go if you have line of sight into a reasonable IRR over the long term? Thanks. Matthew P. Gourmand: Yes. I do not think we have a number. I would encourage internally not to see this as a competition to see how low we can go. I think it is more really about trying to find the long-term opportunity. If there truly is a situation today where there is a lot of low-hanging fruit that we can fix immediately, I do not think that there is an element necessarily we ascribe to the lowest we would go. I think we really have to look at (a) what the long-term opportunity is and (b) the visibility around that. Obviously, we would be less reluctant to take a swing at things where there is a cost saving that we know a better manager can operate. I think situations where you are looking at a facility that maybe has very low occupancy and historically had low occupancy—relying on a paradigm shift in that occupancy is probably a level of naivety that we would not underwrite to. But it is contingent on the opportunities that present themselves and the risk-adjusted return that we assign to that. Richard Anderson: Right. So when you think about value add—like a low initial cap rate concept—do you think it would be like a 50/50 split in terms of what you are looking at today relative to a more stabilized entry level? Matthew P. Gourmand: It depends on what the market presents us, Rich. What you are finding right now is the stabilized assets that have the most stabilized margins, high occupancy, relatively newer vintage—they tend to be coming in at lower yields but without that upside. So from that standpoint, we have been fortunate enough to find stuff that is, you know, stabilized 7%, 8%, 9% that we think, with a relatively easy lift, we can take into the double digits. But I do not think that we are going to be looking at the true stabilized assets with a 7% where you are relying predominantly on rate increases to exceed costs to drive that growth, because occupancy and rate, to a certain extent, are already fully baked in. So from that standpoint, I think that most stuff we are going to be looking at is what we would say is value add. Richard Anderson: And then my second question is on RIDEA. Will you take that show on the road a little bit in terms of looking at opportunities in the UK with the RIDEA mindset? Vikas Gupta: Yes. This is Vikas. We actually are looking at a few opportunities right now, so it will become part of our strategy in the UK going forward. Richard Anderson: Thanks very much. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Your line is open. Michael Goldsmith: Good morning. I am here with Dustin Hasbey. Thanks for taking my question. Maybe sticking with CommuniCare—we estimate the cap rate was roughly 7.7% based on a contractual rent, but maybe it was a little bit lower given the EBITDAR coverage and assuming the rent is renegotiated. Is that right? And then also, why do you think the private market for U.S. SNFs is so competitive right now? And is the best path forward for Omega Healthcare Investors, Inc. to focus more on other segments until the competition cools for the SNFs? Thanks. Matthew P. Gourmand: Your math is correct, so you get an A for that. And yes, I think right now the competition has been strong for a number of years. I think a lot of people are looking at this as a long-term secular play. That is part of the reason we really like the space. Ultimately, there has been no net new supply for over a decade in this space. Most states have some sort of restriction on new supply. To the extent that an operator is getting in today, even with, let us say, a mid-6s yield, if they believe that occupancy is going to continue to improve and that they can run these facilities well, the operating leverage that exists within the business alone can move this into the high-single and low-double-digit yields over time for them. And then they have the opportunity once these buildings are stabilized to finance them to HUD, which is obviously relatively low-cost debt. So while there is a strong bid in the market, we do not think it is an irrational bid. We just think that it is reflective of the long-term secular plays that exist, and one of the reasons we are not looking to sell prodigious amounts of our skilled nursing. In terms of opportunities, yes, we are seeing less of them, but we are still seeing select opportunities. I think we are not going to rule out or stop looking at skilled nursing. We are just going to continue to remain very disciplined and look for opportunities that align with what we are trying to achieve from a FAD per share growth standpoint. Michael Goldsmith: Got it. And as a follow-up, noticed another quarter of healthy investing volume for your new SHOP segment. Maybe provide some color on the economics of that Rhode Island portfolio. Does Omega Healthcare Investors, Inc. take more of a hands-off approach to its SHOP operations given it is still a small segment, or are you in the process of building out a data platform and other standard operating procedures related to SHOP? Vikas Gupta: Yes. So this Rhode Island deal falls right in the category of everything we have been about in our SHOP world. We are underwriting to stabilized mid-teens IRRs, and it just follows all the protocols we have been saying. We use our data, underwriting, our entire team to get around it, so it is just a typical RIDEA deal—value add in our book. Matthew P. Gourmand: And then the other thing I would add is you are right—obviously we do not have the level of experience or sophistication of some of our peers who have devoted years and significant amounts of money to rolling out various different technologies and have experience on that side of things. I think our attitude right now is we spend an awful lot of time both hiring people internally who have great experience in this space but also developing relationships as a team to understand really strong operators. Our attitude as of now is we are hiring them because of their expertise, and for us, given our relative lack of expertise in the space, to start second-guessing them straight out of the gate would probably be naive at best. So while we obviously, by our very nature, are extremely focused on what they are doing and seeking to learn from them and understand from them, I do not think we are in a position to necessarily tell them how to run their businesses at this point in time. That is effectively what we are hiring them to do on our behalf. Michael Goldsmith: Thank you very much. Good luck in the second quarter. Matthew P. Gourmand: Thanks. Operator: Your next question comes from the line of Julien Blouin with Goldman Sachs. Your line is open. Julien Blouin: Thank you for taking my question. I wanted to touch on the level of competition you are seeing in the transaction market, specifically in U.S. senior housing or RIDEA structures. We are seeing a lot of capital flowing into this space, so just wondering if you are finding it increasingly more difficult to achieve the mid-teens IRRs you are targeting. Vikas Gupta: Yes, it is competitive. As you know, there are a lot of players in this space now. But as Matthew mentioned, we are looking at a lot of value-add product, and we are finding it. The team is going out there, we are reviewing transactions, and if it fits, it fits. At the same time, everyone has its own underwriting criteria, and for what we are looking for, we continue to find assets. Julien Blouin: Okay, great. And then back to the CommuniCare sale—clearly a strong cap rate just on current rents, but even if we were to assume a resetting of rents to something like your average EBITDAR coverage of 1.5x, that would mean an even lower cap rate, I guess. What kind of buyer is this? Is it a buyer that really sees the potential to change management of the assets and improve operations? Is that a key part of their play? Matthew P. Gourmand: I cannot speak to what their business plan was behind that. What I can tell you is they are long-term players in the space, highly established, like to own the operations and the properties. And I think that their belief is kind of as we spoke to earlier, that there is a 20-year secular play here and that the price that they paid for these assets today, in 10–15 years’ time, may actually look like a bargain given the fact that there is no new supply coming online in most states. So they are an established, reputable player. Beyond that, I cannot speak to what their plans are for the business. Julien Blouin: Thank you. Operator: Next question comes from the line of Omotayo Tejumade Okusanya with Deutsche Bank. Your line is open. Omotayo Tejumade Okusanya: Good morning, guys. I wanted to talk a little bit about Medicare Advantage. We have seen a bunch of healthcare providers report over the past week—UnitedHealth, Humana—all talking about CMS Medicare Advantage and the rollout of these value-based care systems. Some seem to be adopting really well; others are struggling. How do you see this impacting skilled nursing referrals from hospitals over 2026–2027, and does it change anything? How do you expect skilled nursing operators to react to these value-based programs infiltrating the system, so to speak? Megan M. Krull: Like I said last time, Medicare Advantage is not a huge piece of our business. It definitely has less penetration in the skilled nursing space than it does in the general Medicare population. At this point, there is not much in the way that it impacts our operators other than there are certain areas that have higher Medicare Advantage penetration. Sometimes those rates are materially lower than Medicare, and sometimes that means taking a Medicaid resident might make more sense than taking a resident at Medicare Advantage rates. As an industry, I think there is a big push to get those rates up to more reasonable numbers. And like I said in my talking points, there is legislation last week to deal with some of these other issues that are going on, like the high denial rates, where typically you might have a high denial but then if you push back it will get approved. You should not have that type of thing going on. Value-based care is a big thing and something to watch for all of us. Ultimately, we try to partner with the most sophisticated operators, and that plays into their game plan really well. Omotayo Tejumade Okusanya: That is helpful. And then just occupancy trends—the past few quarters have kind of stagnated. What may be happening there? Is it still changing with shift mix? How do we think about that given the backdrop of aging U.S. demographics and limited new supply? Megan M. Krull: I do not think there is any read-through over a few quarters as to what occupancy is doing. The demographics are here and coming, and ultimately you will see that needle move. When you look at our performance, the coverages provide ample coverage for our rent. We are good with where things are, and we expect to see occupancy increase in the next year or two. Omotayo Tejumade Okusanya: Thank you. Operator: Next question comes from the line of Nicholas Philip Yulico with Scotiabank. Your line is open. Next question comes from the line of William John Kilichowski with Wells Fargo. Your line is open. William John Kilichowski: Good morning. Thank you. My first question is just on the transaction market. Earlier, we talked about the competitiveness of SHOP, but I would be interested in the competitiveness of the SNF landscape today. There has been a vacuum of REIT capital and some other capital moving from skilled nursing into SHOP. Are you finding it incrementally any easier to transact in the SNF space given the money that is moving over, or is it still heavily competitive? Vikas Gupta: The short answer is heavily competitive. We were able to find an off-market larger deal that we did in the first quarter, but it is competitive, and a lot of that is coming from the family office space still. Otherwise, we are just not seeing a lot of trading at this time that we like and that fits our investment criteria. William John Kilichowski: Got it. Very helpful. And then my second one for you is that we have got Governor Tim Walz legalizing alcohol in SNFs in Minnesota. What are we thinking for new build-outs—speakeasies or local pub vibes? Vikas Gupta: Is this Medicaid reimbursed? Are non-tenants going to be allowed in? Matthew P. Gourmand: I do not think that is necessarily something that we are looking at right now. Obviously, we have a history of partnering with operators who evolve no matter what the operating backdrop is, even if that includes the use of things previously prohibited in the facility. I suspect that our operators will thrive no matter what the circumstances are. William John Kilichowski: Got it. Thank you. Operator: Next question comes from the line of Nicholas Philip Yulico with Scotiabank. Your line is open. Elmer Chang: Hi. Good morning. This is Elmer Chang on with Nick. Sorry about that earlier—my phone dropped. My first question is on recent senior housing RIDEA communities that you have been acquiring. As you further build out that platform, I know it is dependent on opportunities that may be closer to stabilized assets, but how should we think about underwriting NOI upside to earnings for those recent acquisitions? Matthew P. Gourmand: It is tough for me to be overly precise. Thankfully, we are a $14 billion company and we have put a couple hundred million dollars out. So from that standpoint, I do not think it is going to move the needle that much near term. If you are looking generally at the idea that a blended yield between 7% and 9% coming out of the gate on these things is reasonable, you will not be too far off. Then, hopefully, that will meaningfully improve over time. But given the relative size of it right now, if you are in that ballpark, missing or exceeding expectations is probably going to be limited given the relative size. Elmer Chang: Got it. Thank you. And second, going back to the planned CommuniCare sale, what assumptions in terms of initial yield and future growth are driving your estimates for $0.03 of accretion to FAD that you expect? And how much of the $480 million is going to be reinvested, or maybe already in deals under LOIs or under contract? Matthew P. Gourmand: We went back and forth on what the number was. I wanted to say $0.04 because, technically, putting it back to work at a 10% gives you three and a half pennies, and that rounds up, but we decided to be conservative. So the numbers probably are in the low 9%s in terms of what we are saying. I still think we are going to expect to deploy capital in the 10%s, but that is the math around it. In terms of LOIs, we are not going to talk too much about what is in LOIs today, but this is an interesting market right now. In seniors housing and skilled nursing and care homes, you are seeing probably more appetite and more players than we have seen in well over a decade. This is clearly a space that is exciting people and creating interest, and as a result, there are more competitors out there. But we still, as we look out in the portfolio, see significant opportunities across all three platforms. From that standpoint, I do not want people being confused that just because it is a competitive market that we do not think the pipeline is going to be robust for us over the next 24 months. We are just going to have to be more selective, more creative sometimes in our structuring, and be on the road, quite frankly, finding more off-market deals through relationships. From that standpoint, I think we are in a good place going forward, but nonetheless, it is competitive. Elmer Chang: Thank you. Operator: Next question comes from the line of Michael Albert Carroll with RBC Capital Markets. Your line is open. Michael Albert Carroll: Thanks. I wanted to circle up on the Sabra equity deal. I know that there is a minimum yield to that transaction. It looks like the initial yield is coming in a little bit higher than that. Should we assume growth at a high single-digit to low double-digit rate each year, given the organic growth outlook you are starting to see in skilled nursing facilities and maybe as you layer on new acquisitions and Sabra can continue to grow externally? Is that a good ballpark to think about the growth outlook that that equity investment could potentially generate? Vikas Gupta: This is Vikas. Let me answer that a little differently. As we have said before, you are speaking of our Sabra investment. It is a private company, so we cannot release financial information for them, but we are very happy with our investment to date. It is beating expectations, and we are getting returns slightly above what we thought we would get. Sabra plans to keep growing and they think like us—good, smart transactions that are accretive. We plan that there will be further growth here above our underwritten expectations. Michael Albert Carroll: That is helpful. And circling back on Maplewood, has there been any discussion to transition that Maplewood investment into a pure RIDEA contract? I know that Omega Healthcare Investors, Inc. still gets a lot of the upside given how it is struck in the net lease side, but does it help to simplify that agreement? Vikas Gupta: To be honest, that is what we are doing right now. We see it as a RIDEA asset now, so we do not see the need to do that. We thought about it from time to time, but right now, we are truly treating this like our RIDEA asset. All of the cash flow comes to Omega Healthcare Investors, Inc., and the team receives promotes for hitting certain cash flow hurdles. At this point, we do not see a need for a structural change. Michael Albert Carroll: Great. Appreciate it. Operator: Next question comes from the line of Juan Carlos Sanabria with BMO Capital Markets. Your line is open. Juan Carlos Sanabria: Hi. Good morning. On building out the team in SHOP or RIDEA, how should we think about that? Is that more on trying to source opportunities, or inclusive of building out asset management capabilities? Vikas Gupta: Again, the answer is all of the above. We have hired a lot of smart people to help us step up our investment criteria and underwriting abilities, to go out there and find more relationships. For example, we have boots on the ground in the UK now to find off-market transactions for us. Additionally, both on asset management and accounting, we have hired a good bit of people to help us manage our transactions after they close. Juan Carlos Sanabria: And then there is some news about litigation and some punitive damages awarded to victims, where the REIT was held culpable—at the time it was Colony Capital, not DigitalBridge. Thoughts there, and does that change the calculus at all or make you more hesitant on these transactions potentially in states like California where it is more litigious? Megan M. Krull: I would like to think that was a one-off unique situation because REITs do not get involved in the operations and are not involved in the patient care. To hold a REIT accountable for care that they are not providing does not make sense. But we will continue to watch the various different areas and make sure that is part of our investment thesis. Juan Carlos Sanabria: Thank you. Operator: Next question comes from the line of Wesley Golladay with Baird. Your line is open. Wesley Golladay: Good morning, everyone. Quick question on how the SNF pipeline is evolving for the broader market. Are you starting to see more operators stabilizing assets and going directly to HUD? Vikas Gupta: This is Vikas again. To be honest, we are not seeing a lot of SNF assets trading at all right now. I think people are sitting on their assets and taking them to HUD. We have seen broken deals pop up from time to time, and I think we are going to start seeing more of those in the future. Wesley Golladay: For those, would you look to loan on those or buy them outright? Vikas Gupta: Buy them outright. Wesley Golladay: Thank you. Operator: Next question comes from the line of Vikram L. Malhotra with Mizuho. Your line is open. Vikram L. Malhotra: Morning. Thanks for taking the questions. You have had a nice pickup in FAD over the last several quarters. What are your latest thoughts on the dividend—pushing that higher? And, Matthew, you made a comment on focusing on per-share FAD growth. With all these different levers, where do you think that could trend from today’s growth? Robert O. Stephenson: Fair question. In terms of the dividend outlook, obviously it is a Board decision. But when you think about 2025 at $0.71 of FAD, Q1 this year at $0.78 of FAD, and all the same tools in place to replicate that type of performance, I would think by year end the Board is going to need to start conversations about our dividend. It really just comes down to the velocity of putting some of the capital back to work because the escalators are in place, the portfolio is stable, we have excess cash flow rolling into the balance sheet and into investments, and then you have the pipeline. It is just how fast we recycle those dollars. We will get there—whether it is 2026 or 2027. The tools are all there for us to perform at that level of growth. Operator: Next question comes from the line of Michael Lee Stroyeck with Green Street. Your line is open. Michael Lee Stroyeck: Thanks, and good morning. Maybe going back to the earlier question on UK RIDEA, does the competitive backdrop within the UK compare versus the U.S.? And has there been the same level of cap rate compression that we have seen in the States? Vikas Gupta: There are some new players in the UK. But through our relationships, we continue to find a good bit of deal activity that we can do at our current cap rates. We are still quoting 10%. Michael Lee Stroyeck: That goes for the RIDEA side as well? Vikas Gupta: Yes, that goes for RIDEA as well. A little bit of our RIDEA growth there will be through our current relationships. Same thing applies. Michael Lee Stroyeck: Got it. And then one question on Maplewood. Last quarter, you outlined high single-digit rate increases across that portfolio. Can you provide an update on how 1Q has progressed on that front? Vikas Gupta: The net increases were high single-digit increases, with both D.C. and New York being at the very high end of it. Michael Lee Stroyeck: Got it. Thanks for the time. Operator: Next question comes from the line of Farrell Granath with Bank of America. Your line is open. Farrell Granath: This is Farrell Granath. First, how do you consider the balance between triple-net with potential revenue upside baked into the contract versus a pure-play RIDEA, and how do you consider that in your acquisition pipeline? Matthew P. Gourmand: The Maplewood situation is kind of contrived from the background in terms of how the deal started. At the end of the day, there is an operating team and an operating company that have the rights to those operating profits if and when those profits exceed our rents. I do not think we would necessarily be looking to create that situation again. We have had situations where we have provided a lease with upside upon value realization, and that has worked reasonably well. A lot of that was our first foray into some level of participation in the upside. But now we have torn the band-aid off and gone full RIDEA. I think that is where our preference lies. At the same time, it is about creating alignment of interests with our partners. If someone else wants to participate in that upside and is willing to put capital in, we are open to creative situations—be they JVs, leases with upside, or some form of debt that can convert to equity over time. We are agnostic as to structure. We believe we have a strong underwriting ability and an ability to understand where value can be created, and as long as we see where value can be created and we can share in that value, we can structure the deal however it works for our operating partners and us. Farrell Granath: And on a similar vein, when selecting the operators themselves to enter onto your SHOP platform, how do you underwrite these operators in your selection? Do you focus more on scaled operators or those that are maybe smaller and looking to expand rapidly? Vikas Gupta: We are looking for experienced operators who have a proven track record, and they tend to be regional. They know those markets well and have performed in those markets before. It is a process—we interview several managers, and we pick the best one that fits those criteria. Operator: There are no further questions at this time. I will turn it back to C. Taylor Pickett for closing remarks. C. Taylor Pickett: Thanks all for joining us this morning. Please follow up with the team with any additional questions. Have a great day. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Hello. And welcome to the ExlService Holdings, Inc. First Quarter 2026 Earnings Conference Call. At which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Andrew Tutt, Head of Investor Relations and Capital Markets. Andrew Tutt: Thanks, Jenny. Hello, and thank you for joining ExlService Holdings, Inc.'s first quarter 2026 financial results conference call. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer, and Maurizio Nicolelli, Chief Financial Officer. I hope you have had an opportunity to review the first quarter earnings press release we issued yesterday afternoon. We have also posted a slide deck and investor fact sheet on our Investor Relations website. As a reminder, some of the matters we will discuss this morning are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those factors set forth in yesterday's press release and in ExlService Holdings, Inc.'s filings with the Securities and Exchange Commission from time to time. ExlService Holdings, Inc. assumes no obligation to update the information presented on this call today. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliations of these measures to GAAP can be found in our press release, slide deck, and investor fact sheet. With that, I will turn the call over to Rohit. Rohit? Rohit Kapoor: Thank you, Andrew, and good morning, everyone. We entered 2026 with strong momentum. In the first quarter, ExlService Holdings, Inc. generated revenue of $570 million, up 14% year over year, and adjusted earnings of $0.58 per share, an increase of 20% year over year. Our sustained double-digit growth demonstrates the strength of our competitive position as well as strong execution against our data and AI strategy. ExlService Holdings, Inc.'s recognized industry expertise and leadership in helping clients adopt AI throughout their enterprise is resonating strongly with the market and fueling our growth with new and existing clients. Demand is being driven by scaled deployments of AI inside core client workflows where ExlService Holdings, Inc. delivers measurable productivity, increased effectiveness, and superior risk-based outcomes. Underpinning this growth is a combination of capabilities that has taken over two decades to build. Helping our clients adopt AI in complex regulated industries requires more than technology. It requires deep familiarity with the operational workflows, regulatory frameworks, and data ecosystems that define how our clients actually operate. This is where our unique combination of domain, data, and AI expertise differentiates ExlService Holdings, Inc. and drives superior client outcomes. ExlService Holdings, Inc.'s proprietary data assets, domain-specific AI models, and orchestration capabilities allow us to embed intelligence directly into how work gets done—not as an overlay but as an integrated part of the process. It is one of the key reasons our renewal rates remain high and we continue to grow at market-leading rates. In addition to our segments, we also provide revenue information across two categories, data and AI-led and digital operations. Data and AI-led revenues grew 28% year over year in Q1, and now represent 60% of the company total. We are seeing strong momentum across our full portfolio of data and AI-led offerings, as clients are stepping up the pace of AI adoption and need help with data for AI, design of their agentic AI systems, and reimagining business processes. Most of our clients across verticals need to improve the way that they capture, enrich, and utilize their structured and unstructured data to drive AI outcomes. We are seeing strong market interest in our EXL Data.ai platform, which helps clients preserve domain-specific semantic context as they build new AI-ready data foundations. And we are continuing to leverage AI in solutions that we manage, which is both driving greater efficiencies and creating new value for clients by increasing precision and enabling improved outcomes. We are embedding AI both in our data and AI-led solutions as well as the operations that we manage for our clients. This last point is important and worth stressing. When we successfully embed AI into an existing client workflow, the nature of that engagement changes. It becomes more intelligent, more IP-led, and more value added. The revenue associated with it moves from our digital operations category into our data and AI-led category. As I communicated to you last quarter, in order to provide greater transparency we share in our investor fact sheet a total operations view that combines digital operations and data and AI-led operations that have migrated into our data and AI-led category. In Q1, total operations grew 10% year over year and remains a growth driver for our company's revenue. The reported digital operations revenue after that migration was down 2% year over year. This is by design. We expect this deliberate and planned shift to continue going forward. We saw strong performance across each of our four operating segments to start the year. Insurance grew 13% year over year, representing over a third of our revenues. I am particularly pleased to see it return to double-digit growth. Insurers are accelerating adoption of AI to improve underwriting, claims, and customer experience. We are seeing strong deal activity across all market segments. Healthcare and Life Sciences grew 21% year over year, representing over a quarter of our revenues. Payers and providers are facing rising cost pressures, regulatory complexity, and margin strain. They are turning to ExlService Holdings, Inc. to apply AI at scale to improve productivity and outcomes. Payment integrity continues to be a significant driver of growth along with broad-based strength in analytics, AI services and solutions, and operations. Banking, capital markets and diversified industries grew 8% year over year and represented a quarter of revenue. The quarter saw very high deal activity and we remain confident in continued progress as the year unfolds. International growth markets grew 13% year over year, reflecting successful AI-led expansions in new and existing clients. International markets are an important driver of our long-term growth and global expansion strategy, and we continue to invest in talent and partnerships to expand our footprint. During the quarter, we hosted our annual AI in Action flagship event bringing together senior business and technology leaders from across our client and partner ecosystem. The focus this year was on what it takes to make agentic AI real inside enterprise operations, from building the right data foundations to orchestrating AI across complex workflows. The level of engagement and the participation reinforced what we are seeing in our pipeline. Enterprises are moving from AI curiosity to AI in production. And we are the partner that can help them execute. We are also seeing co-innovation with our technology partners continuing to resonate and earn us industry recognition. ExlService Holdings, Inc. was recently named Advanced Technology Partner of the Year by NVIDIA, Best New Partner of the Year by Genesys, and AI and Machine Learning Market Disruptor of the Year by AWS. These partnerships are not only enabling our differentiated solutions, they are becoming meaningful go-to-market and pipeline contributors. In summary, ExlService Holdings, Inc. entered 2026 with strong momentum, and we have excellent visibility for the remainder of the year. Demand for our data and AI-led services and solutions remains robust, continuing the momentum we saw at the end of 2025. We continue to strengthen our position through investments in capabilities, partnerships, and talent. Our portfolio is well balanced. Our pipeline is strong. And we have high renewal rates. More than 75% of our revenue is recurring or annuity-like, providing revenue stability and a great line of sight for the year. For full year 2026, we are increasing our revenue guidance to a range of $2.3 billion to $2.33 billion, representing 10% to 12% constant currency organic growth. We are also increasing our adjusted diluted EPS to $2.18 to $2.23, representing 12% to 14% year-over-year growth. As always, I want to thank our clients, partners, and employees for their trust and commitment and to our shareholders for their continued support. Before I hand it over to Maurizio, I would like to remind you that we will be hosting our Investor and Analyst Day on May 13 in New York. We will share our multiyear growth framework, AI monetization model, and client case studies that bring our AI strategy to life. For those of you looking to understand the ExlService Holdings, Inc. growth story, this is the event to attend. Please reach out to Andrew for details. I look forward to seeing you there. I will now turn the call over to Maurizio to provide more details on our financial performance. Maurizio Nicolelli: Thank you, Rohit, and thanks, everyone, for joining us this morning. I will provide insights into our financial performance for the first quarter and our revised outlook for 2026. We delivered a strong first quarter with revenue of $570.4 million, up 13.8% year over year on a reported basis and 13.4% on a constant currency basis. Sequentially, we grew 5.1% on a constant currency basis. Adjusted EPS was $0.58, a year-over-year increase of 20.2%. All revenue growth percentages mentioned hereafter are on a constant currency basis unless otherwise stated. Now, turning to segment revenue for the first quarter. The Insurance segment grew 12.6% year over year with revenue of $193.9 million. This growth was driven by expansion and higher volumes in existing client relationships and new wins. Sequentially, Insurance grew 4.4%. The Insurance vertical, including revenue from International Growth Markets, grew 12.2% year over year with revenue of $226.1 million. The Healthcare and Life Sciences segment reported revenue of $151.9 million, representing growth of 21% year over year and 6.8% sequentially. The year-over-year growth was driven by higher volumes in our payment services business and expansion in existing client relationships with other healthcare services we provide. The Healthcare and Life Sciences vertical, including revenue from International Growth Markets, grew 20.9% year over year with revenue of $152.1 million. In the Banking, Capital Markets and Diversified Industries segment, we reported revenue of $127.4 million, representing growth of 8.1% year over year and 4% sequentially. This growth was driven by new client wins and expansion of existing client relationships. The Banking, Capital Markets and Diversified Industries vertical, including revenue from International Growth Markets, grew 9.4% year over year with revenue of $192.2 million. In the International Growth Markets segment, we generated revenue of $97.1 million, up 10.9% year over year and 5.4% sequentially. This growth was driven by ramp-ups and higher volumes with existing clients and new wins across Banking, Capital Markets and Diversified Industries and Insurance. SG&A expenses as a percentage of revenue increased 20 basis points year over year to 20.4%, driven by investments in data and AI-led solutions. Our adjusted operating margin for the quarter was 20.5%, up 40 basis points year over year, driven primarily by improved gross margins. Our effective tax rate for the quarter was 21.9%, down 40 basis points year over year, driven by higher profits in lower-tax jurisdictions. Our adjusted EPS for the quarter was $0.58, up 20.2% year over year on a reported basis. Our balance sheet remains strong. Our cash, including short- and long-term investments, as of March 31 was $266 million, and our revolver debt was $417 million, for a net debt position of $151 million. During the quarter, we spent $13 million on capital expenditures and repurchased 4.4 million shares at an average price of $31 per share, totaling $136 million. This includes 3.35 million shares received upfront as part of the settlement of our previously announced $125 million accelerated share repurchase. We expect to receive the remaining shares in the second quarter. Now moving on to our outlook for 2026. While we remain cautious about the current macroeconomic climate and geopolitical uncertainties, we are increasing our guidance for the year based on our current growth momentum and our strong pipeline. We now anticipate 2026 revenue to be in the range of $2.3 billion to $2.33 billion. This represents year-over-year growth of 10% to 12% on a reported and constant currency basis. This also represents an increase of $20 million at the midpoint, which includes a $2 million foreign exchange headwind from our previous guidance. We anticipate increased investments in data and AI capabilities and solutions for the rest of the year to expand our competitive advantage and continue to drive top-line revenue growth. We expect a foreign exchange gain of approximately $2 million to $3 million, net interest expense of approximately $6 million to $8 million, and our full-year effective tax rate to be in the range of 21% to 22%. We expect capital expenditures to be in the range of $50 million to $55 million. We anticipate our adjusted EPS to be in the range of $2.18 to $2.23, representing year-over-year growth of 12% to 14%, up from our previous guidance of $2.14 to $2.19. To conclude, we had a strong start to the year, demonstrating unique competitive position and participation in high-growth market segments. Despite the current geopolitical uncertainty, our leading indicators remain positive, and we have a highly adaptable and resilient business model, setting us up well for a solid 2026. With that, Rohit and I would be happy to take your questions. Operator: Thank you. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question and one related follow-up today. We will pause a moment to allow the queue to form. We will now open the call for questions. Our first question comes from an Analyst with TD Cowen. Please unmute your line and ask your question. Analyst: Hi. Good morning. Thank you. I wanted to ask here on the growth guide. So good to see the raise. Can you just dig in on the key assumptions for data and AI-led versus digital ops growth and maybe how your views on the industries may shape up? And then, Maurizio, just despite the strong commentary here, it does not suggest any demand impact to you. But would you still say this feels like a prudent outlook for the balance of the year? Rohit Kapoor: Hi. So, our growth outlook—you know, we have increased our guidance for the full year. As you all know, our first quarter is typically a strong quarter, and we had a great first quarter this time. What we have seen is that we have been able to outperform our own expectations in the first quarter. We continue to see good pipeline and good demand for our services, and therefore we have increased our guidance for the balance of the year. The data and AI-led part of our business is actually resonating very nicely in the marketplace. It now represents 60% of our total portfolio and it is growing very nicely. Even for digital operations, as we have shared with you, our total operations is actually growing quite nicely as well, and we continue to see demand out there. If you talk about industries, we continue to see good momentum in insurance, in banking, and in healthcare. Some of the industries where we see a little bit of softness are retail and communications. But a majority of our business is really made up of banking, financial services, insurance, and healthcare, and those are all very strong pipelines and demand for us. We do not really provide a break-up, as you know, between data and AI-led and digital operations, but it would be fair to say that our digital operations will grow slightly below the company average and our data and AI-led piece will be powering the growth of the overall company. I will pass it on to Maurizio to talk about the prudent guidance that we have given. Maurizio Nicolelli: Thank you, Rohit. And, we are seeing very good momentum coming into the calendar year. Q1 is normally a strong quarter for us to really start out the year, and we saw that again this year. We continue to see that momentum going into the rest of the year. One thing to highlight is we did raise our guidance at the midpoint by $20 million, more than our beat in the first quarter, and that does include a $2 million FX headwind from the last time we gave guidance. And then lastly, our guidance is going to be a bit prudent and take into account what is happening in the current macro environment and also the geopolitical uncertainties that are out there. We have three more quarters remaining for the rest of the year. We have very good momentum going into the second quarter and the rest of the year, and we have increased our guide. We are still early in the year, and we will continue to revisit our guide as we go forward. But the big positive here is that we have very positive momentum going into the rest of the year from Q1. Analyst: Okay. That is helpful. That is clear. Maybe on margin. So it looks like you outperformed there as well. Can you just comment on any change in the expectation on adjusted operating margin for the year? And is it investment timing—any cadence expectations—just to help? Maurizio Nicolelli: Sure. You saw our adjusted operating margin come in at 20.5% in Q1, and that is up 40 basis points from Q1 of last year. We always see Q1 being a very strong quarter both on revenue and profitability, and that sets us up very well for the rest of the year in terms of investing to continue to drive double-digit growth for the rest of the year and also going into 2027. So you will see us, as you saw last year, start to make additional investments, particularly into our data and AI capabilities during the rest of the year. And our adjusted operating margin forecast for the rest of the year will be similar to what we have talked about—in that 19% range. Analyst: Alright. Great. Thank you. Operator: Our next question comes from David Koning with Baird. Please unmute your line and ask your question. David Koning: Yeah. Hey, guys. Thanks, and great job again. I guess one question: we hear your clients—just all the companies in the environment right now—are really looking for AI savings. Do you get some of them pushing you on price a little bit, just saying, “Hey, we need to find ways to save to show our CEO, our board, etc., that we are saving money”? Do you see that as a price headwind at all or more of a demand tailwind? Rohit Kapoor: Hi, Dave. Let me provide a little bit of context around what we are seeing around the adoption of AI. Number one, we are seeing clients switching over from AI pilots and AI POCs to AI in production. That is a big change, and that started out early this year. Frankly, that is playing to our strengths and the value that we can add to these relationships. The second thing we are seeing is, as clients think about AI in production, they are quite willing to open up access to their technology systems, to their databases, and allow us to make changes to the end-to-end workflow. As you know, the application of AI has to be driven in conjunction with the transformation of the workflow, and we are in the best position to drive that. The third piece is the commercial model is also changing. What we are seeing is, as clients come to us with the adoption of AI to be implemented and enabled, the commercial model is changing much more towards a fixed-fee and milestone-based payment and an outcome-based model. That allows us to manage pricing and margins and add value to the customer relationship. The negotiations and conversations are much more about providing our clients with deterministic benefits associated with AI adoption and for us to do it in a way that allows us to earn a respectable margin. We are not really seeing clients come to us just asking for price reductions. The price reduction is alongside the transformation and alongside the value creation. David Koning: Thank you for that. And just one follow-up. In the International segment, I know you called out a little uncertainty with the conflict. At 17% of revenue, it actually accelerated pretty nicely in the quarter. Would you expect to see a little deceleration there? Maybe describe what the impacts you think would happen. Rohit Kapoor: Dave, firstly, our International Growth Markets is highly underpenetrated, so the opportunity set out there is enormous. Second, we have very little and very limited exposure to the Middle East. Most of our revenue from clients really comes from the UK, Europe, Australia, and New Zealand, and we are seeing healthy adoption of AI in these geographies. Our goal will be to continue to drive greater and faster adoption of our services in the International Growth Markets. We are not really seeing any direct impact due to the conflict as such. There may be some downstream second-degree or third-degree impacts associated with that with our clients. But frankly, it is very fertile ground for us in the International Growth Markets. We are going to continue to invest in that space by adding more talent and bringing more capabilities, and we think we should be able to grow our International Growth Markets business quite nicely, and it should grow at the same level as, if not higher than, the company average growth rate. David Koning: Great. Thank you, guys. Good job. Operator: Our next question comes from Maggie Nolan with William Blair. Please unmute your line and ask your question. Maggie Nolan: Hi. Thank you. I am curious if you can share any perspective on net revenue retention at some of your largest accounts to help us get at the question of volume versus some of this work migration between types of offerings? Rohit Kapoor: Hi, Maggie. That is a great question and something that we have been paying close attention to. As I said earlier, one of the things happening with our more mature clients is, as they ask us to help them adopt AI into their enterprise workflows, we are able to work on much larger pieces of operations for them as compared to the past, and also work on a lot of work associated with building the right kind of data foundation and new service lines which we would not have engaged with them on previously. The landscape at which we are operating—our TAM—is expanding. It is becoming a much bigger playing field for us. At the same time, we are able to deploy AI and eliminate and reduce the amount of manual effort required to do some of these processes and pass on this productivity benefit to our clients. So if you talk about net revenue retention, it still is a growth story for us because, on a net basis, we are seeing a much wider landscape to play in, and we are seeing the revenue size and the size of the operation actually increase despite providing them with a benefit associated with the manual portion of the work that was being done previously. Maggie Nolan: Thank you. And then I noticed in the prepared remarks a little bit of an emphasis on partnerships. I am wondering if there is anything you can share with us to give us a sense of how that is progressing—like what the partner-sourced pipeline looks like or co-selling metrics—and then any variance in things like the deal cycle when you have partnership involvement. Rohit Kapoor: We have been very pleased with the progression of our partner relationships. As you saw, our partners are recognizing our effort and our differentiated capabilities as compared to some of the other players they might be dealing with. The unique thing about ExlService Holdings, Inc. is that we come at the transformation and the adoption of AI from a process and workflow lens and with knowledge of our clients’ business and operations. Our partners are finding that to be a unique value proposition—the knowledge of the domain and the ability to apply contextual understanding of our clients’ business alongside the technologies that our partners are providing. That is creating a huge amount of value uplift for our clients. These partnerships are resonating. The motion is becoming a lot easier and smoother in terms of our go-to-market strategies, and our partners are recognizing us and giving us these awards as compared to other players. Go-to-market is the more exciting part because now, when we interact with clients, we are able to take our partners there, and our partners are also bringing us into deals in which they are participating. The activity and the deal flow have increased substantially, and we foresee that going into the future as well. Maggie Nolan: Thank you. Congratulations. Rohit Kapoor: Thank you. Operator: Our next question comes from Surinder Thind with Jefferies LLC. Please unmute your line and ask your question. Surinder Thind: Rohit, can you help me understand the step-down in the digital ops segment? Over the past couple of years, that was a high single-digit grower. I think the expectation is more muted. Is the idea here that that correlates with the advancement in agentic model capabilities? Should we expect to maybe a year or two from now see a further step-down in that segment as the models further advance? And then ultimately, is all of that getting recaptured in the data and AI-led segment? Rohit Kapoor: Yes, Surinder. Let me try to go through this step by step. Firstly, if you take a look at total operations, that continues to grow and expand, and in the first quarter, total operations grew 10% year over year. Within total operations, you could split it into two buckets: one is digital operations, and the other is data and AI-led operations. As the adoption of AI increases, we are going to see a bigger shift towards data and AI-led operations, and frankly, that is a very good thing from our perspective because as the operations shift towards data and AI-led, we are putting in more IP, more proprietary assets of ExlService Holdings, Inc., and creating more value for our clients. That business becomes much stickier, much bigger in size, and we control the outcome end to end. Going forward for the remainder of this year, digital operations will likely continue to have the same kind of deceleration of growth that happened in the first quarter, but the shift towards data and AI-led operations is the critical piece. That is positioning the company to be a future-forward company for our clients, and that is what our clients and prospects are looking at, engaging with us in an even more determined manner. That is why we are seeing our pipeline being extremely full and the level of activity very high. We feel very confident about continuing to grow our overall business in this double-digit range going forward. Surinder Thind: And then turning to headcount. You continue to see a strong uptick there. Is that how we should expect the model to evolve over the next couple of years—where there is a spread between revenues and headcount—or should that spread expand in the coming years when we think about getting to a more revenue-per-headcount model as you build out your IP? Rohit Kapoor: If you take a look at Q1, our revenues increased by 14% and our headcount increased by about 11%. If you look at previous quarters and previous years, typically that has been the trend where headcount increase is lower than the revenue increase. We would expect that to continue. Going forward, it depends upon the type of service mix we are providing to our clients and the activities we are undertaking. As we move from digital operations to data and AI-led operations, that is definitely going to result in a lower headcount addition and a much higher revenue uptick. But if we get into newer service lines, it will depend upon the dynamics of those new service lines, and the revenue per headcount will be determined by the characteristics of that particular service line. On a steady-state basis as this transition takes place, you would expect a delta between revenue growth and headcount growth to be about 3%, which is the case right now. But as we go forward, that can shift one way or the other. Operator: Please use the Raise Hand button that can be found on the black bar at the bottom of your screen. Our next question comes from an Analyst with JPMorgan. Please unmute your audio and ask your question. Analyst: Hi. Thanks for taking my question. I was wondering if you could talk about the specific drivers on such strong traction in AI and data services you provide to operations management clients. Was it in any way related to AI model evolution or just clients embracing AI with new budgets? Rohit Kapoor: Our data and AI-led portion of our business has multiple elements: our data management business, our analytical model and services and solutions business, our payment integrity business, and our data and AI-led operations. We are seeing broad-based traction and growth across all of these different service lines. The data management part is foundational, and that is where we are seeing huge demand. The challenge for us is hiring talent quickly enough to fulfill that demand. In other areas, we are seeing a pivot—some of our analytical services are switching over to AI services, and that is a very strong pivot. We are also seeing a very sharp increase in data and AI-led operations. When those conversions move into production, that is driving a faster growth rate of our data and AI-led category. We are very pleased that we have multiple service lines in that category, each with tremendous headroom and all growing very nicely. It is very broad-based. It is not one particular service line driving that growth; it is multiple service lines. That gives us confidence in the sustainability and durability of our business growth. Analyst: Got it. Seems very broad-based. And maybe as my follow-up, our checks are showing that AI-driven automation of business processes from 50% to 80% is 10 times harder than going from zero to 50. Could you touch on what you are seeing in your clients in embracing this next milestone? And is there any progress within the quarter? Rohit Kapoor: The 50% to 80% refers to what metric? Analyst: AI-driven automation of business processes. Rohit Kapoor: When clients want to adopt AI into their operations, it is not simply taking an LLM and pasting it on top of that operation. There is a whole series of work that needs to be undertaken. Number one, the data foundation has to be correct, and the ability to use structured and unstructured data and make that readily usable is a key foundational step. Secondly, the application of the LLM or the AI model needs to be iterated upon and refined as we go forward. Third, there is a very big piece associated with knowledge and understanding of context—bringing together policies, rules, regulations, and how a particular transaction needs to be processed. That knowledge needs to be clearly defined with the use and application of the AI model. Finally, the semantic layer—which is key for creating value for any enterprise AI adoption—needs to be combined using both the probabilistic elements of an LLM and deterministic elements, particularly for regulated industries. Bringing together all of these things, and then putting together guardrails, security, and a number of elements associated with token economics—this is all very complex. We are in a fortunate position that we have done this several times over. We can deliver the business outcomes to our clients, and our clients trust our ability to execute. That is what is driving the growth there. Operator: Our next question comes from David Grossman with Stifel. Please unmute your audio and ask your question. David Grossman: Good morning. Thank you. I think, Rohit, you had mentioned in an earlier question that the NRR is above 100%. We can clearly see that in the numbers. Perhaps you could help us understand how that number has trended over the past couple of years, as well as compare and contrast that with what the IT services companies are seeing—who are struggling—and what is making you different there. As well as maybe talk about the backlog and just how far out you can see that dynamic continuing? Rohit Kapoor: Yes, David. The NRR for us is quite strong and positive. The big reason is that with the adoption of AI, clients are getting more comfortable outsourcing more work and outsourcing more end-to-end process journeys. In the past, they were comfortable outsourcing tasks and pieces of it, but now they are comfortable allowing a partner like ExlService Holdings, Inc. to manage that journey end to end. The reason is that is the only way to transform the journey, take control of the data assets, deploy AI across the workflow, and be held accountable for the outcome. Frankly, the business model change with AI is allowing a very favorable shift compared to previously. Previously, with the adoption of other technologies—whether it was bots or other automation—it was always about whether more work could be outsourced. Now it is the full end-to-end life cycle that can be outsourced. It is a lot better in this AI adoption wave. David Grossman: And how long, Rohit, does it take to go from the beginning to more of a steady state? Rohit Kapoor: A while, David. Setting up the data foundation itself takes a fair amount of time because most of our clients do not have very mature data estates, and putting that in place requires a lot of heavy lifting. Then iterating on the model and making sure that it is working along with the contextual pieces of our clients’ business also requires a fair amount of effort, complexity, and time. This is not a once-and-done piece. Once you implement AI into the workflow, you have to constantly maintain and upkeep it, and there is a managed service portion that needs to be in place because these models will drift over time. You need to apply new context to these models on an ongoing basis. It is a fairly complex piece of work to deliver the outcome and then to maintain it and keep it up. David Grossman: So can the NRR stay above one when you go into the maintenance mode? Rohit Kapoor: We will have to see how that progresses. One of the things we are seeing is, as we deploy AI into the workflow, our clients are starting to offer newer feature sets to their customers in their offerings. They are also willing to offer newer service lines. There is more being added to the existing piece of work, and if that continues, yes, I think the NRR will continue to remain above one. David Grossman: Great. Thanks. So just one quick one on margins. I know you are guiding, Maurizio, to flattish margins year over year—or at least that is what it would appear in the 19 range—and that is despite what looks like favorable mix shift. Is there some dynamic when you migrate from a person-based billing model to more of an outcomes-based model on a short-term basis where there are some transition costs? Or is there something else going on that would result in flattish margins on such strong revenue growth? Maurizio Nicolelli: We had a very good quarter overall on profitability, and you continue to see an uptick in gross margins. If you look at the second quarter of last year, we were at 37.7%. This quarter, we are at 38.9%. Each quarter since then has continued to rise. What you are seeing is us driving profitability there. The offset is continued investment. If you look at our investment line and the level of investment we are making, it is growing faster than revenue overall. We need to continue to invest, particularly in R&D, as we develop more and more AI capabilities. That leads us back to a mid-19% range overall in margins. And if you look at our overall guidance, we are still driving EPS slightly higher than overall revenue, which is one of our stated goals. David Grossman: Got it. Alright, guys. Thanks very much. Operator: Our last question comes from Vincent Colicchio with Barrington Research. Please unmute your audio and ask your question. Vincent Colicchio: Yeah. Rohit, you had mentioned the commercial model has changed, and it often incorporates outcome-based pricing on AI deals. I am curious, what portion of new AI deals involve outcome-based pricing? Rohit Kapoor: We are seeing some AI deals have outcome-based pricing models, particularly those where clients are allowing us to transform their end-to-end processes. That is where they are holding us accountable for the outcomes, and the pricing model is switching over to that. Keep in mind that the adoption of AI is gradual, and that shift is happening over time. There are portions of our business that are already outcome-based—the payment integrity work that we do is completely outcome-based. As that business continues to grow and use a lot more AI in its service line, that portion continues to increase. Anytime we are adopting more AI into the workflow, that is something which is kicking in. The biggest barrier is clients do not have good metrics associated with how to define that outcome and how to attribute responsibility for the outcome. Some of this tends to be a portion on a fixed-fee basis and, over and above that, some sharing of the gain and productivity that we can provide to our clients. That model works well for newer clients that are going into this and wanting to seek the benefit of that outcome. Vincent Colicchio: And could you update us on how robust your acquisition pipeline is and where your priorities may lie? Rohit Kapoor: In this environment, we are seeing a fairly strong pipeline of assets. We want to be very careful in terms of the choice of these assets and make sure they further our ambitions to be the AI strategic partner of choice for our enterprise clients. There are capability sets within the AI enablement workstream that we want to add to. We have consciously picked and chosen the areas where we would like to add more capability, and we are looking at acquisitions on a fairly regular basis. As you know, only when you consummate an acquisition can you really be sure about doing an acquisition. We hope that we will be able to close an acquisition soon, but we cannot comment on the timing as of now. Vincent Colicchio: Thank you, Rohit. Nice quarter. Rohit Kapoor: Thank you, Vincent. Operator: We have no further questions at this time. This concludes our call. Thank you, and have a good day.
Operator: Good day, and thank you for standing by. Welcome to Q1 2026 BXP, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. In the interest of time, please limit yourselves to one question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, VP of Investor Relations. Please go ahead. Helen Han: Good morning, and welcome to BXP, Inc.'s First Quarter 2026 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on 8-Ks. In the supplemental package, BXP, Inc. has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. A webcast of this call will be available for twelve months. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Although BXP, Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release and from time to time in BXP, Inc.'s filings with the SEC. BXP, Inc. does not undertake a duty to update any forward-looking statements. I would like to welcome Owen Thomas, Chairman and Chief Executive Officer, Douglas Linde, President, and Michael LaBelle, Chief Financial Officer. During the Q&A portion of our call, our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call please limit yourself to one and only one question. If you have an additional query or follow-up, please feel free to rejoin the queue. I would now like to turn the call over to Owen Thomas for his formal remarks. Owen Thomas: Thank you, Helen, and good morning to all of you. BXP, Inc. had a successful first quarter. Our FFO per share result exceeded our own estimate by $0.02. Our FFO per share guidance for 2026 was raised by $0.01. We made continued strong progress on our business plan articulated at last year's investor conference by completing significant leasing, closing additional asset sales, and progressing our development pipeline. Last week, we also released our annual sustainability and impact report outlining the positive outcomes achieved for shareholders and other important constituents from our industry-leading sustainability efforts. Our first business plan priority is to lease space and improve portfolio occupancy. There is no question that AI has been and continues to be enormously beneficial to BXP, Inc.'s leasing activity, despite the market anxiety regarding the impact of AI on job creation and resultant leasing demand. We are experiencing direct benefits by leasing space to AI companies in San Francisco, New York, and Seattle, as well as indirect benefits from both leasing space to companies displaced by growing AI firms and to our core financial, legal, and business services clients serving the rapidly growing AI industry. The near- and medium-term negative impacts of AI on jobs are more likely in support functions, which are less present in premier workplaces and in gateway markets. We had a strong first quarter, completing over 1.1 million square feet of leasing. Our in-service portfolio occupancy rose 70 basis points to 87.4%, and the spread between our leased and occupied square footage widened 80 basis points to 3.5%, a precursor to more occupancy gains ahead. The environment for leasing premier workplaces remains healthy and very active. Our current and prospective clients are generally experiencing increasing earnings due to the growing U.S. economy. We are seeing more client growth than contraction in our leasing activity. In many cases, our clients are also upgrading their space and/or location to more readily effectuate their tightening in-person work policies. All of these client factors—growth, more use of space, and upgrading—have led to the consistent strength and outperformance of the premier workplace segment of the office market, where BXP, Inc. is a clear market leader. Premier workplaces represent roughly the top 14% of space and 8% of buildings in the four CBD markets where BXP, Inc. has a major presence. Direct vacancy for premier workplaces in these four markets is 8.5% versus 13.8% for the broader office market, while asking rents for premier workplaces continue to command a premium of more than 60% over the non-premier buildings. Over the last three years, net absorption for premier workplaces has been a positive 11.9 million square feet versus only 420,000 square feet for the balance of the market. For the non-premier workplace segment, all markets had negative absorption except New York City. Given these positive market and client trends and BXP, Inc.'s strong leasing over the last year, we have started to realize our forecasted occupancy gains the last two quarters, reinforcing our confidence that our target of four percentage points of total occupancy improvement over 2026 and 2027 remains achievable. Our second business plan goal is to raise capital and optimize our portfolio through asset sales. During our investor conference, we communicated an objective to sell land, residential, and non-strategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We continue to make great progress. In the first quarter, we have raised $360 million in total net sale proceeds so far this year and $1.2 billion since our investor conference, including land sales for $250 million, apartment sales for $460 million, and office/lab/retail sales for $500 million. Further, we have under contract the sale of three assets with total net proceeds of approximately $40 million and are in various stages of marketing several additional assets. As of now, future net proceeds from dispositions projected in 2026 could aggregate up to an additional $400 million, and we are consistently exploring more asset sales. We have been able to achieve attractively valued land sales by creatively positioning our office land for more valuable uses, particularly residential. Across multiple jurisdictions, we have received or are pursuing entitlements for over 3,500 residential units on land intended for office use, which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We have now sold three high-quality stabilized apartment buildings, which we built, all at a mid-4% cap rate. A notable office transaction we completed in the first quarter was the sale to our partner of our 50% interest in the Marriott headquarters building in Bethesda, Maryland, which we developed in 2021. The 743,000 square foot building is fully leased to Marriott and sold for a gross price of $430 million, or $589 per square foot, and a 6.8% initial cap rate. The Bethesda market is not strategic for BXP, Inc. We were able to achieve attractive exit pricing, and the development was very profitable for shareholders, generating a $35 million gain on a $47 million investment. Supporting our disposition efforts, office transaction volume in the private markets remains healthy, with financing available at scale, particularly in the CMBS market. In the first quarter, significant office sales were $14.1 billion, down from the seasonally elevated fourth quarter but notably up 72% from 2025. In addition to the Marriott headquarters sale, there were a couple of other transactions with relevance to BXP, Inc.'s portfolio. In New York City, 575 Fifth Avenue sold for $383 million, $734 per square foot, and a 5.1% cap rate for the office portion of the building. The asset comprises 525,000 square feet and is 90% leased. In San Francisco, the Transamerica Pyramid sold for an allocated price of $600 million, or $1,113 per square foot. The 539,000 square foot building is only 60% leased. The in-place cap rate was 2.9%, but expected to be in the high-7% range in several years once the asset is leased and stabilized. The third business plan goal is to grow FFO through new development—selectively with office given market conditions and more actively for multifamily with an equity partner. For office, we have and expect to allocate more capital to developments and acquisitions because we continue to find premier workplace development opportunities with preleasing that we believe will generate cash yield upon delivery roughly 150 to 250 basis points higher than cap rates for lower-quality asset acquisitions with ongoing CapEx requirements. The trade-off is timing, as developments obviously take several years to deliver. For multifamily, we have three projects with over 1,400 units under construction, or in various stages of entitlement and/or design for nearly 5,000 units, and have one project in Herndon, Virginia, which we plan to commence in 2026. We expect to continue to capitalize new development starts with financial partners owning the majority of the equity. BXP, Inc.'s largest development underway is 343 Madison Avenue, our market-leading premier workplace tower in New York City with direct access to Grand Central Terminal. As previously reported, we have a lease commitment for 29% of the building located in the mid-rise. We are also negotiating leases with tenants for another 27% of the building, which will bring us to 56% committed, with available space at both the podium and high-rise of the tower. Given strong market conditions and the lack of available competitive product, we are making multiple client presentations every week for the remaining space. We have procured 83% of the construction costs, have realized anticipated savings from our original budget, and our projections remain on track for a stabilized unleveraged cash return of 7.5% to 8% upon delivery in 2029. We are in discussions with several potential equity partners for a 30% to 50% leveraged interest in the property and also have an agreed letter of intent with a consortium of banks for construction financing at attractive terms. We intend to complete the recapitalization in 2026. BXP, Inc.'s current development pipeline, comprising six office, life science, and residential projects underway totaling 3.4 million square feet and $3.6 billion of BXP, Inc. investment, will deliver external growth over the longer term. In conclusion, we continue to successfully lease space and improve occupancy, creatively reposition and monetize non-core assets, and de-risk our development pipeline through leasing, construction, and capital-raising successes. New construction for office has virtually halted, leading to higher occupancy and rent growth in many submarkets where BXP, Inc. operates. Debt and equity capital is available for premier workplaces. BXP, Inc. is building market share given our stability and consistent service to our clients and, in many markets, less competition. BXP, Inc. remains comfortably on track with our business plan, which, if successful, will lead to increasing portfolio occupancy and FFO per share, deleveraging, external growth from development, and a more highly concentrated CBD and premier workplace in-service portfolio in the years ahead. I will now turn the call over to Douglas Linde. Douglas T. Linde: Good morning, everybody. I am going to speak to demand for the bulk of my comments. We can debate whether technology companies today are overstaffed, whether remote work strategies have had a demonstrable impact on premier property demand, whether the massive capital investment from data center infrastructure has led to a different perspective on human capital from the large tech companies, and whether new AI models and AI agents will lead to changes in the makeup of the workforce. There are no answers, just conjectures. What we do know is that the U.S. economy has gone through many technology cycles since the invention of the personal computer 45 years ago, and in this cycle today, there is dramatic incremental office demand growth from new organizations that are developing AI. This new technology demand is focused in San Francisco and more recently in New York City. OpenAI and Anthropic are clearly the most recognizable expansions, but there are many meaningful space occupiers expanding across our markets—Databricks, Perplexity, Decagon, Harvey AI, Sierra AI, Snowflake, to name a few—with Decagon and Snowflake being new tenants in the BXP, Inc. roster. It is clear that the clients that are growing are not the tech types that expanded during the last decade, but there is meaningful office-using growth in our markets. CBRE reports that there has been 3 million square feet of positive office absorption in San Francisco over the last seven quarters, including an extraordinary 1.4 million square feet in 2026. This backdrop is important because it is increasingly translating into tangible leasing activity. In the first quarter, BXP, Inc.'s total leasing volume was 1.14 million square feet. As I discussed during our investor day, in-service vacant space leasing and covering near-term lease expirations will drive our occupancy improvements and same-store revenue growth. During the first quarter, we executed leases on 700,000 square feet of vacant space and renewed or backfilled 235,000 square feet of 2026 and 2027 expirations. Post March 31, our current pipeline of leases in negotiation consists of 1.7 million square feet and covers 500,000 square feet of existing vacancies and 500,000 square feet of 2026 and 2027 expirations. We start the second quarter with 1.44 million square feet of executed leases on vacant space that we expect to commence in the next three quarters of 2026. The remaining calendar year 2026 expirations are down to 770,000 square feet. So if nothing else were to change, we should pick up 670,000 square feet, or 150 basis points of occupancy, and end the year at 89%. The majority of our remaining 2026 expirations are known, so near-term upside will stem from leasing currently vacant space with immediate revenue commencement. We ended 2025 with in-service occupancy of 86.7%. Our occupancy at the end of the first quarter is 87.4%, an increase of 70 basis points, with about 57% of that gain stemming from improvements in the portfolio leasing and the balance due to changes in the portfolio, including the sales described in the press release and the suburban office buildings I highlighted last quarter that we removed from service and expect to demolish and then redevelop to higher-value residential uses, consistent with our portfolio optimization strategy. Conversions are progressing quickly in Santa Monica and Waltham. Separately, we are finalizing documentation with an institutional partner to commence development at Worldgate in Herndon, Virginia, where we purchased 300,000 square feet of office buildings and re-entitled this as residential townhomes and apartments. We anticipate closing the venture during the second quarter and immediately commencing construction. We are in active conversations with new and renewing clients across all of our markets. Our total discussion pipeline, in addition to the 1.7 million square feet in negotiation, includes another 1.4 million square feet, and we continue to anticipate a minimum of 4 million square feet of leasing in 2026, consistent with what we put forth in our 2026 guidance. Post March 31, we have executed 300,000 square feet of leases, so the total for the year stands at 1.5 million square feet as of today. We made a change to the way we are reporting our second-generation leasing statistics this quarter. Instead of providing statistics on leases based on the economic impact data at the lease commencement—which is backward-looking—we are showing the change in the rents for all the leases executed in the current quarter where the comparative lease expired during the prior 24 months from the date of the new lease. Since all that data is in our supplemental, I am not going to repeat it. I do have a few comments on the transactions behind the aggregate numbers. In Boston, the data includes a 100,000 square foot lease in the Urban Edge, space that was previously leased to Biogen. In New York, the bulk of the executed leases this quarter were at Times Square Tower, where we backfilled a law firm that was coming off a 20-year term with large blocks. In San Francisco, the largest portion of the leasing was at 680 Folsom. In D.C., we extended a law firm for almost six years through 2038 in exchange for minimal TIs and a current rent reset. This quarter, we executed several large leases—17 leases over 20,000 square feet—with the largest just over 100,000 square feet and a second with an expanding client that took 92,000 square feet. Thirty-four percent of our square footage involved renewals, extensions, or expansions, and 66% was with new clients. Existing client expansions encompassed 150,000 square feet of activity, and we had about 50,000 square feet of contractions. A few comments on our individual markets speak both to the sources of demand and the success we are having leasing vacancy across the portfolio. In the BXP, Inc. portfolio, Midtown Manhattan, the Back Bay of Boston, and Reston, Virginia, continue to have the tightest supply and therefore the most landlord-favorable market conditions. This quarter, the most significant acceleration in activity was in the South of Market in San Francisco, Santa Monica, and the CBD of Washington, D.C. In the Back Bay portfolio, where we are 98.8% leased, much of our current activity is filling in small pockets of availability, but we have begun discussions with larger tenants that have expirations between 2028 and 2032 since there are no premier blocks of availability in the market. In our Urban Edge portfolio, we completed a 100,000 square foot lease with a national restaurant operator at The Core & Weston and a 43,000 square foot lease with a life science company relocating into 15,000 square feet of lab space and 28,000 square feet of office space at 180 CityPoint. Our current Urban Edge activity includes expanding hard tech companies, and additional life science companies are looking exclusively for office space. In New York, the most significant change in our activity has been in Midtown South. At 360 Park Avenue South, we completed another six floors, or 138,000 square feet, of leasing, which brings the building to 90% leased. Last week, we came to an agreement with an existing AI client to expand to an additional floor, which will bring the building to 95% leased. Across Madison Park, we leased an additional 32,000 square feet at 2 05th Avenue, leaving us with only 33,000 square feet of availability, where we had 350,000 square feet vacant in 2025. At Times Square Tower, we executed over 100,000 square feet this quarter, including 85,000 square feet of currently vacant space. In San Francisco, the most significant change in our portfolio continues to be at 680 Folsom and 50 Hawthorne. During the quarter, we executed leases for 103,000 square feet and, in early April, executed another 63,000 square foot lease. Since the beginning of 2024, AI and tech leasing has steadily increased from 50% of the total leasing demand in the market to 57% to almost 80% in the first quarter of this year. As I stated earlier, there has been over 3 million square feet of positive absorption over the last seven quarters. In Santa Monica, we have seen a pickup in interest from clients with near-term lease expirations and the need for new and expanding space. This is a meaningful change from the last few years. The activity in D.C. this quarter was concentrated in two transactions. We did an early 153,000 square foot extension with the anchor tenant at 601–630 Connecticut, and we gave up our regional headquarters at 2200 Penn as part of a 58,000 square foot lease with the Washington Commanders. Currently, activity in the region is still concentrated at Reston Town Center, where we are 97.3% leased. This quarter, we completed seven small leases with defense contractors and professional service firms, and we are in negotiation on over 150,000 square feet of transactions, including 100,000 square feet of 2027 expiring leases where, in aggregate, the tenants will renew and expand. We continue to field inbound requests from law firms that want us to identify sites and develop new projects similar to what we have achieved at 725, 1212, and 2100 M. We have some visibility on the third of these projects today. That wraps up my comments. I will turn it over to Mike. Michael E. LaBelle: Great. Thanks, Doug. Good morning, everybody. Today, I am going to cover our results for first quarter earnings and update our full-year 2026 earnings guidance. For the first quarter, we reported FFO of $1.59 per share, which is $0.02 above the midpoint of our guidance range and $0.01 ahead of consensus estimates. The performance of our portfolio exceeded our expectations by $0.03 per share and was partially offset by a penny of higher net interest expense. Outperformance in our portfolio was comprised of $0.02 better rental revenues and $0.01 of higher termination income. The rental revenue beat was from commencing leases more quickly in both 535 Mission and 680 Folsom, as well as from some leases in the Urban Edge properties in Boston. We also generated more service revenue from our clients, particularly in New York City and in San Francisco, reflecting increased utilization. Termination income for the quarter totaled $12.8 million and primarily related to two clients. In the first case, we proactively took back 25,000 square feet from a client in Washington, D.C., which allowed us to lease 58,000 square feet to the Commanders at 2200 Penn. This is a great trade for us, creating incremental occupancy and extending lease maturity. The second case relates to a client that defaulted on its lease in the fourth quarter last year, when we took a charge totaling $3.6 million to write off their accrued rent balance. This quarter, we received a termination payment totaling $6.25 million, which covers both the write-off from last quarter as well as nearly twelve months of potential downtime in rent. Our net interest expense for the quarter came in higher by a penny per share from lower-than-anticipated interest income and higher commercial paper rates related to the market volatility in the fixed-income markets. CP rates widened by 25 to 30 basis points during the first quarter. The rates have improved in the past few weeks, but they are still not quite back to where they were in the fourth quarter. Now I would like to turn to our updated guidance for full-year 2026. Big picture, we have increased the midpoint of our FFO guidance by a penny per share by bringing up the bottom end to $6.90 per share and maintaining the top end at $7.04 per share. We have increased our assumption for termination income in 2026 by $8 million. It relates to several credit issues we are working through impacting about 200,000 square feet of space that we expect we will get back in 2026. More than half of this space is held in a joint venture, so the financial impact to us is less. The termination income we expect to receive is in lieu of approximately $5 million of lower rental income in 2026 from these clients. These spaces are readily leasable in the current market, and we expect we will be successful in backfilling them quickly. Strong leasing performance across our same-property portfolio is giving us increased confidence in our growth outlook. In our same-property portfolio, we are increasing our assumption for our share of NOI growth over 2025 by 15 basis points to between 1.4% and 2.4%. Keep in mind, we exclude termination income from our same-property NOI assumption, so if not for the lease terminations, we would have increased our assumption for our share same-property NOI growth by an additional 25 basis points. The increase is driven by the robust leasing activity that Doug outlined, which continues to exceed our expectations and supports a stronger occupancy recovery. Reflecting this momentum, we have increased our occupancy outlook for 2026 by 25 basis points to an average for the year of 88.25%. On a cash basis, we have reduced our assumption for year-over-year growth in our share of same-property NOI by 25 basis points, and that accounts for the lease termination activity as well as a couple of early renewals with free rent periods in 2026. In our development portfolio, we expect to deliver 290 Binney Street more than a month early, as we are just about complete with the tenant improvements. AstraZeneca already commenced cash rent payments as of April 1, and we expect to deliver the project by June 1 at the latest. We have two factors impacting our interest expense assumption for the year. First, the early delivery of 290 Binney requires that we cease capitalized interest early. Second, the likelihood for Fed rate cuts later this year has diminished, and we are now assuming that SOFR rates are flat for the remainder of 2026. Including our first quarter result, we have increased our 2026 assumption for net interest expense by approximately $10 million. Overall, we are raising our guidance for 2026 FFO by a penny per share at the midpoint, and our new range is $6.90 to $7.04 per share. The changes come from increases in our assumption for growth in our share of same-property NOI of $0.02, increases in termination income of $0.04, and an increase of a penny from our development activity. These are partially offset by higher interest expense of $0.06. As Owen described, we continue to execute on our plan. We have closed on asset sales generating $1.2 billion in net proceeds, including $360 million so far in 2026, in line with our guidance. We are making great progress at 343 Madison with additional leases under negotiation and active discussions for both private equity capital and construction financing. Importantly, our leasing activity has been consistent and above expectations. Signed leases that have yet to take occupancy for currently vacant space have grown to 1.6 million square feet. Our current pipeline of 3 million square feet of leases either under negotiation or in active discussions is higher than where it stood last quarter. We remain highly confident in our ability to grow our occupancy meaningfully, driving higher portfolio performance and value. That completes our formal remarks. Operator, can you open up the lines for questions? Operator: Thank you, sir. As a reminder, to ask a question, you will need to press 11 on your telephone. To withdraw your question, please press 11 again. We ask that you please limit your question to no more than one, but feel free to go back into the queue. If time permits, we will be happy to take your follow-up questions at that time. Please stand by while we compile the Q&A roster. I show our first question comes from the line of Stephen Thomas Sakwa from Evercore ISI. Please go ahead. Stephen Thomas Sakwa: Yes. Thanks. Good morning. It sounds like all of you have had very positive comments around the leasing environment. Things have certainly gotten better, and the tide seems to be turning in a number of markets like New York, certainly San Francisco and parts of Boston. I guess the question is, to what extent are you able to shorten the time from when you start the discussions to getting leases signed, and then the implications that might have for the TI and CapEx that you might need to be spending on these deals? Can you get tenants in the space faster, and might we see CapEx start to come down? Douglas T. Linde: Steve, this is Doug. The duration of the lease is really dependent upon the aggressiveness of the legal counsel for our tenant. In some cases, we have counsel that are very thoughtful from our perspective, and we can get leases completed in a couple of days. In other cases, it can take six months. I do not think market conditions have really impacted that. I would say our ability to say yes to requests from our tenants in terms of what their counsels are saying is clearly stiffened, so maybe that is why it is taking longer to get leases done in some cases. From a capital expense perspective, there is no question that in the Back Bay of Boston, in Midtown Manhattan, and in Northern Virginia in Reston, we are being more conservative relative to the kinds of concessions that we are offering, meaning they are lower. They are lower in the form of the amount of free rent and the amount of TIs that we are offering. I would say the West Coast still has a pretty significant concession package, largely because there is still a significant amount of space available, even though the demand has accelerated materially. So there are places where it is better, and there are places where it is still, relatively speaking, consistent with what it has been over the last three or four quarters. Operator: Thank you. I show our next question comes from the line of Anthony Paolone from JPMorgan. Please go ahead. Anthony Paolone: Thanks. Good morning. Wanted to follow up on your comment about 80% of demand in San Francisco coming from AI tenants. How should we think about whether that is really incremental demand above and beyond what would be normal, or if it means only 20% of the demand is coming from outside of AI? What does that tell us about the rest of the tenants in the market? Douglas T. Linde: I will start, and I will let Rod comment. My inference is that there is a clear acceleration of technology—defined as these new AI-oriented companies—that are absorbing the majority of the incremental space absorption in the market. What has changed, and it has changed dramatically, is if you went back to 2010 to 2019, virtually all of the absorption was coming from the tech titans—Google, LinkedIn, Microsoft, Meta—the larger companies. That has clearly shut down. None of those companies are expanding in any material way in the city of San Francisco. In fact, some of them have given back space. I would say that the amount of space that is being absorbed has accelerated. I cannot tell you if that is going to hold on a consistent basis for the next three to five quarters, but these companies are aggressively hiring people, relatively speaking, and they have made a decision that in-place work is critically important to their business strategies. Those are all great indicators from our perspective. The professional services and business services firms have not expanded the way they are expanding in Midtown Manhattan. We are hopeful that as these companies become public and they change their capital flows and that improves the overall wealth creation on the West Coast, there may be more material improvements in financial services and professional services and mid-business and administration services. Rodney C. Diehl: I think you covered most of it, Doug, but I would just add that on the topic of the non-tech companies—the traditional tenants—and we have many of them, particularly at Embarcadero Center, what we are not seeing is downsizing. They have gone through that already, and we have executed a handful of different renewals with those types of tenants and some new tenants coming in. I would say they are stable. Then, when you look to the flip side and think about where the demand is growing and where it is coming from, it is what you would expect from the Bay Area, which is a tech-driven market, and these are tech companies that are driving the market right now. There are 20 requirements that are over 100,000 square feet—that is about 3.3 million square feet in San Francisco specifically—and a year ago, that number was about 12 requirements. It has definitely increased, and it is great. As Doug said, these are with companies that we had not heard of before. It is new, emerging, growing companies. So it is very positive. Thank you. Operator: I show our next question comes from the line of John P. Kim from BMO Capital Markets. Please go ahead. Mr. Kim, your line is open. Do you have your phone on mute? John P. Kim: Sorry about that. At 343, you talked about lease negotiations for another 27% of space. There has been some media speculation of who that is. Can you discuss whether that space represents consolidation of space, expansion, or musical chairs? Douglas T. Linde: This is Doug. It is tenants—it is not a single tenant. It is some consolidation and some growth. John P. Kim: Thank you. Operator: I show our next question comes from the line of Nicholas Philip Yulico from Scotiabank. Please go ahead. Nicholas Philip Yulico: Thanks. Mike, I wanted to ask about lease CapEx. It was higher this quarter—$178 million hit the FAD calculation. I think last call, you said for the year it could be $2.20 to $2.50. Can you talk about what drove that and how to think about leasing CapEx for the rest of the year? Michael E. LaBelle: It was driven by several early renewals that we did a couple of years ago that hit this quarter—over 1 million square feet of that. If you looked at leasing cost per square foot, they were about $10 per square foot per lease year, which is pretty reasonable and well within the range we would expect. It was just these early renewals that hit that caused FAD to be higher. I would not expect that to continue at those levels for the next few quarters. But I do expect that, for the year, our lease transaction costs will be higher given the start that we have at $175 million for the quarter. I would anticipate that our leasing costs will be in excess of $400 million based upon occupancy growth that we anticipate, and there are a couple of other early renewals that are going to be coming in the second and fourth quarter. Operator: Thank you. I show our next question comes from the line of Blaine Heck from Wells Fargo. Please go ahead. Blaine Heck: Great. Thanks. Good morning. I was hoping you could talk about the trends you are seeing in the life science segment of the portfolio. You have disposed of your West Coast exposure, and you have had some success in leasing up the Greater Boston portfolio. Is that potentially a source of funds if the transaction market is supportive, or do you still see the overall Boston life science portfolio as a longer-term hold for BXP, Inc.? Douglas T. Linde: The BXP, Inc. life science portfolio is in two submarkets. It is in Kendall Square in Cambridge—we are building our new building for AstraZeneca, and we have buildings with the Broad—and then our life science buildings in Waltham, Massachusetts at 180 CityPoint, 880 and 200 Winter Street, and then at 101/103 when we get that building leased. I do not think that we are looking at exiting any of those markets or any of those buildings. We are clearly seeing a change relative to the demand that is currently in the market toward more office and less lab intensity, and quite frankly, we are taking advantage of that in our traditional office buildings with life science companies. As part of the 1.7 million square feet of leases under negotiation, we signed a letter of intent last night for a life science company that is going to take 49,000 square feet of office space at one of our buildings. I think we will see a continuation of that. There is no question that the life science market has already bottomed out, and things on the margin are getting better in the greater Boston ecosystem. You will find, if you look at incubator-like companies, there is more activity and more interest in those incubators, and hopefully that will, over time, roll into larger companies. There is clearly consolidation in terms of big pharma purchasing life science companies that were born and bred in the Boston ecosystem, which is a good thing. On the margin, things are better. We are strategically going to continue to maintain our portfolio, and we believe in the long-term viability of a life science business in Greater Boston. Operator: Thank you. I show our next question comes from the line of Jana Galan from Bank of America Securities. Please go ahead. Jana Galan: Thank you. Good morning, and congrats on the great leasing. Given the focus on occupancy and speed to occupancy, can you talk about any initiatives like spec suites to attract tech and AI tenants quicker? Do AI tenants have different power or architectural requirements than more traditional tenant groups? Douglas T. Linde: I will let our regional management team answer that question. I would like Brian to talk about turnkey builds, where we are doing a significant amount of what I would refer to as design-and-build for medium-sized companies. Then Jake can talk about our prebuilt suite program in Northern Virginia. Rod, you can talk about what we did and how we were successful at leasing 680 Folsom. Brian, why do you get going? Bryan Koop: Urban Edge is the area we are seeing this type of activity because our portfolio is effectively leased in Boston and Cambridge. On the Urban Edge, we are seeing this turnkey ability with these new emerging companies, several of them in life science. Like Doug said, we are encouraged and feel it has bottomed out. The activity has definitely ticked up. One interesting thing relates to Steve’s earlier question about time to put a lease together. These clients are doing their best to gauge what their growth will be. We will be working on a 30,000 foot deal, and they will say, we have good news, it could be 40,000. That is new. The turnkeys are working out really well. We have only done very small spec builds in that area, but turnkey is fast with quick occupancy. Jake Stroman: In Reston Town Center, we have delivered over 50 spec suites. There are two buildings in Reston that we have coined our incubator buildings. These are buildings for groups that are 4,000 to 6,000 square feet who want to be adjacent to the many corporate headquarters that exist in Reston Town Center. We have been very successful with those prebuilt suites. Often, when we have gone forward to build five to six of them, prior to having drawings and permits in hand, we have already leased those suites. There has been insatiable demand for that space. In terms of power requirements or anything different, nothing really different relative to those spec suites. Often we are doing those on a short-form lease, we are seeing term greater than five years, and very competitive rental rates. Rodney C. Diehl: At 680 Folsom, spec suites were a key part of our strategy. We did a full-floor spec suite—34,000 square feet—last year. It was extremely well received. We were able to show prospective clients what it would look like, and our activity increased quickly. The activity we reported is largely based on that strategy. This is nothing new for us. We have been doing this for many years, and we continue to do it across our properties in the Bay Area. Most tech companies need the space quickly, and when it is built and ready to go, we can deliver it quickly. On the power question, we are not seeing additional power needs in San Francisco offices. We are seeing that in some of our R&D portfolio properties in Mountain View for robotics or different technology companies. Power is definitely something they will seek out. Operator: Thank you. I show our next question comes from the line of Alexander David Goldfarb from Piper Sandler. Please go ahead. Alexander David Goldfarb: Question on the development program. You talked about a new pipeline of deals. Two parts. One, the split between residential—where you are monetizing land or buildings to ultimately sell—versus office. And then as you contemplate office, given where the stock is trading and implied 8% yields, how you weigh starting a potential future office deal versus where the stock is trading right now? Owen Thomas: Good morning, Alex. On the pipeline, as I mentioned, it is about $3.5 billion or so. It is about to shrink because we are going to deliver 290 Binney Street. We do have a portfolio of new development coming. We have talked about a couple that we are doing in Washington, D.C., so I think that will build back up. On residential, you may have a situation where we have more projects, but it will be lower capital. That is the Seventeen Hartwell deal we did—20% of the equity—and SkyMark—20% of the equity. Those are the models you will see going forward. In the future, the amount of capital invested will be greater in office than in residential. On the development yield versus capital allocation decision of starting a new office development at an 8% yield versus repurchasing shares, we think an 8% yield is higher than the underlying yield in the stock. The look-through cap rates are probably somewhere in the 7s for the stock. At 8%, we think development is an accretive activity for shareholders, and it is more attractive than some of the acquisitions I described. The only other thing I would add on residential is we are going to generate more fee income, because we will only own a minority interest and will generate development and other fees. As those start to ramp up, we should see it in our fee income. The company over a long period of time has generally had somewhere between $3 billion to $4 billion of development underway. In the future, that could continue, but there will be fewer projects because costs are much higher, so it will be concentrated in fewer individual projects. Operator: Thank you. I show our next question comes from the line of Seth Bergey from Citi. Please go ahead. Seth Bergey: Hi, good morning. You mentioned $400 million of dispositions. What is the target mix between non-strategic office, residential, JV interest, land? Given some of the interest rate movements that drove the change in that guidance piece, how have pricing and conversations with potential buyers changed around that pool of assets? Owen Thomas: I am not sure that pricing has really changed all that much. I do think slowly more and more capital is coming back into the office sector. I provided the sales data earlier. In the first quarter of this year, office sales were up 72% seasonally over the first quarter of last year. That is a marker that more and bigger deals and more capital are coming into the market. On your question about mix for the rest of the year, the residential is not fully complete but largely complete. I think you are going to see more non-strategic office and some land. Operator: Thank you. I show our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead. Caitlin Burrows: I was wondering—back to 343 Madison JV—if you could give any incremental color on the conversations you have been having recently, timing, expectations for an announcement, and if you are pursuing just one partner with you in the project? Owen Thomas: As I said in my remarks, timing is this year. Our goal is to complete this recapitalization in 2026. In terms of how the partnership will be structured, that is to be determined, but our forecast at this point is that we will probably have multiple partners instead of one. Operator: Thank you. I show our next question comes from the line of Brendan James Lynch from Barclays. Please go ahead. Brendan James Lynch: Good morning. Thanks for taking my question. Doug, I wanted to follow up on your commentary about the U.S. economy growing through a lot of tech cycles. The pushback would be that historically office has not necessarily grown in conjunction with tech or even with broader economic growth. There have been lumps over the past couple of decades—the GFC, excess supply in the teens, then COVID. How can we get confidence that this cycle and the next five to ten years are going to be better than the last twenty or so? Douglas T. Linde: I cannot give you that the next five years will be better than the last twenty. What I can tell you is that much of the discourse and pontificating about the impacts of the rapid utilization of artificial intelligence tools is not equivalent to what is actually going on in our markets. In our markets, we are seeing additional absorption of office space, growth from our clients in premier buildings, and—in particular in markets like San Francisco and Midtown South—significant growth of new organizations, many of whose names and ideas did not exist five years ago, that are likely to be the next vehicles of growth from technology compared to the tech titan explosion between 2010 and 2019. We did, in fact, see significant office demand growth during that period. Then COVID happened, which dramatically changed the economics of our business because of the amount of supply suddenly brought back to the market through subleases and tenant defaults. This time is not that different than other cycles we have been through, but the source of the demand is different. As Owen started his remarks by saying, there may be and likely will be some kinds of job disruptions from these technologies, but it certainly does not feel like—nor have we seen any evidence—that it is occurring in premier office assets in our markets across the United States. Hilary J. Spann: If I could add a data point to that, Doug, this is Hilary from New York. In Midtown South, 2026 captured as much AI demand in leasing as 2025 did. The demand from AI users in Midtown South is actually accelerating in New York year over year. Operator: Thank you. I show our next question comes from the line of Upal Dhananjay Rana from KeyBanc Capital Markets. Please go ahead. Upal Dhananjay Rana: Thank you. In terms of capital allocation, the stock has come down a bit this year. Are share buybacks potentially on the table, or is that something you are considering? Owen Thomas: We think our stock is a very attractive investment, given that the look-through cap rate is in the 7s and all the comparable sales that I provide every quarter are in the 5s and 6s. We think the stock is a very attractive investment. That said, as we have described, we are allocating capital to new developments generating 8%+ yields to the company, which are accretive. Also, one of our goals—our leverage is about eight times net debt to EBITDA—is to lower that over time, and that is why we are not repurchasing shares. Operator: Thank you. I show our next question comes from the line of Analyst from Ladenburg Thalmann. Please go ahead. Analyst: Hey. Morning, guys. You talked a little bit about the CapEx requirements. I do not think you quantify your signed-not-open pipeline. You have 350 basis points of delta between your leased and occupied space, and not all space is created equal. Your Urban Edge portfolio has much lower rents. The occupancy there is much less valuable than in your urban portfolio. Maybe you could quantify what your incremental rents would be and the impact on your NOI and FFO potentially. Michael E. LaBelle: I will go back to what I said during our investor day. I cannot answer your question explicitly without having a whole bunch of computer screens open. Big picture, our average rent is about $75 per square foot on our unoccupied vacant space. If you take $75 per square foot, most of it drops to the bottom line other than a little bit of cleaning expense. Multiply that by the roughly 3.5% leased-versus-occupied spread applied to our in-service base to get the contribution if that all flowed through at one time. One thing I can say is there is about 800,000 square feet in Midtown Manhattan. Our leased versus occupied spread is significant in Midtown based upon all the leasing that we have done there over the last six to twelve months. That is a meaningful component at very high rents—somewhere around $100 to $105 per square foot. Operator: Thank you. I show our next question comes from the line of Dylan Robert Burzinski from Green Street. Please go ahead. Dylan Robert Burzinski: I wanted to touch on 343 Madison. Leasing continues to be very strong in New York. You talked about having leases in negotiation that would bring that project to the high-50% pre-let. Dispositions are trending very well, and you continue to monetize that. Why the desire to re-cap the equity in 2026 when it seems like you could wait, get that project closer to stabilization, and get stronger pricing? Owen Thomas: We did delay raising this capital and doing this recapitalization for a year to accomplish all of the things that we have accomplished and to de-risk the asset—in all the ways that you described. We are about to lease more than 50% of it. We bought most of the materials at savings. We are close to completing a construction loan, etc. We think the terms under which we will bring in capital into this transaction will be attractive to shareholders. It will be accretive to BXP, Inc., and it will allow us to free up capital to make additional investments and also to deleverage, which is one of the goals I described earlier. Operator: Thank you. I show our last question in the queue comes from the line of Analyst from Morgan Stanley. Please go ahead. Analyst: Hey. Just a quick one on same-store NOI. As you go through this year and into next year, clearly this year you talked about sort of flat, and there are some buildings taken out of service. As you roll into next year, how should we think about the occupancy ramp, any other buildings that could potentially come out of service, or is it a pretty clear acceleration into 2027 and beyond? Michael E. LaBelle: At the moment, the only thing we can say definitively is that we are going to sell assets, and as we sell assets, they are going to impact our portfolio size—but on the margin. We are highly confident that we will end 2026 at 89%, hopefully a little bit higher, and that we will end 2027 at 91%, hopefully a little bit higher. The majority, if not all, of the occupancy that we are working on today will be in place on 12/31/2026, so you will have a 100% run-rate on all the improvement in occupancy that we are achieving right now. My guess is that we will get some more early in 2027 as we continue to do leasing in this environment on both renewals and vacant space that will likely start during that year. We are still pretty comfortable about the ramp-up in our same-store portfolio on a going-forward basis. Operator: Thank you. That concludes our Q&A session. At this time, I would like to turn the call back over to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks. Owen Thomas: We have no further comments. Thank you all for your attention and interest in BXP, Inc. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to Tradeweb Markets Inc.'s First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin, I will turn the call over to Head of Treasury, FP&A, and Investor Relations, Ashley Neil Serrao. Please go ahead. Ashley Neil Serrao: Thank you, and good morning. Joining me today for the call are our CEO, William E. Hult, who will review our business results and key growth initiatives, and our CFO, Sara Hassan Furber, who will review our financial results. We intend to use the website as a means of disclosing material, nonpublic information and complying with our disclosure obligations under Regulation FD. I would like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release, earnings presentation, and periodic reports filed with the SEC. In addition, on today's call, we will reference certain non-GAAP measures as well as certain market and industry data. Information regarding these non-GAAP measures, including reconciliations to GAAP measures, is in our earnings release and earnings presentation. Information regarding market and industry data, including sources, is in our earnings presentation. Now let me turn the call over to William. William E. Hult: Thanks, Ashley. Good morning, everyone. Thank you for joining our first quarter earnings call. We delivered another record quarter, surpassing $600 million in quarterly revenue for the first time in our history. As I noted last quarter, we entered the year with a constructive macro backdrop featuring strong private sector intermediation, robust global issuance, and elevated levels of market debate alongside early signs of diversification away from U.S. assets. That backdrop evolved quickly. What began as a market conversation centered on the pace of rate cuts in 2026 shifted meaningfully as geopolitical tensions in the Middle East drove an increase in oil prices and renewed concerns around inflation across the global economy. Our clients actively repositioned risk and navigated this dynamic environment, driving record quarterly average daily volumes on the platform, including 17 of our 22 products that we report in our monthly activity report. While periods of elevated volatility tend to naturally drive wider bid-ask spreads, markets remained orderly throughout the quarter. Our clients engaged with the platform at record levels and increasingly capitalized on our automation solution, AIX. Equally important, our dealer partners flourished as their continued and consistent two-way electronic liquidity benefited clients during heightened market stress. As we move into the aftermath of the volatility spike, history has shown that activity can moderate as clients digest the forward outlook. More importantly, this macro shock has left our clients in a healthy position, and we expect them to resume trading actively across our global franchise. Diving into the first quarter, strong client activity and a risk-on environment drove 21.2% year-over-year revenue growth on a reported basis. Our international business continued to set new records with 29% revenue growth as our strategic initiatives across Europe, APAC, and EM continued to pay off. We continued to balance investing for growth and profitability as adjusted EBITDA margins expanded by 40 basis points relative to 2025. Our international business really continued to fire on all cylinders for us this quarter, contributing to nearly 60% of our overall revenue growth. Importantly, that strength was broad based, as we saw double-digit growth across all four asset classes with our international clients. Even though international clients are naturally focused on non-U.S. products, they are increasingly trading outside their home markets. That really speaks to the strength of our platform. To put some numbers around it, our international clients drove 60% of our dollar swap growth, and we also saw double-digit contributions from them across U.S. Treasuries, cash credit, CDS, and ETFs. On the product side internationally, we had double-digit growth across European, Aussie, and Japanese government bonds. European swaps were a standout, but we also saw a very strong performance across APAC and EM swaps. It was not just rates, as our European credit and CDS produced strong revenue growth. Not to be overshadowed, we also saw over 20% growth in both our European ETF and repo businesses. On the flip side, it is not just international clients driving this activity; our U.S. clients are increasingly active in international products, contributing over 20% of our international product revenue growth. So when you step back, what you are really seeing is the flywheel of the platform at work, where our global clients are trading across regions and asset classes, and we believe this advantage will only grow as we expand our presence across regions. Turning to slide five. Our Rates business produced a record revenue quarter driven by continued organic growth across swaps, global government bonds, and mortgages. Record Credit revenues were led by strength across global corporate bonds and credit derivatives. Money Markets revenue growth was led by record quarterly revenues across global repos and ICD. Equities also produced record revenues, led by growth in global ETFs and equity derivatives. Other revenues grew over 56% year over year driven by our digital assets initiatives. Finally, Market Data revenues were down approximately 5% year over year driven by a timing shift in how certain historical data sets are delivered under our amended LSEG agreement. Recall, we recorded $8 million in January 2025 tied to the delivery of datasets to LSEG. The revenue recognition of these datasets in 2026 shifted to $2 million being recognized in the first month of every quarter. Adjusting for the timing difference, Market Data revenues grew 13% year over year driven by growth in our recently renewed LSEG market data contract and proprietary data products. Turning to slide six, I will provide a brief update on two of our focus areas, U.S. Treasuries and ETFs, and then I will dig deeper into U.S. Credit and global interest rate swaps. Starting with U.S. Treasuries, after eight months of below-average intraday volatility, we saw a significant pickup in March intraday volatility. While March volatility rose over 50% from the December lows, it was still nearly 40% below what we saw in April 2025. Our first quarter market share of 22% drove record revenues, up nearly 10% year over year as double-digit revenue growth in our institutional channel was partially offset by weaker retail trends. While market share was down year over year mainly due to lower wholesale market share, we remain optimistic on a reacceleration in our U.S. Treasury business as we penetrate additional parts of the voice market, coupled with continued strong government debt issuance. Our competitive position remains strong. On a relative basis, we exceeded 50% share for the eighth consecutive quarter in electronic institutional U.S. Treasuries versus our main electronic competitor. Wholesale remains a strategic priority with continued focus on expanding our liquidity network, deepening client relationships, and driving growth through differentiated protocols and products across our integrated platform. Turning to Equities. This year marks the ten-year anniversary of our institutional U.S. ETF platform, an important milestone that reflects both the evolution of the ETF ecosystem and Tradeweb Markets Inc.'s role at its center. Since launch, our platform has scaled significantly, surpassing $4 trillion in notional traded including more than $1 trillion in the past twelve months alone. What began with just a handful of participants a decade ago has grown into a broad and diverse global network of close to 200 institutional clients and over 20 dealers. Our ETF business posted revenue growth in excess of 35% year over year as we continue to deepen integration with our clients coupled with a pickup in market volatility. Our AIX automation solution continues to be a key differentiator with our ETF clients, with average daily trades increasing over 70% year over year with double-digit growth across European and U.S. ETFs. Our efforts to broaden our equity presence beyond our flagship ETF franchise continue to pay off with record institutional equity derivative revenues up nearly 20% year over year. Looking ahead, the pipeline remains strong as the benefits of our electronic solutions continue to resonate with our clients. We believe we are well positioned to capitalize on the long-term secular ETF growth story, not just in equities, but across our fixed income business. Shifting to Global Credit, on slide seven. Double-digit revenue growth for Global Credit was driven by strong double-digit revenue growth in European credit, EM credit, and credit derivatives, which more than offset weakness in municipal bonds. U.S. Credit produced low single-digit revenue growth led by strong double-digit revenue growth in our institutional business, but partially offset by continued weakness in our retail corporate credit channel, where revenues were down over 20% year over year, primarily reflecting the better relative yields our clients were getting outside of U.S. Credit. U.S. Credit remains a key growth priority, and we are focused on expanding our penetration within RFQ markets to complement our leadership in portfolio and session-based trading. Despite more than a decade of innovation, RFQ continues to be the primary execution protocol for institutional clients in U.S. Credit, driven by its transparency and competitive pricing dynamics. However, clients are often reluctant to expose larger trades broadly given the trade-off between minimizing information leakage and achieving optimal pricing. In response, we are focused on enhancing workflows that better align with client needs. To that end, we have continued to invest in our enhanced dealer selection tool, Snap+, which enables our clients to dynamically target the most likely to engage and win a given inquiry based on both historical and real-time trading data. This innovation builds on our broader strategy of expanding the range of pre-trade, execution, and post-trade solutions we offer. We remain focused on the block market with overall U.S. Credit block share up 20 basis points year over year in the first quarter, with block average daily volume growth of over 30% year over year across IG and High Yield. Our volume growth was driven by continued adoption of our portfolio trading, RFQ, and sessions protocols. Institutional RFQ average daily volume grew over 30% year over year, with double-digit growth in both IG and High Yield. Our efforts to expand into RFQ are seeing continued signs of success with our RFQ share of overall TRACE up over 50 basis points year over year. Portfolio trading produced record average daily volume, increasing over 30% year over year with double-digit growth across both U.S. and international PT. AllTrade had a strong quarter, with over $230 billion in volume with average daily volume up over 5% year over year. Our all-to-all average daily volume grew over 65% year over year, and our dealer RFQ average daily volume grew over 40% year over year. We saw record responder rates in High Yield as the team remains focused on expanding our network and increasing the number of responders on the AllTrade platform. Electronification remains a key focus, especially in U.S. Credit where underlying trends are strong. However, investment grade volumes have been increasingly impacted by affiliate trades, which are internal transfers within a dealer that occur after a transaction in the institutional market. These are double counted, noneconomic trades that do not interact with electronic platforms, distorting reported market share and electronification and creating artificial pressure on both. If you adjust for that activity, the underlying picture looks better. Based on our estimates, first quarter market share in IG would have increased 5 basis points versus our reported decline of 33 basis points, and electronification also would have moved higher. The core trend has not changed, with electronification in U.S. Credit continuing to build, and we feel very good about our positioning as that plays out. Looking ahead, Global Credit remains a key area of focus with a long runway for growth. While U.S. Credit continues to anchor performance through ongoing innovation, differentiated liquidity, and investment in our platform, we are also scaling European credit by expanding RFQ adoption and liquidity, and advancing munis through increased electronification, transparency, and connectivity in a fragmented market. Finally, in EM credit where we are still early in our expansion, we are building momentum by leveraging our established presence in developed markets alongside a holistic EM product offering across rates and credit. Our EM credit revenues grew over 40% year over year in the first quarter, signaling strong momentum. Moving to slide eight. Over the past two decades, electronic interest rate swaps trading has evolved from an emerging concept into an ecosystem defined by transparency, efficiency, and ongoing innovation. That continued evolution was evident this quarter, including in moments of heightened volatility where clients leaned further into electronic workflows. Global Swaps delivered record quarterly revenues, up over 45% year over year driven by strong client engagement across our global suite of currency. Our quarterly core risk market share, which drives revenues and excludes compression trading, reached a record, rising 190 basis points year over year. Total market share increased from 21% in the first quarter 2025 to 24.1% in the first quarter 2026, reflecting a combination of strong risk and compression volume growth. During the quarter, we achieved record share across sterling and other G11 currencies and our second-highest share across EM-denominated currencies. First quarter performance was driven by record revenues across the U.S., Europe, APAC, and emerging markets. This quarter underscored the value of our breadth across the swaps market, particularly as clients’ interest can ebb and flow across products over time. Specifically, as inflation concerns reemerged and rate expectations shifted this quarter, activity picked up in our inflation swaps business, driving record volumes. It is a product area we entered in 2017, where adoption was initially gradual, but where the opportunity in the market expanded materially after 2020, and we currently hold over 95% electronic market share. That trajectory makes periods like this especially meaningful as they reinforce the value of our continuous investments towards building a more holistic swaps offering across products and geographies over time. Beyond inflation swaps, the nature of trading we saw in March evidenced a broader shift in how electronic trading continues to evolve. Even as market conditions became more challenging, automation remained robust, and we saw clients not only lean into inherently electronic protocols, but use them in a more sophisticated way through sending their trades out to multiple dealers amidst an environment where we have historically seen that pull back. It is a testament to the sophistication clients have built into their workflows and to the growing value of electronic trading across market conditions. Overall, our RFM protocol saw average daily volume growth of over 150% year over year in the first quarter, with growth accelerating in March. Additionally, we continue to make progress across emerging market swaps. Our first quarter EM swaps revenues delivered another strong growth period, delivering another record, and we believe there remains significant runway given the still relatively low levels of electronification. Looking ahead, we continue to see significant long-term growth potential in swaps. On a DV01 basis, electronification has grown at an average annual rate of 160 basis points since the first quarter 2020 as dealers and clients move a greater share of their workflows electronically. That progress is reflected in the continued strong revenue performance of our swaps business, and we see substantial opportunity to further digitize workflows alongside our clients. In collaboration with them, we expect to drive continued workflow innovation across both cleared and bilateral swaps markets. With that, let me turn it over to Sara to discuss our financials in more detail. Sara Hassan Furber: Thanks, William, and good morning. As I go through the numbers, all comparisons will be to the prior-year period unless otherwise noted. Slide nine provides a summary of our quarterly earnings performance. As William recapped earlier, this quarter, we saw record revenues of $618 million that were up 21.2% year over year on a reported basis and 17.5% on a constant currency basis given the weakening dollar. We derived approximately 44% of our first quarter revenues from international clients, and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Total trading revenues increased 23%, comprised of 25% variable trading revenue growth and 14% growth across fixed trading revenue. Rates fixed revenue growth was primarily driven by an increase in minimum fee floors for certain dealers and by the addition of dealers to our mortgage and U.S. government bond platforms. Credit fixed revenue growth was primarily driven by the previously disclosed introduction of minimum fee floors and the migration of certain dealers to subscription fees. Other revenues of $10 million for the first quarter increased by 56%, primarily driven by growth in our digital initiatives related to our commercial relationship with the Canton network. Overall, the Other revenue line will remain variable quarter to quarter, reflecting fluctuations in a number of variables, including the number of Canton coins earned, Canton coin value, the number of super validators in the network, and periodic tech enhancements for our retail clients. We expect total Other revenues in 2026 to be roughly in line with 2025. First quarter adjusted EBITDA margin of 55% increased by 101 basis points on a reported basis when compared to our 2025 full-year margins. Our net interest income of approximately $17 million increased due to higher cash balances, which offset lower interest yields. Lastly, this quarter's GAAP results were impacted by both realized and unrealized gains and losses across our strategic investments. Specifically, we recorded a $1.2 million net loss this quarter, including $2.9 million of unrealized losses from the mark-to-market of our Canton coin holdings. As a reminder, these losses are only included in GAAP EPS and are excluded from our non-GAAP adjusted diluted EPS. Moving on to fees per million on slide 10. We provide a highlight of the key trends for the quarter. You can see slide 17 of the earnings presentation for the full detail regarding our fee per million performance this quarter. I will spend more time talking about cash credit fee per million given the movements are slightly more nuanced. Cash credit fee per million decreased 15% this quarter based largely on two drivers: the prior introduction of variable and fixed fee mix changes, and business mix changes. Specifically, the introduction of minimum fee floors and migration of certain dealers from fully variable to more fixed plans in 2025, and a mix shift away from municipal bonds and retail this quarter, which carry a relatively higher fee per million, as well as a mix shift towards non-comp PT, which carry a relatively lower fee per million. Excluding the impact of our previously disclosed fee changes, and this quarter's impact of product/protocol mix shifts, fee per million would be down approximately 1%. Slide 11 details our adjusted expenses. At a high level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the first quarter increased 20.2% on a reported basis and 15.3% on a constant currency basis. During the first quarter, we continued investments in tech and communications, digital assets, consulting, and client relationship development. Adjusted compensation costs grew 12%, with nearly 30% of the increase from higher discretionary and performance-related comp, more than 25% due to higher headcount, which was up 11.4% year over year, and 25% due to higher payroll taxes. Technology and communication costs increased 37.7%, primarily due to our continued investments in data strategy and infrastructure, and increased software costs. Approximately $5 million of the increase was driven by higher reference data costs and investments in our data and infrastructure strategy, both of which began in 2025. Adjusted professional fees grew 18.8% due to an increase in tech consultants as we continue to augment our offshore technology operations. Occupancy expenses increased 61.5%, primarily from increased rent due to the move to our new New York City headquarters which came into effect in 2025. Adjusted general and administrative costs increased 85.2%, primarily due to $8.1 million of unfavorable movements in FX, and a pickup in travel and entertainment. Unfavorable movements in FX resulted in a $5.1 million loss in 2026 versus approximately a $2.9 million gain in 2025. Excluding FX, adjusted general and administrative costs grew 11.4%. Slide 12 details capital management and our guidance. On our cash position and capital return policy, we ended the first quarter in a strong position with approximately $1.9 billion in cash and cash equivalents, and free cash flow exceeding $1 billion for the trailing twelve months, representing strong year-over-year growth of approximately 31%. We also held $1.6 billion of Canton coins, with a fair value of approximately $243 million. With this quarter's earnings, the Board declared a quarterly dividend of $0.14 per Class A and Class B shares, up 17% year over year. During the quarter, we repurchased approximately 483 thousand shares for $51 million. There is $523 million of aggregate share repurchase authorization remaining. Turning to guidance for 2026. In light of continued strong business momentum, we now expect adjusted expenses to trend towards the top half of the initial guidance range of $1.1 billion to $1.16 billion. We believe we can drive adjusted EBITDA and operating margin expansion compared to 2025 at either end of this range, although we expect the incremental margin expansion to be more muted as we continue to focus on balancing margin expansion with investing for the future. Specifically, we continue to invest in Credit, Rates, international markets, ICD, and digital assets as key focus areas with a long runway for growth. We also continue to invest in technology that allows us to sustain and build on our leading platform. Some of these investments will take time to scale, but we continue to prize innovation and create durable long-term revenue growth opportunities. Now I will turn it back to William for concluding remarks. William E. Hult: Thanks, Sara. Before I get into the broader outlook, I want to spend a minute on some of our frontier markets. We have made solid progress there in a relatively short period of time through targeted partnerships and investment. From our work with the Canton network to our new partnerships with Kalshi in prediction markets to Crossover Markets in crypto execution, these partnerships build directly on what we have already established: a broad network, execution infrastructure, and a central role in trading activity. With tokenization, we are focused on the evolution of settlement, particularly around capital efficiency and collateral mobility. We have already executed trades in this space alongside a variety of market participants utilizing Canton's distributed ledger infrastructure. We are working alongside both existing and new clients who are driving demand for instant settlement. In institutional crypto, the opportunity is to bring more standardized electronic execution to a market where demand is growing, but broadly adopted infrastructure remains nascent. Alongside our investment in partnership with Crossover Markets, we are building a more comprehensive execution offering, including over time, leveraging RateFins technology to incorporate spreading functionality. In prediction markets, through our partnership with Kalshi, we are working to integrate event-driven data into our Rates and Credit platforms while working with market participants to support the longer-term development of an institutional-grade execution environment. Across all three, the focus is on extending our network and execution capabilities while closely partnering with our clients and the broader ecosystem as these markets evolve. The environment to start the year has been defined by a lot of debate. If anything, that uncertainty has only increased as we move forward. We did see clients take a bit of a breather in April as they stepped back and recalibrated their forward strategies. Importantly, what came through clearly was the durability of our business. Intraday volatility in April to date was down more than 50% year over year. So this was not an easy backdrop. Even after a record first quarter, April 2025 still ranks as the third-best revenue month in our history after clients rapidly repositioned their portfolios post the announcement of tariffs. Looking ahead to April 2026, despite a tougher comparison and a different volatility environment, we are trending toward another top-five revenue month based on internal estimates. That underscores what we have been talking about for some time now: the breadth of the model and the strength of the recurring activity we are able to build irrespective of the volatility environment. As we focus on delivering more durable, workflow solutions for our clients, we are seeing that translate into sustained engagement. In fact, April average daily volume is currently running ahead of April 2025, which tells you that while the mix of activity may shift, the level of client connectivity on our platform remains very healthy. With two important month-end trading days left in April, which tend to be some of our strongest revenue days, overall, average daily revenues are trending down by a low single-digit percentage relative to April 2025. The diversity of our growth remains a theme, as we are seeing preliminary positive average daily volume growth across global swaps, mortgages, European government bonds, European credit, EM credit, CDS, equity derivatives, repos, and ICD. Our IG share is tracking in line with March levels while our High Yield share is tracking above. I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter. I want to thank my colleagues for their efforts that contributed to the record quarterly revenues and volumes at Tradeweb Markets Inc. With that, I will turn it back to Ashley for your questions. Ashley Neil Serrao: Thanks, William. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10:30 AM Eastern Time. Operator, you can now take our first question. Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Craig William Siegenthaler of Bank of America. Your line is now open. Craig William Siegenthaler: Good morning, William and Sara. Hope you are doing well. Our question is on swaps, and congrats on that 45% year-over-year growth. We wanted your perspective on the good versus bad volatility debate in the swaps market, given recent strength, and especially curious on what you saw in Europe. William E. Hult: Craig, how are you? It is a good question. Before parsing “good” versus “bad” volatility, a quick moment on the environment. I was very amped about the macro setup last quarter, and a couple of months later the world changes quickly. We remain very amped at Tradeweb Markets Inc. We are in a sweet spot for our business. The combination of fiscal stimulus, monetary debate on Fed timing, a technology investment supercycle, deregulatory unwind, and strong partner bank performance in global markets, plus standout trading from nonbank liquidity providers, creates a prime environment. On “good” versus “bad” volatility: good volatility features strong two-way markets and active price discovery where our AIX algorithmic search runs really well. “Bad” would be dislocations and thinner liquidity in less-liquid areas like some off-the-run Treasuries. In March, volatility across sterling and European markets was about 2x the U.S. rates market. Given the rapid repricing from cuts to potential hikes, markets moved in an orderly way with healthy price discovery, not stress. Both buy side and dealers are much better positioned to navigate these environments electronically today. We saw increased usage of electronic protocols, particularly RFM and “in-comp” trading. Our request-for-market in Europe reached roughly 45% of flow; in-comp moved north of 80%. As trading becomes more automated and protocol driven, liquidity is more resilient even as volatility rises. The line between “good” and “bad” volatility becomes less relevant because the market structure is designed to perform across a wide range of conditions. On thriving: if you take April revenues versus May and June of last year, we are up over 10%. Macro volatility is a tailwind, and the electronic runway remains significant in our space. Thanks for the question. Operator: Thank you. Our next question comes from the line of Michael Cyprys of Morgan Stanley. Your line is now open. Michael Cyprys: Hey, good morning, William and Sara. How are you thinking about AI’s role in increasing automation across workflows, particularly in Credit and Rates, and what KPIs should we track? William E. Hult: Great and timely question, Michael. Core principle: Tradeweb Markets Inc. is in the business of serving our clients. Everything we do around AI starts there, with the goal of being the most client-centric firm in electronic markets. AI is a massive accelerant, making smart people smarter and more productive. We believe data is the moat. Our proprietary data—from live markets, executable pricing, RFQ behavior, execution outcomes, and client decision-making across assets—gives our AI foundation a real advantage. On generative AI, our goal is to move clients from data retrieval to insight generation in markets that never slow down. We built an AI-powered assistant, “TARA” (Tradeweb AI Research Assistant), in beta with clients and on track to launch in the second quarter. It will surface insights around liquidity conditions, market participation, historical execution behavior, and relative pricing dynamics in a single conversation. On predictive AI, we are tackling price discovery—one of fixed income’s hardest problems. We are launching AI Price 2.0 at the end of the second quarter. Corporate bonds can go hours or days without a print, and true economics can be obscured by complexity; we are investing heavily here. For KPIs, think: adoption/usage of TARA, accuracy and coverage of AI price estimates, impact on hit/response rates, time-to-fill, client satisfaction, and workflow penetration in automated protocols. This is not just about doing more with fewer people; it is about reimagining processes so we can invest more in future growth. Data advantage reinforces network effects and opens up new revenue opportunities—smarter, faster ways for clients to trade and execute. Thanks for the question. Operator: Thank you. Our next question comes from the line of Simon Alistair Clinch of Rothschild & Co, Redburn. Your line is now open. Simon Alistair Clinch: Hi, thanks for taking my question. This one is for Sara. Could you expand on your philosophy for expense growth—your flexibility and willingness to adjust investments up or down in environments of volume upside or downside? How should we think about that flex? Sara Hassan Furber: Hi, Simon. Great question. Regardless of high or low volume environments, we have significant operating leverage and expense flexibility. Roughly 55% of our expenses are fixed and 45% are variable or discretionary. Within the variable bucket, most are tied more directly to revenue or EBITDA (performance-driven comp, commissions) versus pure volume. Smaller components that correlate to volume—like exchange and clearing fees—are low single digits, about 3% of total expenses. That leaves us flexibility to manage expenses and deliver operating leverage. In higher-revenue environments, we typically accelerate discretionary spend while still delivering margin expansion. Last year, top line grew 19%, expenses grew 17%, and we still delivered 64 basis points of margin improvement. In 1H 2023, with single-digit top-line growth, we still expanded margins by just under 50 basis points while investing. This quarter, we delivered almost 100 basis points of margin improvement on a constant currency basis despite step-ups from FX, office, and data infrastructure. As revenue scales, we see natural operating leverage, allowing us to calibrate expenses while investing in areas like AI and EM. Our North Star is to invest through the cycle to deliver durable long-term revenue growth. Operator: Thank you. Our next question comes from the line of Jeff Schmidt of William Blair. Your line is now open. Jeff Schmidt: Good morning. You have talked about EM and EM swaps as key revenue growth opportunities. It is still a small part of the mix, but what are you doing on that front and what type of growth are you seeing? William E. Hult: It is a good question. EM was about 6% of revenues in the first quarter of 2026, up from a little over 1% in 2022, and we are still scratching the surface. The overall EM revenue wallet exceeds a little over $1.5 billion annually, so it is a significant opportunity. We view this as a multiyear growth opportunity. In EM swaps, cleared EM swap markets have grown at over a 20% CAGR over the last five years, yet are still only about 20% electronified and a fraction of the dollar, euro, and sterling markets. We are seeing early success in EM hard and local currency credit—still a bigger lift, but momentum is building. Index inclusion in markets like Saudi Arabia, evolving clearing frameworks, and increasing participation from global and regional investors are important. Recent launches like Mexican repos and asset swaps are good examples of deploying capital to establish liquidity and then scaling participation across dealers and clients. We feel good about the trajectory, the wallet, and the long-term health of our EM franchise. Thanks for the question. Operator: Thank you. Our next question comes from the line of Patrick Malcolm Moley of Piper Sandler. Your line is now open. Patrick Malcolm Moley: Good morning. The DTCC’s tokenized Treasury pilot is going to go live on Canton in the next couple months. It is a network you have been running infrastructure on for some time. How are you thinking about the potential impact of real-time intraday collateral mobility on fixed income volumes and Rates in particular? Any broader opportunity and risks as it relates to tokenization, and anything you can share on client conversations and demand for tokenized trading? William E. Hult: Good to hear your voice, Patrick. We are strong supporters of Canton and think they are onto something important. Tokenization is an upgrade to market infrastructure: faster settlement, more transparency, and potential for real-time, 24/7 collateral movement. The DTCC pilot is meaningful because it brings U.S. Treasuries on-chain within a trusted market structure, which can drive broader industry momentum. We have been active via tokenized repo activity on Canton, with a growing and more diverse participant set. We bring credibility to help the industry get comfortable with change. We do not see this disintermediating us. The execution layer—where liquidity is formed and price is discovered—remains the most valuable part of the market; that is our domain. As assets become tokenized, they will continue to trade through electronic workflows, which is our bread and butter. The mortgage market, given its importance, has a settlement process that could really change; we will stay focused there. More streamlined settlement can bring more participants into markets. Thanks for the question. Operator: Thank you. Our next question comes from the line of Benjamin Elliot Budish of Barclays. Your line is now open. Benjamin Elliot Budish: Good morning, and thank you for taking the question. On ICD: it has been almost two years since you completed that acquisition. Could you give us an update on cross-selling, balances, and the product roadmap after the addition of T-Bills? Sara Hassan Furber: Good morning. We are pleased with ICD’s performance; it has complemented our business culturally, strategically, and financially. This quarter, ICD delivered record revenues and balances with around 8% year-over-year growth. In April, revenue and average daily growth rates are trending higher than in the first quarter. Large corporate issuances and spending have generally benefited ICD as those issuances translate to balances. Corporate health, momentum in new client wins, and high retention remain strong. On our original thesis, we focused on two cross-sell areas: (1) selling our products to ICD clients on their portal, and (2) taking ICD to our client base internationally. The international opportunity—especially Asia—is compelling. We completed Singapore regulatory approvals and added salespeople there. As we expand in Asia and EM, ICD is a high-quality product to sell into those relationships. On T-Bills, we completed that last year. Cross-selling other Tradeweb Markets Inc. products: core functionality is complete; we are working through adjacent integrations with treasury management platforms to drive easier adoption. Progress is steady, if slower than hoped. Near term, international expansion is more in focus. Strategically, ICD adds durability to our portfolio. In risk-off environments, clients keep more cash; in periods of heavy corporate issuance—historically a near-term headwind for U.S. Credit trading—we see larger cash balances on ICD. That hedge-like quality supports a more durable growth portfolio. Overall, we feel good about ICD and the growth ahead. Operator: Thank you. Our next question comes from the line of Alexander Blostein of Goldman Sachs. Your line is now open. Alexander Blostein: Good morning. On Kalshi and the innovation you are pursuing there: could you provide more specificity on revenue opportunities over time in prediction markets, and how you will deal with regulatory uncertainty? William E. Hult: Good question, Alex. It is still early, though there is momentum. Not all prediction markets are created equally. We are oriented toward financially focused prediction markets; pop-culture contracts are not our interest. Interest is broad and impressive across hedge funds, systematic shops, nonbank liquidity providers, and increasingly some long-only investors. Fed research has helped timing, but demand was already building. The definition of macro markets is evolving; clients are looking at prediction markets, crypto markets, and other nontraditional sources to support macro strategies. We started simple: launching a free viewer in the second quarter so clients can see select economic and financial event contracts in real time alongside swaps and Treasuries—low friction and focused on discovery and learning. Next is a normalized API feed so clients can pull this data directly into OMS/EMS and analytics workflows. We expect banks pricing risk on our platform to use this data in forward curves. We will stay thoughtful and disciplined given regulatory headlines and see how things play out. We believe these partnerships can lead to strong innovation, and we will place the right bets around these evolutions. Thanks, Alex. Operator: Thank you. Our next question comes from the line of Christopher John Allen of KBW. Your line is now open. Christopher John Allen: Good morning. On your February announcement of the partnership with Maxx within U.S. residential mortgages, are you seeing any early returns? And more broadly, how does MBS trading look into the back half of this year and 2027? William E. Hult: Same theme you are hearing from us: we are placing disciplined bets on further evolution with a clear vision. Maxx is important, and it is still early. We entered into a commercial collaboration to expand institutional access across the U.S. residential private credit marketplace. Maxx is a leading digital exchange for whole loans, connecting a broad network of originators with institutional buyers via a centralized clearinghouse—unique in a highly fragmented market. That is the kind of partner we like. The mortgage market is an extremely important part of the Rates complex, and we have a leadership position we are proud of. We will take that leadership into further innovation. Activity levels are healthy, and we remain bullish on continued evolution and trading velocity in mortgages—one of our original markets. We are focused on Maxx and broadly constructive on MBS activity into the back half and beyond. Thanks for the question. Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to William E. Hult for closing remarks. William E. Hult: Thank you all very much for joining us this morning. We appreciate the questions as always. Any follow-ups, please feel free to reach out to Ashley, Sameer, and the team. Thank you all. Have a great day. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Greetings, and welcome to the Mirion Technologies, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Linn, Treasurer and Head of Investor Relations. Thank you. You may begin. Eric Linn: Thank you, Maria. Good morning, and welcome to Mirion Technologies, Inc.'s first quarter 2026 earnings conference call. Joining me this morning are Mirion Technologies, Inc.'s Founder, Chairman and CEO, Tom Logan, and Mirion Technologies, Inc.'s CFO and Medical Group President, Brian Schopfer. Before we begin today's prepared remarks, allow me to remind you that comments made through this call will include forward-looking statements, and actual results may differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are disclosed in our Annual Reports on Form 10-Ks, Quarterly Reports on Form 10-Q, and in Mirion Technologies, Inc.'s other SEC filings under the caption Risk Factors. Quarterly references within today's discussion are related to the first quarter ended 03/31/2026, unless otherwise noted. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of the presentation accompanying today's call. All earnings materials can be found in the Investor Relations section of our website at mirion.com. With that, let me now turn the call over to Tom, who will begin on panel three. Tom Logan: Eric, thank you very much, and thanks to each of you for joining our first quarter earnings call. We are off to a strong start in 2026 with significant first quarter order generation. Orders are a bellwether for our business, and they increased 19% in the first quarter to $241 million excluding M&A-related growth. If we include M&A growth from Paragon and CertRec, orders increased 42% to $288 million. Order volume was notably diverse. Both segments saw meaningful growth, including our RTQA medical business, which faced headwinds in 2025. This is translating into noticeable expansion. Backlog now totals $1.1 billion, up 19% excluding M&A, or 38% including M&A. Our nuclear power end market within the Nuclear and Safety segment continues to lead the way. Nuclear power orders and revenue growth were derived primarily from existing reactors running today and small modular reactors, or SMRs. Paragon orders added another $43 million in the quarter. We continue to be impressed by the value created by the Paragon team. Given the nature of their solution set, they are truly the tip of the spear when it comes to momentum from the nuclear power installed base. The existing nuclear fleet is approaching middle age and reinvestment is critical to maintain and increase capacity through power upgrades. We will spend time this morning detailing progress on our large opportunity order pipeline, but let me tease the discussion by noting we secured $50 million of these large opportunity orders in Q1. Moreover, we won an additional $35 million in SMR-related orders in April. The rest of the pipeline remains intact and we continue to have high conviction on our right to win. The accelerating nuclear power demand we see is reflective of increasing market tailwinds. The momentum continues to compound and recent geopolitical events reinforce the need for onshore secure baseload energy. A decade ago, operators were focused on accelerated plant shutdowns with extreme capital rationing impacting OpEx and CapEx budgets. Today, they are focused on 100-year operating cycles as well as plant modernization, both of which profoundly impact capital spending plans. We see this most immediately in Paragon and CertRec, with a substantial follow-on opportunity for Mirion Technologies, Inc. instrumentation and controls, and digitally enabled radiation protection solutions. Note that this dynamic is robust and not contingent upon future assumptions about AI-driven demand growth. The limiting factor on AI growth is available compute which, in turn, is most profoundly constrained by energy availability. Further, note that greater than 80% of our nuclear power revenue accrues from the installed base. New nuclear projects represent upside with strong optionality tied to both SMR and utility-scale development plans. Panel four quantifies the impact of just a few recent notable nuclear power headlines, which reinforce the surging global demand for nuclear power. First, in the U.S., the Department of Energy's Uprise Initiative aims to boost existing nuclear power capacity by 2.5 gigawatts by 2027 and 5 gigawatts by 2029. Power demand is so strained that the DOE and utilities are rapidly accelerating capital deployment to deliver more nuclear output at existing plants. This is part of the administration's broader push to expand U.S. nuclear energy capacity from around 100 gigawatts today to 400 gigawatts by 2050. Additionally, the energy shock driven by recent geopolitical uncertainty has highlighted the risk of reliance on imported fossil fuels in many regions. This is sharpening the focus on energy security, onshoring, and decarbonization. Nuclear power is increasingly viewed as a core solution across all three priorities, especially with countries whose energy needs are becoming strained by a changing world order. In aggregate, these two headlines alone will add an estimated 8 to 15 gigawatts of nuclear power generation. Of this added amount, approximately 3 to 5 gigawatts are incremental to the U.S. market, underscoring the importance of our U.S.-based Paragon and CertRec acquisitions. It is also worth noting that U.S. utilities have committed $1.4 trillion in planned capital expenditures through 2030, a 21% increase from projections made just one year ago. Companies like Duke Energy are projecting over $100 billion in their planned five-year capital spend. NextEra is not far behind at approximately $94 billion. Each of these is an existing year-end customer. Panel five details Paragon's integration progress and first quarter financial contributions. Both the Paragon and CertRec acquisitions are positioning Mirion Technologies, Inc. to address the U.S. market at exactly the right moment. We made these acquisitions before the full scope of the existing fleet capital cycle was broadly visible to the market. The commercial synergy opportunities are coming into focus as utilities and the federal government are injecting capital into the operating fleet. As a reminder, we have content in every single reactor within North America and approximately 98% of the global operating fleet. The synergy opportunities are significant. For example, Paragon's products and engineering capabilities will allow Mirion Technologies, Inc. to expand our scope to better compete for power uprate and digital modernization projects. CertRec's regulatory and workforce software is a compelling solution for today's labor-constrained environment. This addition gives Mirion Technologies, Inc. a software and services revenue layer that compounds within our hardware footprint at every plant. These combined offerings mean Mirion Technologies, Inc. can now offer customers more integrated solutions that span laboratory instruments, safety and security systems, qualified equipment, radiation protection, and regulatory and workforce software. No competitor in the U.S. nuclear market has that breadth. These acquisitions will deliver revenue synergies, customer access synergies, and platform synergies at exactly the moment the market is asking for all three. We are already seeing this materializing in Paragon's financial performance. Paragon's first quarter revenue grew 45%, reflecting a broad-based increase in demand. This accelerating revenue is improving their operating leverage and helping to expand margin. We spoke with you last quarter about the planned cadence of integration efforts. We are pleased to report that we have identified additional synergy opportunities. Legacy teams are collaborating closely, and customers are eager to realize the benefits of a combined Mirion Technologies, Inc., Paragon, and CertRec entity. We are prioritizing the customer experience with joint customer engagements across strategic accounts. These collaborations are already resulting in incremental order wins. For example, we were able to utilize Paragon's existing relationships with key strategic customers to secure a significant order for legacy Mirion Technologies, Inc. products. This is an early example of what will become normal operating procedure for our combined companies. All of these data points are resulting in tangible benefits for Mirion Technologies, Inc., and this is most evident in our backlog illustrated on panel six. Back-to-back strong Q4 and Q1 orders are creating a step change in our backlog. After two years of nominal backlog growth, the nuclear dynamic we have been discussing is translating into tangible opportunities for our company. We have consistently reminded investors that it can take several quarters or years for orders to convert into revenue. But clearly the backlog is meaningfully expanding, which is the precursor to accelerated revenue growth ahead. Before I turn it over to Brian, panel seven summarizes progress continuing across the Medical segment. Our RTQA end market, which accounts for approximately [inaudible] of the segment's revenue, enjoyed promising activity. Recall, in 2025, we experienced several headwinds, both domestically and abroad. Encouragingly, we are beginning to see strengthening hardware activity while software activity continues to be a bright spot. In the U.S., we booked a sizable radiation-tolerant camera order tied to the Varian partnership. This is an important relationship with the leading OEM in the industry. We look forward to supporting this relationship and other key accounts with the kind of new product innovation that helped to secure this important order. In nuclear medicine, we remain on track for double-digit organic revenue growth in 2026. This will be our second consecutive year of double-digit organic nuclear medicine growth. Our market-leading position with key hardware offerings like dose calibrators and thyroid uptake systems makes us a critical supplier to the growing radiopharma ecosystem. In addition, we are broadening our international reach to capture infrastructure growth abroad. We believe our EC2 software platform will create growing opportunities across the radiopharmaceutical landscape from drug discovery through clinical administration. This opportunity will grow meaningfully as more targeted radiopharmaceuticals advance to the market. Lastly, dosimetry services remain a compelling business. This end market is a reliable franchise growing at GDP-plus through the cycle. Meanwhile, it consistently provides strong margins and remains an attractive recurring revenue platform. Our broader push from analog to digital offerings will continue, creating additional margin upside over time. As a side note, we are proud of the fact that the crew on the recent Artemis lunar mission wore a customized version of our digital dosimeters to monitor their radiation safety. More significantly, our digital dosimetry offerings caught the attention of numerous key nuclear power accounts, creating cross-sell opportunities to expand beyond a historically medically oriented business. I will turn it over now to Brian to walk through the financials. Eric Linn: Brian? Brian Schopfer: Thank you, Tom, and good morning to each of you on the call. I will continue the prepared remarks on slide eight outlining our financial performance. First quarter total revenue was $258 million, an increase of 28% versus last year's first quarter. Organic revenue growth was 3%, in line with our expectations and aligned with what we communicated in February. First quarter adjusted EBITDA was $54 million, or 16% better than last year. As foreshadowed back in February, margins contracted in the quarter, reflecting margin-dilutive M&A, one-timers in Q1 of the prior year, and a mix shift in the legacy Nuclear and Safety segment, mainly related to our sensing business. We utilized approximately $16 million of our $100 million share repurchase program in the first quarter to buy back approximately 700 thousand shares. This is consistent with last year's first quarter to offset the dilutive impact from our annual stock-based compensation program. We generated $11 million of adjusted free cash flow in the quarter. Q1 is historically our lightest cash flow generation quarter. Cash generation around our project business can be lumpy, and that is what we saw in Q1 with less project inflows than a year ago. In the quarters going forward, we have line of sight to a much more robust cash generation profile and better working capital dynamics. Lastly, as Tom outlined, orders in the first quarter were strong, with growth coming from both segments. Slide nine has the details. Order performance was the highlight of the quarter. Absent any M&A-related order growth, core orders grew nearly 20%, reflecting growth in both segments. Total orders, including a $47 million contribution from Paragon and CertRec, grew 42% in the quarter to $288 million. In Nuclear and Safety, orders grew across all three end markets: nuclear power, labs and research, and defense diversified. In nuclear power, growth primarily reflects two sizable installed base orders within the U.S. operating fleet, and a large SMR order. Within Paragon, we booked an incremental large order within the U.S. installed base. The approximately $35 million SMR-related order we were awarded in April will show up in the Q2 orders number. Labs and research orders grew primarily out of Europe despite comping against a $5 million DOE order from last year. One thing I would point out at Paragon is we saw strong DOE-related order activity in the quarter. Our DOE pipeline across the company is very strong. Lastly, defense and diversified orders grew in the quarter thanks to a radioactive waste handling order, which was part of our large opportunity pipeline. In the Medical segment, order growth primarily reflects the radiation-hardened cameras order within the RTQA end market. That gives us good backlog in that new product for the next three years. Slide 10 provides the latest update to our large opportunity pipeline. Two of the five large opportunity orders are Paragon-related. In the first quarter, we won the first part of an SMR order, part of a radioactive waste handling order in our defense and diversified end market, a Paragon large battery qualification order within the installed base, and a large medical order for radiation-hardened cameras from our RTQA business. Interestingly and importantly, both the RTQA and battery orders were not in our pipeline at year end, which tells you how dynamic the environment continues to be. Separately, in April, we were awarded the first part of another large Paragon SMR order. The rest of the pipeline remains active and continues to represent a significant opportunity for the company, including the remaining components of the three partial orders I mentioned. Before I dig into the quarter's financial results, let me spend a moment detailing the nuclear power end market on slide 11. Nuclear power orders, excluding M&A, grew 15% in the first quarter, including the large partial SMR order. SMR orders continue to impress. We booked approximately $15 million of orders in the quarter, followed by the $35 million large opportunity we were awarded in April. Momentum continues within this segment of nuclear power. Let us get into the quarterly financials beginning on slide 12. Consolidated first quarter revenue grew 27.5% to $258 million. Approximately 21 of the 27.5 percentage points of growth were attributed to acquisitions, primarily Paragon. Organic revenue growth of 3% was in line with expectations. Recall, on our February earnings call, we noted that we expected organic revenue growth to be in the low single digits for the first quarter. First quarter adjusted EBITDA was $54 million, or 16% better than last year's first quarter. Also, as foreshadowed on our February earnings call, adjusted EBITDA margins contracted. This was primarily due to the margin-dilutive impact from M&A as well as some mix impacts, coupled with one-timers in the legacy business. We expect to see margin expansion in the next three quarters within the legacy business, offset by Paragon. Adjusted EPS totaled 10¢ per share in the quarter. In 2026, we are now including stock-based comp in our adjusted EPS calculation. Last year's adjusted EPS would have been 8¢ per share using a similar methodology to the one put in place for 2026. We have an adjusted EPS reconciliation slide in the appendix that has the details for your model. Turning to the Nuclear and Safety segment on slide 13. First quarter revenue was $186 million, up 39%. Organic revenue was 2.6%, better than our expectations of flat year-over-year noted in February. A few things of particular interest in the first quarter. First, nuclear power-related revenue, excluding M&A, increased 4% versus last year. I would note that for the first quarter, we were comping 18%. We saw growth in both our installed base markets of North America and Europe, while this was offset by less new build revenue in Asia, mainly China and Korea. We still expect to see double-digit revenue growth in the nuclear power end market for the full year. Second, we are seeing SMR-related revenue accelerate. This accounts for 2% of total Mirion Technologies, Inc. revenue and is expected to increase to greater than 3% of total Mirion Technologies, Inc. revenue by year end. Third, we saw better-than-expected labs and research end organic revenue growth, thanks to strong performance out in North America. Fourth, in our defense end market, we saw higher NATO and U.S. military and civil defense revenue. As a reminder, the defense end market can be lumpy, but activity has certainly picked up. Adjusted EBITDA grew nearly $8 million, or 19%, to $47 million. As we have already discussed, Nuclear and Safety adjusted EBITDA margins contracted. Half of the contraction was M&A-related. The other half was mostly due to mix shifts inclusive of the sensing business, a number of one-timers in the prior year, and some mix more broadly within our North America business. Lastly, it is worth noting that we were comping over 300 basis points of margin expansion in Q1 2025, the largest of any quarter in 2025 for this segment. Now let us move to the Medical segment on slide 14. First quarter revenue was $72 million, up 5%. Organic revenue growth was approximately 4%, in line with the expected mid-single-digit organic revenue growth noted on the February earnings call. Our RTQA end market posted double-digit organic revenue growth driven by an easier comp lapping last year's ERP implementation headwinds, favorable software performance, and a month's worth of production from the large camera order we received. In nuclear medicine, we expect much of the organic revenue growth to occur in the back half of the year. Meanwhile, our dosimetry services end market posted a slight reduction in organic growth. This business had a difficult comp due to a large hardware order last year, which we have discussed before. Excluding this, our core dosimetry services organic revenue would have grown low single digits in Q1. Medical segment Q1 adjusted EBITDA was $25 million, or 6% better than last year. As expected, margins expanded in the quarter, reflecting operating leverage and pricing tailwinds. Turning to adjusted free cash flow on slide 15. We generated $11 million of adjusted free cash flow in the first quarter. The difference versus last year is primarily due to timing affecting net working capital. While net working capital was the largest use of cash in the quarter, we saw the structural enhancements we made to our balance sheet bear fruit in the quarter via the interest expense line. We remain on track for our full-year adjusted free cash flow guidance and believe Q1 marks a trough. We continue to see large opportunities for improvement in AR, inventory, and our project cash flows. More broadly, on 2026 guidance on slide 16, everything remains unchanged from our February earnings call disclosures, with the exception of a small adjustment to adjusted EPS to account for the one-time CEO retention grant of performance-vesting stock options disclosed earlier this month. Before we open the call to your questions, I will provide some details about second quarter expectations. First, on orders. Second quarter orders will be higher compared to the first quarter. We expect another quarter of strong order growth, where sequentially from Q1 to Q2, we expect to see 15% to 20% order growth. Consolidated second quarter organic revenue growth is expected to be in the low single digits. This is also the case in each operating segment. As a reminder, on the top and bottom line, we shipped quite a bit of product in 2025 into China before the tariffs went into effect, so this quarter has that as a headwind. Consolidated adjusted EBITDA margins should be relatively flat versus Q2 2025. Nuclear and Safety segment adjusted EBITDA margins should also be relatively flat despite the margin-dilutive impacts from the Paragon acquisition. Excluding Paragon's margin-dilutive impact, the Nuclear and Safety segment adjusted EBITDA margins are expected to expand. Regarding Paragon, we expect second quarter revenue to be slightly lower than the first quarter, but still posting double-digit revenue growth versus last year. We maintain our prior expectations of approximately 25% full-year revenue growth for Paragon, and we continue to expect low twenties EBITDA margins. Lastly, Medical segment margin should expand slightly. Recall, Medical segment margins in last year's second quarter expanded almost 300 basis points, so we are lapping another tough comp in that segment. With that, let us open the call to your questions. Operator? Operator: We will now open the call for questions. Thank you. We will now be conducting a question-and-answer session. A confirmation tone will indicate that 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 [inaudible]. We ask that analysts limit themselves to one question and a follow-up so that others have the opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from James West with Melius Research. Please proceed with your question. Tom Logan: Thanks. Good morning, guys. Morning, James. James West: Tom, you gave some macro comments in your prepared remarks, but I would love to hear a little bit of expansion there given I saw you in February, you were already pretty bullish, then, of course, we had the Middle East conflict, and the DOE has been very active, as you are well aware, in shepherding nuclear. I would love to hear if there has been, and I am sure there has been, but what you are seeing in terms of acceleration of kind of the nuclear buildout in the United States and also the nuclear renaissance that we are seeing more globally. Tom Logan: Yeah, James. So I think there are three important dimensions to it overall. Far and away, the single most important is the dynamic being experienced right now by the installed base, recognizing that today if you look at the American nuclear fleet, they are running at very high capacity factors, typically in the low 90% range overall. Globally, we just had recent statistics updated that last year, the global fleet ran at about an 82% capacity factor. And the bottom line is that a few important things have profoundly changed psychology for the owners of those assets overall. Firstly, as I noted in my commentary, only a few years ago, the posture was very defensive. Many nuclear power plants were operating at very thin margins or even negative margins, and there was a general orientation toward premature decommissioning of nuclear power plants, with an incredibly defensive CapEx and OpEx posture overall to minimize the attendant expense. What we are seeing now is the exact opposite. Given the fact that even with AI demand as it is today, the world simply does not have enough electrical generating capacity, and that will always be the constraining factor in any reasonable scenario overall. It has created a very compelling economic incentive for operators to fundamentally change the way they manage these assets. The biggest single impact is that even though we are seeing life extensions in the American market from 60 years of permitted operating life to 80 years, the majority of operators are really thinking 100. And so if you imagine the psychology shift going from a shutdown posture to one where I want to operate these assets for another 40 years, that profoundly impacts the solutions that they need to shore up these power plants. Most immediately, we see that in CertRec and Paragon through their various activities, which are essential for the daily operation of the power plant. But what we are seeing just beyond that is that there is a compelling need and a compelling opportunity to broadly upgrade instrumentation and control systems, which include in-core detection, neutron flux measurement, radiation monitoring systems, and reactor protection systems. And beyond that, there is a need to upgrade and consolidate and digitally enable radiation protection systems. And so we are beginning to see the leading edge of that demand right now not only in the American market, but broadly on a global basis. And this is just a—I cannot overstate how profoundly this impacts the overall opportunity set as it relates to the global operating fleet. But beyond that, clearly we are seeing a lot more action in advanced reactors, the so-called small modular reactors. We obviously see that in our order book, but more broadly, if you look at the leading players here, if we were to take the top 20 best-capitalized SMR plays with the highest level of technological readiness, we almost run the tables with that group in terms of our position of prominence, orders booked, and the level of engagement. So we are very bullish on that sector. It continues to move to the left, and most recently undergirded by the IPO of X-energy, which has traded very, very well over the last week. And then beyond that, you have the utility scale. You know, the activity that we have cited previously with Westinghouse, having plans to build 14 AP1000s internationally—nine in Ukraine, three in Poland, two in Bulgaria—an early commit by the Indians to build another six, potentially 10 additional AP1000s in the American market. Obviously, we will plan all of that. And then beyond that, you have EDF/Framatome, which has immediate plans in the near term to initiate three projects in France at Penly, at Bugey, and Gravelines. And again, given the strategic alliance we have with EDF/Framatome, we expect to play there. And then beyond that, it is Rosatom, it is KHNP/KEPCO, the Koreans, continued activity in China. So what we are seeing overall is also an acceleration in new build commits, and obviously, that bolsters the whole nuclear thesis for us. James West: That is very helpful, Tom. Thanks for that. And maybe for Brian, the medical business came in pretty strong this quarter. I know 2025 was a more difficult year with a lot of headwinds. Is this a one-off, or are the headwinds now behind us and we should expect this kind of performance from Medical going forward? Brian Schopfer: Yeah. I mean, look. We are to our guidance on the Medical side for the year. So from the beginning of the year to where we are today, I would say we have not changed any of the numbers, but I think we continue to be more optimistic in our viewpoints that this business has green shoots sprouting. We are still watching the Asian markets, which is where we have had many of our challenges, and the U.S. market. But our software business continues to perform well. Our services business continues to perform well. The order we got with Varian really kind of bolsters some backlog for this year and the next couple of years, and it is good business for us. So I would say we have not changed our guidance range, but I would say our confidence level is better than it was even three months ago. Operator: Our next question comes from Joseph Alfred Ritchie with Goldman Sachs. Please proceed with your question. Analyst: Hey, Joe. Morning. So the order/backlog commentary was really good, not just this quarter, but just the start to the second quarter. I was wondering if you can maybe just give a little bit more details. The $35 million SMR order is in there for Q2, but maybe some more details around that 15% to 20% sequential move that you expect in orders in the second quarter would be helpful. Thank you. Brian Schopfer: I think it is indicative of everything Tom actually just talked about, which is the nuclear market continues to be good for us. We are clearly expecting another order or few on the SMR side. Right now, the timing of those is always a little bit hard to predict. But that has to be in there for us to hit those numbers. But again, the order dynamics continue to play to our favor. I do not want to get into anything project-specific because these things move a bit. But I do think it is very constructive that the teams believe that we will see sequential order growth year over year. If you looked at last year, we were a little bit flat orders Q1 to Q2 as well. So this is obviously a step change there. Paragon extends to that as well. So I think the flywheel is beginning to spin. I think we are still early innings. Maybe one other comment, Joe. The other positive is last year, we saw the large orders all end in Q4. I think what people should focus on is we are seeing that much earlier in the year. One, that gives us revenue opportunity this year for sure, but much of these larger orders probably end up more in 2027 than 2026, candidly, from a materiality standpoint. But two, there is not a wait-and-see game on whether this is happening. This is going to happen every quarter. You are going to see some things tick off the box from that pipeline. And I think that is very constructive. I think it is healthy. And I think it does show that the dynamic is positive. And I would just reiterate something I said. I mean, two orders that were above $10 million that we booked in the first quarter we did not have in our pipeline at the end of the year. So I think that is very constructive about what else we are seeing. Tom Logan: Sure. The other thing I would tag in on is that Doug VanTassel, the CEO of Paragon, and I have been doing a systematic roadshow with chief nuclear officers spanning the American fleet. And I will tell you the dialogue there is incredible. And again, I cannot overstate the importance of the integrated Mirion Technologies, Inc. and Paragon sales team. The Paragon sales team—these guys are apex predators. They have a maniacal focus on customer satisfaction. And we are seeing that the added dialogue, the increased customer intimacy, is really opening the aperture as we think about the opportunity set both in the near term and the long term. Joseph Alfred Ritchie: Yeah. That is super helpful, and obviously Paragon is off to a great start for you guys. I guess maybe just my follow-on question, and it does actually segue well from what you just said earlier, Brian, regarding the backlog conversion. So it is really two questions. If you think about the guidance and how you set up the guidance for 2026, maybe just talk a little bit about the confidence you have in hitting the ramp and EBITDA as the year progresses. And then secondly, the backlog is now step-changing—how much visibility you are now starting to get into 2027 given maybe some of these things are a little bit longer cycle. Brian Schopfer: Yeah. I think a couple things. I think if we had a different viewpoint on our EBITDA/revenue guidance, we would have made a change in the quarter. That is what we have always done—as we see it, we call it. So I think we continue to be confident in our guide. I think as you think about 2027, I think 2026 is really a bit back-end loaded. That is clear because you have seen first quarter, I gave you guidance on second quarter. But I also think that plays into how we are starting to see and think about 2027 shaping up. I am not going to guide that now, but I think we are very constructive on what we are seeing beyond 2026. And I think that shows in the backlog. You are going to see—if you just do the math—backlog growth again in the second quarter. I think that sets us up well. Operator: Our next question comes from Andrew Alec Kaplowitz with Citigroup. Please proceed with your question. Brian Schopfer: Andy. Andrew Alec Kaplowitz: Maybe a bit of a follow-up on that. You did not change anything in terms of your line of sight on your expected segment revenue growth for the year. But in Nuclear and Safety, you started out flat as expected in nuclear power. So maybe just talk about the visibility toward getting back to double digits as you said you will. Do you basically have the order coverage given Q1 and your commentary on Q2, or do you still need to see some bigger nuclear power orders to reach that double-digit growth in 2026? Brian Schopfer: Yeah. I mean, look, I think the comp set gets a bit easier as the quarters go on the nuclear power side by quarter. Q1 was our large nuclear power comp for 2025. So I think that is one. If you look at the order—just even the large order dynamics and what we are seeing—it is definitely nuclear power heavy. So we continue to like double-digit growth in 2026 for nuclear power. And by the way, that is pre-Paragon double-digit growth. When you are talking about Paragon, where a lot of the revenue is nuclear power as well, we commented the DOE stuff—we are starting to see sprouts for sure. They had very good order growth there. We are talking Paragon 25% kind of organic growth for them if we owned them in 2025/2026. So I think we feel good about the dynamics happening within the nuclear power segment across both brands. Andrew Alec Kaplowitz: Very helpful. And then kind of similar in Medical, you did not change your expectation for RT in 2026, but you did mention green shoots in Q1 and hardware, and obviously the large camera order associated with Varian seems quite interesting. I think you announced a closer relationship with Varian maybe it was a year and a half ago or something like that. So maybe give us more color on whether RTQA now should see more opportunities with Varian and should see accelerating growth from here. Brian Schopfer: Maybe I will take it and you could chime in. I mean, look, it is the first quarter. I think we want to see how the year continues to progress. But again, that RTQA order was not on our radar six months ago, and so I think that gives us kind of added visibility. Let us get through the second quarter, which is our toughest comp by far in the RTQA business because of the China shipments, etc. But like I said to an earlier comment, I think we have more conviction around our Medical number today than we did even in February. Operator: Our next question comes from Tomohiko Sano with JPMorgan. Please proceed with your question. Tomohiko Sano: Hi, good morning Tom and Brian. Good morning. Thank you. I wanted to ask you about Paragon, which has shown strong contract wins and growth. Can you update us on integration progress, cultural alignment, and specifically any revenue synergies realized so far? And also, does the 30%+ adjusted EBITDA margin target for 2028 remain intact post acquisitions? Any color appreciated. Thank you. Tom Logan: Yeah. Let me start, Tomo. Firstly, on the cultural alignment, I think this was really a critical determinant in our ability to acquire Paragon to begin with because there is such a high degree of compatibility culturally between the two organizations. They are very entrepreneurial, very risk-on, very engaged, very motivated to build a great business. And cultural symbiosis between Paragon and Mirion Technologies, Inc. is extraordinarily high and, to a very gratifying extent, we are seeing that resonate in the early days of the integration, where the two organizations have come together broadly, very collaboratively. I think as we walk together on both sides of the table, we are all more excited about the art of the possible here—what we can do together and the goodness of fit overall. In terms of the synergy profile, generally our playbook is that our first standing rule is the Hippocratic Oath, which is first do no harm. And so we are very careful when we acquire a new asset to walk together, to learn from one another, to be very careful about identifying the opportunity set. But in the wake of that, priority number one is infrastructure. It is connecting the central nervous system of the company, standardizing health and welfare benefits, HR processes, IT, financial and accounting standards and processes, and the like. Immediately following that, the focus is on commercial synergies, recognizing this was the single biggest pillar in our investment thesis here. And as we stated, I think clearly that is paying off faster than we anticipated. We see a significant opportunity to enhance and increase the commercial leverage on both sides of the table, and clearly that is beginning to spill into backlog already. Beyond that, we have cost optimization, and beyond that we have the technological leverage as we embed the augmented capabilities of each organization into our R&D pipeline and really evolve how we are thinking about new product solutions and the enhanced technological building blocks that will go into that. So, in the near term, no, we are not calling out any specific cost synergies. But I would tell you our track record here is great. Maybe the best most recent example, just based on scale, would be the acquisition of Sun Nuclear, which we acquired in 2020. In that case, we took a great, vibrant company that had strong performance and we have added about 10 points of margin to that business since we have owned it. Clearly, our expectation is that Paragon will become accretive. Clearly, our drive and our motivation is to make that happen sooner rather than later. To be clear, that is a shared objective. It is not just Mirion Technologies, Inc. wants this and Paragon is reluctantly following. I think we are all in on driving toward this, and our goal is to make it happen very quickly. The final point is on the 30% EBITDA target by 2028, which we announced in our Investor Day a couple of years ago. We continue to stand by it. This year, I think we have guided 25% to 26% EBITDA margins. Obviously, we are trying to drive toward the upper end of that range. And if you accept that, that leaves a go-get of another four points of margin expansion over the next two years. Half or more of that we expect will come from absorption as we continue to drive greater volume against a largely fixed cost structure and one that inflates at a much slower rate than our pricing capabilities on the top line. If you look at the remaining two points, that final go-get is going to be driven by self-help. And here it is going to be continued improvement in procurement processes, conversion processes, continuing to rationalize our industrial footprint overall, improving pricing heuristics. But the big lever here clearly is going to be AI. We are investing very heavily in AI right now, which arguably in the near term, and this is reflected in our guide, is margin dilutive. But the rest of it is simply a choice. Anytime I want to, I can find the balance of that go-get. It is a decision entirely within our control organizationally. And again, given the enhanced capabilities that we see both for cost and efficiency improvements internally, but also in terms of evolving our customer-facing products, we are pretty bullish on our ability to get there. Tomohiko Sano: Thank you, Tom. And just one follow-up for your nuclear medicine business. Could you discuss the current sales momentum and outlook as well as the margin profile and the key drivers for both growth and profitability going forward, please? Brian Schopfer: That is a big follow-up, Tomo. But what I said in my prepared remarks is we thought the organic growth in that business would be a bit more back-end loaded. But this is another—this is a great margin story. We bought these three businesses and put them together between 2020 and 2023. I think we bought EC2. And even combined, it was a single-digit kind of EBITDA business that today is accretive to Mirion Technologies, Inc.'s margin profile. We continue to like our ability to expand margins there over time. New products are something we are working on. That is more a 2027 probably introduction than 2026. Operationally, we are very focused on procurement, continuing to streamline the workforce there, and our ability to grow is our number one priority. So yeah, we continue to like that business. It is a bit back-end loaded this year, but we continue to be confident in our ability to grow that business double digits. Operator: Our next question comes from Analyst with Baird. Please proceed with your question. Analyst: Yes, thank you. I wanted to ask about the green shoots in RTQA commentary. Brian, you started talking about the Asian markets in response to an earlier question. Just how are trends playing out in those markets specifically relative to your expectations? And are you starting to see the benefits of some of the actions you have taken there playing out yet? Brian Schopfer: Yeah. Again, I think I would characterize those as green shoots. We are seeing some positive momentum. I like what Mark and the team have done to set us on the right foot. It will take quarters to see this come to fruition. Those markets do not always move as fast. I think we are probably a little bit more optimistic about China. I think we are still a little bit hesitant on what we are seeing in Japan. But I think we have a good game plan, and we are absolutely moving forward. I think the order with Varian gives us some nice underlying stability in that RTQA. Candidly, that product line was not—you know, it is new—so that is all incremental growth year over year for us. And we continue to watch the U.S. market. I mean, I think we were pleased with what we saw in the first quarter. Again, software and services led the way, but our hardware business did better than what we expected in the first quarter. But we are not ready to move the numbers. I think we want to see a bit more production on that business. Analyst: Thank you. And then I wonder if you could give us a little more color on the $35 million April SMR order. That seems to be a pretty sizable order for an SMR, and you said there is more still to come. Is that across multiple SMRs or a higher revenue opportunity per megawatt with Paragon? Just any additional context you could share there? Tom Logan: Yeah. Quinn, it is with a single leading SMR player and it is supportive of, again, kind of the central nervous system of the power plant—supporting instrumentation and control. It is a nice win. We/Paragon have been working on this for quite a while. But again, when you look at the activity in this market overall, what we are seeing is a general movement to the left of the dynamics, particularly for these first-of-a-kind orders. And we continue to be more constructive on the market overall. We have highlighted previously that, based upon intrinsic scale diseconomies in specifically instrumentation and control, generally speaking, the revenue opportunity per megawatt of output of an SMR is quite a bit higher than it would be for utility scale. We have cited a loose estimate of about 60% higher on previous calls, and we continue to sustain that point of view. Brian Schopfer: Yeah. I would just say that the 60% was pre-Paragon. So we have not even done the math or guided to what the Paragon impact is. But you can see kind of the scale here. Operator: Our next question comes from Jeffrey Grampp with Northland Capital Markets. Please proceed with your question. Analyst: Good morning, guys. Brian Schopfer: Morning. Analyst: To circle back on Paragon here and hoping if you guys can elaborate a bit more on this tip-of-the-spear kind of language you position them as. I am curious, does that positioning give you guys a differentiated view or read into the growth potential underlying nuclear power that perhaps other offerings within legacy Mirion Technologies, Inc. maybe were not available to the company pre-Paragon? Or just any other commentary on what that kind of tip-of-the-spear position facilitates for Mirion Technologies, Inc. more broadly? Tom Logan: Yeah. I will take that one. So if you look at the legacy Paragon business, basically they have been in the business of keeping power plants operating. They provide critical spare parts which, in many cases, are no longer supplied by the original OEM. So in some cases, that means reverse engineering previously offered electromechanical components in a power plant. In some cases, it means taking a commercially available part that does not have a nuclear qualification—this could be a backup generator, a chiller, batteries, other components—and Paragon puts that through a very formal commercial grade dedication, which makes it a nuclear-qualified component. Beyond that, they also offer essentially a brokerage platform for available spare parts within the industry. Those three core activities, again, keep the fleet operating. They are a very, very critical supplier to the industry overall. And given the nature of this business, I think it is intuitive that the level of customer intimacy and dialogue has to be very high. And that latter piece is really the critical catalyst for the greater demand traction we are seeing overall with Mirion Technologies, Inc. products. Conversely, if you look at legacy Mirion Technologies, Inc. products, we have been focused on instrumentation and control through in-core and ex-core detectors, through neutron flux monitoring systems, through radiation monitoring systems, and also radiation protection in a variety of form factors, systems, and services overall. That platform or that historical offering has also been augmented by complementary capabilities that Paragon has in I&C. And so when you put these things together, firstly, because of the greater intimacy of the Paragon sales team, we are seeing a clearer, higher-resolution demand signal overall from the power plants compared with what we have historically experienced based upon a fundamentally different sales model at legacy Mirion Technologies, Inc. That is certainly elevating our view, elevating our level of bullishness as to what is happening in the industry. But beyond that, it also gives us much earlier dialogue about those complementary areas of overlap on that Venn diagram, particularly in instrumentation and control. So we are thrilled by this acquisition. We are thrilled to bring our two companies together. This is a great pickup for us. Operator: Our next question comes from Analyst with Evercore ISI. Please proceed with your question. Analyst: Hey. Good morning, guys. Just wanted to circle back on the backlog commentary as well. Obviously, Paragon is a little bit dilutive on the adjusted EBITDA margin this quarter. But just as we think about these new orders rolling in, how can we think about the margin profile within backlog currently? I mean, you kind of spoke to it, I believe, on the 2028 kind of target. But just want to kind of level set there. Brian Schopfer: Yeah. Thanks, Nick. Look, I would characterize the margins in backlog exactly as we would have expected and give us the ability to hit the numbers we are talking about. We definitely—and really think about our margin in backlog more as contribution margin versus what the base margin is. But I do not think there is anything too scary in there that we are worried about from a margin perspective going forward. The only maybe comment I would make is some of the project business can be a little bit lower margin, but I think the teams have done a very nice job really working hard to make sure that the incremental margin on those bigger projects actually benefits Mirion Technologies, Inc. over the long term. So we are focused on margins and we are focused on cash as it comes to these larger business projects. Operator: We have reached the end of our question and answer session. I would now like to turn the floor back over to Tom Logan for closing comments. Tom Logan: Ladies and gentlemen, we appreciate your time and attention this morning. We appreciate your support. Again, an important quarter for the company. We feel great about the order momentum. We continue to have confidence in our outlook for the year. We continue to have confidence in our drive toward the 30% EBITDA target. As I have noted, we built this company in an environment of very difficult headwinds and always found a way to grow the top line and add value in a way that outpaced the markets and the peer set in general. It is tremendously exciting right now to have not only tailwinds but generational tailwinds supporting the business overall. So we are excited to continue to show what we can do, and we will look forward to speaking to all of you on our Q2 call. Thank you very much. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by, and welcome to InvenTrust Properties Corp.'s first quarter 2026 earnings conference call. My name is Christine Nguyen, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and a replay will be available on the Investors section of the company's website at inventrustproperties.com. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I would now like to turn the call over to Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir. Dan Lombardo: Good morning, everyone, and thank you for joining us today. On the call from the InvenTrust Properties Corp. team is DJ Busch, President and Chief Executive Officer; Mike Phillips, Chief Financial Officer; Christy L. David, Chief Operating Officer; and Dave Heinberger, Chief Investment Officer. Following the team's prepared remarks, the lines will be open for questions. As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release. In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials which are posted on our Investor Relations website. With that, I will turn the call over to DJ. DJ Busch: Our first quarter results reflected steady operating performance across the portfolio. Same-property NOI grew 2.6%, while Core FFO and NAREIT FFO per share increased 6.5% and 10.4%, respectively, from 2025. We continue to enjoy meaningful embedded growth from annual escalators, healthy cash-on-cash leasing spreads, and our signed-not-open pipeline provides further confidence regarding revenue conversion. Taken together, this supports our expectation for same-property NOI growth to build in the back half of the year. Christy will provide additional details on leasing demand and backfill opportunities for our available spaces in her remarks. Given this visibility, coupled with increased confidence around our acquisition pipeline, we were able to increase FFO per share guidance for 2026. Our nearly 100% Sun Belt footprint is roughly 89% grocery-anchored, and centered on essential goods and services in trade areas with strong long-term demographic tailwinds. The backdrop across the region remains highly favorable, with many of the country's fastest growing cities and suburban communities concentrated in the Sun Belt. Recent migration data also underscores the appeal of our markets, with Florida, Texas, the Carolinas, Arizona, and Tennessee among the leading beneficiaries of wealth inflows. These states continue to attract new residents due to job growth, lower taxes, and lifestyle appeal. We will continue to invest in our core markets while expanding our corridor strategy into complementary secondary Sun Belt cities. That approach broadens our acquisition sourcing efforts and expands the opportunity set for capital deployment. Within that framework, we remain disciplined, active, and selective in a competitive transaction environment. This quarter, we completed $123 million towards our $300 million net investment guidance for the year. We have another $167 million of additional deals awarded or under contract with other opportunities still in the pipeline. In February, we entered the Nashville market with the acquisition of Nashville West. It adds a high-quality property to our portfolio and follows the same playbook we have used successfully elsewhere, which is to enter areas where demographics, retailer demand, and long-term fundamentals align to support durable growth, and then build from that initial foothold over time. Selective small-scale redevelopment continues to provide another avenue for incremental NOI growth within the existing asset base. We are focused on projects that reposition anchors, remerchandise space, add small shop or outparcel space where demand is strong and additional GLA is warranted. In 2026, we expect this pipeline to contribute approximately 90 to 100 basis points of same-property NOI growth. With visible internal growth and disciplined capital investment across redevelopment and acquisitions, we believe InvenTrust Properties Corp. remains well positioned to create long-term shareholder value in an environment where necessity-based retail continues to outperform. With that, I will turn it over to Mike. Mike Phillips: Thanks, DJ, and good morning, everyone. Turning to our financial results, same-property NOI for the quarter totaled $48.7 million, an increase of 2.6% over 2025. Growth was driven primarily by embedded rent escalations, which contributed approximately 170 basis points. Positive leasing spreads added roughly 90 basis points, redevelopment activity provided an additional 70 basis points, and percentage rents and specialty income added 50 basis points. These gains were partially offset by a 40 basis point headwind from bad debt and 60 basis points from an expected temporary impact in occupancy. NAREIT FFO for the quarter totaled $41.3 million, or $0.53 per diluted share, reflecting a 10.4% increase from 2025. Core FFO rose 6.5% to $0.49 per share year over year. FFO growth was driven primarily by higher same-property NOI and net acquisition activity partially offset by interest expense. We also recognized approximately $0.8 million of lease termination fee income during the quarter, which was anticipated and incorporated into our initial guidance. Our balance sheet remains strong and gives us flexibility and liquidity to continue executing on our long-term growth strategy. At quarter end, total liquidity stood at $346 million, including $27 million of cash and $319 million available on our revolving credit facility. Our weighted average interest rate was 4.1% with a weighted average term to maturity of four years. Net leverage finished the quarter at 29.7% and net debt to adjusted EBITDA was 5.2x on a trailing twelve-month basis. Subsequent to quarter end in April, we signed a definitive note purchase agreement for a $250 million private placement of senior unsecured notes. The financing is structured in three tranches: $50 million due in 2029, $100 million due in 2031, and $100 million due in 2033. On a combined basis, the notes provide us with a weighted average tenor of approximately 5.4 years and a weighted average fixed interest rate of 5.4% over the term. Funding is expected on 06/29/2026, subject to customary closing conditions. Finally, we declared a quarterly dividend of $0.25 per share, a 5% increase over last year. Turning to guidance, we are reaffirming our full-year same-property NOI growth guidance range of 3.25% to 4.25%. For NAREIT FFO, we are increasing our full-year guidance range to $2.00 to $2.06 per share, which represents 7.4% growth at the midpoint versus 2025. This increase is primarily driven by mark-to-market lease adjustments related to our recent acquisitions. Our Core FFO guidance is increasing to $1.92 to $1.96 per share, up 6% at the midpoint from last year. Additional details on our guidance assumptions are available in our supplemental disclosure. With that, I will turn the call over to Christy to discuss our portfolio activity. Christy L. David: Thanks, Mike. From an operating standpoint, leasing activity remained healthy during the quarter. We executed 64 leases covering approximately 329 thousand square feet and comparable blended spreads were 10.5%, with new leases at 19.8% and renewals at 9.9%. Annualized base rent per occupied square foot increased 2.1% year over year to $20.63. At quarter end, leased occupancy stood at 96.4%, with anchor leased occupancy at 98.5% and small shop leased occupancy at 92.9%. The anticipated short-term change in occupancy was driven primarily by seven larger format small shop spaces, and we already have six of those seven spaces either signed or under LOI. For the new opportunities and spaces coming back to us, prospective rents are running approximately 15% to 20% higher. With occupancy levels at or near all-time highs for the last several quarters, the aforementioned opportunities are a welcomed event, allowing us to maintain strong occupancy while proactively recapturing and re-tenanting space to improve the merchandise mix, retailer credit, and rent growth profile. We currently have five anchor vacancies including three tied to our redevelopment project at Gateway Market Center in Florida, one in our California asset that is in our disposition pipeline, and one space in Texas that has an LOI currently being negotiated. More recently, Painted Tree Marketplace closed stores across the U.S., including our one location in Glen, Virginia, representing approximately 30 thousand square feet or about 20 basis points of ABR. We are well positioned to backfill this space. As we look to the balance of the year, we continue to have good visibility into future growth. The lease-to-economic occupancy spread ended the quarter at 130 basis points, with 80% attributable to small shop space that is yet to commence, giving us a clear line of sight into revenue conversion and reinforcing the embedded growth in the portfolio. Our lease-to-economic spread matched our fourth-quarter level, reflecting our team's execution in getting tenants open and paying rent. The first quarter of 2026 was one of our highest quarters of new rent commencement since our listing. The consumer environment also continues to support our platform. Shoppers remain value conscious, with spending on convenience, necessity, and everyday services holding up well. This is translating into tenant demand across categories such as food service, medical retail, and other service-oriented uses. Off-price is a good example of that dynamic. It remains a dependable traffic-driving category in open air retail and resonates in a consumer environment where value matters. Together with grocery and other essential anchors, these tenants help create a merchandising mix that aligns well with consumer needs and positions our centers for long-term performance. Our exposure to higher-risk discretionary categories also remains limited, and while we always maintain a watch list, the overall risk profile remains manageable. Turning to acquisitions, the opportunity set within our pipeline, while competitive, remains robust as we look to add properties in both current markets as well as adjacent or corridor markets that are complementary to the existing portfolio. During the quarter, we added two properties: Marketplace at Hudson Station in Phoenix, Arizona, a neighborhood center anchored by EOS Fitness and shadow-anchored by a Fry's Marketplace in a growing part of the Phoenix MSA. The acquisition deepens our presence in an existing growth market and reinforces our approach to building scale in regions where we already have conviction. And as DJ mentioned, we also purchased Nashville West, a high-performing open air power center located roughly fifteen minutes from downtown Nashville, shadow-anchored by Target, Costco, and Publix. The asset benefits from strong traffic, attractive surrounding demographics, and a location in one of the fastest growing parts of the country. We believe Nashville West gives us a solid entry into an attractive new Sun Belt market. That concludes our prepared remarks. Operator: We will now open the call for questions. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd, your line is now open. Todd Thomas: Alright. Thanks. Good morning. First, I just wanted to ask about acquisitions. The $167 million of acquisitions that are under contract or that have been awarded, which gets you to the $300 million target for the year—are those expected to close by roughly the end of the second quarter? And then it sounds like there is appetite to be more active beyond that as you move further into the year. Can you just talk about the future pipeline and remind us of the initial yields and IRRs that you are achieving and whether those are moving around a little bit as you work through some additional deals? DJ Busch: Yeah, thanks, Todd. Good morning. We are very happy with how the year started as it relates to our acquisition pipeline. If you remember last year, we sold in the beginning part of the year with our recycling out of California, and then much of our acquisition activity ended up being backloaded. This year, we got off to a good start, as Christy alluded to, with Nashville West and Hudson Station. The things that we have awarded or under contract, to answer your question directly, we are hoping that most of those will close at some point in the second quarter. It is hard to predict exactly when they will close, but you can expect around that timeframe, maybe leaking a little bit into the third quarter. And to your point, we have, on a gross basis, about $290 million of deals either closed, under contract, or awarded, but we do have a really strong pipeline that we are going to continue to pursue behind that. We have discussed there will be a little bit of capital recycling, or asset sales on a very select basis, but only if we feel like we have an acquisition pipeline that continues to be actionable. That will continue to be the strategy throughout the year. One of the things that we were excited about coming into this year—and Mike alluded to the private placement that we just completed—we have a lot of dry powder. We have a lot of balance sheet capacity in a market that continues to be competitive, but we have continued to find deals at initial yields in that low-6% range or even mid-6% that are giving us healthy IRRs comfortably in the 7% range. That has been the recipe for success for us. Our guidance indicates that the cadence at which our acquisitions are coming is a little bit better than expected, which is why we were able to raise FFO per share for the year. We will continue to be active as long as we find deals that we like and that are going to continue to be accretive to the portfolio. Todd Thomas: Okay. That is helpful. And then in terms of funding, you have some dry powder. Leverage is below your longer-term leverage target of 5x to 5.5x. You mentioned some dispositions, but how should we think about equity capital fitting into the equation a little bit as you look at where your equity cost of capital is today as well? DJ Busch: It is a very good question. It is good to look back when we issued equity in 2024. It was a similar situation. The stock was trading at an all-time high at that point, and more importantly, based on that equity cost of capital or weighted average cost of capital across the different pockets of capital that we had at the time, we had an attractive pipeline that was actionable and we knew we could grow free cash flow accretively. As we sit here today, we are a couple of days off another all-time high. We feel pretty good about our multiple. We feel good about where the stock is at. But having said that, it is all predicated on the opportunity set. If the opportunity set is one where we can continue to grow cash flow accretively, we will look at all different avenues. Todd Thomas: Okay. Have you seen changes in seller expectations at all? With more capital coming into the space, are you hearing about pockets of capital that are pulling back or having a difficult time accessing capital, given some of the turbulence in the credit markets? DJ Busch: Not really, to be frank. We are continuing to find really good opportunities, but there has not been a whole lot of distress on the seller side. Every situation seems to be a little bit unique. Almost the entirety of our acquisitions that we have done is in the private market, usually with smaller operators that are selling for one reason or another. We have done a couple of larger ones where they are rotating out of funds. It runs the gamut, but I would not say that we are seeing distress related to credit tightening. Todd Thomas: Okay. Alright. Thank you. Operator: Your next question comes from the line of Andrew Reale with Bank of America. Andrew, your line is now open. Andrew Reale: Hi. Good morning. Thanks for taking my questions. First, on acquisitions. Nashville West is a single-asset entry into a new market. What made this the right time to enter? Do you have any additional Nashville assets in the pipeline currently? And how much scale would you aim to achieve there? And then the two acquisitions in the quarter are basically fully occupied. Can you talk about any upside you see at those assets in terms of rent mark-to-markets or other value-add? Christy L. David: Thanks, Andrew, for the question. Nashville West is a dominant power center with really healthy and competitive shadow anchors—Costco, Publix, and Target. One thing that is unique, and how we view this property, is that there is the ability to raise rent here. While it is largely occupied today, we see long-term value in rent growth and there is a little bit of remerchandising we think we can get done as well. Holistically, the Nashville market is an exciting opportunity. We do have a few other assets in the pipeline—nothing currently under LOI or near execution—but there are things that we have our eye on and have had long-term conversations about. Over time, we hope to establish a presence that would allow us to have three or four assets in the market and operate there, and in the interim we are able to utilize our boots on the ground in surrounding markets to help us service that asset and operate effectively. As for your question about the acquisitions being fully occupied, both are in markets where, over time, we are able to put the InvenTrust model to work. We are able to grow rents, implement annual escalators, and get them on fixed CAM, all of which will help us produce cash flow growth. Andrew Reale: Thank you. And I think it was last quarter there was a comment that acquisitions from 2024 and 2025 were generating blended spreads in the low-20% range. How much below-market rent is left in that acquired pool, and over what time frame does it get marked to market? DJ Busch: The great news is there is a lot left because we only get access to a certain amount of leases every year. More importantly, if you look at all the acquisitions that we have made since 2021—or even since 2024—the average annual escalator within those tenants or at those properties is about half of what we are getting in the remainder of the portfolio. On every new deal now, we are achieving over 3% annual escalators, while the in-place escalators are about 1.5%. So there is a tremendous amount of opportunity not only at the initial cash spread—20% plus on those deals—but also in being able to put in annual escalators and fixed CAM, as Christy mentioned, to drive continual NOI and cash flow growth year in, year out. Operator: Your next question comes from the line of Cooper Clark with Wells Fargo. Cooper, your line is now open. Cooper R. Clark: Great. Thanks for taking the question. I wanted to ask about the same-property NOI acceleration in the back half of the year. In the press release, you noted the acceleration is driven by contractual rent and also a strong pipeline of lease commencements over the balance of the year. Could you provide a little more color on the contribution coming from the lease commencements, within the context of the SNO pipeline declining quarter over quarter in terms of the $4.6 million ABR contribution, and how lease commencements compare to some of the other core items driving the acceleration in the back half? Mike Phillips: Yeah, Cooper. Most of the SNO pipeline is small shop—about 80%—and we do expect 90% of that to be coming online by the end of the year. It is weighted very much to the back half of the year. Q3 and Q4 is when you will see most of that come online. DJ Busch: The only thing I would add is when you think about the NOI cadence—we do not guide to quarterly cadence, but it is important in this case because of the acceleration—the second quarter we are expecting to be very similar to the first quarter. You will really see the acceleration in the third, but mostly in the fourth quarter. You can expect the same thing from an occupancy standpoint. It is always hard to gauge leased versus occupied, but you can expect us to comfortably accelerate in the back half, and that SNO pipeline actually increasing as we get to the back half of the year, which is going to serve us extremely well going into 2027. Cooper R. Clark: Great. And then on the acquisition market, could you talk about the buyer profile you are finding yourselves competing against today? As the transaction market remains highly competitive, do you think competitors are reflecting a higher risk tolerance for the asset class, whether it is lower exit cap rates or higher rent growth? DJ Busch: It has been and will continue to be competitive. Where we have found our sweet spot at InvenTrust is we do not do many deals under $10 million to $15 million—that tends to be very competitive in the private market—and we also avoid anything over about $200 million so we do not take on undue single-asset risk. Along with our cluster/corridor strategies in complementary secondary markets, we have found a niche where we have been able to get phenomenal properties with strong embedded growth at a good initial return and, most importantly, a good growth profile and unlevered return over time. There has been more competition in some gateway markets where there is probably a liquidity premium, especially because of activity from private funds. That is not where we have been focused. If we are able to announce the deals that are awarded or under contract, you will see much of the same: introductions to new markets that are very complementary to the core markets we are already in. Operator: Your next question comes from the line of Michael Gorman with BTIG. Michael, your line is now open. Michael Gorman: Yeah, thanks. Good morning. Christy, I am sorry if I missed it, but for those seven larger-format small shop tenants, was there anything thematic in there? Were they all the same operator, or did it just happen to come in a cluster in the first quarter? Christy L. David: Thanks for the question. There is nothing systematic or thematic about what departed. There are seven, and on a blended basis they are around 5 thousand square feet each. These are spaces we have had our eye on for a long time with operators that may have been limping along. There is no single use-related issue; they are spread across categories and across our markets. As I mentioned, we have six already identified with either LOIs or executed leases with 15% to 20% spreads. We are actually excited to get our hands on some of these to capture the lift. It has been a long time since we have been able to take some of these opportunities. DJ Busch: The only thing I would add—our small shop occupancy and retention rate has continued to climb to all-time highs, which is a good problem to have. At an all-time high in the fourth quarter, we found this to be the perfect time to have some planned tenant transitions in an otherwise highly occupied portfolio. We can still drive solid growth, and this is going to set us up exceptionally well as we get these re-leased and open in the back half of this year going into 2027. Michael Gorman: Thanks. And maybe one more on the acquisition side. The outparcel in Atlanta—was that just an opportunistic purchase, or is there a potential redevelopment of the center that that outparcel was critical for? And bigger picture, can you remind us of your view on outparcels and your outparcel strategy for the properties that you own? Christy L. David: That particular outparcel is one we have had our eye on for some time. It sits at the entryway to that asset. The more we can control the “front door” of a property, the better off we are. This was an opportunity. It is not a redevelopment play in and of itself at this asset; it currently has a new lease with an urgent care, which complements our current uses at the center. But it does provide us the opportunity to work with that tenant and potentially add an additional outparcel there in the future if demand warrants. Across our portfolio, we consistently look at where we may have outparcel opportunities to purchase—whether relevant for redevelopment or to give us better control of our assets. Owning everything helps us have better control of our properties, including with OEAs and REAs. Operator: Your next question comes from the line of Hong Zhang with JPMorgan. Hong, your line is now open. Hong Zhang: Hey. How should we think about the size of your active redevelopment pipeline for the remainder of the year, given that you completed a number of projects in the first quarter? DJ Busch: We delivered a couple of projects early, which, as I mentioned, is a nice building block for our NOI growth this year. As you see in the supplemental, we have a number of projects we are working on at any given time, at different stages—waiting for entitlements or with shovels in the ground. The cadence will be consistent. One of the things that is exciting over the next couple of years is we do have some larger redevelopment projects—mostly related to grocery rebuilds or relocations within the same center. Those are the best bang for our buck and the best thing for the center on a long-term basis, and we will continue to do some of those. The Florida project you are alluding to was an exciting opportunity to do some remerchandising to upgrade the merchandise mix. We will continue to look for those select opportunities. As Christy mentioned, one of the most important aspects of our outparcel acquisition strategy is really just controlling as much of the property as we can. If and when we do get an outparcel back, we have full control over what we want to do in the future of that pad. Operator: Your last question comes from the line of Paulina Rojas Schmidt from Green Street. Paulina, your line is now open. Paulina Rojas Schmidt: Hi. You mentioned the market has remained competitive. Have you seen any shift in terms of cap rates, or do you see a continuation of the trends that have been in place for a while now? DJ Busch: It is always hard to pinpoint because every asset has its own unique story, so it is hard to find a trend. It has remained competitive. There has been a lot of activity and interest in the open air multi-tenant retail space, which would allude to stronger private market pricing. We have seen that in certain markets—that was an opportunity for us in California. We have seen strong pricing in the larger markets in Texas. We have found unique opportunities on a one-off basis in complementary markets to our core markets where we are seeing just as good growth but a less liquid market, which can be reflected in the cap rate and unlevered return. Everything we bought we tend to feel better about six months later, both from a pricing perspective and a performance perspective. Not only do we feel good about our initial yields, but we like the activity and demand we were hopeful for when underwriting. So it is much of the same rather than any material difference from last quarter or a couple of quarters ago. Paulina Rojas Schmidt: And going back to the occupancy loss—similar to what some of your peers experienced—how do you distinguish normal seasonality from something more worth monitoring? DJ Busch: The reason we can tell is because our portfolio is of a size where we have really good intel and conversations with every one of our tenants. The seven tenants that were the predominant needle movers this quarter were ones we had our eyes on and had discussions with for some time. They continued longer than they otherwise might have given strong underlying fundamentals. Two or three of those spaces we proactively went after because we needed the space back—either for expansion of existing concepts or to accommodate a tenant we had to get into the property. The other ones we had been waiting on. That is why we already have six of the seven earmarked either with a deal underway or in some form of LOI or legal. If we did not have the demand right behind those, perhaps I would say there was some softness, but that is absolutely not the case. It is transitory in nature, and moving some larger small shop spaces while increasing guidance and setting up success for the next couple of years is a very good position for us. Operator: There are no further questions at this time. I will now turn the call back to DJ Busch for closing remarks. DJ Busch: Thank you, everyone, who joined us. We appreciate your time and your interest in InvenTrust Properties Corp., and we look forward to seeing many of you in the coming months either at ICSC or at several conferences over the summer and early fall. Operator: Thank you. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the MGP Ingredients, Inc. First Quarter 2026 Earnings Conference Call, with Julie Francis, President and CEO, and Brandon M. Gall, CFO. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. After today's presentation, there will be an opportunity to ask questions. Also note that this event is being recorded today. In addition, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's annual and quarterly reports filed with the SEC. The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. This call will contain references to certain non-GAAP measures, which the company believes are useful in evaluating the company's performance. A reconciliation of these measures to the most comparable GAAP measures is included in today's earnings release, which was issued this morning before the markets opened and is available at www.mgpingredients.com. At this time, I would like to turn the call over to Julie Francis, President and CEO of MGP Ingredients, Inc. Julie Francis: Good morning. I would like to thank you all for joining us today on our first quarter 2026 earnings call. Let us kick it off with a review of some of our quarterly results and progress made against our key initiatives, and then Brandon can cover the financial metrics during his comments. Sales in 2026 came in at $106.4 million, down versus the prior year but in line with our expectations. Adjusted EBITDA of $15 million and adjusted basic EPS of $0.15 also declined versus the first quarter of last year; however, both of these key metrics were ahead of expectations. We are pleased with this performance as it helps to validate the work we have been doing to drive progress in our business while simultaneously navigating a challenging industry backdrop. In the first quarter, we continued to focus our energy on the areas we can control and to sharpen our strategic focus and strengthen execution across the organization. For Branded Spirits, we maintained momentum in our Premium Plus portfolio in the first quarter, which was led by Penelope Bourbon and benefited from improved demand for select mid-price offerings. We also delivered solid growth in Ingredient Solutions, as the improvements the team has made in operational reliability are taking hold and delivering results. While I plan to talk more about our segment performance later, I would like to share a few recent actions we have taken. As you know, we have been strengthening and revamping our strategy, marketing, and supply chain functions in order to add specific capabilities to address new and existing opportunities and to build out best-in-class processes designed to balance improved commercial planning while driving disciplined execution and long-term success. As a part of these efforts, we recently announced there will be a temporary idling of our distilling operations in Kentucky at Limestone Branch and Lux Row starting in May. Like many companies across the industry, we are navigating this challenging environment and taking the steps we believe are necessary to better align our operations and inventory. While this temporary idling will unfortunately affect 33 employees, it is not expected to impact the availability of our products or our services to our customers, and it is necessary to adjust our production to align with current inventory levels. I would like to remind everyone that our largest facility in Lawrenceburg, Indiana, remains fully operational and will continue to operate to serve our brands, clients, and customers. Shifting to our business segments, I will begin with Branded Spirits, which remains the focus as our primary long-term growth driver. As expected, first quarter sales were down year over year; however, we continue to see constructive progress, particularly within the Premium Plus and mid-price tiers. We view these price tiers as critical to the long-term health of our portfolio, and we are pleased to see they both saw growth in the quarter. Importantly, gross margin expanded 180 basis points to 47.8%, reflecting improved mix and early benefits from our revenue growth management initiatives. Gross profit of $21.1 million was down versus the prior year and primarily driven by an expected decline in sales of private label products within our other category. Premium Plus sales increased 1.5%, supported by continued consumer demand for our differentiated, high-quality offerings and the increasing effectiveness of our focused growth strategies. Penelope Bourbon once again delivered strong performance, with sales up 10% year over year. As you recall, this brand is cycling the highly successful launch of Penelope we did in the first quarter of last year. Even against this comparison, we saw growth driven by sustained and growing momentum in our core SKU, Penelope Four Grain, along with strong consumer response to limited-time releases such as Havana, Rio, and American Light Whiskey. We are also encouraged by the early traction from our new ready-to-pour offerings, including our Black Walnut and Apple Cinnamon Old Fashioned products, which continue to expand Penelope’s consumption occasions. Turning to Yellowstone, despite a year-over-year decline for the first quarter, we are seeing early signs of stabilization and recovery, supported by deliberate investments in innovation and digital capabilities. Our ultra-premium limited release, Yellowstone Recollection, has been exceptionally well received, earning strong critical acclaim and press coverage, with consumer demand exceeding our initial expectations. As discussed in our last earnings call, we continue to increase our investment in digital marketing and media capabilities. Yellowstone is the first brand we have deployed a fully integrated digital activation strategy for, combining best-in-class social media execution with targeted paid media in focus states, including select control states. In Pennsylvania and California, for example, this approach combined with revenue growth management initiatives drove robust double-digit growth for Yellowstone in the first quarter versus the prior year. Turning to tequila, our El Mayor brand delivered year-over-year growth driven by continued progress in price pack architecture efforts. This included expanded 1.75-liter offerings and the introduction of 375-milliliter sizes as consumers increasingly adopt premium tequila across a broader range of occasions and price points. Similarly, Exotico tequila was up strong double digits, fueled by the addition of a 1-liter offering that is enabling continued gains in on-premise distribution alongside price optimization. Additionally, the 375-milliliter size is allowing consumers to trade up from mixto tequila to high-quality 100% agave tequila at an attractive price point in the off-premise channel. For mid- and value-price portfolios, combined sales declined 3% in the first quarter. These are improving trends as we continue to prioritize our strongest performing SKUs and channels. Revenue growth management and price-pack-channel optimization remain critical levers in these categories, and we are encouraged by early results as we execute against this strategy. Looking ahead, we are intentionally concentrating resources behind approximately 10 of our most promising brands, with a clear focus on purposeful differentiation and innovation to support sustainable long-term growth. At the same time, we are managing the portfolio with discipline. As discussed on our prior call, we have initiated comprehensive portfolio review and rationalization. During 2026, we discontinued more than 30 tail brands, with approximately 15 additional brands planned to be discontinued by the end of this year. Combined, these brands represent approximately 1% of segment net sales and, when annualized, are expected to represent an estimated 20 basis point improvement to the segment’s gross margin profile. For our Branded Spirits segment, we are excited about the opportunities ahead across our broader portfolio. As with all growth trajectories, there will be many steps forward, some bigger and some smaller. We will also likely alternate between some really healthy quarters and some softer ones as we continue to successfully prioritize our best performing offerings and ramp up our investments in these brands, while continuing to cycle new product introductions. Turning to Distilling Solutions, where despite the challenging domestic whiskey supply environment, our first quarter results came in as expected. Segment sales of $28 million decreased 40% year over year, while gross profit of $8.6 million declined 54% as elevated inventory levels continued. In the first quarter, we maintained our focus on creating a differentiated value proposition to better position MGP Ingredients, Inc. as a long-term strategic partner for both large and small customers. Our brown goods customers’ expansion efforts are taking hold, as demonstrated by growth of 9% in aged sales and the addition of more than 20 new customers in the first quarter, including a significant national private label whiskey customer. We are proud of the customer expansion progress we are making, particularly given the current industry backdrop. As discussed on our last earnings call, we are also broadening our premium white good offerings, and these efforts are focused on complementing our brown goods portfolio. During the quarter, we transacted our first customer sale under this new highly customized initiative. While we are pleased with the progress we are making, given the unique and highly customized nature of these product offerings, these projects will take time to fully commercialize and scale. That said, we now expect growth from this initiative to pick up in the second half of this year. Our focus on premium white goods is designed to leverage the scale, heritage, and quality of our Indiana distillery to produce premium gin and grain neutral spirits, which can then be customized to meet each customer’s specific needs. We expect that this effort will allow us to move beyond commoditized offerings, generate more attractive economics and better asset utilization rates, and also serve as a bridge to longer-term and deeper relationships with strategic customers. Our efforts are also focused on driving cash generation by increasing our value-added service offerings, as we look to attract and retain a wider pool of customers. Warehouse services made up approximately 30% of our Distilling Solutions segment sales in the first quarter. Both sales and gross profit were up versus the prior year. Turning now to our Ingredient Solutions segment, sales of $34.2 million increased 29% versus the prior year. This growth was primarily driven by higher sales volume, price, and mix for our specialty wheat proteins and starches. Gross profit of $3.8 million was up 56%, with gross margin of 11.2% up nearly 200 basis points, as higher sales of specialty protein and starch products were partially offset by higher waste disposal costs. This successful first quarter was driven by continued improvements in operational reliability, with each month better than the previous one. For the quarter, efficiency was up 14% year over year. With a slower start to the year firmly offset by a solid March, we plan to continue to move towards greater efficiency as we improve overall and as we begin to cycle previous throughput issues. Effluent disposal has been more complex and more costly than initially projected. Reducing waste and disposal costs are a key priority, and we are implementing additional measures by year-end and continue to expect to remove these costs over the long term. At the end of the second quarter and into the third, we have a planned shutdown for scheduled maintenance and capital projects designed to further improve reliability and throughput and to provide some relief in our waste stream disposal costs. Brandon will share the related financial impacts in a moment. Despite the effluent challenge, we are moving in the right direction in Ingredient Solutions. We are pleased with the momentum, as better operational reliability means we have more product to sell, and this is key as we continue to see increasing demand for our proprietary and unique products. We will remain focused on driving growth through our specialty fiber Fibersym, our specialty protein Arise, and our extrusion protein Proterra. Now I would like to highlight the progress we are making in driving an ownership cost management mindset that is supporting growth and our bottom line by eliminating waste, driving efficiencies, and maximizing effectiveness. One reinvestment example of this is the work we completed to streamline marketing services and to reduce our non-working media spend, while reinvesting those savings into our Yellowstone digital marketing programs. Going forward, we will continue to reinforce this mindset by embedding productivity and cost discipline into our operating routines, performance management, and compensation metrics. Productivity and a cost management focus are becoming a part of our regular manager routines, helping us to uncover and track opportunities to eliminate waste and driving us to operate more efficiently and effectively across the entire organization. And with that, I would like to turn the call over to Brandon. Brandon M. Gall: Thank you, Julie. Turning now to our financial results. For 2026, we reported consolidated sales of $106 million. While sales decreased 13% compared to the year-ago period, they were in line with expectations. Gross profit of $33 million was down 22%, while gross margin of 31.6% declined by approximately 400 basis points. Our total SG&A spend declined by approximately 1% in the first quarter, while adjusted SG&A declined by approximately 2%. As expected, Branded Spirits advertising and promotion expenses were 13.6% of Branded Spirits sales, a reduction of approximately 24% year over year as we cycled the final period of elevated marketing spend prior to our current more disciplined and efficient realignment efforts. We continue to expect full-year Branded Spirits A&P to be 13% to 14% of Branded Spirits sales. Net income decreased to a loss of $134.8 million, primarily due to a discrete non-cash adjustment of $179.5 million to reduce the carrying amount of goodwill and other long-lived assets in the Branded Spirits segment. This also included approximately $27 million for equipment unrelated to the distillation process at our Lux Row facility in Kentucky. Adjusted net income of $3.3 million decreased 57% on a year-over-year basis. On a per-share basis, we had a loss of $6.30 for the first quarter versus a loss of $0.14 in the prior year, primarily due to the adjustments I just noted. On an adjusted basis, earnings per share of $0.15 decreased 58% year over year. Adjusted EBITDA of $15 million decreased 31% over the same period. Capital expenditures declined 75% to $2 million in the first quarter, and we continue to estimate CapEx of approximately $20 million for the full year. We look to optimize our capital deployment in the current industry environment. Finally, as of March 31, our net debt leverage ratio was approximately 2.1 times. Turning to annual guidance for 2026, which we are reaffirming, we continue to expect net sales between $480 million and $500 million. Adjusted EBITDA is projected to range from $90 million to $98 million. This is consistent with previous expectations, as the efficiencies and savings from our recently implemented ownership cost management mindset initiative are expected to offset our reduced gross profit outlook in Ingredient Solutions. Our adjusted basic earnings per share range remains between $1.50 and $1.80, and average shares outstanding should be approximately 21.4 million shares for the full year. Our annual tax rate is expected to be approximately 27%. Turning to our balance sheet and cash flow outlook, as Julie shared, the decision to temporarily idle our Kentucky distilling operations beginning in May was difficult. However, given the current environment, it is an additional example of the capital prudence necessary to position us for long-term success. As a result, we expect full-year improvement in cash flows of $10 million versus previous expectations. Excluding the impact of the Penelope earnout payment, we now anticipate 2026 full-year operating cash flow of $50 million to $55 million and free cash flow of $30 million to $35 million. We also anticipate an improvement in our net leverage ratio as a result of the temporary idling and expect it to peak at approximately 3.5 times, down from the 3.75 times figure we provided on our fourth quarter earnings call. We continue to estimate net whiskey put-away in the $13 million to $18 million range for 2026, which represents our second consecutive year of meaningful capital investment optimization and stewardship. This target includes both new production and procurement of barrels, and is consistent with prior expectations as much of the temporary idling was factored into the previously provided outlook. From a business segment perspective, our full-year segment outlook for Distilling Solutions sales and gross profit is consistent with previously shared estimates. However, our white goods sales outlook for 2026 has been reduced and is now expected to be up mid-single digits, largely due to the time needed to fully commercialize and scale these customized new projects. Much of this reduction is expected to be offset by improved sales within other product lines. Our full-year sales outlook for Ingredient Solutions is consistent with previously shared estimates; however, we now expect full-year segment gross margins to be in the mid-teens as a result of the increased effluent costs and plant shutdown at the end of the second quarter and into the third quarter. Our full-year segment outlook for Branded Spirits is unchanged from previously shared estimates. To close, I would like to stress Julie’s comments regarding our performance to date, as it helps to validate the work we have been doing to drive progress in our business while simultaneously navigating the challenging industry backdrop. And with that, I would like to turn the call back over to Julie. Julie Francis: Thank you, Brandon. Before we wrap up, I want to thank the entire MGP Ingredients, Inc. team for another quarter of persistence, dedication, and hard work, and for their commitment to executing against our strategic roadmap. This strategic roadmap is designed to drive growth across all three businesses. For our Branded Spirits, we will continue to focus on winning in the Premium Plus category with Penelope Bourbon, while strengthening our overall brand focus. We will prioritize our best performing brands and plan to rationalize approximately 20% of our tail brands. We will also strive to increase our penetration in national accounts and to strengthen our digital marketing capabilities. For Distilling Solutions, we will remain focused on rebuilding our aged whiskey pipeline while broadening our premium white goods offerings to complement our brown goods portfolio. We will also continue to work on attracting and retaining a wider pool of customers by growing our private label and international whiskey programs and by expanding our value-added service offerings. And for Ingredient Solutions, our efforts will remain focused on driving growth through our industry-leading specialty fiber and specialty protein product offerings. We will also continue to implement new processes to help return to operational excellence and improve reliability and throughput. In addition, managing high waste disposal costs will remain a key priority for this segment. Looking ahead, I am encouraged by the progress we are making across our organization. As I stated earlier, our strategy remains grounded in focus, execution, discipline, and accountability. We are actively evaluating all available levers to operate more efficiently and effectively. While the industry outlook remains challenging over the near term, we are committed to addressing our challenges in order to position MGP Ingredients, Inc. to emerge as a better aligned and more resilient company that is capable of delivering long-term value creation. And with that, I would like to turn the call over to the operator for any questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press the appropriate key. The first question comes from Robert Moskow with TD Cowen. Please go ahead. Seamus Cassidy: Hi, this is Seamus Cassidy on for Rob, and thanks for the question. Was hoping you could provide a little bit more detail on the early learnings from your portfolio review in Branded Spirits and the approach you took to this review. You mentioned the investment in Yellowstone and 10 brands in total. What went into the decision to invest in these brands? And secondly, does rationalizing tail brands have any impact on capacity or distributor alignment, or any considerations there? Thanks. Hey, Julie, thanks so much. Appreciate it. Julie Francis: Let us do the SKU conversation first. As you have read, we discontinued over 30 tail brands in Q1, with another 15 expected by year-end. These represent approximately 1% of our segment net sales, and when annualized, we expect a 20 basis point improvement in segment gross margin. The learnings are that these were not highly visible brands in the market, but they consumed resources. Think about changeover configurations, glass, containers, and liquid we had. This improves line efficiency and provides more line time for core SKUs. We do have a few that are growing quite nicely, and the main impact is really inventory reduction. We are reducing working capital by over $2.5 million and other logistics and supply chain costs like warehouse and storage. From a distributor focus, it does not take away their focus; if anything, it has allowed them, with our partnership approach this year of really targeting our top 10 brands, to focus their execution and activation. We are seeing nice momentum in their planning and execution in Q1. Shifting to the power brands—the 10—how did we do it? We brought in new capabilities about six months ago to lead the marketing organization. It has been a robust six months, first and foremost doing comprehensive reviews of our top two portfolios, which are American whiskey and tequila. We assessed positioning, what the brands stand for, consumer segments, competitive sets, key occasions, price pack architecture, A&P allotment, and any overlap from the robust portfolio we have in American whiskey, and the same for tequila. From that, we identified the key brands and built a strategic roadmap for investment and execution. We then put a brand growth framework around those brands to ensure they are selectively being pushed, executed, and invested against a couple of key areas. One is mental availability—our referenced digital—reaching more consumers through increased paid media, the ability to target geographies based on ZIP codes, and having the right and dynamic content: the right message, the right consumer, the right channel at the right time. The second is physical availability—how we increase our PODs, distribution, and velocities across all accounts, in particular national account expansion opportunities across off-premise and on-premise. Store visibility and execution remain goals. One of the heavy-up areas we focused on is elevating our digital media capabilities. We have doubled the investment there, brought a highly capable expert into the team, and tested in-house digital media. Yellowstone was our first test-and-learn. We did a couple of states, and within those states we are seeing a nice turnaround for Yellowstone Select, up double digits. That is driven by both media and pricing heavy-ups in those markets and tied to targeting ZIP codes that purchase Yellowstone. We are pleased with the results. It is early days, but you can expect this approach to extend to our other focus brands as well. Seamus Cassidy: Very clear. Thanks. Operator: The next question comes from Sean McGowan with ROTH Capital Partners. Please go ahead. Sean McGowan: Thank you. I wanted to get a little bit more color on some of your gross margin comments. First, specifically to clear up, when you are talking about the 20 basis point improvement, is that on a run-rate basis as you exit the year, or is that for the full year? And that is just within Branded Spirits, right? Brandon M. Gall: That is a run-rate, annualized basis. The impacts will all hit in 2026; however, what is going to hit is factored into our guidance and can be expected on an annualized basis going forward. And yes, that is just within Branded Spirits. Sean McGowan: Okay. And then on the Ingredient side, by the end of the year, would you expect to be back to where you thought you would be on gross margin, or is this hit going to linger into next year? Julie Francis: Thanks for the question. First, we are pleased with the operational reliability improvements we have sequentially made as the year has started. Our downtime is down, and we are more efficient by 14%. What is driving that is our unplanned equipment outages have reduced since December by 10 points, and throughput improvements are up 18%. Operational reliability has allowed us to get more pounds out. We have robust demand for our proprietary platforms across starch and fiber, and you saw that in our sales. So, more to sell and more reliability. The gross margin is being impacted by effluent. We have discussed that before. At the end of the second quarter, with our planned shutdown that will cross into Q3, we will bring in a piece of equipment—a third dryer—that is going to help us eliminate some of that effluent. We expect those costs to sequentially go down by the end of the year and be cut in half. By the time we end the year, we expect mid-teens gross margin, and by 2027, we would expect that to be in the high twenties. Sean McGowan: Thank you. And then on Distilling, the commentary that white goods may be coming a little bit slower and offset by other products—what are the gross margin implications for that shift? Brandon M. Gall: We are still expecting low- to mid-30s gross margins for the Distilling Solutions segment. As we said in our prepared remarks, the white goods sales shortfall is expected to be offset by other product lines within the segment, so we are staying consistent with what we said last time. Sean McGowan: Okay. Thank you very much. Operator: The next question comes from Marc Torrente with Wells Fargo. Please go ahead. Marc Torrente: I guess first on Distilling Solutions, last quarter you talked about discussions with larger customers taking shape through the second quarter and potentially providing some color on the 2026 outlook and beyond. Do you have any incremental color there? What are you hearing in terms of customer needs and timing to demand inflection? And any further comfort that 2026 could be a bottom? Julie Francis: Thanks, Marc. We continue to view 2026 as likely a trough year for Distilling Solutions. Nothing we saw in Q1 changed that view. We are pleased with our partnership approach. Our conversations with customers remain active, pragmatic, and constructive. Inventory levels across the industry are still elevated, but we are seeing customers move from broad pauses to much more targeted planning discussions. Importantly, those conversations are increasingly focused on how they want to reengage—product types and customization services—not necessarily if. We still expect clarity as we move through 2026, which is consistent with what we said previously, particularly from some multinationals and where they stand in their cycle. While the overall cycle will take time to normalize, we believe we will exit this period stronger, with better customer relationships and a more differentiated offering than before. Marc Torrente: Thank you for that. And then more color on the decision to idle distilling in Kentucky. Was there anything incremental you were seeing in the market that drove that decision during the quarter? What percent of your overall distilling capacity does that represent, and how much of that is for your own brands versus outside brands? It does not sound like that has any impact to your outlook for distilling sales or branded product availability—just to confirm. Julie Francis: That is correct—it has no impact on either Distilling Solutions sales or branded product availability. Our decision to temporarily idle our Kentucky distilling operations impacts a modest portion of our total distilling capacity and was driven by inventory alignment, not customer demand disruption. Most of the paused production was intended for future aged inventory for our own brands rather than near-term customer commitments. As you recall, in 2025 we balanced our Distilling Solutions production with sales during the industry reset, which meaningfully reduced our fixed costs and allowed us to optimize production schedules and still deliver gross margins in the 30s. We thought it was prudent to do the same thing for our Branded Spirits. Once our 2026 production needs for our brands and any customers were met, we chose to idle. Brandon can add the balance sheet impacts. Brandon M. Gall: We shared the balance sheet and cash flow benefits. As Julie said, this is inventory- and working-capital-driven and reflects us being good stewards of the balance sheet. Operationally, because most of these costs relate to branded spirits put-away, they have historically been capitalized and show up later in the income statement. We do not expect much impact to operating margins on an adjusted basis. Marc Torrente: Appreciate the color. Thanks. Operator: The next question comes from Ben Klieve with Lake Street Capital Markets. Please go ahead. Ben Klieve: Thanks for taking my questions. A couple from me. First, in your prepared remarks, you talked about onboarding 20 new customers. I cannot remember if you said that was the Branded Spirits segment collectively or brown goods specifically. Can you talk about who this new customer base is, the extent to which these are aged versus new customers, and in this difficult environment, how this came about and where they were sourcing from historically, if you can provide any context? Julie Francis: Thanks, Ben. We are pleased—our partnership approach is working. Stepping back, we previously targeted an addressable market of around 1,000 customers. By leveraging data, we have identified a total addressable market of about 4,000. We have allocated those prospects to our sales team, which is now very well-versed in our differentiated value proposition. About 75% of that new-customer pool was new-to-industry customers, and approximately 25% came from competitors. Broadly speaking, these wins are brown goods, typically aged purchases. The team has done a nice job ensuring the broader market knows we are open for business and highlighting the craftsmanship you get at MGP Ingredients, Inc. for both brown and white goods. We offer different mash bills, finishing capabilities, and barrel sizes. Some customers were surprised—we do smaller batches—and they had thought they needed to go a different route to get our quality juice. Ben Klieve: Very good. Thanks, Julie. One more from me on the tax line. With a 27% rate on a full-year basis, can you help us understand your expectations around cash taxes given the non-cash expenses in the first quarter? Brandon M. Gall: The ownership cost management mindset we highlighted on this call and last is taking effect across the organization, up and down the P&L. Cash taxes are being optimized from an outflow and timing standpoint as much as possible, and those benefits will be felt. Excluding the impact of the impairment, we still expect around 27% for the year, knowing Q1 was a little wonky because of a couple of discrete items. The cash management mindset is in full force, and we will mitigate cash tax outflows as much as possible throughout the year. Operator: This concludes our question and answer session. I would like to turn the conference back over to Julie Francis for any closing remarks. Julie Francis: Thank you. On behalf of the entire MGP Ingredients, Inc. team, thank you for your continued confidence and support. We look forward to talking to you next quarter. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Unknown Speaker: Good morning. Operator: My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Earnings Call for The Bank of N.T. Butterfield & Son Limited. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star. Please note this event is being recorded. I would now like to turn the call over to Noah Fields, The Bank of N.T. Butterfield & Son Limited’s Head of Investor Relations. Please go ahead. Noah Fields: Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing The Bank of N.T. Butterfield & Son Limited’s first quarter 2026 financial results. On the call, I am joined by Michael Collins, The Bank of N.T. Butterfield & Son Limited’s Chairman and Chief Executive Officer; Michael L. Schrum, President and Chief Financial Officer; and Jody Feldman, Managing Director of Bermuda. Following their prepared remarks, we will open the call up for a question and answer session. Yesterday afternoon, we issued a press release announcing our first quarter 2026 results. The press release and financial statements, along with a slide presentation that we will refer to during our remarks on this call, are available on the Investor Relations section of our site at www.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today’s discussion will refer to certain non-GAAP measures, which we believe are important in evaluating the company’s performance. For a reconciliation of these measures to U.S. GAAP, please refer to the earnings press release and slide presentation. Today’s call and associated materials may also contain certain forward-looking statements, which are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings. I will now turn the call over to Michael Collins. Michael Collins: Thank you, Noah, and thanks to everyone joining the call today. 2026 represents a strong start to the year, with solid financial performance and continued execution of our disciplined growth strategy. We were pleased to announce the agreement to acquire Rollinson & Hunter in Guernsey, reinforcing our commitment to build scale in key markets. Demand across our core businesses of banking, wealth management, and trust remained robust, reflecting the strength of our client relationships and the resilience of our franchise. Net interest income benefited from lower costs, while deposit volumes remained stable across all jurisdictions. At the same time, we improved non-interest expenses, demonstrating our ability to manage costs effectively in a low-rate, more volatile environment. I am also pleased to report that following our announcement in February, the acquisition of Rollinson & Hunter Guernsey has now closed. This is a strategically important transaction that enhances the scale and capability of our private trust business in Guernsey and furthers our position as a leading international provider of trust services, with group assets under administration of $146 billion. Looking ahead, acquisitions remain a key driver of our growth. We will continue to pursue high-quality opportunities in Island Banking and Trust that align with our strategy and deliver long-term value for our stakeholders. The Bank of N.T. Butterfield & Son Limited is a leading offshore bank and wealth manager, with strong leading market positions in Bermuda and the Cayman Islands, and an expanding retail presence in the Channel Islands. Across markets, we deliver a broad range of services, including trust, private banking, asset management, and custody, which are designed around the needs of our clients. We also support international private trust clients in The Bahamas, Switzerland, and Singapore and originate high-net-worth residential mortgages for prime London properties through our London office. I will now turn to the first quarter highlights on Page 5. The Bank of N.T. Butterfield & Son Limited reported net income of $62.6 million and core net income of $63.2 million. We reported core earnings per share of $1.55 with a core return on average common equity of 24.1% in the first quarter. The net interest margin was 2.75% in the first quarter, an increase of 6 basis points from the prior quarter, with the cost of deposits falling 13 basis points to 124 basis points from the prior quarter. We again are announcing a quarterly cash dividend of $0.50 per share. During the first quarter, we continued to repurchase shares, with a total of 800 thousand shares at a cost of $42.4 million. We continue our active capital management and plan to continue to return excess capital that we do not require to support the business and growth initiatives. I will now turn the call over to Jody Feldman for an update on Bermuda and Cayman markets and businesses. Jody Feldman: Thank you, Michael. Starting with Bermuda, the economic outlook remains constructive, underpinned by steady growth and a thriving international business sector anchored by reinsurance. Real GDP growth is estimated at 3% for 2025, reflecting continued economic momentum. Bermuda’s fiscal position has improved markedly, with the government projecting a record surplus of $472 million for the 2027 fiscal year, largely driven by revenues from the new corporate income tax. While economic growth is positive, Bermuda continues to navigate structural challenges, including a high cost of living and doing business, an aging population, and limited availability of affordable housing. These factors remain important considerations as the island plans for sustainable long-term growth. The hospitality sector is benefiting from renewed investment, with $182 million of capital spend for infrastructure and tourism revitalization. The partial reopening of the Fairmont Southampton in late 2026 followed by a full reopening in 2027 is expected to bring hotel room inventory above pre-pandemic levels. We are also encouraged by plans for the redevelopment of Elbow Beach Resort, which is expected to commence later this year. Finally, Bermuda continues to reinforce its global profile as a premier destination for international sporting events, including the PGA Tour Butterfield Bermuda Championship, the Newport to Bermuda Sailing Race, and Sail GP. Events not only support tourism and international visibility, but also reinforce Bermuda’s position as a high-quality jurisdiction for business visitors and residents alike. Now turning to the Cayman Islands. GDP forecasts suggest that growth is expected to moderate in 2026 to around 2% for the year, which is a steadier and more stable pace of development following the past few years of 4% to 6% GDP growth. Unlike Bermuda, Cayman has seen significant population increases, which are forecasted to grow to the low 90 thousands over the next couple of years. Tourism and financial services continue to grow; January and February saw record stayover arrivals consisting primarily of U.S. tourists. Financial services in Cayman continue to grow, with reinsurance a growing industry and the international fund services business remaining a cornerstone. The Cayman government continues to be fiscally disciplined, with 2026–2027 budget expectations of a modest surplus, suggesting Cayman is entering a slower growth phase following rapid expansion. I will now turn the call over to Michael L. Schrum for more detail on the quarter. Michael L. Schrum: Thank you, Jody, and good morning. On Slide 6, we have a summary of net interest income and net interest margin. In the first quarter, we reported net interest income before provisions for credit losses of $93.3 million, an increase of $700 thousand from the prior quarter. Net interest margin increased 6 basis points to 2.75% compared to 2.69% in the prior quarter. This increase is largely due to lower deposit costs and increased investment yields, partially offset by our treasury and loan yields as central banks cut market interest rates, as well as a lower day count in 2026. We expect NIM to be broadly stable with a slight positive bias for the remainder of this year. Average investment volumes increased as assets were deployed into high-yielding available-for-sale investment securities, helping to increase the average investment yield by 6 basis points to 2.78%. Average loan balances were stable compared to the prior quarter. Net loan volumes actually increased during the quarter in Jersey and Cayman; however, the impact of foreign exchange translation from the weakening of the pound sterling against the U.S. dollar masked this uptick. During the quarter, the bank continued to pursue its conservative strategy of reinvesting the paydowns and investment maturities into a mix of U.S. Agency MBS securities and medium-term U.S. Treasuries. Slide 7 provides a summary of non-interest income, which totaled $62.6 million, a decrease of $3.7 million over last quarter. This was due to an expected decrease in seasonally higher comparative fourth-quarter banking fees. Trust fees were also down due to lower time-based and special fees compared to the prior quarter. Foreign exchange fees increased slightly due to higher volumes in the quarter. The fee income ratio decreased overall to 40.6% compared to 41.7% in the prior quarter and continues to compare favorably to historical peer averages. On Slide 8, we present core non-interest expenses. Core non-interest expenses decreased compared to the prior quarter due to lower costs associated with professional and outside services fees for project work and lower technology and communications expenses, which were offset by higher payroll tax related to the annual vesting of share-based compensation in the first quarter. Slide 9 shows The Bank of N.T. Butterfield & Son Limited’s balance sheet is liquid and conservatively positioned. Period-end deposit balances were slightly elevated compared to the prior quarter. Our low risk density of 28.7% continues to reflect the regulatory capital efficiency of the balance sheet. On Slide 10, we show that asset quality remains strong. The investment portfolio is low risk, consisting entirely of AA or higher rated U.S. Treasuries and government-guaranteed agency securities. Credit performance was stable this quarter, with negligible net charge-offs, non-accruals at 2%, and allowance for credit losses at 0.6% of total loans. Our loan book is anchored by high-quality residential mortgages, with 71% full-recourse loans and nearly 80% at loan-to-value below 70%. We continue to apply conservative underwriting across Bermuda, the Cayman Islands, and our U.K. and Channel Islands businesses. On Slide 10, we present the average cash and securities balances with a summary of net interest rate sensitivity. Net unrealized losses in the AFS portfolio included in OCI were $99.7 million at the end of the first quarter, an increase of $10.3 million over the prior quarter. Interest rate sensitivity has increased slightly against the prior quarter, driven by changes in asset composition and an increase in short-duration assets. We continue to expect improvement in OCI with additional burn down over the next 12 to 24 months [inaudible]. Slide 12 summarizes regulatory and leverage capital levels. The Board of Directors has once again approved a quarterly dividend of $0.50 per share. TCE/TA continues to be conservatively above our targeted range of 6% to 6.5%. Finally, tangible book value continued to increase and closed the quarter at $26.56 per share, an increase of 0.6% over prior quarter-end. I will now turn the call back to Michael Collins for closing remarks. Michael Collins: Thank you, Michael. The Bank of N.T. Butterfield & Son Limited’s geographic footprint includes some of the world’s key global financial jurisdictions, which position us well for sustained expansion supported by both targeted acquisitions and internally driven growth initiatives. We continue to seek overlapping and complementary bank and private trust acquisitions—acquisitions that best utilize our management team’s extensive experience and further our ambition as a leading independent bank and wealth management group operating across strategic financial centers and island economies with favorable profiles and potential for growth. Our capital-light, fee-driven businesses continue to offer distinctive solutions tailored to evolving client needs, reinforcing our strong competitive position. Looking ahead, we are committed to further improving operational effectiveness while maintaining disciplined cost management. The Bank of N.T. Butterfield & Son Limited’s capital management remains central to our approach. Strong earnings generation enables us to strike the appropriate balance by delivering consistent shareholder returns through dividends, investing in organic growth, pursuing strategic and value-enhancing acquisitions, and executing share repurchases as appropriate. Our balance sheet remains strong, with a conservative liquidity profile that is closely aligned with our operating model and regulatory oversight. The bank is well positioned to deliver service and value to all stakeholders. Thank you. And with that, we would be happy to take your questions. Michael L. Schrum: Operator? Operator: We will now open the call for questions. We will now begin the question and answer session. We will pause momentarily while we assemble our roster. Our first question comes from Evan Kwiatkowski with Raymond James. Please go ahead. Analyst: Hey. This is Evan on for David Feaster. Good morning, everybody. Michael Collins: Morning. Analyst: I know it is early innings still, but just curious how things are progressing and what you are hearing from both the team and customers broadly. And then maybe on the financial impacts, I am just curious what your updated fee income growth expectations are, and then any additional one-time costs that are expected from the transaction. Thanks. Michael Collins: Hi, it is Michael Collins. The client base is very similar to ours. We have been in the private trust business for 70 years, and this was a founder-owned trust company that we have looked at for years in Guernsey, so we know it quite well. The client base, I think, will be very comfortable with our approach—very similar to their approach. We do not compete in terms of trying to sell asset management into our private trust relationships, and clients appreciate that. It is 50 really highly qualified staff in Guernsey, 71 client groups, and about $9 billion assets under trusteeship. That takes us up to about $146 billion assets under administration or trusteeship. It is not huge, and as we have said in the past, we are very disciplined in terms of how we price these acquisitions. So it is, sort of, eight times up to $50 million in terms of private trust acquisitions—8x EBITDA, 12% to 15% IRR or higher—and has to be at least two-thirds private trust. We know the business well. It is incremental in terms of fee income. It helps quite a bit, but it gets us 70 new client groups which are very high quality. We are very happy with it. It is closed. We are working on integration. It should be seamless, very low risk. Michael L. Schrum: Yes, Evan, it is Michael L. Schrum. Just on the question in terms of updated fee, we are expecting this to add about £8 million to £10 million annualized. So, obviously, we will start to put that into the next quarter. With that comes the integration costs and also the cost line will increase due to onboarding of the new colleagues as well. I think it is a really good book of business, and the people we have met have been very pleased with the model that we run, which is the independent trust model. This gives our new colleagues a genuine career path, and the clients really do like The Bank of N.T. Butterfield & Son Limited. It is a well-known brand in Guernsey, and I think, again, they will be comforted by the credit rating of the bank and, obviously, the balance sheet that sits behind their new fiduciary provider. We just closed it. We are in the process of looking at the integration and potential synergies, etc. We will come back once we finalize the PPA work next quarter and give some more detail on how it is going. Analyst: That is really helpful. Thank you. And then next, I thought I would touch on the NIM. I noticed you called out you managed the duration of the portfolio to be a bit shorter, increasing rate sensitivity. I am just curious how you view the NIM trajectory from here given current central bank expectations. Michael L. Schrum: Yes, great question. Obviously, maybe better than it was a month ago. We view the flat, higher-for-longer rate environment as constructive for the balance sheet. I think I said last quarter NIM should be broadly flat. We have some tailwinds and headwinds in that. The exit NIM for March month was at the 2.70% level. So it was a little bit lower, but again, plus/minus 5 basis points depending on the deposit composition. What really drove this quarter was the lowering of deposit costs overtaking the downward trajectory in treasury and short cash repricing. For the remainder of the year, we remain cautiously optimistic that we can fight those headwinds with the asset repricing model that is in there, both on the loan book and the investment securities. At the moment, the average investment security yield for the quarter was 3.96%. When you have close to $1 billion resetting over the next year with a tailwind of 1%, that should be a positive bias. Central banks are weighing their options at the moment, and anytime we see a higher-for-longer environment, that is going to be better for us because we get the whole repricing coming through. Analyst: That is helpful color. Thank you. And then, lastly for me, you already kind of alluded to it, but keeping in mind your through-cycle efficiency ratio target of 60%, is it fair to see core expense tick back into that $90 million to $92 million range per quarter for the rest of the year? Any updated expectations there, especially with the deal? Any seasonality trends would also be helpful. Michael L. Schrum: Yes, great question. It is Michael L. Schrum again. The first quarter is always a little bit seasonally low. There tends to be a lot of expense drive up to the end of the year, but it is not enough to really call it out. In terms of the deal, I think $90 million to $92 million without the additional new colleagues that we are onboarding and system conversion, etc. There is a little bit of non-core cost this quarter related to the drafting of the SPA and that type of thing. We are expecting this to be accretive overall. If you think about the fees that are getting added to the top line, we would expect that to generate some cost increase as well from salaries as we onboard the new folks. They are going to be brought onto our platforms. It is a little bit early to talk about forward guidance on cost, but without the deal, I would say $90 million to $92 million is a good number. Analyst: Perfect. Thank you for taking my questions. I will step back. Operator: Our next question comes from Emily Lee with KBW. Please go ahead. Emily Lee: Hi, everyone. This is Emily Lee stepping in for Timothy Switzer. Thanks for taking my question, and congrats on the quarter. Michael Collins: Sure. Thanks. Emily Lee: So just on credit, NPLs and provision took a step up this quarter. Could you provide any color on the drivers there and what we should expect on both metrics going forward? Michael L. Schrum: Yes. We are starting from a very low base. It is Michael L. Schrum again. When you look at Note 6 to the financials, you will see some past due migration. Really, it is something that we have seen in a few cases over the last couple of years. These are primarily related to residential mortgages in our prime Central London loan book, and they dropped into the short-term past due account this quarter. As a reminder, these are three- to five-year mortgages underwritten at 60%–65% LTV, so really well secured, and there is a lot of equity in these loans. We continue to believe that they will resolve themselves over the medium term, as liquidity in the London prime and super prime markets is relatively thin at the moment. There have been a number of policy changes in that market. We are patient lenders, and we continue to work with borrowers facing temporary liquidity issues. Bottom line, it is a little bit elevated right now, but we expect that to normalize either through refinancing or through repayment when the property is sold. These are similar to what we have seen before in prime Central London mortgages. Emily Lee: Got it. Thank you. And then, how is the current loan pipeline looking? What are you hearing from borrowers on demand? Are there any particular industries or jurisdictions that are seeing strength or that you are leaning into over others right now? Michael L. Schrum: Yes, I will start and Jody, who is closer to the clients, can add color. Markets are all different. Prime and super prime in London is facing some uncertainty around governmental policy changes, including changes to the non-dom regime and some additional property taxes that need to filter through the market in terms of valuation changes. There are a lot of buyers on the sidelines at the moment in that market. On the flip side, with the Middle Eastern situation, there are a lot of people moving back and renting, which is a temporary fix, particularly from Dubai into Central London now. Cayman is looking pretty good. We obviously want residential mortgages because our model is a return-on-risk-weighted-asset model—35% risk weight and now potentially even lower at LTV bands under Basel IV in Cayman. We strongly prefer residential mortgages. The Cayman loan book actually is looking decent. In Bermuda and Cayman, we have fully amortizing mortgages underwritten at a maximum 80% LTV, with appropriate exception underwriting in place. For the first time in a couple of years, the Cayman residential mortgage book originations overtook amortization rundown as we improved the LTV profile overall. Jody, do you want to talk about Bermuda? Jody Feldman: Yes, thanks, Michael. I will just highlight we are not a loan growth story, but as Michael pointed out, we have a good pipeline, particularly here in Cayman with some of the high-end residential towers that are popping up. We are participating prominently in a lot of those, which is great to see. In Bermuda, there are some pretty acute supply-demand imbalances in housing, but we have a good position within the retail and private banking lending space. We are a bit constrained on the corporate side in Bermuda due to a lack of significant projects coming online. Overall, we are seeing a decent pipeline across all markets combined—subdued in Bermuda but with good pockets of opportunity in Cayman. Emily Lee: That is very helpful. Thank you. And if I could squeeze in one more: you mentioned expectations for asset repricing to help fight pressures on the NIM. How are incremental loan yields looking right now? Michael L. Schrum: Yes, there are a couple of dynamics. In Bermuda, we underwrite at 80% LTV. We have a lot of fixed-rate loans coming up this year, both in Bermuda and Cayman, which are temporarily fixed or ARM-type structures that are resetting back to their original floating rate, which is still elevated. So there are significant tailwinds from that asset repricing. New loans in Bermuda are around 7%. Cayman is a little more competitive around new originations; there are a number of other participants who are aggressive on price competition, so around 6%-ish. Channel Islands maybe around 5%. Again, these are sterling, Bank of England–linked, fixed and floating rate loans that are three to five years. If you average that out over new originations, it probably ends up somewhere in the 6% range, which is reasonable for that risk rating. The pipeline really is beyond what we can control; we can be a participant in the market. Emily Lee: Great. That is all for me. Thanks so much. Operator: Our next question comes from Robert Ruchow with Wells Fargo. Please go ahead. Analyst: Hey, good morning. Thanks for taking my question. Question on deposits. Could you give us an update on the outlook for deposits? Any concerns that we should think about in terms of outflows, and do you expect to get any inflows from the RNH deal? Michael L. Schrum: Yes, it is Michael L. Schrum again. On the RNH deal, initially these clients are trust clients. Occasionally, we can provide banking services to those clients as well. A few of them were already banking clients of ours because RNH was an independent trust company. It is always something that we would like to do for administrative ease—ins and outs—and we can see and understand the client a bit better that way, but we are not competing on asset management for those clients. There could be a little bit of a trickle in, but I would not expect it to be a major uplift to deposit balances overall. For a while, we have been monitoring a couple of lumpier deposits, typically from our trust business and private client business in Bermuda and some corporate deposits. We were expecting some further outflows and for the balance sheet to normalize at around $12 billion. We are now getting notified of some new income and deposits, so it could be a bit longer, and some of the composition of the deposit base will probably end up changing a little bit over time. At the moment, $12 billion to $12.5 billion is probably a decent number for now. We will see it when we see it, but some of those corporate deposits are held up in court proceedings and appeals processes and that type of thing. Generally constructive, actually. Analyst: Okay, great. And if I could follow up with a broader question: as you think about acquisition opportunities, how many competitors might be out there that you would be able or willing to buy? Is there any increase in competitive pressures that might encourage someone to sell—technology requirements or anything else that might spur a little more activity than we have seen over, say, the past five years? Michael Collins: Yes. There are sort of three types of offshore trust entities that we are interested in. The first is founder-owned, which is what RNH Guernsey was—part of an affiliated network, Rollinson & Hunter, but founder-owned with a really good book of business. It is usually pretty small—not huge—but a great book of business. Then you have the big bank–owned trust companies, whether it is HSBC or RBC. Those are a lot bigger. We still think that a lot of big banks are motivated to sell offshore trust companies due to regulatory pressure and, frankly, scale—it is sometimes not worth having something like that. We still think there could be opportunities there. The third kind is the big private equity–owned fee businesses offshore, which do private trust company administration and fund administration. We have looked at those. We are hesitant to go into those sorts of businesses because we are really focused on private trust administration. Company administration is very different—it needs a lot of technology and can be tough because you have AML issues sometimes. We are very focused on private trust. Also, as the third buyer from private equity, it is probably not the best price, so we tend to stay away from that. There are a lot of opportunities—founder-owned and also big onshore bank–owned offshore trust companies. We just have to be patient and stick to our guns. We are not going to pay above eight or nine times EBITDA, and the IRR has to be decent. We are at a 40% fee income ratio, and our goal is to get that higher and become more of a fee company. Every one of these acquisitions adds a couple of percent onto that fee income ratio. We just need to be patient, find the right books, and be very disciplined about pricing. Analyst: Great. Thank you for taking my questions. Michael Collins: Thanks. Operator: This concludes our question and answer session. I would like to turn the call back over to Noah Fields for any closing remarks. Noah Fields: Thank you, Bailey, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Have a great day. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good day, and welcome to the Orion Group Holdings First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Margaret Boyce, Investor Relations for Orion. Please go ahead, ma'am. Margaret Boyce: Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings' First Quarter 2026 Financial Results. We issued our earnings release after market last night. It's available in the Investor Relations section of our website at oriongroupholdingsinc.com. I'm here today with Travis Boone, Chief Executive Officer of Orion; and Alison Vasquez, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we'll open up the call for your questions. Before we begin, I'd like to remind you that today's comments will include forward-looking statements under the Federal Securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts are forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-Q and 10-K. With that, I'll turn the call over to Travis. Travis, please go ahead. Travis Boone: Thank you, Margaret, and good morning, everyone. Thank you for joining us today to discuss our first quarter 2026 results. We delivered a solid start to the year, supported by disciplined operational performance and a healthy $24 billion pipeline of opportunities. This translated into top and bottom line growth and good cash flow generation. Our teams continue to execute at a high level, positioning us well for the remainder of 2026. In our Marine segment, demand for mission-critical maritime infrastructure continues to build, particularly across defense and port modernization projects. With the Iran conflict and disruption of traffic through the Strait of Hormuz, American Naval superiority in domestic energy and petrochem security are front and center. These are meaningful drivers of public and private maritime build-outs that Orion is well positioned for. On another note related to the conflict in the Middle East, you may have heard that the administration paused the Jones Act related to the disruption in the Strait of Hormmoz. This is a temporary pause specifically related to the transportation of bulk petroleum and fertilizer products. Previous administrations have made similar actions related to emergencies or disasters. While this limited pause of the Jones Act does not impact our business, we are strongly opposed to any and all Jones Act modifications. It does not align with the America First approach the administration has so publicly promoted, and this action has had little to no impact on reducing fuel prices in the United States. The President's 2027 budget proposal released earlier this month includes a $1.5 trillion defense budget, a historic increase to fund the expansion and modernization of U.S. shipyards, dry docks and waterfront infrastructure, alongside expanding investment in maritime security and uninterrupted global transportation lanes. This budget prioritizes investment in hard assets tied to U.S. national security, a central theme to Orion's long-range growth outlook. Our commercial clients are signaling a growing need for investments that increase energy security and supply diversification, particularly in North America. Buoyed by elevated product prices that support investment economics, we are seeing an acceleration of early work to support energy, chemical and petrochemical projects that include meaningful marine infrastructure to increase export capacity. With the addition of J.E. McAmis in February and continued investment in our people and fleet, our team is well positioned to deliver the maritime infrastructure projects critical to our national defense strategy and commercial resilience. Turning to Concrete. This team delivered a fantastic quarter across all key metrics with strong revenue and impressive adjusted EBITDA expansion. Registering a 1.1x book-to-bill in the quarter and executing with excellence, concrete is firing on all cylinders. Data center development continues to be a primary pillar for this business. Investment by hyperscalers and green lining of projects continues to advance at a very brisk pace. In the quarter, data centers accounted for around 40% of concrete revenues. And with the current composition of backlog and pipeline, we believe data centers will continue to be a central driver of profitable growth for our Concrete segment going forward. We also continue to see growing opportunities across our other sectors, including advanced manufacturing, transportation and cold storage. Investments in these areas are driven by reshoring of manufacturing around long-term domestic production strategies, increasing demand for expanded distribution and fulfillment networks and a favorable regulatory environment. With our recent expansion into site civil, earthwork and underground utilities, we are seeing the size and scale of concrete pursuits and awards increase while also enhancing execution certainty and control for our clients and our own delivery teams. All in all, an outstanding quarter of bookings, execution and teamwork for our concrete team. Our backlog is growing and our pursuit pipeline remains healthy with broad-based opportunities across both segments as we move through the year. Our $24 billion pursuit pipeline is currently evenly distributed over time with roughly $8 billion in opportunities for 2026, $8 billion in 2027 and $8 billion in 2028 and beyond. At the end of the quarter, backlog stood at $668 million and included almost $220 million in new awards and change orders booked in the quarter. Representative awards included a couple of midsized port modernization and dredging projects, a bridge project for an Army base, a couple of good wins for the McAmis team and a nice mix of concrete projects. We've continued the bookings momentum into April and have been awarded well over $200 million in new work that is not yet under contract, so it is not in our backlog, including a $100 million port renovation project, a $40 million dredging project and a $24 million data center project. These new awards set us up nicely for a strong second quarter. With growing backlog and a robust pipeline, we are pleased to reaffirm our full year 2026 guidance. I'll now turn it over to Alison to discuss our financials. Alison? Alison Vasquez: Thanks, Travis. We're pleased to report first quarter revenue of $216 million, GAAP net income of $4.7 million, adjusted EBITDA of $8.7 million and adjusted EPS of $0.05 per share. As compared to the first quarter of 2025, these results represent a 15% growth in revenue, 7% growth in adjusted EBITDA attributable to strong momentum and expansion of services in our Concrete segment and solid, consistent, predictable project execution across the company. Before turning to segment performance, I want to briefly highlight a change to our segment reporting this quarter. We have revised our presentation to begin reporting 3 segments: Marine, Concrete and Corporate. We believe this disaggregation of corporate out of the results of Marine and Concrete will provide greater transparency into the underlying financial performance of each segment and is much more consistent with how we manage the business. Prior results have been recast to conform to the current presentation, and we've included a full recast of FY 2025 in our investor presentation posted on our website. Our Marine segment reported revenue of $110 million and adjusted EBITDA of $12 million, representing an 11% margin compared to $127 million in revenue and adjusted EBITDA of $17 million in the first quarter of 2025. These decreases were primarily due to the ramp down of several large projects and early starts on new projects kicking off. Our Concrete business had a standout first quarter, as Travis talked about, reporting revenue of $106 million and adjusted EBITDA of $8.6 million, representing an 8% margin as compared to revenue of $61.5 million and adjusted EBITDA of $2.8 million in the prior year quarter. These results represent a high watermark for both revenue and adjusted EBITDA and are the direct result of outstanding productivity, execution and momentum. We also benefited from the expansion of services that Travis mentioned earlier. From a balance sheet perspective, we ended the quarter with just over $70 million of debt that included $53 million of outstanding borrowings under the UMB credit facility, which we used to fund the McAmis acquisition in the quarter. Our net leverage remains at a healthy level, providing meaningful balance sheet flexibility as we look ahead. All in all, we are pleased to reiterate our full year 2026 guidance initiated last month. That's it for me. Back to you, Travis. Travis Boone: Thanks, Alison. As we move through the year, our focus remains on executing our work safely, maintaining discipline across the organization and delivering consistent results. I want to thank our shareholders for their continued support and recognize our teams across the business whose work every day drives our performance. Before I open the call for Q&A, I'd like to encourage our stockholders to cast your votes and participate in our virtual annual meeting coming up on May 19. You can find the details in our proxy materials and on our website. Finally, I'd also like to take this opportunity to recognize and thank Tom Amonett and Peggy Foran for their service on our Board. Each of them will be retiring from our Board at the annual meeting, at which time the size of our Board will decrease from 8 directors to 6 directors. With that, I'd like to open it up for questions. Operator? Operator: [Operator Instructions] The first question will come from Tomo Sano with JPMorgan. Tomohiko Sano: So I'd like to ask about the guidance. Given the solid start of the first quarter and the positive project updates in April, there was no upward revisions to your full year guidance. Is this due to conservative assumptions in your outlook? Or does it reflect some lag in the Marine segment despite the strong performance in Concrete? Could you elaborate on the key factors behind maintaining the current guidance, please? Alison Vasquez: Sure. I'll start and Travis can fill in. I would say, I mean, we just initiated the guidance last month, and we had a pretty good view. I think we continue to have a good view -- we have -- given what Travis talked about in the call with regards to bookings post end of the quarter with the $200 million plus, especially more heavily weighted toward Marine, we're feeling more confident with just kind of what that path looks like as things come into focus. But I would say from a first quarter perspective, the results came in pretty much right in line with what we expected from a profitability perspective. So we felt like it was prudent just to kind of hold where we are. And then as the year plays out, we'll see as those cards get debt. Travis Boone: Yes, Tomo, we generally, we want to underpromise and overdeliver. So we're going to take a conservative approach to things like this generally, and we're going to hold the line for now and see how things progress over the next quarter or two. Tomohiko Sano: And if you could talk about adjusted EBITDA margins contracted year-over-year in the faster quarters. But could you elaborate on your concrete plans for the margin recovery after second quarters, please? Alison Vasquez: I would say that the margin impacts were attributable to just to the phasing of kind of where we are on projects, specifically in Marine. I mean, I assume that we're talking about Marine, which had -- the margins came down in that business during the quarter. But really, just as a I think, attributable to just phasing of where we are on projects. As we wrapped up many projects toward the end of last year, a lot of goodness will generally come into the numbers we're kicking off. And as we kick off new projects, we generally are a bit more conservative in where we kind of set the stakes initially. So I would say that it's really kind of more of a timing item. We don't see -- we aren't seeing any signals that there would be any consistent or persistent margin degradation over time. If anything, we're seeing the opposite just with just the pipeline and the number of opportunities that we're seeing on the horizon. And then I mean, concrete had a pretty monster step-up in their EBITDA contribution for the quarter. I'll say that we benefited in our concrete business from good weather. We -- a lot of times, we'll talk about bad weather, but I mean, this is a quarter where we benefited from good strong momentum throughout the quarter, good strong utilization and activity throughout the quarter that was not interrupted by weather. And as the concrete projects get larger, we have opportunities to keep our teams on programs to allow them just to have consistent utilization and execution over time, which ultimately serves to lift the margins as there are all those starts and stops. So there weren't -- I wouldn't say there are any big good guys that helped concrete in the quarter. I would say that the margins that they delivered were really a product of just really strong execution, good momentum, uninterrupted momentum. And I mean, thanks to the skies, too. Operator: The next question will come from Aaron Spychalla with Craig-Hallum. Aaron Spychalla: First for me, good to hear the order activity continuing to pick up into April. You noted seeing acceleration for early work on the energy and petrochem side. Just can you talk a little bit about the time line from that early work and when those could maybe turn into project awards? And just any thoughts on what those could look like size-wise, content-wise? Travis Boone: I think we're just -- we're seeing a fair amount of activity. I think increased urgency to get projects breaking ground and getting going and there's, I think, a lot more conversation about, I think the sort of disruption in the global energy world has woken some things up as well as kind of, I think, probably put some -- like I said, put some urgency into getting projects underway. Alison Vasquez: Yes. And generally, as we start seeing the early signals of projects coming to us. And so this is, I mean, mostly on the marine side where we're seeing our larger commercial clients begin the signals of greenlighting projects -- and there may be a period of 3 months, 6 months or a year. But I would say as we look out on the horizon, there will be certain projects that will move forward very quickly. And there will also be another set of projects that will move forward to try to get the permitting and all the things that they need to do within this administration. So I think that also -- I mean, there are some time lines that are in there. But we do have a good number of clients and programs that we see with the momentum picking up. And on those that are quite serious and are more advanced from a permitting perspective, we would expect those to move forward more quickly. Aaron Spychalla: And then maybe second, you kind of highlighted an uptick in activity with the Department of Water and the Coast Guard. Can you just guys talk a little bit about what some of those opportunities look like and how you're thinking about timing on those as well? Travis Boone: The uptick in -- on the President's budget Yes, sorry. Yes, on the President's budget, there were quite a few -- it was a huge uplift in the budget for military. Now of course, the President's budget is a -- the way it works in reality, it's a bit of a wish list that still has to get put in place by Congress. And so I would say it's directionally, that's the way the administration would like to see things go. And so we'll see how it plays out. But it is good signs, good indicators of what is likely to come out of Congress, assuming they can get a budget passed. Alison Vasquez: Yes. And I mean, even just putting the proposal out there for $1.5 trillion, I mean we're at $900 million now. So even if it goes up to $1 trillion, that's still a very large increase. We would expect to benefit from that, especially with just the emphasis on naval superiority, naval dominance, marine infrastructure resilience. Those are all themes that are central to this budget and I mean, really kind of to the world that we're living in right now. So it's very much accentuated by what's going on in the Middle East. Aaron Spychalla: Understood. And then maybe one last for me. Just with higher fuel prices, some of the kind of tariff developments on maybe Section 232 expansions. Just any margin or backlog sensitivity, any actions you might be taking there on the business side of things? Travis Boone: The fuel side is something we're watching. I mean we tend to build in contingency in our bids and things like that for fuel spikes. And we buy in advance on parts of our business where we burn a lot of fuel, things like that. So we're generally at the moment, okay. We're watching it close. It is something that if it becomes a very long-term situation with high fuel prices, we could see some minor impacts, but it's -- right now, we're in a kind of watch-and-see mode and make sure we're protecting ourselves as much as we can. Aaron Spychalla: And then just anything on maybe like steel or anything coming out of the Section 232 expansions? Travis Boone: We talked a lot about tariffs, I don't know, about a year ago. And we're generally in pretty good shape with how we bid and bid our work to be, again, either with contingencies in place or we have locked in prices. So we're generally in pretty good shape on the tariff side of things. Operator: The next question will come from Min Cho with Texas Capital. Min Cho: Congratulations on your standout quarter for Concrete. And I understand that weather was helped you guys a little bit here. But just given the level of backlog that you have, do you feel like this level of revenue and margins are sustainable in the intermediate term, again, assuming that kind of taking weather out of it? Travis Boone: Yes. I think the -- between the backlog and the activity we're seeing and the kind of outreach we're getting from owners as well as our general contractor partners, it seems to be like it's going to continue. We don't see a cliff coming or a slowdown happening there. It seems it's very, very active at the moment, a lot of activity that we expect to see coming in throughout the year. Min Cho: That's excellent. Obviously, EBITDA of about $9 million, clearly suggesting back half weighted outlook. So can you just talk about like what specific drivers, maybe volume, mix or margins that gives you the most confidence in achieving this guidance and where you could see some risk to -- the greatest risk or greatest upside? Travis Boone: Yes. I think it's a timing thing as far as our marine business, a little light this quarter just with timing of projects and things like that as far as -- and then concrete really kicking hard in this quarter. And I think we'll see as far as the confidence goes between the backlog and the projects we've won already in the first month of second quarter here. It's been pretty active quarter this second quarter, and we're very confident in the pipeline and backlog we should be able to build this year and work we can deliver in the latter half of the year. I know it's not unlike probably different reasons, but 2024 was a pretty similar year, a little lighter first half and a pretty heavy second half. It's looking to be a similar type sort of shape to the graph as a couple of years ago for different reasons. Min Cho: Yes. Excellent. And then just finally, Alison, what was J.E. McAmis' contribution to adjusted EBITDA in the quarter? Alison Vasquez: It contributed positively. But I would say that their contribution was more in opportunity pursuit and building backlog for the future. They won some really nice awards that they'll continue to execute through 2026 and into 2027. And very importantly, they have been very integral in supporting some other really interesting opportunities that we're looking at. So I would say that their contribution was meaningful. Like I said, they did contribute from a profit and a revenue perspective, but nominally, but I would say that the meaningful part of their contribution was really in just scaling their true expertise across both projects that we have currently in flight right now and also in guiding, advising and pretty meaningfully supporting some high-value pursuits. Operator: The next question will come from Gerry Sweeney with ROTH Capital. Gerard Sweeney: I may do something blasphemous and just start with concrete, if that's okay. I appreciate the courtesy. Listen, concrete, really, really great quarter, obviously. And I know you're working on the Iowa projects. But I'm really curious as to what's your visibility on data center work. Some of our other clients are seeing tons of work coming down the pipe, especially as sort of the build-out of these facilities start to expand. And I'm just curious how much visibility you have? And what's the market opportunity this year into next year and even maybe a little bit forward as we look at these... Travis Boone: Yes. As we've talked before, but generally speaking, visibility into data centers is pretty minimal until it's kind of go time, right? They're fairly secretive about where they are, what they are, who's doing, whatever. Everything is kind of a big secret until it's go time. And so the visibility is always going to be somewhat limited compared to, say, public sector project in the marine side of the business. However, the activity, as you mentioned, you're hearing is heavy. There's activity really kind of going in several directions. And it seems like there's a lot of big stuff in the works. We're having lots of conversations about really large projects that -- with our key partners and some of the owners that we work with regularly. And it's looking really good for the year for data centers for us. Gerard Sweeney: And separately, obviously, Iowa was one that you highlighted previously. And I think as you do that and maybe some other projects, does that sort of elevate you in terms of reference projects and just bring you more and more into the circle per se? Travis Boone: I mean, generally speaking, I mean, Gerry, we've done over 50 data centers now. It's a big -- it's -- we've got a lot of them under our belt. So definitely we're one of the key providers in this space, especially in the Texas market, where there's a lot of them underway and planned. And so definitely, we're kind of -- I wouldn't say we're making decisions with the owners. But I would say we have a seat at the table in a lot of the early conversations. Gerard Sweeney: Got it. One more question. What about sort of the derivative or knock-on effect? Obviously, as these projects more and more come on to the drawing board and they're hitting sort of shovels in the ground. What does that do to just general capacity in the concrete market and even help margins with other projects? And it's got to be pulling talent and capacity into the data center market and maybe raising pricing or margins in other sectors as well potentially. Travis Boone: Yes. I think the data center world, I mean, we're seeing it in Texas for sure, where -- and it's not just concrete, but a lot of the trades that are working on these projects, there struggles to find people, find resources, even things like housing and food in some of these more remote areas for the -- all the workers that have to be on these sites. And so it's definitely -- there's resource challenges, whether it be people, equipment, materials, whatever. And it's the -- I think the owners are finding a way to make it happen. The owners, the general contractors and the teams on the site are finding ways to make it happen. It's a kind of do or die sort of approach that these owners have and everybody is finding a way. Gerard Sweeney: Got it. That's it for me. I'm gonna save my marine questions for the follow-up, if that's okay. Travis Boone: All right. Sounds good. Thanks. Operator: The next question will come from Liam Burke with B. Riley Securities. Liam Burke: Your operating cash flow year-over-year was very strong on what typically would be a slower cash flow quarter. As we look into the balance of the year, is there any priority to delevering even though the balance sheet is still in pretty good shape? Alison Vasquez: I think the balance sheet is in good shape. I mean we'll look at opportunities over time. I mean, I would like to potentially carry a little bit less. But I mean, I think we're in a very healthy place. We're right at 1.5x net leverage. And so I think that's a good place for us to be. We might have opportunities to bring that down, but that's not our highest priority. I would say our priority in terms of our capital deployment would be in opportunities to expand just our positioning from an organic growth perspective and whether that means some investments in key equipment, key people, key things that we need to be able to ensure that we are well positioned for the pipeline and converting the organic pipeline maintaining that healthy balance sheet and then potentially other options. But I would say that sitting at a 1.5x net leverage is a good place for Orion to be, especially with the interest rates that we negotiated earlier this year. And so I think that we're real comfortable right there. And -- but we'll -- it's always something that we factor into -- from a capital allocation strategy. But usually, we find some productive uses and especially in a growing business that will require some amount of working capital contributions, we'll probably tend to run around that 1.5x, I would expect on a steady state. Liam Burke: So I would gather with your organic opportunities, plus it sounds like McAmis is coming on very nicely, both from an addition and plus the synergies you're gaining. M&A is not one of the options in terms of allocation. Alison Vasquez: I wouldn't say that. Travis, I mean, well, I'll let you start, Travis, and I'll... Travis Boone: Yes. Well, she said it. I wouldn't say that. We're going to be -- as far as M&A goes, we're going to be very disciplined about the things we look at, and we'll be -- but if something comes along that makes good sense and is a reasonable bite, we would be -- we might be interested in it. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Travis Boone for any closing remarks. Travis Boone: Thanks, everyone, for taking the time to join the call today. We look forward to speaking with you in the next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Robert Wright: Good morning, and welcome to the Delek US Holdings, Inc. First Quarter 2026 Earnings Conference Call. Participants joining me on today's call include Avigal Soreq, President and CEO; Mark Hobbs, EVP, Chief Financial Officer; as well as other members of our management team. Today's presentation material can be found on the Relations section of the Delek US Holdings, Inc. website. Slide two contains our Safe Harbor statement regarding forward-looking information. As a reminder, this conference call will contain forward-looking information, as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal Soreq: Thank you, Robert. Good morning, and thank you for joining us today. I am extremely pleased with our strong execution in the first quarter. The quarter is a testament to our refining capability as demonstrated by, one, disciplined and successful execution of the Big Spring turnaround; second, continued progress on increasing our free cash flow profile through restructuring of our intermediation agreement and continued success of EOP; third, successful navigation of challenging macro events such as workers on-prem and, more recently, events in Iran. The events in Iran have created many ripple effects in the market, resulting in around 10 million barrels of crude production and approximately 5 million barrels per day of refining capacity remaining offline. This has created an environment of elevated crude and product prices, dislocation between physical and paper grades, steep backwardation, and wide ranges of crude differentials. We believe the structural product shortage created in this event will continue to impact the market well after the conflict comes to an end. In the meantime, under the current environment, we believe the refining companies which will have the biggest advantage are the ones which have direct access to crude, high distillate yield, high jet, and, most importantly, the ability to quickly respond to changing conditions. We believe because of our access to multiple grades of domestic crude, high distillates and jet yield, and access to both Gulf and Mid-Continent product markets, we are in a prime position to navigate the challenges and take advantage of the opportunities created by the ongoing disruption. Now, I will cover some of our first quarter highlights and strategic initiatives in detail. Starting with the planned turnaround in Big Spring. Big Spring successfully completed its planned turnaround. This work was executed safely, on budget, and on time, and the refinery is running at full capacity. The primary focus of the turnaround has been to improve Big Spring reliability, cost structure, and long-term margin capture. Post the turnaround, we expect improved reliability, crude slate optimization, improvement in overall product yields, and, finally, higher octane and blending capabilities. With no further planned turnarounds, we have the highest spending quarter behind us. Our system is well positioned to capture the strong crack spread environment and respond to increases in demand as we move into the summer driving season. Moving on to EOP next. Enterprise optimization spend continues to drive significant value. We are once again raising our enterprise optimization plan target to at least $220 million on an annual run rate basis. During 2026, we estimate approximately $60 million of EOP contribution to our P&L. We are looking at ways to further advance the program and create another meaningful step change to our free cash flow profile. We will provide more details on this in the future. Our sum-of-the-parts initiative continues to advance with rising strength of our midstream business. DKL today reaffirmed 2026 EBITDA guidance of $520 million to $560 million. DKL is currently seeing meaningful tailwinds in the business, and we are working hard to capture these opportunities in a prudent fashion. DKL is taking another meaningful step in completing its industry-leading comprehensive sour gas solution. It has completed the drilling of its first acid gas injection well. The comprehensive gathering, treatment, processing, and acid gas injection solution will provide DKL the ability to fully capitalize on the growth opportunities in the Delaware Basin and maintain its best-in-class EBITDA growth and yield. In 2026, on a pro forma basis, with continued growth in third-party cash flow, we expect DKL third-party EBITDA to exceed 80%. Achieving this level of economic separation has been a cornerstone of our sum-of-the-parts strategy, and it continues to bring us closer to our deconsolidation goal. We are in the process of taking additional steps to ensure the strength of DKL third-party midstream services are fully reflected in DK share price and DKL unit price. As mentioned last quarter, we are pursuing a proactive strategy to manage our obligations under the RFS. SRE provisions of the RFS serve the important purpose of mitigating the impact felt on small refineries from the RFS burden. We expect EPA to continue to provide relief for 2026 to refineries after clearing the backlog of pending petitions since 2019. We also remain actively involved in our effort to get full value for our 2019 to 2022 RINs for which we were provided invalid relief. Finally, we believe that the current administration, Senate, Congress, and EPA realize the importance of SREs not only for the refineries which qualify under the program, but also to the local communities they serve. The final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $16 million in dividends. Our strong balance sheet, improved reliability, and EOP, and confidence in our outlook continue to support a disciplined approach to capital allocation through continued dividends and buybacks. We remain committed to a balanced and disciplined capital allocation strategy and look forward to continuing to reward our shareholders. In closing, thank you to our team for their hard work and dedication during 2026. I am proud of the progress Delek US Holdings, Inc. has made and look forward to continuing the progress through the remainder of the year. Now I will turn the call over to Mark, who will provide additional color on the quarter. Mark Hobbs: Thank you, Avigal. For the first quarter, Delek US Holdings, Inc. had a net loss of $201 million, or $3.34 per share. Adjusted net income was approximately $5 million, or $0.08 per share, and adjusted EBITDA was approximately $212 million. On slide four, we show the breakout of adjusted EBITDA and adjusted EPS for the first quarter. Excluding SREs, adjusted EBITDA and adjusted EPS were approximately $129 million and a loss of $0.98 per share, respectively. This removes the impact of our RVO exemption recognition for the first quarter of $82 million. On slide five, the breakdown of adjusted EBITDA excluding SREs from 2025 to the first quarter shows that there were two main drivers for the decrease in EBITDA. The drivers were primarily in the refining segment, where adjusted EBITDA declined due to the Big Spring turnaround, and the impacts of timing in our Supply and Marketing segment, which will reverse over time. Both impacts were partially offset by the increase in refining margins that we experienced in March after seasonally weak margins in January and February. Supply and Marketing was a loss of approximately $61 million in the quarter. Of that amount, wholesale marketing had a loss of $27.1 million, asphalt contributed a loss of $12.1 million, with the remaining loss coming from supply. In the Logistics segment, we delivered our best first quarter to date, generating approximately $132 million of adjusted EBITDA, which includes an approximate $10 million negative impact from winter storm Fern. Moving to slide 18 to discuss cash flow. Cash flow provided by operations was $461 million in the quarter. This includes our net income for the period, adjusted for noncash items, and a net inflow related to changes in working capital. Investing activities were a use of $190 million. Financing activities were a use of $273 million, which includes payments on financing agreements and other activities, approximately $16 million in dividend payments, and approximately $22 million in DKL distribution payments to public unitholders. On slide 19, we outline our first quarter capital spending, with $181 million invested at Delek on a standalone basis, the majority of which was related to the plant-wide Big Spring turnaround. With no additional turnarounds or major capital projects planned for the remainder of the year, Big Spring and the broader system are well positioned to capture stronger margins and meet seasonal demand during the driving season. We also invested $50 million in Delek Logistics, of which approximately $42 million was for growth projects. Our net debt position is broken out between Delek and Delek Logistics on slide 20. Excluding Delek Logistics, our Delek standalone net debt remained largely in line with year-end 2025. Moving now to slide 21, where we cover second quarter outlook items. Our throughput guidance for the second quarter is 72,000 to 77,000 barrels per day for Tyler; 78,000 to 83,000 barrels per day at El Dorado; Big Spring will run 65,000 to 70,000 barrels per day; and, lastly, Krotz Springs will run 78,000 to 83,000 barrels per day. Our implied system throughput target for the second quarter is in the 293,000 to 313,000 barrels per day range. In addition to the throughput guidance, for 2026, expect operating expenses to be between $215 million and $225 million, G&A to be between $47 million and $52 million, D&A is expected to be between $105 million and $115 million, and net interest expense to be between $80 million and $90 million. With that, we will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Alexa Patrick from Goldman Sachs. Your line is now open. Alexa Patrick: Good morning, team, and thank you for taking our question. With the Big Spring turnaround complete, how should we be thinking about your capital allocation priorities? Recognize this quarter had higher spend, but as we look to the rest of the year, how are you thinking about buybacks and then use of SRE cash inflow? Avigal Soreq: Yes, Alexa, first, good morning, and thank you. First of all, we are very proud of our performance of capital allocation during 2025. We have outperformed around 4% versus our peers. We gave more capital back to investors, around 4% more than the peer group, so it is a very good outcome in our mind. We have a very clear capital allocation program. First, we want a balanced approach between dividend, buyback, and balance sheet, which we have achieved. Second, we want to maintain dividend through the cycle, which we have maintained. And third, we want to make it very clear: we see a lot of value in our share price and more to come. We have a very good quarter ahead of us, and we are very optimistic. Alexa Patrick: Okay. That is helpful. And then our follow-up is just on 2Q. There is definitely a lot of moving pieces in the macro right now. So can you just talk about how we should think about captures and some of these different dynamics? Avigal Soreq: Yes, Alexa, with your permission, I will take a step back and talk about the macro in more detail because there is a lot of moving parts and a different macro environment versus a regular macro environment. I will start with the facts, and then we will take it from there. We have seen the Strait of Hormuz closed or constrained for close to two months now. The consensus in the market is that we are seeing around 10 million barrels per day of crude supply effectively offline and around 5 million barrels per day of refining capacity remaining offline. SPR offset the crude portion just a little bit, but not in a very meaningful way. On market effects, we see elevated crude and product prices, dislocation between physical and paper, which is very meaningful for some, steep backwardation that is impacting capture rates for almost everyone, and wide swings in crude differentials, especially around Brent. On the product side, we believe that the product market will outlast the event and there will be a lingering effect on crack spreads. We also see that the risk premium after the event between Brent and WTI will be different; the risk element of Brent has put itself into the market and will probably outlast the event as well. That means a higher call on U.S. shale that presents a lower premium risk versus Brent, and we will see more of that coming into effect. Being specific on the Delek side, we have a big operation on the midstream side that is very correlated to what is happening in the Permian at any given point. We have direct access to crude, which lets us come to the market and make changes as needed very quickly. And we have access to product markets both on the Gulf and in the Group, which gives us flexibility. I want to finish with a very important point. We have a very good distillate and jet yield, and part of that is due to the EOP we executed last year. You may remember a slide we put together that presented a great project the El Dorado team conducted to basically produce more jet with zero capital cost, and that is paying us very nice dividends today. Mohit Bhardwaj: And we are very well positioned to capture the opportunities in front of us. Operator: Thank you for your question. Your next question comes from the line of Manav Gupta from UBS. Your line is now open. Manav Gupta: Good morning, guys. I am also going to ask a little bit of a macro question here. What my question here is, when we look at 2Q, Delek is very well positioned, there is no doubt about it. But I am also trying to understand from the perspective of what you said. I think 2Q will be a story of haves and have-nots. Haves are people like Delek who have the crude, and have-nots are people who may have the best refining system in the world but have no crude. From my perspective, obviously, Delek is a winner, but do you also think the situation we are in, generally U.S. refining as such is a winner because you have the crude, you have the demand, you are not really dependent on the Strait of Hormuz? So we have this dynamic playing out where relative to global peers, U.S. refiners and Delek can actually show a lot of outperformance. Can you talk a little bit about it? Avigal Soreq: Yes, absolutely. First, a very smart question. Mohit and I and Mark and the team speak about it all the time. Mohit has a lot of energy around the topic, so I will let Mohit chime in. Mohit Bhardwaj: Thanks, Avigal. And Manav, thanks for all the good work you are doing. You are absolutely right. U.S. refining will have an advantage because the U.S. is one of the largest crude producers in the world. The U.S. has the most flexible refining system in the world. And, most importantly, U.S. natural gas prices are very low. So from an OpEx standpoint, we are also at an advantage. But you rightly pointed out, the biggest winners will be the companies who have access to barrels even within the U.S., who have very high distillate and jet yield. That is why we like our position versus anybody else in the U.S. refining system right now. Manav Gupta: Perfect. My second quick follow-up is that when we look at the price of the RIN, that is going up, and that does impact the price of gasoline. In my opinion, there is a higher probability of SREs in 2026 than there was even in 2025 and 2024. If you do not issue SREs, you can cause the price of RINs to get to a point where gasoline can go to $5. Can you talk about those dynamics? Why the possibility of SREs is even higher now than what it was in 2025 and 2024? Thank you. Avigal Soreq: Yes, absolutely. With your permission, I will take a step back and give you a wider answer about the SREs. Granting SREs is a way bigger topic. SRE is not a company-level issue; it is an asset-level issue, and it directly impacts close to a third to half of our industry, more or less. It is a very big deal, and I want to make it very clear. The whole point of the law is disproportionate economic harm. It is for each asset and each community. It is not related to companies. The essence of the law is to maintain high-paying jobs, to maintain local communities, and to maintain affordable fuel. When we are looking at compliance costs for a small/mid-cap refiner over the last five years, it is roughly 85% of the market number on a proportional basis, whereas for the biggest book it is single digits. That is a very different dynamic. Risking SREs, as you stated, will lead to higher prices at the pump. It is very clear. And coupling the critical topic of SRE with E15 is like putting a square peg in a round hole. Mohit, please chime in. Mohit Bhardwaj: Yes, Manav. Again, a very good question. As Avigal rightly pointed out, RFS and RIN issues are about disproportionate economic harm. We show in our slide deck that, at a $1.50 per gallon blended D4/D6/D3 RIN price, our 2026 RVO compliance is close to $750 million. For companies like us who stay in compliance, you do not get SREs as cash; you have to stay in compliance, and then you get money that you spent on buying RINs back. So for us, this is not just an issue about how RFS is working; it is an issue about disproportionate economic harm. And you rightly pointed out, a lot of market participants are pointing out that if you do not have 2026 SREs granted based upon the current renewable volume obligations, you will have a deep deficit in the 2027 RIN bank, and, as Avigal pointed out, that is going to impact affordability at the pump, which is squarely against this administration’s energy dominance agenda. So we definitely expect SREs to continue, but that is up to the EPA to decide. Our expectation is that, in line with the government’s agenda, they will be granting these SREs on a go-forward basis. I think the EPA has put a very clear, clean framework together that has all the credibility in the world to follow through. Operator: Thank you for your question. Your next question comes from the line of Matthew Blair from TPH. Matthew, your line is now open. Matthew Blair: Thank you, and good morning, and congrats on the strong results. Could you talk about how the Big Spring refinery is running post the turnaround? Are you seeing any operational improvements? And did the turnaround stretch into the second quarter at all? We would have thought that the Q2 throughput guidance might have been a touch higher. Could you address that? Avigal Soreq: The point of the turnaround, which we are very happy about, was to improve reliability, improve crude optimization, add higher octane blending options, margin, and cost. We are very happy with what we see. We have a very good team over there, and we are very optimistic about Big Spring going forward. We will leave it at that—more to come. We have a very strong guidance and more to come. Mohit Bhardwaj: Yes, Matthew, you rightly pointed out our guidance, but with Big Spring coming out of the turnaround, we are just being a little bit more conservative, and hopefully things will play out the way we expect them to. Matthew Blair: Sounds good. And then could you talk about what you are seeing in end-market demand so far in the second quarter, both for gasoline as well as diesel? And for jet as well—any evidence of demand destruction given the higher price environment? Or does demand still look pretty strong? Avigal Soreq: In all the markets we operate in, we see strong demand. We see decent netbacks. The Group dynamics are improving as we speak, and that is very positive. We do not see demand destruction at this juncture. The demand we see is pretty resilient. Mohit? Mohit Bhardwaj: Good question. In Europe, we have seen some talks around airlines reducing capacity. But U.S. demand remains very strong. We are seeing potentially a very strong summer gasoline driving season. Gasoline remains the part of the barrel right now. As people are focused on distillate and jet, we also think gasoline cracks have room to move higher. We do not see any demand destruction in the U.S. just yet, and we think the outlook for cracks in Q3 to move higher is very evident based upon where things are right now. Operator: Thank you for your question. Your next question comes from the line of Jason Daniel Gabelman from TD Cowen. Your line is now open. Jason Daniel Gabelman: Thanks for taking my questions. First, on regional product prices. It is looking right now like Group 3 is still a bit discounted versus the Gulf Coast. Typically, I think you would see Group 3 already strengthen at this time of year. Could you talk about your forward outlook for the relative values between those two markets, and if you expect normal seasonality to take hold? Avigal Soreq: Absolutely, Jason. Thank you for the question. The way we see the Group today is actually stronger coming into this morning—we just checked it before the call—so that is positive. Obviously, the Group has dynamics of its own. Even if you look longer term, you see the Group dynamic in the near- and mid-term future will be different. We have just seen two pipelines: one is coming in the second half of the year, and the other is coming later on, in three to four years. That will allow movements from the Group into PAD 4 and PAD 5. We are looking at the Group on a very tactical basis today, but we also have the obligation and the opportunity to look at the Group down the road. I think the Group that we remember is going to be very different versus the Group we will see starting second half of this year, and probably even more importantly when the next line is executed and moves product into PAD 5. That is a very good dynamic on the short term, midterm, and long term for our position. Jason Daniel Gabelman: Great. Thanks for that. And maybe if I could go back to the small refinery exemptions. Do you have a sense around timing of when you should expect to receive those? And I know you have presented cases where you think you are able to get up to $400 million—the full, I guess, amount of exemptions for all your plants. How do you square that with the EPA publishing an expected amount of exemptions to grant the next two years, which seems consistent with the past few years? Avigal Soreq: It is a great question. We have a tremendous amount of trust in the EPA. I think the EPA put very strong, strict guidance in place. The EPA was able to clear the backlog of 2019 to 2022, and we are confident the EPA is going to do what it says it is going to do. It is a very reliable administration in this regard. I am sure the administration sees the correlation between small refinery exemptions and the price at the pump and will look into that. Operator: Thank you for your question. Your next question comes from the line of Analyst from Wolfe Research. Your line is now open. Analyst: Hi. Hey, guys. I had some connection problems. I apologize for dialing in a bit late. I know that the SREs have been fairly well flogged on the call, but I just want to make sure I understand something—the indication you have given for 2026. What are you assuming for the RIN? Because it has basically doubled since the beginning of the year. I am trying to get a feel for, if you roll forward the current RIN price into 2027 and 2028, what would your number be? Mark Hobbs: Thank you for joining us. Avigal Soreq: This is really important for us, and I will let Mohit, who stays very close to the topic, take this one. Mohit Bhardwaj: Yes. As we have talked about in the past, the way EPA is looking at a lot of these issues is trying to have a happy medium. It is a mathematical equation that they have in their minds—looking at SREs, looking at RVO, looking at imports, and looking at reallocation as well—to come up with a price so that affordability at the pump remains. As far as our 2026 numbers are concerned, we show that very clearly in our slide based upon our current estimates. At a $1.50 per gallon blended D4, D6, D3 RIN price, we would have a $750 million RVO obligation in 2026. Analyst: But just to be clear, the RIN is not $1.50; it is $1.90. Mohit Bhardwaj: Yes, you are absolutely right about that. Analyst: That is what I was confused about in your previous answer. So what, in your mind, would cause the RIN value, from the RIN bank standpoint, to move back significantly lower from here? Mohit Bhardwaj: From our vantage point, based upon the numbers—and Jason was talking about those numbers in the previous question—you would have a significant 2027 deficit if those are the level of SREs which are granted. That is one toggle that EPA does have, and that is why we think the 2026 SREs are extremely important to manage the 2027 RIN bank. What exactly EPA will do—and there are extremely smart, honest people working at the EPA—they will figure it out. For us, we are just trying to manage our situation and highlight the fact that SREs are an issue about disproportionate economic harm, and we are trying to manage our position based on that. Operator: Thank you for your question. Your final question comes from the line of Joseph Gregory Laetsch from Morgan Stanley. Your line is now open. Joseph Gregory Laetsch: Hi, good morning, Avigal and team, and thanks for taking my questions. I wanted to start on the EOP program, where you have made good progress and increased the target again to over $220 million. Could you just talk through some of the initiatives to help drive this improvement and how we should think about the potential upside and maybe a potential seventh raise from here? Avigal Soreq: Absolutely. Thank you for that question—that is one I really like. EOP, first and foremost, is about lifestyle and culture. It was really important for us, and we are extremely proud of the ability to push EOP across the entire organization. You see the buy-in. You see people talking about it in the hallway. It is not a project; it is not a spreadsheet. People really think about how to make more of what we have. If I am going to the refinery, I hear it between the units. If I am going to the accounting team, I hear them speaking about it. If we are going to commercial, it is across the company. So it is not just about cost savings. As we have said in the past, it is about what we make, where we sell, and the whole value chain that we own A to Z. You can see it very clearly in our financial results—in El Dorado, in G&A, and in the capture rate of the rest of the refineries. We are always looking, as I said in my prepared remarks, at how to make it better—what else we can do, how else we can improve. I am very proud of the team here that is taking the high road on that and making it a part of our DNA. I want to finish with an important comment. If you look at our slide deck, we are seeing around $600 million to $700 million in a mid-cycle environment of free cash flow, and that is around 20% to 30% of our current market price. That is a tremendous opportunity. I want to connect this comment with the comment that I answered to Alexa: we see a tremendous amount of value in where we are. Joseph Gregory Laetsch: Perfect. That is helpful. And then I wanted to ask on the sum-of-the-parts side. Can you talk through the latest thinking about deconsolidation, value unlock options from here as well? You have done a good job with bolt-ons and organic growth at DKL. Any thoughts on the path forward here would be helpful. Thank you. Avigal Soreq: Absolutely. You are right—deconsolidation is our ultimate goal. We are going to do it at the right price, under the right conditions. We see a tremendous amount of value in our DKL story. On a pro forma basis, 80% third-party is unheard of versus what we used to be. We have done acquisitions that we are extremely pleased with. We built a gas plant that we are extremely pleased with. We have a very clear, clean strategy of being a premier provider of crude, gas, and water in the most prolific area of the Permian Basin. We have created something very strong here that we are proud of. Based upon the intrinsic asset value in DKL, we believe the unit should have a seven handle. For the right price, we will deconsolidate and reward investors going forward. We need to make sure that the value creation in the midstream business—vis-à-vis the 80% pro forma third-party—is fully reflected both in the DK share price and the DKL unit price. We are pursuing one or more of four ways: keep doing bolt-on acquisitions; deconsolidation, because people see the value in the DKL unit—53 consecutive distribution increases is pretty much unheard of in terms of our ability to reward investors; for the right price, we might sell assets; for the right price, DKL has the ability to buy its own units from DK; and we can always sell DKL for the right price. As I mentioned, we see the intrinsic value of a seven handle on the unit price. We are extremely aggressive and disciplined around this opportunity. Operator: There are no further questions at this time, and we have reached the end of the Q&A session. I will now turn the call back to Avigal Soreq, CEO, for closing remarks. Avigal Soreq: Thank you. Thank you to everyone who joined the call. Thank you to my colleagues here around the table—they did a great job. Thank you to the investors who are sticking with the story and like what we are doing. I want to thank the board of directors and, most importantly, our great employees that make this company what it is. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to SNDL Inc.'s first quarter 2026 financial results conference call. This morning, SNDL Inc. issued a press release announcing their financial results for the first quarter ended March 31, 2026. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will also be available on the sndl.com website. SNDL Inc. has also posted a supplemental investor presentation in addition to the conference call presentation we will be reviewing today on its sndl.com website. Presenting on this morning's call we have Zachary George, Chief Executive Officer, and Alberto Paredero-Quiros, Chief Financial Officer. Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and EDGAR. Additionally, all financial figures mentioned are in dollars, unless otherwise indicated. We will now make prepared remarks, and then we will move on to the analyst questions. I would now like to turn the call over to Zachary George. Please go ahead. Zachary George: Welcome to SNDL Inc.'s Q1 2026 financial and operational results conference call. During 2026, SNDL Inc. faced notable challenges beyond the usual seasonality that typically results in the lowest demand at the start of each calendar year. After 16 consecutive quarters of operational improvement, both our liquor and cannabis markets experienced declines in same-store sales. The downward trend in the liquor market is a familiar issue, but the softness that began to emerge in the cannabis market during the second half of the previous year has developed into a more significant and persistent challenge. Our results for the quarter were further affected by suboptimal execution on working capital management within our upstream cannabis operations. This issue has since been addressed and remedied following the close of the quarter. Despite these headwinds impacting our financial performance, we remain encouraged by the proactive actions taken by our teams. They have responded with focus and determination, taking control of the situation and implementing necessary initiatives that support our ongoing efforts to build a successful, sustainable, and profitable growth model. We continue to invest in growth platforms during the quarter. One notable example is our exclusive contract for the production and commercialization of Jeter, a leading U.S. cannabis brand. This exclusivity was formally assumed in April, but production activities and inventory pipeline development had already commenced in March, with initial shipments delivered to provincial boards. Additionally, both of our retail segments, liquor and cannabis, reported improvements in gross margin. Our teams achieved these gains by enhancing promotional efficiency, maintaining pricing discipline, and optimizing product mix management. Periods of adversity are a true test of a management team's resilience and determination. The SNDL Inc. team has demonstrated these qualities by thinking creatively and implementing several profit enhancement initiatives. These actions are expected to boost profitability and improve commercial execution, generating more than $20 million in incremental operating income over the remainder of the year. As previously communicated during our Q4 and full-year 2025 earnings call, we continue to leverage our board-approved share repurchase program. In 2026, SNDL Inc. repurchased a total of 4.5 million shares. Last week, U.S. authorities took a significant step towards rescheduling cannabis by moving certain state-licensed medical marijuana to Schedule III. While this does not constitute federal legalization, it is an important regulatory development. This step is particularly relevant for SNDL Inc. due to our credit exposure through the SunStream vehicle in the U.S., especially for Parallel, a licensed operator active in key medical markets such as Florida and Texas. The regulatory change is constructive for Parallel, as its restructuring process continues to progress with only a limited number of outstanding conditions remaining. Over now to Alberto for more insights on our first quarter financial performance. Alberto Paredero-Quiros: Thank you, Zachary. I want to remind everyone that the amounts discussed today are denominated in Canadian dollars unless otherwise stated. Certain figures referred to during this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SNDL Inc.'s Management’s Discussion and Analysis document. Before moving on, I would like to highlight a small accounting presentation change following the adoption of amendments to IFRS 7 and IFRS 9. As of 2026, cash in transit is no longer classified as cash and cash equivalents and is instead reported as a receivable. This change has no impact on liquidity, cash generation, or underlying economics, but it does affect the comparability of reported cash balances. Specifically, the $213.4 million of cash reported on our March 31, 2026 balance sheet does not include any cash in transit, whereas the $252.2 million reported at December 31, 2025 included $12.1 million of cash in transit. Net revenue of $196 million in Q1 2026 represented a 4.4% year-over-year decline, driven by market contractions that impacted our different segments. Gross profit of $53 million is a reduction of $3.8 million, or 6.8%, compared to the same period of the prior year. While most of this reduction is driven by the revenue decline, we also reported a consolidated gross margin decline of 70 basis points. This margin decline is purely driven by our cannabis operations segment, as both our retail segments expanded margin. Both adjusted and unadjusted operating income were negative due to the seasonality impact in the first quarter, but saw an improvement compared to the prior year, as the reduction in gross profit is more than offset by OpEx improvements and the absence of the prior year's downstream valuation reduction. Free cash flow of negative $7.6 million in the quarter was partially driven by seasonality impact. Compared to the prior year, it represents a reduction of $6.5 million, mainly driven by working capital increases in cannabis operations, as well as additional CapEx investments across retail and operations segments and increased lease costs. Our historical quarterly performance clearly reflects the seasonality typically impacting the first quarter. That said, despite the moderate year-over-year improvement in operating income, net revenue, gross profit, and free cash flow declined compared to the prior year, as previously discussed. Looking ahead, we expect to see improvements in revenue growth year over year as of 2026, driven in part by the impact of our initiatives and also as we begin to lap softer revenue comparisons for the second half of the year. Looking more closely at segment-level contributions across our key financial KPIs, and starting with net revenue, the overall decline was driven primarily by liquor retail and cannabis operations, while cannabis retail was essentially flat. I will expand further on the drivers by segment in a few minutes, but at a high level, liquor retail declines were driven by challenging market conditions, cannabis retail was able to offset market softness through growth from newer store openings, and cannabis operations declined due to market destocking and the timing of contract orders. Gross profit follows similar dynamics, although both retail segments were able to partially offset revenue pressure through continued margin improvements. Adjusted operating income showed a modest improvement, as the operating income decline driven by lower gross profit in cannabis operations was offset by the absence of the prior year SunStream valuation reduction and ongoing corporate cost savings. The decline in free cash flow compared to the same period last year was driven by lower earnings, primarily reflecting reduced gross profit, as well as higher capital expenditures to support store openings and differences in the timing of lease payments relative to the prior year. Movements in working capital were broadly consistent with the prior year; however, two offsetting dynamics largely netted each other out. Looking more closely at free cash flow, there are a few takeaways. First, the combined impact of net income and noncash addbacks was negative. This is what we refer to as earnings on the previous slide. In simple terms, while net income improved by $4.8 million compared to the same period last year, that improvement was driven by noncash items. After adjusting for these noncash effects, the overall contribution from earnings was negative. Second, inventory increased more in 2026 than in the prior year, largely offset by improvements elsewhere in working capital. Inventory typically builds in the first quarter due to seasonality, and this year's increase was more pronounced as a result of the inventory build related to the Jeter launch in cannabis operations. Other working capital, primarily the net impact of receivables and payables, represented an improvement year over year, reflecting continued optimization of collections and payment terms. We also saw capital expenditures and lease payments increase by $3.6 million compared to the same period last year, driven by initial investments to support new store openings as well as differences in the phasing of lease payments between the first and the second quarters relative to last year. Finally, the chart on the right-hand side of the slide clearly illustrates the seasonality of free cash flow, highlighting the typical differences between the first and second half of the year. When reviewing each commercial segment individually, I would like to begin by highlighting a change in the way we are reporting segment results. As of 2026, we have started allocating shared service costs to the respective segments, which were previously recorded within corporate. This change allows investors to assess the fully loaded profitability of each segment. For comparability purposes, we have also restated the segment information for 2025. Additional details on these adjustments are provided in our Management’s Discussion and Analysis. Starting with liquor, net revenue in this segment continued to be impacted by demand softness and broader market decline. This resulted in a 6.1% decline in same-store sales, which was partially offset by new store openings, leading to a net 4.9% year-over-year decrease in revenue. The decline in gross profit, driven primarily by lower revenue, was partially offset by a 20-basis-point improvement in gross margin. To this last point, in addition to pricing and promotional optimization, we continue to improve our product mix by the penetration of private-label offerings at accretive margins. Operating income was negative in the quarter, largely due to seasonality, and modestly lower than the prior year, as SG&A efficiency improvements were more than offset by the gross profit decline and higher sales and marketing expenses. Cannabis retail was also impacted by market demand softness, although to a lesser extent than the other two commercial segments. A 2.5% decline in same-store sales was partially offset by new store openings and the integration of five Canna Cabana locations. Gross profit of $20.4 million increased by 3.7% year over year, supported by a 100-basis-point expansion in gross margin driven by pricing actions, improved promotional effectiveness, and favorable product mix management. This gross profit improvement did not translate into operating income growth despite additional SG&A cost efficiencies, due to the impact of approximately $1 million in unadjusted one-time charges incurred during the quarter. That said, the segment still delivered positive operating income of $1.1 million in the quarter. Cannabis operations experienced a large relative decline during the quarter. Net revenue of $29.4 million represented a 14% year-over-year decrease, driven primarily by destocking activity and temporary changes in the timing of business-to-business orders. These declines were partially offset by strong growth in international sales, which increased from $1.8 million in 2025 to $3.5 million in 2026. Gross profit was impacted by both lower revenue and a seven-percentage-point decline in gross margin. The margin compression was primarily driven by inventory adjustments and under-absorption resulting from lower production volumes. The decline in gross profit also weighed on operating income. Operating expenses were largely flat compared to the prior year, as SG&A efficiency improvements were more than offset by one-time unadjusted charges, including an incremental write-down related to the idle federal term facility. As a reminder, we apply a very stringent definition of adjustments, and only restructuring-related charges and impairments of intangible assets are adjusted. Over to you, Zachary, for additional comments related to our strategic priorities. Zachary George: Turning now to the progress we have made during the first quarter against our three strategic priorities—growth, profitability, and people—I would like to highlight a few key developments starting with growth. Our Jeter launch represents an important milestone with significant potential. Jeter is one of the leading branded cannabis platforms in the U.S., with strong consumer recognition and a proven track record in key medical and adult-use markets. By taking over the exclusive production and commercialization rights in Canada, we now control execution end to end, from manufacturing to distribution, which gives us the ability to fully align quality supply and brand strategy with our broader cannabis platform. In Canada, we are focused on building a measured and scalable rollout, leveraging Jeter's brand strengths while applying our operational capabilities and relationships with provincial boards. In the U.S., Jeter continues to perform as a strong brand in medical and regulated markets, and together, this creates a complementary cross-border brand platform that supports long-term growth while remaining focused on execution and profitability. We also continue to expand our retail footprint. As most markets have reached or are approaching saturation, our focus remains on quality rather than quantity. In this context, since December 31, we have expanded our cannabis retail network by six stores, including five Canna Cabana locations in Alberta and Saskatchewan. In Saskatchewan, we are also completing our investment to support a new Wine and Beyond liquor store, which is expected to open during the second quarter. We also continue to expand our international partnerships, generating $3.5 million in international sales during the first quarter, representing a 94% increase compared to the same period last year. Following the launch of our Rise Rewards loyalty program in cannabis during 2025, we expanded the program into our convenience liquor banners, Ace Liquor and Liquor Depot, during 2026, with the rollout to our Wine and Beyond locations scheduled for the second quarter of this year. Rise Rewards is our customer-led loyalty program that delivers greater value to everyday shoppers through savings, rewards, and personalized offers, strengthening engagement and long-term loyalty across our retail network. Turning to profitability, as previously mentioned, we were pleased with the continued year-over-year improvement in retail margins during the first quarter. A 20-basis-point expansion in liquor retail and a 100-basis-point expansion in cannabis retail translated into an average improvement of 50 basis points across our combined retail segments. As highlighted in my introduction, we have recently implemented several decisions under a profit enhancement initiative that are expected to boost profitability and improve commercial execution, generating more than $20 million in incremental operating income over the remainder of the year. While the majority of this improvement will come from efficiency gains, it also reflects pricing actions and commercial and mix management optimizations. During the first quarter, we continued to demonstrate our ability to improve efficiencies by delivering an additional $2 million in G&A savings, while our data-related revenue reached $4.2 million. Under our people strategic priority, we also continue to make meaningful progress, from the completion of our performance-to-pay cycle—where our competitive compensation philosophy aligns individual impact and contributions with merit and incentives—to the alignment of individual goals for 2026, as well as continued improvements in our recruiting processes and employee value proposition. This strategic priority remains critical and foundational for us. As part of our ongoing talent review process, we will be particularly focused over the coming months on strengthening our capabilities in support of our strategy, including the review and deployment of individual development plans for our team members. While market conditions remain challenging, I am grateful for and energized by the passion and resilience demonstrated across our organization, and I want to thank our teams for their continued commitment. We remain focused on growth and cash flow generation, and on delivering sustainable returns for shareholders, whom I would also like to thank once again for their continued trust and support. I will now turn the call back to the operator for the analyst Q&A session. Operator: Thank you. We will now open the call for questions. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question will come from Frederico Gomes with ATB Cormack Capital. Your line is open. Frederico Gomes: Thank you. Good morning. Thanks for taking my questions. This question is about capital allocation and how you are thinking about the U.S. following the rescheduling news. Does anything change here in terms of how you are looking at potential additional investments there, as well as new investments in the SunStream platform? Thank you. Zachary George: Frederico, good morning. The recent news over the last week is actually incredibly positive for our SunStream exposure. As you are aware, Parallel, for example, which is yet to complete its foreclosure process—we expect that to be done in a couple of months—is a predominantly medical portfolio. So, number one, it is very clear that from a tax perspective, as they seek DEA registration, they will no longer be liable for 280E-related taxes for the 2026 calendar year, which lifts a lot of uncertainty around margins and path to profitability in the future. So very, very positive. We are really focused on completing the foreclosure before we tackle significant additional investments. But that team is working hard on potential operational improvements, and also whether it is growing in the state of Florida or the emerging opportunity in the medical market in Texas, of which they are an original three-license holder. We are very excited about the future. I do not want to speculate too much in terms of uplisting opportunities, but we believe we are going to have strong clarity on that in the next several weeks. It is a top priority, as we have stated in prior calls for the last several years, but we want to make sure we have all the facts and can close these restructurings before we get too aggressive. Frederico Gomes: Perfect. Appreciate that. And then just to follow up on capital allocation, you are obviously being active in terms of your share repurchases. If you look at the valuation, it looks like over 50% of your market cap now is net cash. So how much more aggressive do you think you could be, or do you intend to be, if these valuation levels hold? Alberto Paredero-Quiros: Hi, Frederico. We will certainly continue operating with our share buyback program as long as the share prices are at this level. Obviously, we have our own internal models. We are looking at what we believe is the underlying value of our different businesses and segments, and we are convinced that right now our stock is trading below those values. As long as that is the case, we will continue being active. Zachary George: I would just add some color to that. The M&A market is heating up, and with this Schedule III announcement, there should be further momentum there. We are being approached on a near-daily basis on a number of transactions and financings that we are being invited to participate in. We are seeing interest both on the buy and the sell side in different asset classes that have been relatively quiet over the last four years. So there is a sense that animal spirits are emerging here. But it is clear to us that where equity is trading today is really not at a suitable valuation to be used as a currency in transactions. And so you will see us biased to retiring shares as a more accretive use of cash relative to larger-scale M&A based on where we are trading right now. Frederico Gomes: Perfect. Appreciate that. And a final question from me. On the operational side, it looks like your cannabis operations segment is the one that has been particularly underperforming in terms of operating income loss. I am curious if you could provide more color on why that is and whether you have identified exactly what could be improved to get that segment to operating income profit like the cannabis retail segment. Thank you. Alberto Paredero-Quiros: Yes, great question. And yes, it is fair to say that the cannabis operations segment, particularly in the first quarter, had relatively weak performance. There were multiple factors impacting it. Starting with net revenue, you saw a 14% decline. There is a combination of different things, but the main two drivers were a little bit of destocking in our retail channel for this segment—about 70% of the revenue in this segment is to the provincial boards, and that volume, not only in our own retail but also in third-party retail, saw slight reductions in inventory levels both at board levels as well as third-party retail during the first quarter. We also had headwinds in the contract channel, or what we call B2B. As you know, we are producers for some other LPs, where we leverage our capacity and our expertise in manufacturing to provide products to others. In that front specifically, we saw a relatively large reduction compared to last year. To give you an indication, last year in the first quarter we had $9 million of contract sales, and in the first quarter of this year it was half of that amount—$4.5 million lower. All of that is tied in. The timing of these contracts and the shipments are relatively volatile, and we saw a very weak first quarter. We have strong orders for the second quarter, so we are not concerned when it comes to the full year, but certainly, in the first quarter, that was a headwind. That pretty much explains the reduction in net revenue, because as we pointed out in the presentation, we saw growth in our own retail and we saw growth in international, so we continue to be encouraged by the potential of those two channels. When you look at gross margin, we did see a relatively large reduction from a pretty healthy gross margin last year of 26.8%. We went down to 19.7%. An element of that was under-absorption triggered by the lower volumes and the lower revenue. We also had some problems with the ramp-up of the manufacturing of Jeter. We are still learning about the product, and we had some inefficiencies in that front. We also had some one-time inventory adjustments that hit the quarter. The combination of all of those factors triggered the reduction. A lot of what we set with the profit enhancement plan that we are planning for the second half of the year is already, as of May, starting to deliver good results. Much of that is pointed specifically at this segment because we see a lot of opportunities in addressing some of the basic inefficiencies that we have. Finally, we had a few one-time items that were impacting the quarter in SG&A. They are north of $1.5 million. We do not adjust for those things. As you know, we have a policy that we do not like to adjust whatever we do not like seeing in our P&L—we face it as it is and keep on working on it. But specifically in the first quarter, we had this $1.5 million of one-times between terminations and impairments of fixed assets, creating a bit more of a headwind on the bottom line. Keep in mind as well that the $6.9 million negative operating income, or operating income loss, that we have in 2026 includes all of the allocations of shared services. You are probably used to seeing last year better profitability levels, but as we pointed out in the presentation, we have restated that, so right now each segment shows the fully loaded profitability profile. It is the same thing for the two other segments. There are still a lot of opportunities that we can materialize in the cannabis operations going forward. Zachary George: Thank you very much for that, Frederico. Operator: Thank you. The next question will come from Aaron Grey with AGP. Your line is open. Aaron Grey: Hi. Thank you for the questions here. Just with rescheduling that was announced for FDA-approved and state medical, can you speak to some of the potential impacts for SunStream that you alluded to? And more particularly, given there are certain assets that are exclusively medical markets—you talked about Florida and Texas specifically—is there a route where you could choose only to consolidate those and maintain the Nasdaq listing while leaving the other ones within that SunStream portfolio? I know you said you are still evaluating that, but would love to hear some additional color there. Operator: Thank you. Zachary George: The short answer is yes. There is nothing about the portfolio makeup in terms of the exposure that we carry as creditors through SunStream. You have, in the case of Parallel, a medical operator that is serving patients in the states of Massachusetts, Florida, and Texas. Florida is the vast majority of that business. In the case of Skymint, today that is a purely recreational business. We understand that Nasdaq and its counsel are being swarmed right now by a lot of different parties looking for clarity. A number of MSOs are making aggressive commentary about their timelines to uplist. We just want to make sure that we can confirm that process. But if that DEA registration creates permissibility in terms of uplisting, we will certainly have structural options that would let us retain our Nasdaq listing, which I think would minimize disruption as we continue to grow the business. Aaron Grey: Okay, great. That is helpful color. Second for me is on cannabis retail. You commented on some of the same-store sales softness that you are seeing there. Obviously, some of it is just the market maturing, but I am curious if you are also seeing anything in terms of increased competitive market dynamics. Do you feel confident in terms of getting same-store sales back to positive in terms of some of that broader second half improvement in sales that you alluded to? Zachary George: It is a great question, and there are multiple factors driving this result. One is maturity, as you pointed to. There still is very stiff competition amongst operators. When you look at our levels of profitability, even with this emerging flatness in terms of growth, we compare very nicely amongst the top three operators in Canada. I am personally very concerned. Since the start of the Iran war, you have seen gasoline and heating oil prices up 20% to 35% as these commodities face the Canadian consumer. I think discretionary spend has been challenged. We have talked about this concern in prior quarters, but what was already challenging became very acute early this year, with energy pricing escalating so dramatically. We are watching it really carefully. We have levers to pull. Our profit enhancement plan is targeting even further efficiencies and margin improvement. We are not standing still, and we do have a plan to improve performance, but there are certain elements of the macro environment that are going to continue to have an impact, and we are working to overcome those. Alberto Paredero-Quiros: Adding some more color, Aaron, if you look at the composition of our revenue, a little bit north of 85% of our sales in cannabis retail are in the Alberta and Ontario provinces. Both provinces are declining in revenue. As Zachary mentioned, that is driven by saturation in those markets and challenges consumers are facing. Specifically, Alberta represents close to 55% of our revenue. The market has been declining 3% in the first quarter, and Ontario has been declining close to 1% in that period. Obviously, we are facing the headwinds that our large markets are the ones that are declining, more mature, and saturated. We need to put it in context that last year, during the first half, we were seeing very high single-digit growth rates in these markets too. The focus from the market, and from us as well, has been different as of late. As you can see, we improved one full percentage point in gross margin. While operators have been doing that already for a few years, we are seeing a slight decline in sales, but we continue focusing on opening the right profitable doors and improving the margin profile. We anticipate that as we start lapping the softer revenue profile from 2025 in the second half of the year, we will see better performance. We will continue with our strategy, as said before, on improving efficiencies and margins, and opening new doors where it makes sense. Operator: I am showing no further questions in the queue at this time. I will turn the call back over to Zachary for closing remarks. Zachary George: Thank you, and thank you to all for joining us today. We look forward to updating you on our progress in the near future. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Rush Enterprises, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker for today, Rusty Rush, Chairman, CEO, and President. Please go ahead. Rusty Rush: Well, good morning. Welcome to our first quarter 2026 earnings release call. With me on the call this morning are Steven L. Keller, chief financial officer; Jody Pollard, chief operating officer; Jay Hazelwood, vice president and controller; and Michael Goldstone, senior vice president, general counsel, and corporate secretary. Before I get started, Steven will say a few words regarding forward-looking statements. Steven L. Keller: Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended 12/31/2025, and in our other filings with the Securities and Exchange Commission. Rusty Rush: Thank you, Steven, and thanks everyone for joining us today. As we reported yesterday, we generated revenues of $1.68 billion in the first quarter, with net income of $61.5 million, or $0.77 per diluted share. We also declared a quarterly cash dividend of $0.19 per share, which reflects our continued focus on returning value to shareholders. Now stepping back for a minute, the first quarter was still a tough environment for the commercial vehicle market. Industry-wide retail sales for new trucks remained at historically low levels, and we are still working through the effects of the freight recession, excess capacity, and general economic uncertainty. That said, we do believe this quarter represents the trough of the cycle, and more importantly, we are starting to see some early signs that things are moving in the right direction. Freight rates improved a bit, miles driven began to pick up, and customer sentiment started to feel a little more optimistic. As a result, we saw increased quoting activity and order intake as the quarter progressed, especially from our large fleet customers. That has not translated into sustained strength in truck sales yet, but it is a good leading indicator and gives us confidence that demand is starting to come back. One thing that stood out again this quarter is the strength of our business model. Even with soft truck sales, our aftermarket, leasing, and rental businesses, along with disciplined expense management, helped us stay very profitable and performed well overall. We also stayed focused on growing the business. During the quarter, we signed an agreement to acquire Peterbilt dealerships in Southern Louisiana and Mississippi. We expect to close that deal and begin operating those locations as Rush Truck Centers in June. So even in a down cycle, we continue to invest in the business, expand into new markets, and position ourselves for long-term growth. Our aftermarket business continues to be a key strength for us. It made up roughly 66% of our gross profit in the quarter and generated $627 million in revenue, up slightly year over year. Demand was still soft in subsegments, especially for some of our over-the-road customers, but overall we were able to deliver growth, which speaks to the strength of our relationships and our execution. We also started to see some positive indicators here: more freight activity and more miles being driven, which should translate into stronger parts and service demand as customers begin catching up on deferred maintenance. Our aftermarket strategic initiatives are also making a difference. Our inspection processes and parts delivery optimization have gained traction across our network and are delivering incremental revenue, increasing uptime for our customers, and delivering a better experience overall. Looking ahead, we expect the aftermarket to gradually improve as we move through the year and continue to be a key driver for our performance. Turning to truck sales, the market was still very tough in the first quarter, with Class 8 industry sales at their lowest level since COVID. But even in that environment, we performed well, sold 2,964 Class 8 trucks in the U.S., and captured a 7.2% market share. That really comes down to execution, having the right inventory, and the diversity of our customer base. As I mentioned earlier, we saw solid order activity and increased engagement from customers during the quarter. We think that is being driven by improving freight conditions and customers beginning to plan for 2027 emissions regulations. Class 4 through 7 truck sales saw the worst demand since 2015, but our results were more about timing than demand. Some large fleet customers pushed deliveries into later in the year, so we expect that to benefit us in the coming quarter. Used truck demand improved as we moved through the quarter, and we are seeing better conditions tied to improving spot rates and tighter capacity. So overall, while the first quarter was slow, we expect sales to improve gradually in the second quarter and then pick up more in the second half of the year. Rental and leasing continue to be strong and a growing part of our business. Revenue was $92 million in the quarter, up a little over 2% year over year. Leasing demand remained strong as customers look to replace aging equipment and get ahead of cost increases tied to the upcoming emissions regulations. Rental is below where we would like it to be, driven by current market conditions, but it did improve as the quarter progressed, and we expect utilization to continue trending up through the year. Overall, Rush Truck Leasing continues to generate consistent, recurring revenue and remains an important contributor to our performance. So to wrap it up, the first quarter reflected the ongoing pressure from the freight recession and weak truck demand, but we delivered solid earnings and profitability. That speaks to the strength and balance of our business. We believe we are at the bottom of the cycle, and we are encouraged by early signs we are seeing, whether that is freight, customer activity, or order trends. As conditions continue to improve, we believe we are well positioned to capture that demand and grow the business. Before I close, I want to thank our employees across the company. Their focus, discipline, and commitment to our customers continue to drive our performance, especially in a very challenging environment like this. With that, I will take your questions. Operator: We will now open the call for questions. Operator: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. You will hear the automated message advising your hand is raised. We also ask that you please wait for your name and company to be announced before proceeding with your question. Our first question for the day will be coming from the line of Avinatan Jaroslawicz of UBS. Your line is open. Avinatan Jaroslawicz: Good morning. Glad to see the year is still on track for improvements sequentially. Thinking about the second half, it sounds like there is still a decent amount of uncertainty around the pre-buy this year on a number of fronts — whether the OEMs are going to have new reg engines ready, how the rules are going to be enforced, and the demand dynamics around that. Can you give us a rundown on how those moving parts are shaping your expectations? Rusty Rush: That is a good statement there, Avi. It is kind of crazy, is it not? We are April 30 tomorrow, we have eight months left in the year, and we still do not have definitive regulations printed. When I am talking about emissions regulations, the EPA has sent out signals and told people what they are going to do — supposedly keep it at 0.35 — but they have not clarified about credits, whether there are going to be NCPs, things like that. We are probably still 60 days away from it. Regardless, we do know there are going to be new emissions regulations, and I think that has spurred customers to order. Order activity, starting in December, has been up dramatically from where it was the prior seven or eight months. Even with that uncertainty, there is certainty that something is going to happen; exactly what it is, we are not sure because it has not been posted by the EPA yet. We hope to know within the next 45 to 60 days, though that timeline keeps getting kicked down the road. The most important thing is customers are more optimistic, finally, because of contraction on the supply side — taking trucks out, whether through nondomicile, building fewer trucks in the back half of last year and in the first quarter of this year. On the supply side, things have squeezed down. Customers are more optimistic about rates. If you had asked me three or four months ago, everyone said flat to low single digits; then it was mid-single digits; and now people are looking at maybe high single-digit increases. So people are optimistic. At the same time, to your point about emissions, we do not know clearly what it is going to be, but we do know it is going to be stricter, whether there will be NCPs and costs go up dramatically, or total enforcement of what is out there for EPA in 2027. That is about the best I can tell you — there is still uncertainty, but something is coming down the tracks; we just do not know exactly what. Avinatan Jaroslawicz: Understood. As a follow-up, thinking about improving conditions in the freight market driven by capacity reductions — that does not necessarily help parts and service as much as improving freight activity. What are you seeing there, and when might parts and service volumes inflect positively? Rusty Rush: Theoretically, people believe that when truck sales go down you get more parts and service, but that is not really the case because people cut back their budgets. That is what we have seen — we have remained fairly flat over the last couple of quarters. In spite of inflation, we have remained flat because people have tightened their belts. The best thing is for their business to get better. Historically, when customers feel better and are more optimistic, there will be no postponing of maintenance or repairs. When income goes down, you take what you spend down too — no different than managing your household. The most encouraging thing will be seeing second- and third-quarter releases and hearing about contract rates going up so that optimism comes to fruition. We have gradually improved: February was better than January, March was better than February, and April looks a little better than March. As conditions improve, parts and service will improve as well. Tonnage was up for the first time in two or three years in February, if I am not mistaken. It is getting a little better not just from the supply side but also demand. There are outliers — overseas events, fuel — but the general macro environment for continued improvement at the customer level is there without interruptions from geopolitics. I believe it is going to be a gradual, continued improvement based on conversations with many customers and people around the industry. Avinatan Jaroslawicz: Appreciate the perspective, Rusty. Rusty Rush: I am going to pass it on. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Brady Lierz of Stephens. Your line is open. Brady Lierz: Thanks, and good morning, Rusty. You mentioned you expect overall commercial vehicle sales to improve gradually. Can you help break that out between heavy duty and medium/light duty? Given the weakness in medium duty in the first quarter, should we see a more immediate recovery there versus Class 8? Rusty Rush: Sequentially, yes, because medium duty was so off in Q1. From a percentage basis, you are going to see medium improve quicker because heavy duty was not off as badly as the market — we were off about 6%, the market was down 20% to 21% — and we were way off in medium, and a lot of it was timing. Sequentially, medium will pick up quicker because we are starting at a lower base. Looking at the year, I expect a better year on the Class 8 side than medium; medium will be closer to flat for the year, catching back up, which bodes well for the next few quarters because we started in such a hole on medium duty. I expect heavy duty to continue to ramp up. If you want a number, say Class 8 up 15% in Q2 if things hold together, we get some emissions clarification, and business continues to look better for our customer base, across vocational and over-the-road. Over-the-road is still the biggest market — about two-thirds — so if that continues to get better, we will continue to increase quarter by quarter as the year goes and roll into Q1 next year. From an emissions perspective, it is all about when the engine was built; those engines are usually built maybe halfway through January, and because we are the retailer, it takes anywhere from 32 days to five months depending on the product to reach the customer. That bodes well for us all the way through next year in Q1. The number that comes out this year probably is not more than a normal replacement, but it will be backloaded. Q1 Class 8 retail of about 41,000 units was the lowest in years, and medium was the lowest since 2015. So with emissions regulations and improving economic conditions for our customer base — as long as geopolitics stay out of the way — it is set to ramp up slowly. Q2 should be better than Q1, not dramatically, and build from there through the rest of the year and through Q1 next year. Typically, parts and service should build as well; it has been slowly building, and I am looking forward to seeing it ramp up a little faster. Brady Lierz: Thanks for the color. As a follow-up, the reduction in capacity is driving improvement in freight. How do you think that affects new truck sales this cycle? Is that a headwind, or does the emissions regulation offset it? Rusty Rush: The first thing was supply — it has been pulled out for the last three quarters. If you took Q3, Q4, and Q1 and strung them together, retail demand would annualize under 200,000 units in the U.S. That has taken supply out, but you need both supply contraction and demand improvement. It was nice to see tonnage bump up in February. Even if it is not robust, having both helps. ACT says the U.S. Class 8 market will be about 225,000 this year. That implies it needs to average around 60,000 a quarter for the last three quarters, a 50% bump from Q1, and it will not be evenly loaded — maybe 50,000 in Q2, then higher in Q3 and Q4 — which is at or slightly under replacement. We just went through a three-year freight recession — I have never seen one like that — and I felt for a lot of our customers. We were fortunate with our diversified business model that we do not rely on one revenue stream. The average fleet age is probably a little over half a year older than where most want it. Even if we have a big ramp up and average 60,000 in the last three quarters, we are still only at replacement. That is not a huge pre-buy that would cause a big drop in 2027. I think we should roll through 2026 and not see a big drop in 2027, at least from my viewpoint. Brady Lierz: Thanks so much for the time this morning, Rusty. I will pass it along. Rusty Rush: You bet. Thank you. Operator: Thank you. One moment for the next question. The next question will be coming from the line of Andrew Obin of Bank of America. Please go ahead. Andrew Obin: Good morning, Rusty. Maybe we can talk about parts and services. You have a big initiative with large corporate customers. How is that initiative progressing? Do you think you are outgrowing the industry on parts and services, and what levers do you have to keep outgrowing the industry? Rusty Rush: In the first quarter, we were probably close to in line. Across the quarter, the hardest-hit piece was service. Service was back for us in Q1, and that is why our margin mix was down a little — service margins are much higher than parts. I was nervous, asking what we were doing wrong, but through our manufacturers I have statistics on other dealer groups. Service was off across a large group of about 200-plus dealers around 3% to 4%. We were off a little less than that. Customer spend was off in Q1 — belt-tightening. On the initiative, yes, our initiatives are still in place. We grew our national account business on the parts side, but people really tightened up on service. You can extend maintenance intervals; you do not have to fix every oil leak; you can extend oil change intervals by 5,000 miles — when things are tight, that is what people do. As their business gets better, they get back to a more normalized spending cycle. Parts was up; service was down, similar to what I saw from others. As business improves, spending normalizes. Spot market rates were up 25% to 30% year over year; the balance between spot and contract got way better. That allows folks to be more optimistic, and when they are optimistic, people spend money. We love our business model — leasing, parts, service, sales — multiple revenue streams that allow us to balance through cycles. Our parts and service initiatives are ongoing; parts was slightly up and will get better through that initiative and others we are not discussing publicly. You have always got to have something going. Andrew Obin: You have a footprint across the country and sometimes share macro views. What are you seeing overall and in key verticals? You have a big off-road presence — what are you seeing there? Any impact in oil and gas from higher commodity prices? And on-road as well. Rusty Rush: Geographically and by vertical, we were up slightly in refuse and construction in the first quarter; most other areas were flat. Our national accounts were pretty flat in Q1 — they were up last year — and we are not keeping up with plan in the first quarter. The most notable softness is in our unmanaged accounts — small customers — which still make up a little over 30% of our business. That segment is down almost another 10% in the first quarter, on top of a weak last year, but we managed to make up revenues in different sectors, particularly vocational — refuse, construction, and other vocational businesses — from a parts and service perspective. Geographically, Florida continues to be strong. On oil and gas, we have not seen a big bump yet; we do expect to possibly see something, but it has not come to fruition yet. Texas is always one of our strongest areas, along with Florida, and we are doing fairly well in the Chicago/Northern Illinois region this year too. Overall, I feel good that we will continue to see gradual improvement without geopolitical interruptions. I prefer consistent, solid growth and taking share rather than a huge pre-buy. Maybe we did not take as much share as I wanted in Q1 — we were slightly better than others, but slightly is not good enough — so we are focused on continuing to execute and rolling out other initiatives. We are ready, willing, and able, and excited for what I believe will be a better environment without outside interruptions. Andrew Obin: Thank you, Rusty. Rusty Rush: You bet. Operator: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. One moment for the next question. Our next question will be coming from the line of Cole Cousins of Wolfe Research. Please go ahead. Cole Cousins: Yesterday, PACCAR suggested that recent order strength is perhaps a little misleading and that build rates and retail sales remain more muted, and thus the pricing backdrop remains more competitive right now. What do you think is driving recent order strength, and how sustainable are current order rates in the coming months? Rusty Rush: Good question. I believe that while it is not as robust as what we saw in February — about 46,000, one of the seven or eight best months ever — that was a little overstated, driven by one OEM. I do believe there is strength in order intake, and as long as overseas issues do not interfere, there will be sustainability to continued solid order intake. If it is 25,000 to 30,000 a month, I consider that a pretty good month. From our perspective, our order intake continues to remain solid, with a backlog. There is a process — quoting, competitive dynamics — and people are still adjusting to tariffs. OEMs, customers, and ourselves are incorporating that into everyday life; at least we know what they are now. I cannot say it will stay over 35,000 a month, but continued order strength in the 25,000 to 30,000 range would be solid, and we went seven months without a month like that. We started from a low backlog base. As we get more clarity around emissions and as customers’ businesses improve — remember, we did not deliver many trucks the last three quarters — people need to get back to replacing trucks. Some fleets got off their trade cycle last year. U.S. Class 8 was about 216,000 last year, under replacement by 20,000-plus, and it continued to be under replacement into Q1. Even without outside activity, people have to replace trucks; maintenance costs on older trucks go through the roof. I do not think it will be a huge pre-buy, but relative to how bad Q4 and Q1 retail were, you should expect getting back in line. I think it will be solid, continued order growth as customers’ businesses get better, plus the emissions factor we know is coming. Cole Cousins: In the context of an improving demand backdrop and visibility to higher truck prices next year, when do you think we can start to see truck pricing move higher this year? And is there a gross margin opportunity ahead of the EPA transition to sell older trucks you might have in inventory toward the end of the year or into early 2027? Rusty Rush: We have certainly thought about what inventories we are going to carry into the first quarter of next year; as long as the engine stamp date is December 31 or earlier, we can carry them. We will make those determinations. There are still build slots in the back half, and I think a lot of OEMs are protecting some of their Q4 build slots and trying to push them forward because you cannot just go to suppliers and ask for three or four months of sudden ramp — they need a steady run rate. I know build rates have moved up at an OEM or two. From our perspective, we are trying to be properly inventoried going into next year, while still selling into this year — we have done a nice job, but there is still room to sell in the back half. We continue to have activity. On carrying older (pre-2027) engines into next year, we will carry some inventory over as we always do; we might carry a little more into next year depending on how the year plays out and demand, but we will have to wait and see. Cole Cousins: On SG&A, it only increased 2% sequentially in the first quarter — better than historical trends. Can you talk about measures you are taking to drive this cost management? Rusty Rush: A lot like our customers, we knew Q1 was going to be the trough, and this is a credit to the entire organization. It was tough — we had to squeeze down, and we did. SG&A was down year over year about 2.5% on the G&A piece, in spite of inflation and normal raises. That is contributions from everyone. We will try to maintain that discipline — the hardest part is maintaining it if we move into a growing environment. We are not in a growing environment yet, but I can see it coming. We need to get the parts and service business back — that is what drives G&A, not so much truck sales. We had to do some cutbacks; we executed, and it is part of being in a cyclical business. As parts and service go up, we would love to hire back where appropriate; there is a cost to growth. We try to keep at least 40% to 50% of every gross profit dollar in parts and service, but it takes people to make it happen. It was a great job by our team, and I look forward to a little more breathing room as we go downstream without having to be quite so tight. Rusty Rush: Look forward to seeing you folks in a couple of weeks. Operator: That does conclude today’s Q&A session. I would like to turn the call back over to Rusty for closing remarks. Go ahead, please. Rusty Rush: I appreciate everybody joining us this morning, and we look forward to speaking to everyone in July. We will discuss Q2 to see if everything still looks the same — I am banking on it. Thank you. Bye-bye. Operator: Thank you for joining today’s program. You may now disconnect.
Operator: Good morning. And welcome to Seven Hills Realty Trust First Quarter 2026 Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, please note this event is being recorded. I would now like to turn the call over to Matt Murphy, Manager of Investor Relations. Please go ahead. Matt Murphy: Good morning. Joining me on today's call are Thomas Lorenzini, President and Chief Investment Officer; Matthew C. Brown, Chief Financial Officer and Treasurer; and Jared Lewis, Vice President. Today's call includes a presentation by management followed by a question and answer session with analysts. Please note that the recording, rebroadcast, transmission, and transcription of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward looking statements are based on Seven Hills Realty Trust's beliefs and expectations as of today, 04/29/2026, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from the SEC's website. Investors are cautioned not to place undue reliance on any forward looking statements. In addition, we will be discussing non-GAAP financial numbers during this call, including distributable earnings and distributable earnings per share. A reconciliation of GAAP to non-GAAP financial measures can be found in our earnings release, and the presentation can be found on our website at 7reit.com. With that, I will now turn the call over to Thomas Lorenzini. Thomas Lorenzini: Thank you, Matt, and good morning, everyone. On our call today, I will start by providing an update on our first quarter performance and recent investment activity, followed by an overview of our loan portfolio, then Jared Lewis will discuss current market conditions and our pipeline, before Matthew C. Brown reviews our financial results and guidance. Yesterday, we reported solid first quarter results reflecting the continued strength of our fully performing loan portfolio and our disciplined underwriting approach. Distributable earnings for the quarter came in at $5.3 million, or $0.24 per share, which was at the high end of our guidance. We reached a new high watermark with approximately $776 million in total outstanding loan commitments, after originating three new loans totaling $67.5 million during the quarter, reflecting our continued progress in deploying the capital raised from our December rights offering. First quarter closings included a $30.5 million loan secured by a medical office property in Atlanta, a $19.5 million loan secured by a grocery-anchored retail property in Palm Desert, California, and a $17.5 million loan secured by a select-service hotel in Scottsdale, Arizona. We also have three additional loans in process that we expect to close in the near term totaling approximately $78 million, which Jared will speak to in more detail. These originations reflect our ability to source opportunities across property types and geographies while maintaining disciplined underwriting. Importantly, we remain selective in deploying capital and continue to focus on opportunities that meet our return thresholds. Originations so far in 2026 have been executed at a net interest margin of approximately 195 basis points, representing the highest level we have achieved over the past four years. When including the impact of exit fees, total returns are incrementally higher. We believe this reflects both the strength of our platform and an improved first quarter transaction environment. Turning to our loan portfolio. As of March 31, we had total loan commitments of approximately $776 million across 26 floating rate first mortgage loans. Our portfolio continues to demonstrate strong credit performance with a weighted average risk rating of 2.8, no realized losses, and all loans current on debt service. Our weighted average all-in yield at quarter end was 7.8%, and our weighted average loan-to-value at origination remained conservative at 66%. During the quarter, we received the full repayment of a $16 million loan secured by a hotel in Lake Mary, Florida, and subsequent to quarter end, we received an additional $54.6 million from the repayment of a multifamily loan in Ohio. We are also expecting the repayment of a $26.5 million loan secured by an office building in suburban Chicago as early as this week; upon payoff, this will reduce our overall office exposure to approximately 21% of the current portfolio. This repayment activity meaningfully increases our available capital and supports continued deployment into new investments. With recent loan repayments, we currently have approximately $110 million of cash on hand and nearly $400 million of available capacity under our secured financing facilities. As previously announced, we extended the maturities of our UBS and Wells Fargo financing facilities to 2028 and doubled the capacity of the Wells Fargo facility to $250 million, further enhancing our ability to deploy capital and continue growing the portfolio. In summary, we believe Seven Hills Realty Trust is well positioned to capitalize on an active pipeline of middle market lending opportunities. While recent headlines have raised concerns around private credit, it is important to note that Seven Hills Realty Trust remains narrowly focused on senior secured commercial real estate lending. This approach is reinforced by RMR's multi-decade track record managing and operating commercial real estate, providing deep asset-level insight, disciplined underwriting, and proven experience across market cycles. With strong liquidity, expectations of improving transaction activity, and attractive lending spreads, we remain focused on disciplined execution and generating compelling risk-adjusted returns for our shareholders. With that, I will now turn the call over to Jared Lewis. Jared Lewis: Thanks, Tom. Since our last call, we have seen increased volatility across the capital markets, driven in part by the ongoing conflict in Iran and its impact on investor sentiment. Interest rates have also moved higher, with the ten-year Treasury increasing from approximately 3.95% in February to 4.39% today, and the expectation is that the FOMC will maintain its target range for the federal funds rate at 3.5% to 3.75% later this afternoon. While the year began with strong transaction activity, continuing the momentum we saw at the end of 2025, recent market volatility has started to have an impact on owners' decision making. Over the past month, we have seen some moderation in acquisition and sales activity as market participants take a slightly more cautious approach due to the uncertainty around interest rates, inflation, monetary policy, and broader geopolitical developments. With respect to debt capital markets, the CMBS market appeared to slow a bit earlier this month given the macroeconomic uncertainty and interest rate volatility, but overall, we have not seen a meaningful pullback in capital availability. Banks, debt funds, life companies, and government sponsored enterprises all remain active, and importantly, our bank partners continue to support transactions through our secured financing facilities. From an activity standpoint, we are seeing a divergence across asset classes. Multifamily refinancing continues to dominate as borrowers work through maturing bridge and construction loans originated in 2021 and 2022. In contrast, for new acquisitions and in many other asset classes, owners that are not under pressure to transact are generally waiting for greater clarity on macroeconomic conditions before moving forward with buy, sell, or refinance decisions. However, despite this period of slow acquisition transaction volume, assets still need to be financed, and we continue to see consistent demand for flexible lending solutions. As a result, our pipeline remains strong, and we have over $105 million of term sheets outstanding for new loan opportunities and three loans totaling $78 million currently in diligence that we expect to close in the near term. These include a $39.2 million loan secured by a multifamily property in Georgia, a $22.7 million loan secured by a medical office property in Texas, and a $16 million loan secured by a self storage property in Pennsylvania. In addition, we continue to evaluate a range of opportunities across the industrial, storage, retail, and hospitality sectors where we believe we can achieve more attractive risk-adjusted returns relative to more competitive segments of the market. Importantly, we remain disciplined in our approach. While competition remains elevated in certain sectors, particularly multifamily, we are focused on transactions that offer attractive yields. We believe our ability to provide certainty of execution and flexibility to borrowers is a key differentiator in the current environment. Overall, while near-term transaction activity may remain somewhat uneven given ongoing macro uncertainty, we believe the current backdrop represents an attractive opportunity for lenders with available capital and a disciplined underwriting approach. As conditions stabilize, we expect to continue to selectively deploy capital into opportunities that meet both our credit standards and return thresholds. And with that, I will turn the call over to Matthew C. Brown to discuss our financial results. Matthew C. Brown: Thank you, Jared, and good morning, everyone. Yesterday, we reported first quarter distributable earnings of $5.3 million, or $0.24 per share, which includes $0.08 of dilution related to our rights offering in December. As expected, the rights offering has impacted earnings in the near term; however, deployment of the proceeds is progressing well. New loan investments over the last two quarters contributed $0.03 per share of distributable earnings in the first quarter, and as Tom mentioned, originations so far in 2026 have been executed at net interest margins of 1.95%, the highest level over the past four years. During the first quarter, interest rate floors remained active for seven of our loans, a structural feature of our portfolio that actively protects earnings in a declining rate environment. These floors contributed $0.01 per share of earnings protection for the quarter based on SOFR as of March 31. All but one of our loans contain floors ranging from 25 basis points to 4.34%, providing a meaningful baseline of downside protection as the rate environment evolves. Earlier this month, our Board declared a regular quarterly dividend of $0.28 per share, which equates to an annualized yield of approximately 14% based on yesterday's closing price. Although distributable earnings have not covered our dividend over the past quarter, we remain committed to this dividend level through 2026 at a minimum and expect distributable earnings to trend back to our quarterly dividend level by the end of this year. Overall, we expect second quarter distributable earnings to be in the range of $0.23 to $0.25 per share. As the proceeds from the rights offering are invested and capital from loan repayments is redeployed, we expect the incremental earnings contribution by the end of the year to offset the impact of the higher share count. Credit quality remains strong at Seven Hills Realty Trust. Our CECL reserve stands at a modest 130 basis points of total loan commitments, flat from last quarter, and is supported by a conservative portfolio risk rating of 2.8, also unchanged. The portfolio is well diversified by property type and geography, and all loans are current on debt service. Importantly, we have no five-rated loans, no collateral dependent loans, and no loans with specific reserves. This reflects a disciplined underwriting and asset management process that we believe creates durable, long-term value for shareholders. That concludes our prepared remarks. Operator, please open the line for questions. Operator: We will now open the call for questions. The first question today comes from Jason Weaver with Jones Trading. Please go ahead. Jason Price Weaver: Hi, good morning, and thanks for taking my question. I thought it was notable that your origination net interest margin of 195 basis points this quarter is about 35 basis points wider than last year's average. Is that a function of mix, or pockets of the market that you are able to access that others are not? We are seeing opposite trends at some of your peers. And where do you see the rest of the year's NIM settling, and how much of that is a step of the base rate? Thomas Lorenzini: Thanks for the question. The loans that we did in Q1 were medical office, retail, and select-service hospitality, so there was no multifamily in there, which is where we see the tightest pricing and the narrowest margins. We were able to attract some outsized returns, especially in select-service hospitality, which generally tends to price at wider spreads, then medical office as well, and then retail. It is really product mix on those. I would also say we take a rifle-shot approach to originations. While we have a lot of transactions come through a robust pipeline, we really pick our spots and take deals off the street where we are going to achieve that outsized return, rather than get into a commodity situation where we are simply bidding against several other lenders and everyone is cutting spreads by a few basis points to win the business. We try to avoid those auction-type situations. Going forward, for the three loans we expect to close here in short order, net interest margin is probably a little bit inside of 195 basis points, closer to about 180. Again, that is a function of product type. We do have a multifamily loan in there that is fairly sizable relative to the three, which drives down that net interest margin a little bit, and the other properties—another medical office and a self storage, as Jared mentioned—help round that out. We are able to maintain a healthy margin, but it is really the multifamily loans where we are seeing the most compression. Jason Price Weaver: Understood, that is helpful. And then after the Olmsted Falls repayment in April, I think you are sitting on a pretty large chunk of liquidity, almost half a billion. What does the qualifying pipeline look like by sector and size, as well as probability of closing in the near term? And what is the realistic deployment timeline? Jared Lewis: Thanks, Jason. Right now, the pipeline averages about $1 billion and it continues to turn over pretty frequently. We are seeing a lot of transactions, and as we mine through them and meet on the ones we want to look at, they get replenished, so we are still seeing quite a bit of activity. The majority of the activity we are seeing today is really for refinancing of assets as opposed to acquisitions, so those are a little bit more challenging to underwrite. We do have three loans right now that we are negotiating term sheets for, about $125 million, and the average deal size is a little bit barbelled, but we are targeting deals in the $25 million to $40 million range as a sweet spot. With the majority of the pipeline being refinancings, they are a little bit harder to quantify because we are determining whether we want to do deals with borrowers who are bringing new cash to the table—we want to do deals where we understand a reset basis in the transaction—and a refinance is much harder to do that than an acquisition. In terms of our ability to deploy the capital that we have now, as I said, we are negotiating three term sheets at $125 million and are far along in a couple of those. I cannot handicap whether we will win all of them, but we feel pretty good about it. Going forward, we will continue to evaluate quite a bit of multifamily; the majority of our pipeline is in multifamily, but we are not going to chase deals down to win business by 5, 10, or 15 basis points. Over the next two quarters, we should have the ability to meet our targets of origination activity in the $100 million to $300 million range. Jason Price Weaver: Got it. Thank you. I appreciate the color. Operator: Your next question comes from Citizens Capital Markets. Please go ahead. Analyst: Hi, everyone. Thanks for taking the questions. First, 1Q originations were pretty diverse—you touched on this a little bit—but is there a particular asset type that you want to increase exposure to, or are you more just looking at the best opportunities across the board that are not in super competitive asset classes? Thomas Lorenzini: We would certainly like to increase exposure further to multifamily. That is beneficial given it is an extremely liquid market with Fannie and Freddie active, and from an investor standpoint as well. But the transactions we are going to pursue there will be ones where we feel we are making a decent return. That said, other product types certainly make sense in today’s world. We like self storage; student housing has been attractive to us; medical office has been attractive; and industrial remains an attractive asset class. The only thing we are not actively pursuing right now is new office loans and healthcare-related assets. We do not target, per se, a set percentage per property type. It is more holistic—making sure we have a diverse portfolio, which we do and want to continue to maintain—while focusing on proper risk-adjusted returns. If we can pick off a few multifamily deals, we will do that, but we are more than capable with the other products as well. Grocery-anchored retail is also an area of focus. It is less formulaic and more about the rifle-shot approach, lending against quality real estate and earning an outsized return to do so. Analyst: That is helpful. Were 1Q origination volumes impacted at all by the geopolitical disruptions? How are you thinking about net portfolio growth over the coming quarters? Thomas Lorenzini: We touched on it a bit. In the first quarter we saw quite a bit of activity and were very happy with what came through the pipeline. With the war in Iran, things have slowed a little from a transaction standpoint. If borrowers and investors do not need to make a decision right now, they might pause to see what happens with interest rates given the recent volatility. That said, there is still adequate flow. We anticipate this quarter—with the loans that have closed, the loans that are closing, and a couple of speculative loans—originations of approximately $200 million. From a repayment standpoint, we have an office loan we believe is repaying possibly this week, and beyond that we are not expecting other payoffs in the quarter. So we should have pretty good net portfolio growth—maybe $50 million to $75 million—compared to where we are today, and then in Q3 and Q4, another couple of hundred million dollars of net portfolio growth. Analyst: Understood. And any updates you could share on the plans for the Yardley REO property? Thomas Lorenzini: That property continues to perform remarkably well. Occupancy remains about 81% to 82%. We renewed a large tenant, and the WALT is almost six years now. There has been quite a bit of recent activity from new tenants; we have done some test fit-outs for a few groups looking for space. Our goal would be, if we lease a bit more incremental space, to consider discussing with the Board a potential disposition of the asset, maybe late this year. Operator: Your next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hi. Just to follow up on portfolio growth, is it fair to say you are expecting roughly a couple hundred million dollars in incremental portfolio growth for 2026? Thomas Lorenzini: Yes. Ideally, we end up close to $950 million at the end of the year for total portfolio size. Christopher Nolan: Great. And on the allowance reserve, does the steeper yield curve impact reserving? If someone has a property and interest rates are higher at refinance, they may need to add equity. Does CECL require you to increase your allowance as long rates go up? Matthew C. Brown: It is an interesting question. There are many factors that go into the CECL reserve. Some are related to our specific portfolio, maturities, and so on, as well as broader economic factors. We would expect our reserve at 1.3% of total commitments to hang around there for a while. It could tick down a little bit—Tom mentioned an office loan we expect to repay in the near term and we have some other office loan maturities coming up this year—but overall, we have a modest reserve at 1.3%, which is on the low end for some of our mortgage REIT peers. Christopher Nolan: Final question. Given the jump in fuel prices, for projects being repositioned with a developer, construction inputs go up. How does that impact your underwriting? Do you require the developer to put in more equity, or is there no real impact? Thomas Lorenzini: A couple of points. First, our portfolio’s future funding exposure is somewhat limited—about 6% of total commitments—so it is not that sizable. Where it is a value-add transaction and there are cost increases beyond what we budgeted when we closed, there is typically an equity rebalance required from the sponsor. If a project has commenced rehab or construction and there are X dollars available inside the loan to fund those costs but the actual costs come in higher, they are required to rebalance and come to the table with equity. Christopher Nolan: Great. Thanks, Tom. Operator: That concludes our question and answer session. I would like to turn the conference back over to Thomas Lorenzini for any closing remarks. Thomas Lorenzini: Thanks, everyone, for joining today's call. We look forward to seeing many of you at the upcoming NAREIT Conference in New York City this June. Please reach out to Investor Relations if you are interested in scheduling a meeting with Seven Hills Realty Trust. Operator, that concludes our call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day and welcome to the Old Dominion Freight Line, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. There will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jack Atkins. Please go ahead. Jack Atkins: Good morning, everyone, and welcome to the first quarter 2026 conference call for Old Dominion Freight Line, Inc. Today's call is being recorded and will be available for replay beginning today and through 04/29/2026 by dialing 506-9658, access code 769-9494. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion Freight Line, Inc.'s expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. We are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion Freight Line, Inc.'s filings with the Securities and Exchange Commission and in this morning's news release. Consequently, operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise. Finally, before we begin, we note that we welcome your questions today, but ask that you limit yourselves to just one question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference call over to our President and Chief Executive Officer, Marty Freeman. Marty, please go ahead. Marty Freeman: With me on the call today is Adam N. Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. Our first quarter results reflect a continuation of the encouraging trends that started to develop late last year. While our first quarter revenue declined on a year-over-year basis, demand for our service improved as the quarter progressed. This contributed to the acceleration in our LTL volumes during the quarter, with strong sequential tonnage growth in February and March. Importantly, during the quarter, our team continued to deliver best-in-class service to our customers and maintained our disciplined approach to yield management. Providing our customers with superior service at a fair price is the cornerstone of our strategic plan. The consistency of our service performance day in and day out creates significant value for our customers and is something that we take significant pride in. As a result, we were pleased to once again deliver 99% on-time service and a claims ratio below 0.1% in the first quarter. The strength of our unmatched value proposition has differentiated us from our competition and allowed us to win more market share than any other LTL carrier over the last ten years. Our value proposition will continue to support our ability to grow our business in the years ahead, and we continue to believe that we will be the biggest market share winner over the next ten years as a result. Our best-in-class service also supports our yield management initiatives. Our long-term disciplined approach to pricing is designed to offset our cost inflation and support our ability to make strategic investments back in our business. These investments will allow us to stay ahead of our anticipated growth curve to help us ensure that we will always have the capacity we need to grow. Our ability to say “yes” when a customer needs us the most is the hallmark of our industry-leading customer service. Business levels in the LTL industry can change very quickly, and being able to respond to growth opportunities in an improving demand environment is one of the primary areas that differentiate us from our competition. We believe it is important to consistently invest throughout the economic cycle despite the short-term cost headwinds associated with this strategy. This is why, despite a challenging operating environment, we invested nearly $2 billion in capital expenditures over the past three years, while we plan to invest an additional $205 million in 2026. We have also continued to invest in the most important component of our long-term success, which is our OD family of employees. Our people and our unique culture are truly what sets us apart at Old Dominion Freight Line, Inc. As a result, we have worked to ensure that we are providing a competitive wage and benefit package as well as various internal developmental programs like our in-house driver training schools and our management training program. These programs not only provide important opportunities for career advancement for our team, but they help ensure that our company is ready to respond when our customers need us the most. While we are always focused on the long term, it is critical that we remain diligent in controlling our cost and continue to operate as efficiently as possible without compromising our superior service standards. That remained the case in the first quarter as we continued to find ways to maximize our operating efficiencies and control our discretionary spending. We continue to believe that our business model contains significant operating leverage, which has been enhanced by our ongoing investments in our technologies and continued focus on business process improvements. We produced solid results in the first quarter by continuing to execute our strategic plan, and I want to thank the entire OD family of employees for their unwavering dedication to our customers and to our company. Due to our consistent execution and investment, we are uniquely positioned to handle incremental volume opportunities as the demand environment improves. As a result, we remain confident in our ability to win market share, generate profitable revenue growth, and increase shareholder value over the long term. Thank you very much for joining us this morning. And now Adam will discuss our first quarter in greater detail. Adam N. Satterfield: Thank you, Marty, and good morning. I am a little under the weather today, so I would like to ask you all to bear with me as we get through this call. Old Dominion Freight Line, Inc.'s revenue totaled $1.33 billion for the first quarter of 2026, which represents a 2.9% decrease from the prior year. Our revenue results include a 7.7% decrease in LTL tons per day that was partially offset by a 5.7% increase in our LTL revenue per hundredweight. Excluding fuel surcharges, our LTL revenue per hundredweight increased 4.4% compared to the first quarter of 2025, which reflects our long-term disciplined approach to yield management. On a sequential basis, our revenue per day for the first quarter increased 0.5% when compared to the fourth quarter of 2025, with LTL tons per day decreasing 0.4% and LTL shipments per day decreasing 0.7%. For comparison, the ten-year average sequential change for these metrics includes a decrease of 2.8% in revenue per day, a decrease of 2.5% in LTL tons per day, and a decrease of 1.6% in LTL shipments per day. The monthly sequential changes in the LTL tons per day during the first quarter were as follows: January decreased 3.4% as compared to December, February increased 4.9% as compared to January, and March increased 4.6% as compared to February. The comparative ten-year average change for these respective months is a decrease of 3.1% in January, an increase of 1% in February, and an increase of 4.5% in March. While there are still a couple of workdays remaining in April, our month-to-date revenue per day has increased by approximately 7% when compared to April 2025. This includes a decrease in our LTL tons per day of approximately 6.5% and an increase in our revenue per hundredweight excluding fuel surcharges of 4% to 4.5%. As usual, we will provide the actual revenue-related details for April in our first quarter Form 10-Q. Our operating ratio increased 80 basis points to 76.2% for the first quarter of 2026 as the increase in overhead cost as a percent of revenue more than offset the improvement in our direct cost. Our overhead cost increased as a percent of revenue primarily due to the deleveraging effect associated with the decrease in our revenue as well as an increase in our general supplies and expenses. This resulted in the 60 basis point increase in our general supplies and expenses and 40 basis point increase in our depreciation cost, as a percent of revenue. All of our other combined costs improved as a percent of revenue for the quarter on a net basis. The improvement in our direct operating cost as a percent of revenue was primarily due to our continued focus on revenue quality and operating efficiencies. Despite the lack of density on our network associated with the decrease in our volumes, our team did a nice job of matching our labor cost with current revenue trends and this will be a key focus for us over the balance of the year. That said, we currently believe we have an appropriately sized workforce to handle a sequential increase in volumes during the second quarter. Old Dominion Freight Line, Inc.'s cash flows from operations totaled $373.6 million for the first quarter; capital expenditures were $62.6 million. We utilized $88.1 million for our share repurchase program during the first quarter and our cash dividends totaled $60.5 million. Our effective tax rate for 2026 was 25% as compared to 24.8% in 2025. We currently expect our effective tax rate to be 25% for 2026. This concludes our prepared remarks this morning. We will now open the call for questions. Operator: We will now begin the question and answer session. First question comes from Jordan Robert Alliger with Goldman Sachs. Please go ahead. Jordan Robert Alliger: Yes. Hi, morning, everyone. Thanks for the update. I guess, in the context of some of those trends you have been seeing, maybe on the trend thought and share some color or thoughts on direction of OR as we move from Q1 to Q2? Thank you. Adam N. Satterfield: Yes. The ten-year average change for the operating ratio is a 300 to 350 basis point improvement from the first to the second quarter, and we are comfortable with that range in the second quarter this year, assuming that we do see some sequential improvement in our volumes from here, and that is what we would anticipate. Obviously, there is a lot going on in the world right now, but based on what we are currently seeing, we are expecting that increase in volumes, and I think we are comfortable with hitting that normal sequential range as a result. If we do so, that would be the fourth straight quarter that we have been able to be in, or at least beat, what our normal sequential change would be. Jordan Robert Alliger: Thanks. And I do not know if I could ask a follow-up, but just related to that, have you seen a shift in sort of that excess terminal capacity? Has it come in a little bit as we have seen volumes look a little better? I think you have looked at like 30% to 35% terminal capacity; I am just curious if that has changed at all. Adam N. Satterfield: We are still a little north of 35%. Our volumes are still down on a year-over-year basis and, obviously, this is the slower time of the year in the first quarter, but that is something that we continue to see as an opportunity and will drive part of that operating ratio improvement as we can continue to see sequential volume improvement and then leverage those fixed costs—those investments that we made and that depreciation headwind that we have been facing. So we will leverage those and some of our other fixed overhead costs, with the benefit of density driving improvement in both our direct operating cost as well as some of those overhead costs. Operator: Thank you. The next question is from Jason H. Seidl with TD Cowen. Please go ahead. Jason H. Seidl: Thanks, operator. Good morning, Marty, Adam, and Jack. Adam, I hope you feel better. I am going to stick on the OR topic a little bit here. As we think about your commentary on the normalized sequential moves from 1Q to 2Q, can you help us frame up the impacts in 1Q for both fuel as well as weather so we could figure out where in the range we might want to be? Adam N. Satterfield: Glad you asked that. I figured fuel would be a topic of conversation. Fuel is part of our yield management strategy. We have always talked about wanting fuel, which is just a variable component of pricing, to really be indifferent—if fuel goes up or if it goes down, essentially, we want the bottom line to be the same, and that is how we look at things on an individual account profitability basis. When you look at what happened from the fourth quarter to the first quarter of this year, we outgrew our normal sequential trend with tonnage by about 200 basis points, and that is really the story of the quarter in the sense of the strong operating ratio performance we had there. Our shipments per day from the fourth quarter to the first quarter were essentially the same. Fuel was up 10%, bill count was consistent, profitability was relatively consistent, a little bit better overall, but obviously there are other things going on. When I compare that back to 2023, compared to the second quarter of 2023, a lot of similar circumstances: bill count was the same between those two periods, fuel was down 10% between those two periods, so you had revenue impact on the downside of fuel, but profitability was consistent between those two periods. Obviously, there are always a lot of fluctuations, but I think those two sequential periods—when you have got similar bill counts, similar mix of freight—show that fuel can go up or down 10% and overall profitability can stay the same. Now, we are looking at a much larger increase in fuel, and I would probably point everybody back to the second quarter of 2022. I think this first quarter to second quarter of 2026 is probably going to have a lot of similarities to that first quarter to second quarter 2022 period when we saw the fuel shock and all the other inflationary impact that drives. Operator: The next question is from Christian F. Wetherbee with Wells Fargo. Please go ahead. Christian F. Wetherbee: I wanted to get your sense on how you feel about demand and then ultimately how you are faring from a market share perspective as you think about coming out of the really strong performance in February and then what you have seen so far in March and April. Has some improvement continued or do you feel like there has been more steady demand? And does what you are seeing inform revenue assumptions for the second quarter? Adam N. Satterfield: Yes, it definitely feels like it has continued to improve. Go back to last year: through March we had five months of normal sequential trends for us. Obviously, like I mentioned earlier, it is the slower part of the year, but we started hearing optimism from customers and from our sales team late last year, and we started seeing that return to seasonality. We have seen a pickup in our weight per shipment; in April, weight per shipment is up on a year-over-year basis a little over 1%. That is usually a leading indicator of an improving demand environment. Add in the positive ISM trends that we have seen, and we would expect another positive ISM for April. The retail side of the sector has probably been driving more of the volume performance at this point, and we are looking for the industrial to start contributing as well—that usually starts performing on a lag basis after you see the positive ISM performance. There is some geopolitical risk, but most people seem to be looking through what is going on, supporting a positive consumer and positive trends we are still hearing from customers that whatever can be settled within the next three or four months, hopefully we can get back to restocking inventories and doing all the things that contribute freight to us. We would like to see that momentum continue through the balance of this year. On revenue for the second quarter, we are a little bit below normal seasonality right now in April, but I still feel good just looking at the trend of how the revenue is performing and our volumes as well. We have had good acceleration through the month, which has been good to see. It is not a surprise to see things pull back a little bit and some customers showing a little bit of caution, but there is a lot of cautious optimism from the feedback we are hearing, and we are starting to win more in bids that we are participating in. There are a lot of positive trends developing. Going back to looking at that 2022 comparison, that was still a growing environment. Who knows what is going to happen with May and June, but if we can continue to see some sequential improvement in our volumes, which I believe we will, then I think we can continue to show strong top-line improvement and then carry that through to an operating ratio that will produce some pretty good-looking numbers from a bottom-line standpoint. Operator: Our next question comes from Scott H. Group with Wolfe Research. Please go ahead. Scott H. Group: Hey, thanks. Good morning. Feel better, Adam. The last couple of quarters you have given us a range of revenue embedded within the OR guidance—can you share something similar? And bigger picture, the truckload market clearly has gotten a lot tighter; we keep hearing it is more supply driven. Are you seeing any of that typical spill from truckload back into LTL? And do you think a supply tightening in truckload means it is any different of a cycle this time as it relates to LTL versus the past? Adam N. Satterfield: That definitely has been happening. You see what is going on in the truckload market with rate and capacity changes driving a lot of that. Late last year, a lot of shippers anticipated this environment would finally turn this year. I can think of a couple of large accounts that said part of their supply chain strategy over the last year or so had been taking advantage of that market by consolidating some loads, and that they were going to revert back to moving more freight by LTL. I can look at a couple of specific customer accounts and see that trend has reversed. Bigger picture, that has been a headwind for us for the last couple of years, and it was something we felt would need to fix itself in the truckload world, taking some of the pressure off load consolidation that shippers have been taking advantage of. I do think that will unwind and will be a big benefit to the industry and something that we will be able to benefit from as we get back to market share opportunities. On the revenue range, I did not go through that this time. There is some volatility based on fuel, and hopefully we will see that continue to decline. Thinking about volumes, as I mentioned, we are trending a little bit below what our normal sequential change would be at this point from a tons standpoint. Unless we have strong performance like we did in February and March, volumes may come in a little lighter than our normal sequential change. Too many factors to give a precise top-line range, but based on right now, April revenue per day is up about 7%. If you hold that bogey across and adjust with our mid-quarter updates and what fuel is doing, that should allow you to flush that through your model. Operator: Our next question comes from Eric Thomas Morgan with Barclays. Please go ahead. Eric Thomas Morgan: Hey, good morning. Thanks for taking my question. I wanted to ask on pricing and yields. I think the 4.4% in the quarter was a bit ahead of your guidance. Could you speak to the drivers there? I think per shipment was pretty consistent throughout the quarter. You said 4% to 4.5% in April, maybe per shipment a little bit more of a mix impact at this point. What is the right run rate here for 2Q and how should we calibrate that? Adam N. Satterfield: I think that 4% to 4.5% for the full quarter is still appropriate, and we will be looking at weight per shipment. If trends can hold, it should be up around 1% or so for the full quarter. We are up a little over 1% at this point in April, and we would love to see that number continue to move higher and be even more of a headwind, if you will, relative to our revenue per hundredweight performance, because it would indicate that the economy is continuing to get stronger and we would continue to be winning business. The first quarter yield came in a little bit stronger overall—just a little bit; we had said up 4%—and I was probably anticipating a little more weight-per-shipment headwind than what we got. It was still nice to see it is the first quarter in some time where we have had a year-over-year increase in weight per shipment. Overall, our results reflect our consistent long-term strategy. We always want to be consistent and fair with our customers and get cost-based increases, and I think we have done that over time, including over the last couple of years when the environment has been slower. We can continue to maintain that measured approach as we go forward. That gives us really strong revenue per shipment, especially as the weight per shipment starts improving, and that is what we ultimately have to get back to: a positive revenue-per-shipment over cost-per-shipment spread. We are not there yet, but we are starting to close the gap and get those numbers moving back in the right direction. Typically, we want to see 100 to 150 basis points of positive revenue-per-shipment over cost-per-shipment spread. Operator: Our next question comes from Ravi Shanker with Morgan Stanley. Please go ahead. Ravi Shanker: Great, thanks. Good morning, everyone. On the 2Q OR walk, I am a little bit surprised that you are not pointing to maybe doing better than normal seasonality, given some of the positive trends like April up 7%. Is that just being conservative? Is that a higher starting point with 1Q? Can you talk about some of the moving parts again that may help you beat normal seasonality? Adam N. Satterfield: It is probably a couple of things. One unknown is we feel like we are going to see some headwinds related to our fringe benefit cost. They came in a little better than what I am forecasting for the entire year in the first quarter, and already looking at the April trend, we expect higher cost there for the full quarter. As fuel changes, it creates headwinds from a variable cost standpoint that may get overlooked. That is why pointing people back to 2022 might be a good measure to look at. Anything petroleum-based—products—we are going to see inflation, but other overhead-type costs you would not think of, like credit card fees and the percent of bad debt write-offs, will create ancillary costs. It is not to say that if business levels continue to pick up we cannot beat the guidance like we just did in the first quarter. As you mentioned, we do have a pretty good starting point with our 1Q performance. That is based on us talking about probably being a little bit lower than our normal sequential trend from a tonnage standpoint as well. If we can execute on those broad numbers we just talked about, we are starting to map out double-digit type earnings growth. All those numbers flowing through the model certainly can get better, but I think this is a good starting point to finally see things back in the green for us. Operator: Our next question comes from Jonathan B. Chappell with Evercore ISI. Please go ahead. Jonathan B. Chappell: Thank you and good morning. Maybe Marty can answer this one, give you a break, Adam. February did a lot better than typical seasonality; March was a smidge better or maybe in line, and now it sounds like April is dipping a bit lower. Do you get a sense that there was any pull-forward into the first quarter, and does that help frame how you are thinking about the second quarter? Also, it feels like June is a really easy comp given the difficult environment last year—could you end the quarter on a higher note based on a comp perspective? Marty Freeman: Jonathan, I will answer your pull-forward question. We are not hearing any major pull-forward comments from our large customers as they visit our corporate office. As Adam said earlier, we see some of this truckload volume that LTL went to last year and the year before coming back because of the tightness of the drivers and so forth. We are not hearing the pull-forward comment at all. Adam N. Satterfield: As we go through the balance of the quarter, there is still a lot of uncertainty with everything going on in the world. I would love to have a clear crystal ball to say that we will have May and June performance similar to what we had in February and March, but it is hard to pinpoint that at this point. We feel like there are a lot of opportunities out there. The good thing about us giving our mid-quarter update is that when we see the actual results for May, we will be able to talk about those trends as they are developing and whether we see a continuation of the positive trends. We have heard more optimism from customers through the balance of the year. Like Marty said, I do not think there was any pull-forward per se that helped boost the numbers. We got through the first quarter; we expected continued strength. It is not totally unexpected, given everything going on, that people pulled back just a little bit. Still, overall good performance in April; we are pleased with what we have been able to do and what our numbers look like, but we certainly hope to see a continuation of the build-up not only through June, but really from now through September. Operator: Our next question comes from Kenneth Scott Hoexter with Bank of America. Please go ahead. Kenneth Scott Hoexter: Hey, great. Good morning, Marty, Jack and Adam. It is spring, so hopefully you get well soon. Those truckload volumes you are talking about—are they good quality freight or better? I am always confused if that is stuff you want. Then, if volumes are trending below seasonality, I want to clarify—is this a share loss indication or are volumes not as good as expected? And then my other one is the average employee down 7%. You mentioned your ability to scale if you do get that inflection. Is that something you are focused on? Adam N. Satterfield: On staffing, we have talked for the last few quarters that where we are positioned now, we are in a really good spot in terms of having people to be able to respond to sequential growth through the balance of this quarter. Not to say there might not be some hiring here and there, but overall, I would expect a pretty similar headcount level as we go through the balance of this quarter. We certainly have the capacity from a people standpoint, plenty of service center capacity, and the fleet to be able to accommodate sequential growth as well. I do not think the April trend is any type of market share loss at all. The numbers are a little bit softer from a volume standpoint than what we had been seeing. Typically, you see a little drop-off in April, and it is what it is, but we think we will exit the month at a pretty good run rate, and we would anticipate sequential improvement from where we are now into June. How strong that will be is to be seen, but there are a lot of opportunities, and we are seeing a lot of wins in bids. There is a lot of behavior consistent with the environment turning overall. Hopefully, in the early stage of recovery, we typically outperform our competitors the most. Looking back over time, in the early stages of recovery—those high growth years—we have been able to outperform our competitors somewhere around 900 to 1 thousand basis points from a volume standpoint. Hopefully this is what is kicking off now, while keeping in check the risks we see in the economy. On the truckload comment, it is not that a full truckload of freight is now coming in and we are moving a 40,000-pound load. With load optimization software, a lot of customers in a weak truckload environment—and many 3PLs—have mode optimization tools, so they can consolidate different loads and move freight at a lower cost. We have not started necessarily seeing that completely unwind yet; I think we are in the early stages as well, just from looking through the underlying data of our 3PL business. That should continue—probably more of a tailwind as demand improves. Marty Freeman: Also, it is good freight because many of these customers that transitioned some of their business over to full truckload—we were still handling LTL shipments for them, and that pricing is still in effect. So when it moves back over to us, it moves at that profitable LTL pricing we have in effect for them. So it is good freight. Kenneth Scott Hoexter: Very helpful. Thanks, Marty. Thanks, Adam. Operator: Our next question comes from Thomas Richard Wadewitz with UBS. Please go ahead. Thomas Richard Wadewitz: Thanks. I know you said it is a little worse than seasonality in April, down 6.5% year over year. What would the ten-year average in normal seasonality be, just so we can assess clearly? And the broader question: we have seen some improvement from other players—TFI talking about service improvement and favorable trend in volumes at a low price point; ArcBest active with dynamic pricing; FedEx Freight eventually makes investments and can be a better competitor. Historically, when others improve service, does it impact you, or is the market big enough that it is more cycle and your own performance than what this or that LTL is doing? Adam N. Satterfield: On the competitive landscape, based on all the data and feedback we get, the service gap between us and our competition is as wide as it has ever been, if not getting wider. I will not comment on anyone specific, but we see optimism, we are starting to win more business in bids, and that gives us optimism for the balance of the year. We are still down year over year from a volume standpoint, but we have had five straight months of sequential performance and may take a break this month for April. We need to get back to neutral year-over-year tonnage and shipments per day and then back to what we do best—growth. It looks like we are going to have revenue growth in the second quarter, which should lend itself to good earnings growth as well. I do not think any specific carrier initiative is having a material impact on us. We are seeing more wins when I look at our individual bid performance. On April seasonality, I did not give a specific number earlier because month-to-date depends on the last couple of days and can be apples to oranges. The normal would be down 1%. Tomorrow should be a really big day for us and will skew the month-to-date number up, but based on the trend, we will be below that 1% number. I am comfortable where we are, and given the run rate today and how these trends generally develop, I feel pretty good about sequential growth as we get into May and June to close out the quarter. Operator: Our next question comes from Brian Ossenbeck with JPMorgan. Please go ahead. Brian Ossenbeck: Hey, good morning. Thanks for taking the questions. A couple of follow-ups, Adam. You gave helpful comments about some of the cost pressures you are seeing—excluding fuel, anything else to call out from a cost-per-shipment perspective you already have line of sight to? Sounds like health care and benefits are moving up through the rest of the year. And on competition, we see a lot of new entrants or conversations about grocery and expedited freight—how long do those bid cycles last and how long does it take to get into those markets? It is easier said than done; would like your perspective on how that really works in practice with higher premium services. Adam N. Satterfield: On costs, I mentioned the fringe headwind we are looking at, and anything fuel-related we are going to see increased cost. On the flip side, we had an increase in our general supplies and expenses in the first quarter; I would expect to see a little improvement there, especially as we get leverage on those costs. Some G&A expenses are variable in nature, so as revenue goes up, you will get a little pressure there; some are more order-specific, so we should see a little benefit relative to normal trend. Depreciation is another item: relative to the ten-year average change in depreciation cost from 1Q to 2Q, with our CapEx plan being lower this year, we should not see the same type of inflation in those costs. We should be able to get a little leverage there to offset some of the other headwinds. With respect to other carriers focusing on different segments, we compete with every carrier today in those same lines of business. There is no secret part of the market we have exclusive access to. There are things we do really well where we add tremendous value to our customers that we do not see from some competitors—that is direct customer feedback. We take none of that for granted and are always enhancing services through technology and other measures to keep the service gap. Over my career, different competitors have targeted one segment they think OD has a lock on versus another; it has not slowed our growth over time, and I do not think it changes our long-term growth trajectory either. As we have said, service is ultimately what we sell in this industry. I think we have a better service product than anyone else, and that is why we believe we will be the biggest market share winner over the next ten years like we have been over the last ten. Operator: The next question comes from Analyst with Deutsche Bank. Please go ahead. Analyst: Thank you. Good morning, everyone. Adam, I know you want to refrain from commenting on competitors, but with FedEx Freight’s spin right around the corner, I wanted to get your impression. Earlier this month, we heard that team talk extensively about their differentiated dual service offering—priority and non-priority—as a key differentiator along with their scale and speed. Do these attributes give them an edge as they emerge as an independent entity with a dedicated sales force? Broadly, your impression on the strategy they laid out and what, if anything, surprised you. Also, does the timing of Easter this year versus last year come into play for how April progressed? Adam N. Satterfield: Easter was at the beginning of the month, and that certainly has an impact like it always does. We do not count half-days, but Good Friday is a little more than half of a normal workday, so that had an impact on the April trend. With respect to FedEx, we have been competing against them for years. Priority and economy are not new service offerings. We expect them to continue to be a good competitor, but it does not really change the competitive landscape. If anything, they have to go through a lot of change as they go through that separation, and we will see how they handle it. I would not expect a lot of change from a customer standpoint comparing those service offerings to ours. Be it through the Mastio measurements that we have won for multiple years in a row now, or being the biggest market share winner over the past ten years, all those measurements tell me we have the best service in the industry. We do not rest on our laurels—we want to continue to get better every day and continue to win that Mastio award year after year. We focus intently on listening to customers and what they need and want. We continue to refine our network, make changes, and we have made plenty of lane changes where we have had to speed up transit times in the past year. We will continue to move as the market moves and make sure we are giving the very best value proposition to our customers. That is what we have proven over time, and it is why we are the biggest market share winner and why we keep investing in our business and preparing for future market share opportunities. Operator: The next question comes from Ariel Luis Rosa with Bank of America. Please go ahead. Ariel Luis Rosa: Good morning, gentlemen. On the nature of this downturn and potential upcycle relative to past cycles: you have said you won the most market share over the past decade and are confident for the next decade. But the last three years have been anomalous with negative year-on-year volume growth each year. How are you thinking about the ability and timeline to recover that lost volume? Is that something to expect in the next upcycle? How much depends on competitive environment versus macro versus idiosyncratic actions you can take to be more aggressive to take back share? Adam N. Satterfield: We are not immune to the economy, and the last three years have been difficult. Every year we have reaffirmed our strategy. Typically, we maintain market share through the downturn and then win significant market share as demand improves. A couple of things drive that: we have been the only carrier consistently investing in new capacity over time, even over these past three years—about $2 billion in CapEx—to grow our business and prepare our network for future growth. We do not build out the network hoping to achieve market share; we do it through conversations with customers and engagement with our sales team, having confidence in where we believe we will see growth over time. We aim to stay ahead of the growth curve. We have seen how quickly things can change; the first quarter is a good indicator—look how quickly volume changed in February and March and what we did from an operating ratio standpoint. We may or may not carry that forward; I was hoping this would be more like a 2017 kind of year, and it still could be. We are not writing off May or June—we are optimistic with a hint of caution given geopolitical risk. If we can carry forward sequential improvement in volumes and get back to positive year-over-year later in the year, we can continue to grow from there. In prior strong years—2014, 2017, 2018, 2021, 2022—we produced double-digit volume growth while competition was in single digits because we run excess capacity and the industry has historically been capacity constrained. Many carriers are talking about excess capacity today, but the numbers do not bear that out. We still see the industry as capacity constrained. That is why we are confident that once demand starts to improve, we will get back to outgrowing our competition like we have in prior cycles. Operator: Our next question comes from Jeffrey Kaufman with Vertical Research. Please go ahead. Jeffrey Kaufman: Thank you very much and thank you for squeezing me in. Could you give a bit more color on weight per shipment? Is improvement coming from regions or industries coming back to life, or is it simply more units per pallet? Adam N. Satterfield: Generally, it is more widgets per pallet. It typically follows when you start seeing industrial performance as well; industrial freight is usually heavier than retail-related freight. Most of our positive performance over the past five months has been on the retail side. We started to see some early indications in March of industrial turning the corner as well. As industrial comes in conjunction with positive ISM trends, we would expect weight per shipment to continue to tick higher. Right now, we are just around 1.5 thousand pounds per shipment—about where we were in March—and normally weight per shipment falls back a little in April versus March; we are trending around 1.49 thousand right now. In really strong markets, we have been more like 1.6 thousand pounds per shipment. That is a number we would love to see move up, because it means more revenue per shipment while cost per shipment does not move in tandem. That helps get us back in balance, moving our cost per shipment back closer to the longer-term average of 3.5% to 4% and then having a positive spread of revenue per shipment over cost per shipment. Operator: The next question is from Stephanie Moore with Jefferies. Please go ahead. Stephanie Moore: Thanks for the question. On capacity—specifically private capacity—any color you can provide on what you are seeing across the broader industry? Many public names talk about excess capacity, but how do you see it, particularly on the private side? Adam N. Satterfield: Once Yellow closed, a lot of those service centers went into the private world, and a lot of the market share Yellow had ended up with private carriers as well. Many people took some elements of share. The factor we look at is shipments per day per service center. Public carriers disclose the number of service centers, so when we look at that data, it tells us some carriers do not have as much capacity as maybe what they talk about, because shipments per day per service center were pretty similar at the end of 2025 to where they were in 2022 when everybody was capacity constrained and could not grow. Looking at total service centers across public and private carriers, shipments per day per service center is down about 3% from 2022 to 2025—pretty close. We think there is probably 5% to 10% excess capacity across the industry as a whole, but much less than some think. At the 100 thousand-foot level, you had a carrier that did over 50 thousand shipments per day and had over 300 service centers—not all of those service centers have remained in our industry. What was a capacity-constrained industry in 2022 will be an even more capacity-constrained industry as we move forward. Operator: The next question comes from Analyst with Stifel. Please go ahead. Analyst: Hey, gentlemen. This is Matt Vialas calling for Bruce this morning. Thanks for squeezing us in. Circling back to pricing—yields and contract renewals seem to remain strong. Is that strength and stability universal across the entire book? We have heard about increased competitiveness around 3PL business. Perhaps you can share what percent of the total book is tied to 3PL. Adam N. Satterfield: About a third of our business overall is related to the 3PLs. We are pretty consistent with what we target for increases every year, be it with our general rate increase that applies to our tariff-based business—that is about 25% of our revenue overall—as well as what we try to achieve as we go through contract renewals. Every account is different, and we look at each account on its own merits and profitability. We have been consistent with getting increases. We take a different approach than some competitors; we try to be consistent, which helps customers know what to plan and budget for. It forms a partnership and relationship versus just looking at market-driven moves. It has worked well for us over time, and that will continue to be the focus: achieve reasonable increases that are fair and equitable, offset cost inflation, and support our ability to keep investing in our service center network, in new technologies that our customers in many cases are demanding, and in our people to drive the business forward. Operator: The next question comes from Analyst with Stephens. Please go ahead. Analyst: Hey, thanks for taking the question. Everyone is focused on service as a means to drive yields higher. With your position as a service leader, what is your focus when you think about continuing to improve your mix of business? Are there any end markets or services you are leaning into currently where you might have a better value add relative to competitors? Marty Freeman: Service is not just delivering on time and claims-free. It is also how you handle issues, which relates to superior customer service—being able to talk to a human on the phone. We are in a world of bots now, but customers put a lot of stock in being able to pick up the phone and call one of our service centers or corporate office, trace a shipment, and talk to a human. Also, billing accuracy plays a big part in service. Sending a correct invoice the first time is very important to our customers. It creates less work for them and allows us to get paid faster. There are a lot of components when we talk about customer service, and we feel like we lead the industry in all of those factors. Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks. Marty Freeman: Thank you all for your participation today. We really appreciate your questions. Please feel free to give us a call if you have anything further, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the American Assets Trust, Inc. First Quarter 2026 Earnings Call. All participants will be in a 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. To withdraw your questions, please press star then 2. Please note this event is being recorded. I would now like to turn the call over to Meliana Leverton, Associate General Counsel of American Assets Trust, Inc. Please go ahead. Meliana Leverton: Thank you, and good morning. The statements made on this earnings call include forward-looking statements based on current expectations, which statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, as actual events could cause the company's results to differ materially from these forward-looking statements. Yesterday afternoon, American Assets Trust, Inc.’s earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of its website, americanassetstrust.com. It is now my pleasure to turn the call over to Adam Wyll, President and CEO of American Assets Trust, Inc. Adam Wyll: Good morning, everyone, and thank you for joining us today. At American Assets Trust, Inc., we continue to approach this market with the same mindset that has guided us across cycles: patient, disciplined, and with a long-term focus. That mindset, combined with the quality of our assets and our platform, guides how we allocate capital, manage risk, and run our business. We started 2026 in line with our expectations, generating $0.51 of FFO per diluted share and continuing to make progress against the priorities we laid out last quarter. Across the portfolio, we saw encouraging activity, most notably in office leasing, while our retail assets remained highly leased and consistent. Our multifamily teams operated well in a competitive supply environment, and Waikiki Beach Walk delivered steady results against a still mixed tourism backdrop. Before turning to the portfolio, I want to highlight a significant balance sheet accomplishment. On April 1, we successfully completed the recast and upsize of our unsecured credit facility. We increased our revolving line of credit from $400 million to $500 million and extended the maturity of the revolver and our $100 million term loan to April 1, 2030. Altogether, this facility provides us with $600 million of total unsecured borrowing capacity. This outcome reflects the quality of our portfolio, the strength of our banking relationships, and the confidence our lender group has in our credit. Importantly, it gives us enhanced financial flexibility and runway as we execute our leasing and operating objectives, now with no debt maturities until 2027. That added capacity is particularly valuable in the current market. While the macro backdrop remains uneven, our tenants are generally well capitalized, and the markets where we operate continue to benefit from diversified economies, strong demographics, and meaningful barriers to new supply. Those structural advantages matter, particularly during periods when the broader landscape is less predictable. One topic that has generated considerable discussion in our office segment is artificial intelligence. AI is driving investment, business formation, and growth across technology, infrastructure, and innovation-oriented companies, along with the professional and advisory ecosystem that supports them. While its impact on office demand will vary by industry, we believe the net effect in our markets has been constructive. At the same time, the bar for office space keeps rising. When companies make office commitments today, they are focused on location, amenities, flexibility, ownership quality, and the ability to attract talent—attributes that define our coastal office portfolio. On our own platform, we are investing in technology to improve how we operate, from work order management and preventative maintenance analytics to tenant communication tools, while also building the data foundation for future AI capabilities. We are early in this effort, but we believe they can become a differentiator as we improve the tenant experience and our operating margins. In office, the momentum we flagged last quarter carried forward. Demand concentrates at the top of the market and in well-located, well-amenitized buildings with strong ownership. That is where we compete. Our office portfolio ended the quarter 84.5% leased, and our same-store office portfolio ended the quarter 86% leased. Same-store office cash NOI came in essentially flat year-over-year, modestly ahead of our internal expectations, reflecting the known move-outs we previously discussed. During the quarter, we executed approximately 237,000 square feet of office leases, with comparable cash leasing spreads of 4.8% and straight-line leasing spreads of 10.6%, which are now separately disclosed in our supplemental. Meanwhile, of our 14 non-comparable leases in Q1, 12 were new tenants, nine of which were in our spec suite program, underscoring the role that program is playing in converting demand into executed leases. We entered the second quarter on solid footing, including approximately 144,000 square feet of previously signed leases not yet commenced, another 122,000 square feet in lease documentation, and a proposal pipeline of over 200,000 square feet. At La Jolla Commons Tower 3, the building is currently 49% leased, with proposals out on another 30% of the building. The UTC submarket has limited large block availabilities outside of Tower 3, and with no meaningful new supply on the horizon, we believe we are in a strong position to capture large tenant requirements in the submarket, including several active requirements we are tracking today. At 1 Beach Street, the building is currently 36% leased. While one larger opportunity we referenced last quarter did not move forward, our leasing focus has shifted toward building a broader pipeline of smaller and mid-sized tenants. We already have permits in hand and work underway to advance our spec suite build-out, positioning us to capture tenants seeking high-quality, move-in ready space. Prospect activity has improved, and the execution across the portfolio has been strong. We remain confident that the trajectory of our office portfolio, including our progress towards stabilizing Tower 3 and 1 Beach, will translate into increased cash flow as these leases convert to revenue. Last quarter, we mentioned our goal of ending the year between 85%–90% leased across our office portfolio. Since then, we learned that Genentech at Lloyd District, approximately 67,000 square feet, reversed course on a short-term renewal and will be vacating in Q4. The space itself is turnkey and modern, and we believe it will show well in the market. However, the vacancy was not in our assumptions last quarter, and as a result, we are now targeting the lower end of that range. We have some work to do, but reaching that level would still represent a meaningful step forward. Retail remains a source of consistent, reliable performance. Our retail portfolio ended the quarter 98% leased, and we executed approximately 39,000 square feet of leasing during the period, with average base rents reaching a new portfolio record of $30 per square foot. Same-store cash NOI was modestly below the prior-year period, primarily due to the temporary impact of vacancies from two former Party City spaces and a former Discount Tire space. The Discount Tire space and one of the two Party City spaces are already re-leased, with cash rents expected to commence later this year. Tenant health across the retail portfolio is strong. Leasing demand is solid, and our centers benefit from affluent, supply-constrained trade areas with limited new competition. Less than 3% of our retail square footage expires this year, and we are actively engaged on upcoming rollover. While we are closely monitoring the consumer in an uncertain economic climate, we believe the demographics surrounding our retail assets support a resilient spending base and a steady cash flow profile. In multifamily, same-store cash NOI increased 3% year-over-year, a solid result given the competitive supply landscape in San Diego and Portland. Excluding the RV park, our multifamily portfolio ended the quarter 96% leased. In San Diego, our apartment communities ended the quarter 98% leased, and excluding our newest acquisition, Genesee Park, net effective rents in San Diego were up just over 1% compared to the prior-year period. In Portland, Hassalo on Eighth ended the quarter at 93% leased, up an additional 4% from a year ago. Net effective rents were essentially flat, which we view as a reasonable outcome in the current Portland market. The recovery remains gradual, and our focus right now is on protecting occupancy while positioning for better growth as supply moderates. As we have noted, 2026 is more of a stabilization year for multifamily than a recovery year. We are focused on optimizing pricing, maintaining occupancy, and tightly managing controllable expenses. At Waikiki Beach Walk, our retail component continued to perform well year-over-year, partially offsetting softness on the hotel side, with overall mixed-use cash NOI down modestly versus the prior-year period. We believe in the long-term value of this irreplaceable fee simple asset and are focused on driving performance across both the hotel and retail components. Finally, I am pleased to share that our Board has approved a quarterly dividend of $0.34 per share, payable on June 18 to shareholders of record as of June 4. While our payout ratio remained elevated in the quarter, much of that reflects leasing-related capital tied to signed leases and our spec suite program, both of which are intended to drive occupancy and future NOI growth. We continue to have conviction in the long-term cash flow profile of the portfolio and are comfortable maintaining the current dividend at this point in time. Robert F. Barton will provide more detail on the payout ratio and its expected moderation in just a moment. In closing, we are pleased with how we have begun 2026. We are converting leasing activity into future revenue, strengthening our balance sheet, and executing against the plan we laid out entering 2026. Our priorities for the year are unchanged: advance office leasing, protect the steady cash flow from our retail and multifamily platforms, and remain disciplined in how we allocate capital. At our core, we own irreplaceable coastal real estate, we operate through a vertically integrated platform, and we manage this business with a long-term perspective. We are in a good position, and our focus is on converting that position into earnings growth. With that, I will turn the call over to Robert F. Barton, who will walk through the financials in more detail. Robert F. Barton: Thanks, Adam, and good morning, everyone. Last night, we reported first quarter 2026 FFO per share of $0.51 and net income attributable to common stockholders of $0.08 per share. FFO increased $0.04 per share compared to 2025, driven primarily by lower G&A expense, incremental rental at Plymouth, Pacific Ridge Apartments, and 14 Acres, as well as lower operating expenses at La Jolla Commons. As we expected, same-store cash NOI across all sectors was flat year-over-year in Q1. Breaking that down by segment as compared to Q1 2025, office same-store NOI was essentially flat, primarily due to the expiration of CLEAResult at First & Main in April 2025. The space has been partially backfilled. Retail NOI declined 0.7%, driven by the known vacancies Adam mentioned at Gateway Marketplace and Solana Beach Town Center, both of which have now been addressed through executed leasing. Multifamily NOI increased 3%, driven by higher rental income and improved occupancy, particularly at Pacific Ridge and Hassalo on Eighth. Mixed-use NOI declined 2.7%, as a year-over-year increase of 2% in the retail component was offset by lower ADR and higher operating expenses at Embassy Suites Waikiki, where in Q1 occupancy improved to 92% from 85%. RevPAR increased 2% to $305, ADR softened by 6% to $332, and NOI was approximately $2.4 million versus $2.6 million last year. Turning to liquidity and leverage. We ended the quarter with approximately $518 million of liquidity, including $118 million of cash and $400 million available on our revolving credit facility. As Adam mentioned, we closed the recast and upsized the credit facility on April 1, extending both the $500 million revolver and $100 million term loan to April 2030. Net debt to EBITDA was 6.9x on a trailing twelve-month basis. Our long-term target remains 5.5x or below. Interest and fixed charge coverage were both 3.0x. Turning to the dividend. Our first quarter dividend payout ratio was approximately 111%, driven primarily by the timing of leasing-related capital expenditures including tenant improvements, leasing commissions, and our spec suite program along with normal recurring capital needs. Importantly, a meaningful portion of this capital is tied to leases that have already been signed or spaces that we are proactively preparing to meet current tenant demand. As those leases commence and convert to cash rent, we expect the payout ratio to moderate. For the remaining three quarters of the year, we currently expect the payout ratio to trend in the low to mid-90% range, with the full-year payout ratio likely landing in the upper-90% range. Since our IPO in 2011, our payout ratio has generally been approximately 65% to 85%. We continue to view that as an appropriate long-term range for the business. In the interim, given our liquidity position, our visibility into signed lease commencements, and our confidence in the long-term cash flow profile of the portfolio, management and the Board are comfortable maintaining the current dividend. As always, we will continue to evaluate the dividend each quarter in the context of operating performance, leasing progress, capital requirements, and broader market conditions. Turning to 2026 guidance. We are reaffirming our full-year FFO guidance range of $1.96 to $2.10 per share with a midpoint of $2.03. This reflects continued stability across our diversified portfolio, supported by leasing activity, contractual rent growth, and disciplined cost management. Based on our current outlook, we believe we are well positioned to achieve our full-year objectives, with potential to trend toward the upper end of the range if several factors align: number one, retail tenants currently reserved for bad debt continue to pay their rent; number two, office lease commencements occur ahead of expectations; number three, multifamily outperforms expectations on occupancy and/or rent growth; and number four, tourism demand improves, supporting performance at Embassy Suites Waikiki. As a reminder, our guidance excludes the impact of future acquisitions, dispositions, capital markets activity, or debt refinancings not yet announced. We remain committed to transparency and will continue to provide clear insight into both the results and assumptions. Additionally, all non-GAAP metrics discussed today are reconciled in our earnings materials. I will now turn the call back over to the operator for Q&A. Operator: Thank you. We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star then 2. The first question comes from Todd Thomas from KeyBanc. Please go ahead. Analyst: Hi, good morning. This is Sean Glass on for Todd. You previously discussed some known move-outs in the office portfolio. I think there was an expectation that there could be 300 to 400 basis points of occupancy from expected vacates. Have any tenant decisions shifted or changed since year-end, and can you remind us what is embedded in guidance for the office portfolio’s year-end lease rate? Robert F. Barton: Well, as Adam said, the one new one is Genentech, which will occur in Q4 of this year. On the positive side, we have three known move-outs that are in lease documentation at City Center Bellevue specifically. So that is 28,000 feet of move-outs that are already in lease documentation. So that is the latest. Analyst: And one thing of note that I am tracking is 173,000 feet right now. Adam Wyll: Seventeen deals. Eight of those, or about 60,000 feet, are relocations due to expansion. So we are expanding tenants, they are giving space back. Those are good-news givebacks of tenants that have already expanded. Once the TIs are done, we are getting their spaces back. So it is not all bad news. And, Sean, we mentioned in the script that we are targeting mid-80% full portfolio occupancy or lease percentage by the end of the year, which is achievable if momentum continues as it is right now. But we are going to give you a range—we have a little bit of flexibility to figure out how it shakes out. Analyst: Thank you. That is great color. Wanted to ask about La Jolla specifically. Some very good traction there on leasing. Can you talk about the pipeline a little? Were there any additional leases around for signature or anything in documentation? Maybe some color on where you might expect La Jolla to be at year-end? Thank you. Adam Wyll: So it is the premier offering in not only UTC, but Del Mar as well in terms of available spaces, and I am speaking of Tower 3 specifically. We are in proposals with two full-floor users and two multi-floor users, and we do not have that many floors to lease, so it is a good situation. We are in space planning with every one of them. The competition is very narrow, so we expect to make one or more of those, and that would account for the remainder of the full floors. On the spec suite program, we only have one suite left on the 4th floor. We have already pre-leased a 5th floor spec suite, and those are not going to be completed until September. So the traction is good. And the traction is with well-capitalized professional service firms—tenants that you want in this sort of building. So we are pleased with that. Analyst: If I could slip one more in. On 1 Beach, there is some good traction there too. Could you talk a little about the AI demand or otherwise, and where you think that might be at year-end? And maybe you could touch on the one large opportunity I had in pencil, if that changes the equation at all. Adam Wyll: For that large deal, we gave ourselves a 30-day window in which to vet it. There were some complexities to it due to the use, dealing with exiting, dealing with the traffic and such, and it ended up not panning out. We spent 45 days on it. But we pivoted very quickly back to the spec suite program, which is underway, and Jerry and his team will complete that construction around September. We pre-leased that 3rd floor before we had started construction on that floor, so we expect to have similar results. I cannot give you the exact timing, but we are optimistic. Analyst: Thank you. Operator: The next question comes from Haendel St. Juste from Mizuho. Please go ahead. Ravi Vijay Vaidya: Good morning, guys. This is Ravi Vaidya on the line for Haendel. Hope you all are doing well. I wanted to ask a bit about the signed and not occupied pipeline in both office and retail. Can you give some numbers as to how and when you think leases will begin cash flowing for those two verticals, and maybe some detail about the timing over the next couple of years for both office and retail? Thank you. Adam Wyll: Hey, Ravi. It is Adam. As I mentioned in my script, we have about a quarter million square feet on the office portfolio signed, not commenced, and I think about $0.07 is reflected in 2026 guidance. But about 100,000 square feet in that signed-but-not-commenced bucket will not hit meaningfully until next year. So looking at about $0.07 per share or so—call it $5-plus million—that will hit this year. I do not have the retail numbers in front of me. Robert F. Barton: I do not think there is much on that front, though. Ravi Vijay Vaidya: Got it. That is super helpful. I wanted to ask about the hotel in Hawaii. I noticed the occupancy came up quite a bit as you discussed in your script, but mostly offset by rate. What can we see regarding demand for tourism, foot traffic, and how that asset is positioned from both seeing demand from Japanese and American tourists right now? Robert F. Barton: Yeah, Ravi, this is Bob here. It is still slow right now, but what is interesting in terms of the rates—we still outperform our competitive set, which consists of just under 10 hotels, including beachfront properties. For example, our occupancy was 91%, but our comp set was 79%. Our ADR was $300-plus, and theirs was under $300. RevPAR—we are $300-plus, and our comp set is significantly under $300. So everybody is feeling the impact, though from the statistics that I am seeing, we are the number one hotel in Waikiki. Two things happened during March. One is that there were two huge Kona rainstorms, one on March 10 and another on March 24—significant flooding, dumping over [inaudible] gallons of rain—overall, so everybody in town felt that impact. Secondly, the Japanese yen—while the more wealthy clientele from Japan continue to come—has weakened; they have to work through that issue. So there are a lot of little things that are impacting that. Also, you have operating expenses going up. But all in all, it is the number one performing Embassy Suites in the world. It continues to be. Adam Wyll: Hey, Ravi, just to layer on that. As you know, Waikiki is very sensitive to tourism, especially international demand, and as Robert F. Barton was mentioning, the Japanese are not there as much as they used to be. It used to be closer to 40% of tourism in Waikiki; now it is about 20%. So it is slow incremental progress. Recovery has been slower than anticipated, and affordability pressures are really weighing on the results. Still, it remains a high-barrier-to-entry, globally relevant market, and we view the asset as well positioned for the long term. Ravi Vijay Vaidya: Thank you. Appreciate the color, guys. Operator: This concludes our question and answer session. I would like to turn the conference back over to Adam Wyll for closing remarks. Adam Wyll: Yes. Thanks, everybody, for calling and joining us today or listening on recording later. We appreciate your interest, and we will be as transparent as possible going forward. Take care. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.