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Operator: At this time, I'd like to welcome everyone to the Coca-Cola Company's First Quarter 2026 Earnings Results Conference Call. Today's call is being recorded. [Operator Instructions] I would like to remind everyone that the purpose of this conference is to talk with investors, and therefore, questions from the media will not be addressed. Media participants should contact Coca-Cola's Media Relations department if they have any questions. I would now like to introduce Todd Beige, Vice President and Head of Investor Relations. Mr. Beiger, you may now begin. Todd Beiger: Good morning, and thank you for joining us. I'm here with Henrique Braun, our Chief Executive Officer; and John Murphy, our President and Chief Financial Officer. We've posted schedules under financial information, in the Investors section of our company website. These reconcile certain non-GAAP financial measures that may be referred to this morning to the results as reported under generally accepted accounting principles. You can also find schedules in the same section of our website to provide an analysis ofour gross and operating margins. This call may contain forward-looking statements, including statements concerning long-term earnings objectives, which should be considered in conjunction with cautionary statements contained in our earnings release and the company's periodic SEC reports. Following prepared remarks, we will take your questions. Please limit yourself to 1 question, reenter the queue to ask follow-ups. Now I will turn the call over to Henrique. Henrique Braun: Thanks, Todd, and good morning, everyone. We are off to a good start this year. We delivered strong first quarter results despite a complex external environment. I'd like to thank our system associates for their continued commitment. We are focusing on becoming more consumer-centric, remaining constructively discontent, and leveraging our digital capabilities to create enduring value. I'm confident we are well positioned to deliver on our updated 2026 guidance. This morning, I will provide the perspective on the global operating landscape before diving into our business performance. Then I will share how we are getting closer to consumers by operating with both granularity and scale. Finally, John will discuss our financial results and 2026 guidance. During the quarter, the external environment differed greatly across our market. While many consumers remain resilient, others are under pressure due to persistent inflation, greater macroeconomic uncertainty and volatility driven by the conflict in the Middle East. Against this backdrop, we are operating in an expanding industry. We harness the power of our brands and our unmatched system reached to deliver 3% volume growth, and we grew volume across all segments. We also extended our streak of gaining overall value share for the past 20 consecutive quarters. Excluding the impact from 6 extra days in the quarter and the timing of concentrate shipments, organic revenue growth is on track with our full year guidance. We also expanded comparable operating margin, which contributed to double-digit comparable earnings per share growth. We are always pushing ourselves to do even better and focusing on getting more for more markets and more from our brands to drive balanced growth. Starting with North America. While we benefited from cycling an easier comparison versus the prior year we delivered solid performance. We gained both volume and value share and grew volume, revenue and profit. The softness in price/mix can be attributed to Easter timing, coupled with unfavorable category mix from packaged water and constrained production capacity for Topo Chico and Felli. We had broad-based strength across our total beverage portfolio. a straight mark Coca-Cola, Fanta, Prescot Body Arbor Powerade the sunny smartwater and Minuteman each grew volume. Trademark Coca-Cola also led the industry in retail sales growth. Innovation contributed strongly to revenue growth. For example, we are tapping into the consumer insight favoring all things Cherry, with Coca-Cola Cherry flow, Diet Coke Cherry and Mr. Peak, also powered power water and the expansion of Minicans into the convenience retail channel, both had strong performance. In Latin America, we gained value share and grew volume, revenue and profit by focusing on fewer but more impactful initiatives. -- volume growth in Brazil and Central America more than offset declines in Mexico and Argentina. Across the region, to drive resilience, we are balancing relevance with scale and more closely integrating our marketing and commercial plan. For example, we activated Coca-Cola with the CFO World Cup trophy. -- and offered fans interactive experiences, music, games and product sampling. Consumers assess ticket giveaways by scanning our connected packaging which allows us to gather insights to customize future offerings and content. In EMEA, we gained value share and grew volume across all operating units. We also grew both revenue and profit. In Europe, despite a cautious consumer environment, we gained better share. We are better linking our brands to key drink and occasions including the Coke and mills campaign and passion points like the FIFA World Cup profit and the English Previ League. Also, we are more granularly focusing on value offerings at attractive absolute price point. In Eurasia and the Middle East, we gained better share. While we grew volume for the quarter, our volume declined in March after the onset of the conflict. Our top priority is supporting the safety and well-being of our system associates and partnering closely with customers across the region. Lastly, in Africa, we are highlighting the localness of our system and sharpening our revenue management capabilities. For example, in Egypt and Nigeria, our Ramadan campaign linked our brands to the mills occasion and emphasized reputable package. In Asia Pacific, we grew volume across all operating units despite cycling a strong comparison versus the prior year. We also grew revenue, but profit declined driven by commodities, headwinds in tea and coffee and phasing of inventory costs. In ASEAN and South Pacific, despite a continued challenging external environment, we leaned into impactful marketing campaigns like the FIFA World Cup of tour and innovations like the Fanta Pineapple. We also focused on refillable packaging and driving availability. In China, we activated our broad portfolio and stepped up execution in targeted channels during the Chinese New Year. In India, we drove affordability and linked to our brands to consumer passion points, for instance, by connecting terms up with the T20 Cricket World Cup. We also expanded strike into more rural regions with content tailored to local languages. Lastly, in Japan, we gained value share by doubling down on consumer needs. We grew volume across our key brands with Georgia Coffee, we refined our package options to address different drinking occasions. In summary, we're adapting our execution as needed and focusing on improving performance across all dimensions of our strategic growth flywheel to recruit consumers and drive balanced long-term growth. At CAGNY, I discussed how we are becoming even more consumer and customer-centric by applying the for eyes, inside, innovation, intimacy and integrated execution. Levering data and our digital capabilities are unlocked to be much more precise in how we serve consumers and customers. Here are a few examples of the 4 eyes in action this quarter. In Europe, in select markets, approximately 60% of adult drinkers monitor Cathrin intake in the evening. To capture incremental drinker occasions, we relaunched Coca-Cola Zero-Zero, which offers 0 sugar, 0 cafe and 0 calories with a new visual identity, expanding availability and activations tied to the evening meals occasion. Coca-Cola Zero-Zero had a strong trial, positive repeat rates and contributed to the trademark of a Coca-Cola growing volume in Europe. For Sprite, we recently launched our global campaign. It's dead fresh, which includes partnerships across music, basketball, price food and fashion. We're also scaling and launching products tailored to local need. In China, we launched Sprite prebiotic and lifted and shifted Sprite from North America. In the resin the Middle East, to refresh consumers during Ramadan, we are linking Sprite Lemon Mint to local festivities and key drinking occasion. Globally, Sprite had strong volume growth. Finally, Fuze Tea, which is available in more than 80 markets, appeals to consumers who are looking for greater balance. While we execute Fuze Tea made of Fusion campaign globally to scale the brand, we deliver intimacy with a highly localized product portfolio tailored to taste profiles, key types and 0 sugar options. In Turkey, for example, we accelerated growth by emphasizing peach lemon, watermelon and dragon fruit flavors, along with strong activation during Ramadan. Globally, Fuze Tea grew volume double digit. It goes without saying that marketing and innovation do not come to life without commercial excellence. And our system is working towards mastering the fundamentals of integrated execution to drive customer value creation. In the past year, our system added more than 600,000 outlets, which increased outlet coverage. To drive basket incidents, we increased our share of visible inventory and grew off-the-shelf points of interruption by double digits to capture impose purchase. To drive transactions our system also placed over 340,000 units of cold drink equipment. For the past 8 years, we have been the leaders in customer value creation for our industry. Overall, greater focus across each element of the fees resulted in both volume and value share gains, volume growth and more weekly plus drinkers during the quarter. In summary, it's early in the year, and we know the external environment remains complex and it's quickly evolved. However, we continue to benefit from 3 unwavering delay. One, -- we are in great resilient industry. Two, we have a powerful portfolio as demonstrated by our $32 billion brand; three, our pervasive yet local system is a clear advantage. Moving forward, we will continue to invest in these beliefs and leverage our all-weather strategy to achieve our objectives. With that, I will turn the call over to John. John Murphy: Thank you, Henrique, and good morning, everyone. During the quarter, we navigated market dynamics locally to deliver on our global objectives. We grew organic revenues 10%. Unit case growth was 3%. Concentrate sales were 5 points ahead of unit case sales as the impact of 6 additional days in the quarter, was partially offset by the timing of concentrate shipments. Our price/mix growth of 2% was primarily driven by approximately 4 points of pricing actions partially offset by 2 points of unfavorable mix, which was primarily driven by 3 items: one, Easter timing and category mix in North America; two, stronger growth of value offerings from revenue growth management initiatives across Asia Pacific; and three, geographic mix in Latin America. Comparable gross margin declined approximately 30 basis points, stemming primarily from commodity pressures in our tea and coffee businesses, phasing of inventory costs and timing of trade spend. However, comparable operating margin increased approximately 70 basis points, as we've realized operating expense efficiencies while investing further behind our brands. Below the line, we benefited from a combination of higher equity income, lower net interest expense and realized security gains in our captive insurance companies, which benefited comparable other income. Putting it all together, first quarter comparable EPS of $0.86 increased 18% year-over-year, helped by 3% currency tailwinds. Free cash flow was approximately $1.8 billion, an increase versus prior year. Our balance sheet remains strong with our net debt leverage of 1.6x EBITDA, which is below our targeted range of 2 to 2.5x. We're continuing to judiciously manage our balance sheet as we await a court decision related to our ongoing dispute with the IRS. We're confident in our long-term free cash flow generation and are prioritizing a capital allocation agenda that creates optionality to both reinvest in our business and return capital to shareowners. Enabled by our all-weather strategy, we're on track to deliver on our updated 2026 guidance. We continue to expect organic revenue growth of 4% to 5%. We now expect growth in comparable currency-neutral earnings per share, excluding acquisitions and divestitures of 6% to 7%. Notwithstanding volatility in certain commodities like tea and coffee, we believe the overall impact on our cost basket is manageable at this time. However, uncertainty stemming from geopolitical tensions may cause this outlook to change. Divestitures are expected to continue to be an approximate 4-point headwind to comparable net revenues and an approximate 1 point headwind to comparable earnings per share. This assumes the pending sale of Coca-Cola Beverages Africa, which is subject to regulatory approvals, closes during the second half of 2026. Based on current rates and our hedge positions, we now anticipate an approximate 1- to 2-point currency tailwind to comparable net revenues, up from an approximate 1 point currency tailwind in our previous estimate. We continue to expect an approximate 3-point currency tailwind to comparable earnings per share for full year 2026. Based on the latest analysis of our global operations, our underlying effective tax rate for 2026 is now expected to be 19.9%, which is a 1 point reduction versus our previous estimate. All in, we now expect comparable earnings per share growth of 8% to 9% versus $3 in 2025, which is an increase from our prior estimate of 7% to 8% due to the lower effective tax rate. Finally, there are some considerations to keep in mind for 2026. As a reminder, due to a calendar shift, the fourth quarter will have 6 fewer days compared to the fourth quarter of 2025. We estimate the shift of Easter into the first quarter with a 0.5 point benefit to first quarter volume. We also expect concentrate shipments to like unit cases by a couple of points during the second quarter. Lastly, assuming the pending sale of Coca-Cola Beverages Africa closes during the second half of 2026, we see opportunity for more margin expansion in the latter half of this year. To sum it up, we remain focused on improving execution of our strategy and are well positioned despite macro complexity and uncertainty. We look to drive balanced top line growth, margin expansion, cash generation and returns over the long term and we'll do so with continued strong partnership with our bottlers across the world. And with that, operator, we are ready to take questions. Operator: [Operator Instructions] Our first question comes from Dara Mohsenian from Morgan Family. Dara Mohsenian: Just given the strength we saw in Q1 unit cases at the corporate level, but also price mix that was more subdued than recent trends for the second straight quarter. I just was hoping to get your view on the balance between volume versus price/mix in the remainder of the year, particularly in North America and Asia, where we saw some large variances in the quarter. And on the volume front, just wondering is consistent unit case growth reasonable in the balance of the year with Easter help in Q1, some potential Ron impact? And just on pricing, how much of the lower growth in the last couple of quarters is due to that affordability focus that you mentioned, John, which should see more ongoing versus just some quarterly mix variances that are less ongoing? Henrique Braun: Thank you, Dara. It's great hearing for you. Look, first of all, we are really pleased with the results of the quarter. We believe it's a statement to everything that we continue to say that would be a year where we would have a top line balanced algorithm, not only the quarter but for the full year, -- more importantly, growing volume across all operating units, gaining share and also topping the EPS growth as well, gives us the confidence that we are on the right track. What we will continue to see is an algo that will be balanced as we have said in the past that we -- it's not a coincidence that we actually got this in the quarter. We planned ahead of the curve. We invested accordingly. We started the year with a fast start as well. And what we're going to see probably in the next 2 quarters, it varies around that balanced algorithm. But at the end of the year, what you see is this balanced growth about volume and price mix playing a balance of whether it's going to be 3 to 2 like we have here in the quarter or it's going to be 2 to 3 a variable during the different quarters, we're going to see it. But we're managing all the levers to continue to deliver that. Pricing is embedded into this equation as well. We are going where the consumer is, right? The affordability to continue to be part of the revenue growth management architecture that we have not only in the U.S. but in different parts of the world as well. The consumers that have pressure today at the low-income consumers, and we really dial up our affordability options to get closer to them. In North America, for instance, we went into bringing options not only on the single serve, but on the mood serve enter packs and helped us to continue to keep them in the franchise. So in a nutshell, what we are. We believe we had a great start of the year. We will continue to be balanced. We'll have confidence that we're going to deliver on the updated guidance to the year, and we'll continue to play on our RGM capabilities. Operator: Our next question comes from Steve Powers from Deutsche Bank. Stephen Robert Powers: Great. I wanted to give a little bit to cost, if I could. John, you mentioned that you were fairly well positioned despite the broader inflationary backdrop as you think about the year. But you also acknowledge that could change. And I guess, as I think about the system broadly, I'd expect some of the pressures that we're all thinking about to be building a bit more acutely on your borrowing partners already. So perhaps can you talk about how you're working with those bottling partners to address the burgeoning headwinds together and how the system overall is positioning to navigate what is likely going to be a net higher cost environment as you look through this year and potentially into next? John Murphy: Yes, Steve, thanks. A very important topic for all of us here and with our partners. Yes, the environment you say is fluid. It's difficult at this stage to say exactly how it's going to play out. As highlighted in our script, it's -- right now, we estimate is manageable at the company level, given we have less exposure. Our bottling partners have more exposure, predicted to aluminum and PET on the back of both the oil price impact and just the overall supply disruptions that are likely to affect us as we go through the year. with the system, we have a playbook that we've had to use now for quite a few years on a range of disruptions. And it's a playbook that is working well for us. We have our RGM capabilities as Henrique just pointed out, we have our cross-enterprise procurement group that works with the vast majority of our system partners on both resiliency and productivity initiatives. We have a number of playbooks I would describe them at the cost management level. And yes, each market is different. And so the way that we use these various levers will vary by market, and we have confidence that the decision-making at the local level will allow us to navigate as well as we can through this. As we said, the next few months are fluid, and it's important to keep agility at the center of this equation. And I guess just from the way that we've operated over the last 3, 4, 5 years on this front, gives us that confidence and it's important, I think, to be able to lead forward on the range of these topics as we look to Q2 and the rest of the year. Operator: Our next question comes from Lauren Lieberman from Barclays. Lauren Lieberman: I just have a question about trademark Coke. So Henrique, you mentioned the relaunch of Zero-Zero in Europe. And I know that historically, I guess the system kind of struggled with how to balance time and attention and resource attributed to Diet Coke and Coke Zero concurrently had a manager of -- and a decision to have more of a portfolio in no sugar options is a newer drive. So how should we think about Zero-Zero flowing into that? And maybe what are you doing from the center from the KO level to make sure that the system kind of has the right balance to have a portfolio as you make these moves. And with Zero-Zero just being the latest example? Henrique Braun: Thank you, Lauren, and also great talking to you. Look, we -- first of all, we are very pleased also with the performance of Corporate mark overall in the quarter. We had volume growth that gives us the confidence that not only at the core of it, but all the options and variables that we bring in terms of innovation in different package sizes, playing a big role to that. To your question regarding how we actually bringing this to life in the marketplace in an effective way. We have to go back and start the conversation from years ago when we started to step up our RGM capabilities across the world working in tandem with our bottlers. And we have been doing better every day. You remember that the CAGNY was mentioning that 1 thing that plays in our advantage is the scale. But if we can actually gain a little bit every day, scale matters and it helps us to get there. that mindset, along with the capabilities that we built over time to execute the marketplace, a broader portfolio helped us a lot. But there is one element that's key to the story. It's the connectivity to the consumer centricity approach that we have and everything that we put in the market now. The reason by Zero-Zero is working right now in Europe because it started with the 4 eyes that was mentioning before, with a big insight that at a certain time of the day the consumers want to load down -- reduce the cafe intake, but they want to stick to the flavors and the brands that they love. And then by bringing that with the right packaging, the right price and right communication, we ended up getting a really good innovation and amplify our reach to that consumer, which then in turn and with our capabilities to execute better, you get a successful story. And that it took years. And it's important that also on the innovation discipline that we have developed over the years. We are bringing more insights and discipline on managing innovation and the success rates over time, that gives us a better chance of success, and this was the reason why we materialize that moving forward. So we are seeing that not only with Zero-Zero-Zero since we're talking about Coca-Cola trademark, let me bring it to North America where we had also an opportunity to amplify our portfolio with the archery space, where we have Diet Coke Cherry, we haven't tried it. It's one of my favorites. We got Coca-Cola Zero Cherry Float, which is also great. And we continue to expand that portfolio also with Mr. Piv on the Cherry space, which then connects with what I'm saying before, more connectivity to the consumer centricity on the platform and executing better because we built the right capabilities moving forward. Operator: Our next question comes from Chris Carey from Wells Fargo. Christopher Carey: I wanted to ask about gross margin. This is the first quarter in a few years where the underlying contribution to gross margin is a bit negative. I was wondering if you could just give us a sense of whether there are any timing elements associated with Q1, inflation impacts that you might be seeing this quarter, which is really bringing that up to you flagged, coffee and tea. And then the general progression of the underlying contribution to gross margin as you would see it sort of going forward as the costs normalize. And then just one quick follow-up, John. I think you mentioned that the timing of CCBA could dictate margin progression in the back half. Can you just dig a bit deeper into what you were referring to with that comment? John Murphy: Sure, Chris. Let me start with the overall gross margin profile. Q1 was somewhat anomalous given one particular item in APAC, the phasing of juice inventory costs, particularly in China. And that's really as a one-off in the quarter. We have had commodity pressures in the tea and coffee space, and that's going to continue somewhat through the year. But at the overall level, if I take a step back and look at the underlying drivers of gross margin for the full year, we don't see a big deviation from the playbook that we've had. We'll -- we see the revenue growth management architecture work as a very solid foundation to sustaining margins. We continue to drive a lot of efficiency throughout the P&L. But on the cost front, we'll be taking a number of measures to somewhat mitigate against some of the commodity pieces I talked about earlier, which I said are manageable. So for the full -- I don't see it as being an area that's going backwards, the gross margin trends when I take out that inventory issue I mentioned we've got a lot of levers to work through and both as a company and as we alluded to earlier as a system. With regard to the CCBA piece, just it's a mechanical topic in terms of the impact it will have to the margin profile of the company. If we take CCBA's numbers out, lower-margin bottling business will automatically result in the overall company margin profile improving. And we've highlighted that to be a second half of the year topic. For '26, too, we can say for -- which is anomalous relative to other years FX will be a slight tailwind on the margin front, too. Thanks. Operator: Our next question comes from Robert Ottenstein from Evercore. Robert Ottenstein: Great. Congratulations on a great start to the year and your tenure. I was wondering if you could go into a little bit more detail on the underlying drivers of your performance in APAC, particularly China and India, 2 years in a row of good -- very strong results. How sustainable is this do you think throughout the rest of this year and going forward? And what are you doing differently now than in the past to produce such strong results? Henrique Braun: Thank you, Robert. We in APAC, we're pleased with the volume growth across operating units in there. We also pleased with the fact that we gained share overall in the region. But there is still a lot of work to be done. And the reason why I'm saying that is because it's one region that we're developing definitely for the future. The big majority of the countries in there are still under development stage. If take a site like Japan, Korea, Australia, that are in a different stage. But everything else in a huge population in there, it's equally important that we not only deliver on the volume growth, but we built this industry for the future. So we're really focused China and India, as you mentioned, on developing first the industry and the foundations of our business as we've learned in other parts of the world with the right price package, architecture, playing where we believe we can win and then continue to expand that for it. If we drill down a little bit about China, a few years ago, we took a stand and said, "We're not going to play in every category. We're going to play on a quality, volume and categories that we believe we have the rights to win." And that is now starting to pay back because we continue to lead on Sparkling. We are gaining share. And we're also building with our partners in there, a better capability on how to execute the core to then expand to more. And then if you go to India, it's equally important to build this for the long term, a place where we are fortunate to also have local brands under the portfolio that were acquired a long time ago, composing a full portfolio that gives us the opportunity to be connected with the consumers in a very unique way in that place, but we're still far away from getting our overall architecture on RGM and our development capabilities with our bottlers to the stage that we can actually call it a mature market. So what you're going to see also and we saw across the region, is actually in this quarter, if we go down, you see that our price/mix was negative 6 points in the region. And the reason is exactly connected to what I was just saying before. We're investing for the future. We have, obviously, in this quarter, a few elements, as John pointed out, that impacted the quarter. But on the long term, the most important thing in this market is to invest for growth, build a system, health economic system that allows us to invest ahead of the curve and bring more consumers to the base. John? John Murphy: Yes. Just let me -- given the previous questions on margin, I have no doubt there will be focus on the margin numbers for the Q1. So 2/3 of the margin compression in Q1 is related to the inventory item I mentioned. We also have, in APAC, as we've discussed in previous calls, just a structural headwind given the geographic mix of the markets, Japan versus the more developing part of the equation. So while we expect us to make progress in the course of the year on overall margin profile, it is a longer-term play, as Henrique said, with the priority #1 is getting the consumer base even more closer to us. So more to comment on that as we go through the year. Operator: Our next question comes from Bonnie Herzog from Goldman Sachs. Bonnie Herzog: All right. I just had a question on your business in Asia. Your top line growth was good, but your op margins contracted almost 10 points I know, John, you touched on this a bit, but just hoping to hear a little more color on what drove this and really how we should think about profitability in that region going forward? John Murphy: Yes, Bonnie, it's just what I just said in the last question, the margin profile in Q1 was impacted by an inventory item, which is unique to Q1. We do have plans in the course of the year and then lead into next year to address this. Priority #1 is the consumer franchise getting volume growth back into the range of markets that we have and investing appropriately behind them. So as Henrique said, APAC is a land of opportunity. We both lived and worked there and appreciate that it doesn't happen overnight. And we're very -- we're bullish on the way the year has started on the volume front. And we're fortunate to have a global portfolio that will allow us to invest as we need to in the short term while we get the margin profile where it needs to be longer term. Operator: Our next question comes from Andrea Teixeira from JPMorgan. Andrea Teixeira: Henrique and John, obviously, the resilience has been nothing short of impressive, both in terms of like your ability to sustain volumes and pricing. But you did call out that volumes understandably turn negative in March in the Middle East. I was just hoping to see if you can give us some sort of color for EMEA and obviously, from 2 standpoints, right, the conflict and also the fact that as you go into a situation where inflation will be more pervasive in the region and broadly in EMEA for obviously fuel for gasoline prices. And then also for the bottlers to be able to pass through, so I was hoping to see if you can help us with that. And then in terms of the U.S., we saw fair life and again, you had explained to us. But in terms of the category and shake category deceleration, competition in the category, anything you can help us with as you have more capacity into the system this year. Henrique Braun: Good. Thank you, Andrea, for the question. Look, in the EMEA as a whole, right, that encompasses Europe -- Eurasia and Middle East and Africa, we had a good overall performance, we grew volume and profit and continue to gain share, which was great results. If you dial up[ a little bit the conversation on Eurasia and Middle East, as you wanted to know yes, we grew volume actually in the quarter and March was the month that got more impacted by the conflict and we continue to work with our partners to support, number one, the safety of our associates and the business continuity. And it is a playbook that everyone in the region has learned from past situations similar to this and try to focus on what we can control and continue to drive and being closer to the consumer. If you look at the outlook from the region itself, we are confident that we can manage the complexity in there. We will continue to be focused on the balanced growth, which is important for us, as we said, not only in the region, but globally, having volume being a key driver of this balanced growth, but it's going to be a composition that in the year, we will leverage the whole more than ever in a world that's going to be very dynamic. And so far, we believe that we have everything in place to continue to drive there. And we're going to continue to pivot with a playbook that has worked for us in years in the region. Since you asked I'll give a chance to answer also the fair life here. It's a fantastic brand, as you know. We are excited that as planned, the Webster capacity is going to start to get align in the Q2, and we're going to ramp up through the year. So that's the latest on that. And we're very excited also about the fact that we're investing for the next chapter of growth there on the business itself. Operator: Our next question comes from Filippo Falorni from Citi. Filippo Falorni: I was hoping you can touch a bit more on the North America business, solid performance on volume to start the year. You have the FIFA World Cup coming in couple of months. So just any thoughts on like potential opportunities there in terms of accelerating volumes and activation at the brand level, obviously, both for the U.S. and Canada, but also if you can touch on Mexico and the opportunity there. And maybe even give some color on like the performance of the business post the sugar tax in Mexico. Henrique Braun: Okay, Filippo. Look, North America, we're definitely very happy with where we landed on the volume growth it indicates that the strategy and also how we're showing up as a system, it's in the right place. We had a broad-based growth across different categories and brands, which is ensuring that its equipment with the right impact, right, in the marketplace. And FIFA World Cup, look, we actually started to execute that in Q1. It was another great decision by our operators with the bottlers in North America and Mexico that you've mentioned as well in Latin America. Both of these regions decided to go head on and start the activation of FIFA World Cup in the Q1. And now in Q2 is when we're going to realize that in there. I want to bring a point here that it's also very interesting in the execution of the World Cup for us, and you heard me at CAGNY saying as well, that we're not only getting closer to the consumer, but bringing digital at the core of everything that we do. And if you find our packages in the market now in the U.S. and you're going to see Mexico as well, you can actually interact with that package with the right content. Actually, in the U.S., we do that for the 250 celebration as well. That interactivity, you get the content of the campaign. You also engage the consumer on a reward experience. And you have a chance to connect even with the retailer on transforming engagement of the consumers all the way down to transactions, which is what we believe we should continue to drive in our campaigns and bringing the whole digital space into doing better what we do best. So that's about North America. Since you asked about Mexico, let me talk a little bit about what we're doing there. As you know, we had the sugar tax at the beginning of the year. That had an impact. The system has a strong resilience in the playbook on how to deal with this situation. It happened in 2014 as well. The impact is there. But with the right RGM capabilities and granularity, as I was explaining, using everything that we already had plus the personalization connections with consumers and our customers, we continue to do better than we expected, but still having Mexico playing a geo mix effect in the overall price/mix for the time. Over time, during the year, we're going to continue to dial up the campaigns, our local and global brands, which is a strength that we have also in the region to continue to engage with the consumer and to overcome the impact that we have on taxes in there. Since I was talking to Mexico, I think I should say as well that Brazil and the Central America actually offset the impact of volume declines in Mexico and Argentina. Operator: Our next question comes from Peter Galbo from Bank of America. Peter Galbo: I wanted to pivot to the Away-From-Home business a bit. I know that you've had maybe a more offensive minded effort there recently with the Andacoke campaign in the U.S. John, I think you mentioned the Coke in a meal in Europe campaign, obviously, a pretty big win in the hospitality space that we've heard about. So maybe you can just dig in a little bit more on kind of the double down efforts on the Away-from-Home channel, just given it's a part of the business we often don't hear a lot about. Henrique Braun: Yes. Great, Peter. So first of all, globally, we see channel-wise, not a significant change, but the better performance on Away-From-Home than at home in the U.S. was actually the opposite in the quarter. But nevertheless, the strategy remains the same, which is connecting the consumer on every occasion and new states that we have. And what we are doing actually very consistent in the foodservice in North America is to work together with our customers on understanding in detail and granularity, their consumer profiles and how we can actually bring not only our core offerings, but other choices that they started to innovate within that category. So what we're seeing is that there is an opportunity to continue to expand the beverage occasions and we think that being the preferred partners for the majority of the foodservice partners, we believe that we have a great runway actually to continue to develop that category and continue to drive. Our focus is always on driving more incidents on that channel. And to that element, everything that I said that we're building the right capabilities house with RGM and being closer to the consumer, helps us to continue to drive in there. So more to come. Operator: Our next question comes from Michael Lavery from Piper Sandler. Michael Lavery: Henrique, I wanted to just maybe zoom out a little bit and see if there's any new learnings in the first few weeks, just seeing the company through the CEO lens. And it doesn't have to be marketing specific, but I know you've talked about a step change in recruitment, especially converting younger drinkers at the point of sale. I'm just curious if you could maybe lay out a little bit of some of the changes you might anticipate to the marketing approach to improve that and how quickly it might evolve. Henrique Braun: Thank you, Michael. Look, it has been a very smooth transition. And you heard me at CAGNY, there's so many things that we're doing right over the last few years that I would not be the one to touch that and change the trajectory because I fully believe in that. And it's very important to remind what those beliefs were. Number one, it's this belief that we are in the best industry to be in, not only ourselves here at the top of the house on the company, but our bottlers share the same belief. They continue to invest accordingly. That's very important. The number two is what I said also at CAGNY, this unrivaled portfolio that we have, the $32 billion brands, bringing more to the family and making the billion-dollar brands become multibillion over time, that's where I believe the consumer centricity in bringing the 4 eyes can help us to actually even do better over time. And the third one was about this unmatched system reach is with our bottlers, we know we have a very pervasive distribution system. But if we dial this up with what I mentioned before, bringing digital to do better what we are ready to best, scale will help us to actually unlock further growth and a bigger headwind -- sorry, headroom on how to bring more consumers to the base, how to bring more value to our customers and how to work as a system in a more integrated way. So that's what we're focusing on. But a lot of that continues to be very consistent of the way we have been working with our bottlers, our partners, and you can expect that, that's going to be the way moving forward as well. Operator: Our next question comes from Kaumil Gajrawala from Jefferies. Kaumil Gajrawala: If we can dig in a little bit on the United States and Peter's question on the Away-from-Home than specifically, there's -- for the first time this emergence of what seems like an entirely new channel with the Dutch Bros and brews of the world and these sorts of things. So McDonald's is obviously doing the same sort of thing. So I'm just curious, are you evolving your foodservice strategy to figure out how to participate better in this evolution of retail? And then maybe if you want to talk a little bit more about the McDonald's relationship, of course, the news of them using red bulls, I think, surprising to many of us outsiders given the depth of your relationship over such a long period of time. So just curious how you're thinking about that as well. Henrique Braun: Yes. Thanks, Kaumil. So first of all, I start from there. We have a fantastic and very long-standing partnership with McDonald's, and that's intact, right? We continue to be very happy with that partnership. And in terms of how they are also looking into creating this craft beverage offerings, and you alluded to also the fact that other players in that segment is working on, we totally embedded into the conversations about how to be part of that in McDonald's specifically. We have our Sprite brands being very -- doing very well with that space of the craft beverage offerings. We have 2 flavors, Sprite Berry Blast and Lunar splash with them that continue to perform really well. And that expands actually the beverage occasions and the opportunity within the outlets. The way we see this at the end of the day, the beverage space continue to be vibrants and more opportunities to play within that. And we believe that being part of this with our customers and being the #1 value creator for them, we're going to have an advantage over time. We do respect the decisions on other choices about their relationships with other companies. But the most important thing is that we've been very consumer centric about how to bring innovation to each customer, and we continue to have an expanded footprint, not only bringing more to the to our pool of customers, but getting more out of that relationship on a daily basis. Operator: Our next question comes from Carlos Laboy from HSBC. Carlos Alberto Laboy: Henrique, can you please expand on the fries in a slightly different direction to get all 4 of these to optimally work, you've put in a lot of effort into establishing the right incentives and the long-term clarity of what each side you and the bottlers are supposed to do and allowed to keep over the long term. Can you speak to how this is reinforcing the loops between you and the bottlers, so the trust can -- allow these insights and innovations a little more easily for better demand creation? And also related to that, how do you drive trust formation, this effort and this philosophy throughout the company as well? Henrique Braun: Yes. Thanks, Carlos. Good to here with you, too. Look, at the end of the day, I think what we have today and all of us that have been in this business for years. I have been for 30 years. John and myself and James that have been around the same tenure. We believe that we have an unprecedented trust level of about presenting a great relationship that we don't take for granted. We nurture this every day. And the most important thing to your point about how we connect the 4 eyes to generate value on these trust level that we have with our bottlers, comes down to having those 3 beliefs that I mentioned before that if we are faithful to the consumer centricity of everything that we do from a portfolio view, how we engage with them, and we bring value to our customers, understanding what are the levers that we have and they have to make that occasion work, the pie is going to be bigger for everybody. And that's what we have been doing in the last few years. The trust brings agility. The trust brings a bigger value for the ecosystem, but you never take for granted it takes years to build it and a second to lose it, and we nurture this every day. So on the 4 eyes, it's the same with the consumer. We need to honor the choices that they want, and we need to be there every day. And we are humble that we know we can do better every day at scale, and that's how we're focusing moving forward. Operator: Our last question today will come from Robert Moskow from TD Cowen. Robert Moskow: You might have touched on this, but I was wondering about the mix headwinds in the first quarter. How sustainable are those headwinds during the course of the year? Do they fade -- and what I'm trying to get at is what's the underlying price that we should expect for the company and maybe even if we can drill down to Lat Am, which was unusually low in first? John Murphy: Yes. Thanks, Robert. So just the quarter was 3 volume, 2 mix -- 2 price/mix, cycling 1 and 4 and -- 1 and 5 and so the name of the game for us this year, and we're going to be very consistent in talking about it, is to have a more balanced algorithm driven from the top line throughout the year. So starting out with the 3 and 2 is pretty close to where we expect us. In the first quarter, there were a couple of points of mix related to the north -- in the area of North America. Some category mix, which was a little stronger headwind-wise than we expected. We would not necessarily expect that to repeat going forward. And Henrique talked about Mexico and been at the revenue line, offset with strong performance in Brazil and Central America. But that too has a geographical mix feature there that accounts for maybe a slightly lower PMO than people were expecting. For the full year, our guidance -- and our guidance, we remain committed and we remain very much focused on delivering that balanced algorithm. And the outlook for the rest of the year, we're confident we can meet it. So 3, 2; 2.5, 2.5; 2, 3, we'll take any one of those. Operator: Ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the call back to Henrique Braun for closing remarks. Henrique Braun: Thank you, everyone, for participating. To close this out, enabled by our all-weather strategy, we are prioritizing agility, remaining consumer-centric and partnering closely with our customers. While the external environment is dynamic, we are using the capabilities to drive continued growth and create enduring value. Thank you for your interest, for your investment in our company and for joining us this morning. Thank you so much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Chris Keenan, Director of Investor Relations. Please go ahead. Unknown Executive: Thank you, and good morning. Welcome to Corning's First Quarter 2026 Earnings Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer; and Ed Schlesinger, Executive Vice President and Chief Financial Officer. I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the company's financial reports. You should also note that we will be discussing our consolidated results using core performance measures unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. For the first quarter, differences between GAAP and core EPS include constant currency adjustments as well as primarily noncash items, including acquisition-related costs, discrete tax items and other tax-related adjustments and restructuring impairment and other charges and credits. A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center. Supporting slides are being shown live on our webcast, and we encourage you to follow along. They're also available on our website for downloading. And now I'll turn the call over to Wendell. Wendell Weeks: Thank you, Chris, and good morning, everyone. Today, we announced excellent first quarter 2026 results. Year-over-year sales grew 18% to $4.35 billion. EPS grew 30% to $0.70. Operating margin expanded 220 basis points to 20.2%. Gross margin expanded 120 basis points to 39.1%, and ROIC expanded 190 basis points to 13.5%. These excellent results were led by Optical Communications and Solar. Our performance this quarter serves as yet another proof point of Springboard's powerful trajectory. Versus our quarter 4 2023 springboard starting point, we grew sales 33% and EPS 79%, and we expanded operating margin and ROIC by 390 basis points and 470 basis points, respectively. As you remember, on our last earnings call in January, we upgraded our internal Springboard plan to add $11 billion in incremental annualized sales by the end of 2028 from our quarter 4 2023 starting point. Now based on increasing demand for our innovations, we actually plan to upgrade again and extend our plan through 2030 at our investor event in New York City on May 6. We will share our improved Springboard plan and the key drivers as well as a particular focus on the latest developments in our Gen AI portfolio. So today, I want to get into more detail about our first quarter results and highlight some of the topics that we'll cover next week. I'll begin with Solar. In quarter 1, we grew solar sales 80% year-over-year. So let's talk about what's going on in this new market access platform. We have previously shared our goal to build a $2.5 billion revenue stream with profitability above the corporate average by 2028. We're making key strategic progress on the commercial and policy fronts. We now participate in the solar industry through 3 major manufacturing operations. First is solar polysilicon. We did a business where we had a minority ownership and we were receiving about $50 million a year in cash flow in the form of dividends. And we've turned it into almost a $1 billion revenue business, and we've been able to do all of this with customer funding and government support, all while generating positive cash flow every year. We activated idle assets to serve the need for domestic solar polysilicon. Now that, that capacity is online, you can see the incremental sales in our results. The business performed above our corporate operating margin target of 20% in the first quarter. Now the focus is on improving the productivity of our operations to further improve our throughput and profitability going forward. Moving down the value chain. We added the capability to transform our polysilicon into higher-value domestically made solar wafers, all integrated together on our campus in Michigan to leverage our advantage position in polysilicon. We built the largest solar ingot and wafer facility in the United States in just 18 months in order to establish a commercial footprint and to take advantage of government incentives in a very short time frame. Importantly, we have committed customers for our wafer output. Now we had to move fast. Part of that meant bringing up our facility on temporary power and water systems because we couldn't get the utilities to build the permanent systems on our schedule. Our ramp is running behind our ambitious plans. Our wafer facility will undergo an extended maintenance shutdown, and we will transition to a permanent power system and repair and upgrade production equipment to increase throughput in future quarters. To cover this transition, we have built into our second quarter guidance, $30 million of additional expense versus the first quarter. We've also successfully entered the module business. We saw that 90% of the mass in a solar panel is materials in which we have adjacent world-class capabilities. We make the best technical glass in the world. We apply coatings through our strength in vapor deposition, and we have long-standing leading position in polysilicon for semiconductor materials. So not only is this an opportunity that's right for innovation, but it's also right in our wheelhouse. Therefore, we acquired and ramped a module manufacturing facility in Arizona to position ourselves for innovation as we progress the business. That factory is now up and running. And you can see incremental sales from this operation in our results. Profitability in this business should cross over our corporate operating margin target of 20% in the second quarter. We are now in the midst of adding capacity to this operation. And as it comes online and gets through our start-up period, this will further accelerate our growth and profitability. Altogether, we are seeing strong strategic and commercial success across our solar market access platform. As a result, we will be increasing our sales plan for the solar map as part of our Springboard upgrade on May 6. Turning to Optical Communications. We saw robust demand across the business and continue to improve our productivity with year-over-year sales growth of 36%. In our Enterprise business, early in the quarter, we announced our multiyear up to $6 billion agreement with Meta to support their apps, technologies and AI ambitions using our newest innovations in optical fiber, cable and connectivity solutions. On our last call, I shared that we were in the process of concluding other agreements of the same size and duration as the Meta agreement. We now have concluded two more large long-term agreements with hyperscale customers. And they are each similar in size and duration to the Meta agreement. Now I know we will get questions on who the other customers are and the specifics of our arrangements. However, our philosophy is to let our customers decide when and where they choose to make announcements on their critical supply chain decisions. I can share that these deals are very significant, and they share the risk and rewards of the required expansions with our strategic customers. For long-time followers of Corning, you would recognize the model is quite similar to our extremely successful Gen 10.5 agreements with our display customers. We're taking the proven approach in our glass businesses and applying it to Optical Communications. Our partnership with Lumen Technologies in the carrier space is another good example of this approach. We previously shared our agreement with Lumen to provide our new Gen AI fiber and cable system that enables them to fit anywhere from 2 to 4x the amount of fiber into their existing conduit. In February, Lumen shared that we've expanded and extended our multiyear agreement to ensure they have access to the newest state-of-the-art fiber technology. Lumen and fiber-to-the-home contributed to carriers' growth in the quarter. You'll recall at the beginning of Springboard, we pointed out that fiber-to-the-home would recover strongly during the planning period. We are seeing just that in our sales. As noted in public statements, carriers are planning to expand their fiber networks going forward. The typical run rate for homes passed by our large carrier customers has increased about 50% since the beginning of Springboard. Overall, based on our strong progress in Optical, we will be upgrading our sales plan for the business through 2030 at our investor event next week. Obviously, we have a lot of news to share next week. As part of our activities, we are planning to ring the bell at the New York Stock Exchange to celebrate our 175th birthday the day after our May 6 event. It is perhaps fitting that as we celebrate 175 years, we will share a significant upgrade to our Springboard plan with all of you. Highlighting that we are in one of the most exciting growth periods in our long history. The demand for our innovation capabilities has never been stronger. We are seeing the power of our innovations drive growth across all our market access platforms. Thank you for being with us on this journey, and I look forward to seeing you next week. Edward Schlesinger: Thank you, Wendell. Good morning, everyone. Our strong first quarter results show continued excellent performance on our Springboard plant. We delivered our eighth consecutive quarter of year-over-year sales growth while continuing to enhance the financial profile of the company. Year-over-year in Q1 sales grew 18% to $4.35 billion and EPS increased 30% to $0.70 per share, both coming in at the high point of our guidance. Operating margin expanded 220 basis points to 20.2%. ROIC grew 190 basis points to 13.5% and we delivered robust free cash flow of $188 million. With that, let's look at our progress to date. Comparing our Q4 2023 Springboard starting point to Q1 2026, we grew sales 33%, improved operating margin by 390 basis points, grew EPS 79% and expanded ROIC 470 basis points. In total, this represents a significant enhancement to our financial profile and establishes a new base from which to launch another round of strong, more profitable growth and we see even stronger growth ahead. On our last call, we upgraded our internal Springboard plan to add $11 billion in incremental annualized sales by the end of 2028 and $6.5 billion by the end of 2026. Now we have another quarter behind us. And as you can see, sales came in above our guided range. I'll share more on our second quarter guidance in a moment, but you can see we expect to continue performing well on our upgraded plan. Overall, we're capturing significant sales growth with powerful incremental profit and cash flow, and we expect our momentum to build. Let's turn to our business segment results. Today, we announced changes to our segment reporting effective first quarter 2026 which better align with our current operating and management structure. Here's a breakdown. First, will now report the results of our Solar business in its own segment. Since the launch of Springboard, we've communicated that a key element of our plan is to build at least a $2.5 billion revenue stream in this space. Previously, we reported our solar business results within Hemlock and Emerging Growth Businesses. We've advanced the business to the point that it now warrants its own segment which will include our solar and semiconductor polysilicon sales as well as our wafer and module businesses. As Wendell shared with you, we are making key strategic progress on the commercial and policy fronts. We now participate in the solar industry through 3 major manufacturing operations polysilicon, wafers and modules. Our solar ramp continues with our polysilicon business performing above our 20% corporate operating margin target in the first quarter and our module business on track to cross over in the second quarter. Second, we are combining Display and Specialty Materials into a new segment called Glass Innovations. Included in this segment are our glass and glass ceramic businesses that primarily serve the consumer electronics and semiconductor industries. These businesses share core technologies, manufacturing capabilities and market access and we have aligned them under a unified management structure to increase operational flexibility, improve efficiency and strengthen our leadership positions in the markets we serve. Our Automotive and Optical Communications segments remain unchanged, and all other results will be grouped as Life Sciences and Emerging Growth Businesses. Now I'll turn to segment results. In Optical Communications, sales were $1.8 billion, up 36% year-over-year, driven by robust demand for Gen AI products. Net income was $387 million up 93% year-over-year. Sales in both enterprise and carrier rose 36% year-over-year. In Enterprise, building off our multiyear up to $6 billion agreement with Meta, we entered into large long-term agreements with two additional hyperscale customers, and we are working to conclude others. And in Carrier, we are seeing growth stemming from both data center interconnects and strong demand for fiber to the home. Moving to glass innovations. First quarter sales were $1.4 billion, up $14 million or 1% year-over-year. Net income was $324 million, up $7 million year-over-year. Net income margin for this new segment was 22.8%. Display glass volume for the quarter was down slightly sequentially better than our expectations of down mid-single digits. Demand for premium Gorilla Glass products remains resilient despite rising memory costs for our customers. We expect memory prices to significantly impact the market in 2026. We expect to outperform the market, driven by strong demand for our innovations. As part of a continued focus on innovation and technology leadership, we recently launched Corning Gorilla Glass ceramic 3. The latest example of how we are extending our material science capabilities to meet evolving device requirements. This reinforces the strength of Corning's innovation engine and our more Corning approach, translating advanced glass and ceramic science into higher-value applications that expand our long-term growth opportunities. And in the semiconductor market, we continue to see short-term and long-term opportunities for our advanced optics products driven by the secular growth drivers in high-performance computing and AI driven data center build-outs. As chip makers ramp up production to meet the demand around generative AI, we expect to see higher demand for our EUV lithography business. Longer term, we expect growth in this segment to be driven by the adoption of our glass innovations. Turning to automotive. Q1 sales were $437 million, down 1% year-over-year. The global automotive vehicle market was down 3%. Higher heavy-duty sales in Europe and India largely offset a weaker heavy-duty market in North America. Net income of $70 million was up $2 million or 3% year-over-year. We remain focused on executing our more Corning growth strategy as underlying secular trends that are favorable to Corning remain intact and will drive adoption of more larger and higher resolution displays as well as new emission control products across the global automotive market. And in solar, sales were $370 million, up $164 million or 80% year-over-year. Net income was $7 million, down $20 million year-over-year. As Wendell mentioned, we have a goal to build a $2.5 billion revenue stream in this map with profitability above the corporate average by 2028. We're making key strategic progress on the commercial and policy fronts. We participate in the solar industry through 3 major manufacturing operations, polysilicon wafers and modules. Our solar ramp continues with our polysilicon business performing above our 20% corporate operating margin target in the first quarter and our module business on track to cross over in the second quarter. Our first quarter actuals included about a $0.04 EPS impact as we continue to bring up solar wafer capacity to meet committed demand. Our second quarter forecast includes an incremental $30 million of expense versus the first quarter for an extended maintenance shutdown, including the transition to a permanent power system. We will repair, upgrade and modify our production equipment to increase throughput in future quarters. Sales in Life Sciences and emerging growth businesses were flat year-over-year. Net income improved year-over-year but was down sequentially. Now I'd like to take a moment to discuss operating expenses. In the quarter, was $823 million. Included in Q1 OpEx was higher variable compensation expense, including stock-based compensation. The primary driver the higher expense was the significant increase in our stock price in the quarter. So with that, let's turn to our outlook. In the second quarter, we expect to grow sales about 14% year-over-year to approximately $4.6 billion and to grow EPS about 25% year-over-year to a range of $0.73 to $0.77. And as I just mentioned, our second quarter forecast includes an additional $30 million of expense in Q2 versus Q1 as our solar wafer plant undergoes an extended maintenance shutdown. Even with the extended shutdown, we expect Q2 '26 to be one of the strongest quarters in a string of very strong quarters. For the full year, we expect to generate significantly more free cash flow year-over-year while continuing to invest strongly in our growth vectors aided by customer financial support. Now let me spend a minute on capital allocation. As we've previously shared, we prioritize investing in organic growth opportunities that drive significant returns. Overall, we believe this approach creates the most value for our shareholders over the long term. And our investors have confirmed they see the value in this approach. To deliver the larger growth opportunity in our upgraded Springboard plan, we need to invest. And as we invest, we will use a variety of tools to share the cost and risk of our required expansions with our customers to ensure we generate strong returns on our investments and secure our planned cash flows. We also seek to maintain a strong and efficient balance sheet. We're in great shape. We have one of the longest debt tenors in the S&P 500, our current average debt maturity is about 20 years, and we have no significant debt coming due in any given year. Finally, we expect to continue our strong track record of returning excess cash to shareholders. We already have a strong dividend. And therefore, as we go forward, our primary vehicle for returning cash will be share buybacks. Stepping back, we feel great about our progress on Springboard. Our performance is outstanding and we're energized about the tremendous opportunity for value creation for our shareholders. Since the start of Springboard, we've captured significant sales growth and we've transformed our financial profile, establishing a strong foundation for future growth. And we expect our momentum to build as we capture a strong set of opportunities across the company. At our May 6 investor event in New York City, we plan to upgrade and extend our Springboard plan through 2030, share the underlying growth drivers in our maps and detail the technical drivers of growth in our enterprise business as well as our new Photonics map. I look forward to sharing more with you next week at our investor event. And with that, I will turn things back over to Chris for Q&A. Unknown Executive: Thank you, Ed. Operator, we're ready for the first question. Operator: [Operator Instructions] The first question will come from John Roberts with Mizuho. John Ezekiel Roberts: On the new hyperscaler agreements, are there material glass fiber draw capacity expansions associated with that? Or maybe a different way, is the extension to 2030 going to involve glass draw capacity expansions? Wendell Weeks: These agreements taken in total are driving so much growth, John, that you're going to see expansion across all of our major optical operations, including expanding our fiber operations. What we seek to do with these arrangements is to make sure we're appropriately sharing the risk of the required expansions with our customers in a way that assures return to our shareholders. John Ezekiel Roberts: Okay. And then when you complete and you're fully ramped on solar, what would be the approximate breakdown between semiconductor wafers and modules? Edward Schlesinger: So I would say that we're running at about $0.5 billion semiconductor business. That business will continue to grow over time. And the remainder of all of that business or all of that segment and all the growth will come in the solar space. John Ezekiel Roberts: And primarily wafer? Wendell Weeks: It would be -- say that again, John? John Ezekiel Roberts: Primarily wafer? Wendell Weeks: Wafer and module. Both of those. And next week, we'll share a little more on that. What we're seeing is demand for our downstream manufacturing operations be so strong is that we will raise our sales plan above the $2.5 billion that we shared with you previously, John. Operator: Next question will come from Wamsi Mohan with Bank of America. Wamsi Mohan: I was wondering, Wendell, if you could maybe characterize the state of supply-demand balance in the Optical Communications market. We're hearing a lot of anecdotal talk about price increases. Some of your competitors internationally have raised prices within fiber. And so just curious how tight are you seeing the current state? Are you able to meet supply enough to meet the demand? And how are you seeing the evolution of pricing for both [ Optical Fiber and connect price cables ]. Wendell Weeks: So we are seeing a very robust demand for our innovation sets, Wamsi. What we're doing is entering into these very long-term agreements because the growth rate is accelerating so robustly, Wamsi. And so what we're doing is, given that we are going to be undertaking expansions across our opticals, what we seek to do is do 3 things that are buried in these big agreements. First, we're trying to serve all of our customers. And we're trying to get very balanced coverage so that we aren't dependent on any one model maker or any one AI cloud provider. Because though clearly, AI is going to make a powerful difference in worldwide economies, picking specific winners and losers I think, is problematic. So what we seek to do is take this very robust demand that we have, and we want to serve all of the customers and do it in a very balanced manner. And then as part of those, what we seek to do is appropriately share the risk of the required expansions to support this rapidly accelerating growth. So I'm just going to answer your question in sort of 3 layers. So that is the first layer, which is we -- given our strong profitability in this business, being able to meet the growth requirements and to derisk those for our shareholders is our top priority to do with the strong demand for our innovations. Second, you are correct that the pricing environment is clearly favorable for those who have capacity. Our approach to increasing our profitability though comes primarily from how do we uniquely innovate and how do we uniquely manufacture our products rather than focusing on price increases of commodity-based products. So what we try to do here is we're introducing these new innovations that you hear our customers talk about and hear us talk about. And what they do is they create more value for our customers by reducing their total installed cost. And then we share that value creation with them, which increases our profitability much more rapidly and sustainably over time than simply capturing any particular near-term move, whether it be on bare fiber or [indiscernible] cable or anything like that. Does that make sense to you, Wamsi, did I answer your question? Wamsi Mohan: Yes. No, that's helpful, Wendell. If I could just follow up on your very helpful analogy with display Gen 10.5 relative to the Optical business, I was wondering if you [ would venture ] to say that the margins that have historically been extremely strong in display, are we entering an environment in Optical where you could eclipse gross profit margins or [ up ] profit margins [indiscernible] in display given the strength and momentum and the size of the business. If you could extend that analogy there, that would be super helpful. Wendell Weeks: So the simple answer is yes. And what will be critical for that will be the rate of adoption and the value of the innovations that we create here and really the size of the competitive moats that we're able to build. Our goal is to create so much value that this becomes an all-time star for us as a company. So that's what we're seeking to do. Edward Schlesinger: And Wamsi, I would add one other thing, just I think that's important for you and investors to think about is we're a capital-intense company across all of our businesses. But if I think about Optical in general, it's a little less capital intense than a business like display where you're purely melting and forming glass. So your return on invested capital is high. And I think we will see that drive a lot of profit dollars and cash. So your financial model is a little different. It will require investment, but your return will be very high in that space. Wendell Weeks: I think that's super helpful, Wamsi. [indiscernible] is correctly making us describe what we mean by enhanced profitability. What we always are aiming at is the return on invested capital. So it's the totality of the financial model, both our asset turns as well as our margin percent. So in my answer, what I am driving at is the totality of that and that our return on invested capital in this business, we would like to see that exceed our glass businesses, and that's what we're aiming at. Operator: The next question comes from Josh Spector with UBS. Joshua Spector: I had two questions on margins, kind of a similar vein of thought here in that -- if I look at what you did in the first quarter, I mean, sequentially, your incremental margins were north of 50%, in Optical year-over-year, they're close to 40%. So I don't know if you can break that apart in terms of operating leverage versus price mix as the larger contributor to those two pieces. And then secondly, you've talked a lot about next week. You're going to talk more about Springboard, upgrade your sales plan. Do you expect to have a new margin target that you're going to put out there next week? Edward Schlesinger: So let me take the first one, Josh. I'm not going to break it apart into all those piece parts, but I will say that a large driver of what we're going to see in Optical, and we actually did have a great net income margin, which report for each of our segments in Q1 is the impact of moving to our new innovations and those products, I think as Wendell was sharing in his previous answer, that sort of moves us up in margin over time. In a way, it's like capturing price. It's a little different than comparing like apples-to-apples on price. If we can sell more solutions or new innovations, our margin goes up. We're certainly getting operating leverage and growing is certainly going to help. But I think that's a good way to think about it in Optical Communications. And I think rather than steal away anything from our next week event, hopefully, you'll tune in. And hopefully, we'll see you there, and we can talk about all the impacts of our financial profile and how we expect to see growth in the future. Operator: Our next question comes from Asiya Merchant with Citi. Asiya Merchant: Great. And a good set of numbers here, looking forward to seeing you guys next week. A question I've often got from investors this quarter about these long-term agreements with hyperscalers and model builders. Are you able to, kind of within these contracts, raise prices over the long term? Or how are you kind of factoring that in, given the extent of these multiyear agreements that could stretch over 3 to 5 years? And one more, if I can. The solar drag, I think you talked about an incremental $30 million here related to some power related stuff. When should we expect the drag on these expenses to be completed, both from what was happening in 1Q plus the incremental that you're talking about in 2Q? Wendell Weeks: Why don't you take the second part first and then I'll tackle the long-term agreements. Edward Schlesinger: So on solar, maybe just take a step back for a second. We're doing -- we have 3 big things we're doing, adding polysilicon capacity, module capacity and wafer capacity. And on polysilicon, we're in great shape. We will get better. We have an opportunity to drive more productivity and improve our profitability there, but that's not causing us any kind of a drag. And on modules, we're adding capacity but we're actually starting to get pretty close, and we'll cross through our corporate operating margin target of 20% in the second quarter, and we'll continue to add capacity there. So I think those two things are in a good place. In wafers, which is probably the most complex thing that we're trying to get done, that's really where the impact is. And what I tried to say my section of our prepared remarks was that we had a drag, which continues from ramping that facility and now we have the impact of this extended maintenance shutdown. When you take that in aggregate, it's probably close to $0.07 of EPS in the second quarter guide that we gave. So just -- so you have sort of that as we're all on the kind of same page. So it impacts our margin. It impacts our EPS. And it also reduces our sales because we're shut down for a period of time here, at least a couple of months, let's say, in the second quarter. And so our sales guide reflects that. It will get better. I think calling the exact timing of when we get to the operating margin target is very hard to do because we have a lot of work. I would expect it to sort of sequentially get better over time. So once we bring the factory back up online, that will have some impact in a positive way, and then we'll continue the ramp of adding all the capacity. Wendell Weeks: Just one before I shift to your first question is pricing environment looks very good for us in solar, demand environment looks very good for us in solar, policy environment looks very good to us in solar. 2 of the 3 manufacturing operations are tracking well against our plans. We just have to get transferred over to our permanent systems here. And we just got to get more productive in making ingots and wafers as we go forward. And so that will definitely happen. And whenever you ask an ops person like when will everything get better when we're already shut down, they will always say, Well, let me get up and running again. So after we pop out of this extended shutdown, we'll be able to be really clear with you last year. Is that okay on that one? And can I turn to the first question? Asiya Merchant: Yes. Wendell Weeks: Great. So what we're mainly focused on here is improving visibility. If you sit down with our key customers, the amount of growth of their growth that they would like us to take responsibility for is quite significant. And so what we seek to get visibility on is, first, what amount of demand do they actually have in total. And that sets for us to [indiscernible] sort of how we think about how we can help you on what our long-term sales look like and help ourselves as far as what would be appropriate plant and equipment to support those growths. Second thing we see visibility on is the product itself is -- the sets of products that we're introducing are continuing to change and innovate. And where the products are used is changing. One of the things we're going to sit down and talk about next week is there are new links within a back-end AI network that are going to fall into our space. So real clarity on what those products need to look like, what do we have to invent, what do we have to create and how we're going to make that is the next improving hunk of visibility. Then the piece after that is how do we approve [indiscernible] share the risk of any of our investments in talent and treasure so that we can assure our investors a super strong return. And those tend to dominate those dialogues. Those are more important financial drivers than once again sort of just what would be the increase on the bare fiber cost. Their fiber in and of itself is now turning much more into a component for us of our more innovative systems and an important component without doubt, but it is adoption the rate of adoption of those new product types that is going to be the key driver to our profitability and revenue growth. We'll try to share a little more of that next week, and that's why we're choosing to do a dive in that area. Operator: The next question comes from Samik Chatterjee with JPMorgan. Samik Chatterjee: Wendell, if I can just ask you to go back to your comments on the hyperscaler agreements. And curious, you mentioned this a few times in terms of sharing the risk with your customers. How should we think about what that actually implies? Does it imply sort of take-or-pay contracts? Does it imply capital commitment from them? What are you getting as part of these incremental hyperscale agreements to share the risk? And then with the initial agreement that you had with Meta, our impression with scale-up wasn't necessarily a part of that. It was primarily focused on scale-out. As you think about -- as we think about these two incremental hyperscaler wins today look very similar to that framework that Meta had? Or does it include scale up incrementally? Wendell Weeks: Samik, let's answer the sort of easy part of the question first and then the hard one. Okay. So the easy part. The simple answer is, yes, all of the above. You're going to see a blend that best meets our customers' utility preference curves for how they would like to share the risk. For us, what's just important is that we share that risk. And we have a variety of different tools to do it. And you've named a number of them. You have funding, you have guaranteed revenue, you can have price, right? You have all of the variety, you can have accelerating share agreements, you can have all sorts of things like that, all that are aimed at how do we appropriately share the risk. And different ones of our customers just have different risk profiles and different things they like from that overall tool set. So if you could be sitting in the room with us, which I'm sure you would like to do Samik, right? What you would see is us explaining that tool set and then them saying, okay, which do I like? What is the blend of that? How does that best meet my needs. Does that address your question? The first question, Samik? And then I'll do the hard part. Samik Chatterjee: Yes, please go ahead. Wendell Weeks: Okay. So scale out, scale up and then what happens as our products go inside the box. Things like CPO [ NPL ], what will be in our photonics map. So the way we think about this is that there is a set of products for us in fiber cable and connectivity that we seek to cover with our customers. Part of when I say what we do is we seek visibility on what exact products to make, what we are talking about is the first sort of phases of this have been aimed at scale out as you get -- because these are long-term agreements. As you get out longer term, what we're engaged with our customers about is how will your demand for our products change as more and more links fall to fiber optics. And that will tend to increase these commitment levels over time, above and beyond scale out. But when they happen is going to happen at different times for different customers just depending on their architecture choices. When we talk about Photonics, we're talking about creating a new map that is aimed at our OEM customers in Gen AI. So those will be separate again, right, from our agreements with our hyperscalers and incremental. Is that explanation helpful, Samik? Operator: Next question is from Meta Marshall with Morgan Stanley. Meta Marshall: Maybe just stepping to the carrier piece of the business for a second, probably the best quarter in a number of years. I guess I just wanted to get a sense of you mentioned fiber to the home plans increasing. Are you guys starting to see some of the [ demand ]? Do you think that you're gaining share in that market? Just a little bit more visibility to what you're seeing on the carrier side would be helpful as a starting point. Wendell Weeks: Speed is still quite small. And we will always secure a hunk of our capacity to be able to serve the underserved and [indiscernible] customers. But that's not what's really driving these numbers. What's driving it, and you actually see it a lot in the news now is just the ascendancy of fiber to the home. That versus other technologies that people used to ask me a lot about fixed wireless, right, hybrid fiber coax, whether satellites make a difference. And all you're just seeing is the ascendancy of our technology from the big carriers is what's primarily driving these numbers and they've been very public about it in their decisions, Meta. Meta Marshall: Got it. And then maybe just a follow-up question. I expect we'll hear more next week, but just within specialty, within Glass Innovations. Just -- are there any innovations coming this year that you would expect to drive kind of material upside to that business during this year? Wendell Weeks: Always so thoughtful when I answered this question because who I'll be [ interpreter ] or speaking for. Let me reflect on the appropriate way to answer that question. Thank you for the gift of giving me until next week to do so. Operator: Next question is going to come from George Notter with Wolfe Research. Unknown Analyst: It's Brendan Rogers on for George. A quick one. Can you guys share any more details on kind of the split between carrier and enterprise growth rates this quarter? A sense for like the relative size of those at this point or just broad strokes, enterprise versus carrier growth rates? And then another quick one on the Photonics platform that we should expect to hear next week. Are LTAs going to be kind of a mechanism that you guys are going to pursue there? Obviously, OEMs are different sort of customer set. So anything you could share there. Edward Schlesinger: Yes. I'll take the first one. So both carrier and enterprise grew 36% year-over-year in Q1. So just coincidentally, that equals the segment growth rate. Enterprise continues to grow really well, and we continue to outperform sort of the broader metrics, I would say, in that space. We'll certainly share more about that next week. In carrier may be building a little bit on what Wendell said, we had a great quarter. You've got fiber-to-the-home, you've got data center interconnect in there. I wouldn't take Q1's growth to be indicative of a growth rate for carrier because whatever happens in any given quarter or what happened in the prior year, and that quarter could have an impact on that rate, but we certainly expect to see growth in the carrier space over the horizon of our Springboard plan. And then on your second question, I think we'll address our new Photonics map in more detail next week, what's in there, how we're thinking about it, the growth drivers and how we expect that to play out over the next several years. Wendell Weeks: Yes. And but you'll really -- the change from previous dialogues that you've had with me has been that -- up until recently, I hadn't believed that we would begin -- we would see a significant increase in our revenues between now and 2028, from the scale-up portion of our network. Well, I should say it did not rise to the probability level that we felt comfortable of sharing that with you and saying you could count on that piece -- those pieces of the network falling our way. What has happened is technical progress at a number of very deep dialogues with key customers that has now increase the probability of the scale-up piece of the network, making a difference in the near term in our revenue outlook. And we will share what those -- what's driving that change on our part and that upgrade on our part with the really key technical drivers behind it so that our investors can get their own points of view around the adoption rate of those technologies. Unknown Executive: Thank you. Last question? Operator: And the last question is going to come from Martin Yang with Oppenheimer. Martin Yang: My question is on capital expenditure plan for the year. you haven't raised the CapEx plan despite the two new agreements. So were those two new agreements already incorporated when you originally gave the CapEx plan for the year? Or does that suggest the timing which means their CapEx ramp starts beyond 2026? Edward Schlesinger: Yes. Thanks, Martin. So we had given guidance last quarter that CapEx would be about $1.7 billion. We could be a little above that number this year. That's certainly true. As Wendell said earlier, we will definitely be investing across all of our product sets in optical. We have tools we use to share that investment with our customers. So to some extent, there's some impact in there. And then we'll certainly see investment continue into next year. And we'll share more next week on how we're thinking about it. Wendell Weeks: And the shorter version of this is when we share the CapEx [indiscernible] had in our mind that -- because we are -- these dialogues take a long time that we were going to be able to reach these agreements with our customers. And because of the demand is coming at us relatively rapidly, we would have had to have been in progress already on those expansions. So I think that is -- I agree with Ed's commentary on CapEx. I think going forward, what's intriguing will be how does the various funding and risk sharing work and how that impacts our overall cash flow. Overall, we feel very good about having accelerated cash flow and really not going through any sort of significant dip due to an investment cycle largely because of the risk-sharing agreements that we are seeking with our customers, if that is where you are aimed, which I bet it is. Operator: And that will conclude our question-and-answer session. I will turn it back over to Chris for closing remarks. Unknown Executive: Thank you for joining us. And before we close, I wanted to let everyone know that we'll be hosting an investor event at the New York Stock Exchange on May 6. We'll also be attending the JPMorgan Global Technology, Media and Communications Conference on May 19. And additionally, we'll be scheduling management visits to investor offices in select cities. Finally, a web replay of today's call will be available on our site starting later this morning. Once again, thank you all for joining us. Operator, that concludes our call. Please disconnect all lines. Operator: Thank you for participating. Everyone may now disconnect.
Operator: Hello, everyone. Thank you for joining us and welcome to Custom Truck One Source, Inc.'s first quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Brian Perman, Vice President, Investor Relations. Brian, please go ahead. Brian Perman: Thank you, operator, and good morning. Before we begin, we would like to remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release we issued yesterday after the market closed. That press release and our first quarter investor presentation are posted on the Investor Relations section of our website. Yesterday afternoon, we also filed our first quarter 2026 10-Q with the SEC. Today's discussion of our results of operations for Custom Truck One Source, Inc., or Custom Truck, is presented on an historical basis as of or for the three months ended 03/31/2026 and prior periods. Also, a reminder that beginning this quarter, our financial reporting reflects our two new operating segments: Specialty Equipment Rentals, or SER, and Specialty Truck Equipment and Manufacturing, or STEM. While our 2026 results in our earnings press release and SEC filing reflect the application of intersegment pricing and margins, as per accounting requirements for intersegment sales, the segment results for 2025 reflect the intersegment sales with no margin, as no intersegment agreement was in place in the period. For an illustrative comparison of what the 2025 results would have been had intersegment sales been reflected with the appropriate gross margin and had other internal accounting policies been in place at the time, please see the appendix of the Q1 investor presentation posted on our Investor Relations website. Also, certain data in the appendix of the investor deck for Q1 and Q2 2025 for our STEM segment was corrected to reflect an internal error. Full year 2025 STEM results were not impacted by the change. Joining me today are Ryan McMonagle, CEO, and Christopher Eperjesy, CFO. I will now turn the call over to Ryan. Ryan McMonagle: Thanks, Brian, and good morning, everyone. 2026 is off to a great start, as we delivered record first quarter revenue driven by continued strong momentum in our core end markets and excellent execution by our team. In the first quarter, we generated revenue of $462 million and adjusted EBITDA of $98 million, up more than 933% year over year. The key driver of our performance in the quarter was continued strength in our Specialty Equipment Rentals segment, as the improvement we experienced throughout last year in the transmission and distribution markets continued into Q1. Our rental fleet averaged 81.4% utilization during the quarter, up 370 basis points from Q1 of last year. This was supported by continued robust levels of OEC on rent, which averaged $1.34 billion in Q1, up 12% year over year. So far in Q2, both measures have continued to strengthen, with utilization and OEC on rent currently trending above our first quarter averages. We ended the quarter with total OEC of $1.66 billion, the highest quarter-end level in our history, which will support our expectation for continued growth in SER revenues this year. Also, the average age of our fleet is less than three years old, which we believe is one of the youngest fleets in the industry and positions us well to support our customers. Our trucks and equipment continue to power the people who strengthen and build critical infrastructure in the U.S. and Canada. The market has been focused on the durability of demand in T&D, and our ability to convert improving rental KPIs into earnings and cash flow, and we believe our trending results over recent quarters speak directly to that. Bidding activity and ongoing conversations with our customers lead us to believe that these conditions will persist throughout 2026 and beyond. Performance of our Specialty Truck and Equipment Manufacturing segment in the first quarter was strong, reflecting continued healthy end market demand and order flow. For Q1, STEM revenue, excluding sales to our SER segment, was up 5% year over year. We also saw gross margin expand in the quarter driven by significant cost-out and productivity improvements led by our production team. New sales order backlog ended the first quarter at $411 million, up more than $76 million, or 23%, from the end of Q4. Our backlog has continued to grow so far in Q2. As we have noted in prior periods, backlog can move quarter to quarter with delivery timing and production schedules, so we also focus on order activity and conversion. We saw strong year-over-year net order growth of 13% in Q1, with particular strength coming from our local and regional customers. Despite slower growth in the infrastructure end market, the continued strength in order growth, and our ongoing conversations with our customers, provide us with the confidence to expect another year of growth in STEM, not including intersegment sales to our SER segment. Custom Truck One Source, Inc. is well positioned with our young rental fleet, current inventory positions, and strong relationships with our chassis OEM partners to navigate the impact of the EPA's 2027 emission standards. We are affirming our previous full year 2026 revenue outlook, which we updated earlier this month solely to reflect our new segment reporting with no change to consolidated guidance. We expect consolidated revenue in the range of $2.005 billion to $2.12 billion. Given strong conditions in the T&D end markets, we are raising both the bottom and top ends of our adjusted EBITDA guidance, and now project a range of $415 million to $440 million. Despite some macroeconomic volatility, we continue to be optimistic about our business. Long-term sustained end market demand is buoyed by secular megatrends, and our ability to provide exceptional execution on behalf of our customers sets us apart from our competition. Our longstanding relationships with our strategic suppliers and customers continue to be keys to our success. I continue to have the highest degree of confidence in the Custom Truck One Source, Inc. team and want to thank everyone for their hard work and dedication that helped achieve our strong results in the first quarter. We look forward to updating everyone soon. With that, I will turn it over to Chris to walk through the numbers in more detail. Christopher Eperjesy: Thanks, Ryan, and good morning, everyone. I will start with the consolidated results for the quarter, then discuss segment performance, our balance sheet, liquidity and leverage, and finally, our 2026 outlook. Before I begin, I would like to expand somewhat on Brian's comments in the introduction about our segment reporting. As a reminder, because of reporting guidelines for segment reporting, segment data included in our earnings press release for periods prior to January 1 are not fully comparable to the current year data, largely because 2025 results disclosed in our press release do not include any margin on intersegment sales. In the appendix of the deck we posted on our Investor Relations site in early April, we included reconciliations of our historical 2024–2025 quarterly segment data in an attempt solely to illustrate what those results would have been had our new segment reporting accounting and intersegment sales and margin agreements been in place at such time. The appendix of our first quarter 2026 investor presentation includes our segment data for 2026 as presented in our earnings press release, with additional adjustments shown so revenues and expenses are presented on the same basis as our 2025 as-adjusted results. For illustrative purposes, we provide comparison of the as-adjusted data for Q1 2025 and Q1 2026. All year-over-year comparisons in my portion of the call are based on the figures in our earnings press release. To the extent you have any questions, please do not hesitate to reach out to Brian, Investor Relations. Our first quarter 2026 results reflect stronger operating performance across the business and improved rental fundamentals, particularly in our T&D end markets. For the first quarter, total revenue was $462 million and adjusted EBITDA was $98 million, representing 933% growth, respectively, versus Q1 2025. Turning to our segments. In SER, first quarter third-party revenue, excluding intersegment sales, was $194 million, up 16% year over year, driven by strong double-digit growth in both rental revenue and rental equipment sales activity. Segment adjusted EBITDA of $105 million was up 23% year over year, with segment adjusted EBITDA margin in Q1 of 51.5%, up more than 415 basis points versus Q1 2025, continuing the momentum we experienced in 2025. Our key rental KPIs in SER remained quite strong in Q1. Utilization averaged 81.4%, up 370 basis points versus Q1 2025. Average OEC on rent in the quarter was $1.34 billion, up more than $141 million, or 12%, versus the same period in 2025. On-rent yield in the first quarter was 38.9%, reflecting both sequential quarterly and year-over-year increases. On-rent yield remained within our targeted upper-30s to low-40% range, and we continue to see opportunities for rate improvement as transmission mix grows and pricing discipline holds. Our current historically strong rental KPIs reflect both increased rental activity and the continued scaling of our fleet to meet demand. Net rental CapEx in Q1 was more than $49 million, and our fleet age at quarter end was just under three years, a modest increase from the end of last quarter, which is consistent with our plan to reduce maintenance CapEx and age the fleet somewhat this year. Our OEC in the rental fleet ended the quarter at almost $1.6 billion, up more than $107 million versus the end of Q1 2025, and up more than $18 million in the quarter. The increase reflects disciplined fleet investment against strong demand, particularly in T&D. While we expect to continue to invest in the fleet in 2026, our planned decrease in maintenance CapEx in 2026 compared to 2025 should contribute to increased free cash flow generation this year. In STEM, first quarter third-party revenue was $268 million, up 5% year over year, comprising equipment sales growth of more than 4% and parts sales and service revenue growth of almost 17%. STEM segment adjusted EBITDA was $33 million and segment adjusted EBITDA margin was 9% in the quarter. Recall that our 2025 segment adjusted EBITDA does not include any margin on intersegment sales, while 2026 segment adjusted EBITDA does. STEM margin gains in the quarter were driven by significant cost-out and productivity improvements led by our production team. Importantly, our new sales backlog ended Q1 at $411 million, up more than $76 million sequentially, within our expected range of roughly four to six months. We have continued to see strong order growth so far in Q2 2026, and our backlog currently stands at more than $425 million. Turning to the balance sheet and liquidity. With LTM adjusted EBITDA more than $408 million, and net debt of $1.65 billion, we finished Q1 with net leverage of slightly more than four times. This represents an approximately 30 basis point sequential improvement and approximately 80 basis points versus Q1 2025. Availability under our ABL was $257 million as of March 31, and based on our borrowing base, we have more than $190 million of additional availability that we can potentially access by upsizing our existing facility. Free cash flow generation and deleveraging remain key focus areas for us. Our inventory increased during the first quarter, reflecting seasonal order flow. Even with that increase, we expect to reduce inventory and floor plan balances over the balance of 2026, which should support improved free cash flow generation. With respect to our 2026 guidance, the macro demand across our key end markets remains very strong. We expect the STEM segment to continue to benefit from an overall favorable macro demand environment as well as strong relationships with our key customers and chassis and attachment suppliers. Our strong order backlog supports this. In our SER segment, consistent with our Q1 results, we expect this trend to continue in 2026. Demand for our equipment that serves the T&D utility markets continues at record levels, and we expect the vocational rental market to provide incremental growth as we further penetrate this expanding end market. We finished 2025 with the average age of our fleet at just over 2.9 years, down by more than a year since the beginning of fiscal 2022. As a result, we expect to be able to significantly reduce maintenance CapEx in our rental fleet in 2026 while continuing to generate growth. Our increase in fleet age to just under three years in the first quarter reflects this. We expect to grow our rental fleet based on net OEC by mid-single digits in 2026, with a net investment in our rental fleet of approximately $150 million to $170 million, a meaningful reduction from our $250 million in 2025. After prior years' investments in inventory, driven by the strong demand environment, we expect to continue making progress on further net working capital improvements in 2026, as we continue on our path of reducing inventory months on hand to our targeted range of below six months. As a result, we expect to generate more than $50 million of levered free cash flow and reduce our net leverage ratio to meaningfully below four times by the end of fiscal 2026, while progressing towards our three times net leverage target in 2027. Our affirmed 2026 revenue guidance reflects total revenue in the range of $2.005 billion to $2.12 billion. Given conditions in the T&D end markets, we are raising both the bottom and top ends of our adjusted EBITDA guidance and now project a range of $415 million to $440 million, resulting in year-over-year revenue growth of 3% to 9%, and adjusted EBITDA growth of 8% to 15%. We still expect non-rental CapEx of $40 million to $50 million. Our segment guidance for 2026 remains unchanged. We are projecting SER revenue of $835 million to $870 million and STEM revenue of $1.58 billion to $1.655 billion, with STEM third-party revenue growth of 3% to 10%. Overall STEM sales, including intersegment sales, are expected to be flat to slightly down solely as a result of the expected reduction in SER maintenance rental CapEx this year. Despite 2025 being a tough comp given the near-record level of new equipment sales in the quarter, given current trends, we do expect to show year-over-year growth in adjusted EBITDA in Q2. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite broader macroeconomic uncertainty, recent results and end market fundamentals support our confidence in the long-term demand drivers and our ability to deliver meaningful adjusted EBITDA growth this year. With that, operator, we can open the line for questions. Operator: We will now open the call for questions. 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 Michael Shlisky of DA Davidson & Co. Michael, your line is open. Please go ahead. Michael Shlisky: Thanks. Good morning. Thanks for taking my questions here. Let me start off with a tariff question. Any worries you have on the recent changes to the Section 232 tariffs, either on recent quotes you have made or on what is in your backlog? Can you compare what the OEMs are saying on chassis pricing because of the tariffs compared to what you may be seeing from the body or back part of the truck that you are building? Ryan McMonagle: Yeah, Mike, good to talk to you, and great question. I think we are in a pretty good spot when it comes to tariffs, as we have talked about. Obviously, having inventory on the ground puts us in a good position. We are seeing a little bit of tariff exposure on some of our bodies because of February, but I think the team has done a good job managing that, and so I feel like we are well positioned. And then OEMs—as we are talking with OEMs—that is a discussion, but the bigger discussion right now seems to be getting orders for them heading into 2027. I think we are in a good spot overall, Mike. Michael Shlisky: Okay. Great. And then your metric of the average age being at roughly three years, that is up for the first time in quite some time. Can you maybe comment on how far ahead of the second-place player you are on average age? I am wondering how much you can age the fleet and still be reasonably ahead of peers and have a great-looking fleet. Is there a very big cash piece that you could be getting if you aged it, let us say, a half year or a year, or would you still be in front of your larger peers on the fleet side? Ryan McMonagle: Yeah, it is a great question. There is not great data on the other fleets and age of fleet, so it is more based on feel and what we hear from our customers. But I will give you this data point. When we put the business back together in 2021, the average age of the fleet was just about four years. So we are about a year younger than we were then, and I think the business performed well at that age too. So I think that is the band that we have talked about. We have been as low as 2.9; we are still under three; and four years ago, we were just under four years old. That feels like a good band. You are right, there is real cash generation in there as you think about it. But most important, as you know, is taking care of the customer and making sure we give them the product that they need to keep them working and to provide for what our trucks do. Michael Shlisky: Okay. Thank you. I will pass it along. Operator: Your next question comes from Daniel Hultberg with Oppenheimer & Co. Daniel, your line is open. Please go ahead. Daniel Hultberg: Thank you. Hey, good morning, guys. Congrats on the quarter. I want to hone in on margin a little bit. I mean, obviously, the rental revenue growth is strong and that is higher margin. But you also mentioned productivity improvement, and I see in the deck it says effective cost management. Could you please elaborate on what you are doing on the cost side to drive margin here, as well as how it pertains to the guidance increase? And then on yield, it is like the last quarter up 40 basis points year on year this quarter. Could you speak to the pricing environment and the opportunity there, and what is embedded in the guidance as it is? Ryan McMonagle: Yes, great questions. The team has done a great job of managing through our overall cost structure. There have been a lot of efforts underway by our production team to drive productivity improvement, and I think we are seeing the benefits of that. As we have talked about on a few prior calls, we continue to evaluate our overall cost structure, and the team has done a good job to right-size it, particularly related to our production efforts, which is why you see the expansion in STEM gross margin in particular. On yield, we talked about on the last call that we took a price increase on the rental side of the business in December of last year. It was about a 5% price increase. Some of that is what is flowing through the on-rent yield number that you see. The other thing flowing through there is mix. Transmission is coming on very strong, and that is at a higher yield than distribution, due to the type of equipment that we are renting there. That has been influencing yield well. Price typically takes a full year to cycle through the fleet because we increase price only as new equipment goes out on rent. The mix impact will be a function of how strong transmission stays, which we expect over the balance of 2026. Christopher Eperjesy: As part of your question was about guidance, we raised the EBITDA guidance really because, as Ryan was touching on, the rental business is outperforming, but then also due to some of the operating execution that is happening. It really is a combination of those two—the mix and the operating execution—and not so much anything on the top line in terms of a more aggressive top-line assumption. Daniel Hultberg: Gotcha. Perfect. Thank you so much. I will turn it over. Operator: Your next question comes from Justin Hauke with Baird. Justin, your line is open. Please go ahead. Justin Hauke: Thanks for taking the question here. I wanted to drill into the EBITDA guidance. It increased a little bit more, which is great to see. Obviously, we are looking for more. If I look at the quarter, you guys were thinking EBITDA would be up kind of 10% plus. You were meaningfully above that, so you are kind of $10 million to $15 million ahead of where you were guiding to. You raised by $5 million. Is that conservatism? Was there anything that was maybe a one-time pull-forward in the quarter that was unusually strong, or how should we think about how the $5 million factored into the raise? Christopher Eperjesy: Yeah, Justin, if you look at Q1, Q1 of last year was going to be our easiest comp. I think our actual guidance was that we were going to be up double digits. I do not think we necessarily banded what we thought that was going to be. Clearly, SER continues to outperform. OEC on rent is up, you know, $160 million to $170 million through the first four months of this year. We are continuing to see that strong performance, and really it is that mix that is driving it. But if you look at Q2, you are going to see the exact opposite; that is a pretty tough comp for us. We talked about this last year on the call. We had two months within the quarter that had third-party new sales above $110 million, and those were the only two months outside of December that were ever above $100 million. So it is going to be a much tougher comp here in Q2. I would not say we are being conservative, but we are certainly being prudent. We felt it was the right thing to do to increase our guidance, and we feel comfortable in that $415 million to $440 million range. We will adjust it as the year goes on if it makes sense to do so. Justin Hauke: Okay. Fair enough. My next question: we have been seeing more articles about political pushback on data centers and some of these projects getting pushed out. I know your direct exposure to data centers is pretty modest, but the impact to some of these interconnect T&D projects—are you seeing anything where that is having a discernible impact, or is that just noise in the market in terms of people procuring things in anticipation of that work? Ryan McMonagle: It is a great question. We are still seeing strong demand from our customers for equipment. Public companies’ sentiment and reported backlog continue to increase. Our conversations with our customers are still bullish on additional transmission work that has not yet started, which is a good tailwind for us. As we look at macro reporting around line miles in service and what is coming online, it continues to be very positive. I would say the specific noise around data centers does not seem to be impacting our customers and the work they are planning to start over the coming quarters and years. Justin Hauke: Yep. That is what I figured. Thank you for answering those two. I appreciate it. Operator: Your next question comes from the line of Naim Kaplan with Deutsche Bank. Naim, your line is open. Please go ahead. Naim Kaplan: Hey, good morning. On for Nicole DeBlase. First question: given the substantial macroeconomic assumptions underpinning your T&D outlook—specifically, you mentioned 23% expected CAGR in data center power demand—how much of this impending infrastructure wave is already actively reflected in the quoting pipeline? Are there specific specialized equipment categories that you foresee could have industry-wide supply chain shortages? In SER, you mentioned the rental business is performing very strong with OEC on rent, utilization, and gross margins all continuing to perform ahead of expectations in 2026. So why would you not raise the guide there? Is there maybe some conservatism? Ryan McMonagle: Good questions. Broadly on transmission, we are seeing demand for transmission equipment continue to pick up. It is not back to the highest levels that it has been over the past several years, but it is continuing to pick up. Conversations with our customers suggest that will continue to increase for the foreseeable future—certainly for the balance of 2026—and we are starting to talk about 2027 at this point. We are not seeing any product category where availability of equipment looks like it could be an issue right now. It continues to be favorable—bullish—as we think about transmission in particular. Christopher Eperjesy: When I said SER was ahead of expectations, the comparison was versus last year, and really ahead of expectations on the margin front. That is why we felt comfortable taking up the EBITDA guide but leaving the revenue range where it is for now. Naim Kaplan: Okay. I appreciate it. I will pass it on. Operator: Your next question comes from the line of Brian Brophy with Stifel. Brian, your line is open. Please go ahead. Brian Brophy: Yes, thanks. Good morning, everybody. Congrats on the nice quarter. I want to ask about bidding activity. You mentioned it is quite healthy in your opening comments. Any more color on what you are seeing there? And on the new equipment side, last year there was some discussion on pricing pressure that you were seeing. It does not appear that you mentioned that this quarter. What is the latest you are seeing on the pricing front on the new equipment side? Ryan McMonagle: Thanks for the question, and good to talk to you. It is robust, which is probably a fair way to say it. For us, bidding activity happens most on the transmission side of things. There are several specific projects that are in process where we are bidding and are waiting on awards to be made. It continues to remain robust, and we think we should be well positioned for the rest of 2026 and heading into 2027. Christopher Eperjesy: Compared to this time last year, pricing is certainly more stable. There still is some pressure. Ryan touched on cost improvement and initiatives that have benefited margin and allowed us to offset some of that pressure. The way I would characterize it is it is certainly a lot more stable than it was this time last year. Brian Brophy: Appreciate it. I will pass it on. Operator: Your next question comes from the line of Analyst with Cantor Fitzgerald. Your line is open. Please go ahead. Analyst: Yes. Hi, good morning. It is Manish. Two questions. First on STEM: how should we think about the normalized margins for STEM? And the backlog was up nicely on a sequential basis—what is driving that, what are the conversations like with your customers, and what is the customer composition? You have a lot of small customers, so with the macro environment, what does that backlog segmentation look like? Christopher Eperjesy: Historically, we have given guidance on the biggest component of STEM sales—third-party new sales—of a 15% to 18% range. A couple years ago, we were pushing that 18% and even slightly higher. This past year, we were closer to 15%. We have seen that go up now the last couple quarters, and we are living closer to 16%. I think 15% to 18% is still a good range; we are probably going to live closer to the 16% to 17% range this year. That is the best way to model it. Ryan McMonagle: On backlog, we actually saw the biggest pickup with our small customers. We break them into our local and regional customers, and that is where we saw the largest increase in backlog. From a product standpoint, utility is very strong, and we saw a pickup in backlog in our utility and forestry segment more broadly with those small customers. Where we have seen less of a pickup is on the infrastructure side—waste and dump truck segments have not seen a significant pickup yet in backlog. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami, your line is open. Please go ahead. Tami Zakaria: Hey, good morning. Thank you so much. On the STEM segment, the backlog saw impressive growth. How much of the backlog is for 2026 versus beyond that? And because you resegmented your disclosures, of the $415 million to $440 million EBITDA guide for the year, what would be the mix from the two segments, SER versus STEM, in that full year number? One last one: the debt paydown target—three turns leverage by next year—do you expect any debt paydown, or is this all coming from EBITDA growth? Ryan McMonagle: Great question, and good to talk to you, Tami. The far majority of the STEM backlog will be for 2026 deliveries. There is very little at this point that we would not be able to deliver in 2026. Christopher Eperjesy: We do not give guidance for the segment EBITDAs. If you look at the prior year, you can get a relatively comparable mix. Given the guidance this year, there may be a little bit of a shift towards SER. I would look at what we disclosed on April 1, and you can use that as a proxy. One other point: as you do that, remember that the two segment adjusted EBITDAs will sum to a higher number than our consolidated guidance—you have to take into account the corporate unallocated cost, which you will also find in that April 1 presentation. On leverage, it will be both EBITDA growth and debt paydown. This year, we guided levered free cash flow north of $50 million. That would all be used to pay down debt. Tami Zakaria: Understood. Thank you. Operator: Your next question comes from the line of Abe Landa with Bank of America. Abe, your line is open. Please go ahead. Abe Landa: Morning. Thank you for taking my questions. One quick housekeeping: I know last year, within your STEM segment, it does not include margins on intersegment sales. If we were to look at it from an apples-to-apples perspective, what would that change be? And then shifting gears to the general environment—there are a lot of data centers, a lot more generation is on-site. Are you seeing that impact demand in any way, whether mix or actual absolute level of demand? How is that shift and the data center buildout impacting buy versus rent decisions by utilities, contractors, etc.? Lastly, longer term, you are saying inventory levels are going to be below six months by year-end. What is that number today and how do you expect that to trend during the year? Do you expect the EPA 2027 rules to have any impact on that? And overall on working capital, what are you assuming for the year, with inventory reduction being offset by revenue growth? Christopher Eperjesy: I do not have the intersegment apples-to-apples figure off the top of my head, but if you look in the April 1 presentation on our website, as well as the one we posted last night, that information is in there. On inventory, we are somewhere north of seven, probably closer to seven and a half months right now. It is typical to see an increase in Q1—seasonal timing and getting ready for the second half—and this year is consistent with that. We are only slightly higher than our expectation for this time of year—less than $10 million higher than we had forecasted. We had given guidance that we would expect to get north of $100 million year-over-year out of inventory as part of our working capital initiative this year. I would point out that the $100 million does not translate to $100 million in cash because between 75%–80% of the inventory is floor plan. Typically, if you reduce inventory by $100 million, you may generate $20 million of cash. In terms of our guide of $50 million levered free cash flow for the year, you are probably going to get between $30 million and $40 million from working capital. Ryan McMonagle: On the demand questions, generally, on-site generation around data centers is not impacting our demand in a significant way. It is something we watch, but it is not impacting our business directly. It is also not significantly impacting buy versus rent. As we have discussed, transmission is often rented because of the nature of the equipment, while distribution is more commonly bought and rented. On EPA 2027, we are in a really good spot. Three things to highlight: first, the age of the fleet—having roughly 10 thousand pieces in our fleet that are under three years positions us well for the new engines; second, having inventory on the ground—we are just over seven, seven and a half months now, and being at six months at the end of the year positions us well with current model year chassis heading into next year; and third, the strength of our relationships with our chassis OEM partners and our dealers. We are well positioned as we continue to watch how the mandate comes through and the final rulings from the EPA around warranty and other open questions. Abe Landa: Thank you for the time. Operator: Your next question comes from the line of Analyst with Cantor Fitzgerald. Your line is open. Please go ahead. A reminder to unmute locally if you would like to ask a question. Analyst: Hi. Can you hear me? Wonderful. Maybe, Ryan, can you talk about some of the bottlenecks that could slow execution despite strong end markets? Then maybe Chris—what is going to take over the next one or two quarters for you guys to raise the free cash flow outlook? Thank you. Ryan McMonagle: On bottlenecks, we are in a good spot, but we are watching our supply chain closely. Transmission seems very strong right now, so we are working closely with our suppliers—on the back end, that is our largest supplier on the transmission side, and some of our pulling and stringing suppliers as well—and we are working closely with our chassis suppliers. These are typically larger trucks, all-wheel drive—six-by-six and four-by-four chassis. It is making sure that supply chain continues to perform, which it is currently, but that is where a bottleneck would come from if one were to show up. Christopher Eperjesy: On free cash flow, we talked about three major areas that will drive it. First, incremental EBITDA—if you take the midpoint of EBITDA guidance, that is up $40 million to $45 million year over year. Second, rental CapEx—the net investment last year (growth CapEx plus maintenance CapEx less proceeds from sales) was roughly $250 million; we said it is going to be meaningfully less this year, in particular on the maintenance CapEx side—roughly $100 million less. Third, inventory—the bulk of the reduction is going to come in the second half, and typically our best free cash flow period is Q4. Those are the three main drivers: incremental EBITDA, lower net rental CapEx, and working capital unlock. Analyst: Okay. Wonderful. Chris, thank you so much. Ryan, best of luck as well. Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Ryan McMonagle for closing remarks. Ryan McMonagle: Thanks, everyone, for your time today and your interest in Custom Truck One Source, Inc. We appreciate the continued engagement and look forward to updating you next quarter. In the meantime, please do not hesitate to reach out with any questions. Thank you again, and have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Please standby, your meeting is about to begin. Welcome to the Crane Company First Quarter 2026 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions and answers following the prepared remarks. Lastly, should you require operator assistance, please press 0. I would like to now turn the call over to Allison Ann Poliniak-Cusic, Vice President of Investor Relations. Please go ahead. Allison Ann Poliniak-Cusic: Thank you, operator, and good day, everyone. Welcome to our first quarter 2026 earnings release conference call. I am Allison Ann Poliniak-Cusic, Vice President of Investor Relations. On our call this morning, we have Alejandro A. Alcala, President and Chief Executive Officer, and Richard A. Maue, our Executive Vice President and Chief Financial Officer, along with Jason D. Feldman, Senior Vice President, Investor Relations, Treasury and Tax, who is on for Q&A. We will start off our call with a few prepared remarks from Alejandro A. Alcala and Richard A. Maue, after which we will respond to questions. As a reminder, the comments we make on this call will include forward-looking statements. We refer you to the cautionary language at the bottom of our earnings release and also in our Annual Report on Form 10-Ks and subsequent filings pertaining to forward-looking statements. Also during the call, we will be using some non-GAAP numbers, which are reconciled to the comparable GAAP numbers in tables at the end of our press release and accompanying slide presentation, both of which are available on our website at craneco.com in the Investor Relations section. Now let me turn the call over to Alejandro. Alejandro A. Alcala: Thank you, Allison. Good morning, everyone. I appreciate you joining us today. As I step into the role of CEO, I am energized by the opportunity to lead Crane at a time when strong leadership, disciplined execution, and agility truly matter. Much like this time a year ago, we are operating in an environment that continues to evolve rapidly. Fortunately, our business system, the CBS machine, together with our global team’s relentless focus, resilience, and commitment to execution with a disciplined cadence, continues to differentiate Crane Company. We view periods of uncertainty and market dislocation not as obstacles but as opportunities to elevate our performance. Time and again, Crane has emerged from challenging environments stronger than before and increasingly advantaged relative to our competitors. We are off to a strong start in 2026, with first quarter results reflecting excellent execution across the company, exceeding our expectations and underscoring the strength of our teams and our commitment to delivering shareholder value. Adjusted EPS of $1.65 was up 15% over the prior year, driven by 4% core sales growth reflecting broad-based strength at Aerospace and Advanced Technologies and continued strong execution at Process Flow Technologies, including solid core order and backlog momentum. Also of note was the strong performance of our recent acquisitions that drove a substantial amount of upside in the quarter relative to our expectations. Druck, Panametrics, Reuter-Stokes, and OPTECH all performed exceptionally well, with integration and deployment of CBS progressing ahead of plan and early benefits emerging faster than anticipated and ahead of what was reflected in our January guidance. We entered the year with positive momentum at both AAT and PFT. As the first quarter progressed, our execution further strengthened our confidence in the underlying earnings trajectory for the year. At the same time, however, the external environment became more challenging. Geopolitical dynamics are evolving and macroeconomic uncertainty is still very much part of the backdrop. Taking all of this into account—our performance to date and the range of scenarios, risks, and opportunities we see ahead—we are raising our adjusted full-year outlook by 10 cents to a range of $6.65 to $6.85. Our guidance reflects what we have clear line of sight to and a high level of confidence in delivering, even against a more uncertain macro backdrop. It assumes continued elevated energy prices and inflation through the balance of the year and already factors in a potential decline in commercial aftermarket. In addition, as you would expect, our teams have actions to get ahead of the increased inflation as we move through the year. We remain focused on execution, continuing to build on our momentum, and finding potential opportunities to overdeliver. Across the organization, we continue to stay agile in a dynamic environment. Our deep management teams have been here before, and we will manage with the cadence and disciplined execution that you have all come to expect from Crane Company. Now some thoughts on the performance of the recent acquisitions and the segments in the quarter, and as we look to the balance of 2026. As I mentioned, the acquisitions performed exceptionally well. I am extremely pleased with the execution and pace of improvements. Over the years, we have built tremendous organizational capability that has enabled us to integrate four businesses simultaneously at speed and with zero disruption to the core businesses. This performance reinforces the strength of CBS and the opportunity to create meaningful shareholder value through continued disciplined inorganic growth combined with the power of the CBS machine. The teams are energized, having fun, and driving results better than our expectations at the start of the year. Strong operational execution, restructuring and cost actions, and early commercial excellence momentum drove a majority of the upside relative to our January guidance, reinforcing our confidence in both the quality of the businesses and our integration playbook. Margins across the acquired businesses were substantially improved from last year and ahead of our plan, and we see opportunity for continued progression in the quarters ahead. More specifically, we now expect the margin and earnings contribution from the acquisitions to be more evenly weighted throughout the year compared to our prior expectation of back-half-weighted performance. Based on what we are seeing today, we now expect accretion for the full year to be at least double what we communicated in January, or about 15 cents of EPS. My confidence in exceeding our target ROIC by year five has only increased over the last few months. I am so proud of all our new associates that have joined Crane this year, and I am excited to see how we will continue to take these outstanding brands in the future. We are already moving beyond just the tactical integration actions and are well on our way with strategy deployment, painting a very exciting future for everyone, including our shareholders. Turning to Aerospace and Advanced Technologies, we continue to see strength across the aerospace and defense demand environment. The backlog we built, along with the new programs and opportunities our Aerospace and Advanced Technologies teams have secured, continue to provide us with great visibility well beyond 2026. Looking to the balance of the year, we continue to expect full-year core sales growth for the segment to land at the high end of our long-term 7% to 9% range. On the commercial side, OE activity remains healthy, with Boeing continuing with strong production rates. Commercial aftermarket revenue was down as expected in the quarter due to unfavorable year-over-year comparisons, while commercial aftermarket orders were up 11% in the quarter. While we have not seen an impact to orders at this time, given the geopolitical situation, elevated oil prices, and long-haul travel disruption through the Middle East, we could see an impact to commercial aftermarket as the year progresses. However, even factoring in a decline in commercial aftermarket, we remain confident in our 7% to 9% sales growth range leveraging at 35% to 40%. Richard will provide more details on how we are thinking about this. On the defense side, there has been a lot of activity and interesting industry announcements over the past few weeks. Procurement spending remains solid, and there is a continued focus on strengthening the broader defense industrial base given the heightened global uncertainty we continue to see. We are seeing significant demand signals across both missile defense and radar applications, among other areas in our portfolio, further strengthening the long-term outlook, with the potential for some benefit this year depending on order timing and lead times. In the quarter, we received strong orders for the PAC-3 program and remain under negotiations for similar wins. Additionally, we received incremental orders for LTAMDS and are currently under negotiations for additional contracts with other providers. We fully anticipate additional orders in these two defense growth areas as we move through the year, and beyond this, we continue to develop new technologies, win new business, and pursue additional opportunities across this segment that give us confidence we will deliver above-market growth for the rest of the decade. Particularly on the defense side, we expect replenishment of military aircraft spares and missiles along with continued demand for ground-based radar systems, all extending the period of strong demand for years. We are very confident in yet another outstanding year at Aerospace and Advanced Technologies. At Process Flow Technologies, it was another solid quarter and we remain well positioned to consistently outgrow our markets across the cycles. We have deliberately repositioned the portfolio around our core end markets—pharmaceuticals, wastewater, cryogenics, chemicals, and nuclear power—where we hold strong competitive positions and differentiated capabilities that support sustainable market outperformance. Overall demand for the quarter came in slightly ahead of our expectations, and execution was strong, driving a 50-basis-point improvement in adjusted margins even with the dilutive impact of acquisitions. On the order side, power generation remained a key area of strength. We also saw solid project activity in pharma tied to U.S. capacity expansion, continued momentum in cryogenics driven by capacity needs within the space launch segment, and strong orders in LNG. In nuclear, as part of the Holtec Palisades restart, we were able to add value by extending contract terms. With respect to the ongoing conflict, note that only about 5% of PFT segment sales are directly exposed to the Middle East. While we are continuing to ship today and overall demand in the region in the quarter was on track, we do see projects moving to the right and potentially impacting the balance of 2026, along with some shipment lane disruptions. Notably, we are not seeing cancellations. Longer term, we do see incremental opportunities for rebuilding as the geopolitical environment stabilizes. Even with this uncertain backdrop, we continue to invest for long-term growth through disciplined execution of our multiyear technology and new product development roadmaps, along with ongoing commercial excellence initiatives, all supported by strong and consistent operational execution. Tactically, we have proven our ability to respond quickly to changes in demand. We will remain nimble during this period, taking appropriate pricing and cost actions as needed. For the full year, we still expect core growth to be consistent with our initial guidance of flat to low single digits, leveraging within our target range of 30% to 35%. In summary, a really solid start. Our strategy is unchanged, and we remain focused on managing through any near-term demand variability without losing sight of our long-term objectives. Taken together, our businesses remain exceptionally well positioned to continue delivering strong results. We also continue to see significant opportunity to further enhance performance through acquisitions. Our balance sheet remains exceptionally strong, with substantial available M&A capacity. We continue to pursue our robust pipeline of potential opportunities. M&A activity has not slowed, and we are actively engaged on a number of opportunities across both Aerospace and Advanced Technologies and Process Flow Technologies. While there is nothing imminent at this point, our pipeline remains healthy, and we remain disciplined and selective as we evaluate potential transactions. Before turning the call over to Richard, I want to emphasize that while external conditions remain dynamic, our focus has not changed. We remain disciplined in the areas we control—execution, customer focus, cost improvement, development of our people, and continued investment in our growth initiatives and technology roadmaps. We believe this approach positions Crane Company to outperform our end markets and create long-term shareholder value. Regardless of near-term volatility, over the long term, our approach remains consistent. We will deliver 4% to 6% long-term core sales growth through the cycles from resilient and durable businesses with solid aftermarket, substantial operating leverage on top of already solid margins today that should lead to double-digit average annual core profit growth, with significant upside from capital deployment. Now let me turn the call over to our CFO, Mr. Richard A. Maue, for more specifics on the quarter. Richard A. Maue: Thank you, Alejandro, and good morning, everyone. Wow, what a start to the year. Let me start off with total company results. Total sales were up 25% in the quarter compared to last year, with 4% core growth driven primarily by the ongoing strength within the Aerospace and Advanced Technologies segment. Sales from acquisitions contributed 18% in the quarter, which was modestly above expectations, reflecting strong execution as these four new businesses become a part of the Crane machine. Adjusted operating profit increased 29%, reflecting the impact of the higher core sales, contribution from the acquisitions, and productivity and favorable price net of inflation—truly outstanding results. Total core FX-neutral backlog was up 9% compared to the first quarter last year, reflecting continued strength at Aerospace and Advanced Technologies, and core backlog was up 3% sequentially driven primarily by Process Flow Technologies. Core orders were down 5% year-over-year, but were modestly better than we expected. The decline was entirely driven by an unfavorable comparison within Aerospace and Advanced Technologies; a 15% decline reflected the record first-quarter orders last year in this business, which included several multiyear orders that we highlighted to you last April. Core orders in PFT increased 5% compared to last year, and core backlog in PFT was up 7% compared to December. Backlog and orders across the acquisitions were also solid, coming in modestly above our expectations, continuing to support a strong full-year outlook. From a balance sheet perspective, we ended the quarter with pro forma net leverage at 1.4 times, leaving us well positioned for further M&A, as Alejandro noted. A few more details on the segments in the quarter. Starting with Aerospace and Advanced Technologies, sales of $318 million increased 28% in the quarter, with core sales up 9.4%. Our backlog of nearly $1.2 billion increased 14% on a core basis and increased 24% including Druck. On a sequential basis, core backlog increased 2% with total backlog up 11%—again, no surprises and at record levels. Demand remains strong. We are seeing increasing RFP and RFQ activities across several defense programs supporting missile defense and ground-based radar, some of which reflect recent wins at some of our defense customers, giving us further confidence in our multiyear outlook. Let me spend a minute on the core business in the quarter. On the OEM side, sales were strong, up 16%, with commercial OEM up 20% and military up 10%. Total aftermarket was down 2% in the quarter, with military aftermarket posting a very strong increase, up 28% in the quarter, reflecting the breadth and strength of our portfolio. That military strength was offset by commercial aftermarket, which was down 13% as expected. Specific to commercial aftermarket, shipments were largely in line with what we expected for Q1 but with an unfavorable comparison against higher initial provisioning in the prior-year first quarter. Even with that decline, we came in above our growth expectations for the quarter. Of note, commercial aftermarket orders in the quarter were up 11% year-over-year and 10% sequentially. While we have not seen any impacts to orders so far resulting from the ongoing conflict, elevated oil prices and disruptions to long-haul travel through the Middle East could create pressure on commercial aftermarket as the year progresses. We are factoring into our guidance that commercial aftermarket could decline on a full-year basis. Taken altogether though, we remain very confident in our full-year segment sales outlook. We continue to expect total core sales growth at the high end of our 7% to 9% algorithm. While the mix across sub-segments may shift as the year plays out, our overall guidance is unchanged and that really speaks to the diversity and durability of our Aerospace and Advanced Technologies portfolio. Adjusted segment margin of 24.6% compared to 26.2% last year, primarily reflecting the impact of the Druck acquisition. This was an outstanding result and nearly 200 basis points better than we expected given Druck outperformance in the quarter as well as continued strong performance in our core AAT business. At Process Flow Technologies, in Q1 we delivered sales of $378 million, up 23% compared to a year ago, with core sales down 0.6%—slightly better than we anticipated—with the acquisitions of Panametrics, Reuter-Stokes, and OPTECH Danielote adding 19 points of growth, and FX contributing four points of growth in the quarter. Compared to the prior year, FX-neutral backlog at PFT decreased 2.5%, but on a sequential basis improved a solid 7%. In addition, core FX-neutral orders were up 5%, also modestly above our expectations. Adjusted operating margin of 22.1% was approximately 50 basis points above the prior year, and this was inclusive of the dilutive impact from the recent acquisitions and, like Aerospace and Advanced Technologies, results were above our expectations given better performance across our core businesses and each acquired business. Productivity is reading through as well as price net of cost. In the quarter, the impact from the conflict in the Middle East was nominal. As Alejandro mentioned, we have just under 5% of total exposure in-region on a full-year basis. We expect projects to move to the right, and we do expect notable freight and other inflationary headwinds as we move through the balance of 2026. Our teams are already executing to ensure no net inflation risk to the P&L inclusive of margin impacts. In summary, we continue to expect core operating leverage for the segment between 30% to 35% for the full year. Moving to the non-operational items below the segments, corporate expense for the quarter was $24 million, slightly lower than our expectations. Recall, we anticipated corporate expense to be highest in Q1 due to accounting rules that require accelerated amortization of stock-based compensation expense for associates that are retirement eligible. For 2026, we continue to forecast corporate expense to be in the range of $80 million to $85 million. Given the funding for the acquisitions of Panametrics, Druck, Reuter-Stokes, and OPTECH Danielote, net non-operating expense in the quarter was $15 million, and we continue to estimate full-year 2026 net non-operating expense of approximately $58 million. Lastly, we continue to expect our tax rate for 2026 to approximate 23%. Taking all of this into account—our performance to date as well as the risks and opportunities we see ahead—as Alejandro mentioned, we are raising our adjusted full-year guidance by 10 cents to a range of $6.65 to $6.85, again reflecting what we have clear line of sight to and a high level of confidence in delivering. Looking at the cadence of quarterly results for the year, we expect Q2 to be similar to Q1, and our full-year earnings split to now be more balanced at around 49% to 51% between the first and second half given the strong Q1 performance. The second-half earnings performance is expected to be more evenly balanced relative to our historical quarterly cadence of a sequential decline from Q3 to Q4, given the expected performance of our recent acquisitions. We began the year with performance that exceeded our expectations, underscoring the strength of our teams, our strategic direction, and our execution. We remain committed to building on that momentum and consistently delivering results. You know, Alejandro, all the uncertainty that everyone is talking about this earnings season reminded me of a notable quote from the Academy Award-winning actor Ryan Reynolds from the timeless movie classic National Lampoon’s Van Wilder: “Worrying is like a rocking chair. It gives you something to do, but it does not get you anywhere.” At Crane Company, leveraging our CBS machine, we are very intentional and focused on what is in our control no matter what the environment, and we always view periods of uncertainty as periods of opportunity. And with that, operator, we are now ready to take our first question. Operator: Thank you. The floor is now open for questions. We will take our first question from Amit Mehrotra. Please go ahead. Your line is open. Amit Mehrotra: Thanks, operator. Good morning. I wish I had a good movie quote, but I will have to come up with one next quarter. Maybe starting with the progress you are making on PSI, which is obviously very, very strong and clear. Maybe just unpack where the upside is coming from across Druck, Panametrics, Reuter-Stokes. Obviously, you have had this target of getting from $60 million to $150 million over five years to hit that ROIC target. It seems like you are achieving that greater or even faster. Maybe you can just update us on timing with respect to that progression. Alejandro A. Alcala: Good morning, Amit. Thank you for that question. Related to PSI, the quarter upside—I mentioned three areas. First, the execution of the three businesses was stronger than expected. Just as a volume standpoint, demand is stronger, execution has been very solid, so that created some upside. The cost actions—you may recall that we are taking two types of cost actions in the short term. One is eliminating the overall PSI layer, the management layer—we are really operating these three businesses—so that was executed very well. Then within the businesses, as we are executing product line simplification, there is realignment of resources and restructuring. The teams moved quite quickly in the quarter and we started to see some of that upside. The third element is the beginnings of value pricing and commercial excellence that are starting to read through as we move, also at great speed. I expect that to improve during the year. Related to timing overall, this year we came in thinking on the top line the PSI set of businesses would be in the range of 4% to 6% growth. We are now thinking closer to the higher side of that range. And we were thinking we would improve 200 basis points of margin, and now we are thinking at least 300 basis points of margin. So we are ahead of schedule of our plan, which puts us overall in that five-year timeline really gaining ground. We are very confident in overdelivering to those benchmarks. Amit Mehrotra: Great, thank you for that. And just maybe as a follow-up, can we talk about PFT core order improvement? Obviously, very strong sequentially. Is it enough to call an inflection in the process flow cycle? Where are you seeing the strongest momentum across the various regions and end markets? If you could just double click on that in terms of what you are seeing in that momentum. Alejandro A. Alcala: On orders for PFT, the strength has come in some markets that we have been highlighting in the past and that has continued. I think that will continue through the year—power generation in the Americas, pharmaceuticals, cryogenics, wastewater in particular gave us the upside. That has been pretty consistent. Interestingly, we do not see those segments impacted by higher energy prices, so we think demand will remain solid through the year. Chemicals has continued to be sluggish, at a trough holding, but I would not call it an inflection point yet until we see that piece of the business changing. Historically, higher energy prices have led to increased demand in that chemical segment, but it takes a while to read through, particularly in the Gulf, where customers see that benefit of feedstock between gas and oil. Even though end-customer demand may be slower, it still makes sense to invest and expand capacity, debottlenecking, and so forth. So I think it is solid—better than we expected going into the year—and we feel better about the prospects than we did three months ago, but not quite calling an inflection, especially on chemicals. Amit Mehrotra: Great. Thank you very much. Congrats on the good results. Appreciate it. Alejandro A. Alcala: Thank you. Thank you, Amit. Operator: Thank you. We will take our next question from Matt J. Summerville of D.A. Davidson. Please go ahead. Your line is open. Matt J. Summerville: Thanks. A couple questions. Can you comment on the magnitude of EPS accretion you witnessed as it pertained to the acquisitions and specifically what you have done to drive near-immediate linearity in those businesses, which last conference call were sort of deemed to be quite second-half loaded overall? And then I have a follow-up. Richard A. Maue: Yes, so we did see some accretion in the quarter, as Alejandro mentioned. Given the results, we feel like we are going to see at least double what we thought on a full-year basis. Coming into the year, we had about an 8-cent number in mind, and we felt comfortable today saying that we would see a full year of 15 cents. We did see a portion of that here in the first quarter. I would not say it is necessarily linear, but perhaps close. That would be the overall impact and how we are feeling about the business. Alejandro A. Alcala: To add, Matt, on the cost actions that we took, we were able to execute faster than we had originally planned. That creates not only upside for the year, but also more balanced earnings through the year. That said, as some of this backlog with improved pricing reads through, we still expect to see some gradual improvements from the acquisitions as the year progresses. Richard A. Maue: Yes, the only other thing I would add is that we saw a little bit more in the way of volumes being stronger as well, in particular for Druck. Matt J. Summerville: Understood. Thank you for that. Maybe expand on the actionability you are seeing in the M&A pipeline. Can you handicap whether you see more deals getting over the finish line before the end of the year into the early part of 2027? And is the average deal size starting to mount higher, maybe more similar in nature to the size of PSI, as an example? Alejandro A. Alcala: Activity in M&A opportunities continues to be quite strong. There is a lot happening. We are involved in several processes on both segments. It is a range of sizes. We have commented before that our sweet spot is around that $500 million of value, but there are deals smaller than that we are looking at that seem quite interesting as bolt-ons, and there are some deals a little bit bigger than that that also look interesting. It is a bit opportunistic. We will remain disciplined. We will see how the year plays out. As far as activity and focus, there is quite a bit happening. Richard A. Maue: I think that sums it up. From a complexity and bandwidth perspective, everything we are looking at—nothing is going to cause us to hesitate in the way of resource constraints. Matt J. Summerville: Understood. Thank you, guys. Operator: Thank you. We will take our next question from Jeffrey Todd Sprague with Vertical Research. Please go ahead. Your line is open. Jeffrey Todd Sprague: Hey, thanks. Good morning, everyone. I wanted to come back to the comments about aero aftermarket. I completely understand it could fade as the year progresses given what is going on, but it is a little unclear what you are actually doing with your guidance. Are you saying it could be weaker but you can make it up elsewhere, or have you dialed in a decline in aftermarket in the way you have guided the year here? Richard A. Maue: Thanks, Jeff. Maybe a little perspective to start as well. If you remember when we came into the year and initially issued our guidance for commercial aftermarket, we were, I would say, on the lower end of what the rest of the industry was projecting—something like mid-single-digit growth—and we did get a lot of questions back on that. Here we are a quarter later and we see the headwinds in the marketplace, potentially from the Middle East conflict and so forth, and we are basically saying we are going to guide down. So our guidance reflects a down number for commercial aftermarket. Now when you consider what our initial guide was, the move—and you can all do the math—it is not a big number overall. In terms of offset, what we are seeing is a pretty considerable demand increase in military, in particular in spares. Aftermarket was up 28% in the quarter. We have the incremental benefit that comes in the second quarter through the balance of the year in the F-16 brake control upgrade program. So when you step back and look at the overall complexion of our aftermarket and where we are coming from off the first guidance number that we put out in January, we feel highly confident that we are going to offset even in this revised down outlook for commercial aftermarket. Alejandro A. Alcala: If it plays out differently, Jeff—aftermarket demand has been resilient post-COVID, as you know, to higher energy, and travel has been resilient—but if it plays better than our assumption, then that is an opportunity for us, an upside. We felt comfortable assuming a more conservative view because we have the offsets already with line of sight in our backlog. Jeffrey Todd Sprague: Great. Very clear. And then back to PSI: to what degree have you seen the commercial front end of the business change? These are very good businesses but “orphan,” so to speak, inside a larger organization. Are you seeing better order intake or inquiries in some of those businesses than you might have otherwise expected, or is the upside more about pricing and cost actions you already elaborated on? Alejandro A. Alcala: On the commercial side, there have been significant changes in how we operate, which projects we go after, and how we go after them. We are being more successful in winning target projects that are more interesting and more profitable for us, very quickly. Also around our pricing practices—value pricing—those would be the primary areas where we are starting to see differences. We had a six-month period to really prepare and ramp up, and those are the areas we have been able to impact shortly. Now we are starting to work the strategies of longer-term growth which were never baked into our model, and we think there is upside even to the numbers that we talked about as those initiatives develop. Jeffrey Todd Sprague: Maybe just a quick unrelated one: do you have plenty of capacity in your defense businesses for these missile-related ramps, or should we expect some more capacity going in to ride this wave? Alejandro A. Alcala: We have plenty of capacity. Richard and I just did a deep-dive review with the team a few weeks ago. We are very well positioned. I think the pacing item in the industry will be more with the primes. We can significantly outpace the ramp-ups of the manufacturers of the actual missile. We are in pretty good shape there. Jeffrey Todd Sprague: Great. Thank you. Operator: Thank you. We will take our next question from Justin Ian Ages with CJS Securities. Please go ahead. Your line is open. Justin Ian Ages: Hi, good morning all. You mentioned chemicals still sluggish, holding at trough levels, and I just want to know how that fits into the broader commentary you gave about seeing some PFT projects being pushed out. Is that chemical being pushed out, or have those already been pushed out, so no change in the timeline there? Alejandro A. Alcala: The pushouts that we commented on were specific to the Middle East dynamic, and it is really related to the conflict where some of the petrochemical areas or refineries have been shut down temporarily. Some of that activity has pushed out to the right—no cancellations. That is very unique to that region and that conflict. As we started Q2, we started seeing those things begin to move a little bit faster than I thought they would. That said, in our guidance, we did factor in some delays in projects in that region—the Middle East—from a conservative standpoint. If it moves faster, then again it will be a positive for us. More broadly in chemicals, with higher oil prices we expect the Gulf at some point to see some momentum in projects. That will take several quarters. We are starting to see a little bit of MRO activity pick up, particularly in the Americas, which usually precedes project investments later in the year going into next year. Justin Ian Ages: Thanks for that, Alex. And then staying in PFT, you mentioned good performance in cryo. Can you give us some color on the size of that space and the market opportunity there? Alejandro A. Alcala: Our cryo business today is about 4% to 5% of total PFT, but it is growing at mid-teens—15%, 16%, 17%—so it is growing quite fast. It is mainly Americas-based, servicing very high-growth markets like space launch—commercial space launch is increasing significantly. Supporting that launch platform, not on the actual rockets or aircraft but on the launch infrastructure, is where we are seeing a lot of demand. Also supporting general aerospace environmental testing—so as aerospace keeps ramping up, the investments in infrastructure for testing—pharmaceuticals and other areas, semiconductors as well. These are very interesting markets, high growth, and growing at a fast pace. This is an area that has been part of our transformation. We basically went from zero a few years ago to 4% to 5% now, a combination of organic and inorganic actions. Justin Ian Ages: That is great. I appreciate you taking the questions. Operator: Thank you. We will go next to Scott Deuschle with Deutsche Bank. Please go ahead. Your line is open. Scott Deuschle: Hi, good morning. Alex, what are the most PMI-sensitive parts of PFT, and are you seeing any uptick in demand in those PMI-sensitive businesses, or is it more just areas like pharma and cryo and nuclear? Alejandro A. Alcala: Our biggest uptick has been power generation, which is right now driven by the investment in data centers—that is not, I think, PMI-related. Pharma, cryo, wastewater—we did see pretty solid general industrial activity in the quarter. We did not call it out, but it was a little bit stronger than we expected going into the year. Richard A. Maue: Yes, I would say that general industrial portion of the market is where we are seeing a little improvement, Scott. Scott Deuschle: That helps. You have described PFT as being pretty early cycle. If the broader industrial cycle is turning as the PMI data suggests, why would it just be a small benefit to your general industrial business? Alejandro A. Alcala: The activity we saw there was mid-single-digit type growth. In the industrial spaces, that is pretty healthy activity. We will see how things progress, but we were pleased with how it started the year. Scott Deuschle: Okay. And then, Alex, how large is the PAC-3 product line for Crane today? If not material now, could it become material if it grows 200%? Alejandro A. Alcala: We look at the whole missile platform, which is the number I have in my head—it is around that $30 million to $40 million range of microwave and modular power product lines. I would use $30 million to $40 million as the jump-off point, and the projections are from 2x to 4–5x growth from now to 2030. Richard A. Maue: PAC-3 would be towards the top end of the programs. We have maybe 12 or so programs that we are watching closely, and that would be one of the ones at the top, Scott. Scott Deuschle: Thank you. Then, Alex, can you give us a sense as to how much of PFT’s cryo sales are related to the space market, and will that space growth within cryo correlate with SpaceX’s launch cadence over the coming years? Alejandro A. Alcala: On space launch, it is about 35%. If you then include aerospace in general, you are looking more like 45%, and the balance is other industrials like pharma and so forth. The growth does correlate with launch activity, which is increasing—not only SpaceX, but other companies like Blue Origin and so forth. We service, I think, six or seven key customers of ours in that space launch ecosystem, and it is growing in line with the space launch activity. Scott Deuschle: Thank you. Operator: Thank you. We will take our next question from Myles Walton with Wolfe Research. Please go ahead. Your line is open. Myles Walton: Thanks. Good morning. On the commercial aftermarket, are you reducing the outlook because of what you are seeing or because of what you anticipate seeing? Any color as it relates to recent bookings trends—the 11% growth in orders versus the 13% decline in revenue in the quarter would not suggest you are seeing much—so maybe just add color if you are doing this based on what you are seeing or what you anticipate you will see. Alejandro A. Alcala: Historically over the last 15 years, high energy prices pre-COVID and post-COVID are two different stories. Pre-COVID, there was a pretty strong correlation—higher energy prices, higher airfare, lower activity demand. Post-COVID, we saw a big spike in energy prices in 2022 with the Ukraine conflict, and demand was very resilient. There was no slowdown from there. We are not sure what is going to happen. We have not seen any decline—as Richard mentioned, orders were up 11%, and also up sequentially. However, as we look forward and consider the industry’s general concerns, we wanted to think through a range of scenarios that would give us a lot of confidence in our guide. Based on that, we assumed a decline in our guide to have really high confidence. But it could sustain, and that would be upside for us. Richard A. Maue: I think that sums it up. Myles Walton: Relative to the decline, you were thinking mid-single-digit positive before, and now you are conceptually thinking mid-single-digit decline is what you are baking in from a conservative viewpoint. Is that right? Richard A. Maue: Yes, I think that is fair. Myles Walton: Great. And then on PFT core, as you look to the rest of the year given the strong orders in the first quarter, are you able to see the turning to get to low-single-digit positive organic growth for PFT in the second quarter? Alejandro A. Alcala: For the year, we are still expecting flat to low-single-digit. For the quarters, I would think Q2 is maybe a little bit consistent with Q1. Richard A. Maue: Yes, if you are looking just sequentially, think of it as not that different from Q1 into Q2, without having the FX in front of me. That is the way we are thinking about the overall absolute number. Myles Walton: And one last one: what is the downward pressure on margins for the rest of the year versus the 23.2% you did in the first quarter? Richard A. Maue: We mentioned on the call we are starting to see inflation on commodities as well as freight. Earlier in the year, you have a backlog that you are getting through, but just from a timing perspective, we see the opportunity to get more price to offset as we move through the balance of the year and we get through that backlog. That pressure is modest, but something that we are working through, with overall suggesting an increase net to the margins. Alejandro A. Alcala: So for the full year, improved margins versus last year. Richard A. Maue: Yes, we are saying about a half a point improved overall margin profile. If you are comparing the first quarter versus the implied next three quarters, the next three quarters are slightly down versus the first quarter, and that is basically the same answer—it is going to be that inflationary pressure. Myles Walton: Got it. Thank you. Operator: Thank you. We will take our next question from Nathan Hardie Jones with Stifel. Please go ahead. Your line is open. Nathan Hardie Jones: Good morning, everyone. I will do a couple on the acquisitions. Alex, you talked about moving to the strategy deployment phase on the acquisitions. I think you talked a little bit about shifting the focus to growth initiatives. Could you provide a little more color on what that involves for each business? Alejandro A. Alcala: To be clear, Nathan, none of this was baked into our model—it is all upside. For Druck, some of the opportunities we saw were in military/defense. Druck has a good position in Europe and not really any position of note in the United States defense, where our legacy Aerospace and Defense business has strength. We are building strategies to create those synergies and growth. There are various regional differences in penetration and share, also in channel versus direct in Europe and the U.S., that we are working through. For Panametrics, we see more opportunity in the Americas to grow; they have a lower share in the Americas than average, so there is opportunity there in aligning those efforts from a commercial standpoint. For Reuter-Stokes, we have a very strong position in the power generation piece of nuclear, but we also have product lines around other platforms of radiation monitoring and homeland security, so we plan to build on those platforms as well and grow. Those are some of the things we are thinking about from a strategy deployment standpoint. Nathan Hardie Jones: Thanks. My second question is on the value-based pricing that you are already beginning to realize. I know some of these businesses have longer-term contracts. Maybe talk a little bit about where you are seeing value-based pricing, where you will see it in the future, and any color you can give us around that. Alejandro A. Alcala: The longer-term contracts are probably less than you would think. For Druck, about 30% of the business is on longer-term contracts, so there are a lot of areas where we can move more quickly. For the Reuter-Stokes part of the business, it is about 40%. Some of these are naturally coming up and being renegotiated. For Panametrics, the longer-term contract exposure is very low. All in all, there are a lot of opportunities within the year, and then as we continue to work the longer-term contracts. We are very confident in our ability to keep improving these margins through the year and going into next year. Nathan Hardie Jones: Thanks very much for taking the questions. Operator: Thank you. We will take our next question from Ronald Epstein with Bank of America. Please go ahead. Your line is open. Jordan J Lyonnais: Hey, good morning. This is Jordan Lyonnais on for Ron. Thanks for taking the question. On the balance of the year for commercial aero, if we are going to see aftermarket decline in the guide, how should we be thinking about margins for the segment? And for PFT, are you factoring in or do you have any concerns on the new tariffs that are going through on raw materials? Richard A. Maue: Good question. On margins overall, when you look at that mix differential, I would step back and say our portfolio in Aerospace and Advanced Technologies—when we say commercial OE, we make money on commercial OE. Our model, as you know, is different from others in the industry. So when we do mix up and down, yes, there is some impact, but not as drastic as maybe in other companies. Specific to the commercial aftermarket coming down in our guidance, when we look at what we are seeing in military moving in the opposite direction, the margin profiles are not that far off, frankly—they are quite similar. So that mix change is not going to be as significant, if at all, from a margin pressure point of view. In PFT with respect to tariffs, I would say the overall tariff change has not been all that material to us so far in the year or for the year. The one area I would point to is with the refund process—to the extent that we are successful there, we will of course call that out in the balance of the year, but none of that is factored into our guidance. No upside is factored into our guidance. Jordan J Lyonnais: Got it. Thank you. Operator: Thank you. This concludes the Q&A portion of today’s call. I would now like to turn the floor back over to Alejandro A. Alcala for closing remarks. Alejandro A. Alcala: Thank you all for joining us today. Over the past 13 years, Crane Company has undergone a meaningful transformation—reshaping the portfolio, significantly improving margins and growth, and delivering strong shareholder value under Max’s leadership. That foundation positions us exceptionally well for what comes next. This transition is not a change in direction; it is the next phase of the same journey. It is about acceleration of profitable growth. Looking ahead, I am more excited than ever about Crane Company’s future and the opportunity to continue delivering for our customers, our communities, and our shareholders. We will remain focused on executing our strategy, leveraging the Crane Business System to drive strong organic growth while continuing to pursue our disciplined approach to accelerating inorganic growth. I have had the privilege of working alongside an extraordinary team across the globe, and I am energized by the path ahead. With this team, this strategy, and this portfolio, I am confident that the best chapters of Crane Company are still in front of us. Thank you all for your interest in Crane Company and your time and attention this morning. Have a great day. Operator: Thank you. This concludes today’s Crane Company First Quarter 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
perator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings Inc. First Quarter 2026 Earnings Call and webcast. [Operator Instructions] I will now turn the call over to Leslie Hunziker, Head of Investor Relations. Please go ahead. Leslie Hunziker: Thank you, operator, and good morning, everyone. Today, we're reviewing our first quarter 2026 results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release, our Form 10-Q and in our most recent annual report on Form 10-K as well as other filings with the SEC. In addition, we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, please mark your calendars to join our second quarter management meetings at the Bank of America Industrials Conference in New York on May 12, the KeyBanc Industrials and Basic Materials Conference in Boston on May 27 and the Wells Fargo Industrials Conference in Chicago on [indiscernible]. This morning, I'm joined by Larry Silber, Chief Executive Officer; Aaron Birnbaum, President; and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry. Lawrence Silber: Thank you, Leslie, and good morning, everyone. I'm pleased to report that with the completion of our branch optimization program, the integration of H&E Equipment Services the largest acquisition in our industry is now complete. Integration was an enormous undertaking, and I could not be prouder of this team and the strength of our culture is what dismay confidence and what comes next. For the third consecutive year, Herc Rentals has earned a Great Place to Work certification based on independent employee survey results. What makes this recognition especially meaningful this year is the context. Large acquisitions are disruptive by nature. We brought approximately 2,500 new employees into the Herc family, people facing new systems, new processes and a new way of doing things. Based on the survey feedback, our new colleagues recognized our strong culture through change management support, per mentoring and the extensive training and tools they received throughout the integration. And now they recognize the opportunity in front of them. With integration behind us, our focus shifts fully and decisively to leveraging our new scale to drive growth and efficiencies through execution. We have a larger platform, a stronger team and a broader set of capabilities than at any point in our history. The work ahead is about unlocking the full potential of our platform, winning more business, serving customers better and delivering stronger returns for our shareholders. Now turning to Slide #5. With a 30% larger branch network, we are optimizing fleet mix by market, driving network density and capturing the operating efficiency that come with scale, lead efficiency, employee productivity and margin improvement are the goals. Second, we are enhancing our fleet mix and Specialty Solutions as a standout area of focus. Double-digit specialty revenue growth in the quarter reflects targeted fleet investments, 25% more specialty locations and strong demand for mega projects cross-selling and the continued structural shift from equipment ownership to rental. Third, we are advancing our industry-leading digital capability through control by Herc Rentals. Advanced technology features from fleet utilization insights and equipment location tracking to our patented mobile access controls and remote operations gives customers the tools to run safer, more efficient job sites. And our e-commerce platform continues to gain traction, delivering a seamless omnichannel experience with 24/7 self-service and personalized interactions. E-commerce revenue reached an all-time record high in the first quarter a clear signal that our customers value the flexibility to do business with us however and whenever it works best for them. As always, we lead through continuous improvement with our E3 operating systems built on a foundation of standardized processes, superior customer experiences and a relentless focus on execution across our expanded network. And finally, as prudent stewards of capital, we invest responsibly. We took on incremental debt to acquire H&E a deliberate decision to accelerate our scale and long-term earnings power. We expect to return to the top of our targeted 2 to 3x leverage ratio by year-end 2027. Our path to deleveraging is clear. As we capture the full run rate of our synergy targets, EBITDA growth, free cash flow build and leverage comes down. Now let me turn it over to Aaron to talk about our operational performance. Aaron? Aaron Birnbaum: Thanks, Larry, and good morning, everyone. With the integration behind us and our foundation set, this is the moment our team has been working toward. Investments we've made in people, fleet systems and culture are now fully in place. What you'll see from our operations team in 2026 is a relentless focus on putting all of it to work. We are executing with the larger network, a stronger bench and a sharp percent of where the opportunities are. The work ahead is straightforward, win business, serve customers exceptionally well and drive the performance this platform is built to deliver. In everything we do, every efficiency we drive every customer we serve every dollar of performance we deliver starts with one nonnegotiable. The safety of our people and our customers. From the job site training we provide to the safe, well-maintained equipment we put in their hands, safety is how we show up every day. So let me start there. On Slide 7, our major internal safety program focuses on perfect days, and we strive to 100% perfect days throughout the organization. In the first quarter, on a branch-by-branch measurement, all of our operations achieved over 96% of days as perfect. Also notable, our total reportable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and our customers. Our safety foundation is what makes everything else possible. On Slide 8, you can see that what we're building on that foundation starts with one of our most important assets, our fleet. At $9.4 billion in original equipment costs, fleet is both our largest investment and our primary revenue growth engine. We entered 2026 with pro forma fleet down nearly 2% by design. The integration priority was alignment, the right equipment in the right markets with the right mix, and we achieved that. By the end of the first quarter, average OEC was down approximately 1% on a pro forma basis versus last year, consistent with our focus on utilization improvement. While fleet expenditures were up 78% on a pro forma basis, this reflects a return to normal seasonal buying levels after deliberately reduced purchases in early 2025, when we're preparing to bring in the acquired H&E fleet in the second quarter. Our Q1 '26 investments of $183 million are directed toward growth opportunities and supporting our new specialty locations as they ramp up and be again contributing to revenue synergies. Fleet disposals at OEC were 20% higher year-over-year, reflecting life cycle rotation and ongoing mix adjustments. For the $281 million of disposals in the first quarter realized proceeds were 49% of OEC, up from 45% in Q1 2025, reflecting a healthy [indiscernible] across almost every category as well as our focused selling into the higher return wholesale and retail channels. As you know, the first quarter is our seasonally slowest demand period. Having strong fleet alignment right now before the seasonal ramp is critical. Disciplined fleet management and our sales team is executing with increasing effectiveness across the combined network, drove sequential monthly improvement in time and dollar utilization and employee productivity throughout the quarter. As utilization tightens into the peak season, we expect that discipline to translate directly into revenue growth and further improvement in fleet efficiency in the second half of the year. Turning to Slide 9. We will gain better visibility into seasonal trends over the next month or so, but today, the bifurcated markets remain relatively consistent with what we have seen over the past year. In the local market conditions remained stable overall. Government, infrastructure, MRO and institutional construction demand are offsetting the still moderate commercial sector, consistent with what we expected coming into the year. On the national account side, large-scale project funding remains strong. Mega project activity is centered around manufacturing, LNG, renewables and the continued surge in data center development. We are winning our targeted 10% to 15% share of these opportunities with new projects coming online and current projects still in ramp-up phase. Mega project activity was notably strong in the first quarter with project ramp-ups accelerating earlier than is typical for our seasonally slowest period, activity that was built into the full year guidance we provided just 2 months ago. In the first quarter, local accounts represented 47% of rental revenue compared with 53% of national accounts. As we have said, our long-term target is 60% local and 40% national on [indiscernible] for both growth and resiliency. The national weighing we are seeing today reflects the strength of our national accounts and mega project activity, and we expect the local mix to improve as the seasonal ramp build and eventually as local demand recovers. Turning to Slide 10. Diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc diversified into new end markets, geographies and products and services over the last decade, we have reduced our reliance on any single industry or customer. We have become more resilient to downturns and more adaptable to emerging opportunities from mega project development and the continued surgeon data centers to technology advancements that support customer productivity and the secular shift from equipment ownership to rental. With our expanded scale, we are better positioned than at any point in our history to capitalize on this breadth of opportunity and to find growth even as individual markets ebb and flow. And the opportunity across end markets isn't just broad, it's deep. Turning to Slide 11. Let's look at what the data tells us about the forward pipeline driving demand across our customer base. Here, you can see that despite the uncertainty of broader markets, whether around interest rates, freight policy or general economic sentiment, the fundamental drivers of our business remain intact. Industrial spending and nonresidential construction starts continue to show meaningful opportunity for growth built on a foundation of project development and infrastructure investment. Of course, there are some overlap across these 4 data sets but no matter how you look at it, for companies with the safety record, scale, product breadth, technologies and capabilities to serve customers of the local, regional and national level. the opportunity for growth remains significant, and we believe Herc is well positioned to capture it. Turning to Slide 12. This is where we are in our near-term journey, and I want to be clear against our 2026 plan. We are exactly where we expected to be. The integration work is behind us, but we have now a 30% larger business, more fleet, more locations, more specialty capabilities and a larger maturing sales force. That's the foundation. In the first half of 2026 is about converting that foundation into performance, tightening utilization as we move into the seasonal peak and sharpening sales effectiveness across the combined network, and we have seen that start to play out. First, fleet efficiency. After working through the integration and fleet optimization process, we saw sequential improvement in Herc supply and demand alignment through the quarter, something we have been building towards since last summer's acquisition. That's not a small thing. And while mega project demand provided a tailwind, even in our seasonally slowest first quarter, we are still early in the ramp of our specialty locations and sales force maturation, which is why Q1 played out right in line with our plan. It tells us that we move into the seasonally stronger second quarter, we have the right fleet and the right markets ready to work. In consuming all that improvement plan in Q2 is what gives us confidence in the utilization trajectory in the back half. Second, our specialty locations. The branch optimization program added 25% more specialty locations opening Q4 2025 and Q1 2026. These locations are now staffed, fleeted and gaining momentum. New locations take time to mature and that maturation curve is playing out as we modeled. By Q3 and Q4, those locations will more meaningfully contribute to revenue and margin growth. If we get the first half right in the second half follows, revenue growth accelerates our fixed cost base works in our favor and margin improvement becomes increasingly visible. That's the progression we have mapped out. First half builds the foundation, second half delivers the growth. It's also the flywheel into 2027. Higher revenue, expanding margins and increasingly apparent deleveraging as synergy capture compounds. That's the path and we're on it. Now Mark will go through the details. Mark? W. Humphrey: Thanks, Aaron, and good morning, everyone. I'm starting on Slide 14 with a summary of our key financial metrics. For the first quarter, on a GAAP basis, equipment rental revenue was up approximately 33% year-over-year. driven by the acquisition of H&E. On a pro forma basis, rental revenue declined 3%, representing a meaningful sequential improvement from the fourth quarter. To put that into context, the acquired business was experiencing revenue pressure prior to close, a trend we've been actively working to reverse through fleet optimization, sales force training and network alignment. And while mega project tailwinds and specialty execution benefited us in Q1, the inflection of the combined platform into revenue growth is a second half event consistent with our plan. Adjusted EBITDA increased 33% compared with last year's first quarter, benefiting from the higher equipment rental revenue as well as 31% more used equipment sales. Adjusted EBITDA on a pro forma basis was down approximately 5%. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin. Also affecting margin was the static demand in the local market and the impact from the lower-margin acquired business. EBITDA, which excludes used equipment sales, was up 30% during the first quarter. EBITDA margin was 40%, impacted year-over-year by the lower-margin acquired business. The path to margin improvement is clear. Rental revenue synergy contributions in the second half a shift toward a higher margin product mix, full realization of cost synergies and improved variable cost management at scale. We expect margins to continue to improve from here, especially as those drivers take hold in Q3 and Q4. Our net loss in the first quarter included $5 million of transaction costs primarily related to the H&E acquisition. On an adjusted basis, net income was $7 million. On Slide 15, you can see we generated $94 million of free cash flow for the first quarter. Our current pro forma leverage ratio is 3.96x which is in line with our expectations as H&E's stronger 2025 quarters roll out of the trailing 12-month calculation. The ratio will remain relatively consistent through the year before improving meaningfully at year-end when revenue synergies drive EBITDA growth in Q3 and Q4 and capital expenditures, which ramp in Q2 and Q3 to support the seasonal peak and new specialty locations began to provide greater EBITDA contribution. Leverage improvement is a year-end story, and we're managing to it deliberately. We still expect to return to the top of our target range of 2 to 3x by year-end 2027 as revenue and cost synergies and drive higher EBITDA flow-through. Turning to Slide 16. We are affirming our full year 2026 guidance across all metrics. Q1 came in as expected, rental revenue growth of 33% and on an actual basis reflects the contribution of the combined platform. Adjusted EBITDA margin held at 39.3%, consistent with last year despite the integration work that was still underway. The operational proof points Aaron walked you through, sequential monthly improvement in fleet efficiency and dollar utilization, specialty location maturation, sales force momentum are the leading indicators that give us confidence in the back half acceleration embedded in our guide. On synergies, cost synergies are running ahead of expectations and we remain on track to secure an incremental $90 million this year to fully realize the $125 million target by year-end. Revenue synergies are back-half weighted and the $100 million to $120 million incremental target for 2026 is intact. The guide assumes the business performs, as Aaron described. First half sets the foundation. Second half delivers the growth. Q1 is consistent with that plan. Now let's open it up for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Rob Wertheimer with Melius Research. Robert Wertheimer: Your Slide 11 puts together a bunch of the different kind of ways to look at the end market, and you mentioned and there's others that are conflicting, let's say,-- but if you look at the top right, that mega project chart is a lot of money kind of flowing down the pike. And what I'd like to ask is whether that step-up in '25, whether you saw that in customer conversations, et cetera, whether you see it today because actually $300 billion in starts or whatever and a $900 billion market a lot. I want to ground truth the data that are sometimes ambiguous. Aaron Birnbaum: Yes, Rob, it's Aaron. I'll take that one. So it's really both. When you build relationships with large general contractors, our national accounts, they guide you to what's coming down the pipeline. And often, you bid on a project and they let you know that you've been awarded it, and it's going to start or they've negotiated a contract and they want to bring you in as their trusted supplier. So that's one mechanism. But there's a lot of data around it. [indiscernible] provides a lot of preview into what's coming. Now the pipeline of planned projects is pretty deep. I think we mentioned it's in the trillions of dollars. But it's really one that starts when they change from planning to start is when that data starts hitting a slide that we showed you there. And if you just look at 2026, April, May, June, July, August, September, you can see a lot more starts happening all across the board. So infrastructure, wastewater or bridges, rose, but also these big mega projects that you see coming out, a lot of renewables, you see obviously, a lot of data center activity and other projects. So you have to -- you get it from both ways. So you can use both data sets to kind of guide your fleet planning and where your year is going to go. Robert Wertheimer: And to you, that feels like better times ahead in the back half as these things ramp, I mean the time line feels great? Aaron Birnbaum: As you can see, there's more starts happening. Now these -- they don't all start when they say they're going to start, right? Sometimes you've heard us talk that sometimes they start 6 months away. But it is building. And once these projects do start to last for 2 or 3 years, as you know. So they're already in our plan for the -- as we go through Q1 into Q2 and then the balance of the year. So we like where it is right now, but it's exactly the way we kind of planned out our year. Operator: Your next question comes from the line of Mig Dobre with Baird. Mircea Dobre: I guess where I would like to start is with maybe a bit of a spotlight on your dollar utilization. At least to me, it's looking like this metric came in a little bit better than what we normally see sequentially from a seasonal standpoint. So I'm wondering if you can comment on that. Is it an indication of sort of activity itself and better fleet utilization or just the fact that maybe in Q4, we had a relatively easy comparison. And related to all of this, how would you advise us to think about the remainder of the year? How do we think about the seasonal ramp into Q2 and Q3 from here and out? Unknown Executive: Yes, great question. And I think, quite honestly, Mig, I would take the revenue conversation, the dollar conversation and the margin conversation all in the same direction. As Aaron mentioned, right, we saw fleet efficiency gains in the first quarter, which then sort of built through the dollar utilization, it improved sequentially as we walked our way through the quarter. We spent the last 10 months, optimizing our fleet and optimizing branches, putting new specialty locations in. And so I would tell you that first quarter sort of plays the way that we thought it was going to play. But as you roll that forward, there's an inflection point inside of Q2. And once we hit that inflection point inside of Q2, then I think you'll see dollar revenue and margin expansion as we work our way through the back half of the year. Mircea Dobre: And maybe my follow-up on this. And I appreciate the sort of directional commentary. But if I'm thinking about normal seasonality here, right, is there reason to think, based on everything that you have that you're going on operationally that the improvement in dollar utilization can actually exceed that normal seasonality. And maybe you can put a finer point on how you think about the time utilization component of it, right, efficiency in your asset base relative to what's happening with maybe pricing or rates more broadly in the market. Unknown Executive: Yes. I think that sort of normal isn't really this year. The reality is, is that we had a hole to climb out of entering this year, sort of down as we exited 4Q. And so there's a big efficiency play that we needed to see collectively as a business before investing growth CapEx into the business in the May, June, July time frame. And so I would tell you it's playing out the way that we thought it would. Now granted, it's early. May and June will be a much larger tell to sort of how the rest in the balance of the year plays out. But I think we're not necessarily looking at this as normal or abnormal. We just know where we have to go to get the fleet back to a healthy and efficient level. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo Securities. Jerry Revich: I'm wondering if we could just talk about overall pricing that you're seeing in the market? So an oversupply of aerials of particular pricing is pretty tough. Can we just talk about -- are we optimistic that pricing can outpace inflation this year? And as positively surprised by the realization and use values for you folks this quarter, it sounds like supply demand is improving. Can we just unpack that, please? Unknown Executive: Yes. I mean I'll unpack it to the level that I can. We don't comment specifically on price. But I would say that we are encouraged by the fundamentals that we're seeing in the industry. The fleet in and fleet on dynamics are good, particularly as we sort of exit and I think that the market is being both rational and constructive. And so we look forward to taking advantage of such marketplace. Jerry Revich: Super. I appreciate it. And then just to shift gears a little bit here. In terms of the performance of legacy H&E branches versus Herc, obviously, legacy her pricing and time you based on historical stats has been significantly higher. Has that gap closed at all, where are we in the process of driving the H&E branch performance towards legacy or performance today versus 12 months ago versus where we see it 12 to 18 months out? Unknown Executive: Yes. I mean I think thankfully, Jerry, I can't really answer that question for you, and that was part of this integration was to integrate this business in such that there is no longer an H&E or Herc, right? And so I think if I could still answer that question, then I would say we probably haven't done our job. And so I think collectively, Q1 sort of played out the way that we planned Q1 to play out, and that's probably about as deep as I can go in terms of insights between H&E and Herc. Jerry Revich: Super. And lastly, I know you said in your prepared remarks that the quarter dollar was in line with your expectations. It was better than I think a lot of us had modeled when we saw the industry data, it looked like pricing accelerated in March, and it looks like it inflected as well. I know you don't want to provide a ton of color, but can you just comment on demand cadence over the course of the quarter? And any other color you're willing to share on that point? Unknown Executive: Yes. I think from our vantage point, right, I mean, we are anticipating, Jerry, in an inflection point sometime inside of Q2. And then I think from that point forward, you should see growth/improvement depending upon which line item you're looking at dollar utilization improvement, revenue growth and margin expansion as you sort of inflect out of Q2 and into the back half of the year. Operator: Your next question comes from the line of Kyle Menges with Citigroup. Kyle Menges: You had mentioned that pro forma fleet is down a little bit and by design, I would love to hear you unpack that a little bit and then just how you're thinking about pro forma fleet growth for the full year and maybe bifurcating between gen rent and specialty? . Unknown Executive: Yes. I mean, we walked into the year, as Aaron said, almost 2 points down. fleet on a pro forma basis. I think as you exit Q1, you're still down a point, give or take. And so that, again, was part of the plan. And so I think as you start then taking sort of the guided CapEx from a gross perspective and the guided sort of dispositions, you can sort of play that through. I would tell you that the expectation is we'll probably load that gross CapEx number into the business in between the back half of Q2 and Q3. So that should give you sort of the meaningful data points that you need to model. Aaron Birnbaum: I would add to, Mark, that as CapEx goes through the year, we'll be over-indexed to our specialty fleet to feed our branch optimization, our shift to grow the specialty side get back closer to what it was pre-acquisition. Kyle Menges: Helpful. And I know you've expanded the specialty locations quite a bit and working on cross-selling, which understandably the cross-sell is expected to be a bit back half weighted. So It'd just be helpful to hear about what the learning curve has been as you roll out specialty and more SKUs across the H&E network and just the visibility you feel like you have to actually hitting the revenue synergy targets as you get into the second half? Aaron Birnbaum: Yes. I would say that our revenue synergy for 2026, we're on the plan where we need to be as we exited Q1 and as we look towards the rest of the year, where we expect it to be for all of our revenue synergies as it relates to cross-selling. It's cross-selling with the specialty business is really a 2-front exercise you got a bigger sales force. You got to make him comfortable with asking those types of questions of their customers. They don't have to be experts at the specialty products. We have experts on the sales side that support them, and that's where the cross-selling goes hand-in-hand. But when you have a large customer base and we did a large acquisition and those customers weren't used to specialty products to the extent that Herc Rentals had. So that's where the cross-selling goes on those tens of thousands of customers introducing specialty solutions to them with the sales force that we onboarded from the H&E acquisition. So it's really 2 parts, but a lot of relationship building internally and we've been doing it for 9 months, and we like where we are right now, and we feel real comfortable about what we're going to get done in this arena, Q2, 3 and 4. Operator: Your next question comes from the line of Ken Newman with KeyBanc Capital Markets. Kenneth Newman: Mark, maybe -- sorry if I missed this, but just going back to the cost synergies. I think you said that it was running ahead of schedule. Can you just maybe help us quantify how much you were able to capture this quarter? And just help us think about the revenue synergy capture progress through the rest of the year? W. Humphrey: Yes. The intent of that comment was that the $125 million or the incremental $90 million will lay into 2026, which was ahead of the originally scheduled sort of synergy lay that was supposed to come in over a couple of years. So that was the intent there, and I appreciate you asking that question. It's relatively ratable. I would say slightly, slightly back half loaded, but it's coming in reasonably ratably over the 4 quarters, Ken. Kenneth Newman: Understood. Okay. That's helpful. And then for a follow-up, I think we've been hearing some rumblings on improving oil and gas markets here in the states. I know H&E used to play a much larger role in those end markets. Curious if you could just maybe help us understand what the exposure to oil and gas is today with the H&E fleet? And how you think about that opportunity and whether you're seeing that kind of pop up as potential starts opportunities in the next, call it, 12 to 24 months? Aaron Birnbaum: Yes. A few points on that, Ken. First, our oil and gas mix of our business is less than 10%, all right, before the acquisition and after when you got $9 a barrel oil, you're going to have some surge in the upstream and some surge in the downstream. The downstream guys actually produce and make more margin. H&E had relationships with -- since they had a big footprint along the Gulf. They had a lot of relationships with contractors that were industrial contractors. They might have worked in all facets of the industrial complex, not just oil and gas, but it might have been the chemical complex. They didn't really have downstream contracts, so there were long-term contracts that we picked up with the acquisition. So our part of our business is still below 10%. However, we made relationships with a lot of healthy H&E contractors to work in that space, as I mentioned. So with night oil, there's probably going to be a increased activity in the Permian Basin in Texas and down the ship channel. So we're well positioned for that. But our position in oil and gas didn't increase because of the acquisition. We like to think diversified. So we like where we're at. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Congrats on the wonderful results. First question on fuel costs, that has been rising nationwide. Could you just remind us how you manage that with in terms of your own costs and how you pass it on to customers and whether there's any lag? And also, was the hedging difference for legacy Herc versus H&E? So any color would be helpful. Aaron Birnbaum: Yes. The price of oil rising nearly $100. That's something that the business has to really focus on. We take the input of the price of fuel of 3 different ways: one, into our internal vehicle service vehicles that we use to conduct our business. Second way is refueling of rental equipment. And the third way is the logistics of our delivery apparatus to deliver equipment and pick up equipment all day long. So the first wave just our own assigned vehicles, there's not a much bunched buy better, right? By the gasoline at a favorable price point. The second piece is we do charge a fee to our customers if we have to refill the equipment when they rent it. So we give them the option, hey, bring it back full, no charge, bring him back less than full, there is a charge. So we have a fee for that. And then the logistics piece is the more complicated one because you have a lot of transactions happening every day across the entire network and we recover that by the delivery fee we charge from picking up and delivering. And also there's a surcharge that's indexed that allows us to move with the price of oil per barrel as it moves through all cycles and all times and events macro geopolitically. Tami Zakaria: Understood. That's very helpful. A similar question regarding freight rates, which have also been rising Again, could you remind us if that is a risk you hedge, if you have long-term contracts with third-party haulers or more real-time rates that you pay? Aaron Birnbaum: Yes, we have a robust long haul process when we have to broker third-party freight. So we have a robust process there, and we built that over the last 3 years, and we know that we get a favorable price point compared to the market any day of the week. So whether the price of oil is at $60 or $100 per barrel, we're getting a favorable price point as the price for bill goes up, you just can't avoid those costs. You try to pass on as much as you possibly can and try to anticipate how long it will last for. Operator: Your next question comes from the line of Steven Ramsey with Thompson Research Group. Steven Ramsey: From a high level, I was wondering if you could parse the specialty performance a bit. Clearly, it was strong. But maybe if you could talk about specialty, excluding mega projects and if it's outpacing the local markets, and maybe specialty on a same-store basis when you exclude the new branches, just different ways of the strength of specialty in the quarter and as you look forward? . Unknown Executive: Yes, Steven, we don't break it out in that kind of detail nor would we just -- because it's -- then you get into sort of segmentation, and we don't do that. But generally, the specialty business has been performing well. We saw double-digit growth in the quarter. We expect to continue to see that as it services all facets of our business. The mega project business, our national account and big industrial contracts as well as the local market activity where we're penetrating on a greater basis as a result of our increased location count into that. So specialty will continue to grow. We're excited on it, but we can't and won't break out individual areas. Steven Ramsey: Okay. Understood. That's helpful. And then on disposals going through retail and wholesale, clearly, a good story there. Can you talk about maybe on an innings basis or however it makes sense where you expect to be in '26 versus the prior year and where you hit maturity on that this year? Or is that something beyond? Unknown Executive: Maturity related to what, Steven? Just in terms of where the fleet sits as we exit the year? Steven Ramsey: More the fleet disposals that go through the higher-margin channels. Unknown Executive: I got you. I got you. Yes, I mean, we've -- this has been a couple of year journey, right? Like we've been trying to flex these retail wholesale muscles and Q1 was a really good example of that, and it was approaching sort of 70% into the retail wholesale channel. That's a sweet spot for us. That's where we'd like to be. And I think Q1, Q4 will be your heavy disposal quarters, Q2 and Q3 will be a little more moderated. So I would anticipate that that's our control and we'll probably sort of remain in or around as we sort of walk through the year. Operator: Your final question comes the line of Neil Tyler with Rothchild & Company Redburn. Neil Tyler: Just wanted to ask you guys about the sort of different sort of flow-through dynamics in the second half associated with things like the ramp-up in mega projects, which might potentially, I guess, hold margins back a bit and the specialty growth because that seems -- those 2 in combination seem to be contributing a larger proportion of your anticipated sort of demand upside in the back half. So can you sort of maybe help me think about how you're thinking about those factors playing through on margin overall and flow-through and underlying that? What's happening? Unknown Executive: Yes. Sure, Neil. I think as I said earlier, right, we are anticipating margin expansion inside of Q3 and Q4. And so if you sort of look back to where margin was last year, Q3 and Q4 within this 45%, 46% sort of range from a rental EBITDA perspective. And so therefore, if I'm anticipating margin expansion in that incremental margin will certainly be greater than last year's 45% or 46%. And so I can't get too terribly pointed there, but we are anticipating margin expansion as sort of all of these initiatives come together and fuel revenue growth in the back half. Operator: I will now turn the call back over to Leslie Hunziker for closing remarks. Leslie Hunziker: Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any questions, please don't hesitate to reach out to us. Have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the General Motors Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded on Tuesday, April 28, 2026. I would now turn the call over to Ashish Kohli, GM's Vice President of Investor Relations. Ashish Kohli: Thanks, Denise, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the first quarter of 2026. Our conference call materials were issued this morning and are available on GM's Investor Relations website. We are also broadcasting this call via webcast. Joining us today are Mary Barra, GM's Chair and CEO; along with Paul Jacobson, GM's Executive Vice President and CFO. Susan Sheffield, President and CEO of GM Financial will also be joining us for the Q&A portion. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the safe harbor statement on the first page of our presentation as the content of our call will be governed by this language. And with that, I'm delighted to turn the call over to Mary. Mary Barra: Thanks, Ashish, and good morning, everyone. Once again, thanks to our strategic product portfolio and great execution by the GM team, including our dealers and suppliers we delivered an outstanding quarter. I couldn't be more proud of the team's efforts and our results. We are continuing to execute our plan to return to 8% to 10% EBIT-adjusted margins in North America for the full year. In fact, in the first quarter, we achieved an EBIT adjusted margin of 10.1%, including 1.5 points of benefit from the accounting adjustment resulting from the recent Supreme Court tariff decision. This nets to an 8.6% margin. Complementing our performance in GM North America was our sixth consecutive profitable quarter in China and higher year-over-year results in GMI excluding China. We're also building tremendous momentum in digital services. They are playing an increasingly important role in our success, and they will drive even stronger results in the future. If you look deeper at our results, especially in North America, you can see how the depth and breadth of our vehicle portfolio is driving the business. Following a very strong close to the fourth quarter, we began this year with lean inventory in the U.S., and we had planned downtime in North America during the quarter to install tooling for our next-generation full-size pickups. Even with tight inventory, we continue to lead the industry in the U.S. and Canada, and we're #2 in Mexico. We also continue to lead in full-size pickup sales and share with 42% of the U.S. market. In addition, we were #1 in fleet, including commercial deliveries, and we were #2 in EVs. As we exited the quarter, our EV market share in the U.S. was 13% up from about 10% in December 2025, which underscores the appeal of our portfolio as the segment stabilizes. I would also like to highlight the growth of our crossover business, which is an important differentiator for GM. Since we began refreshing our lineup in 2023, crossovers have grown from just over 40% of our sales to more than 46%. We've also gained 2 full points of share in vehicles like the Chevrolet Trax and Equinox, the [indiscernible] and the GMC Terrain and the Chevrolet Traverse and GMC Acadia. have become significant contributors to our profitability. Additionally, we delivered these results with incentives that continue to be [indiscernible] the industry for both ICE and EV. As we look ahead, the SAAR is holding steady, showroom traffic is stable, and we continue to operate with lean inventory. We began the second quarter with about 47 days of supply on dealer lots. All of these winning vehicles are laying the groundwork for higher company level profitability around the world through durable reoccurring digital revenue streams. We are on pace to add more than 1 million OnStar subscribers in 2026 with about 30% of our existing customers choosing a premium plan. Outside of the U.S. and Canada, we have more than 20 revenue-generating markets and regions, including Mexico, Brazil, China, South Korea and the Middle East. Within the OnStar platform, Super Cruise is also scaling quickly. Our customers have now driven 1 billion hands-free miles and our subscription performance is on pace to exceed 850,000 subscribers by the end of the year with strong renewal trends in the 30% to 40% range. You will find that our attach rates, subscription renewals and revenue generation compare favorably to others in the industry. The continued growth of this ecosystem, including the customer base, miles traveled and the insights we're gaining to train our AI models will help pave the way for our eyes off, hands off technology launching in 2028 on the Cadillac Escalade IQ. The escalate IQ is just the start. We are doing something unique in the autonomous space, which is developing a system for personal vehicles that we can deploy on both ICE vehicles and EVs and scale across multiple brands and price points. We're stress testing it in the digital environment capable of simulating roughly 100 years of human driving every single day. We recently took the next step and began supervised on-road testing in California and Michigan. The way we're building this technology is a reflection of how seriously we're embracing AI across the enterprise. Today, nearly 90% of the code written by our autonomy team is generated by AI. Next, let me comment on our updated EBIT adjusted guidance, which we are raising by $500 million to a range of $13.5 billion to $15.5 billion to reflect the flow-through of the tariff adjustment. While our operating performance remained strong as reflected in our excellent first quarter results, the war in Iran has raised our cost and its duration remains uncertain. We are working to offset these cost pressures by reducing spending in other areas and by continuing to find efficiencies across the business, but we believe it's prudent to wait and see how events unfold before we make any further changes to guidance. As we move forward, I'm confident that our portfolio, production, inventory and incentive discipline, balance sheet strength and free cash flow generation will continue to differentiate GM. With that, I'll ask Paul to take you deeper into the quarter, and then we'll move to Q&A. Paul Jacobson: Thank you, Mary, and we appreciate everyone joining us this morning. The GM team delivered another outstanding quarter. Thanks to their hard work and strong execution. Q1 EBIT adjusted was $4.3 billion, surpassing expectations even after excluding the $0.5 billion tariff adjustment. Once again, we demonstrated discipline in our approach to both pricing and inventory. In the first quarter, our U.S. incentive spend per vehicle as a percentage of MSRP remained more than 2 points below the industry average. U.S. dealer inventory ended the quarter at 516,000 units, down 6% year-over-year overall and down 9% for full-size pickups, even against the difficult comparison created by outsized pre-tariff March deliveries last year. While we further strengthened our leadership in U.S. full-size pickups this quarter, leaner inventory constrained retail sales. Looking ahead, we are working to increase inventory levels of key products and believe that we can take this higher over the next several quarters while being mindful of the broader demand environment. Let me now provide more details on our strong first quarter results. For the total company, revenue was down year-over-year by approximately $400 million in the first quarter, as expected, driven primarily by lower EV wholesale volumes. ICE wholesales were flat year-over-year, with higher GMI volumes being offset by lower North American volumes, which were constrained by the end of production of certain Cadillac crossovers, lower imported volumes from Korea and full-size pickup downtime. As I mentioned earlier, our Q1 EBIT adjusted came in better than our expectations, driven by solid execution across all of the businesses and good expense management. Year-over-year, Q1 EBIT adjusted was up approximately $750 million, driven by the [ IIFA ] tariff adjustment, lower EV losses and FX benefit, lower warranty expense and emissions-related regulatory savings. These tailwinds were partially offset by a full quarter of tariffs. Let's expand on a couple of these items. In the first quarter, we incurred $200 million of incremental gross tariff costs, including the tariff adjustment compared to minimal tariff costs last year. EV losses were down several hundred million dollars year-over-year in the first quarter, driven by lower volumes, manufacturing efficiencies and lower fixed costs. On warranty, we continue to expect a year-over-year tailwind of $1 billion with first quarter results improving roughly $200 million versus the prior year. Q1 results included $400 million of lower warranty liability reserve adjustments, partially offset by higher warranty rate accruals on new vehicle sales. We continue to pursue a comprehensive multipronged approach to reduce our warranty expenses from product development and current production all the way to repairs at our dealers. Let's turn next to an update on our EV charges. Last year, as you know, we reassessed our EV capacity and manufacturing footprint to better align with softer demand and elimination of U.S. tax incentives. As previously indicated, we are transitioning Orion assembly from EV to ICE production and resolving associated supplier contracts. With the exception of the BrightDrop EV van, we have not recorded impairments to our current EV portfolio. Our focus remains on improving EV profitability and scaling our business as market adoption grows, albeit at a slower expected pace than we had previously seen. In the second half of 2025, GM recorded a total of $7.6 billion in EV related charges. This breaks down into $4.6 billion of estimated cash charges and $3 billion in noncash impairments. In the first quarter, we took an additional $1.1 billion in EV charges, driven mainly by contract cancellations and supplier commercial claims. We expect about $1 billion of this will have a future cash impact. We're moving quickly to finalize claims. To date, we've already recorded around 90% of the expected total supplier commercial claim costs, and we anticipate reaching agreements in principle on most of the remainder during the second quarter. Separately, we continue to work expeditiously through rightsizing our battery supply chain with our joint venture partners. Of the total, $5.6 billion in EV-related cash charges recorded since the second half of 2025, $2.6 billion has been paid as of March 31. In April, we've already paid an additional $600 million, and we continue to expect most of the remaining cash flows to occur in 2026. We remain steadfast in our desire to get these claims resolved quickly and fairly for our business partners and our shareholders. Now let's turn to a regional perspective. In North America, Q1 EBIT adjusted was $3.7 billion with a 10.1% margin, including an approximately 1.5 point benefit from the tariff adjustment, which nets to 8.6%. We're off to a terrific start to deliver a North American margin in the 8% to 10% range for the full year. Excluding the plant sale gain, China equity income was $100 million. This shows ongoing resiliency from our prior restructuring as well as disciplined production and inventory management in the face of softer macroeconomic conditions. GM International, excluding China equity income delivered approximately $40 million in EBIT adjusted despite the Iran conflict disruptions in the latter part of the quarter. We have been and will continue to divert some full-size SUVs and pickups from the Middle East back to North America, helping to alleviate low domestic inventory levels. GM Financial continued its stable performance, delivering EBT adjusted of $700 million for the quarter. Now let's look ahead to 2026 guidance. While the U.S. economy has been resilient, we haven't seen any material changes to demand or mix thus far. There remains considerable uncertainty, and therefore, we want to be prudent as we think about the future. Based on what we know today and assuming the SAAR remains in the low 16 million unit range, we are raising our overall EBIT adjusted guidance to $13.5 billion to $15.5 billion up from $13 billion to $15 billion. Likewise, we are raising our EPS diluted adjusted guidance to $11.50 to $13.50 per share, up from $11 to $13. While our execution and discipline helped drive first quarter outperformance, we now expect incremental commodity and freight costs versus our original guidance. At the same time, our FX outlook has improved from a small headwind to neutral for the full year. As a result of these changes, we are increasing our full year guidance for year-over-year commodity inflation, including logistics and higher DRAM costs to $1.5 billion to $2 billion. The incremental $500 million is expected to be more or less equally weighted across the remaining 3 quarters. In light of that, we're continuing to take proactive steps to ensure that we are efficiently allocating our resources and are ready to quickly adjust as needed. Meanwhile, our gross tariff costs are now expected to be $2.5 billion to $3.5 billion for the year, down from our original guidance of $3 billion to $4 billion because of the tariff adjustment we took in Q1. We expect 2025 self-help offsets to continue in 2026 and are pursuing additional opportunities to further mitigate these costs. Relative to our international regions, we expect China to remain profitable and to deliver results consistent with 2025. However, we anticipate some softness in our international operations outside of China due to the impact of the conflict and around on Middle East wholesales in particular. There is no change to our other 2026 key guidance assumptions. On price, we continue to expect to be flat, up 0.5%, benefiting from model year 2026 price increases. ICE volumes are expected to be flat to modestly up though production is constrained due to the major refresh on full-size pickups as well as the end of production of the Cadillac XT6. For EVs, we expect volumes to be lower as the market shows early signs of stabilizing around 6% of U.S. industry sales. We continue to expect a benefit of $1 billion to $1.5 billion for the calendar year as we rightsize our EV capacity and run at substantially lower EV wholesale volumes. The production pause at Ultium Cells means lower benefits from production tax credits flowing through material costs, but this is largely offset by positive inventory adjustments from lower cell inventory levels. On regulatory costs, we continue to expect $500 million to $750 million tailwind year-over-year. The endangerment finding repeal in February was already assumed in our plan. GM Financial continues to expect EBT adjusted in the $2.5 billion to $3 billion range, including accelerated depreciation on its EV lease portfolio. As part of our disciplined risk management, GM Financial regularly evaluates the estimated residual values and proactively adjust depreciation accordingly. We are maintaining our adjusted auto free cash flow guide of $9 billion to $11 billion with a heavier weighting to the second half. Note that this guidance excludes the EPA tariff refund given uncertainty around payment timing. Our capital allocation policy remains unchanged. We are committed to investing in the business, maintaining a robust balance sheet and returning the remainder to shareholders. We believe that repurchasing GM stock at the current valuation remains one of the most effective ways to deploy capital and create long-term value for our shareholders. In Q1, in addition to distributing $164 million in dividends, we made $800 million in open market stock repurchases, retiring approximately 11 million additional shares at an average price of $75.02 per share. We ended Q1 with $19 billion of cash and $5.5 billion remaining on our share repurchase authorization. Before I open the call for Q&A, I want to highlight our OnStar digital service business. This includes Super Cruise, but also a broader suite of connected services that we highlighted earlier in the quarter. It's an underappreciated asset that is growing and margin accretive. In Q1, we saw recognized revenue of over $750 million, up over 20% year-over-year. For the calendar year, we expect $3.1 billion of recognized revenue, up 15% year-over-year. We are on track to reach 13 million subscribers by the end of 2026, up by $1 million year-over-year with a monthly average revenue per subscriber of around $20. Those subscribers are driving ongoing deferred revenue growth as well. In Q1, the deferred revenue balance ended at $5.8 billion, up $2 billion or over 50% year-over-year. For the calendar year, we expect deferred revenue to approach $7.5 billion, up more than 35% year-over-year. In conclusion, I have tremendous confidence in the GM team's ability to successfully navigate the evolving geopolitical landscape. Our broad ICE and EV portfolios remain key competitive advantages versus our peers and our disciplined approach to inventory and incentives keep us agile. Just like we've done with other macro headwinds, we are proactively planning for a range of potential outcomes. We are working to identify additional profit improvement opportunities and have begun taking initial no-regret steps to moderate spending. As events continue to unfold, we will remain flexible and execute the right playbook to optimize profitability, maximize free cash flow and continue to deliver strong returns for our shareholders. Thank you for your continued support. And with that, we now begin our Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from Itay Michaeli with TD Cowen. Itay Michaeli: Maybe just to start, Paul, just a clarification on the guidance. Can you talk about the offsets from a cost perspective or otherwise to the higher commodity inflation that's leveling to kind of raise the guidance outside of the AEPA, of course. Paul Jacobson: Thanks for kicking us off today. So I think when you look at the inflation, the pressures that we're seeing, the offset come in a couple of different forms. Number one, we've put a little bit in the bank in Q1 from our outperformance from what we've seen. Some of that was timing, but there was some good core movement on many of the staples that we've talked about, whether it's warranty or EV profitability, regulatory costs, et cetera. But then there is also the playbook that we referenced in our comments, which similar to what we've done, whether it was tariffs or chip shortage or COVID, et cetera, that's worked really well for us. So we're looking at doing that. What we don't want to do, we don't want to rush and do a lot of things that are going to jeopardize or otherwise put at risk longer-term strategic initiatives by overreacting to what's going around us. So we have sort of degrees of freedom in terms of what we're going to do, starting with relative low hanging fruit, maybe deferring some hiring or things like that. But overall, I think we're going to be measured about it. So while we have this uncertainty, I think holding our numbers consistent net of [ AEPA ], I think is the prudent thing to do with all this uncertainty. And if things abate, then we could potentially see upside in the future. Itay Michaeli: That's very helpful. And then a bigger picture question, quite to say the progress on software and services. And how level -- how should we think about the ARPU opportunity for the company on the upcoming SDV platform in 2028? As the sort of opportunity continues to grow from here? Paul Jacobson: Well, I think, Itay, you look at the momentum we have, and I appreciate you pointing it out. We've started to lean more into disclosing a lot of what's going on here. And I think what we're really focused on right now is the attachment rates and delivering value to the customer. As we roll out SDV 2.0, the number of opportunities out there start to magnify pretty significantly in terms of what the digital offerings that we can put out there. You'll hear more information about that over the coming months. as we lean into when SDV 2.0 comes. But clearly, when you look at -- we might have a lower average revenue per unit than, say, Tesla does, but we already have significantly higher volumes deferred revenue, more realized revenue. And that's where the real scale benefit comes across the portfolio. So we think that this is a growing and soon to be really influential piece of the business going forward. Operator: Our next question comes from Joe Spak with UBS. Joseph Spak: Paul, I know you're on TV this morning, and I think you mentioned some industry discounting. I was just wondering if you could expand on that a little bit because it doesn't really sound like you changed your own sort of volume or pricing assumption. So is what you're seeing sort of in line with what you expected, call it, 90 days ago? And then just given some of these cost pressures, if there -- if competitors do start to maybe try to price for some of these cost pressures, does that -- do you feel like gives you a little bit of leeway to do the same to cover some of those higher costs you mentioned? Paul Jacobson: Yes. Thanks, Joe. I would say it's largely in line with what our expectations have been. There have been some really unique things that I think have played out this year among the competitive set that we haven't seen historically. But we continue to, I think, be very disciplined in our approach. I think a lot of the share data that people saw during the quarter was probably more a result of some of the challenges we had with inventory on lots. We came into the quarter light on our targeted inventory levels primarily because we've had such a really strong December, for example. And then with the storm and some other challenges that we had, we weren't really able to catch up. Wholesales call up towards the end of the quarter, but that really didn't show up in showroom we're optimistic that as we get more product out to the dealers in Q2 that we can help to reverse some of the share losses that we saw without getting into heavy discounting across the board. So I think nothing has changed in our playbook. We're going to continue to be tactical and we're going to continue to be disciplined. Joseph Spak: Makes sense. And maybe just one on the cost side then, obviously, some good management here in the quarter. And I think you sort of mentioned maybe some cost timing or phasing, I guess the one I'm asked -- I'm curious about is, I think you mentioned, call it $1 billion to $1.5 billion in onshoring and software costs. Like how is that tracking? And is that something that really started to come in this quarter? Or is that sort of more weighted to the remainder of the year? And then one clarification on [ AIBA ]. This is just the receivable for your overpayment, right? Like you're not assuming that you're not paying this in -- or I guess the 122 replacements, like those stay in place. It's not that there's like a benefit assuming your guidance that you do not paying that in the back half, correct? Paul Jacobson: Yes. So let me cover the tariff question first. So all we've done here is taken the [ IEFA ] direct tariff that we paid last year. that was subject to the Supreme Court decision and credited that back as a receivable. And as we said, we haven't changed our free cash flow guidance because we don't know what the -- when the refunds are going to be received, how that window might work. going forward. But that's all we've assumed. Now keep in mind, most of our tariff burden comes from 232. So EPA versus our size is relatively small. But because of that entry, that's why we took the guidance down. We're not projecting any other change. We're not projecting any other changes to our tariff bill. When I said guidance down, I went to tariff bill guidance. And then on the cost side, I think it's a couple of things. FX was obviously a benefit for us, primarily the Canadian dollar and then also Korea and some of our imports getting better treatment there. We think that will hold. When you look at other cost items, we can -- we make progress on warranty, a couple of hundred million dollars of warranty in line with what we said we're going to do for the year. EV profitability improved largely as a result of better, more efficient use of the capacity as the whole -- as the write-offs that we took hold. And then also on the regulatory side around GHD. So I think many of those are going to hold on when you look at the cost pressures as we've talked about, pretty much the onshoring costs are going to be really heavily weighted towards the back half of the year, as expected, and we start to hire people to get the plants running in early '27. Operator: The next question comes from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: So quite an uncertain environment as you certainly indicated. I was curious in terms of the factors you're monitoring, you indicated you'd want a little bit more clarity on some of those before making any additional changes to the outlook. In terms of things that could move the needle for this year that you're monitoring? Is it more on the demand side, vehicle mix, input cost, I'm curious which are the ones that could still move up or down the most and impact you? Mary Barra: Emmanuel, I think the #1 thing that we're watching is what happens from -- with the Iranian conflict because obviously, with oil prices affect a lot more we're seeing from not only logistics, but also other commodity costs. So if the conflict ends in a shorter period of time, I think we'll see a return back to normal levels. If it stays on longer tell me how high oil prices go before we'll start talking about what demand is. But I also want to remind you that we're -- although we have an incredibly strong truck franchise and I'm very excited about the new truck that we have coming out at the end of the year, we also have a very strong midsize crossover portfolio and small crossover portfolio as well as a strong midsize truck. So I think we're well prepared with portfolio I'd stand against anyone when we look at how consumer behavior might shift depending on how long the war lasts, but we just don't know. So I think those are the primary things that we're watching. And as Paul said, we looked at the years, seen that uncertainty, especially as the conflict began, and that's why we started to really work on cost management. There's other areas that we're working on to continue to do that. But I think the biggest variable that we're looking at is how long does the conflict last and what does it cause from a cost perspective across logistics supply chain. And if it ends up having anything -- any impact on a shift in mix. But to date, we really haven't seen that. Emmanuel Rosner: That's very fair and great color. And I guess just -- as a follow-up on this then in terms of the input cost inflation and commodities, can you tell us what you have assumed in this updated guidance, which has been -- the inflation cost has been increased by another $0.5 billion. What are you assuming for commodities in the back half or for how long they stay high as a base case scenario? Paul Jacobson: Yes. Emmanuel, what we've done is essentially taken the kind of the curve where it sits today, net of our hedges, and remember, we -- it's not all direct and linear because we've got, for example, steel contracts. If you'll recall, we have about 1/3, 1/3, 1/3, of spot, 1/3 expiring within a year and a third kind of over 2 years. So that's helped us quite a bit. During times when prices go down, we pay a little bit more, but we pay a little bit less when prices go up. So we're really looking at the current environment kind of persisting for the year. And to Mary's point, conflict end and commodity prices and oil prices returning back down to pre-conflict levels, then we could potentially see upside in that scenario. Operator: The next question is from Mark Delaney with Goldman Sachs. Mark Delaney: You mentioned the downtime that GM had for tooling in the first quarter related to the next-gen full-size pickups. I'm hoping to better understand if investors should expect more downtime for the upcoming full-size pickup launch? And that's a potential incremental headwind? Or is that now behind and higher full-size pickup truck production should be a tailwind for the volume and share plans that you articulated in your prepared remarks. Paul Jacobson: Yes. Mark, thanks for that. We had some significant downtime in the quarter primarily related to heavy-duty trucks. I think a lot of that is behind us. There may be some selective downtime, but I think a lot of it can be done during shutdown, et cetera. So we're not anticipating any material downtime at this point. But that's what we're going to need to lean into a little bit to try to get our inventory levels back into the targeted range from where they've been because even when we ended the quarter, we were still down below our target levels. So we're hoping that we can get that back. And the team has done a really, really good job of managing through all of the logistical challenges. Mark Delaney: My other question was on Super Cruise and the digital services. For the strong growth that GM has been seeing in Super Cruise and the willingness for consumers to subscribe after the prepaid subscriptions last, can you speak a bit more on the breadth of that consumer demand? And is it concentrated in the higher end parts of the portfolio like Cadillac or is GM seen consumer demand for those solutions more broadly? Paul Jacobson: So what I would say, Mark, we're continuing to trend at about that 40% attachment rate after the subscription period and we do it differently, right? Other competitors that put the hardware on every vehicle, and they're bearing that cost for us, it's consumers who have purchased Super Cruise, they prepaid for a 3-year period, and we see that in terms of the hardware cost. So we have the deferred revenue that comes with the vehicle and then we have the subscription afterwards we're starting to see escalation in terms of the number of vehicles that are coming off of that 3-year prepaid period, and we're still holding attachment rates in that 40% range. So we're very optimistic about what that means. And I think that's what I was adhering to in the earlier question of when you look at the ARPU, you've got to really take into account the scale advantage we have, especially as we start growing into SDV 2.0 and expanding that across the -- but Super Cruise is a really strong leading indicator, and we're continuing to invest in delivering more value to customers that we think are going to make that even more attractive in the future. Operator: The next question comes from James Picariello with BNP Paribas. James Picariello: My first question, just about -- just as we think about adjusted auto free cash flow, how should we be thinking about the GMF? The GM Financial dividends? That was a pretty notable step up at $650 million for the first quarter. And then just to clarify, regarding the EV cash restructuring, of $4 billion or so for the full year. The majority, the remainder of that gets achieved in the second quarter. Is that right? Paul Jacobson: Yes, James, a couple of things. First, on GMF, we saw an opportunity in the first quarter largely as a result of GMF cash position to step up the dividend from our traditional level. We're not changing the full year expectation of the dividend, so pretty consistent there for the full year. But from a timing perspective, we saw that opportunity and we took it. On the EV cash charges, as we've laid out, we're going hard and aggressively at the sort of commercial relationships where approximately 90% with those. And we expect to have substantially all of that cash paid out before the end of this quarter -- this quarter being the second quarter. We still have a couple of battery raw material negotiations that we're working through. They're obviously more complex. But those will come in over time as well as we continue to work with our partners. But our goal here is to try to put as much of this behind us as quickly as we can so that we can be focused with our supply chain partners on tomorrow and stop having conversations about yesterday, which I think is way ahead of the expectations that many of our competitors have placed. So we're focused on that. We also don't want it to be an overhang for cash flow. Despite that, a significant cash outflow that we've seen as a result of those restructuring charges, we were still able to repurchase $800 million of shares in the quarter, and we remain committed to our capital allocation going forward. So I think the team has done a really good job of managing through those challenges and through those conflicts. James Picariello: Very helpful. And then just on the GMI downside within the guide now, just how should we be thinking about -- I mean, is that order of magnitude, like $300 million of incremental downside? And just how to think about volumes for GMI, the remainder of the year relative to the first quarter? And to that thought, just high-level cadence for adjusted EBIT for the year? Typically, the second and third quarters are the strongest for GM? Paul Jacobson: Yes. I would say that a lot of that is -- the impact is really being driven by the Middle East. In the quarter, we actually reallocated about 7,500 full-size SUVs that were originally slated to deliver to the Middle East operation under GMI. We reallocated them to North America, partly because of the conflict and the logistical challenges of getting them to market, but also partly to help bolster some of our lower inventory levels here in the U.S. So I think from an enterprise perspective, we're largely mitigating that impact, as we've said. But depending on how long the conflict goes and how long we see challenges in the Middle East, that's what's going to really ultimately determine the pressure on GMI. Operator: The next question comes from Michael Ward with Citigroup. Michael Ward: Just a follow-up on the truck changeover. So you planned downtime for the tooling and the actual change takes place in the second half, 4Q, specifically. Is that right? And does -- is there an impact on the volume in 4Q? Or is that all largely behind you? Mary Barra: Well, I would say as we look at that ramp will start in the third quarter and then we'll accelerate. So depending on how successful we accelerate, there's a tremendous amount of work going on. I'm really pleased with what the truck is from a quality perspective right now. But there may be a small impact, especially since we're running so lean from the current year. It's a good thing, though, that there's still such strong demand for our current generation trucks. So we think it's going to be a pretty smooth changeover, but there could be a small amount of impact as we get into the latter part of the year. Michael Ward: And then just going back to the digital services. I think you said that you expect margins to be in line with other software companies. When will we see those types of margins? I don't know if we're there yet now or not or if they're upfront costs you take. How does that cost/revenue curve look out over the next 2 to 3 years? Paul Jacobson: Yes. So Mike, this gets a little bit technical. I'll try to summarize it as best I can. But when we sell a vehicle with Super Cruise, all the hardware gets expensed right away. And then the revenue associated with that gets deferred over the 3-year trial period. So that's coming on at a very, very sizable margin because we've already recognized the cost in that going forward. And then when you look at the other digital services and OnStar, there are some hardware costs, et cetera, that are expensed with the vehicle. There are some service costs that go in. So the margins aren't quite as robust as if you expense everything because there are service costs associated with it, but they're still pretty sizable. So as we ramp up that deferred revenue base and it starts to amortize the P&L at increasing rates, that's where you start to see the impact. And what we talked about, if you go back to Investor Day several years ago. We talked about that having an impact and growing to a point where it has an impact on the overall margins of the company, we're starting to see that take hold, and we see -- we've got a lot of about the potential of what SDV 2.0 and the future improvements to Super Cruise and ultimately, autonomy can do for us when you look at it across scale. Operator: The next question comes from Andrew Percoco with Morgan Stanley. Andrew Percoco: I want to start on the digital services. I appreciate the added disclosure you guys have started to give here. But if I look at the 13 million or so subscribers that you're targeting by year-end. You've also got, I think, 45 million to 50 million vehicles on road. So I'm just curious, like how do you tap into that 35 million to 40 million other vehicles that don't currently have any subscription these digital services? Is there a hardware limitation? I know there might be some limitations around supervision, but outside of supervision, what's the opportunity to get some of those customers into some of these higher-value digital services? Paul Jacobson: Yes. Thanks, Andrew. I appreciate that. So I think when we talk about the car park that's out there in the universe of GM vehicles that really is meant to signal the opportunity that exists going forward. So as we continue to put SDV 2.0 and other capabilities, many of the vehicles that are out there don't have the hardware capabilities to be able to deliver that. So we're looking at that growth potential and really sizing the box for the future as we continue to expand that. So we do have, like I said before, in response to the other question, with Super Cruise, it really is a case where the hardware is on there for people that buy it. As we continue to get the cost down, we can look to potentially approach the market differently on that. But we see a ton of potential here because we're already driving approximately $7.5 billion of deferred revenue by the end of this year with what we have. So it really speaks to the opportunity that's ahead of us. Andrew Percoco: Got it. That makes sense, and that's super helpful. And I guess, as a follow-up question to that, I think super cruise is available on, I think, 750,000 miles of roads in the U.S. What's some of the gating factors in expanding that? Is it regulatory? Is it your own kind of risk appetite? Just help us think through what some of the kind of gating factors are there. Mary Barra: It really is as the company looks, it's both from -- in many cases, we have LIDAR map with the current system. But -- and it's also -- we've really focused on highway and major roads. And so it's a focus that we continue to look at how we expand. And we -- as you've seen from when we first launched Super Cruise and it started on a certain amount of roads, we continue to expand that over time. So we are now on additional roads, not just highways, and we'll continue to look at the opportunities to do that and making sure we do the technology correctly because one of the things we're most proud of from a Super Cruise perspective is it's viewed as extremely safe and the customers, we're building a lot of trust with Super Cruise as we do that, which I think will also play well as we launch our next generation with the Escalate IQ with the ISO hands-up. Operator: The next question comes from Dan Levy with Barclays. Dan Levy: Paul, you mentioned earlier that some of these commodity costs are staggered and they hit on the lag. So presumably, if cost hold, you'll be facing somewhat of an incremental headwind in '27. I know you're probably not prepared to outline what that -- what the magnitude of that headwind might be to be curious to know. But I'm just wondering, how much do you have in your back pocket on cost mitigation that even if the inflation on these commodities continues to rise into '27 that, that can be neutralized? Paul Jacobson: Yes, Dan, you're right. It is way too early to speculate on 2027. As we talked about that the pressure that we're seeing right now is a function of the forward curve, that forward curve is going to change 200x between now and 2027. So it's way too early. But if you think about where we are, and we started to outline this in prior presentations that the momentum we have in '26 and what we're starting with warranty improvement, EV profitability improvement regulatory cost improvement should all continue to be tailwinds in 2027 for us as well. And in addition, we've talked about we basically have stopped production at many of our cell plants to work down our inventory levels, which means we're not capturing the production tax credits that we have in prior years. That when we get battery cell inventory to a normal level, that will get us to a point where we can start to collect those going forward as well as the improved profitability of EVs. And then you look at the product portfolio with the new pickups coming in 2027, end of this year and into 2027, you start to see some momentum, but way too early to speculate. We just -- at the end of the day, we're executing on what we see and planning for future contingencies should we need to do that. Dan Levy: Great. I have a follow-up. I wanted to double click on some of the competitive dynamics within large pickups because I think there's been some attention on one of your competitors that's trying to pick up shares. So I'm wondering if you can help just to double-click within the share dynamics. We know that there is a large skew in the profitability within some of the subsegments within large pickups. Maybe you could just tell us, we see the overall data, but within some of the more profitable areas within large pickups, are you still holding your share? And is that some of those share gains from your competitor are coming at the less profitable areas, and that doesn't matter as much to you? Mary Barra: Well, I think we -- because of some of the issues of ending the year so strong that we were low in inventory and then with the planned downtime we expect, we still had very strong demand for our trucks. And we're not seeing -- I mean we are seeing strong demand across the board in the upside. But we want to welcome every truck customer. I think because of our lean inventories and if you look at some of the incentive rates of some of the competitors. You can see how disciplined we are and still selling every truck that we can. And so I think that's the formula and the recipe that we're going to continue to do is work to earn every truck every truck buyer in a disciplined way because of the strength of our products. So it's across the board. Operator: The next question is from Alex Perry with Bank of America. Alexander Perry: I just wanted to follow up a bit on the input cost inflation that you guys are seeing. I guess what commodities in particular, can you remind us where you're hedged? And then are you starting to see any shortages in any raw materials? Or are you concerned at all of shortages if the war sort of persist here? Paul Jacobson: Yes. Thanks for the question. We vary our hedge levels based on commodities. We're kind of seeing pressure a little bit across the board, as you would expect, primarily driven by higher energy prices et cetera. We're not projecting or worried about any shortages right now. And I think the supply chain team has continued to prove their results through yet another challenge as we've seen them do in years past. So no shortages. On the commodity side, it depends 25% to 50% hedged. That certainly helped us in the aluminum space this year. But overall, I think it's pretty manageable from that standpoint. We're just going to continue to watch it. I think the hedges and the staggered steel contracts buys a little bit of time to adjust the business, which is why we do it that way. But overall, no real concerns right now. Alexander Perry: Perfect. And then could you just remind us on the cadence of the wholesale volumes for the year with the refresh company? Any change to seasonality? And I guess as a follow-up to the inventory question, is the expectation that you'll be able to rebuild some of the depleted truck inventory? And then just on pricing, are you sort of holding that flat to up 50 bps pricing guide for the year? Paul Jacobson: Yes. No change to our pricing guide. I would say no change to the regular cadence on wholesale across the board. We do have the opportunity, I think, to get a little bit of [indiscernible] deficit on the inventory shortfalls that we've had. We saw some of that come in late in the quarter. that are making their way into showrooms or have made their way into showrooms this month. But we're going to continue to work and try to manage it in that 50- to 60-day range. And the team has done a really good job of trying to make that up. Operator: The next question comes from Chris McNally with Evercore. Chris McNally: I guess as hitting the end of the call, I wanted to think a little bit further out. One of the discussions -- for the first time in a decade, GM is going to have the ability to have more capacity in pickups and SUVs, given -- I think you guys saw it much earlier than everyone else about reshoring. So you'll have both Orion plus Mexico that will still have capacity, not numbers, but more strategic, where do you think GM could theoretically sell more of these higher value-add vehicles? Is it the upper end of the market, lower end of the market, if it not, North America, where you can sell in Mexico and Latin America. But just a little bit about the strategy, '27, '28, '29 at the Orion is done, where could you sort of increase the absolute number of pickups in SUVs that you could sell? Mary Barra: Well, I think we look -- and Paul already mentioned that we shifted some production from the Middle East. Usually, that's a very strong market. So after this conflict in, there's -- I think there's upside there. There's upside in many other markets, not only in full-size trucks, but also in full-size SUVs, both in the U.S. as well as globally, and those tend to run on the higher contented vehicles. So I'm extremely excited about the upside opportunity when we have more full-size SUVs and more trucks to really serve the globe as well as demand in the United States. So it's a huge opportunity for us as that plant comes online. Chris McNally: And I guess the follow-on is around USMCA. I mean I imagine the determination of how much capacity you would want to keep in Mexico even after Orion is done is somewhat dependent upon sort of this next level of USMCA, where I think everyone believe at some point, we'll have some logic where we get back from 25% to something closer to the global import average of 15%. Is that fair to say that some of the stuff is going to have to be live to see where USMCA final negotiations dollar, which is most likely second half, if not even maybe early next year. So we're going to have to wait and see on some of those numbers? Mary Barra: We think -- we understand, and it's a part of the USMCA process that it is updated periodically. We're in that review right now to see how it changes. We think having the appropriate levels around USMCA is very important for the U.S. automakers to compete with the rest of the globe that leverages whether it's other countries in Asia or Eastern Europe, et cetera. From a cost perspective, we've moved several peoples and have the opportunity to build them in the U.S. And we think we've looked at the footprint extremely strategically with the moves we've decided to make. So I think we're going to be well positioned to respond to not only U.S. demand but global demand. So I think our look at USMCA is not so much of a footprint issue. It's more of making sure it's done in such a way that we can compete with those even though -- and have a level playing field not only with the vehicles -- the tariff on the vehicle, but the tariff on the parts and the underlying cost of those parts. And so that's the work that we're doing now to make sure that the administration and those involved in the USMCA negotiations understand. And I have to say that I think the administration has been very good at having a deep understanding and want to understand what unintended consequences could be. So they further strengthen American manufacturing, not the reverse. So we're going to provide -- continue to provide our input, and we look forward to having USMCA revised in a way that is appropriate to achieve the administration's goals as well as strength in the U.S. manufacturing. Operator: And our last question comes from Ryan Brinkman with JPMorgan. Ryan Brinkman: Could you maybe comment on your operations in China? How far along you might be with regard to some of the product portfolio refresh initiatives? You've talked about on some of these earlier calls, including the NAV push. And then also with regard to some of those operational restructuring initiatives you've talked about and taking charges for in the past. Just trying to look at like the equity income that we see for the quarter, $165 million ability to annualize that? Is that sort of the run rate of profitability your operations are at once they're done with these improvement initiatives? Or where could they get to if you complete that part? Mary Barra: Well, I'm very pleased with the restructuring work that we've done in China. And I think we continue to be one of the -- the only, if not one of the only Western OEMs that is profitable in growing share. in the market. I think over the last few years, we've launched some very important products, including our luxury band that's premium segment, a premium product in the market. So I think we're continuing to work on having the right portfolio, but I also say the software and the services aspects the vehicle as we've launched and the new system that we're launching out across the portfolio, is rated higher than many of the Chinese OEMs when you look at it from a -- if this is an external rating from usage perspective. So I think you can see us moving to have the right product portfolio with the right software and services to be able to continue to grow share. Having said that, the China market is seeing some weakness. And so we're going to continue to monitor that side. I'm not in a position that I'm going to project what our equity income goals are. We want to see those continue to grow, but it's going to be having the right product portfolio and competing effectively, which I'm proud of the team because that's exactly what they're doing. And as related to additional restructuring costs, Paul, I don't have any comments specifically on that. I don't know if there's any comment you want to make. Paul Jacobson: No. I think the team has done a really good job from that standpoint. There's still some final ticking and time going on some of the actions that we've taken, but nothing material that we expect. Ryan Brinkman: Okay. That's helpful. And just as a follow-up, given some of the intent that you alluded to Mary and some of the other unhealthy aspects of the China market with the operate capacity, et cetera, I think exports have been attractive release valve. And just curious if you can comment on your export business from China with regard to ruling? Or what progress have you made there? Are those -- is that a more profitable part of your business in China? And how do you see that potential evolving? Mary Barra: Well, in the markets outside of the U.S., we're -- there already a significant Chinese participation. We have both, I'll say, products from -- that were designed and developed in the United States as well as those from China and especially at some of the price points to meet some of the more price-sensitive developing markets. I think we've seen success of what the right recipe is to have a strong product at the right price point to participate in those markets. So we'll continue to look at those opportunities and continue to refresh the portfolio, again, with products sourced from multiple locations. But I think that is a strength for us. Operator: I'd now like to turn the call over to Mary Barra for her closing comments. Mary Barra: Well, thank you, and thanks to everybody for your questions. I hope you see that we're clearly operating in a very dynamic environment, but that's not unusual for the industry, and that's why we have a multiyear focus to ensure we have the right products the right team and a strong balance sheet supported by healthy cash flows to achieve our long-term goals and execute on our capital allocation strategy, regardless of the short-term volatility or longer-term cyclicality. To sum it up, we're executing well against our plan, and we've shown quarter after quarter that we have durable earnings, we're growing our software revenue. We're disciplined with our capital allocation, and we have multiple paths to profitable growth. We have strong momentum in the core business, thanks to our broad and deep portfolio of vehicles. We remain focused on delivering 8% to 10% North American margins this year. Our OnStar Digital business, which includes Super Cruise is contributing to high-margin revenue growth. And I'll remind everyone that it's not cyclical. And we're advancing automated driving technology in a way that separates GM from other companies. Finally, we're addressing the near-term cost impacts of higher costs, and we're prepared to respond quickly and strategically as the market continues to develop. So once again, thank you for joining us, and I hope everyone has a good day. Operator: That concludes the conference call for today. Thank you for joining.
Operator: Hello, and welcome to the Commvault Q4 Full Year 2026 Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Mike Melnyk, Vice President of Investor Relations. Please go ahead, Mike. Michael Melnyk: Good morning, and welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's future expectations, plans and prospects. All such forward-looking statements are subject to risks, uncertainties and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC. For a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements. All Commvault's financial results are presented on a non-GAAP basis. A reconciliation between the non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. Now I'll turn it over to our CEO, Sanjay Mirchandani, for his opening remarks. Sanjay? Sanjay Mirchandani: Good morning, and thank you for joining us. We had a strong finish to the fiscal year, delivering results at or above our guided metrics while continuing to build momentum across the business. In the fourth quarter, subscription ARR increased 27% to $989 million. This was led by another quarter of strong growth from our SaaS business, which grew 42% to reach $400 million in ARR milestone for Commvault -- subscription revenue grew 20% to $208 million, and we generated a record free cash flow of $132 million in Q4, resulting in $237 million for the fiscal year. We're growing at scale while also generating strong profits and cash flow. We believe this combination reflects the health of the industry, the strength of our platform and the durability of our model. Now let me take a step back and talk about what's driving this momentum. In 1 word, its data. Data is the lifeblood of every organization. When it's down due to an outage cyber attack or human era, business comes to a halt. Organizations today are facing a variety of challenges with their data. First, data is scattered across environments, on-premise, at the edge and in the cloud, expanding the surface for bad actors. Second, cyber attacks continue to grow in volume and sophistication. -- adversaries are getting smarter and stronger. Compromise is almost certain. Third, Identity has become 1 of the hottest new threat factors. This is compounded by AI as nonhuman identities outnumber human identities by 50 to 1. Commvault helps organizations address today's challenges by protecting, identifying, securing and when needed, rapidly recovering their data. But these challenges aren't static. With the rise of AI, we're in the most important technology shifts in modern history. AI creates more data, more access and more risk directly increasing demand for protection, governance and trusted recovery. We see AI as a powerful tailwind for Commvault because it -- the importance of what we do. In an AI-driven world, if your data is compromised, your AI is compromised. Commvault provides the picks and shovels that empower customers to adopt AI security and responsibly. We do this in a variety of ways. We protect the data sets used for AI and a broad spectrum of AI workloads. help customers leverage AI to detect threats faster, recover at greater scale and automate resilience operations. We help customers activate AI data security for use with models and agents, and we bring governance to AI data. For example, with our Satori acquisition now fully integrated to the Commvault Cloud, customers can monitor and enforce agents at the data. Additionally, as customers embrace and deploy AI, they're also focused on simplifying their technology stack. Enterprises don't want a patchwork of fragmented tools and products. They want the best unified platform to bring it all together, Commvault Cloud. Combo Cloud unifies data protection, data security, identity resilience and recovery all on 1 scalable control plane. Increasingly, more customers are standardizing on our platform as evidenced by growth we see across the business. Let me shine a light on some of the major growth drivers for Commvault, which will extend into fiscal year 2017 and beyond. First, we continue to add new subscription customers to our platform. Second, we're expanding and driving multiproduct adoption across our SaaS states. And third, we're seeing strong momentum with emerging revenue streams, including identity resilience. Now I'll discuss each of these in more detail. First, we added over 2,500 subscription customers in fiscal year '26. The growth-oriented investments we made over the past 2 years paid off. In the on-prem market, we're winning against other vendors while seeing customers return to Commvault after upstarts failed to live up to the high. For example, in Q4, 1 of the world's top 50 law firms returned to Commvault because enough start overpromised and underdelivered on products that quote on the road map and did not work. This customer is now leveraging our software and SaaS solutions, including a complete suite of data security, identity resilience and recovery offerings. Second, we're making steady progress in driving multiproduct adoption. A core pillar of our growth strategy. This is especially true in our SaaS business. The percentage of Commvault managed SaaS customers using more than 1 offering increased to 48% and PAUSE a 500 basis point improvement from Q4 of last year. For example, in Q4, we added a large virtual charter school that could not securely or efficiently manage its multi-cloud architecture with native hyperscaler tools. Lithos Commvault to help manage their multi-cloud estate with the addition of airgap, threat scan and cleanroom recovery to meet the resiliency requirements. In fiscal -- we're doubling down and incentivizing our sales force to build on this multiproduct momentum. Third, in terms of monetizing new offerings, we're seeing healthy momentum as identity becomes we target for actors. Our active directory enter ID and office solutions are landing new customers and expanding existing. In Q4, Active Directory was once again 1 of our fastest-growing SaaS offerings with AR more than doubling year-over-year. And collectively, our identity resilience and data security offerings represented 33% of net new ARR in Q4. For example, after a competitor suffered a crippling ransom or attack, a Fortune 500 retailer determined its resilience posture was too complex and costly. In Q4, they purchased Commvault's active retro protection because it provides lower TCO and reduced recovery time from 2 days to under 90 minutes. As identity threats continue to evolve, this will continue to be an area of focus and innovation for us in fiscal year 2017. In closing, Commvault provides customers with a single unified platform that it's essential for today's diverse data environments and tomorrow's AI-driven applications. Let me leave you with a few key takeaways. First, the market is getting bigger by the minute. AI is driving more data, more complexity and more risk, increasing the need for resilience as data grows, so as combo. Second, Combo Cloud is the differentiator. Customers are consolidating fragmented tools and standardizing on a single platform for data protection, data security, identity resilience and recovery. And third, we're delivering durable high-quality growth. We're scaling SaaS, expanding within our customer base and doing so with improved margins and strong cash flow. That is why we believe we are well positioned to win in the AI era. And now I'll turn it over to Gary Merrill, who's back as our CFO, to discuss our results and outlook. We welcome him and Jeff Hayden as our new President of Customer and Field Operations. Gary? Gary Merrill: Good morning, and thank you for joining us. For those who have not yet met, I served as Commvault's CFO from 2022 through 2024 before moving into the Chief Commercial Officer role. I'm excited to return as a -- especially as we close fiscal year '26 with strong momentum. I look forward to working with you as we continue to drive disciplined execution to capitalize on the growth opportunities ahead. Our Q4 results demonstrated accelerating SaaS growth, improved profitability and record free cash flows. I will discuss our Q4 and fiscal year 2026 financial metrics using our existing reporting definitions. Additionally, please note that we will transition to the new financial reporting effective fiscal 2021 that was discussed later in my prepared remarks. Turning to our fiscal Q4 results. I'll start by discussing ARR and free cash flow, which we believe are the North Star metrics. We encourage you to evaluate these metrics on an annual basis, which is aligned to how we plan and manage our business. In Q4, subscription ARR increased 27% and to $989 million. On a constant currency basis, using FX rates for March 31, 2025, we added $53 million of net new subscription error. Our strongest performance of the fiscal year. Within subscription, our SaaS ARR had a major milestone, growing 42% to $400 million, reflecting both new customer growth and healthy expansion from existing customers. We continue to make meaningful progress in multiproduct adoption, a core pillar of our growth strategy. As Sanjay noted, 48% of Commvault managed SaaS customers are using more than 1 product. This adoption is supported by a strong uptake of our identity resilience and data security solutions, which represented 33% of net new ARR. Our SaaS net dollar retention improved to 122%, highlighting our ability to expand within existing accounts. Total ARR, which includes subscription ARR and the maintenance associated with perpetual licenses increased 21% to $1.12 billion. On a constant currency basis, using FX rates as of March 31, 2025, we added $44 million of net new total ARR during fiscal Q4. Moving to free cash flows. Q4 rebounded to a record $132 million, reflecting strong collections aligned with focused working capital management. Full year fiscal 2026 free cash flows were $237 million, growing 16% year-over-year. In Q4, we accelerated our stock repurchases to 3 million shares for total consideration of $259 million, reflecting our confidence and focus on delivering long-term shareholder value. This brings total fiscal year 2026 fixed repurchases to $446 million, representing over 4 million shares. Now I'll discuss our income statement performance. Q4 total revenue increased 13% to $312 million. Subscription revenue grew 20% to $208 million, led by a robust 43% growth in SaaS revenue to $93 million. Pure software license revenue grew 6% against a challenging comparison driven by strong renewals and existing customer business. We continue to see strength in large enterprise accounts, with revenue from transactions over $100,000, increasing 9%, driven by higher deal volumes. Turning next to profitability. Q4 consolidated gross margin -- expanded 30 basis points sequentially to 81.8%. This reflects continued improvement in SaaS hosting margins driven by scale efficiencies and ongoing product optimization. Q4 operating expenses increased 11% to $187 million, representing 60% of revenue, an improvement of 100 basis points year-over-year. This reflects benefits of our past optimization program aimed to expand margins and allow for reinvestment in strategic growth initiatives. Non-GAAP EBIT in Q4 was $66 million, representing a non-GAAP EBIT margin of 21.3%. Looking ahead, we are entering fiscal year 2027 with strong momentum. With our subscription transformation largely complete, our financial priorities are to scale subscription ARR, expand margins and increased free cash flow. Before reviewing our outlook for fiscal year 2027, I will briefly discuss 3 updates to our financial reporting that will be effective in fiscal Q1. These changes are outlined in our earnings press release and on Slides 25 to 27 in our earnings presentation. First, we have recast certain revenue and ARR classifications. The primary adjustment removes all term sulfur-related support revenue into subscription revenue alongside term software licenses and SaaS revenue. Perpetual support revenue is now presented on its own line in our P&L, which directly correlates to our nonsubscription-based revenue and ARR offerings. These recast changes are being made to, one, provide a consistent view of our offerings across subscription revenue and subscription ARR. Secondly, align financial reporting with our subscription-based business model. And finally, they reflect how we manage internally. There are no changes to the total revenue or total ARR for any period presented. Under the recast presentation for fiscal year 2026 Subscription revenue was 82% of total revenue and subscription ARR was 90% of total ARR. To assist with year-over-year comparability, of our new financial reporting effective in fiscal year 2027, we have provided a 2-year quarterly look back in our earnings press release and earnings presentation, all of all recast events. For modeling purposes, an excelled download is also available on the Investor Relations website. The second change in our financial reporting is to streamline our KPI framework with emphasis on 4 key guided metrics, subscription ARR, free cash flow, subscription revenue and non-GAAP EBIT. We will also provide supplemental total revenue and diluted share count guidance to assist with P&L modeling. Going forward, we will no longer disclose the total ARR as the remaining perpetual maintenance stream will be less than 10% of our business. In addition, our subscription ARR guidance will no longer peg to the beginning of the fiscal year FX rate. The final change to our fiscal year 2020 reporting will be a transition to subscription net dollar retention measured on an annualized basis. This includes both our term software and SaaS offerings and will align net dollar retention metrics with our subscription ARR and revenue disclosures. For context, fiscal year 2026 subscription net dollar retention measured on an annualized basis was 114%. I'd like to reiterate that we will guide subscription ARR and free cash flow annually, which matches our business planning and management approach. Perm software accounts for most of our ARR and upfront revenue. So quarterly results may fluctuate due to factors such as the mix between software and SaaS transactions, renewal timing and shift in contract duration in any discrete quarter. Typically, these fluctuations even out over the fiscal year. Now moving to our fiscal 2027 outlook using our new financial reporting. For fiscal Q1, we expect subscription revenue of $263 million to $265 million, representing approximately 15% year-over-year growth at the midpoint. This would result in approximately $310 million of total revenues. We also expect EBIT margins of approximately 19% and a diluted share count of approximately 42 million shares. For the full fiscal year 2027, we expect subscription ARR growth of 18% to 19% year-over-year, representing a range of $1.20 billion to $1.21 billion. Our subscription ARR growth percentage will continue to be led by our SaaS offerings, which we expect to exceed $0.5 billion of ARR by the end of fiscal 2020. We expect subscription revenue in the range of $1.115 billion to $1.125 billion. representing approximately 15% year-over-year growth at the midpoint. As I mentioned earlier, we will also guide total revenue to assist with financial models. We expect total revenue of $1.30 billion to $1.31 billion. PAUSE In addition, for fiscal 2027, we expect non-GAAP EBIT margin of 20.5%, free cash flows of $250 million to $260 million weighted towards the second half of the fiscal year and diluted share count of approximately 42 million shares. Finally, our Board refreshed our share repurchase authorization for $250 million. We currently expect to allocate approximately 60% of annual free cash flow to share repurchases, subject to market conditions. In closing, I'm excited to return the CFR role and look forward to working with you as we continue to execute with discipline and capitalize on our growth opportunities ahead. We operate in a large and growing addressable market. There is meaningful potential to acquire new customers and expand with our installed base to increase multiproduct adoption. I'm focused on executing those opportunities with a clear path to continued margin expansion and strong free cash flow generation while driving shareholder value. With that, I'll open the call for questions. Operator? Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Todd Weller with Steve. Todd Weller: Thanks for the question. You mentioned kind of the success with multiproduct sales and changes in compensation. Could you walk us through at a high level, your FY '27 kind of sales comp structure and kind of what behaviors you're trying to drive differently versus FY '26.. Gary Merrill: Todd, it's Gary. Thanks, Amit. I will take this. I'll hit the multiproduct question that you were asking. But before I do that, I'll hit sales compensation. First, we don't disclose the discrete components of our compensation plan. But what I can tell you is that our compensation plan in the field is geared towards 2 items specifically. The first is new customer acquisition. And the second is cross-sell. So platform expansion in our hybrid environment. So these are the 2 key pillars of our compensation plan for FY '27. As we look back to FY '26, we're seeing great progress that we want to build off on multiproduct expansion, especially with our customers that are now licensing at least 2 of our SaaS products. PAUSE that's now approaching 50% of our SaaS customers and our ability to cross-sell and the opportunity to drive growth and cross-sell is a key pillar of our FY '27 strategy. Operator: And our next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Yes. I have 2 real quick. I guess maybe going back to late last year, I'm curious with your cloud Unity platform, what you've been seeing in terms of customer engagements, customer interest? Any kind of metrics you can share on those platforms? Obviously, the Satori acquisition. And just curious as we think about these multiproduct platforms do -- what you've seen in terms of the products introduced late last year. Gary Merrill: Sure. Again, when we think about what we announced at unit -- the objective number 1 is to drive customer engagement. So to give the ability for our customers to leverage our platform now truly across any workload, whether it's on-premise or in the cloud. And our primary measurement of that is really driving new subscription customer growth, okay? So we've added about 2,500 new subscription customers in the past months. This quarter alone, it was roughly 600. And then how we start to monitor and measure that going forward will be across metrics of multiproduct adoption. As well as our ability to cross-sell. So not just upsell because now we're starting to see the acceleration on the cross-sell motion as well. Sanjay Mirchandani: Let me -- Aaron Sanjay here. Let me just add a little bit more to that. So the platform, if you remember, the Unity in the platform was about making sure we could give customers a singular capability to take data security, identity resilience and data recovery as 1 unified offer, whether they deploy it in SaaS or they deploy it on-premise. Just -- and identity resilience and security, as an example, represented 33% of our net new ARR last quarter. And we also added hundreds of Active Directory customers. Our ARR on Active Directory doubled year-on-year, and it's 1 of our fastest-growing offers in the history of the company. So without getting into absolute specifics, it gives you a sense that the design of Unity is exactly where customers are leaning in. Aaron Rakers: Yes. And then maybe as a quick follow-up. Gary, now that you're back in the CFO seat. I'm curious, I know you gave guidance for the full year at 20.5%. And operating margin. How do you think about the leverage that you see in this model? Is there any kind of thoughts of driving incremental operating margins? Could we see maybe mid-20-plus percent operating margin in the Commvault story as we look forward? Gary Merrill: Eric, thanks for the second poll question. First, Guidance for FY '27 to 20.5%. Our belief when thinking about guidance is setting our guidance at the level that we believe and that we're confident that we contain, as we think about long term, especially as we scale our SaaS platform, there is leverage in this business model. AI from both an internal perspective and a customer's objective, will give us great operating leverage opportunity. AI is driving data growth. It's driving efficiencies in our product, and it's driving efficiencies in how we talk to customers every single day. So the short answer is yes. We're not at the point where I'm ready to give multiyear guidance, but at baseline of 2.5 is a good starting point, and we look to expand on that from there. Operator: And our next question comes from the line of Michael Romanelli with Mizuho Securities. Michael Romanelli: Just maybe on the '27 guide, can you walk through some of the top line puts and takes for us? And as part of that, you announced some recent leadership changes, obviously. How does that factor into the thought process and logic around setting guidance? And I have a follow-up. Gary Merrill: This is Gary. I'll take the first part. If I zoom up and maybe go very at the macro level and as we thought about our plan for FY '27, our objective is to build durable growth, okay? So the plan is built along the foundation of durable growth. There's 3 pieces that will help us drive those growth vectors. First is AI data growth. So AI is driving massive amounts of data growth. That becomes a tailwind to our business. When you combine that with the complexity of hybrid environments, it makes what we do from a resiliency perspective, even more important. And then when you add the third vector of AI cyber-led attacks, which brings in the resiliency and security aspects, you have 3 growth vectors that build the foundation of the plan. As we think about how we measure that success, you heard in my prepared remarks about our North Star metrics of subscription. So that is the key way we will measure it. We're a hybrid business, and we're expecting continued momentum in that business. And as we serve our customers, whether they're on-premise or in the cloud, we expect acceleration to continue to come, especially from our SaaS business. Sanjay Mirchandani: Yes. And I'll add a little bit on the leadership transition. So Gary was our Chief Commercial Officer, helped build the plan was intricately involved in all aspects of both the guidance as well as where the revenue numbers we were forecasting. And then Jeff was a Board member and on the inside was had full visibility as to what we were -- what our assumptions were and how we were thinking all through the process. We were able to synchronize the leadership transition at the start of our fiscal year and had both of them at our sales kickoff, which is very important from a handover point of view and consistency point of view. And for all the important things like comp plans, territory planning, forecasting methodology, it was 2 in the box, getting it done. So I feel pretty good about -- I feel very good actually about the timing and the leadership that we brought into the company to take 7 and beyond. Michael Romanelli: Got it. Super clear and helpful. So Sanjay you've laid out what is a pretty clear AI resilience vision and more recently unveiled data activate the Protect and AI studio. How are you just thinking about the commercial opportunity there, a significant growth driver for you guys in fiscal '27? Or is the real monetization perhaps beyond that? Just would love to person on that. Sanjay Mirchandani: We're not pinpointing the exact number that we're attributing to AI because it's still early days, but it's definitely a tailwind. And it's -- to oversimplify it. We believe, and obviously, a bias to believe that data is at the heart of AI and is driving AI models is driving how customers use AI in the enterprise. And what we're trying to do is make sure that we're giving them not only the products and the capabilities you mentioned, which is the latest. But doing what we've done for the better part of 30 years, which is protecting the components that build up the systems they use. So whether it's a better databases, whether it's the Deep S3 bucket that they're storing data in, whatever it may be, where every day we're supporting more and more of the component fee that builds up the AI apps that they're building. And we'll continue to do that to give them all the availability. Plus, with the capabilities that we've just announced. We give them a genetic access to our workflows. We give agenetic access to single policy engines. We're giving them everything they need to really protect their environments with the right guardrails and be able to recover as they roll out these fairly complex AI capabilities inside their enterprise. So early days for us in quantifying it externally, but we feel today pretty good about the fact that it will -- as long as the data keeps growing, which we think it does because of AI, what we do by way of resilience becomes front and center. Operator: Our next question comes from the line of Eric Heath with KeyBanc. Eric? Eric Heath: Great. Congrats on the results, gentlemen, strong AR acceleration and Gary welcome back to the seat. So can you just talk about what you saw from a macro perspective, both in the quarter given just some macro headwinds out there? And also, memory is also an issue. So anything you could speak to about memory impact in the quarter. And then, Gary, just coming back to some of the guidance philosophy and the assumptions there, but just -- any change in the philosophy we should be thinking about it? I know you addressed some of it already, but just given the leadership changes, any additional prudence there? And similarly, along the earlier question, any assumptions on macro or memory pricing that you're assuming in the guidance? Gary Merrill: Eric, -- thanks and good to hear from you. I'll hit it specifically. I'm going to start with the last on the macro and the memory pricing. We had to look at them as a combined we're managing that in our pipeline. And from an outlook perspective, the current trends are baked into our guidance. Now we've been successful in being able to navigate that with our platform. We have 3 primary ways how we navigate supply chain or macro related to memory. First is we have a broad technical partnership with all the major storage providers. So we're able to leverage those partnerships, whether it's on supply or technical alignment as well. So the depth and breadth of our platform integration is a key competitive differentiator. Secondly, we work with our customers to use sweat the assets. So even if it's a competitive takeout and it's a fresh install working with our customers to leverage their existing infrastructure. And the third, which we think is one of our best competitive ability is our SaaS platform. So we have the ability from a workload perspective to migrate customers to our SaaS platform and which is kind of where we see our ability to then manage these work close regardless of what's happening in the broader economy. On your second question which I believe is guidance philosophy. Fundamentally, I've been a part of the leadership team now for many years. So as we think about how we run the business day to day, nothing's changed, I would say, right? The collaboration between myself with Sanjay and now Jasin, the broader team is consistent regardless of what role that I was in -- so the way we think about guidance is taking a look at the market opportunity and then providing a number externally that we feel confident in. Sanjay Mirchandani: And I'll just say this, and everything. But having a CFO who's been a -- is one heck of an asset because you get a very pragmatic point of view on how to look at things. So we're very happy with that. Operator: And our next question comes from the line of Jason Ader with William Blair. Jason Ader: Yes. Thank you. Good morning. First, I want to just applaud you guys for the shift of the term support to the subscription line. It's something that Mike, I've mentioned to you many times. So I think that just cleans things up, and we -- I think we all appreciate that. For Sanjay, you talked a little bit about -- or I guess, Gary, you talked about the hardware pricing. I'm just wondering, has it actually impacted deals where some of your competitors are more tied to hardware, specific hardware and therefore, it sort of shifted deals like that were late in process towards you because of the supply availability and your sort of hardware agnosticism. Sanjay Mirchandani: I'll take the first. I'll take the first shot at it. We -- I will say this, we have probably -- we are probably at the place in this -- in our company's history, where have the strongest relationships with our technology partners. We work with them very closely on the pipeline. We work with them very closely on the customer requirements. And so as much as availability and pricing does cause a little bit of revisits as part of the process. We've been so far, I'm going to say, so far, been able to manage the forecast pretty tightly in conjunction with our partners. And one of the things -- almost more importantly, that we can do, that Gary mentioned that holds us in good stead is allowing customers because of the way our platform is architected to sweat the asset a little longer, till they can get the right setup that they need and the timing that they want and the project kick off the way they acquired. But if they need the resilience we provide, in many cases, we've been able to go in and just sped out the asset. And without getting super technical, we can also let them run the control plane in any way they want so that they could -- they're not beholding to a particular piece of hardware. So we've got that flexibility in the architecture, and it's been used every single day as a hybrid company. So whether they're using the SaaS piece of it or they're running it in the cloud, we're letting them work through this present sort of situation to start. Gary Merrill: Jason, to go back to your first comment about the recast. I appreciate the call out. One of the key priorities with that is aligning our P&L today are -- so now you can specifically see how the AR momentum is translating into acceleration on the top line within the subscription. And then it's also important to give the clarity to our shareholders about the actual size now of the perpetual business now that it's become nominal to the overall business. Sanjay Mirchandani: That's fair. Jason Ader: Great. And 1 follow-up. On the comment, the 33% of new ARR coming from identity and data security. Can you just give us a quick report card, Sanjay, on some of the data security products, like what's going well? Where do you still feel like you've got some work? I know you have a handful of different products there, some acquisitions. Just it would be great to get a quick report card. Sanjay Mirchandani: Yes. I think with Unity, we really upped the ante, if you would, on how our policy engine operates across the product. So when you look at Satori and what it does with data security being integrated, so those capabilities, the implied capabilities are in the product, right in the product. If you look at Threat Scan, which has been something that has done really, really well for us. Now it's been completely revamped and taken inputs from a variety of sources, including our own IP and third-party IP to really give customers deep scanning capabilities to look at what happened. You tie that back to clean room, which we brought to market 2 years ago, this generation of cleanroom has tight integration with AGT and all the risk analysis that we could do to tell customers what happened, who touched it. Now when you fast forward this to a genetic capabilities. A lot of companies are fixated on what the rolling back in agent, which is fine. But that is one threat vector in the overall scheme of things that needs to be looked at in sort of cohesion to bring back -- to really have resilience. So that's where we're going. And the numbers we shared sort of bode well for where customers' minds are and where -- how they're thinking about resilience because you have to look at it in an integrated way, data security, identity resilience and true single-click recovery on large platforms. Operator: And our next question comes from the line of James Fish with Piper Center. James Fish: Topic that's coming up, of course, is hardware and cloud. Maybe just to go back to that, are you seeing customers initially actually start with the on-prem for either a net new or new deal completely, but then evaluate or turn to you guys to see what kind of cloud equivalent pricing would be, just given the rising hardware costs. And how are customers handling that sort of messaging how are they handling that overall exposure to you? And is there a way to understand that penetration of cloud within subscription entirely at this point? Gary Merrill: Jim, it's Gary. I'll start on this. So as it relates to thinking about navigation. So what customers want is they want the diligence at the end of the day. So if you start with the macro theme of what we provide as resilience, so when you get into, I'll say, Tier 2, Tier 3 apps, maybe not like the mission-critical Tier 1, the flexibility is there to think about the ability to be agnostic between whether they use on-premise infrastructure or they use cloud and to structure their own storage or even our own ubstores. So that's kind of where we see it. And when you combine that with the flexibility with the hardware partners that we have as well as helping us with the assets, if it becomes about the options that they have to make sure that we can keep their projects on track. Now to quantify what I'd say that shift has been material to our SaaS business, not yet. Okay, not yet. But what it does is it keeps our project top of mind and it allows us to continue to execute with a close plan. Sanjay Mirchandani: Because we're very unique in what we can deliver in that true hybrid capability, letting customers truly mix and match how they wish to deploy. Now of course, it's a regulated industry. They have their own policy. There's a lot of things that come into play. But that we give them a very unique flexibility that nobody else can to do what they need to do. And over time, they can mix and match. and some do. James Fish: Yes. Just to follow back up. I know I asked a long question there, but what's the customer penetration of cloud within subscription entirely? And can you just remind us what optimizations on the product setting and where cloud gross margins are now today? Sanjay Mirchandani: I'll take the first part, you take the second. Gary Merrill: Okay. So penetration of cloud. So cloud native workloads. So if you think about workloads that are now running the cloud, whether there's databases Monoject, even our -- and we think about contribution, okay, to our growth, that bucket of our cloud, digital native cloud native offerings from Q3 to Q4 was our fastest-growing segment that contributed to ARR, okay, which shows what the ability is to move and protect cloud applications with our cloud product. So a major contributor, Jim, to our success sequentially. From a margin perspective, continued optimization. I don't have the margins in front of me, but we can get them back to you. I would say sequential improvement on margins are North Star is driving well north of 70% and we're on pace for that over the next couple of years. So that's where we're focused on is the product optimization and building that durable business of in the cloud. Operator: And our next question comes from the line of Param Singh with Oppenheimer. Param? Paramveer Singh: Maybe, Sanjay, I wanted to understand the buying persona for identity resilience, is that more focused towards. And are you investing more in your security focused sales teams, not just find resilience but for some of the other workload opportunities, particularly around ransomware and then lastly, in that vein, are you also investing in R&D to sell some of the technical gaps on the ransomware side? Or do you feel you have a robust portfolio today? Sanjay Mirchandani: Param. I'll take the last part first. I think we've got a world-class platform when it comes to not just ransomware as a threat vector, but broader and making sure that -- and I don't need to say this in any way, but serious, which is regardless of the threat vector or what causes the damage of the data our focus is to be able to bring customers back to life, recover them. So it's broader than ransomware, but it definitely does ransomware if that makes sense, okay? And it does it very well. Every day, we're helping customers with it. On your -- on the first part of your question, on the buying persona of identity, Identity is quickly becoming because of AI, is quickly becoming sort of a joint decision between the CSO organization and the classic CIO organization, because, in some cases, identity is managed by the IT organization and now with AI applications being developed by teams or new teams sometimes, it's sort of going up in visibility. So we're seeing both. We think both. I'm not adding more security specialists, if you would. But over the past couple of years, a lot of the folks that have come into the company have come in from a security patron. In fact, Jeff Hayden, our President also has a deep security background because today, like I keep saying, data security, identity and recovery are implicitly high. So we're cross training our people. There's a lot of enablement we're doing going to make sure that they can talk to the different personas, identify the right kind of conversations to have. I feel pretty good about the progress we've made. I mean we don't -- it's rare that we lose a deal because we didn't have a security capability. Paramveer Singh: Understood. Great. And as a follow-up, if I could, -- not to get into the memory side. I know you're managing the supply chain well, but a different question, right? The higher memory and component pricing does constrain budget dollars a little bit. Have you had concern from customers where they're picking and choosing what workloads are mission critical and more important to secure now and potentially pushing off certain workloads through the next year? Or do you feel that the entire data state is crucial enough today where dollars would primarily be spend on cyber resilience first and then something else. Any clarity there would be really appreciated. Sanjay Mirchandani: I'll take the first shot. The -- anecdotally, use -- customers are focused on resilience because you're only as good as the breadth of your coverage, okay? And your resilience capability increases with pretty much you have to protect everything that runs your business mission critical. For that, if customers are doing refreshes, they prioritize that in whatever architecture their industry allows them or their policies allow them to do. So in some cases, it's not about pushing it off to next year. It's saying, I think we can run this through a SaaS capability that -- so we look at your sat, Oh, we could have it hosted, and we'll write the data on-premise. So again, it comes back to the architecture, which we think gives customers the choices they need to be able to prioritize both the cost increases and the availability of memory and servers, et cetera. So it comes back to that. There's no single answer. But yes, obviously, if things are in scarce supply or more expensive people do prioritize and we're right there with them to help them through that. Operator: And our next question comes from the line of Yun Kim with Low Capital Markets. Yun Suk Kim: Congrats on a strong thing to finish to the year. If you can update us on the overall partner ecosystem that you're expanding, especially around service providers. I think you had some announcements on that recently with Google and whatnot. How important is that securing that close in ship with the major hyperscalers in your go-to-market especially around cyber resiliency and then especially with much of the Agent framework running on those agree platforms? Sanjay Mirchandani: Yun, it's Sanjay. I'll try and address that. So our relationships with the hyperscalers are pivotal. It's very important as customers truly embark upon not just hybrid cloud, but multi-cloud deployments our ability to protect customers with a single platform across multiple cloud and on-premise capabilities is unique. So our hyperscaler relationships are something that we invest deeply in, okay, both from an engineering point of view, and a go-to-market point of view. So access, if a customer wants to purchase off of a marketplace, we have deep integrations into all the marketplaces. And then we continue to evolve the platform as customers make choices around Atento your point, whether it's the vector databases, whether it's the agent framework that they have, identity systems that they use. We're continuing to build out our resilience capabilities on that so that when the customer makes that choice, we're right there with them. okay? And we've done that for years, and that's obviously held us in good set, so we continue to do that. What was the other part of your question. Resilience. Yes. And what we do, for example, that makes us, again, very unique from a resilience point of view is customers can write their data into our air gap immutable capabilities on any of the 4 major hyperscalers today. So they can mix and match as they need to. And for whatever for economic reasons, commercial reasons, resilience reasons, redundancy reasons, we can -- we allow them through the same control plane very seamlessly to be able to protect their data and their capabilities on any of the hyperscalers. So the abstraction is what we bring, TCOs, what we bring. And you mentioned, Google, our Compal Cloud platform supports Google. but our Fumio platform, which is designed for cloud natives, which has thus far been an Amazon, AWS sort of protection has now expanded into Google. So Google Cloud is also supported by Glumio,hirwhich is quite the favorite with the cloud natives. Yun Suk Kim: Okay. Great. Sanjay. Gary, in regard to probably a question that I probably wanted to avoid so far. But in regard to seasonality of your SaaS business for -- in your outlook, is there any big renewal quarter where you're expecting a certain upsell or even a conversion of term license to SaaS. Gary Merrill: Yes. Thank you. I'll hit it. The average contract length of our SaaS deals is 1 to 2 years, so we're in that midpoint of 1 to 2 years. So what that means is as you see that they are accelerate and grow every quarter, that means that our renewal base is growing every single quarter. So what happens is and what you'll see is some of the acceleration in the second half of fiscal year '26, is that it's our renewal population natural opportunity for that cross-sell opportunity that you see and that's coming through in some of our prepared remarks. So we expect that trend to continue with our typical seasonality. So as we build out and think about renewals in the second half of fiscal year '27, the opportunity will be that much bigger on incremental cross-sell as well. Operator: Our next question comes from the line of Howard Ma with Guggenheim Securities. Howard Ma: I'll keep it short. And Gary, welcome back to the speed. My question is, are there any trends to call out in terms of new and renewal procurement decisions? And what I'm really getting at is how comfortable are you in the initial subscription revenue and margin guide. Did you appropriately bake in -- I kind of think there's 3 things. There's higher memory prices. There's cloud modernization that are happening broadly and then there is the potential impact of -- cloud Unity on shorter contract duration. So did you appropriately take in potential contract duration compression? Gary Merrill: Howard, glad to talk to you again. I'm glad to be back working with you. Couple of different pieces there. If you look at the renewal pool, I would say, on the software side in FY '27 relative to FY '26. It's roughly the same or slightly bigger, but not significant. And so we have factored in our expectations on new full term like Term link. What we saw in some fiscal Q3 to 4 is roughly no change to term link, but we've modeled that out now into FY '27. I think if I think about the way we've built the guidance around subscription ARR. We expect the vast majority of subscription ARR driven from our business, okay, similar to the trends that you saw for FY '26. So therefore, we'll continue to see acceleration in the SaaS business, our software business and our hybrid environment is a roughly plus or minus similar renewal pool. And then the difference will be what we expect to take from the new logo acquisition on-premise. Operator: Our next question comes from the line of Rudy Kessinger with the D.A. Davidson. Rudy, please go ahead. Rudy Kessinger: Great. Gary, certainly looking forward to working closer with you again going forward. Gary, you said in response to a question on memory earlier, 1 of the 3 reasons we're able to navigate this is the ability to maybe cover some of those -- both from the cloud, and I just want to clarify that with respect expect how much of a driver of your SaaS and Nene in fiscal Q4 was from customers protecting on. premise workloads via your SaaS offering as opposed to purchasing new hardware. Was that a material driver? And do you expect that to be a material driver of SaaS going forward this year just given the memory price increases? Gary Merrill: Rudy, Nice to talk to you again as well. Not significant in Q4. What it does, it gives us the ability to make sure that our project with the customer to help meet the resilience you need stays on track. To give them that option if they need to go that way in the future that they've scoped out the technical considerations. So not a significant contributor to Q4 acceleration that is not factored into my guide. For FY '27 either. My guidance related FY '27, exceeding $500 million of DAS ARR would exclude any significant impact from that. Operator: Our next question comes from the line of Joseph Gallo with Jefferies. Joseph? Joseph Gallo: Subscription NRR was really impressive at 114%. Just given the broadening portfolio, how should we think about how that trends in fiscal '27 versus your sub-A guide of 18.5%? Gary Merrill: It's Gary, Joseph. Nice to meet you, and thanks for asking the question. Yes. So one of the retail items that I made thinking about going in FY '27 is hopeful thing on that subscription NRR as a key measure because -- you're right, it aligns to both our revenue and subscription and the ARR. We're not modeling significant upside in that number in the guidance. So in the guidance generally reflects that steady state. And that keeps our SaaS NRR very healthy and gives us opportunity to improve also on the software piece as well. Joseph Gallo: Awesome. And just as a quick follow-up. I mean it was great to hear the potential competitive differentiation with higher memory prices versus other vendors. I'm just curious, broadly, have you seen any changes in the pricing environment competitively? Gary Merrill: No significant. If I look at discounting trends that we had during the quarter, they were consistent with the last couple of quarters. It is a competitive market, obviously, as you guys do your research, but we're not seeing any incremental pricing pressure. It's more, I think, as Sanjay outlined and you even emphasized it's navigating those cost challenges relative to the resilience budget and making sure that resilience budget is maintained as a priority versus traded off as just storage costs. Operator: Our next question comes from the line of Shrenik Kothari with Baird. Shrenik? Shrenik Kothari: Welcome back, Gary. Sanjay, just in relation to oral outlook and guide. I know in prior calls, you have talked about AI as a big growth driver, but it was mostly is proof of concept within your customers. It seems now you're pushing harder, AI is driving more data, more risk. You mentioned the market is getting bigger by the minute. Just which of the use cases that you are most excited about and you're seeing real enterprise budget pull today compared to sort of what you talked earlier, if you can sort of elaborate more across protecting data sets versus model flows as the recovery of agent-driven workloads, also governing data access and cloud native recovery. Any thoughts there? And I had a quick follow-up. Sanjay Mirchandani: Sure, sure. Shrenik, I'd say in the enterprise, enterprise-grade applications we're in the early days. There's a lot of trials. There's a lot of models being used. So what we're doing is getting back to, like I said in an earlier response, is making sure that we can broadly protect the componentry that customers will use -- are using or will use to build these apps. To the databases, the vector database is where the data is stored, exposing that data so they can use it in pipelines to the newer products we have, giving them agent capabilities to quickly get resilience built day 0 into the apps as opposed to an afterthought because what we believe is critical in this new sort of new types of apps, AI-enabled apps that have been mild is that protection and resilience needs to be active and not passive. It needs to be on the front end of as you build the app as opposed to in the back end of when you've got the app. So we're -- so you mentioned many things. It's like is it risk? Is it data? Is it recovery policy, cloud-native full all of it. So we're helping them through the process. But again, our focus is data and recovering the data regardless of what may have touched it, agenetic nonagentic, human nonhuman, all of that. So we're -- it's early days. It's a journey, but our goal is to be able to give customers through Commvault Cloud, a single click recovery of the entire AI stack. That's where we're driving to. Shrenik Kothari: Great. Very helpful. Just very quickly, again, Gary, in relation to -- I know you did mention there's field comps are geared for the next year towards both new logos as well as cross-sell platform. Just -- it sounds great, right, especially given the stronger identity and multiproduct momentum. But just how different is this in practice from fiscal '26 in terms of how you are sort of fine-tune that incentives, any success metrics around AI, atenty. Just anything that you can provide there granularity. Gary Merrill: Yes. I can summarize this for you. So if I -- the comp plan design for our field teams for FY '27 is roughly consistent with '26. So what we do is tweak a cross-sell incentives, on the products that we believe have the greatest opportunity for growth. And then obviously, our customers need to stay resilient. So it's a tweet in the -- where we point them as it relates to the specific products, but new logo acquisition has always been a fundamental pillar of our complaint. Operator: Our next question comes from the line of Junaid Siddiqui with Truist. Junaid Siddiqui: Sanjay, as frontier area models become increasingly embedded across cybersecurity workflows. And as the model providers themselves potentially push further into security, how do you see Commvault role evolving to remain core to cyber resilience and how are you partnering with these platforms to protect customers in a more agentic world? Sanjay Mirchandani: Junaid, it's these models used right, will to make for better software, okay, more secure software. So I think I think we're seeing the start of this in the industry. Our focus has always been a combination, making sure that the platform we provide the combo capabilities we provide or equal parts, data security, identity resilience and recovery. I'd probably take that back. I'd say more recovery. And we specialize on the recovery capabilities. But it's with the same policy engine that gives you the providence of what happened to the data to allow customers to truly recover. So whether the agent caused something to happen, or a cyberattack cause something to happen or human error cost something to happen or a corruption case something to happen, our focus always is data out, making sure we can get the data recovered for the business. So the models we'll make for most secure software, I believe. But what we need to do is stay focused on and what we're focusing on is just getting customers back from anything that may have happened to their systems. -- especially when you're looking at the pace at which AI changes things. So I'm kind of giving you a 10,000-foot response on it, but we're obviously looking at it's a multipronged capability, whether it's Agentic or cyber or just system providence. We're looking at all of that and making sure that our capabilities can bring all of them back with single policy. Operator: Our next question comes from the line of Joe Vendre with Deutsche Bank. Joe? Unknown Analyst: Sanjay, you called out multiproduct adoption as a driver of growth and also touched on the momentum in your identity protection products. Can you talk about the typical deal size for identity and maybe the ACV uplift when a customer adds on that identity protection. And also, is there a way to think about what percentage of the base has adopted identity protection today, and should that adoption rate eventually get to 100%? Gary Merrill: It's Gary. I'll jump in and answer this for you. So what -- we don't disclose the actual ASP of our denting solution. However, what I can provide to help is that it's a good land or a would expand motion to drive the stickiness in the platform. to how we think about it internally is that it's less about the individual ASP of the offering. It's more how we're driving the adoption of the platform, okay? And when you get multiproduct adoption, as you would expect in any business, our ARPA goes up significantly, okay? And we'll start to give color on that in the out quarters as we get going and get more penetration. To the positive side on opportunity, we've had great success on our identity year-over-year. The business grew about 100% year-over-year. and it's still a very small proportion of our installed base that have adopted it. So we still have a long runway of opportunity to drive that as we continue to enhance the platform with even more identity solutions. So just not about the traditional active directory when we get into other offerings like Ostend other and ID, it's the whole platform approach across multi identity solutions which will drive multiproduct adoption and then drive our PARP, which we'll continue to talk about as we build those measures. Sanjay Mirchandani: Right. Joe, just to close, I mean, just to give you a typical scenario -- use case scenario, outcome-based scenario that a customer would look at. They would start with identity they would look at clean room to be able to test that identity and they would look at AGP, our Air Gap Protect capabilities to be able to restore data from that secure location, whether it's for test purposes or production purposes. So without identity resilience, you are -- it's an incomplete solution. So that's how we think about it. In and of itself, it's a starting point. It's a good land spot. It's a good expense part of a customer already using our technology, but it really shines when you look at the life cycle of how a customer would use it. Michael Melnyk: Mark, we'll take our last question, please. Operator: Our last question comes from the line of Tom Blakey with Cantor Fitzgerald. Thomas Blakey: Well, thanks for in here, Michael. Sanjay and Gary, great to be working with you again. I guess my first question is on this net new ARR in constant currency metric that we've heard from the company in the past. It seems like with AI increasing data, very successful push here in terms of organic growth from a new product perspective as well as M&A. It seems like if I'm looking at the moving pieces here, the new target of $1.205 billion in subscription ARR. Just maybe kind of talk about what we're kind of expecting here and embedding in the guide for net new ARR on a constant currency basis into fiscal '27? That's my first question. Gary Merrill: Tom, it's Ger. I'll jump in. So how we'll be guiding that new ARR going forward? It's really tied to subscription error, the overall subscription ARR. That will be an annual guide. So we set up the annual guide for FY '27 at the midpoint, that's 18% and 18.5%, okay? If you quantify that, that means that the amount of subscription net new ARR for the full fiscal year 2017 will be roughly $190 million. Okay. So that's kind of a key base part. Now what I won't be doing is giving a discrete guide on any individual quarter, okay? As you've seen in our business in the past, there's to be puts and takes from quarter-to-quarter. But we'll continue to provide -- and I'll continue to provide the updated view of the annual number, how we're trending against that annual number and also empty relative mix between the software and SaaS pieces of the business. For FY '27, we continue to expect majority of that $190 million of net new ARR for the full year to continue to be led by acceleration in our SaaS platform, which should exceed about $500 million by the end of FY '27. Thomas Blakey: Super, super helpful. And good to see the uptick there on the net new ARR basis that we could just maybe imply for fiscal '27? And just maybe a look back at as it relates to look forward -- could you maybe expand on the market share gains that you experienced at some of the -- at the expense of some of the legacy players in fiscal '26 and what you're embedding in the fiscal 2027 guide, that would be helpful just given the dynamics there. Gary Merrill: Overall, FY '26 was a strong net new customer, right? There was some fluctuation quarter-to-quarter. Q3 was an extremely strong piece of the business on net Blue. Q4 was more tied to our existing installed expansion business. But overall, when you look out at the full fiscal year, we saw strong growth. And it's beyond I would say now the legacy players that only have on-premise because our value prop is the hybrid. It's the hybrid and managing those workloads on-premise or across multiple clouds. So what you see in our subscription ARR, whether it shows up in software or in SaaS, it's our hybrid approach that's giving us the competitive advantage. So we may swap out a legacy install on-premise and that new deal will end up likely being hybrid across both on-premise and cloud. So that's why the combined subscription era becomes the North Star metric because it will show the penetration and success of that hybrid New logo acquisition. Sanjay Mirchandani: That's key. The hybrid is key. And we believe that as AI gets rolled out broadly in the enterprise, it will continue to be hybrid. Michael Melnyk: Mark, [indiscernible]. Operator: Okay. So there's no further questions at this time. That concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Brixmor Property Group Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Slater, Executive Vice President and Investor Relations. Thank you. You may begin. Stacy Slater: Thank you, operator, and thank you all for joining Brixmor Property Group Inc.'s first quarter conference call. With me on the call today are Brian T. Finnegan, CEO and President, and Steven T. Gallagher, Chief Financial Officer. Mark T. Horgan, Executive Vice President and Chief Investment Officer, will also be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties, as described in our SEC filings, and actual future results may differ materially. We assume no obligation to update any forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. Given the number of participants on the call, we kindly ask that you limit your questions to one per person; if you have additional questions, please re-queue. At this time, it is my pleasure to introduce Brian T. Finnegan. Brian T. Finnegan: Thank you, Stacy, good morning, everyone. I am pleased to report on another quarter of outstanding results by the Brixmor Property Group Inc. team as we continued to execute across all facets of our business plan to start the year. We grew same property NOI 6.4% over last year and delivered $0.58 per share in FFO, results that demonstrate the momentum that is accelerating across the platform which is also reflected in our improved outlook for the year. These results continue to differentiate Brixmor Property Group Inc. in what remains a positive backdrop for open-air, grocery-anchored retail. Before providing additional detail on Brixmor Property Group Inc.'s strong start to the year, I want to share a few thoughts on the broader environment and how Brixmor Property Group Inc. is positioned within it. We are operating in a period of heightened uncertainty. Geopolitical tensions and capital markets volatility are real, and we are monitoring them. That said, the fundamentals for our property type remain exceptionally strong. Consumer traffic at our centers continues to grow, with over 220 million visits in the first quarter, up over 3.5% year over year. New supply remains at historic lows, and demand from high-quality retailers for well-located space is as strong as we have seen, as physical stores remain the most cost-effective way to deliver goods to the consumer. These secular tailwinds are attracting institutional capital into our sector at the highest pace in decades. Within this environment, Brixmor Property Group Inc. stands apart. We have meaningful embedded upside across our portfolio, enabling us to continue to deliver on industry-leading mark-to-market opportunities. Our reinvestment and signed-but-not-commenced pipelines provide exceptional visibility into future cash flow growth. The underlying credit quality of our tenant base is the strongest in our company's history, and we have the talent and experience to continue to deliver for our stakeholders. Now let us turn to our results for the quarter, which highlight the operating strength in our business. Leasing demand from best-in-class tenants remains elevated. We executed 1.3 million square feet of new and renewal leases at a blended cash spread of 27%, with new lease spreads at 42% and record renewal growth of 21%. Our team is capitalizing on strong tenant demand, as well as the investments we have made across the portfolio to elevate the quality of our tenant mix. During the quarter, we added first-to-portfolio locations with Pottery Barn, Williams-Sonoma, L.L.Bean, Rowan, and Teso Life, while continuing to grow with leading operators across the off-price, health and wellness, and quick service restaurant segments. From an occupancy perspective, total leased occupancy ended the quarter at 95.1%, flat sequentially and up 100 basis points year over year, while small shop occupancy was 92.1%, up 130 basis points year over year, underscoring sustained demand for space. We are still well below peak occupancy expectations for the portfolio, which represents meaningful future upside. And while we do expect overall occupancy headwinds in the second quarter due to a handful of anticipated box recaptures, we expect to return to a growth trajectory in the second half of the year. Our leasing activity during the quarter also increased our signed-but-not-commenced pipeline to $67 million, up 10% year over year. Accretive reinvestment remains central to our strategy, and we were active in the first quarter. We stabilized $78 million of projects at a 9% average incremental return. This included two transformational projects: the opening of our first large-format Target at Wynnewood Village in South Dallas, Texas, and phase one of Block 59 in suburban Chicago. Both have been exceptionally well received in their respective markets and demonstrate our team's ability to execute large-scale projects that generate meaningful value creation and growth, with future phases still to come at both locations. We also commenced phase three of our Roosevelt Mall redevelopment in Philadelphia, further densifying the site with exceptional operators like Ulta, Shake Shack, and Victoria's Secret. We continue to make meaningful progress on our outparcel development program, adding a record six new projects at an attractive 16% incremental return. This has been and will continue to be a compelling area of focus, as demand is deep, returns are strong, and the program is highly complementary to our merchandising strategy. In addition, the communities that we serve are increasingly supportive of these projects as they share our desire to convert large, underutilized parking fields into thriving retail and restaurant destinations. At quarter end, our active reinvestment pipeline stood at $[inaudible] with a 10% average incremental return, with another $700 million in our future pipeline, including opportunities at assets we acquired over the last two years. The depth of this pipeline continues to differentiate Brixmor Property Group Inc., providing many years of runway for accretive reinvestment. On the transaction front, the market has been competitive and dynamic. Increasing demand for open-air retail allowed Mark and team to dispose of $108 million of assets where value had been maximized. And while we did not acquire any assets during the quarter, we continue to identify compelling opportunities to put our platform to work, with over $160 million of assets under control in high-growth markets where we have a strong presence and a deep pipeline of additional opportunities we are currently underwriting. To support our capital recycling strategy, we raised $116 million through our forward ATM, which provides flexibility as we execute. We will remain disciplined in our approach to capital allocation, focused on acquiring assets where our platform can create value and that are accretive to our long-term growth profile. Before I turn it over to Steve, I want to take a moment to thank the entire Brixmor Property Group Inc. team. The results we delivered this quarter and the acceleration of our business plan are a direct reflection of your focus, discipline, and commitment to this company. I am incredibly proud of this team and grateful for the energy and thoughtfulness you bring every single day. With that, I will turn the call over to Steve for a deeper review of our financial results and improved 2026 outlook. Steven T. Gallagher: Thanks, Brian. I am pleased to report solid first quarter results and an improved forward outlook as we continue to capitalize on the strength of the current retail environment and the embedded opportunity within the Brixmor Property Group Inc. portfolio. First quarter same property NOI increased 6.4%, supported by a 410 basis point contribution from base rent growth due to the stacking of rent commencements. [inaudible] and other income contributed an additional 120 basis points, driven in part by the [inaudible] Orlando garage restructure discussed last year. While these dollars are recurring, the year-over-year benefit to same property NOI growth is limited to the first quarter, as the garage contribution began in the second quarter of last year. Revenues deemed uncollectible contributed 30 basis points to growth as we continue to benefit from the improving underlying credit quality of the portfolio. NAREIT FFO was $0.58 per share in the first quarter, benefiting from the strong same property NOI performance. Our signed-but-not-yet-commenced pipeline ended the quarter at $67 million at a record $24 per square foot, 25% above in-place ABR per square foot, and ended the period with a 370 basis point spread between leased and billed occupancy. We anticipate approximately $38 million of that signed-but-not-commenced ABR to commence ratably throughout 2026. Turning to our forward outlook, we increased our same property NOI growth guidance to 4.75% to 5.5% and our FFO guidance to $2.34 to $2.37 per share. We expect base rent contribution to growth will accelerate as the year progresses, and we continue to expect revenues deemed uncollectible of 75 to 100 basis points of total revenues, supported by ongoing positive trends in rent collections. The increase in our FFO guidance reflects the strength and visibility of our same property NOI trajectory. From a balance sheet perspective, we took advantage of our improved cost of capital and proactively raised $115 million of equity under our at-the-market equity program on a forward basis to partially fund our growing acquisition pipeline. As we look to our upcoming bond maturity in June, we proactively entered into a $100 million interest rate hedge at 3.99%, providing us protection against recent volatility in the Treasury markets. We ended the period with $1.8 billion of available liquidity, including $425 million in cash, $115 million of unsettled forward ATM proceeds, and $1.25 billion in capacity under our revolving credit facility, leaving us well positioned with flexibility to execute under our business plan. Debt to EBITDA is 5.3 times, as the continued growth in free cash flow of the underlying portfolio has allowed us to naturally deleverage while funding accretive redevelopment and acquisition pipelines. Our first quarter results demonstrate strong fundamentals, sustained leasing momentum, and solid visibility into future earnings. With same property NOI and FFO growth expected to be approximately 5% at the midpoint of our revised guidance, supported by meaningful embedded growth and a flexible balance sheet, we are well positioned to execute and drive long-term value. I will now turn the call over to the operator for Q&A. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. As a reminder, we ask analysts to limit themselves to one question and to re-queue for a follow-up so that other analysts have an opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from Michael Anderson Griffin with Evercore ISI. Please proceed with your question. Michael Anderson Griffin: Great. Thanks. Brian, appreciate your commentary there on the prepared remarks. Curious if you could quantify the expected headwind to occupancy in the second quarter that you detailed? And then maybe as it relates to the SNOC commencement, Steve, I know you mentioned about $38 million coming on ratably throughout the balance of the year. If that delta between signed and occupied was 370 basis points in the first quarter, how do you expect that to progress throughout the balance of the year? Brian T. Finnegan: Mike, thanks for the question. Just on the first part related to occupancy, we are highlighting it because it may impact the growth trajectory throughout the year. It is not always linear. Those boxes are within our improved guidance range and outlook. There is opportunity there for mark-to-market. We knew we were getting them back. We do expect to get back on a path to growth. Overall, we are very pleased with the portfolio. We are well below peak occupancy, so it is a handful of boxes. We expect it to be modest, but ultimately expect to be able to put better tenants in at much higher rents. Steven T. Gallagher: And on the commencement side of the SNOC pipeline, we do expect it to commence ratably. Importantly, the entire team is really focused on backfilling that pipeline. As we continue to backfill and commence rent out of that pipeline, you might see a wider delta for the remainder of the year, as there are some really impactful leases within that SNOC pipeline that are coming on in 2027. One of our largest pipelines we have had with Publix is in that longer-term portion within the SNOC pipeline. Operator: Thank you. Our next question comes from Michael Goldsmith with UBS. Please proceed with your question. Michael Goldsmith: Good morning. Thanks for taking my question. Can you talk a little bit about the acquisition environment? What are the opportunities you are seeing, if you are seeing any, and if that is influencing pricing? Clearly, you disposed of some stuff in the quarter and you tapped the ATM, so you have the liquidity to participate, but just a sense of the opportunities that you could use this capital on. Thanks. Brian T. Finnegan: Michael, I would just say, as I mentioned, it has been competitive, but we also like what we are seeing out there. Mark, why do you not give more detail on that? Mark T. Horgan: As Brian highlighted in his remarks, we are certainly seeing new capital come into the space, which I think is a real reflection of the healthy fundamentals that everyone is seeing, and a good signal for future growth in the overall business in open-air retail. From a competitive market perspective, that new capital is certainly compressing cap rates across all asset types. You are seeing compression on smaller grocery-anchored deals and smaller unanchored deals. We are also seeing the return of some really low-priced capital chasing high-profile deals, which has pushed some deals into the high 4s in certain cases. From a Brixmor Property Group Inc. perspective, we have been at this acquisition game for a long time. We have developed lots of relationships. As we think about sourcing acquisitions, part of it is through brokers, like it has been for many years, and the other half really has been direct deals. That is how we compete. We really try to have a good and intentional way of thinking about assets that work for Brixmor Property Group Inc. You should expect us on the transaction front to always remain disciplined. If you look at last year, we did not close any acquisitions in the first couple of quarters. We closed $420 million in the second half of the year. We really try to drive this business for long-term cash flow and value growth. We are excited about what we see in this $160 million we have under control, and importantly, we see a really healthy pipeline of assets behind that. We are going to continue to find those assets where we can really put our platform to work and drive strong rent mark-to-market, redevelopment opportunities, and drive those unlevered IRRs in the 9% to 10% range. We are really bullish about what we are seeing in the acquisition market today, but expect us to remain disciplined once we put capital out. Brian T. Finnegan: And, Michael, I would just add, we have been thrilled with how the team is executing on what we bought. We are ahead of our underwriting on the $400 million that we bought last year. That gives us a lot of conviction as we are out there in the market in terms of being able to drive a growth profile that is accretive to the growth profile of the company and in line with what we have been doing. We are excited about that. Michael Goldsmith: Excellent color here, guys. Thanks. Good luck in the second quarter. Operator: Our next question comes from Alexander David Goldfarb with Piper Sandler. Please proceed with your question. Alexander David Goldfarb: Hey, good morning. Big picture: we have had massive inflation since COVID the past few years, which fortunately seems to be subsiding, but now we have spiking energy prices. Yet you do not seem to talk about any slowdown in tenant leasing. You talked about consumer traffic being up, I think, 3% year over year. Is it just that the consumer and the retailers are basically impenetrable from price shock? How do we sort of manifest this, especially as your portfolio is sort of middle market? It is not like you are super high end. You are middle market. Trying to get a better sense for how the consumer and the retailers seem to be stomaching it when the headlines would suggest otherwise? Brian T. Finnegan: Alex, it is a great question. I would say consumers are adapting versus collapsing. Across the income spectrum, you are seeing consumers look for value. That helps our grocers and our off-price retailers. There is a higher percentage of share going to health and wellness; that helps our fitness operators and our higher-quality restaurant options. You are still seeing some positive trends in the economy: there is still decent wage growth and a strong job market. We have been pleased with traffic trends. Interestingly, from a leasing perspective, two-thirds of our leasing during the quarter happened after the conflict started. Retailers today have been nimble and have been catering to what the consumers want. Another point is retailers have more data today than they ever have on their consumer—understanding what is selling within the stores, what is getting delivered from the stores, and how that fits within an omnichannel strategy. They are better positioned to adapt to different consumer trends. We are encouraged. It is something that we are watching very closely. We do not see any delinquencies picking up in our small shop tenancies. You can see that coming through in the bad debt numbers for the quarter. We will continue to watch, but have been encouraged by the trends so far. Operator: Our next question comes from Todd Michael Thomas with KeyBanc Capital Markets. Please proceed with your question. Todd Michael Thomas: Yes. Hi. Thanks. Good morning. I just wanted to ask about the equity issuance in the quarter and that decision. Can you speak about your interest level to issue additional equity at these prices, how you are thinking about funding obligations in general, and whether you might look to over-equitize acquisitions here a bit to perhaps drive down leverage more meaningfully than you had previously? Brian T. Finnegan: Todd, I will take the first part and maybe Steve can chime in. We saw a window during the first quarter, with the acquisition pipeline growing, to utilize the ATM on a forward basis. It is very similar to what we did in 2024 to help fund acquisitions. We are going to remain very disciplined with our equity. We recognize that it is precious. We saw an opportunity, so we took it during the first quarter, and we are pleased with what we are seeing in the acquisition market. Steven T. Gallagher: These are long-term assets, and we think about our balance sheet over the long term. While the match funding might not always occur in the quarter, we are really thinking about long-term funding of our business. Importantly, what you have seen in our leverage level is that we have been able to naturally delever through the growth that is coming through in the portfolio without having to issue equity. At 5.3 times levered, we feel really comfortable where we are today. Operator: Our next question comes from Haendel St. Juste with Mizuho Securities. Please proceed with your question. Haendel St. Juste: Hey there. Thanks for taking my question. My question is on the leasing CapEx. A bit of a jump in the quarter—I think it is up 30% year over year. I am assuming that is tied to the recent backfillings and why the anchor and release spreads are up 90%. Can you add some color on what is driving this, and should we expect the leasing CapEx figure to stay elevated near term given the size of the SNOC pipeline? Thanks. Brian T. Finnegan: Haendel, we remain pleased with the overall CapEx trends in the portfolio. I think that was the nature of the pool this quarter. If you looked at overall CapEx, it was down versus the fourth quarter of last year. We expect CapEx as a percentage of NOI to be in line with where we were a year ago, which were decade lows for this portfolio. All the things that we have been talking about relative to demand for space and tenants taking on more existing conditions have allowed us to be more efficient with that leasing capital spend. We did lease a lot of space last year, so there are some costs associated with that, but we are filling those boxes much more efficiently. Our payback trends remain at decade lows for the portfolio as well. Maintenance CapEx will continue to be at a level we were at a year ago, which again was the lowest for the portfolio. We feel very well positioned in terms of what we are seeing from those CapEx trends, and what you saw during the quarter was just the nature of how some of the deals came through. Operator: Our next question comes from Greg Michael McGinniss with Scotiabank. Please proceed with your question. Greg Michael McGinniss: I appreciate the color so far on the acquisition market, but I am curious what type of buyer you are running into on the competition side and also who tends to be acquiring your assets and at what cap rates. And then was the comment on high-4% cap rates related to types of assets that you would be interested in acquiring, or is that just a high watermark that you have seen in the market? Mark T. Horgan: The high-4% comment is really just a high watermark you are seeing from some of the lower-priced capital coming in for high-profile deals. Our strategy is going to remain finding assets where we can drive long-term IRR growth in that 9% to 10% range. With respect to buyers, you have seen a full range of buyers. You have seen private equity funds come in, the rise of high net worth buyers purchasing assets, and smaller private equity funds coming to the forefront. The broad trend is that a lot of private capital is saying the cash flow generation out of open-air retail is very attractive relative to other asset types today. They are coming into the space, seeing very strong fundamentals that Brian has been talking about, and they like access to this cash flow level. We are competing with this full set of folks when we are trying to buy assets, and we are selling assets to that same group. Where it comes back to for Brixmor Property Group Inc. is our operating platform. We try to find those assets where we can put the platform to work to drive value. Greg Michael McGinniss: Mhmm. Okay. Thank you. Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question. Caitlin Burrows: Hi. Good morning, everyone. Maybe just on the same-store NOI growth side, I know you gave some comments about a unique factor that drove especially strong results in the first quarter. You mentioned a potential expected occupancy dip in the second quarter. Could you go through what it would take to get you to the low versus high end of the same-store NOI guidance range now? Steven T. Gallagher: Importantly, when you look at the trajectory of same property NOI growth, focusing on that top-line base rent, that has been accelerating since the middle of last year, and we expect that to continue throughout the remainder of this year. When you think about the highs and lows and the puts and takes, it is similar to most quarters. The team works every day to get rent commencing sooner—pulling those rent commencement dates forward—continuing to lease additional space and getting them open within the year. Then ultimately, what will happen on the bad debt side: we have seen some positive trends. We still think 75 to 100 basis points is appropriate where we sit at this point in the year. Those are really the puts and takes to the high and the low within that range. Brian T. Finnegan: And, Caitlin, just because you mentioned occupancy again, to reiterate, we expect that impact to be fairly modest. We get the question on trajectory a lot. We are expecting to be back on a path to growth towards the end of the year. What we leased in the first quarter was ahead of where we were last year. Our deal flow into committee is ahead of where we were, both in rent and square footage. We remain very excited by what we are seeing in the leasing environment. It is just not always linear in terms of the growth trajectory as it relates to occupancy. Caitlin Burrows: Thanks. Operator: Our next question comes from Cooper R. Clark with Wells Fargo. Please proceed with your question. Cooper R. Clark: Great. Thanks for taking the question, and I appreciate the earlier comments on the acquisition pipeline. I just wanted to touch on the transaction market and was curious if you could provide any incremental color in terms of liquidity today. It seems like higher demand for the sector is being met with an ample amount of product coming to the market. Also, any color on some of the product where you might be seeing better opportunities, whether on the large format side or value-add? Brian T. Finnegan: Let me start, and I will give it to Mark for more detail. What you are seeing from institutions and the demand for the space is because of all the great things that are happening. We are in a very low supply environment. Traffic continues to grow at our shopping centers. The consumer remains resilient. Our retailers are performing, and there continues to be upside in the asset class. That is why you are seeing so much demand from a wide range of capital sources. Mark T. Horgan: I will just reiterate what Brian said. It has been a big change over the last several years with the amount of capital flowing in. There is plenty of liquidity for us today. As far as where we are seeing opportunities, it is the same type we have been trying to take advantage of for a long time: assets that are under-rented, where there is large rent mark-to-market and redevelopment opportunities. That will not change as we look to place capital. We want to find ways to put our platform to work and drive long-term value and cash flow. Cooper R. Clark: Great. Thank you. Operator: Our next question comes from Craig Allen Mailman with Citi. Please proceed with your question. Craig Allen Mailman: Just to the acquisition side of things, as we think about the equity being put to work, how should we view the going-in yields versus that longer-term 9% to 10% IRR? And then also, on the other side of Todd’s earlier question about over-equitizing, how do you think about competing with the private guys that are using more debt, given the stability of the asset class, while you and your public peers are driving leverage down at the same time? It kind of puts you at a competitive disadvantage on the margin. How do you think about the use of equity here versus even expanding leverage a bit on the margin? Brian T. Finnegan: Craig, let me start. We are spending a bunch of time on acquisitions and we are pleased with what we are seeing in the market, but let us not forget, our core business strategy is to accretively reinvest in the portfolio. We had a fantastic quarter on the redevelopment front. The pipeline continues to be very large. Our team is demonstrating the ability to deliver larger projects at scale. You are seeing those come through. We have been pleased with what we are seeing in the acquisition market and will continue to be opportunistic there, but it is secondary to what we do. We can remain disciplined. We do not have to buy to drive growth. Mark T. Horgan: On how we are competing with private capital, they are seeking simpler, more stabilized deals. We are trying to find assets where we can put our platform to work for future redevelopment, like the Brittni Plaza platform from a couple of years ago. The private folks are not really seeking that type of opportunity today. On going-in yields versus IRR, we underwrite to drive that 9% to 10% unlevered IRR over time through mark-to-market and redevelopment, so the going-in yield can be lower with clear, actionable value-creation levers. Steven T. Gallagher: On the balance sheet side, with the equity issuance, we look at all sources of capital available to us. We were a net acquirer last year and did not issue any equity. It is about the long-term financing of the business and providing us with the flexibility to execute under the business plan. The redevelopment pipeline is still funded with free cash flow on a leverage-neutral basis, so where we are issuing equity is generally going to be additive to what we can do in the transaction market. Operator: Our next question comes from Samir Upadhyay Khanal with Bank of America. Please proceed with your question. Samir Upadhyay Khanal: Good morning, everybody. Brian, maybe talk about bad debt and how that is tracking year to date and how that compares to your guidance of, I think you said, 75 to 100 basis points. It sounds like you are tracking better from your comments, but you left the guide unchanged from that perspective. Any categories driving that conservatism? Thanks. Brian T. Finnegan: Steve can touch on the guide, but this is the best underlying credit profile this portfolio has ever seen. Move-outs were at historic lows for the portfolio last year and are down 10% from a GLA perspective thus far year to date. If you include the bankruptcies, that is just normal course move-outs; include the bankruptcies last year and they are cut in half. From a payment trend perspective, all the things that we have been doing to attract higher-quality tenants and the stringent underwriting standards that Steve’s team has in place, working with our leasing team, have positioned us very well. Looking out over the balance of the year, we feel adequately provisioned, and we feel very confident in the quality of the cash flows in the portfolio today. From a category perspective, drugstores are going to continue to close stores. It is a very low percentage of what we do—it is about 80 basis points. We cut our office supply exposure in half; they are going to close stores, and we leased a number of those boxes to off-price uses over the last few quarters at significant spreads. Even within categories that may be on a “watch list,” we have very low exposure. In restaurants, two-thirds of our exposure is from national and regional tenants. Our top restaurants are Starbucks, Chipotle, and Darden. We feel really good about the nature of that tenancy as well. Taken as a whole, this is the best position we have ever been in from a credit quality perspective. Steven T. Gallagher: We were at 54 basis points of total revenues within the quarter. If you look back over the last several years, there is a little bit of seasonality on when we report that, based on the collection mainly of real estate tax bills for large cash-basis tenants. So when you are looking at the quarter, it is not always a straight trajectory. We have commented on that in previous years. Saying all of that, we agree with everything Brian said. We are still seeing a lot of positive trends in collection, and that is where the 54 will sort of balance out at some point, all things considered. Operator: Our next question comes from Analyst with BMO Capital Markets. Please proceed with your question. Analyst: Hey. Thanks. Good morning, everyone. I appreciate the comments around the positive foot traffic seen to start the year, but I was just curious if you could update us on tenant OCRs, and are there any parts of the tenant base where OCRs are improving or deteriorating? Thank you. Brian T. Finnegan: From an occupancy cost perspective, tenant sales remain very healthy. You saw that come through in the percentage rent line item this quarter. We have actually seen some wins on the audit front as well. For a lot of our tenants that pay percentage rent—whether that is grocers or restaurants—we continue to see those numbers stick, and they are elevated a bit this year. Across the board, as we look at occupancy costs and assess those from a renewal perspective, we have renewals at record rates for the portfolio at 21%. Retailers and operators are not paying that unless their stores are profitable. We are seeing positivity across the board. This is still the most profitable way to deliver goods to the consumer, and retailers are getting smarter about how they are stocking their stores and managing inventory levels, which ultimately makes those stores more productive. From an occupancy cost and overall sales trend perspective, we are encouraged by what we see. Operator: Our next question comes from Floris van Dijkum with Ladenburg Thalmann. Please proceed with your question. Floris van Dijkum: Hey, thanks, guys. You had really strong ABR growth again this quarter. Could you maybe talk a little bit about the differential in ABR between renovated portfolios and non-renovated portfolios and where the future upside potentially could come from in terms of ABR growth? Brian T. Finnegan: Floris, it is fairly broad-based in terms of what we have been seeing, both in assets where we have reinvested and across the portfolio. In projects where we have been able to bring grocers in or significantly change out what was there previously, you are going to see a higher upside. We are now three years running of renewal growth in the mid-teens. We just hit a high for the portfolio. We have taken rents from $12.50 to over $19. We are signing new leases today in the mid-$20s. Our anchor rents over the last year were a record at over $17, and we have leases expiring that we control over the next year at $10. We have been doing that more efficiently with less capital. We can point to box opportunities where they have been straight backfills and we have doubled or tripled the rent, and we can also point to places where we have made reinvestments and continue to see the benefit. Look at a reinvestment project like Newtown in suburban Philadelphia, which we stabilized several years ago—we are still achieving the highest rents that we ever have in that center, and that was not part of our initial underwriting. It is tough to perfectly differentiate between the two, and we can get back to you with specific numbers, but the upside has been fairly broad-based. Steven T. Gallagher: And to add to Brian’s point with Newtown, it is also about the amount of properties we have touched at this point. There is a wider range that we have touched, getting that growth flywheel effect across a larger percentage of the portfolio. It is about 25% higher in in-place rents on the assets that we redeveloped versus the broader in-place portfolio. Floris van Dijkum: Thanks, Steve. Appreciate that. Brian T. Finnegan: Thanks, Floris. Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. Our next question comes from Hong Zhang with JPMorgan. Please proceed with your question. Hong Zhang: As it relates to the expected box move-outs this quarter, can you provide any color on whether you have tenants lined up, what the expected downtime is, and anything on the expected rent spread on re-leasing? Brian T. Finnegan: This is why I said it should be modest in terms of what we are seeing. We do have leases out on several of those spaces; a few of them we are putting grocers in at significantly higher spreads. I would point to the fact that overall, our in-place anchor rents are in the low double digits. We have been signing them at records for the portfolio. This is the tightest box supply environment across the country, among the tightest that we have ever had, with additional occupancy upside. It is just the nature of when we get those leases signed, but we are very pleased with the activity, the tenants we are negotiating with, and the rents we are going to be able to achieve as well. Hong Zhang: Got it. Thank you. Brian T. Finnegan: You got it. Thanks. Operator: We have reached the end of our question-and-answer session. There are no further questions at this time. I would now like to turn the floor back over to Stacy Slater for closing comments. Stacy Slater: Thanks, everyone. We will catch up with you soon. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, everyone, and welcome to the CMS Energy 2026 First Quarter Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy Corporation’s website in the Investor Relations section. This call is being recorded. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press the star followed by 0. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 PM Eastern Time running through May 5. This presentation is also being webcast and is available on CMS Energy Corporation’s website in the Investor Relations section. At this time, I would like to turn the call over to Jason Shore, Treasurer and Vice President of Investor Relations. Jason Shore: Thank you, Rob. Good morning, everyone, and thank you for joining us today. With me are Garrick J. Rochow, President and Chief Executive Officer, and Rejji P. Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. I will now turn the call over to Garrick. Garrick J. Rochow: Thank you, Jason, and thank you, everyone, for joining us today. Our investment thesis, which you see on slide three, continues to stand the test of time. Whether it is our long capital runway, Michigan’s top-tier regulatory jurisdiction, our ability to keep bills affordable for customers, or the strong economic growth across the state, this model works. And it works consistently. It drives a premium total shareholder return, 6% to 8% adjusted EPS growth with annual compounding paired with approximately 3% dividend yield. It is a simple, durable formula. It is why CMS Energy Corporation continues to be a smart, long-term investment, delivering for more than two decades with consistent industry-leading performance. Turning to slide four, you will see the outcome of our most recent electric rate case. The commission approved over 65% of our ask and maintained our 9.9% ROE in the electric business. I continue to be pleased with our regulatory outcomes and, most importantly, the support for our customer investments. On the graph to the left, what stands out is a consistent record of support and constructive outcomes we have seen across our electric rate case filings over the last several years. These outcomes reflect deliberate, customer-focused investments designed to deliver on Michigan’s energy law and materially improve the reliability and resiliency of the electric grid. It is the investments approved in this rate case and previous cases that directly support better service. That includes everything from critical capital investments across the grid to advanced tree trimming on a five-year cycle—work that meaningfully reduces outages, restoration time, and customer costs. Affordability can and should go hand in hand. That is good for our customers. Our track record of consistent and constructive rate case outcomes is strong, and that is possible through a deliberate process, a constructive environment, and focused work by the team. These strong outcomes are not a one-off or by chance; they are the result of a very deliberate regulatory strategy. It starts with Michigan’s energy law and enabling legislation. From there, we build alignment, support, and pre-approvals through a coordinated set of filings: our integrated resource plan, renewable energy plan, and five-year electric distribution plan. We also utilize proven regulatory mechanisms like the investment recovery mechanism that streamline proceedings, ensure certainty of recovery, and drive accountability. You combine that framework with strong testimony and clear business cases, and the result is exactly what you see here: constructive outcomes and the support needed for customer investments while maintaining affordability. Looking forward to our upcoming regulatory agenda, in April we saw the MPSC staff position in our current gas rate case recommending over 75% of our $240 million ask be approved. In our twenty-year renewable energy plan, our filing will also include a growth scenario highlighting the need for additional capacity to ensure we are prepared for the growing customer base in Michigan as we see data center and manufacturing interest in our service territory. A portion of these renewables and the additional gas capacity are in our current five-year plan, with more upside opportunity given additional storage and renewables to meet Michigan’s energy law and customer load beyond the five-year plan. We have identified that for every 1 gigawatt of new large load, we could see capital opportunity of $2 billion to $5 billion. Again, those investments would be incremental to our current capital plan. I am very proud of the team and the thoughtful work on these plans. The comprehensive analysis and modeling take months and are done with a deep commitment to building a plan that is best for our customers and our state. At CMS Energy Corporation, our customers are at the center of all we do—a promise to deliver safe, reliable, and affordable energy. While we are committed to the important and necessary investments in our electric and gas systems, we remain laser-focused on customer affordability. Our track record is strong—customer savings driven through the CE Way and further optimized with digital automation, episodic cost savings, load growth, and energy waste reduction, as further examples. Our efforts here are meaningful and impactful. As a result, Michigan electric bills are the fourteenth lowest in the nation, well below the national average and also below the Midwest average. In our bill growth, you see on the left side of the slide, among the lowest in the country. On the right side of the slide, looking forward, customer bills—electric and gas—remain below the energy CPI, while investing over $24 billion over our five-year plan period. I am pleased with our progress, but we are not done yet. While delivering, we are sharply focused on continuing to bring down costs for our customers, particularly for those most in need. Additionally, affordability is supported by growth. Michigan continues to make headlines and top rankings nationwide as we see new or expanding load materialize in the state and support 2% to 3% annual sales growth. This growth allows us to spread fixed costs over a larger customer base and improve affordability for all customers. We have significant interest in our service territory with contracts for roughly 100 megawatts of new load signed last year, and we have exceeded that in just Q1 of this year—approximately 110 megawatts of signed contracts year to date. This is all on top of the approximately 450 megawatts connected last year. As I have shared in many investor meetings, Michigan has more engineers per capita than any other state. We are the second most diverse state in agriculture. We have many aerospace and defense businesses and a rich automotive heritage. Our service territory is growing with manufacturing and industrial, bringing with it large investments, jobs, supply chains, and commercial and residential growth. One of our larger recently signed contracts is with Michigan Potash and Salt Company, a strategic and critical mineral manufacturer and the only established and sustainable potash reserve in the U.S., expanding in our service territory, bringing with it 130 jobs and over $1.3 billion of investment in Michigan. I love seeing growth like this and the value that it brings to Michigan, our customers, communities, and investors. There is also diversity in this growth, which is important in the context of data centers, which I will cover on the next slide. Moving on to our growth pipeline, you see that win here on slide eight with Michigan Potash moving through the funnel to a signed contract. There were also several other smaller customer expansions not shown on the slide that make up roughly 110 megawatts year to date. In addition to strong manufacturing and industrial processing, Michigan continues to attract data center interest, and I am pleased with the progress we have made over the last quarter. Our announced data center continues to close in on final contract after reaching commercial terms on the extraordinary facilities agreement and now commercial terms on the rate contract. As I mentioned in our year-end call, another data center has continued to progress in advanced contract negotiations. I am also pleased with community engagement and the forward progress experienced at a local zoning level. Keep in mind, these data centers are not yet reflected in our five-year customer investment plan, and associated additional investments will not be borne by existing customers. In fact, each gigawatt of new data center load that materializes in our service territory will reduce our average customer rate by 2% annually over a five-year period. Now on to the financials for the quarter. In the first quarter, we reported adjusted earnings per share of $1.13. We remain confident in this year’s guidance and long-term outlook and are reaffirming all our financial objectives. Our full-year guidance remains at $3.83 to $3.90 per share, with continued confidence toward the high end. Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6% to 8%. With that, I will hand the call over to Rejji. Rejji P. Hayes: Thank you, Garrick, and good morning, everyone. On slide 10, you will see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the quarter and our year-to-go expectations. For clarification purposes, all of the variance analyses herein are in comparison to 2025, both on a first quarter and a nine-months-to-go basis. In summary, through the first quarter of 2026, we delivered adjusted net income of $346 million, or $1.13 per share, which compares favorably to the comparable period in 2025, largely due to NorthStar outperforming a relatively soft comp in the first quarter of last year coupled with higher rate relief net of investments at the utility. These sources of positive variance were partially offset by a significant ice storm in our electric service territory in March. From a top-line perspective at the utility, heating degree days in Michigan ended up at relatively normal volumes for the quarter, as a relatively warm March and February offset a typically cold January. The impact of normal weather drove $0.01 per share of favorable variance versus 2025. Rate relief net of investment-related expenses resulted in $0.11 per share of positive variance due to the residual benefits of last year’s constructive electric and gas rate orders as well as earnings associated with ongoing renewable projects at the utility. Moving on to cost trends, as noted, we experienced an uptick in storm activity during the quarter, including a sizable ice storm in March, which was bigger than last year’s storm. As such, we saw $0.05 per share of negative variance for this cost category, which includes some positive offsets associated with our electric supply business. In our catch-all category represented by the final bucket in the actual section of the chart, you will note a positive variance of $0.04 per share, largely driven by the impact of achieving key milestones for ongoing renewable projects at NorthStar and a reversal of last year’s outage at DIG, partially offset by higher parent financing costs, namely a higher average share count. Looking ahead, we plan for normal weather as always, which equates to $0.23 per share of negative variance for the remaining nine months of the year driven by the absence of favorable temperatures experienced in 2025, primarily in our electric business. From a regulatory perspective, we are assuming $0.24 per share of positive variance, which is largely driven by the constructive electric rate order received from the commission in March, ongoing benefits of renewable projects at the utility, and the assumption of a constructive outcome in our pending gas rate case. On the cost side, we anticipate lower overall O&M expense equating to $0.04 per share of positive variance at the utility for the remainder of the year, largely driven by expected cost performance through the CE Way and other cost reduction initiatives underway. Lastly, in the penultimate bar on the right-hand side, you will see an estimated range of $0.06 to $0.13 per share of positive variance, which incorporates continued solid performance at NorthStar, partially offset by planned parent financing costs including the effects of equity dilution. Before moving on, I will just note that our track record of delivering on our financial objectives over the last two decades, irrespective of the circumstances, speaks for itself. That said, we will always do the worrying so you do not have to. We remain confident in our ability to deliver on our financial and operational objectives this year to the benefit of all stakeholders. Slide 11 offers an update to our funding needs in 2026 at the utility and the parent. As a reminder, the convertible debt that was opportunistically issued last November addressed a good portion of our financing needs at the parent for the year while offering significant financial flexibility on our remaining needs. From an equity needs perspective, given the trading performance of our stock during the first quarter versus our plan assumptions, we executed equity forward contracts totaling approximately $495 million, significantly de-risking our planned needs for the year. As you can see in the table on the slide, we settled approximately $142 million of said equity contracts during the quarter, and as per our guidance, we plan to issue an aggregate amount of approximately $700 million over the course of the year. Finally, we will look to complete the balance of our financing plan at the utility over the remainder of the year, and as always, we will be opportunistic and look to capitalize on strong market conditions. Moving on to credit quality, I am pleased to report that both Moody’s and Fitch reaffirmed our credit ratings in March as indicated at the bottom of the table on slide 12. That said, it is worth noting that Moody’s did move the utility to a negative outlook largely due to the size of our five-year capital investment plan relative to the timing of cost recovery, particularly for large projects with protracted construction cycles. Needless to say, we are evaluating a variety of countermeasures to address Moody’s concerns. As always, we will continue to target solid investment-grade credit ratings and we will manage our key credit metrics accordingly as we balance the needs of the business. With that, I will hand it back to Garrick for his final remarks before the Q&A session. Garrick J. Rochow: Thanks, Rejji. At CMS Energy Corporation, we deliver—twenty-three years now of consistent, industry-leading performance regardless of circumstances, year in and year out. You can count on CMS Energy Corporation to deliver for all of its stakeholders. With that, Rob, please open the lines for Q&A. Operator: Thank you very much, Garrick. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you are using a speaker function, please make sure you pick up your handset. We will proceed in the order you signal us, and we will take as many questions as time permits. If you find that your question has been answered, you may remove yourself by pressing the star key followed by the digit one. We will pause for just a second. Our first question comes from the line of Richard Sutherland from Truist. Your line is open. Analyst: Hey, good morning. Garrick J. Rochow: Hey. Welcome. Analyst: Thank you. There has been a lot of attention on data centers, and there is a lot to dig into here. You talked about confidence in what you are seeing. I am curious about the opportunities as it stands now relative to last quarter, and in particular, if you see both of these data centers come through, what is the potential to defer or delay your electric rate case filing cadence on the back of that? Anything you can speak to there—load ramp—would be helpful. Thank you. Garrick J. Rochow: I am very pleased with the progress. Let me take a step back. If I start with the pipeline, we have shared historically it is roughly about 9 gigawatts. There are customers that are falling out of the pipeline and going through what we saw with Michigan Potash and having successful contracts. There are new companies coming in, and so the pipeline is strong and actually much larger than 9 gigawatts. Those are the ones that are more qualified, you might say, in the process. As I shared in the Q4 call, I continue to be pleased with the progress of the data centers—the hyperscalers—in our service territory, looking at different locations, multiple locations, to locate those data centers. We have made great progress with the contractual pieces with those companies. I am pleased with that, pleased with the work the team is doing, and we are working through the zoning process here in Michigan. I have seen those data center companies out meeting with local commissions and communities. We are standing side by side with them to address those issues. So a lot of positive progress. In the context of the “stay out” you are referring to—the DTE approach—I have not seen their filing yet, so I cannot speak to the specifics, just what has been in the media. I will say this: we, in November, put a tariff in place—a really great tariff—setting the standard, really one of the best in the country. These hyperscalers have quickly adapted to it. They know what the hurdle mark looks like. I am very pleased with it. It speaks to how we protect existing customers, we protect the business, and it really provides a path for benefits to flow back to customers, which is critically important. It is also important to put this in context. There is significant capital runway—there are a lot of opportunities to invest in this business. We are investing heavily in the electric grid to improve reliability and resiliency so it is better for our customers. I hate when a customer is without power and the cost and the impact of that. I appreciate the commissioners’ comments on how affordability and reliability can go hand in hand; they are not opposed. We have this twenty-year IRP for the supply needs of the state. We have to meet Michigan’s energy law and the renewables, but we also have to think about those times when the sun is not shining or the wind is not blowing. Batteries make up a part of that, but we have to introduce natural gas to replace some of our existing peaking. That is an important piece of investment right now. There is also the importance of the safety of the gas system. That is why we are in annual rate cases. But the most important thing is affordability for our customers right now. We have talked about that through the CE Way, through episodic cost savings. A big piece of this is growth, and that is how I tie it back to data centers. Whether that is internal focus or what we are doing externally, know this: we are focused on the root cause. We have important investments, and we believe we can go in for annual rate cases and keep them close to the rate of inflation for our customers. One thing that is important about annual rate cases is we pass along savings to our customers every single time, and that is what we are focused on. The stats are we are the fourteenth lowest electric bill out there. That is still not good enough because affordability is defined by our customers, and there are some customers that are struggling. We need to help them, and that is what we are focused on—affordability for our customers. Thanks for your question. Long answer, but there is a lot there. Analyst: Certainly a lot there, and I appreciate the comprehensive response. Switching gears, there have been some media reports out there around NorthStar. Maybe to zoom out broadly across your portfolio, if you were to consider any transactions around the portfolio, do you have any guiding lights around how you think about the qualitative versus quantitative aspects of a deal—in particular, accretion, dilution, the prospects of near-term dilution versus breakeven over the long term? Garrick J. Rochow: Just to be clear, we have a long-standing company policy: we do not comment on M&A. Period. What I have shared about NorthStar in the past is consistent with other investor meetings or earnings calls. Look at the thermal assets—Dearborn Industrial Generation. Energy and capacity prices are increasing. We strike bilateral contracts and layer them over time. They have been better than plan, and we have shown that in some of the slides before. In terms of the renewables, we have used this baseball analogy: we hit singles and doubles. We are not aiming for home runs. These are solid projects. We do one or two of them a year—maybe three in a busy year—utility-like returns or better, with a contracted off-taker, long-term contracts. We safe harbor the assets out in the 2028–2029 time frame and look to recycle the capital. That whole NorthStar mix is about 5% of our earnings mix. The rest is utility. Analyst: Understood. Thanks for the time. Garrick J. Rochow: Thank you. Operator: Your next question comes from the line of Wells Fargo. This is Marvella on for Shahriar Pourreza. Your line is open. Analyst: Maybe building on the data center topic, what specific color can you give us on what is going on with Gaines Township and the Microsoft data center—status there and how we should be thinking about public pushback? Garrick J. Rochow: My mom used to say good things come to those who wait, and my mom was right. I talked about the contract pieces in my remarks, and I shared that I am pleased with the zoning piece. It is important for the investment community to understand Michigan’s local units of government. There are roughly 2,800 local units in Michigan. About 96% of the state is covered by some kind of township. In those townships there are planning commissions or planning boards. They work through zoning, but they also work on site layout and other plans, and then there is a township board. There are several steps in that approval process. I have been pleased because not only have the data centers been meeting with the township and planning officials; we have been meeting with them, and we have seen good progress. They are doing good due diligence. They are elected officials, and they are doing the right things. They have to dig into property tax impact, zoning requirements, implications for agricultural or industrial land, water, and so on. They are making sure they do good due diligence. I appreciate the process. I am familiar with it because we go through it when we are doing big projects, whether a gas pipeline or a solar project. Again, I feel good about where we are headed. My mom was right—good things come to those who wait—and we are working through that process and are pleased with where it is headed. Analyst: Thanks, that is super helpful. Following up on case cadence, are there any specific triggers that would increase the time between cases? Garrick J. Rochow: In terms of settlement, we have stayed out of cases before. That is not abnormal or unusual for us. I would certainly consider that in the future. I go back to my comments: large capital runway and the ability to pass savings forward to our customers. At the heart of it, this is not about skipping cases and pushing a wave; it is about bringing affordability to our customers. That is where we are focused. Operator: Your next question comes from the line of Jefferies. Your line is open. Analyst: Garrick, given the Gaines Township tabling on April 15, can you reaffirm the “as early as 2028” online date for your final-stages prospect, or has that timeline softened? Garrick J. Rochow: The project timelines are the same. 2028 is the timeline within the contracts—early electrons, you might say, and then a ramp over 2029–2030. Those time frames are the same. Analyst: Thank you. Without naming the customer, is the prospect you have reached commercial agreement with the same one tied to the Gaines process or a different site in your territory? Garrick J. Rochow: There are at least two hyperscalers that we are in advanced negotiation with. I have shared that one we are finalizing the contract with, and there are many more in the pipeline. I really cannot disclose more at this time. Analyst: Thanks. Last one: given some news out there, and keeping in mind your policy, higher level—where IPP multiples are trading and the DIG re-contracting out past 2030—has anything shifted in how you are thinking about NorthStar strategically, or is DIG still something you see being part of CMS Energy Corporation well into the next decade? Garrick J. Rochow: Consistent with how we have talked about it in previous investor meetings and earnings calls, there is no change. I walked through the thermal units and the renewables earlier, and that stands. Operator: Your next question comes from the line of Nicholas Joseph Campanella from Barclays. Your line is open. Nicholas Joseph Campanella: Hey, thanks for taking my questions, and thanks for the time. There are two opportunities. We do not know who the commercial agreement is specifically with. I understand from the prepared remarks and your response earlier you are still working through the permit. I am trying to understand more granularity on what is needed for the permit and your expectation to have that done by summer—or will this go through the entire year? Garrick J. Rochow: It varies depending on location. I am not trying to dodge your question; there are multiple townships, and these hyperscalers are pursuing investment in multiple properties in multiple areas of the state. I cannot give a blanket status. There are steps: first, the planning commission determines whether it meets zoning requirements and whether there must be a change; then they review a site layout; and eventually it goes to the township board. It varies by place. The hyperscalers are looking at multiple locations and are at multiple points in that process—and have advanced within that process. They are active in the communities, meeting with local officials and communities and doing the right things, which gives me optimism about the progress underway. We know this process well. When they pause to do more due diligence and listen to constituents, it goes back and forth. It would not be appropriate for me to jump ahead and predict the date. Let those elected officials do their work. You will be one of the first to know, Nick, when we make the announcements. Nicholas Joseph Campanella: Thanks, I appreciate that. Since you have executed on the bulk of 2026 equity needs—still a little outstanding—how are you thinking about being proactive to de-risk 2027 and 2028? My understanding is there might be more front-end equity in this five-year plan. Rejji P. Hayes: Yeah, Nick, appreciate the question. To reground on the five-year equity needs we walked through on our fourth-quarter call: we are planning $700 million this year—that is still the plan—and then on average thereafter for the next four years it will be $750 million, but it is far from linear; that is just a simple average. As you rightly noted, it is a bit more front-end loaded. We expect the majority of the equity needs to be issued in the first three years of this plan, commensurate with the capital plan. We have been big proponents of the equity forward product, which we used to good effect in the first quarter. As I noted, we already priced just under $500 million to take that risk off the table and settled a small portion in the first quarter. That will be the bias going forward. While I believe we are undervalued, there is valuation and then there is what is in our plan. We saw the stock trading at levels above our plan assumptions over the course of the quarter, so we were opportunistic. If we see the stock continue to trade at levels better than our plan assumptions this year and in subsequent years, we may execute additional equity forwards to de-risk 2027 and beyond. First and foremost, we will prioritize our needs in 2026, address those, and then see where we are by the second half of the year. Nicholas Joseph Campanella: That is helpful. Thank you. One more—reflecting on past portfolio rotation efforts like the EnerBank sale—strategically, is there appetite to do something like that again, or do you continue to have very clear line of sight to the high end of the 6% to 8% through 2026–2028? Garrick J. Rochow: No comments on M&A, and we are providing guidance on the call. Nicholas Joseph Campanella: Thank you for the time. Garrick J. Rochow: Thank you. Operator: Your next question comes from the line of JPMorgan. Your line is open. Analyst: Good morning. This is Aiden Kelly on for Jeremy Tonet. How are you thinking about affordability going into the elections? What is the level of understanding from the candidates over the possibility that utilities could lower rates with new data center load, and any thoughts there? Garrick J. Rochow: There is an important slide in our deck—one of my favorites—showing consistent growth over twenty-three years: multiple CEOs, different governors, Republicans and Democrats, different commissions and legislators, and we have delivered. The sweet spot—the secret sauce—is being an honest broker focused on what is best for Michigan and our customers, and listening to policymakers and candidates to see what they want to get done and how we can be a solution provider. I was with a governor candidate last night, and that is what we were talking about—how can we be a solution provider? You stay in that space—hard as it may be—and you build trust. It is an election year; we are a purple state, and we are used to a lot of back and forth. I sleep well at night not because I am arrogant or know how this plays out, but because we have a good team. Focus on the customer, build trust, and you can find solutions. Even though we are the fourteenth lowest state for electric bills—and you can present that data—the reality is affordability is defined by the end user. We have to keep working on that. Some of that is internal tools; some is external. I walk around with two pages of ideas for policymakers. We meet with all the gubernatorial candidates. We approach it as a business leader, not just from an energy perspective. Every one of these candidates is focused on growing Michigan. The three leading candidates are supportive of data centers in a thoughtful, comprehensive way. We talked about how that can shape affordability. They are concerned about education; we help with those conversations because we are concerned too. We can work with all three of the leading candidates. Be an honest broker, focus on the customer, listen to what they are trying to get done. Some focus on low-to-moderate income; some focus on the business environment. We can do both and provide good solutions for our customers to help on affordability. Rejji P. Hayes: All I would add to Garrick’s remarks is to reemphasize the flywheel and algorithm in our financial planning. Affordability remains one of the key governors in our planning process. For almost twenty-five years, we do not take a plan to our board, let alone to the street, unless it passes the laugh test from an affordability perspective, meets balance sheet hurdle rates, and can we get the work done. On affordability, the dimensions are broad: we look at compound annual growth of rates over the planning period, we benchmark versus the region and the country, and we take into account both rates and bills. While we have grown rate base historically high single digits and now low double digits in our forecast, we are still self-funding two thirds to three quarters of that rate base growth with CE Way, episodic cost reductions, and energy waste reduction. Over time, we hope it will also be sales growth as we execute on the economic development pipeline. That is how, even while growing rate base, you keep bills and rates in low single-digit levels year in and year out, irrespective of who is running the state. Analyst: Makes sense. One separate question on CapEx upside: could you remind us what underlies the “1 gigawatt equals $2 billion to $5 billion of CapEx” sensitivity—what drives the low and high ends? Rejji P. Hayes: For the low end—around $2 billion—you have assumptions of storage resources and our current estimates for a simple-cycle combustion turbine, plus some infrastructure costs like substation work and wires. As you move toward the high end, a couple things occur. First, a change in resource—if the cup runneth over and we see highly successful conversion of the backlog, we would potentially look at combined-cycle gas. That starts to get you toward the upper range. You likely warrant additional infrastructure—substations and wires—as you see additional economic development come to fruition. It is also important that we comply with the clean energy law requirements, which are predicated on sales. That also adds to the high end of the equation. That is what drives the range. Operator: Your next question comes from the line of Michael Sullivan from Wolfe Research. Your line is open. Michael Sullivan: Good morning. On the data center pipeline, you talked to incremental CapEx upside that is not in the plan. As we think about your earnings trajectory, is this something that can contribute in the next five years if you bring these over the finish line? Rejji P. Hayes: Appreciate the question. It is really a function of the load ramp. Most opportunities in our backlog today—particularly those in advanced to final stages—have load ramps that really start to materialize, as Garrick noted, in the 2028 time frame. Some that are slightly lower probability are 2029–2030, and the material ramp is really in the next decade. Supply needs will increase commensurately with that ramp. While we would see additional capital investment opportunities likely come in the next five-year plan that we roll out, it is a little early to suggest whether it would put upward pressure on our EPS growth range. Job one is to convert these opportunities. If we see success, it will drive additional capital investment opportunities. Given the ramp, we will see what happens over the next five to ten years, but it is premature to say it would immediately increase EPS growth. Michael Sullivan: Looking ahead to the IRP filing you have coming up, you mentioned a growth scenario highlighting the need for additional capacity. Tying that into the questions around NorthStar, is there any world where DIG can be used as a solution? I know it has been tried in the past—any change in appetite to use that asset to meet additional demand growth? Garrick J. Rochow: Going back to our last IRP, we attempted to bring DIG into the utility. From an affiliate transaction perspective, it was too big of a hurdle, and we do not see proposing that in this IRP to bring it into the utility. Stepping back, I am pleased with the team’s work on this IRP—about 1.5 gigawatts of net natural gas to replace existing, and for resource adequacy of the grid, you need renewables and batteries, but there are times of day and year where you need natural gas to peak. Campbell 3 and 4—which are older oil-fired and gas-fired peaking units—this really works to replace those almost megawatt-for-megawatt from a capacity perspective. The renewable story—much of what is approved is in the REP. As part of this IRP, we are looking out twenty-plus years, so it will give some color and context for investments beyond the five-year capital plan out into the ten-year window as well. In this IRP, we have to do multiple scenarios, and one is a growth scenario. Given interest from manufacturing, industrial processing, and data centers, that is important. That would mean more batteries, more renewables, and potentially other assets. Those line up well with the contracts we are working through and should come together through the IRP process. Operator: Your next question comes from the line of Travis Miller from Morningstar. Your line is open. Travis Miller: Good morning. State legislation update—does anything get done in an election year? Any impact on your cadence of regulatory filings? Garrick J. Rochow: Most focus, particularly after spring recess, will be on the state budget. It has been a bit contentious given our purple state. It was contentious last year and will likely be that way this year as well, and it dragged out most of the year. I do not know that we will see a whole lot of policy movement. If we do, know that we are engaged and focused on finding the right solution for customers. In some cases, there are great ideas in bills that can help with affordability, and we would like to see those progress with the right mechanisms. We will see if there is enough time and space in the sessions. Travis Miller: Any change in your rate case cadence—electric in spring and gas in fall? Garrick J. Rochow: No. We will file our electric rate case in June. For the gas case, we had staff position in April. The PFD will come out in the August time frame, and then it is September–October for the final order. That is roughly when you will see the gas order if we go the full distance. Operator: Your next question comes from the line of Andrew Weisel from Scotiabank. Your line is open. Andrew Weisel: Good morning. On the demand side, you signed 110 megawatts of new load year to date versus 100 megawatts signed last year and 450 megawatts connected last year. Of the 110 new, when do you expect that to connect and ramp? Does that take you to the high end of the 2% to 3%? Garrick J. Rochow: It varies—different customers make that up. Some are expansions underway; some will play out over this five years. For Michigan Potash, we got permission to talk about jobs and investment, but not timeline yet; we will share specifics when we can. What we have communicated in our five-year plan is 2% to 3% load growth, and we keep giving concrete examples of how that is materializing, giving us confidence in delivering that for shareholders and customers. Andrew Weisel: You mentioned Moody’s has the utility on negative outlook and you are considering countermeasures. Can you elaborate on options and how proactive you need to be? Rejji P. Hayes: Since this is at the OpCo, and you are constrained by the ratemaking capital structure, we will have to evaluate a variety of solutions and likely educate the commission and other stakeholders on what we would do over the next twelve to eighteen months to avoid further action by Moody’s. Not prepared to elaborate on specifics today; I think they are fairly intuitive—related to the ratemaking capital structure, cost of capital, and the like. We are exploring a variety of qualitative and quantitative measures and will have conversations over time with key stakeholders. Andrew Weisel: One last one. Without speculating on M&A, would you consider splitting NorthStar into pieces—DIG versus the renewables development business? Garrick J. Rochow: I appreciate the persistence. No comment on M&A. Operator: Your next question comes from the line of Sophie Karp from KeyBanc. Your line is open. Sophie Karp: Good morning. You highlighted increasing diversity within your development pipeline. Is it fair to think about deemphasizing data centers in that pipeline? Any change in attractiveness of your service territory for hyperscalers? Garrick J. Rochow: No, it is not a deemphasis at all. I love Michigan, and I like to see we are growing in a variety of ways. More engineers per capita has attracted businesses alone. Our rich automotive heritage and the WWII era defense base has stuck—defense projects are underway. There is some onshoring as well. We are the second most diverse state in agriculture, and we have seen more food processing. We will have more announcements coming. There is really diverse growth in the state. Data centers are in there; we are making great progress. That is one part of our growth story, and I love the diversification. That is unique and gives me a lot of confidence in our future and growth profile. Rejji P. Hayes: Adding to Garrick’s comments, we talk about the full portfolio versus just data centers. About 15% of that 9 gigawatt backlog is represented by non–data center opportunities. When you do the math, that is over a gigawatt—quite impactful. We have talked about positive spillover effects: sustainable job growth and commercial activity once you get residential and population growth. Those are higher-margin customer classes than industrial. We like the data center opportunities, but also the non–data center ones—large manufacturing companies and so on—because of the externalities. There is a lot of good momentum in Michigan and diverse opportunities. Operator: Your next question comes from the line of Anthony Crowdell from Mizuho. Your line is open. Anthony Crowdell: Good morning. I think the equity issuance plan steps up from $500 million in 2025 to $750 million on average over 2026–2030. Does incremental large-load conversion above your base case reduce the need for equity, or does it accelerate capital intensity and therefore increase equity? Rejji P. Hayes: Because our customer investment plan does not include these large-load prospects, converting one or two of the larger opportunities would likely put upward pressure on our capital plan. As we noted, every gigawatt gets you somewhere between $2 billion to $5 billion of incremental CapEx. That would put upward pressure on CapEx and thus on financing needs—equity, debt, and all things in between. There would likely be additional equity needs, funding growth and rate base expansion as a result. So yes, upward pressure on equity, but because capital grows with the conversion. Anthony Crowdell: Perfect. That is all I had. And, Garrick, you are right—Mom is always right. Garrick J. Rochow: Thanks, Anthony. Operator: We have reached the end of our question and answer session. I will now turn the call back over to Garrick J. Rochow for closing remarks. Garrick J. Rochow: Thanks, Rob. I would like to thank you for joining us today. I look forward to seeing you at the American Gas Association Financial Forum. Take care and stay safe. Operator: This concludes today’s conference. We thank everyone for your participation.
Operator: Welcome to the Fiscal 2026 Third Quarter Earnings Call for Applied Industrial Technologies, Inc. My name is Alexandra, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question at that time, please press 1 on your telephone keypad to raise your hand. To withdraw your question from the queue, press 1 again. Prior to asking a question, please lift your handset to ensure the best audio quality. If at any time during the conference call you need to reach an operator, please press 0. Please note that this conference is being recorded. I will now turn the call over to Ryan Dale Cieslak, Director of Investor Relations and Treasury. Ryan, you may now begin. Ryan Dale Cieslak: Thank you, Alexandra, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our third quarter results. Both of these documents are available in the Investor Relations section of applied.com. Before we begin, a reminder that we will discuss our business outlook and make forward-looking statements. All forward-looking statements are based on current expectations and are subject to certain risks and uncertainties, including those detailed in our SEC filings. Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statement. In addition, this conference call will use non-GAAP financial measures which are subject to the qualifications referenced in those documents. Our speakers today include Neil A. Schrimsher, Applied Industrial Technologies, Inc.’s President and Chief Executive Officer, and David K. Wells, our Chief Financial Officer. With that, I will turn it over to Neil. Neil A. Schrimsher: Thanks, Ryan, and good morning, everyone. We appreciate you joining us. I will begin with perspective and highlights on our results, including an update on industry conditions and expectations going forward. David will follow with more financial detail on the quarter’s performance and provide additional color on our updated outlook. I will then close with some final thoughts. Overall, we reported a solid third quarter underpinned by stronger organic sales growth across the business. Specifically, sales increased 6% organically over the prior year, which was the strongest growth in over two years. This was up notably from 2% last quarter and at the high end of our third quarter guidance. In addition, orders, backlog, and business funnel activity continue to build positive momentum. We also delivered another quarter of steady underlying margin performance with gross margins holding firm year over year inclusive of ongoing LIFO headwinds. These dynamics drove record quarterly EBITDA at the high end of our expectations, as well as 6% above the prior year, or 8% when excluding the impact of LIFO. At the same time, we continue to invest internally to support our growth potential and strategy. Taken together, it was a very productive quarter with many encouraging signals for the business moving forward. I want to thank our Applied Industrial Technologies, Inc. team for another solid quarter of execution. A few key points to emphasize. First, stronger sales growth in the quarter was broad-based with several encouraging underlying trends. Average organic daily sales increased 5% sequentially, which was above normal seasonal patterns. Trends strengthened as the quarter progressed, with organic sales in March up 10% over the prior-year period. The stronger growth was volume-driven with customer spending behavior increasingly positive and showing signs of broadening. More positive underlying demand was apparent in year-over-year trends across our top 30 end markets, where 17 generated positive sales growth compared to 15 last quarter. In addition, two-year stack trends across our top 30 markets improved notably on a sequential basis. Growth was strongest across metals, technology, machinery, aggregates, utilities and energy, mining, and construction. This was offset by declines primarily in chemicals, lumber and wood, transportation, rubber and plastics, and refining. Stronger sales activity was evident across both segments in the quarter, with particular strength in our Engineered Solutions segment, which delivered over 9% organic growth year over year. Growth was strongest across automation and fluid power, both increasing by a double-digit percent year over year in the quarter. Organic sales growth across our flow control operations also improved and was a contributor. In addition, segment orders were up by a double-digit percent over the prior year for the second straight quarter, with backlog and book-to-bill both increasing sequentially during the quarter. Overall, this performance is an encouraging sign for our Engineered Solutions segment’s expanding and differentiated growth potential as several favorable dynamics are converging. Of note, sales cycles for our advanced automation solutions are turning faster as customers put money to work in brownfield applications to drive production agility within existing capacity and address labor constraints. Our engineering depth, tailored solutions, and comprehensive application support are helping customers navigate automation deployments in both high-tech industries as well as across our legacy industrial verticals and in process infrastructure. In addition, project activity and investment across the U.S. is gradually increasing. We are also seeing recovery continuing to take shape in our legacy industrial and mobile OEM fluid power end markets following a prolonged multiyear downturn, alongside structural and secular growth in newer verticals where our exposure has increased in recent years following the ongoing expansion of the segment. On this last point, we are seeing solid demand build across our technology vertical, which today represents over 15% of the Engineered Solutions segment and contributed over 300 basis points to the segment’s organic sales growth rate in the quarter. Our exposure to the technology vertical includes an established and ongoing position across the semiconductor space, as well as emerging growth opportunities developing within the data center market. On slide eight of our earnings presentation, we added an overview of our position and the solutions we provide within these verticals, which spans across all three areas of the segment including fluid power, automation, and flow control. In semiconductor, we provide various fluid conveyance, pneumatic, robotic, and mechatronic solutions that are primarily tied to wafer fab equipment manufacturing, as well as flow control solutions used in material processing. In data centers, our deep expertise of fluid management and handling combined with established supplier relationships are presenting growing opportunities supporting various thermal management applications through engineered assemblies. In addition, our automation team provides robotic and machine vision solutions that automate and trace material handling within a data center facility. Our data center service capabilities and coverage were also enhanced through our Hydrodyne acquisition, where we are providing various fluid conveyance solutions and assemblies specified in liquid cooling systems. Overall, it is a very diverse and embedded position within these key growth verticals that highlights our ongoing evolution and technical capabilities as we continue to expand our Engineered Solutions segment. I am also encouraged by the growth potential developing across our core Service Center segment. Organic sales growth of 4% in the third quarter strengthened from last quarter, with average daily sales up approximately 5% sequentially on an organic basis ahead of normal seasonality. Trends were strongest during March, when organic sales increased over 6% compared to the prior year, including nearly 8% within the U.S. Customer spending behavior continues to strengthen as greater capacity utilization drives more break-fix activity and required maintenance on critical and aged production equipment. This drove stronger growth across strategic national accounts as well as our local accounts during the quarter. In addition, 13 of our top 15 industry verticals were up year over year in our U.S. Service Center network during the third quarter. This compares to 10 last quarter and six in the prior-year quarter. Benefits from our sales initiatives and our One Applied value proposition are resonating as we support our customers’ heightened technical MRO requirements within an increasingly positive U.S. industrial backdrop. This includes our deep knowledge and supplier relationships tied to critical motion control equipment and infrastructure, supported by our local service capabilities. Over the past several years, our Service Center team has been executing on a comprehensive strategic plan focusing on deepening our customer relationships, modernizing our sales processes and tools, and enhancing our speed to market through investments in talent, systems, and analytics. In addition, our Service Center team’s value proposition has strengthened through the expansion of our Engineered Solutions segment, giving them access to engineering, design, assembly, repair, and integration support to address our customers’ legacy industrial system needs as well as emerging required investments in automation. This is driving new business wins as well as greater cross-selling activity. We estimate cross-selling contributed over 100 basis points to the segment’s organic growth in the quarter, which is up from the first-half fiscal 2026 levels, and an encouraging sign. Overall, these initiatives remain ongoing and provide solid company-specific growth drivers for our Service Center segment moving forward as end-market demand cycles higher and as customers look to leverage the many secular and structural tailwinds developing across the North American manufacturing sector. Overall, it was a solid quarter highlighting building top-line momentum across Applied Industrial Technologies, Inc. and our differentiated industry position. Positive sales trends have continued in the early part of our fourth quarter with organic sales trending up by a high-single-digit percent year over year month-to-date in April. We are also well positioned to drive further EBITDA margin expansion and stronger earnings growth, assuming the improved top-line trends sustain moving forward. During the third quarter, EBITDA margins were in line with our expectations, while our year-over-year trends improved as the quarter progressed and sales growth strengthened. As a reminder, on an annualized basis, we target mid- to high-teen incremental EBITDA margins at mid-single-digit organic sales growth, with strong support from our ongoing internal margin initiatives, continuous improvement culture, and structural mix tailwinds. We remain mindful that we continue to operate in a dynamic environment where customers’ purchasing decisions remain sensitive to broader macro uncertainty that is persisting. This includes an ongoing dynamic trade policy and tariff backdrop. To date, we have not seen a significant impact from recent tariff and trade policy modifications. Price increase announcements from our suppliers remain steady, and over the last several quarters have normalized to a more regular cadence following an active pace this time last year. However, the inflationary environment and suppliers’ approach to pricing remains highly fluid at this point. We continue to work closely with our suppliers as they assess the evolving backdrop as well as other inflationary pressures on their supply chains. As evidenced by our performance over the past year, our teams continue to effectively manage broader inflationary pressures, and overall, we remain well positioned. We operate from an agile business model in well-structured markets tied to critical and technical processes with strategic supplier relationships. Combined with structural mix tailwinds and various self-help gross margin countermeasures inherent to our strategy, we are highly confident in our ability to continue to adapt and execute as the tariff and broader inflationary backdrop continues to evolve. Lastly, on capital deployment and ongoing opportunities moving forward, year to date we have remained active, deploying over $300 million on share repurchases, M&A, and growing our dividend. With regard to M&A, which remains a top priority and key element of our growth strategy, we are actively evaluating various targets across both our segments with our focus primarily on midsize and smaller tuck-in companies. While timing of M&A can vary quarter to quarter, I continue to believe the next 12 to 18 months will be a more active period for Applied Industrial Technologies, Inc. given the work being done and as we continue to execute on our strategy. Since 2018, we have closed 18 acquisitions representing over $1 billion in acquired sales. This included key strategic acquisitions that expanded our Engineered Solutions capabilities into areas of flow control and automation, as well as strengthened legacy positions in fluid power and within our Service Center network. Over that same period, we have grown EPS by 16% and free cash flow by 18% on a compounded annual basis. I believe that flywheel position and approach to M&A is even stronger today, given the investments we have made in our team, processes, and systems, as well as the compelling value proposition we offer to many companies looking to join our leading technical industry position within a still fragmented industry. In addition to ongoing M&A activity, we remain proactive with share buybacks. Long term, we see significant value creation potential across Applied Industrial Technologies, Inc. considering our strategic initiatives, industry position, exposure to secular growth tailwinds, and margin expansion potential. When appropriate, we will continue to utilize share buybacks to enhance shareholder returns, and as indicated in our press release today, I am pleased to announce our Board has approved a new authorization to repurchase up to 3 million shares. At this time, I will turn it over to David for additional detail on our results and outlook. David K. Wells: Thanks, Neil, and good morning to everyone joining today. As a reminder, our quarterly earnings presentation is available on our Investor Relations site. We hope that you will find it a useful reference as we recap our most recent quarter performance and updated guidance. Turning to our financial performance, consolidated sales increased 7.3% over the prior-year quarter. Acquisitions and foreign currency were a modest tailwind in the period, adding 50 and 80 basis points of growth, respectively. The number of selling days in the quarter was consistent year over year. Netting these factors, sales increased 6% on an organic basis. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was approximately 250 basis points in the quarter, which was in line with our guidance and last quarter’s trend. Netting this impact, we estimate volumes grew 3.5% over the prior year, a nice acceleration from the prior quarter. Moving to consolidated gross margin performance, as highlighted on page nine of the deck, gross margin of 30.4% was relatively unchanged compared to the prior-year level. During the quarter, we recognized LIFO expense of $5.6 million compared to $2.2 million in the prior-year quarter. On a net basis, this resulted in an unfavorable 27 basis point year-over-year impact on gross margins. Excluding the LIFO headwind, gross margins improved year over year reflecting ongoing progress with our internal margin initiatives, price and channel execution, and more favorable mix. As it relates to our operating costs, selling, distribution, and administrative expenses increased 7.5% compared to prior-year levels. On an organic constant-currency basis, SG&A expense was up 6% year over year. Our teams continue to drive strong cost discipline while also focusing on various efficiency initiatives tied to technology investments, shared services, and sales tools. This helped offset ongoing inflationary headwinds, annual merit increases, higher incentives, and ongoing growth investment into the business during the quarter. SG&A expense as a percentage of sales at 19.4% was relatively unchanged from the prior year, but improved approximately 40 basis points sequentially. We saw cost leverage improve nicely through the quarter as sales growth strengthened. Overall, stronger organic sales growth, modest M&A contribution, and favorable underlying gross margin performance resulted in reported EBITDA increasing 6.2% over the prior year. This is inclusive of greater LIFO expense year over year, which negatively impacted EBITDA growth by 2.3 percentage points compared to the prior-year quarter. Reported EBITDA margin of 12.3% was down 13 basis points from the prior-year level, with year-over-year LIFO headwinds negatively impacting EBITDA margin by 27 basis points. EBITDA margins were in line with our third quarter guidance range of 12.2% to 12.4%. In addition, year-over-year EBITDA growth and EBITDA margin trends strengthened as the quarter progressed. Reported earnings per share of $2.65 in the third quarter increased 3.1% from prior-year EPS of $2.57. On a year-over-year basis, EPS was impacted by a higher tax rate and net interest expense, partially offset by a lower diluted share count. Results this quarter included $1.7 million, or approximately $0.05 per share, of non-routine discrete tax expense related to prior-year tax provision adjustments. We expect our tax rate in the fourth quarter to be within a range of 24.4% to 24.6%. Turning to sales performance by segment, as highlighted on slides 10 and 11 of the presentation, sales in our Service Center segment increased 4.2% year over year on an organic daily basis. This excludes 20 basis points of contribution from acquisitions and a positive 130 basis point impact from foreign currency translation. Organic sales growth was driven by stable price contribution and stronger volume growth across our U.S. Service Center operations, partially offset by softer international sales. Segment EBITDA increased 2.7% over the prior year, while segment EBITDA margin of 14.2% decreased 42 basis points. Year-over-year segment EBITDA and EBITDA margin trends were impacted by LIFO headwinds and higher employee-related costs, including incentives, as well as a difficult prior-year comparison. On a year-to-date basis, segment EBITDA growth of approximately 5% is slightly ahead of reported sales growth, while segment EBITDA margins are relatively unchanged year over year. Within our Engineered Solutions segment, sales increased 10.2% over the prior-year quarter, with acquisitions contributing 90 basis points of growth. On an organic basis, segment sales increased 9.3% year over year, primarily reflecting strong volume growth across our fluid power and automation operations, as well as improved growth across our flow control operations. Segment EBITDA increased 11.9% over the prior year, or approximately 14% when excluding the impact of LIFO expense. In addition, segment EBITDA margin of 14% was up 21 basis points from prior levels inclusive of a 50 basis point year-over-year LIFO headwind. The strong EBITDA growth and margin performance in the quarter primarily reflects solid underlying incremental margins on stronger sales growth, firm gross margin performance, and ongoing cost accountability. Turning to cash flow, cash generated from operating activities during the third quarter was $100.1 million, while free cash flow totaled $95.4 million, representing conversion of approximately 96% relative to net income. Compared to the prior year, free cash flow was down 8% reflecting greater working capital investment in relation to stronger sales growth, partially balanced by ongoing progress with internal initiatives. From a balance sheet perspective, we ended March with approximately $172 million of cash on hand, and net leverage at 0.3 times EBITDA. Our balance sheet remains in a solid position to support our capital deployment initiatives moving forward, including accretive M&A, dividend growth, and share buybacks. During the third quarter, we repurchased over 346 thousand shares for $93 million, bringing the year-to-date total to over 897 thousand shares and $236 million. Turning to our outlook, as indicated in today’s press release and detailed on page 14 of our presentation, we are tightening our full-year fiscal 2026 guidance toward the high end of our prior range following our third quarter performance. We now project EPS within a range of $10.60 to $10.75 based on sales growth of 7.2% to 7.7%, including a 3.8% to 4.2% organic sales growth assumption, as well as EBITDA margins of 12.3% to 12.4%. Previously, our guidance assumed EPS of $10.45 to $10.75 on sales growth of 5.5% to 7%, including 2.5% to 4% on an organic basis, and EBITDA margins of 12.2% to 12.4%. Our updated guidance assumes a fiscal fourth quarter EPS range of $2.85 to $2.96 on organic sales growth of 4% to 5.5% year over year, as well as EBITDA margins in a range of 12.6% to 12.8%. We expect inorganic M&A sales contribution to be slightly lower sequentially in the fourth quarter as we anniversary our IRIS Factory Automation acquisition at the end of May, combined with ongoing initial contribution from our Thompson Industrial Supply acquisition announced last quarter. Our fourth quarter organic sales growth assumption takes into account more difficult prior-year comparisons in May and June. While we are encouraged by the positive sales momentum developing, we remain mindful of ongoing geopolitical developments and trade policy uncertainty that may continue to influence customer spending behavior. As a result, we continue to assume a degree of variability persists across our end markets near term. Lastly, from a margin perspective, we expect fourth quarter gross margins to be relatively stable sequentially. This assumes slightly higher LIFO expense compared to the third quarter. With that, I will now turn the call back over to Neil A. Schrimsher for some final comments. Neil A. Schrimsher: As we prepare to close out fiscal 2026, we do so from a position of strength with several growth catalysts beginning to emerge across our business. We remain prudent with our near-term assumptions and outlook as we are still navigating an evolving and dynamic market backdrop influenced by geopolitical and trade-related uncertainty. As we have seen over the past year, this could still present choppy and uneven end-market demand as customers continue to balance a complex landscape. That said, the trajectory of our sales and broader industrial macro indicators year to date in calendar 2026 are currently more indicative of an early end-market recovery beginning to take shape following a prolonged stagnant period of deferred maintenance and capital spending throughout the last two years. Business funnel and order momentum are sustaining a positive trajectory, while technical MRO spending requirements are high given aged manufacturing equipment across North America. As these trends progress, we expect customers to partner with larger, more capable providers like Applied Industrial Technologies, Inc., given our comprehensive solutions and technical service capabilities. At the same time, automation growth is accelerating as adoption of cobots, mobile robots, machine vision, and IoT solutions are increasingly viewed as need-to-have. We are also favorably positioned to benefit from multiyear growth tailwinds continuing to develop across our technology vertical, while our cross-selling initiative is gaining traction. Overall, momentum is building in the right direction. Our teams are executing well. The industry and competitive position we have assembled is strong. We are excited about the opportunities in front of us and remain highly focused on translating our growing momentum into superior long-term shareholder value creation. We will now open the call for questions. Operator: We will now open the call for questions. If you would like to ask a question, please pick up your handset and press star one on your telephone keypad to raise your hand. To withdraw your question from the queue, press star one again. As a reminder, if at any time you need to reach an operator, please press star 0. We will pause for just a moment to compile the Q&A. Your first question comes from the line of Christopher Glynn with Omnicom. Your line is now open. Please go ahead. Christopher D. Glynn: Thanks. Good morning, everyone. I was curious if you may have mentioned a little bit, but I wanted to go a little deeper into the trends you are seeing with locals versus nationals. I am guessing some of the sequential acceleration may have been led by the local accounts picking up some momentum, but I will speculate. Neil A. Schrimsher: We saw good growth with both. Local accounts year over year were up 5% versus 3.5% in Q2. We also saw good growth and progress with national accounts, up 7% year over year versus 4% in the second quarter. Christopher D. Glynn: Great. You have some exciting things going on with automation and fluid power. Flow control has been kind of a narrower sine wave trajectory, but clearly some broadening out there. Can you go down a layer or two into flow control and the process arena? Neil A. Schrimsher: Flow control benefited from the technology vertical, which contributed roughly 300 basis points to the segment’s organic growth in the quarter. Flow control was up about 6%, so strong mid-single-digit growth. We also saw benefit in primary metals, general industry, and energy and utilities. Chemicals would be the one still down year over year, but the trend is improving, and they are encouraged as we close the year and move into the next fiscal year. Christopher D. Glynn: You mentioned on automation that sales lead times and conversions were shortening. Are you seeing that trend on the process side as well? Neil A. Schrimsher: The reference was really around customers moving projects faster. When we are part of a larger project, we are seeing good speed there, and when we are providing productized solutions, more customers are accelerating automation projects for productivity and quality assurance. That is encouraging, as are the order rates and the backlog that we have been building. Thank you. Operator: Your next question comes from the line of Ken Newman with KeyBanc Capital Markets. Ken, your line is now open. Please go ahead. Kenneth Newman: Good morning. On Engineered Solutions, the operating leverage seemed a little lighter than I would have expected given the 9% organic growth. You are talking to mid-single-digit growth with mid- to high-teen incremental margins on the EBITDA side. Can you talk about what we saw in the margins, how much was driven by LIFO headwinds or mix, and what you think about normalized operating leverage in the ES segment into the fourth quarter and beyond? David K. Wells: Incrementals in the quarter for Engineered Solutions were about 16% ex-LIFO and roughly 19% when excluding LIFO entirely. We feel good about that performance. Neil A. Schrimsher: Within that, flow control had some projects that came in lower margin given mix, which can be typical. Also recall that Hydrodyne is currently at about the fleet average for the company, which is under the Engineered Solutions average, but with continued focus and improvement. We are pleased with the trajectory. David K. Wells: I would add that through the quarter we saw incremental margins and EBITDA margins in the segment strengthen on a year-over-year basis as the top line strengthened. The results from an incremental margin and leverage standpoint were aligned with our expectations, with improvement as the quarter played out. Kenneth Newman: Thanks. It was nice to hear about orders within Engineered Solutions being up double digits for the second straight quarter. How should we think about the timing of those orders flowing through the P&L into fiscal 2027, and how much conservatism is embedded in the fourth quarter guide relative to what you are seeing on orders? Neil A. Schrimsher: We want to be prudent given trade policy changes and geopolitical dynamics. We are encouraged by orders. Timing of conversion can vary based on the complexity of the order and our engineering time, and because some projects are tied to customers’ broader project schedules. Some orders convert in 60 to 90 days, while others extend out. Kenneth Newman: One more quick one. How big is the step-up in the May and June comps versus last year? David K. Wells: May’s comp compared to April steps up about 200 basis points, and June steps up another 200 basis points. Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad to raise your hand. Your next question comes from the line of Andrew Oven with Bank of America. Your line is now open. Please go ahead. Andrew Oven: Good morning. On the M&A environment, it is such a big driver for value creation. Your M&A has been slower post-COVID. What are you seeing that encourages you? You have been constructive for a while, but we have not seen a huge acceleration. What is changing or remaining stable, and what would it take to unlock the M&A potential? Neil A. Schrimsher: We have clear priorities, with Engineered Solutions targets across fluid power, flow control, and automation—both bolt-ons and midsize opportunities like Hydrodyne. We also have adjacency and geographic opportunities in our Service Center network. We are active and engaged at various stages of the M&A process. An improving environment may bring more sellers to the table. Given our pipeline, priorities, and team engagement, I expect M&A to be a stronger contributor over the next 12 to 18 months. Andrew Oven: Thank you. On markets you highlighted as headwinds—refining, chemicals, and transportation—we have heard some spending pauses tied to events in the Middle East, but a view that activity comes back in the second half of calendar 2026. And on transportation, would you be positively impacted if trucks come back? Neil A. Schrimsher: In refining and chemicals, I agree with the logic for second-half improvements. Given our North American footprint and focus, we are likely to see more activity occur in the U.S. and North America. Broadly across transportation, it is not our largest segment, but we will participate, so an improving environment would be good for us. Operator: Your next question comes from the line of David Manthey with Baird. Your line is now open. Please go ahead. Anar Khan: Hi. Good morning. This is Anar Khan hopping on for Dave. For my first question, I know pricing can be imperfect to measure since you do not sell every SKU every year, but with that caveat, can you frame how the 6% organic growth this quarter split between price and volume? Is realization tracking ahead of the 1% to 2% range? David K. Wells: Price in the quarter was about 250 basis points by our estimate, based on SKUs where we have clear reads and extrapolations. That implies about 350 basis points from volume. The 250 basis points was consistent sequentially and in line with expectations. Our Q4 guide assumes pricing moderates a bit, largely due to tougher year-over-year comparisons from tariff and other discretionary, impact-driven increases we saw in the prior-year Q4. Still a nice contributor, and a nice volume rebound this quarter. Anar Khan: Super helpful. Can you provide an early April read on volume through the first few weeks? Are you seeing customers pre-buy or pause given the policy environment? And can you remind us what One Applied specifically means to you today and how you are measuring progress? David K. Wells: Month to date we are up high single digits year over year. As a reminder, the comparison steps up by about 200 basis points in May and another 200 basis points in June, so comps get tougher as the quarter progresses, but we are encouraged by the start. Neil A. Schrimsher: One Applied means that from the end-customer standpoint, there is really nothing moving inside their facilities that our products, services, and solutions are not a part of. Our Service Center teams have deep operating know-how of customers’ equipment and how they make money with uptime and production. We support those plant operations with greater Engineered Solutions expertise—fluid power systems, process flow control, and discrete automation—collaborative and mobile robots, machine vision for quality and inspection, and IoT connectivity to pull performance data across equipment and facilities. We are seeing growing customer need for that full utilization. Our pipeline of projects is growing, and cross-selling contributed over 100 basis points to Service Center organic growth this quarter. We expect that to continue to grow. Operator: At this time, we have no further questions. I will now turn the call over to Mr. Schrimsher for any closing remarks. Neil A. Schrimsher: Thank you, everyone, for joining us today. We look forward to speaking with you throughout the quarter. Operator: Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Pentair plc First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Shelly Hubbard, Vice President of Investor Relations. Ma'am, please go ahead. Shelly Hubbard: Thank you, Operator, and welcome to Pentair plc's first quarter 2026 earnings conference call. On the call with me are John L. Stauch, our President and Chief Executive Officer, and Nick Brazos, our Chief Financial Officer. On today's call, we will provide details on our first quarter performance as outlined in this morning's press release. On the Pentair plc Investor Relations website, you can find our earnings release and slide deck which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance and the impact these items and events have on the financial results. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements which are predictions, projections, or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Pentair plc. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-Ks. Please note that during the presentation today, we will be making references to record financial results. These references reflect the time period post the nVent separation in 2018, unless noted otherwise. Following our prepared remarks, we will open the call up for questions. Please limit your questions to two and reenter the queue to allow everyone an opportunity to participate. I will now turn the call over to John. John L. Stauch: Let us start with our long-term strategy on slide four. At our Investor Day in March, we outlined our long-term strategy, growth initiatives, favorable secular trends, innovation pipeline, and our financial growth outlook. We are very excited about the next level of growth and profitability that we expect will build upon the structural improvements we have made to our operating model over the last several years to drive more durable financial performance during economic cycles. We believe our balanced water portfolio is uniquely positioned to drive superior value across our Move, Improve, and Enjoy water segments. We are focused on accelerating growth through innovation and elite customer experiences. We expect to continue to see strong execution drive profitable growth and accelerate operational efficiencies over the next few years. And our strong cash flow and ROIC provide flexibility for enhanced value creation. Let us move to the executive summary on slide five. In Q1, we delivered another solid quarter supported by disciplined execution and continued focus on our Pentair plc Business System tools. Sales increased 3%. Adjusted operating income increased 7%. ROS expanded by 100 basis points to 25%, our sixteenth consecutive quarter of margin expansion, and adjusted EPS rose double digits to $1.22. Flow delivered strong financial and operational performance in the quarter, and Water Solutions and Pool also contributed to core sales growth and margin expansion. Our strategy, supported by our Pentair plc Business System tools, including transformation processes inclusive of 80/20, continues to guide our execution across the company. At our Investor Day in March, we introduced new long-term financial targets through 2028. Reflecting our confidence in our value creation model, we repurchased $200 million of outstanding shares in the open market during Q1. We also achieved Dividend King status, marking our fiftieth consecutive year of higher dividends. We continue to see a range of underlying demand drivers, including aging U.S. infrastructure, population growth in Sunbelt states, evolving customer demand in beverage, premiumization in food service with an emphasis on reliability and serviceability, and growth in the aftermarket. We also had several key wins in Q1: sales growth with our top customers, QuadOne, strong productivity driven by the Pentair plc Business System, a solid innovation pipeline across our segments, and continued execution against our strategy. Our 2026 outlook reflects our current expectations and continued confidence in our business model and the resilience of our end markets. We plan to continue investing in digital and AI-enabled solutions, strengthening our portfolio, and returning capital to shareholders while advancing our efforts in sustainable water technologies. For full year 2026, we narrowed our adjusted EPS guidance range to $5.30 to $5.40, raising the low end by $0.05 versus our initial outlook. At the midpoint, this represents 9% growth year over year. We remain focused as we navigate macro volatility and the broader operating environment. We are watching housing and related markets closely along with the pace of nonresidential investment, and we remain focused on prudent pricing, productivity, and execution to manage through the environment. Now let us turn to our strategic actions driving performance on slide six. We are off to a solid start in 2026, with Q1 performance supported by targeted growth initiatives, strong productivity execution, and disciplined delivery across our water portfolio. Q1 also reflected strong segment income and return on sales performance across all three segments. We delivered 3% sales growth despite ongoing headwinds in the residential markets, driven by execution on our growth initiatives. We are investing in technology and capabilities to expand Pool's total addressable market, accelerate growth in commercial buildings and data center infrastructure, and support U.S. water infrastructure needs. We have also strengthened digital capabilities and leveraged our global technology and R&D resources across the portfolio. And we continue to maintain a strong balance sheet and a disciplined capital deployment strategy. Before I turn it over to Nick, I want to thank Jerome Pedretti for 20 years of outstanding leadership. Throughout his career, Jerome has delivered superior results in all of the roles he has held. He has taken on difficult challenges, and has always optimized the businesses and engaged employees in the Pentair plc way. I and the ELT will personally miss his passionate debates with me and, of course, his enthusiasm for French and Italian food and wines. I also want to thank Shelly Hubbard for over three years of superior and professional engagement with shareholders. She has elevated our investor outreach and discussions, and we wish her well in her new role. Shelly has accepted a new position as VP of Investor Relations for a much larger company that helps her to further her development and broaden her experience. An announcement regarding Shelly will be issued by her new company in the near future. Shelly will continue with Pentair plc through May 1. We are using this opportunity to rotate Jeff Thompson, the CFO of our Flow and Water Solutions segments, into the Investor Relations role, and we are confident that Jeff will learn quickly and be able to share unique insights regarding our PBS playbook and business positioning. With that, I will turn it over to Nick to walk through our financial results and our 2026 guidance in more detail. Nick? Nick Brazos: Thank you, John, and good morning, everyone. Let us start on slide seven. We delivered a first-quarter record for Pentair plc sales and adjusted operating income. Additionally, we enhanced return on sales across each of our three segments. In Q1, we reported sales of over $1 billion, up 3%; adjusted operating income of $259 million, up 7%; return on sales of 25%, an increase of 100 basis points; and adjusted earnings per share of $1.22, up 10% to 11% year over year. Core sales were up, driven by a 2% increase in Flow, and a 1% increase in both Water Solutions and Pool. Moving to adjusted operating income, driven by our long-term plan, our Pentair plc Business System, and our targeted ongoing structural cost improvement actions, we achieved 100 basis points of margin expansion in Q1. Price offset inflation and we delivered net productivity of $21 million while continuing to invest in targeted growth initiatives and our innovation pipeline. Please turn to slide eight. Flow sales were up 11% year over year to $258 million, driven by our HydroStop acquisition, growth in QuadOne accounts, a focus on growing flow control equipment and aftermarket sales for the aging U.S. water infrastructure, data centers, and other commercial buildings. As a reminder, last quarter, we announced that we have strategically combined our Flow residential business and our residential business within Water Solutions beginning Q1 2026. Additionally, our long-range plan as communicated in Q1 aims to deliver mid single-digit growth within our Flow segment, with margin and income expansion driven by structural cost improvements and a focus on growth within our QuadOne customers. Segment income grew 22% and return on sales expanded 210 basis points to 23.7%, driven by strong sales growth, which, as mentioned, includes the acquisition of HydroStop in Q3 last year. Finally, price offset inflation. Please turn to slide nine. In Q1, Water Solutions sales declined 1% to $391 million, driven primarily by our targeted portfolio shaping and exit of the commercial services business in 2025. The pro channel grew mid teens during the quarter, reflecting gains supported by our decision to combine the residential Flow and residential Water Solutions businesses to both drive structural cost improvements and bring targeted QuadOne channel synergies to our pro channel. We continue to drive ongoing structural cost improvements and our make/buy strategies and tools. We have made progress on our structural cost initiatives but remain early in those actions and opportunities as we continue to deploy our Pentair plc Business System. Segment income grew 6% to $100 million and return on sales increased 160 basis points to 25.5%, primarily driven by our Pentair plc Business System productivity savings. Price contribution offset inflation. Please turn to slide 10. In Q1, Pool sales increased 1% to $387 million. Segment income was $128 million, up 2%. Return on sales increased 30 basis points to approximately 33%. Price offset inflation, and our Pentair plc Business System drove continued net productivity. We are focused on investing in this business through a regional focus with targeted programs in sales and marketing, field service and customer service support, new product innovation, and breakthrough innovation that we believe should grow the total addressable market for Pool and elevate our brand and offerings. Please turn to slide 11. Our balance sheet remains strong, and our return on invested capital increased to 16.6% from 15.8% a year ago, reflecting our strong commitment to ongoing shareholder value creation. Our net debt leverage ratio is 1.7x. In Q1, we repurchased $200 million of shares, reflecting continued confidence in our strategy, our Pentair plc Business System, and our team's ability to execute. We have also increased our dividend by 8% and achieved our fiftieth consecutive year of dividend increases, making Pentair plc a Dividend King while maintaining our Dividend Aristocrat status. Our significant annual free cash flow generation has enabled us to strategically deploy capital via dividends, debt paydown, share repurchases, and strategic acquisitions. We plan to remain disciplined with our capital and have flexibility to strategically allocate capital to areas with the highest shareholder return, and we are planning additional share repurchases during 2026 reflecting our confidence in our ability to execute on our long-term strategy. Let us turn to our outlook on slide 12. For the full year, we are increasing our adjusted EPS guidance midpoint to approximately $5.35, with a range of $5.30 to $5.40, which is up roughly 8% to 10% year over year. Also, for the full year, we expect total Pentair plc sales in 2026 to be up approximately 2% to 4%. We expect Flow sales to be up approximately mid single digits to high single digits and in line with our long-term plan. Water Solutions sales are expected to be approximately flat with core sales up approximately low single digits and in line with our long-term plan. Pool sales are expected to increase approximately 1% to 3% in 2026. While we are encouraged by sell-through dynamics in Q1, sell-through levels for this Pool season, which concludes in 2026, may require our channel partners to reduce purchases in Q2 and Q3 to reflect 2026 pool industry growth. Therefore, we evaluated a wider range of Pool revenue and income scenarios and have incorporated these assumptions and scenarios into our guidance update. We expect total Pentair plc adjusted operating income to increase approximately 6% to 8%, with return on sales expansion of roughly 100 basis points to approximately 26%. We expect price to offset inflation and expect another strong year of Pentair plc Business System-driven productivity of approximately $70 million, net of investment. We continue to evaluate and respond to ongoing changes in U.S. tariffs, inflation, and global supply chain impacts. We expect tariffs and inflation to have a net neutral impact over the year. For the second quarter, we expect sales to be up approximately 1%. We expect Flow sales to be up approximately high single digits, which includes our HydroStop acquisition, approximately $10 million of sales in the quarter at approximately 30% return on sales. We anticipate Water Solution sales to be down approximately low single digits, with core sales approximately flat, reflecting the commercial services sale in Q2 2025. Commercial Water core sales are expected to be up approximately low single digits. Pool sales are expected to be approximately flat to up 1%, reflecting our active management of sell-in and sell-out dynamics. We expect second-quarter adjusted operating income to increase approximately 5% to 6%. We are also introducing adjusted EPS guidance for the second quarter of approximately $1.47 to $1.50, up roughly 6% to 8%. We are pleased with our performance in Q1. We have a balanced water portfolio and a global team with a proven track record of delivering our near and long-term strategies, and we are focused on delivering our new near and long-term plans for our shareholders, our customers, and our employees. I would like to now turn the call over to the Operator for Q&A, after which John will have a few closing remarks. Operator, please open the line for questions. Thank you. Operator: We will now begin the question and answer session. To ask a question, you may press star and then one on your touchtone phones. If you are using a speakerphone, we ask that you please pick up the handset prior to pressing the keys. To withdraw your questions, you may press star and two. We ask that you please limit yourselves to one question and a single follow-up. Please note that you may rejoin the question queue if you have additional questions. Again, that is star and then one. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Nathan Hardie Jones from Stifel. Please go ahead with your question. Analyst: Good morning. This is Adam Farley on for Nathan. My first question is on the full-year sales guidance. Price and FX tailwinds are likely to fade through the year as we lap last year's increases from price, with volume likely needing to make up a shortfall. Could you talk about areas of the business that are expected to see volume improvement as the year progresses? John L. Stauch: Yes, thanks for your question. We are seeing green shoots in our Commercial Water, Water Solutions business. We are seeing volume improvements across pockets of our Flow business as well. Several of our innovation and targeted market efforts in those businesses are reading out. As communicated at our Investor Day back in Q1, we are working to drive both margin expansion and volume expansion in our Commercial Water Solutions business and, of course, in our Pool business as well, with margin expansion from our Flow and Water Quality Management businesses coming more from our structural cost efforts. Analyst: Thank you for that. Following up on that margin expansion, could you talk about where you are seeing better-than-expected productivity, and then maybe talk about the impact of volume on that productivity? John L. Stauch: We saw productivity gains that exceeded our plan across the enterprise, but specifically within our Commercial Water Solutions and within our Water Quality Management business. So our Water Solutions business in aggregate drove incremental net productivity. I would just remind everyone that our transformation and productivity numbers are net of investment. Driving that margin expansion within Commercial Water and incremental volume beyond what we had originally planned for Q1 really read out nicely in the Water Solutions business. In pockets of our Flow business, we saw additional productivity gains, and then, of course, about 30 basis points of margin improvement in Pool. We really drove nice productivity gains within the Water Solutions business in Q1, and we are working to continue to drive that through the year. Operator: Our next question comes from Steve Volcan from Jefferies. Please go ahead with your question. Analyst: Hi. Good morning, guys. Thank you for taking my question. John L. Stauch: Good morning. Analyst: I wanted to focus a little on the Pool segment. I was a little surprised by the decline there given what we hear from other players in the channel doing some strong early buys. Maybe that is consistent. Do you think they overdid it on the early buys? You had some commentary about some potential destocking as the year progresses. Can you tease that out a little for us? John L. Stauch: We have two components to our growth. First, we measure and manage sell-through growth, which is equal to what you see as the channel distribution measurements, so generally aligned with those external pulse points that you are hearing. But we also have ship-in growth or sell-in growth that goes into the channel. As we shared at the end of Q4 and into our full-year guidance, we think that the current sell-through activity does not warrant a big pickup in the sell-in activity. We are expecting that to work its way out through Q2 and Q3 with lower shipments in for us. Ultimately, that sets up better long-term dynamics as we head into the 2027 pool season. Analyst: Great, that is helpful. Any comment on any trends you are seeing relative to market share in the Pool business? John L. Stauch: We feel good about our positions. We have high-end premium pools, mid-range pools and remodeling, and then the aftermarket. The challenge is that we are not seeing overall volume growth across the pool industry as a whole. You are seeing some de-featuring in the aftermarket or push-outs from consumer discretionary. Overall, we are looking at overall volume flat on the sell-through side, and we are taking a lot of activity and energy to achieve that. Ultimately, we are hanging in there in what I would say is a flattish market. Operator: Our next question comes from Nigel Edward Coe from Wolfe Research. Please go ahead with your question. Nigel Edward Coe: Thanks. Good morning. Maybe we could just touch on the tariffs. We have seen some changes in the regime during the quarter. I think you said $30 million of impact this year. How might that be changing? John L. Stauch: Tariffs are net-net slightly more than we currently expected, not by a lot, Nigel, but a little bit more. We feel that we have pushed that price appropriately to the channel. I also want to mention that there are tariffs and then what I would call incremental inflation. We are seeing some commodities running hotter right now than they were initially expected. Again, we have taken price actions to neutralize those in our full-year guidance forecast. A little bit of benefit from one side of the tariffs, and then the incremental 232 tariffs offset it, and then we priced effectively on both of those elements. Nick Brazos: And just to add to that, Nigel, about 70% of our sales go through two-step distribution. When we think about the year, we are planning for price to offset those inflationary headwinds, whether they be tariff, commodity, or otherwise. Nigel Edward Coe: Great. How is price looking over the balance of the year from here? Nick Brazos: For the aggregate of Pentair plc, we are looking at low single-digit price across the year and expect approximately flat volume across the full year. Operator: Our next question comes from Patrick Baumann from J.P. Morgan. Please go ahead with your question. Analyst: Hi. Good morning. A quick question on your assumptions related to sell-through for the Pool markets this year. What is embedded in your new guide of 1% to 3% for the segment for industry sell-through? John L. Stauch: Flattish on volume plus price. That is generally what we have assumed in this current outlook. Analyst: Flattish volume sell-through for the industry? John L. Stauch: Plus price. Yes, so you have price plus flattish volume for sell-through. Analyst: Understood. And then a quick one on the capital allocation side. Did I hear you say you are going to do additional share repurchases this year? Is that embedded in guidance, or did I mishear that? Nick Brazos: It is a great question. We expect to generate strong free cash flow in 2026, like we have historically, about 100% of our net income converting into free cash flow. We did buy $200 million worth of shares in Q1, and we expect to remain active in 2026 in share repurchases, but none of those additional share repurchases are reflected in our current 2026 full-year guide. Operator: Our next question comes from Deane Michael Dray from RBC Capital Markets. Please go ahead with your question. Deane Michael Dray: Thank you. Good morning, everyone, and also want to wish Shelly all the best. A question that came up at the Analyst Day: you said there are still lots of opportunities in 80/20. Part of it is walk-away revenues, walking away from some customers, shutting down some product lines. Have we seen any of the net effects on those revenues going away? What is baked into the guide there? Thank you. John L. Stauch: We saw some of that in 2025, Deane, and we are actively managing our QuadOne customers, which are our top-tier customers buying our top-tier products, and ultimately seeing really good results across the portfolio. There are temptations of the businesses to go back after some of those twenties, as we mentioned, and we are pushing back on those efforts unless it is a misplaced twenty—maybe they were a big customer regionally and we looked at them nationally. That would be the only reason that we would go back to that, Deane. We are not seeing further headwinds from 80/20 actions in 2026 results. Nick Brazos: In pockets of our businesses, we are seeing growth with our QuadOne customers. You have that balance of the exits we made and then the growth with QuadOne. I mentioned it in the prepared remarks: in our Water Solutions business, we grew mid teens with our pro channel while we continue to drive out some of the structural cost opportunities within Water Quality Management. Those QuadOne growth opportunities are starting to read for us, and we are excited about what that is going to continue to deliver. Deane Michael Dray: Good to hear. A second question on Pool: can you expand on the point on some of the new product innovation and expansion of the TAM? I know there are some product areas that you said Pentair plc is not interested in, like chemicals, for example. Where are attractive areas? Is it in the automation side, and how much does the TAM increase? Nick Brazos: It is partially in the automation side. We have a great and sticky product offering already with our IntelliCenter and with our pumping technology. We expect to continue to expand the TAM with the automation capabilities that we deliver and are expecting to deliver in the future. Additionally, at our Investor Day, we talked about some new purification and membrane technologies that we are excited about bringing to market. Both of those are TAM expanders for us. We are excited to continue to develop those in addition to the digital connectivity of the pad. Operator: Our next question comes from Julian C.H. Mitchell from Barclays. Please go ahead with your question. Julian C.H. Mitchell: Hi. Good morning, and best wishes to Shelly. First off, trying to understand the overall company-wide slight guidance changes. You have a slightly lower sales guide because of the Pool uncertainty, but I think you pushed up your op profit guide slightly, with an unchanged productivity savings guide at $70 million, and that is with the sales guide coming down. Help us understand the moving parts within that and anything by segment that has changed versus prior guide. John L. Stauch: Just to remind you, we are a $4-plus billion company, and we do have revenue in Europe and Asia as well. In this guide, we have reflected a little bit lower outlook to those regions relative to some of the supply chain challenges related to what is going on in the Middle East. We are seeing those and reflected those in the guide. Some of that is being made up by North America, and you have a positive mix on U.S. revenue offsetting what is lower-margin mix in Europe and Asia. I wanted to share that insight as to what is in the guide as well that is helping margin. Nick Brazos: That is right. It is a combination of mix, transformation, and a little bit of benefit below the line, but these are really strong transformation efforts net of investments that we are driving within the businesses. Julian C.H. Mitchell: That is helpful. Thank you. Circling back to the Pool business, is the core assumption that market sell-through is pretty flat year on year each quarter in terms of volumes, and then the sell-in has a bit of pressure in the second quarter from channel partners, with sell-in returning to growth later in the year? Just trying to understand the sell-in versus sell-through as we go through the year, understanding it is a very seasonal business. John L. Stauch: You nailed it. We expect most of the sell-in pressure to be Q2 and Q3. We reflect that in this guide, and we are continuing to drive sell-through actions. Right now, the assumption is flattish. We are looking to drive higher than that on the volume side. We are encouraged by what could be there in Q4 next year. This industry has been hoping for volume growth for the last couple of years. With all the price activity happening in tariffs and inflation, they generally bought ahead at a pace that we do not think will continue, which is why we are addressing that in Q2 and Q3 this year. Operator: Our next question comes from Andrew Jon Krill from Deutsche Bank. Please go ahead with your question. Andrew Jon Krill: Hi, thanks. Good morning, everyone. Going back to margins, could you give us some directional help on which segments you expect to lead the margin expansion this year? For Pool, in particular, I believe before it was going to be one of the lower expansions of the three. Can you expand margins there this year with the modestly lower sales outlook? Nick Brazos: What we guided at Investor Day is that our long-term plan is that Pool will modestly expand margin, whereas our Water Quality Management and Flow businesses will have margin expansion that outpaces the aggregate of Pentair plc. When you look for margin expansion within our businesses, it is really that Water Quality Management and Flow businesses that will drive the additional structural cost improvement. The remainder of our businesses effectively see margin expansion in line with the portfolio. Andrew Jon Krill: Okay, great. For productivity, the $21 million in the quarter—if you annualize that, you are tracking nicely above the $70 million for the year. For the remaining three quarters, should we expect the remaining ~$50 million to be linear, or is there any reason it is going to vary by quarter? Nick Brazos: I think a linearization is appropriate, and we are still holding to the $70 million for the year. Operator: Our next question comes from Andrew Alec Kaplowitz from Citigroup. Please go ahead with your question. Andrew Alec Kaplowitz: Good morning, everyone. Morning, Shelly, thanks for everything. I think Flow revenue was slightly ahead of forecast for Q1. Maybe give a little more color on what you are seeing out of your CapEx businesses there. You are also focused on significant commercial initiatives in that segment. What are you seeing in the market versus your own improvements towards growth? Nick Brazos: The Flow business did generate a little bit of incremental top line in Q1. We are expecting full year for Flow to be up approximately mid single digits to high single digits, which is in line with where we guided for the full year. There are green shoots because of our efforts specifically focused on commercial buildings—that is K-12, hospitals, universities, and even a little bit of data centers in the pumping technology space. We have targeted technology and market investments. We feel good about the full-year guide to continue to grow Flow, and those are reading out for us. You saw that in Q1. Andrew Alec Kaplowitz: Helpful. Maybe give us a little more color about what is going on in Water Solutions with Manitowoc Ice and Everpure. You did return to very modest growth. You talked about North America leading the charge. Are you seeing international stabilize? What are you seeing in that business? Nick Brazos: Some of the changes we have made within Water Solutions, particularly our Commercial Water Solutions business, are reading out nicely. The targeted efforts we talked about at Investor Day—as we are seeing some retail shoppers moving from stopping at a drive-through to stopping at a convenience store—are reading out for us in both the commercial filtration and the commercial ice space. We expect those to continue. We have ongoing efforts across North America to continue to develop those channel partnerships and to drive sales in that space. Operator: Our next question comes from Scott Graham from Seaport. Please go ahead with your question. Scott Graham: Yes, hi. Good morning. Thanks for taking the question, and Shelly, you have been excellent—best of luck to you. I wanted to ask about the quarter's pricing. With your guide for the year for pricing being up low single, does the decline as we move through the quarters reflect Q1 having maybe two points of carryover price from last year? Nick Brazos: There is a little bit of carryover, and then there is the year-over-year comp as well between Q1 of this year and last year. We expect, again, low single-digit price take on the year, so you are right on Q1. John L. Stauch: To add to that, keep in mind that the tariff impact came at us and most of the price increases were put in Q2 last year. That is why you are seeing a slightly higher readout in Q1. Scott Graham: Understood. The other question was on the Flow business. In the past, you have talked about markets specifically with percentages. You indicated some of your initiatives, but could you delineate specifically how industrial versus commercial performed? Nick Brazos: Both businesses performed well in the quarter, both from a top-line and a margin expansion perspective. Both the commercial businesses and the industrial businesses, and the businesses underneath them, are expected to continue on that track, specifically with the margin expansion initiatives that we have already seen read out and continuing to drive that into the rest of 2026 and into our 2028 longer-term plan horizon. Operator: Our next question comes from Amit Mehrotra from UBS. Please go ahead with your question. Amit Mehrotra: Thanks. Morning. I want to start on Pool and get your commentary on whether there is evidence that price is affecting demand elasticity or even share. Within categories—new pool, remodel, replacement, aftermarket—any noteworthy inflections, positive or negative? John L. Stauch: Pool is playing out generally the way we anticipated it. We have decently high interest rates in the United States right now that did not get any better after the Middle East war started. We have higher levels of HELOCs on home remodeling, which would affect remodeling. We have pressure on consumers in the form of overall cost of living. If you play that out over new pool builds, mid-market pools and remodels, and the service side, what we are seeing is people focused on break/fix repair but not taking the opportunity to upgrade. Those upgrades are a big part of the long-term growth drivers. We are going to have to work harder to build programs around it. Prices over the last three to four years are pretty high. We needed to level off at these levels, and then we have to go work and drive the growth actions by region. In a region, you look at new pool builds separately than aftermarket and service, making sure you have the right product availability and lineup, the right value propositions, and the right marketing and sales programs to penetrate the opportunities. That is the playbook. We are encouraged by the way that we flattened out on sell-through on volume plus price. We think that is more balanced as we look into 2027 and beyond. We will get this sell-in behind us, and we will be off to mid single-digit growth plus in the future. Amit Mehrotra: Thank you. You mentioned green shoots. Maybe give more color—products, regions—on why you feel comfortable that they are actually green shoots. John L. Stauch: For clarity, when I say green shoots, I mean a result of our Pentair plc efforts—what we are doing to win commercial building opportunities, municipal opportunities, and industrial opportunities, even if there are not green shoots in those macro markets, including in Europe. Our teams are doing a good job with targeted selling efforts by region and by city within those commercial and industrial opportunities for municipals and commercial buildings and by project. Green shoots there are really the result of our team's efforts to take those opportunities and to drive growth at healthy margins that are a nice mix balance within each of those Flow businesses. Amit Mehrotra: Got it. Thank you very much. Appreciate it. Operator: Our next question comes from Jeffrey David Hammond from KeyBanc Capital Markets. Please go ahead with your question. Jeffrey David Hammond: Hey. Good morning, everyone. John L. Stauch: Morning, Jeff. Jeffrey David Hammond: Looking at the Q2 guide, the first half is a little bit lower than the midpoint of your revenue growth. Talk through the moving pieces that get you to a better second half to start. John L. Stauch: I will simplify Q2 by reminding everyone that is when we started to see the heavier price increases that followed the tariff actions last year. In our Q2 guide is the anticipation that people jumped ahead of those price increases and bought a little bit more in Q2, and we need to be mindful that our year-over-year results reflect that. As you head into Q3 and Q4, things leveled out. We should have some easier compares across the portfolio across those actions last year. Jeffrey David Hammond: Perfect. Then on capital allocation, it seems like the preference is buybacks over deals. Talk about the pipeline and where the focus is. Historically, you were not doing much at Flow, but that was your last deal. Do we start to see more activity in the Flow business going forward? John L. Stauch: We are actively in the pipeline, but it is hard to say that it is a robust pipeline at the moment. A lot of sponsor-based deals are waiting for a better backdrop and climate to come out. The deals that are in the market today we are looking at, but we have to be thoughtful and careful about the returns on those assets. We have to look at them in the tariff environment, the inflation environment, the regional impacts, and also across the vertical market landscape. We are active, but we want to make sure that we are always looking at long-term value creation and comparing that against our own organic growth opportunities. Operator: Our next question comes from Joseph Craig Giordano from TD Cowen. Please go ahead with your question. Joseph Craig Giordano: Hey, guys. Good morning. Thanks for taking my questions. When we look at your performance in Pool versus your biggest channel partner, historically it was a tight relationship in terms of their tracking—your performance versus their purchases of inventories. It has not been nearly as reliable an indicator over the last year plus. How should we think about that relationship going forward? Nick Brazos: I think you should use that indicator as how sell-through is tracking for us. I would say that we are very mindful of that one channel partner's sell-through. I would remind you that there are other channel partners as well. From our equipment performance, it was slightly higher than their equipment sell-through in the quarter. Then you have to think about our sell-in, and that should be equal to sell-through over time. We have been clear that our sell-in outpaced our sell-through at the end of last year—probably in anticipation of what the 2026 full year would look like and also people trying to get ahead of incremental tariff and pricing. That needs to come back in line, which is why we are adjusting Q2 and Q3 appropriately. Joseph Craig Giordano: If I think about automation, can you talk about how much this causes a lock-in of equipment? If I use Pentair plc automation as an overarching solution, how much does that lock you into using Pentair plc equipment underneath it? I have heard there has been more ability for other companies' automation solutions to sit on top of an agnostic hardware platform. How has that changed or evolved, and how do you think you are positioned there from a lock-in from automation? John L. Stauch: Where we are really well positioned is on a premium pool—multi-body, large water features, high-end aspects. When you talk about automation at that level, you have a lot of optimization of products. You turn on a spa, you want to move valves to change the flow of water, you want to toggle between heat pumps and natural-gas heat to optimize your energy capability, and you want to optimize energy of pumps. That is what high-end automation looks like. If you are looking for simple control features—on/off and time—there are a lot of lower-cost automation solutions, and we will also have a low-end automation solution in 2027 to address that small or simple pad. I am optimistic that it could change the automation penetration, but you still need a consumer to want automation, a service provider that wants to utilize that automation, and you ultimately have to create value at a certain price point and have the channel to sell it. We have it in our pipeline. It is an opportunity. We talked about the TAM that will be produced at Analyst Day, and we are going to work very hard to get that automation of simple pools to breakthrough levels. Operator: With that, we will be concluding today's question-and-answer session. I would like to turn the floor back over to management for any closing remarks. John L. Stauch: Thank you for joining us today. In closing, I would like to reinforce some key takeaways on slide 13. We have a balanced and resilient water portfolio that has delivered superior value over the last several years. We have a clear strategy, proven operating model, and an energized leadership team. We expect to accelerate long-term growth through innovation and elite customer experiences. We expect our focused water strategy and strong execution to continue to strengthen our foundation and drive operational efficiency, supporting long-term growth, profitability, and shareholder value. We believe that we are well positioned to participate in growth opportunities supported by long-term water-related trends consistent with our focused strategy. Thank you, everyone, and have a great day. Operator: Ladies and gentlemen, with that, we will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good day, and welcome to the Solaris Quarter 1 2026 Earnings Teleconference and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference to Yvonne Fletcher, Senior Vice President of Finance and Investor Relations. Please go ahead. Yvonne Fletcher: Thank you, operator. Good morning, and welcome to the Solaris First Quarter 2026 Earnings Conference Call. Joining us today are our Chairman and Co-CEO, Bill Zartler; our Co-CEO and Director, Amanda Brock; our President, Kyle Ramachandran; and our CFO, Steve Tompsett. Before we begin, I'd like to remind you that some of the statements we will make today are forward-looking and reflect a number of known and unknown risks. Please refer to our press release issued yesterday, along with other recent public filings with the Securities and Exchange Commission that outline those risks. I would like to point out that our earnings release and today's conference call will contain discussion of non-GAAP financial measures. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release, which is posted in the News section on our website. Additionally, we encourage you to refer to our earnings supplement slide deck, which was published last night on the Investor Relations section of our website under Events and Presentations. I'll now turn the call over to our Chairman and Co-CEO, Bill Zartler. William Zartler: Thank you, Yvonne, and thank you, everyone, for joining us this morning. Solaris is off to an exceptional start in 2026. We are consistently executing across our current operations, successfully advancing our long-term growth strategy and growing our long-term business base. In power, we added 2 significant long-term contracts with 2 investment-grade global technology companies for over 1 gigawatt of contracted power generation capacity and importantly, associated balance of plant equipment. We also closed 2 strategic transactions, which expanded our generation capacity over 40% to 3.1 gigawatts. We are now operating, constructing in the design and planning stage for multiple large behind-the-meter power projects for 3 distinct large technology companies for several different data centers. Building on our proven capabilities, this progress continues to confirm Solaris' strategy and leading project expertise. We also see a clear path to significantly grow our business further. While we focus on near-term execution, we are concurrently expanding our contracted power services scope to support the future growth of our high-quality customer base. We also continue to have active discussions for new projects with both current and new customers. We expect these diversifying and expanding relationships to result in meaningful incremental returns for Solaris. As we've now shown repeatedly, we will secure expansion generation capacity once we have visibility and confidence in contracting incremental capacity on a long-term basis. While we've seen that negotiating these initial complex commercial contracts can take an extended period of time to close, we are encouraged by the numerous additional growth opportunities we see with our current customers as well as the general alignment toward a more standard contractual arrangement. We're anticipating going forward that these additional opportunities will be more streamlined to contract. The broader power market continues to reinforce and support our strategy. The tailwinds we've been describing over the past several quarters remain the same and several have strengthened. Grid interconnection delays have continued to expand, which given the market's focus on speed to compute has accelerated adoption of long-term behind-the-meter power solutions. Electricity affordability for residential grid customers remains at the forefront of every politician and community leaders' minds, which reinforces the need for bring your own power solutions like ours and in some cases, is even essential to many communities. There is no question that behind-the-meter power solutions will play a significant role in the long-term powering of data centers and other large industrial power loads. Solaris' proven ability to deploy rapidly and compliantly, fully behind the meter in island mode if needed, with the optionality of providing a cost-effective reliability-enhancing complement to the grid continues to be a real differentiator. Our progress is a result of a power strategy that's not only working but accelerating our growth, executed by a seasoned team that knows how to deliver. We've been clear about our power strategy, build a diversified integrated power services and equipment company that can deliver what the market and our customers need, delivering turnkey solutions from the molecule to the electron, while also ensuring that our earnings stream is growing at attractive returns with improving long-term visibility. With approximately 3.1 gigawatts of secured power generation capacity, a growing exceptional customer base and our demonstrated capability to deliver comprehensive behind-the-meter solutions to the industry where access to power is recognized as a key differentiator. We are well positioned to see continued growth from here. With that, I'll turn it over to Kyle to walk through our commercial progress and strategic acquisition initiatives. Kyle Ramachandran: Thank you, Bill, and good morning, everyone. As Bill pointed out, we've had incredible commercial success over the past couple of months. We now have over 2 gigawatts of power generation under long-term contracts with 3 different leading technology companies. Over half of that capacity was contracted in just the last 2 months with contract terms that have extended to 10 to 15 years. We announced our most recent long-term contract last night directly with an investment-grade global technology company in which we will provide over 600 megawatts of generation with balance of plant for an initial 10-year term with an option to extend for an additional 5 years. We expect energization under this contract to begin ramping in late 2026. This most recent contract is in addition to the over 500-megawatt contract we announced in early February and the 900-megawatt Stateline joint venture that is currently under development. These customers selected Solaris as a trusted long-term partner because of our proven capabilities and the team we've built, both organically and inorganically. We have a history of reliable execution demonstrated across multiple at-scale deployments, and these partnerships reinforce our reputation as a leader in this rapidly growing market. As Amanda will describe, these relationships are also expanding in scope well beyond generation, which further deepens our integration with customers and enhances the return profile of our contracted base over time. We've also continued to move decisively on the supply side to address the challenge we've been direct about. Demand for our solutions continues to outpace our committed and on-order capacity. On March 16, we closed 2 highly strategic transactions, which together add approximately 900 megawatts of new natural gas fuel turbine capacity. The first was the acquisition of Genco Power Solutions, which will contribute 400 megawatts of incremental capacity between 2026 and 2028, including approximately 100 megawatts of currently operated and contracted capacity. The second was the purchase of 30 turbine delivery slots, providing approximately 500 megawatts of incremental capacity between early 2027 and 2029. Securing these near-term deliveries puts us in a position to serve customers on the accelerated time lines that they need. Both acquisitions also importantly meaningfully diversify our equipment supplier base as we develop relationships with multiple OEMs. As we grow toward and beyond 3,100 megawatts, working with multiple OEMs increases our operational flexibility, reduces exposure to any single supply chain and gives us more options to configure capacity for varying customer needs. Outside of Power, our Logistics Solutions segment continues to perform well. Both our execution and demand for our services remained strong during the first quarter, and this momentum continues in the second quarter. Demand for our top fill equipment now exceeds our deployable supply, and our forward-looking calendar is also equally tight. This business line continues to generate tremendous cash that we are reinvesting into the company. In summary, Q1 2026 was a quarter of successful execution, commercially, operationally and financially. Our results, combined with our continued strategic efforts building and diversifying our capabilities positions Solaris extremely well for further growth through the remainder of 2026 and beyond. With that, I'll turn it over to Amanda. Amanda Brock: Thank you, Bill and Kyle, and good morning all. So building on our significant momentum, we want to share with you more about how we are anticipating market needs and leading with new initiatives. We're clearly delivering on our strategy to date, but as important as how we're innovating and looking to the longer term and evolving our business. Last quarter, we publicly announced our molecule to electron approach in response to a growing market need. Large technology companies are building out compute infrastructure at a speed and scale that creates many challenges, one of the most significant of which is power infrastructure. This includes not only generation capacity, but the power-related distribution, conditioning, storage and management capabilities as well as the equipment needed to supply fuel and minimize emissions. It became clear that our customers increasingly value a turnkey and rapidly deployable solution. Anticipating this need for a turnkey solution, we've added additional skills and strength to our core team with deep domain knowledge in these areas of expertise as well as making initial key bolt-on acquisitions like Solaris power distribution services. With these enhanced capabilities, we're in a unique position to deliver more than just generation in a time and capital-efficient manner, but we're adding significant value with enhanced project returns. Our most recent 600-plus megawatt agreement announced last night confirms our strategy and approach, which includes greater project scope covering balance of plant and additional services. In addition to generation, we will be developing and operating last-mile gas delivery as well as natural gas fuel generation assets and the associated distribution storage and balance of plant infrastructure. This contract's broader scope means more capital deployed per site, closer integration with the customers' infrastructure and depending on the capabilities we deliver, enhanced returns over the contracted period. It also means that contractual relationships become more difficult to replicate and are more durable over time. We now have the capability to deploy at a speed and reliability level that the grid and traditional procurement channels will have difficulty matching. The demand for a turnkey integrated power solution extends well beyond the single agreement. Examples of our growing platform include: one, we're in advanced negotiations on adding enhanced scope as well as increased generation capacity to the long-term power contract we recently signed in February. We found that as customers evaluate specific site infrastructure requirements, the size and scope of our relationship and what we will be responsible for delivering to a project is growing. Two, we are currently delivering balance of plant equipment and services at multiple existing data center and compute sites where we don't provide the generation and even where the generation source may be the grid. We believe this increased traction is a result of our distribution capabilities and proprietary approach to power and power management. Three, while this is not part of our core offerings, we are being approached to provide consulting services to projects facing power challenges. These are customers to whom we may not provide power, but they come to us because of our technical depth, which is now recognized across the market. And lastly, four, we are very excited that we've recently been asked by one of our large technology customers to participate in a pilot research program related to their development of mobile distributed compute, where we are helping to design and provide expertise for balance of plant and which could also eventually include generation. These are just several examples of opportunities that are incremental to our contracted generation base, and each one is enabled by the capabilities we've assembled over the past 2 years, the engineering, project management and manufacturing teams that we've grown organically and the distribution and control expertise we've acquired and continue to build on. Our team remains hard at work identifying and continuing to develop proprietary equipment, software, processes and services to enhance the rapid deployment and functionality of our offering and the long-term solutions we can provide to the industry. So as we look forward, expect us to continue to innovate, investing in and growing our capabilities. The broader our capability set, the more we can do for our customers and the more deeply embedded we become in their infrastructure and the better returns we will earn under long-term contracts. And the market need for power is not going away. This is the exciting long-term value proposition for Solaris, and we are confident in our ability to execute and continue to grow. I'll now turn the call over to Steve for our financial review. Stephan Tompsett: Thank you, Bill, Amanda and Kyle, and good morning, everyone. I'll begin with a review of our first quarter 2026 results. We generated revenue of $196 million and adjusted EBITDA of $84 million in the first quarter, coming in 22% higher sequentially and 79% higher year-over-year. These results reflect the operational momentum Bill and team described and it's a strong foundation for what we expect to be a significant step-up in earnings and cash flow over the coming years. In Power Solutions, we operated more than 900 megawatts during the quarter and adjusted EBITDA increased more than 30% sequentially to $72 million, driven by growth in revenue from both owned assets and third-party leased capacity. In Logistics, we averaged 104 fully utilized systems and segment adjusted EBITDA was approximately $23 million, a 2% increase over the fourth quarter of 2025. Turning to our updated earnings guidance. For the second quarter, we're increasing total adjusted EBITDA guidance by 10% to $83 million to $93 million, reflecting our confidence in near-term execution. We're providing initial third quarter guidance of $80 million to $95 million, which reflects shifting power from temporary to permanent at the Stateline JV project and deliveries of new equipment in the second half of 2026 that are contracted and will begin earning revenue January 1, 2027. Looking beyond the next couple of quarters, the over 2 gigawatts of contracted capacity we have in place provide line of sight into earnings and cash flow for the next 10 to 15 years, and we are confident that we will see our contracted capacity ramp as incremental opportunities are finalized. In our presentation, we lay out a scenario where total company adjusted EBITDA pro forma for all 3,100 megawatts delivered and operating could well exceed $1 billion annually. As the scope expansion opportunity that Amanda described continues to materialize, we see upside to that amount. To put it in more concrete terms, any incremental capital we deploy for additional assets per site would be underwritten at returns consistent with our existing framework. That incremental deployment would layer directly into the baseline EBITDA I just described. This visibility and significant earnings growth from leading investment-grade customers underpins how we think about capital allocation, credit capacity and the balance sheet going forward. In March, we closed a $300 million credit facility, which we subsequently upsized to allow up to $200 million in additional borrowings, giving us meaningful near-term liquidity. With more than $1 billion of additional identified capital to be deployed in 2026 and 2027, we are evaluating funding alternatives, which would allow us to execute our growth plan in an accretive manner and expect to provide further updates in the very near future. As we look forward, we are positioning Solaris to capitalize on an unprecedented power growth opportunity, a contracted earnings profile that continues to improve, a customer base making decade-long commitments and an expanding scope of opportunities. I'm excited to be part of the team here, and I'm looking forward to helping the team execute on these plans. With that, we'd be happy to take your questions. Operator: [Operator Instructions] The first question comes from David Arcaro with Morgan Stanley. David Arcaro: Well, congratulations on another contract here. I was wondering, I guess, the time to contracting seems to have accelerated in terms of your activity. I guess -- I'm wondering if that's what you're seeing? Has the turnaround time to securing new customers gotten more urgent? How have those discussions changed in terms of the speed of execution? William Zartler: Well, these have been baking for a while now. So they've taken a long time to get across the finish line to start with. Obviously, when they're closed, it feels really good to have them done. And I think to the point we made on that is once you've agreed to general standard terms, I mean, this is an industry that this wasn't a conscious decision for them to want to do this. They've been forced into contracting for power in ways like this. So we're walking through that and working closely with them to come up with a way that's a win-win for both has really been important. And it takes a while to get there. And once you're there, it kind of makes the evolution and growth of the relationship even easier and better going forward. David Arcaro: Yes. Got it. No, that makes sense. And I was also curious on the balance of plant business model. From here, I'm wondering, do you plan to pursue that as a separate offering? Or do you aim to, in most cases, combine it with generation? And curious if you could touch on maybe how much you've deployed in terms of the balance of plant, the consulting services that you mentioned in terms of that offering? William Zartler: We're not going to get into numbers, but I do -- we see opportunities where we are using our expertise around balance of plant to put that to work where we are not doing generation. And I think that plays into the ability to handle multiple sources of generation as that evolves. Right now, our focus has been on the gas turbine supply of generation capacity, and we're integrating the mix of that. I think going forward, as we mentioned in the call, they're looking for a turnkey solution and us providing everything from gas through the delivery of the electron into the building at the right voltage in the right way, whether it's a DC or an AC in the building. All of that is something that we can put into the mix and handle all that. So I think it will be a mixture. I think our ideal location would be where we do it all and manage the whole pod. And I think that does drive kind of capital per megawatt up and driving us to really the metric of return on capital is our focus, not really on per megawatt that we're delivering. And so it is a mixture. I think we're seeing all of it, and we'll continue to perform all of it. Amanda Brock: David, what we're excited about is in the conversations that we've had and the contracts that we have closed to date, during those negotiations, as people understood what our capability was, their desire for that turnkey solution and increasing what they wanted us to deliver to the project was meaningful. And in the conversations that we are still having for future opportunities, we are seeing that same trend. As Bill said, turnkey solution, we want you to do more. And we certainly have proven that we can deploy quickly, that we can generate the power needed. And beyond that now with the capabilities we've assembled, we do see that as a trend. But as Bill said, we have the ability to do just generation, the ability to do it all or in the cases that we've also laid out, the ability to just do projects where it's just distribution and doesn't include generation. It's a great platform for us to be offering. Operator: The next question comes from Derek Podhaizer with Piper Sandler. Derek Podhaizer: I just want to expand on David's question. Just you talked about the general alignment towards a more standard contractual arrangement, more streamlined to contract. Could you just provide maybe some further detail on these comments and how we should think about you getting these power contracts over the finish line more efficiently moving forward? William Zartler: Well, I mean, there's a lot of devil in detail on contracts, and we have built our businesses over the last 30 years around ensuring that we develop the right risk profile for us and the right delivery for the customer. And that's -- there's a lot of work that goes into that on both sides to ensure that both sides get what they need. I can say with assuredness that we have signed contracts that we believe don't have company ending liabilities in them, and I think they're very acceptable as we've fought hard for those positions and our customers have fought hard for other sides of that. But I think we've developed a standard -- I mean when you're developing new kind of lines of businesses and they don't really have a standard contract developed for the industry, and we saw this in the water side. We saw this in the sand silo business that we're forging new ground and developing the right contractual underpinning really does establish us as a leader and builds a relationship with the customers on what the profile of this business should look like for all. Kyle Ramachandran: And I think one addition to that is through this process, I think we've really established tremendous trust. Our track record provides obviously credibility internally in these organizations, and we've been there, done that in terms of providing this kind of resiliency. So I think not only have the terms come to a point where we've got a good form to move forward, but there's also over the course of those discussions, we've really established ourselves internally in organizations that don't have necessarily a long track record of doing these types of applications to support their compute needs. And so this is new ground for them, but I think we've demonstrated the credibility that's required to get them comfortable. Amanda Brock: It's been helpful to refer to the uptime that we have had at projects where we're operating, and it makes it easier as a consequence to negotiate your uptime requirements and new contracts. You can actually point to actual operations. Derrick Whitfield: Right, right. That's very helpful. So just looking at your megawatts, counting them up between the 3 hyperscaler contracts, some it's still in the energy patch. It seems like you had about a gigawatt of available capacity. How should we think about that as you deploy those remaining megawatts, whether that's expanding your current contract scope with one of the 3 customers or potentially going after customer #4? William Zartler: I think it's going to be maybe a combination of all the above. Operator: The next question comes from Dave Anderson with Barclays. John Anderson: Just coming back to the balance of plant side of your business. How much of that 2 gigawatts plus you have under contract includes balance of plant? And previously, you've talked about a potential 20% to 50% uplift from EBITDA from balance of plant. It looks like you're assuming in the presentation kind of the low end of that guidance. So how do you get to the high end? Does it fluctuate depending on the capabilities delivered? Does that increase over time if you add storage? Just some more color on how that potentially works over the life of the contract. Kyle Ramachandran: Yes. I think, Dave, the 20% to 50% is still the right way to think about it. And you're correct. What we've alluded to in the updated numbers is, I'll say, on the lower end of that. And I think that speaks to the conservative nature of how we provide guidance. What we are articulating here is what is actually under contract signed to date. And what we have in the slide deck as well as an outline of another $800 million to $1 billion of additional CapEx that we have very good line of sight of that getting contracted at $160 million to $200 million of incremental EBITDA. So we haven't put it in as the -- I think it's $875 million to $925 million is sort of the outlook, if you will, that is excluded from that. But what we're articulating there is we don't have anything signed on that expansion beyond the current piece, but very good line of sight, just like we've done it on the generation side. So you're right in terms of backing into the lower end of the range based on what has been signed in the last couple of weeks, but we feel very good about the visibility that we have to expand that beyond that lower end of the range based on the visibility that we have. And yes, the final point is different customers have different needs and different approaches in terms of how they want to capitalize this as well. And so some of the customers like in the Stateline instance, we're only doing generation. And as we look at the other 2 contracts, there's some shaping depending on the location and the customers as to what they want. But to be very clear, the generation itself requires all the balance of plant to make it all work. So we're either buying it, capitalizing it and embedding it in the rate or the customer is doing it. And so it just depends on kind of what their framework looks like. Amanda Brock: The last 2 contracts include balance of plant. John Anderson: Okay. Great. And if I could also just ask a non-power question, maybe give a little love just how the business doesn't -- we don't hear a lot about outlook has obviously changed quite a bit now over the next 12 months. A lot of talk about North America E&P is picking up, oil prices structurally higher. How are you thinking about this business now strategically? Is this something you want to grow into? Are you considering divesting it? Or is this just kind of a nice cash flow stream that should really build over the next coming quarters and potentially years? William Zartler: Yes. Right now, it's a great business. It doesn't feel like time to monetize it. We continue to see customer growth and wins in that business. And the market in North America, as you mentioned, feels like we're on a bit of an upswing. It may not be a rapid upswing, which is actually the better kind of slow roll into growing our production in North America is better than the spiky reactions. And so I think that the capital that's there in our customer base is very strong. And I think at this point, it's a great business for us to hold on to and evaluate as we go along. The cash is irreplaceable in a lot of ways today. And so we're enjoying that. And I think there's surprisingly been a significant number of engineering and operational synergies across the business lines that are underappreciated. The notion that we are extremely quick to solve problems on the oilfield side of it, extremely quick to be able to mobilize and demob. All of those embedded skill sets and engineering talents have applied very, very well into the turbine industry as we and customers expect speed and want speed and speed wins and speed is important. That's something that really ports over from the oilfield side of this very, very well in the culture and in the team. Operator: The next question comes from Derrick Whitfield with Texas Capital. Derrick Whitfield: First, certainly, congrats to you guys on your commercial success to date. It seems that your execution and balance of plant expertise is increasingly driving success for you. Maybe focusing on balance of plant, how should we think about how that could further evolve from the standpoint of your competitive offering beyond the typical transformer switch gears, cables, et cetera? William Zartler: Well, I think it evolves a little bit on the life cycle potentially. I mean, obviously, with the growing installed base of smaller turbines, the repair and maintenance function that we grow alongside of this is really important, and we're working hard to develop our own protocols and our own internal skills and capabilities to ensure that as these things, they're going to have mechanical -- the mechanical things, and that means somebody is going to have to repair them from time to time. And so as we build up that skill set, find training, labor is a challenge, building up our own labor training force across the board is really going to be an important element to how we grow. From a balance of plant perspective, I think we have -- at this point, we're not going into the building, and that's not an area where we will play. But everything from the building to ensuring that the gas is delivered and even if we need to and get a return on, build small pipes into the facility for making sure that the gas is delivered in the way we need it and then all the pressure control systems on top of that. So it's a pretty diverse offering, and we're thinking about the life cycle of this business as well, knowing that you're building something that's here going to be there for 10 to 15 to 20 years, you need to be able to take care of it. Derrick Whitfield: Great. And as my follow-up, and this is maybe for Amanda. Regarding the pilot research program with one of your clients for the development of mobile distributed compute, could you speak to how this came together and potentially the upside from this development as you see it today? Amanda Brock: We've obviously been working with that particular technology company. And when you become embedded in a company and they understand what your capabilities are, different teams get introduced to you. And that's exactly what happened here. We were introduced to another team that understood that we had distribution and design capabilities. They asked us to look at a particular design they had for modular compute. We looked at it. We came up with some changes. It was an aha moment for them, and they said, "Great, could you please work with us on this project?" So it's really a function of being embedded with a customer. We keep using that word. But once you are working with the customer and they see your capabilities, you get greater traction across the various departments and teams in that customer's company. Operator: Our next question comes from Bobby Brooks with Northland Capital Markets. Robert Brooks: I was just curious first to hear on the customer conversations. Just over the past 9 months, have more potential customers entered the discussion? Or have the discussions just progressed to negotiations over that time from mostly the same group of folks that you were talking to, say, 9 months ago? William Zartler: I think that there are more customers really figuring out that the behind-the-meter strategy is going to be a very important part of their power supply for their data use. And so I think we have seen more direct customers. We've tried to focus on the end user. They're faced with quite an array of decisions on where to go put their data center and who to have build that part of it. And we've tried to be supportive of the ultimate end customer and focus on we'll put the power where you think you need it, when you need it and allow that dynamic to be ruled and it's been quite a dynamic. The big data users have had selection challenges in terms of where you put these data centers and the pushback from the public environment as well as the drive to provide your power with this has really led them to the final conclusion that we've kind of seen is that it makes sense to bring this power along with you and pair it up with the right sites. Robert Brooks: Really appreciate that. And it was awesome seeing you secure another 900 megawatts in the quarter, and some of those were buying queues in the slot, right? And so my question is, do you see more opportunities to do that? I ask that because it's my understanding there is a decent amount of what I'll call speculators in the queue of turbine backlog that thought they could just kind of buy turbines and be a mini SEI. But they're now realizing that how much technical expertise is needed on the service side and that customers aren't interested in someone just dropping gensets off without any of the service capabilities or the balance of plant power stuff that you've been touching on earlier. So I think there's more opportunities for you to buy those delivery slots that are more near term, but maybe I'm off base. So I just was curious to hear your thoughts. William Zartler: Well, Bobby, you're hired as a sales guy. That's exactly what -- I mean, I think the notion that you could get in queue and buy all this stuff and be prepared to go put it to work as a powered land guy or as a data center developer. It's not that simple and developing and proving and running a couple of sites now and developing how this goes really will matter. And I think that cleaning out, if you will, of the queue, I mean, that's exactly what we did in one case. And in some cases, it's not necessarily the fault of the person that bought the engines, they may end up with some sort of idea that you could put this in an area that the local folks were not going to let you put a data center. So we've seen some backlash publicly about where the data centers can go and where they can't go. And so some of that is turning power back on the market. And yes, we're positioned to be able to take that power on and put it to work in the time frames. And so I think that, that really goes to ensuring that we have all the balance of plant stuff with it, right? As Kyle mentioned, the generators is just a generator, you got to have all the other kit with it and that kit has some lead times and some expertise associated with it as well. So ensuring that what we ultimately deliver is a power electron to a data center requires a lot more than just the generation. And I think we're prepared to take advantage of that and then scoop up opportunistically where we see things coming up earlier in the queue that the customers are very interested in. Kyle Ramachandran: The real blue sky there is, as we've alluded to this morning, we are now partnered with 3 of the major leaders in this field that puts us in a position to put that incremental capacity to work very quickly with groups that we're already working with. Operator: Our next question comes from Patrick [indiscernible] with Stifel. Stephen Gengaro: It's Pat on for Stephen Gengaro. Shifting to more near term here. When we think about the third quarter guide, is there any color you can give about the power deployments there and mix of third-party assets? And then any insights into deployment ramp into 4Q? William Zartler: I'll make a couple of comments. One, we're building this business for 2030, 2029, and the quarterly ramp-up here has been a pretty steady and measured rate with a lot of mixed dynamics over the course of last year. And I think we're going to continue to see that over the next several quarters as we ramp up. I think our -- where expectations in the third quarter are, I think that the market may have gotten a little exuberant about how quick things are rolling out. I think we're measured in our approach and have been generally conservative, but our long-term targets are there. The timing at which stuff gets put together, whether it's in the first month in the quarter or the last month in the quarter, swings the number still more meaningful than it should. As we grow into it, it won't. But we're in that growth phase that plus or minus a couple of months does swing quarter-on-quarter numbers, which is really not our focus. Our focus is ensuring the long-term delivery of the numbers that we forecast. Stephen Gengaro: Right. Yes. Okay. And then for the 500-megawatt contract, what sort of capacity should we think about this starting at beginning in 2027? And then just curious, like for the turbine delivery slots, are the prices and delivery dates sort of fixed there? Amanda Brock: On the turbine delivery slots, the prices are fixed. Delivery dates, we are -- we have an opportunity to move some up which we are working on right now. So we -- and again, as Kyle said in his prepared remarks, we've diversified and derisked some of that supply chain by working with multiple OEMs. So we feel pretty good about our turbine deliveries when to expect them and certainly price is fixed. Kyle, on the OEM. Kyle Ramachandran: Yes. And all the 500, they all go under contract at the beginning of the year, but there is a ramping of actual deployment based on the ramp in the data center. So it will ramp throughout the course of '27 of actual spinning turbines, but they all go under rent under the dry lease convention that we alluded to when the contract was put in place. And then as they get deployed and start operating the sort of wet lease convention, including the equivalent of a fired hour charge comes in. Operator: Our next question comes from Jerry Revich with Wells Fargo. Jerry Revich: This is Kevin Uherek on for Jerry Revich. Just had a quick question on the quarter. Power Solutions revenue and EBITDA per megawatt both increased on a sequential basis from 4Q. Can you just walk through the moving pieces? William Zartler: We had more equipment that we rented more of. I'm not sure we've -- the revenue was up... Jerry Revich: On a per megawatt basis sequentially. Kyle Ramachandran: Yes, there was some mix impact there and some of the pieces of the new contracts that came in. William Zartler: Yes. And if you have a -- so using that per megawatt metric, as we mentioned earlier, if there is pure distribution that's being rented and it doesn't have a megawatt of generation capacity against it, that's going to show an infinite return on the megawatt. So we're really focused on return on capital and earnings. So yes, the mix shifts around there is going to move that metric around a little bit. Jerry Revich: Understood. And then when we think about the capacity additions pipeline, how has that opportunity funnel changed, stayed the same versus the prior period? Amanda Brock: In terms of the megawatts that we have available, I think as we've indicated, we are in detailed discussions with a number of parties. And I think Bill answered some of them are existing customers that we have signed up with and some are new. So yes, there is a robust pipeline. We're very happy to be in this position where we have got additional capacity to put to work. And if the past is an indication of the future, this is going to be another great outlook when we put this to work. Operator: The next question comes from Jeff LeBlanc with TPH. Jeffrey LeBlanc: I just had a quick one. With respect to the enhanced scope, how should we think about the lead times of the equipment embedded in your active pipeline? Kyle Ramachandran: They're inside of the dates of the turbines, generally speaking, at the voltages that we're operating at. So the turbines and quite frankly, the SCRs continue to be the long lead item in the scope. But as we're developing these projects with customers, we are sequencing the timing of placing purchase orders for all the long leads to ensure that we can -- to meet the energization schedule the customers have. But in general, the balance of plant where we are is still inside of where the turbines SCRs are. Operator: The next question comes from Scott Gruber with Citigroup. Scott Gruber: So last call, you discussed about a 20% to 50% uplift on the invested capital on these integrated projects. I want to double check that the baseline for that uplift is against the $1.1 million per megawatt that's kind of been the blended average. And more importantly, kind of how do we think about the return profile on the turnkey projects with greater scope? Just some color on how the payback evolves, if at all, with greater scope would be great. Kyle Ramachandran: Well, I think broadly speaking, Scott, the price of power is going up. OEM prices are going up. There's a recent big project announced by the White House in Ohio, and that's penciling out at roughly $3,500 per kilowatt as far as upfront capital. So our installed base and even on an incremental basis is very attractive relative to what the larger scale, longer time line kind of opportunities are. So from a return standpoint, we still look at north of 20% unlevered returns as sort of our target. And I think with respect to the incremental megawatt going on to the grid, we are still very attractive to the customers. So I think there will be puts and takes with respect to our incremental capital costs as OEM prices continue to go up, but there is a recognition within the customer base that, that is just the cost of doing business at this point. Scott Gruber: Yes. I appreciate that. And then as you push forward with these integrated solutions and you're now building diversity into your data center book of business, which is great to see. How do you think about the smaller oil and gas deals or any type of smaller deals in other verticals? You get end market diversity with those contracts, but you're locking in capacity on shorter-term contracts with fewer calories attached. But do you start to tilt away from those smaller kind of nonintegrated projects? Or do you still like that diversity in the book? William Zartler: We love all of our children, Scott. No, I think the shorter-term contracts are going to be priced that way as well. So I think that the portfolio will have a mixture of some shorter term, longer term and a little bit of open capacity for spot work here and there from emergencies and other places where you are going to get tremendous returns on capital. And so I think our business is going to be heavily weighted towards from a magnitude perspective, long-term contracts with data centers or large industrial loads. And there'll be a small portion of that, that's a little bit more spot in short term that should see more attractive returns. Operator: The next question comes from Jeff Bellman with Daniel Energy Partners. Jeffrey Bellman: So you've laid out how you're broadening into a much more integrated power platform. But I'm curious, as customers move towards these gigawatt and larger campuses, what's the hardest part of scaling your model? And I'm not asking for any specifics, but how do you decide what to build organically inside Solaris or outsource or partner with other providers? William Zartler: Well, one of the reasons we bought the distribution business was to have that in-house. And clearly, we're not an OEM on transformers and switchgear and the things. So we are doing some of our own assembly work and e-house building and some construction things. And so I think it is a situation dependent on where we need to accelerate. We've made an investment in an SCR manufacturing business earlier this year and see that as very strategic and building our relationship on that side as those are a bottleneck as well as the catalysts associated with the SCR. So I think we look at the set of equipment out there, recognize where we've got strength and advantages, recognize that where we don't and use partner up in areas where they'll really be helpful to us and we'll be helpful to them in putting it all to work. So I think it's -- there's not really one size fits all here. And obviously, the bigger they are, the larger the footprint, the larger the people needs to do all the installation work and how we partner with various engineering firms and various other subcontractors to make it all work is already part of what we're doing on a regular basis. Kyle Ramachandran: I think the overall sort of incremental generation source is evolving as well. And if we look at where we started, we were deploying 20 to 35.5 megawatt units on a site and now the incremental unit is roughly 16.5 megawatts. And as the data centers themselves get larger, we can look at the shaping of the fleet is potentially evolving to include some larger units. We've got the 38-megawatt units going out to a data center in 2026. And so that shaping, I think, will also continue to evolve. Operator: The next question comes from Don Crist with Johnson Rice. Donald Crist: Just one question for me on the JV. As it builds out and starts to generate more revenue, what is the source or what is the use of that capital that's going to come back to the JV? Is it to pay down debt? Or will you use that for cash flow to support the rest of the business? Just where is that cash flow going to go initially at least? Kyle Ramachandran: Yes, Don, there's debt servicing requirements down at the JV, interest and amortization. But beyond that, both ourselves and our partner in the JV, the reason that structure was put in place was to create the ability to distribute cash out of it. And so once the requirements on the debt facility with respect to interest and amortization are satisfied, all the cash is available to be distributed up to both Solaris and our partner. And so that will be available cash to continue to grow the business as all other sources of cash for us. Donald Crist: Okay. So that can offset some of the CapEx requirements you may have in other places? Kyle Ramachandran: Yes. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Bill Zartler for any closing remarks. William Zartler: Thank you all for joining us today. Our first quarter demonstrated once again that our strategy is working. Our team is executing and the company is growing quickly. We're building the company we described, a vertically integrated behind-the-meter power business from molecule to electron, serving the data center and industrial market at scale. It's rewarding to see the milestones we're exceeding and progress we're making. A sincere thank you to all our employees, customers and partners. Your dedication and trust are the foundation of everything we're building. We look forward to sharing our continued progress over the next quarter. Thanks again, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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