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Operator: Good morning, everyone, and welcome to the Blue Owl Capital Corporation's First Quarter 2026 Earnings Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Mike Mosticchio, Head of BDC Investor Relations. Mike, please go ahead. Mike Mosticchio: Thank you, Operator, and welcome to Blue Owl Capital Corporation's first quarter 2026 earnings conference call. Joining me today are Craig Packer, Chief Executive Officer, Logan Nicholson, President, and Jonathan Lamm, Chief Financial Officer. I would like to remind listeners that remarks made during today's call may contain forward-looking statements which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in OBDC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on the call which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. Yesterday, OBDC issued its financial results for the quarter ended 03/31/2026, reporting adjusted net investment income of $0.31 per share and net asset value per share of $14.41. All materials referenced during today's call, including the earnings press release, earnings presentation and 10-Q, are available on the News and Events section of OBDC's website. With that, I will turn the call over to Craig. Craig Packer: Thanks, Mike, and good morning, everyone. Thanks for joining us. I would like to start by highlighting that our credit performance remains strong, with no new non-accruals, stable borrower performance, and underlying performance in line with recent quarters, and we continue to feel confident in the underlying credit quality of our portfolio. I would also like to acknowledge that the first quarter was a more challenging environment for OBDC from an earnings perspective. Lower base rates and tighter market spreads weighed on our results, reflecting headwinds that have been building over the last year and were fully realized this quarter. Given the market uncertainty this quarter, the deal environment was also slower, which led to minimal fee and repayment income, which was at a three-year low. In addition, we operated with lower leverage and preserved capital, which has positioned us well for the more attractive opportunity set we are starting to see. As we have highlighted on recent earnings calls, our dividend has been a key focus as we have watched these dynamics unfold, and we believe this is the right moment to address our dividend. As a reminder, when we went public in 2019, we set our dividend at $0.31 per share and maintained it there for more than three years while rates were low. When rates began to rise in 2022, we increased the dividend to reflect the higher earnings power of the portfolio and introduced the supplemental dividend framework in an effort to provide shareholders with a predictable base dividend while distributing excess income above that level. Similar to what a number of our peers have recently done, we are reducing the base dividend for the second quarter back to $0.31 per share, representing an approximate 8.6% yield on net asset value and an over 10% yield at the current share price. We believe this is the appropriate level given the forward earnings power of the portfolio, particularly with spreads now widening and the rate environment appearing more stable. At the same time, we are maintaining the supplemental dividend framework. As a reminder, under this framework, we pay out 50% of NII above our base dividend, allowing shareholders to benefit in a predictable manner when earnings exceed the base dividend. Separately, spread widening across the credit markets drove unrealized losses this quarter, resulting in a net asset value decline. Because our portfolio is marked quarterly, and spreads are a key valuation input, this drop in NAV was mostly driven by broader market moves across public and private credit, and not a deterioration in the underlying quality of our assets, which remains strong. Approximately 75% of the write-down was attributable to spread widening across our debt portfolio. Now, as a key point I want to emphasize, while this quarter reflected a more challenging earnings environment, the underlying portfolio continues to perform very well. Credit selection and portfolio construction are the parts of the business we can control most directly and that continue to be a source of OBDC's strength. Non-accruals remain low and declined again this quarter. Borrower revenue and EBITDA growth remained healthy. And repayment activity at par has been consistent. In the first quarter, we saw a market-wide reassessment of risk and a reduction in flows into private credit, which has resulted in a much better balance of supply and demand and a more favorable investing environment. We will come back to our outlook at the end of the call, but we believe we are very well positioned from here given our lower leverage, the strength of the portfolio, and the more attractive spread environment we see today. I will now turn the call over to Logan to provide more details on our investment activity and portfolio performance. Logan Nicholson: Thanks, Craig. Starting with investment activity, we approached the environment more conservatively this quarter, which contributed to lighter origination activity and lower leverage at OBDC. As market volatility increased and deal activity slowed, we remained disciplined in our pace of deployment, and now we are encouraged to see opportunities coming to market at wider spreads. In the first quarter, OBDC had fundings of $525 million against almost $1.5 billion of repayments and sales, resulting in an ending net leverage of 1.13 times, our lowest level in two years. The majority of our deployment was related to fourth quarter transactions that closed in the first quarter, which were committed at spreads lower than what we are seeing in the market today. As noted, we intentionally kept leverage low and, with ample dry powder, we are well positioned to deploy as the pipeline builds. Consistent with our approach of investing in diversified, accretive assets, we continued to deploy selectively into our joint ventures and specialty finance investments in the first quarter. For example, within our life sciences specialty finance vehicle, LSI, OBDC increased its allocation primarily to support an investment in TG Therapeutics, a company we have backed since 2024 that continues to perform well. Blue Owl served as sole lender in a $1 billion financing to support the company's continued growth. The LSI vehicle has generated returns of more than 14% to OBDC since inception, underscoring the attractiveness of our specialty finance and JV investments. Turning to the portfolio, credit performance remained stable and our borrowers continue to perform well. As a reminder, OBDC is a broadly diversified portfolio across 30 industries, with an average position size of approximately 40 basis points, and our focus remains on lending to large, non-cyclical, defensive businesses. Our borrowers delivered year-over-year revenue and EBITDA growth in the high single digits, consistent with last year and a reflection of the fundamental health of the businesses we finance. Zooming in, our software borrowers also demonstrated revenue and EBITDA growth consistent with the rest of the portfolio. As a reminder, these are primarily first lien senior secured loans with conservative LTVs even at today's valuations. As you will recall, we invest in mission-critical, scaled enterprise software providers with characteristics that we believe make them durable. While we remain appropriately cautious about the potential impact of AI on some areas of software, we are not yet seeing any material impact on our software borrowers' performance. Additionally, we saw meaningful repayments from software names during the quarter, including Intelerad, which was an over $400 million investment across the Blue Owl platform, including $169 million in OBDC. Intelerad is a provider of medical imaging software solutions which was sold to GE Healthcare at a $2.3 billion valuation, resulting in a full repayment. This is another example of the quality and strategic value of the software businesses in our portfolio. As a result of this and one additional large repayment, software exposure declined to approximately 16% of the portfolio, down from roughly 19% last quarter. Turning to our key credit KPIs, the picture is healthy and stable in all respects. Interest coverage ratios remain healthy at approximately 2.0x. Revolver draws remain at conservative low levels. Amendment activity is stable, and our 3-to-5 rated names remain in the same range as last year. PIK income was also stable compared to last quarter on a dollar basis but rose slightly to 11.7% as a percentage of total investment income due to a decrease in cash interest as a result of lower rates. PIK remains down from the peak of over 13% in 2024. Also, as we have highlighted in previous earnings calls, over 85% of our PIK names were underwritten that way at inception, and we have never taken a principal loss on those intentionally structured PIK positions. Finally, our non-accrual rate declined to 1% at fair value as we removed two names from non-accrual with no new additions. Over the last few quarters, our non-accruals have remained relatively stable, with a three-year average of approximately 1% at fair value, and this quarter's decline is a good reminder that our borrowers are performing well and fundamental performance is stable. We would note that LTVs moved modestly higher this quarter, which we attribute to the broader valuation environment rather than a deterioration in borrower fundamentals. Our average LTV across the portfolio sits at 47%, implying that over half of enterprise value would need to be impaired before we incur any losses. To close, the breadth and resilience of our portfolio remain intact. With lower leverage, more dry powder, and the sourcing advantages of the Blue Owl platform, we believe we are well positioned to take advantage of opportunities that this environment may bring. Now, I will turn it over to Jonathan to review our financial results. Jonathan Lamm: Thank you, Logan. In the first quarter, OBDC earned adjusted NII of $0.31 per share. As Craig outlined, results this quarter reflected several earnings headwinds that have been building over time and came through more fully in Q1. Most notably, three rate cuts between last September and December totaling 75 basis points are now fully reflected in our results, given the lagged impact that lower rates have on our mostly floating rate portfolio. Non-recurring income was also light this quarter, coming in at more than $0.01 below our historical average after running above that level last quarter. In addition, the earnings benefit from the low-cost unsecured notes we issued before rates moved higher over four years ago continues to roll off as those maturities come due. Since last July, $1 billion of those notes have matured, with another $1 billion set to mature this year. These factors together with lower leverage throughout the period drove the decline in adjusted NII this quarter and are now mostly reflected in our current run-rate earnings. The Board declared a second quarter base dividend of $0.31, which we believe aligns with the portfolio's forward earnings power in the current environment. The dividend will be paid on 07/15/2026 to shareholders of record as of 06/30/2026. Our spillover income remains healthy at approximately $0.28 per share, providing a meaningful cushion that further supports the base dividend going forward. Moving to the balance sheet, our first quarter NAV per share was $14.41, down from $14.81 last quarter, primarily reflecting the impact of mark-to-market adjustments. We would note that the realized losses reflected on the income statement were related to investments previously on non-accrual that had already been written down over the past several years and did not contribute to the NAV decline this quarter. We continued to execute on our share repurchase program in the first quarter, buying back $35 million of stock, which was accretive to NAV per share by $0.02, while balancing that activity with a focus on deleveraging and maintaining capacity to deploy into a more attractive market environment. Over the past two quarters, we have repurchased a total of $183 million, reflecting our conviction in OBDC's long-term value. The Board of Directors also authorized a new $300 million share repurchase program in February, replacing the previous $200 million plan, leaving approximately $265 million remaining following first quarter activity. We ended the quarter with net leverage at 1.13 times, within our target range of 0.90x to 1.25x, as we decreased leverage to preserve flexibility. Turning to our capital structure, we continue to be active in further strengthening our balance sheet and enhancing our liquidity profile. In January, Moody's upgraded our credit rating to Baa2. Beyond serving as meaningful recognition of the quality of our platform, the consistency of our performance and the strength of our balance sheet, we believe this is a validation of our efforts to build a best-in-class BDC credit profile. Subsequent to quarter-end, we accessed the unsecured debt markets with a $400 million note offering, demonstrating OBDC's continued ability to raise capital amid broader market volatility. The strong institutional investor demand we received is a meaningful vote of market confidence in OBDC's credit profile. With this offering, our liquidity has increased to over $4 billion in total cash and capacity on our facilities, which comfortably exceeds our unfunded commitments and provides ample capacity to invest in the current environment while addressing upcoming debt maturities. Overall, we are pleased with the proactive steps taken this quarter to strengthen our balance sheet, and we believe OBDC is well positioned from a capital and liquidity standpoint. Now I will turn it over to Craig for some closing remarks. Craig Packer: Thanks, Jonathan. I want to close by reflecting on where we are today and our outlook. Over the past few years, private credit has benefited from a very constructive backdrop, but it also became increasingly competitive as significant amounts of capital entered the space at a time of moderate private equity M&A. That drove spreads tighter and, together with lower base rates, put pressure on returns and earnings across the sector, including at OBDC. That environment has begun to shift. Volatility in the broadly syndicated loan market has driven a meaningful widening in spreads, while the rate backdrop appears to be stabilizing. On the deals we are seeing today, spreads are generally about 50 to 75 basis points wider and terms are more attractive than they were just a few quarters ago. At the same time, retail capital inflows have slowed into private credit and the supply-demand balance for new deals looks more favorable than it has been in years. Put simply, we believe this is a more attractive investment environment than the one we have been operating in over the last two years, and we believe OBDC is well positioned to take advantage of it. Our portfolio is in good shape. Our balance sheet is strong, and our leverage is at its lowest level in two years. Repayments over the past year have contributed meaningfully to that positioning, giving us additional flexibility at a time when spreads are widening and the opportunity set is improving. Combined with our scale, incumbencies, and deep sponsor and borrower relationships, we believe we are well positioned to deploy selectively into attractive risk-adjusted opportunities as they emerge. While overall deal activity has been more modest in recent months, periods like this have historically created a more favorable setup for direct lenders. As the broadly syndicated loan market becomes more volatile, borrowers increasingly turn to established direct lenders for certainty of execution, and Blue Owl is well positioned to capture that demand. As borrowers adjust to new market realities, refinancings will resume, driving spread widening and fee income. And even if new deal flow stays moderate, we will naturally have the opportunity to put capital to work through regular activity from our existing portfolio, including add-ons and upsizings with borrowers we know well and have backed through multiple cycles. Lastly, this quarter also marks an important milestone for OBDC, as the fund has reached its ten-year anniversary. Over that time, we have delivered a 9.6% annualized total return while managing the portfolio through multiple periods of volatility, maintaining strong credit performance and low loss rates that have averaged just 31 basis points annually. This recent volatility highlights the importance of risk management across the balance sheet. We remain focused on conservative asset selection with well-matched liabilities, sufficient liquidity, and the right protections in place. We have conviction in our strategy, remain focused on acting in the best interest of shareholders, and believe that our long-term track record is the clearest demonstration of the quality of this platform. Thank you for your time today. We will now open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, you may press 1. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing 1. Our first question today is coming from Brian J. Mckenna from Citizens. Your line is now live. Brian J. Mckenna: Okay, great. Thanks. Good morning, everyone. So on the new $0.31 quarterly dividend, should we view that as a floor in NII over the next several quarters? And since you are keeping the supplemental dividend framework in place, is there the potential for some supplemental dividends to come through later this year depending on the trajectory of NII from here, as the environment begins to normalize with wider spreads, a recovery in transaction activity along with stable base rates? Craig Packer: Hey, Brian. Thanks. We thought very carefully about where to set the dividend. We think that this is the right level. In terms of it being a floor, I hope it is a floor. I expect that we will have a really good environment. I think spreads, as we talked about, will go wider from here. Obviously, it is very base-rate driven as well. Right now, rates are expected to stabilize here. We had very little prepayment income this quarter. That is not an easily predictable variable, but our history shows we typically have it. So I hope and expect it to be a floor. But, you know, in any quarter, things can happen, so I do not want to overstate the level of precision there. I appreciate you highlighting the supplemental dividend. I do think that there are going to be quarters where we overrun the $0.31, and again, at the risk of saying this multiple times, this is not a special dividend. We are really expressing a commitment to pay out 50% of everything over $0.31. So we hope investors appreciate that versus “special,” which is much more discretionary. I am quite optimistic over the next twelve months it is going to be a better investing environment, and we will have the ability to generate some really attractive earnings for the portfolio, hopefully in excess of the dividend. Brian J. Mckenna: Okay. That is helpful. Thanks, Craig. And then, Jonathan, it would be helpful to get a little more color around your framework and approach to marking the portfolio. I know your process is very thorough. I think it would be timely just to get a little bit more detail here. And then do you have any historical data around the average markup between final realized marks across the portfolio relative to the prior unrealized marks? Jonathan Lamm: Sure. Just in terms of our valuation approach, it has been consistent for the last ten years. We will remind you and remind everyone that here we do not mark our book at all. We go out to an external valuation agent every single quarter for every single name—a large, well-regarded valuation agent. They are not providing a range of values, but rather marking the book to the point value, and so we are not putting a number where it is at the top end of the range or the bottom end of the range, etc., but rather we are just a price taker ultimately for every single valuation. We do, as part of our overall requirements with our Board and obviously internally, a look-back analysis on, first of all, comparable valuations to peers. We have always been marked on a conservative basis, but not too much. We obviously do not want to be just taking marks down without thought, but we are always analyzing where we mark relative to the peers. And another thing that we do is always look at where we exit versus where we were previously marked in the prior quarter. So on a realization basis, we will look at where the unrealized values are and then ultimately where those realizations come in. And you are talking about generally a very, very small amount, unless obviously in the particular quarter there is some massive change relative to where we were. In the context of the unrealized or the realizations that we had in this quarter, all of those realizations—some of them were historical non-accruals where we effectively realized them exactly where they were because we had already taken the pain. And there were some realizations on the way up, like a name like SpaceX is obviously moving dramatically, so there was a realized gain associated with SpaceX in the quarter because the valuation changed between 12/31 and 03/31. Craig Packer: Yes. I would just add, we are a lender. Our loans are contractual and due at par. Loans, if they are performing and going to get taken out, should be getting taken out at par. It is very different than a private equity portfolio where a private equity firm is marking the value and then they have to exit at an indeterminate value up or down. So the vast, vast, vast majority of our loans in our history are exiting at their fair value because as we approach that refinancing or repayment or maturity, it gets closer and closer to par. And as we have highlighted, we have only had 35 basis points of loss in the history of the fund. So almost everything has gotten repaid at par. The average—just so you have it at your fingertips—the current spread in the book is 560 over, and the average loan is marked at 95.4. And we expect to get par on almost all of those loans. Brian J. Mckenna: Really helpful. Thank you, guys. Craig Packer: Thanks, Brian. Operator: Thank you. Our next question today is coming from Sean Paul Adams from B. Riley Securities. Your line is now live. Sean Paul Adams: Hey, guys. Good morning. It looks like your headline non-accruals declined, but it looks like you marked Walker Edison on non-accrual. But you kept the first lien at a 96 mark while effectively taking that delay draw to basically a zero. It looks like that was an opportunity to kind of draw down, or do you have estimates of a better recovery from that specific name? Jonathan Lamm: Walker Edison has been on non-accrual for a significant period of time and has been marked down to very, very low levels with a certain view of recovery. There was a realization this quarter, Sean Paul, so that is probably what is tripping you up. But in terms of non-accrual, it is not a new non-accrual and has been marked down drastically, not much more significantly this quarter, and no impact to NAV. This was just a realization of an already unrealized markdown that we had. So there was no change to NAV net at the end of the day. Sean Paul Adams: Correct, yes. It has been a longstanding non-accrual. I am just more questioning the marks of where it is—the fair value at 96%. On the new non-accruals for the quarter, Cornerstone OnDemand, you know, was a new addition, and that is kind of cross-held within the Ares portfolio as well. That is within the SaaS business. That mark has kind of deteriorated pretty rapidly. Do you have any extra color on that specific name? Craig Packer: Well, sure. Before I do, I just want to make sure it is clear: we did not have any additional non-accruals this quarter. We can talk about Cornerstone. Cornerstone has public loans that trade, and when we are in an investment that has public loans that trade, we certainly—and our valuation firm certainly—take the marks of those public loans heavily into account for obvious reasons. And so in that particular case, the mark that we have is heavily fact-weighted by the public marks. We believe it is a performing credit. It has had some volatility. Look, there is a lot of public market concern about software names, and sometimes that trading volatility may or may not line up with our view of credit fundamentals. But we feel good about having it on accrual, and we feel like we have marked it appropriately. Sean Paul Adams: Yes, my apologies to clarify. Your non-accruals were lower for the quarter, but your watch list—you know, with the aggregate marks below 85%—did increase. And so the Cornerstone callout was from the watch list increasing while the non-accruals are going down. So my question was more pointed towards whether, you know, headline non-accruals might be going down, but the aggregate watch list credits or the risk ratings within the portfolio—could those be going up? Or is that rather just a mark-to-market, like you said earlier in the call, when a number of these names are cross-held positions within other BDCs? Logan Nicholson: I would add our 3-to-5 rated names, which we would view as more expansive than just the names below 85, and the names that we spend a lot of time considering all of the factors around credit performance—that is stable. And it has not gone up. So the subset of names that you are looking at that have had volatile trading prices—there are a few. Most notably, Cornerstone that you highlighted had a relative value to a first lien that traded down significantly with the volatile public market, particularly around software names, in the first quarter. On that name in particular, earnings and revenues in that company are perfectly stable. It is a public market volatility point related to the first lien. So when we look at our more expansive proxy for a watch list—our 3s to 5s rated—the numbers are not going up. They are stable. Sean Paul Adams: Okay. Thank you for the color. Appreciate it. Operator: Thank you. Our next question is coming from Robert James Dodd from Raymond James. Your line is now live. Robert James Dodd: Hi, guys. A couple of questions if I can, kind of unrelated. On the first, kind of earnings trends going forward—three-year low in fee income, two-year low in leverage—so there are a lot of potential drivers. What do you think could be the primary drivers of earnings one way or the other through the remainder of the year? Do you think fee income—prepays, etc.—is actually likely to increase this year given how choppy the market is and spreads are wider, maybe people do not want to refi? Or do you think leverage is more likely to be the primary tool for the direction of NII through the course of this year? Craig Packer: Look, Robert, I think it is a mix. I do not think there is one primary driver. In any quarter, different things can happen. I think our fee income and prepayment income were unusually low this quarter. In almost all market environments, it is higher than we saw this quarter. It just wound up being an exceptionally low quarter. Without getting too far ahead of myself, I suspect it will be higher in the second quarter, but we will see. I do think that refinancings will take place throughout the year. That will allow us to add some spread to the book. I think that we are going to be cautious on leverage, just because I think it is an environment that deserves caution. But if we see attractive opportunities, which I think we will, taking the leverage up a bit is certainly something we have the flexibility to do. So I think it is all those things. We have our joint ventures—they pay dividends. They are very predictable dividends, but in any one quarter they can be a little bit higher or a little bit lower. And obviously credit performance needs to continue to be very strong. So it is all the factors. I guess what I would say is, as we said in the script, and I just want to be really clear: this quarter, you saw the culmination of a period of time where spreads were ground down in the industry and rates came down, and there is a lag effect to the rates as borrower elections turn over. And so you saw this in our results, but I think you are seeing it in our peers' results pretty consistently, and you are seeing it in the first quarter. For investors that do not follow the space very closely, what we are highlighting is that now that that has really washed its way through, I am optimistic because of the supply-demand in the industry that spreads are widening from here, and I think the expectation is base rates have stabilized from here. So if we get to some reasonable repayments, that is a cause for hope around earnings for the industry over the rest of the year. It is all those factors. Robert James Dodd: Got it. Thank you. And one more if I can. On the LTVs—there has been an area of focus for the space to talk about LTVs as a capital protection indicator. Can you give us any more color on how rapidly you update or where the V part of that comes from in your disclosure? Is it the underwriting value? Is it updated quarterly, which I presume? And also, what is the kind of range across the portfolio in terms of LTVs for the overall portfolio? I am also interested in the software side in terms of how that V is moving and what the range is in software as well as the overall portfolio. Craig Packer: I will start and anyone from the team can chime in. We update the LTVs every quarter. That is something we have disclosed consistently in our history. We called out in the script that the LTV for OBDC this quarter went from 41% to 47%. If you have followed us for a long time, you know that we have been in the low 40s, so this is a little bit higher. That move is very much driven by the drop in valuation in software, which is the largest sector in the book. To the spirit of your question, we look at this every quarter. The teams look at it. They look at a number of factors for when they are valuing a name. Certainly, entry valuation is a key factor in the early years because that is the most clear indicator. But as names season in the book, we update it for other comparable valuation—where assets are trading at M&A value, what has happened to the underlying credit. So this gets updated. I would say this quarter, we all recognize that there has been a real sea change in valuation for software assets. I think that is very clear to us and to the market. And so I think we took extra special care around valuing the software names, and that is reflected in the increase from 41% to 47%. In terms of your broader question around the range, I do not have it at my fingertips, but the vast majority of the names are going to be in that zip code and, if you were doing statistical analysis, they would cluster around 30% to 55%. We certainly have names—we always have and we always will—that are more challenged, and they are going to be higher loan-to-value. Just as any lending book has that, we have that. You can see that reflected in valuation levels. But we feel really good about our cushion even in today's environment, even in software. We highlighted it in a name like Intelerad—it is a software name—got sold to a strategic for 20 times cash flow. Our LTV on that loan was, at the end of the day, 25% or something. So we feel good about it. We update it. It is only one metric. I think it is an easy metric for people to wrap their head around. There are hundreds of other metrics that we look at to assess the quality of the portfolio. But I think the fact that the LTV went up this quarter should give investors some confidence that these are statistics that we put a lot of thinking into. Robert James Dodd: Got it. Thank you. Craig Packer: Alright. Thanks, Robert. Operator: Thank you. Our next question today is coming from Paul Conrad Johnson from KBW. Your line is now live. Paul Conrad Johnson: Thanks for taking my questions. I appreciate all the color that you have provided. I just had one—actually two—questions here, but realize this is a more recent development. You have seen relatively strong performance in the public equity markets for software companies over the last few weeks. I think they have bounced a little over 20% from the bottom that they hit at the end of last quarter. I was just curious—has that been reflected within conversations and engagement with the sponsor community, where maybe there is a little more of a narrowing of the bid-ask between these companies, or anything that is happening to allow these sponsors to get a little bit more comfortable transacting in that sector, just given the bounce we have seen in the public markets? Craig Packer: I do think it is nice to see some of that bounce, and I think the markets in general are being a little more thoughtful about software and the impact of AI. The initial reaction was so dramatic, and I think you are starting to see the market focus on the high-quality aspects of software and the stickiness and the durability even in an AI world. I think it is too soon—we are not seeing any significant different dialogue with sponsors based on a few weeks of trading activity. But I can tell you the sponsors are very focused on making sure that their companies are prepared for an AI world and investing considerable resources and doing what we would expect them to be doing to make sure their companies continue to prosper. That is the biggest part of our dialogue with them, but I do not have anything to add beyond that. Paul Conrad Johnson: Got it. Thanks. That is helpful. Last one—just higher level—but it feels like banks could certainly become more competitive here and lean into the BSL market a little more if they wanted to. In terms of the repayments of $1.5 billion this quarter and a little over $5 billion last year, how much of that is going to the BSL market? And whether or not you could actually use something like that to your advantage where you could potentially reduce software exposure or improve liquidity—that sort of thing—where perhaps getting some of these deals refinanced into the BSL market is not such a bad thing? Craig Packer: We compete with the broader syndicated market. That has been core to our business over ten years. There are times the market is really strong, there are times the market is weak. I think right now it is not especially strong. I do not think this is an environment where the banks are leaning in on underwriting, and I think if you follow that market closely, you will know that there have been some challenges in some syndications in the BSL market. It is part of the model. Sometimes names get refinanced; sometimes they do not. All of our names get refinanced—whether they get refinanced in the private market, public market, or the companies get sold. It is an expected part of our economic model. In those repayments, yes, I do think that this environment over the next twelve months is going to give us an opportunity when we get repayments to recycle those dollars into higher spread assets, and it could be just refinancing some of our own names and marking those to market. So I do think this is an environment where through refinancings and repayments—whether it comes from a BSL syndication or private refinancing—we will have a chance to add spread to the book. We reduced software exposure this quarter from 19% to 16%. That happened naturally due to some repayments. And I think that we are going to continue to be very cautious in software, and as we get repayments, probably look to continue to take that down. But we continue to have conviction on our software names. It is a wider sector, there is more uncertainty there, and I think you will see that reflected in a very high bar to add new names, and probably a disposition to reduce our software exposure. But they have performed very well, and this quarter was all just repayments. Paul Conrad Johnson: Got it. Appreciate it. That is all for me. Thank you. Operator: Thank you. Our next question is coming from Arren Saul Cyganovich from Truist Securities. Your line is now live. Arren Saul Cyganovich: Thanks. I was hoping you could discuss some of the conversations you are having with sponsors in terms of the pipeline that you are seeing right now. I know things have slowed down quite a bit, but is anything starting to show signs of opening up? And would we also expect the repayments to slow as well since new deal activity is slowing? Jonathan Lamm: Sure. Thanks, Arren. We are starting to see a little bit of an uptick in activity. The vast majority of the activity so far has been on our incumbent positions—so add-ons, bolt-ons, small acquisitions. But in the last couple of weeks, we have seen a couple of M&A processes underway, more in the healthcare, industrial, and distribution space. Software still remains relatively quiet. But we are starting to see some more activity, particularly with the bounce back in public markets and equity markets. For now, the activity still remains relatively light. Repayment activity really just depends. We have seen areas where, over the years, public market volatility slows repayments. It is a fair point, and those are oftentimes correlated. But in the past quarter, as an example, a number of our takeouts were strategic buyers taking out assets like Intelerad. Strategic buyers have certainly had strong equity market performance, strong valuations, and strong earnings in public investment-grade companies. So it really just depends, and this is not like the last few bouts of volatility. We will just have to see what happens. Arren Saul Cyganovich: Okay. Thank you. Operator: Thank you. Our next question today is coming from Kenneth Lee from RBC Capital Markets. Your line is now live. Kenneth Lee: Hey, good morning. Thanks for taking my question. Just another one on the new dividend level there. Would you talk a little bit more about some of the embedded assumptions behind there? Are you embedding potentially either further spread compression or, conversely, some benefit from spread widening? Anything else you would like to articulate around what drove the new dividend level there? Thanks. Jonathan Lamm: Sure. We are constantly analyzing our model and forward earnings. We are taking into account the forward curve and thinking through stresses to that. We are also looking at spreads and the compression that we have seen over the last couple of years and stressing the relative up/down of spread—further compressing relative to widening—and obviously we have a view on that. We are also looking at historical levels of fee income relative to where we are currently performing. All of those things—leverage, credit performance—go into that. We have set our dividend at a level that we think is a supportable level, and we took our time thinking through that process over the course of several quarters. Over the last few quarters, we have talked about it, and we think that this is the level that makes the most sense given all of those factors, Ken. Kenneth Lee: Got you. Very helpful there. And then one follow-up, if I may, just in terms of share repurchases. Given where valuations are and given some of the leverage considerations you have there, how active could you be in terms of share repurchase over the near term? Thanks. Jonathan Lamm: I think you have seen us over the last couple of quarters be active. We have upsized the total size of our repurchase plan. This quarter, we were a little less active. As you can see, notwithstanding the overall credit spread movements and therefore declines in NAV, we were able to bring leverage down and into a level that puts us in a very, very comfortable range. When we think about repurchases, we are thinking about it in the context of capital allocation, which is thinking about your leverage, thinking about future deal opportunities relative to current deal opportunities, and all of those elements. We want to be active, and we think that we are accretive in all of those things depending on where the best capital allocation is on the forward, and we think bringing down leverage this quarter is helpful to all of those potential allocations. Kenneth Lee: Got you. Very helpful there. Thanks again. Operator: Thank you. Our next question today is coming from Derek Hewitt from Bank of America. Your line is now live. Derek Hewitt: Good morning, everyone. I might have missed it because I was jumping between calls earlier. Could you discuss what is your net leverage on the total portfolio? And then also, what is the net leverage specifically on the software portfolio? Jonathan Lamm: You are talking about at the investment level, the BDC, not the company. Is that right? Derek Hewitt: Okay. Logan Nicholson: Yes. We have typically been running between 5.5x and 6.0x on our portfolio companies for net leverage, and that has not moved dramatically over the last few quarters. Similarly, interest coverage, as we have talked about, has picked up from 1.6x at a trough to around 2.0x. Software companies, given the strong cash flow dynamics, have typically run a little bit higher—so north of 6.0x for leverage. But that has not moved dramatically in the last few quarters either, given fundamental performance of our software borrowers has been strong. And as we mentioned, earnings growth for the software portfolio companies is still low double-digit EBITDA growth, in line with the rest of the portfolio. So the leverage statistics have not moved around dramatically. Derek Hewitt: Okay, great. And then just in terms of the software portfolio, what is the LTV for the software portfolio? You had mentioned the overall portfolio was 47%. Logan Nicholson: We mentioned 47% for the overall portfolio, and it is approximately 48% for the software portfolio. So it is not materially different. It is 48% for the software portfolio and 47% for the overall. Derek Hewitt: Okay. And does that include kind of mark-to-market in terms of what has happened with software values quarter-to-date? Craig Packer: Correct. That is our current view, marked to the quarter end. Derek Hewitt: Okay. Thank you. Operator: Thank you. Our next question today is coming from Patrick Davitt from Autonomous Research. Your line is now live. Patrick Davitt: Hey, good morning. Thanks for letting me join the party today. I just had a follow-up on the software EBITDA growth. I think you said it is low double digits versus last quarter’s 16%. Am I hearing that correctly? And if so, can you give more color on what is driving that decline? Thank you. Logan Nicholson: Great. Yes, sure. Thanks for the question. Last year, we saw software EBITDA growth for our borrowers in the low double digits. The fourth quarter, as you mentioned, was a little bit of an outlier higher. It is not a perfect measure in any one quarter given some of it includes M&A and the portfolio has puts and takes, given there are names exiting and names entering, and there is some seasonality. We will see what the trend is over time, but I would say that low double digits has been consistent for the last year, and you are right that the fourth quarter was a slight outlier higher. Patrick Davitt: So the 16% was not a full-year number—that was just the quarterly? Logan Nicholson: That was the year-over-year reference last quarter. Patrick Davitt: Got it. Cool. Okay. Thanks a lot. Operator: Thank you. Our next question today is coming from Christopher Nolan from Ladenburg Thalmann. Your line is now live. Christopher Nolan: Hi, thanks for taking my questions. Most of the questions have been asked. On loan sales, there were roughly $400 million in loan sales in February according to the Q. Are these the same loan sales that were discussed in the last quarterly call? Jonathan Lamm: Yes. Christopher Nolan: Okay. Just want to clarify. Thank you. Operator: Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over for any further or closing comments. Craig Packer: Terrific. Thank you all for joining. We appreciate your interest. As always, we are accessible if you have follow-up questions. We would be happy to engage with you—just reach out. And hope everyone has a great day. Operator: That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Corp. First Quarter 2026 Results and Corporate Update. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Ryan King, Executive Vice President, Capital Markets for Equinox Gold Corp. Please go ahead. Ryan King: Good morning, everyone, and thank you for taking the time to join the call this morning. Before we begin, I would like to direct everyone to our forward-looking statements on Slide 2. Our remarks and answers to your questions today may contain forward-looking information about the company’s future performance. Although management believes our forward-looking statements are based on fair and reasonable assumptions, actual results may turn out to be different from these forward-looking statements. For a complete discussion of the risks, uncertainties, and factors that may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to risks identified in the section titled “Risks related to the business” in Equinox Gold Corp.’s most recently filed Annual Information Form, which is available on SEDAR+ on EDGAR and on our website. Finally, all figures in today’s presentation are in U.S. dollars unless otherwise stated. With me on the call today are Darren Hall, Chief Executive Officer; Peter Hardie, Chief Financial Officer; David Chester Schummer, Chief Operating Officer; Daniela Dimitrov, Chief Strategy and Risk Officer; and Matt McPhail, SVP of Technical Services. Today, we will be discussing our first quarter 2026 financial and operating results, provide an update on Greenstone and Valentine ramp-up progress, and then we will take questions. The slide deck we are referencing is available for download on our website at equinoxgold.com. With that, I will turn the call over to Darren. Darren Hall: Turning to Slide 3, and thanks, Ryan. Good morning and thank you for joining us today on the call. Firstly, I would like to thank the entire Equinox Gold Corp. team, including all of our business partners across the Americas, for their commitment to safety, operational excellence, and disciplined execution, which delivered another strong quarter. There is no better demonstration of the team’s capability and commitment than responsibly delivering more than 197 thousand ounces of production with no material environmental events and a 25% reduction in our reportable injury frequency rate. Well done, thanks to the entire team for a great quarter. We continue building on the positive momentum established in 2025, which reset the foundation of the business, strengthened the balance sheet, and established a clear path to long-term value creation. Today, we are executing against that foundation with a focus on operational excellence, cost discipline, and delivering on our organic growth profile. We delivered a solid start to 2026, producing 197 thousand ounces of gold, with cash costs of 1.633 thousand dollars per ounce and AISC of 1.95 thousand dollars per ounce. Importantly, our Canadian platform continues to ramp up, contributing over 87 thousand ounces during the quarter. While the quarter reflected a level of variability not unusual with ramp-ups and winter conditions, based on performance to date and expected improvements for the year, we remain on track to achieve our full-year production and cost guidance. Turning to Slide 4, during the quarter, we sold more than 199 thousand ounces of gold at a realized price of just over 4.6 thousand dollars per ounce, generating 527 million dollars in adjusted EBITDA. We reported net income from all operations of 310 million dollars, or 0.39 dollars per share, and adjusted net income of 234 million dollars, or 0.30 dollars per share. We ended the quarter with 363 million dollars in cash and net debt of approximately 80 million dollars excluding our in-the-money convertible debentures. Additionally, we completed the sale of our Brazilian assets, repaid 990 million dollars of debt, initiated a share buyback, and paid our inaugural dividend. Subsequent to quarter end, following meaningful deleveraging and improved financial strength, we refinanced our revolving credit facility on improved terms, which enhances liquidity, flexibility, and our overall cost of capital. As of April 30, the company has nearly 1 billion dollars in available liquidity, providing significant financial flexibility. We also declared our second quarterly dividend of 0.01 dollars per share, reinforcing our commitment to disciplined capital returns. Turning to Slide 5. Let me take a moment to focus on our Canadian operations, which are central to our long-term value proposition. At Greenstone, we produced just over 60 thousand ounces in the quarter. Mining rates averaged 180 thousand tonnes per day, marginally lower than Q4, primarily due to heavier-than-normal snowfall, while mill throughput averaged 24.6 thousand tonnes per day, a 6% increase over Q4. Plant performance continues to improve quarter over quarter, with 51% of the days exceeding nameplate capacity in the quarter compared to 36% in Q4. With April mining rates increasing to approximately 200 thousand tonnes per day and the underlying productivity metrics continuing to improve, the mine is well positioned to deliver on 2026 material movement expectations, which will result in increasing grades through the balance of the year. At Valentine, we completed our first full quarter of operations, producing over 27 thousand ounces. The plant performed well and, despite significant weather challenges, the team delivered 90% of nameplate capacity for the full quarter and actually exceeded nameplate capacity over the combined period of February and March. Mining performance was impacted by a severe winter in Newfoundland, which hampered material movement and delayed access to planned ore zones. In addition, early-stage mining practices and sequences impacted mill feed grades. We have identified a number of opportunities to improve performance, including enhancements to blasting practices, better utilization of mine control systems, and tighter control around dig lines to positively impact dilution. We are seeing progress in April with improving grades supported by continued exceptional process plant performance. To highlight this progress, following a planned seven-day total shutdown in April, the mill has averaged 8.488 thousand tonnes per day, or 124% of nameplate, since coming out of the shutdown. Looking ahead, we expect steady quarter-over-quarter improvements through 2026 as mining productivity increases and our Canadian operations ramp up to steady-state performance, underpinning our robust outlook of over 500 thousand ounces of annual production for the next decade. Turning to Slide 6, beyond our current operations, we continue to advance a strong organic growth profile that underpins our long-term production profile. At Valentine, we announced details of our planned Phase 2 expansion as part of the updated technical report published at the end of the quarter. We are currently committing funds to long-lead-time items and progressing detailed engineering to secure schedule. We expect to initiate early site works in the second half of the year following full funds approval anticipated in the coming months. At Castle Mountain, we continue to advance engineering and permitting activities, with the project on track to receive a federal Record of Decision before year end. In anticipation, we have hired an experienced project director to lead all aspects of the project and have engaged Worley, an engineering professional services firm, to progress the detailed engineering. I anticipate committing risk funds to secure long-lead-time items in early Q3. At Los Filos, we have made important progress strengthening relationships with our host communities and government stakeholders. With fully ratified new long-term access agreements in place with two of the three communities and continued constructive dialogue with the third, I am convinced that all stakeholders are aligned on identifying a path forward to a restart of operations and realizing the full potential of the world-class mineral endowment that exists at Los Filos. Turning to Slide 7. I am confident that Equinox Gold Corp. is well positioned to deliver top-quartile valuation based on our portfolio of long-life assets in Tier 1 jurisdictions, a clear and executable organic growth pipeline, strong and growing free cash flow generation, a disciplined approach to capital allocation and shareholder returns, and, importantly, with the right team in place to deliver on those commitments. In closing, our priorities for 2026 are clear: ramp Greenstone and Valentine to nameplate capacity, maintain cost discipline and operational consistency, advance our growth pipeline, continue strengthening the balance sheet, and return capital to shareholders. With a stronger portfolio, improving operations, and a clear path forward, we are entering 2026 from a position of strength. Before passing to the operator, I would be remiss if I did not acknowledge the team’s efforts in Nicaragua, which delivered a record 81 thousand ounces of production for the quarter, which is a testament not only to the team but the prolific and enduring nature of those assets. We will now open the call for questions. Operator: If you are using a speakerphone, please pick up your handset before pressing any keys. If you have additional questions, the Equinox Gold Corp. team would be happy to offer a call to go into more details. Thank you. The first question is from Wayne Lam with TD Securities. Please go ahead. Wayne Lam: One question for tough. Let us go with Valentine. Grade in the early years of the mine plan is well above 2 grams a tonne, I guess, supported by the Berry pit. I am just wondering how the grades have reconciled to the plan to date, and should we be expecting a big step change in the grade profile into Q2, or is that more weighted to the back half of the year? Darren Hall: No, Wayne, and thanks for the support. Thanks for the question. If I sit back, I look at our reconciliation above an ore/waste cutoff and we are very comfortable with what we see out of Valentine, and we have articulated that over the last couple of years of infill drilling. Q1 was really our first quarter of how do we reconcile against the selectivity, and we saw some challenges, because we did not have that reconciliability with respect to the mill because it was the first quarter of taking that run-of-mine material in. We have seen some deficiencies that we need to focus on, and that is in and around mining control, utilizing the high precision, and again that was impacted further by the weather. We will see improvements in Q2 and we will see improvements as we work through the balance of the year. As we sit today, we are comfortable with how we have guided the year and we will continue to see improvements through the year. Medium and longer term, we are comfortable with where we have positioned ourselves. The importance of Phase 2 of the process to get us to 5 million tonnes is critical in that value proposition as well. We have a significant resource here with great opportunity to expand as we have highlighted with Frank drilling. This property will continue to deliver for a long, long time, and it will evolve as it goes, but I think it is going to evolve to the positive, which highlights the criticality of Phase 2 and why we are committing today to get those funds in place so we can ensure schedule to get us into a build as soon as we possibly can, which will take out the variances you see in trying to predict a grade in a quarter and take out some of the lumpiness. Long-winded answer, Wayne, but we are comfortable with the evolution, and there is nothing that concerns me at this point. Wayne Lam: Okay, great. I look forward to the ramp-up ahead. Darren Hall: Cheers, buddy. Operator: The next question is from Anita Soni with CIBC Markets. Please go ahead. Anita Soni: Hi, good morning. I just want to ask actually about grade reconciliation at Greenstone as well. So I think in the technical report the new MRE already includes the reduction as a result of the voids and all that. Darren Hall: Yes. Hi, Anita. Yes, and I guess two questions in that. From a technical report perspective— Anita Soni: Sorry, I was—go ahead. Darren Hall: Sorry. The technical report reflects the model update going forward, and the questions around voids and the experiences that we have had to date are reflected in that model revision. In terms of the quarter, we saw some turnover issues in and around the glory hole, which is that shrink stope in the center of the pit, and maintaining focus there. That is where Dave and the crew have brought in some additional resources so we can get bench turnover rate, which negatively impacts our performance of grade against plan. From a reconciliation perspective, if we take the last couple of quarters, the model is actually reconciling very well above a cutoff against the model that we have used to predict the longer term. Matt, is there anything you would add to that, bud? No. That is correct. Peter Hardie: I will just add one item if I might. We included all that information with respect to our guidance for the year as well. Darren Hall: Yep. Peter Hardie: Yep. Darren Hall: Does that cover the grade issue there, Anita? Anita Soni: Almost. The question was just in terms of the technical report, it does also talk about sort of negative ounces and tons and also on the grade a little bit, but combined a slight negative on the ounces. I am just wondering if the reserve estimate already includes that as well, or the commentary in the technical report says basically that it is typical for this early stage and it is not necessarily included in the reserve estimate yet. Darren Hall: No. Again, the technical report is congruent with the reserves and they all exactly tie together. Ryan King: That is right. Yes. Best available information was utilized in that technical report. The most up-to-date void model is included, so the reserve and resource are depleted for that void model. As Peter Hardie and Darren alluded to, in Q1 we are reconciling nicely to that model. Darren Hall: Yes. I think the underlying question there, Anita, is whether the reserve is reflective of what is in the forward-looking plan, and yes, the same model is used for the forward-looking plan as used in the reserve, so all those things are congruent. Anita Soni: Okay. Thank you. Darren Hall: Cool. Operator: The next question is from Mohamed Sidibe with National Bank. Please go ahead. Mohamed Sidibe: Maybe going back to Valentine, on your grade, tonnage, and recovery there, I know that production was probably impacted by inventory in circuit. Is there more inventory in circuit left that could potentially impact Q2, or how should we think about that going into the next quarters? Darren Hall: No. The inventory—we are not managing inventory. It is not like an AP sort of issue. There are pinches and swells in inventory depending on grades going through, but there was no drawdown of inventory at the end of the quarter. We play a straight bat at it. We actually saw a little bit of inventory build-up in the April period as grades improved, but there is no noise in there associated with inventory. Mohamed Sidibe: Sounds good. Just asking because I am trying to get back to your project results with the tonnage, grade, and recovery. I am slightly off, but maybe I can take that offline. On the costs at Valentine, I think the technical report highlighted lower processing costs and mining costs versus what you delivered in Q1. I understand that you were impacted by the severe weather, but what is the plan to get back to costs that were highlighted in the technical report, and what are some of the initiatives that you will be working on to get us back to that? Darren Hall: It is a good question. I will pass it over to Peter and we can talk specifically about some of the nuances in Valentine. I will take a step back and look at the business holistically. I know we do not guide quarter-on-quarter against budget, but I will use that as a basis, keeping in mind that all of our guidance is prefaced off the budget, and of course you take a budget, you lower it a little bit, and that becomes the guidance. If we look at Q1 spend, we were within 1% on non-capital costs. When I say capital, I am talking about the capital that was capitalized inventory and those sort of things are all in that total spend number. We were within 1% of spend. From an outgoings perspective, we are very consistent with where we see things. We were actually underspent on some of the capital during the quarter, which we will work on over the balance of the year, but that is typical—people being a little bit more aggressive about what they can get done at the outset of the year. Specifically at Valentine, Peter, do you want to give a bit of color? Peter Hardie: Thanks, Darren, and thanks, Mohamed, for the question. Yes, as Darren mentioned, across the board we are within 1%—very pleased with the control that the team and operators are showing over spend. At Valentine itself, we are a little above expectation, but not in a way that we are concerned about. Largely any spend that is above expectation is due to the severe winter and mitigations we put in place. Going forward, that is on the numerator side, so we are pretty happy with what is happening on the total spend side. It is the denominator, as Darren has already highlighted—bringing unit costs back into line with expectations. We have to focus on the denominator side, and that is the mining and the processing and grade management that Darren already alluded to. Mohamed Sidibe: Thank you. I will get back into the queue. Operator: The next question is from John Tumazos with John Tumazos Independent Research. Please go ahead. John Tumazos: Thank you very much and congratulations on net cash today, which every day that is going to be this week or last week or next week. Could you elaborate on your definition of gold production versus inventory versus in [inaudible]? We know you are generating cash and we know you are really selling gold, but it is kind of amazing that 20 thousand ounces fell out of circuit extra in Nicaragua this quarter. It is also equally amazing that Greenstone only had a 12 thousand-ounce drop from the December quarter when the grade fell by one third and the recovery fell by one fourth, and the recovery fell by 3%. It seems like the gold in solution is somewhat extraordinary. Darren Hall: Okay. Thanks for your question and thanks for the support. I will start with the definition of what we use as gold production. Gold production is bullion, as poured. Then we will have a recovered gold figure, which represents the in-circuit changes. There is not a lot of noise between gold poured and gold recovered for the better part. If we think about Nicaragua, the drawdown in inventory was not in process; it was stockpiles. We ended up at the end of the year with a significant inventory that we then got into that was built in Q4 because we ran out of capacity in the process plant in Q1. That was the inventory change in Nicaragua. It was just a build in inventory outside of the process plant; it was not an in-process inventory per se. In terms of inventories from Q4 to Q1 at Greenstone, I will ask Matt, but from my recollection I do not think there was a significant change in in-process inventories in circuit Q1 over Q4? Ryan King: There is a little bit of variation quarter on quarter, but it is nothing planned. It is just based upon timing of pour at month-end and it is a natural ebb and flow. As to what Darren said, I do not think there was a huge change of in-process inventory quarter on quarter. Darren Hall: You might have had an extra pour at Greenstone, like having an extra ship go off for a copper mine shipping concentrate or something? Typically, we will not pour on the last day of the month. We will pour on a specific day every week or two days a week, and wherever they happen to fall you might see some inventory ups and inventory downs. Happy to get on a chat and walk through the specifics at Greenstone as well to make sure you are comfortable. John Tumazos: Congratulations on all the cash. Darren Hall: Thank you. Appreciate it, and thanks for all your support. I know it has been a journey and you have been a supporter of the product for a long time, so thank you very much. John Tumazos: Thank you. Operator: The next question is from Jeremy Hoy with Canaccord Genuity. Please go ahead. Jeremy Hoy: Thanks, Darren and team. I appreciate you taking my question. I am going to talk about Los Filos. Could you give us any detail on what is pending or needs to be negotiated with the third community? And then any update on how you are thinking about that operation? I know you guys internally have been going through some iterations of what that operation could look like if it restarts. Just a refresh on your thinking there would be helpful. Darren Hall: Thanks, Jeremy, and thanks for your Canaccord support over the years. We are very optimistic about what we see at Los Filos, partly because of the 16 million ounces in all categories—it is clearly a world-class asset. It has demonstrated ability to produce. Our view of Los Filos is really looking to what the long term looks like. We are not in any hurry to restart operations in what was the previous form. It is really about the value proposition of birthing something that is potentially 300 thousand to 400 thousand ounces a year with a 20- to 30-year life within the current resource base. It is an outstanding asset. We are working very constructively with all of our stakeholders, including the third community, to get comfortable with a commercial arrangement that is going to ensure that the project is durable and resilient in all gold price environments and can maximize value for all stakeholders. The dialogue has been very constructive. It is clear in my mind that everyone is aligned behind wanting that to work, and we are going to make sure that what we put in place ensures that people can have a level of confidence about our ability—us and the stakeholders working together over the long term—to ensure that the investment we put into a CIL plant and reinvest back into that property is secure. That is our value proposition. The dialogue has definitely changed over the last year. We are very comfortable with the discussions we are having and the timing. Whether it is in two weeks, two months, or three months, I would anticipate something this year, but it is not important whether it happens this year; it is about making sure we get the right agreements. In the background, we are actually working with an EPC company to look at scale and scope around what this asset could look like and what that capital size relationship is. Our ability to be able to restart this asset is not impacted by the timing in which we have an agreement with the communities. They are all happening concurrently, and the community is aware of it. They are happy that we are doing that work and they see the value. I think this is a win-win and we will end up with a world-class asset that delivers for a long, long time. Jeremy Hoy: Great. Thanks for the color and looking forward to seeing the progress there. Darren Hall: Thank you. Operator: The next question is a follow-up from Anita Soni with CIBC World Markets. Please go ahead. Anita Soni: Hi. I just wanted to follow up on the tailings CapEx—the remediation that you are going to be doing there with the shear key. Can you give me an idea of the capital budget for that over the life of mine? Darren Hall: Sure. This is at Greenstone, right, Anita? Anita Soni: Yes, Greenstone. Darren Hall: Matt is probably best poised to talk about that. Matt? Ryan King: I do not know if I would classify it as remediation. It is initial construction of the shear key, and it is baked into our CapEx profile for 2026. Some may bleed into 2027 as well, but it is all baked into our estimates and our guidance figures. We can dive into more detail on a call if you want to go through dollars and cents. Peter Hardie: I was going to add, Anita, that, working off memory, we have 80 million dollars in there for 2026, but we will take offline maybe the life-of-mine costs. Ryan King: That is alright. Anita Soni: Okay. Thank you. Yes, definitely, I will connect with you offline. Thanks. Darren Hall: Thanks. Appreciate it. Thanks, Anita. Reach out and we will fill in any blanks that need to be filled in. Operator: This concludes the question and answer session. I would like to turn the conference back over to Darren Hall for any closing remarks. Darren Hall: I would just like to thank all our shareholders for their continued support and everyone for their participation and questions this morning. It is appreciated and valued. As always, Ryan and I and the entire executive team are available if you have any further questions. With that, take care, be well, and back to you, operator. Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Remitly Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Beckel. Please go ahead. David Beckel: Good afternoon, and thank you for joining us for Remitly's First Quarter 2026 Earnings Call. Joining me on the call today are Sebastian Gunningham, Chief Executive Officer of Remitly; and Vikas Mehta, Chief Financial Officer. Results and additional management commentary are available in the earnings release and presentation slides, which can be found at ir.remitly.com. Please note that this call will be simultaneously webcast on the Investor Relations website. Before we start, I would like to remind you that we will be making forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding Remitly's future financial results and management's expectations and plans. These statements are neither promises nor guarantees and can involve risks and uncertainties that may cause actual results to vary materially from those presented here. You should not place undue reliance on any forward-looking statements. Please refer to the earnings release and SEC filings for more information regarding the risk factors that may affect results. Any forward-looking statements made in this conference call, including responses to your questions, are based on current expectations as of today, and Remitly assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following presentation contains non-GAAP financial measures. We will reference non-GAAP operating expenses, adjusted EBITDA and free cash flow in this call. For a reconciliation of non-GAAP financial measures to the most directly comparable GAAP metric, please see the earnings press release and the appendix to the earnings presentation, which are available on the IR section of our website. Now I will turn the call over to Sebastian to begin. Sebastian Gunningham: Thank you, everyone, for joining our first quarter 2026 earnings call. Q1 was another exceptional quarter for Remitly. We delivered record revenue and adjusted EBITDA, both above the high end of our guidance ranges and another quarter of record adjusted EBITDA margin and net income, and adjusted EBITDA exceeded $100 million for the first time. These results reflect 3 durable characteristics of our business. First, a resilient business model, which led to another quarter of share gains; second, growing contributions from new businesses and categories; and third, continued expense and capital allocation discipline. Each of these durable characteristics continue to compound, giving me great confidence in our ability to generate sustainable long-term growth in revenue, profits and free cash flow. That confidence was reflected in nearly a fourfold increase in the pace of share repurchases this quarter. I want to use my time today to reflect on what I've learned in my first 90 days, discuss our evolving approach to delivering customer value through new products and offerings, and expand how we plan to use AI to drive growth and continued operating efficiencies. In my first 90 days as CEO, I've been very focused on gaining a deeper understanding of the business. I traveled to a number of our global offices, spent time with teams on the ground and conducted internal deep dive spanning product, engineering, marketing, finance and operations. I also spent time talking directly with our customers to understand firsthand what they value most of our product. It's been an intense 90 days. My goal was straightforward: understand what is working, what can work better, and learn as much as I can about the people and the culture that built this great company. I've also made some important people, product and operational changes that are quickly helping accelerate the trajectory of the business. From this period of listening and learning, a clear set of operating priorities has emerged. I have already begun putting them into action. We rely on smaller teams to drive ownership and autonomy. We will distinguish clearly between our core remittance business and newer growth initiatives, allowing each to operate with the speed, focus and rigor as required by the stage of maturity. We will adopt a disciplined approach to building products, starting with customer needs and working backwards. We will embed AI across everything we do, and we have designed the company so that speed is the default. My time with employees and customers also reinforce 3 things I believed about Remitly before joining. First, the culture is genuinely distinctive. There is a missionary energy here and a sincere belief that moving money across border should be reliable, fast and fair, especially for a community that has historically been overcharged and underserved. What sustains that culture is the caliber of the people who carry it. Across every function and every country I visited, I encountered talented, deeply committed individuals who bring real energy and care to this mission every day. That culture and those people are a real competitive asset, and I intend to protect and amplify both. Second, our core strengths, trust, network breadth, and operating scale put us in a strong position to continue gaining share and growing our offerings to better serve the cross-border needs of our customers. My conversations with customers reinforce that trust is the most consequential of these strengths. These are people sending money for life-changing events, supporting family members, covering medical bills, building a future from a distance. For them, knowing the money will arrive reliably, quickly and fairly is paramount. And if things do go wrong, it is important that they know there is an instant 24/7 global structure in place to fix it. As financial services become increasingly automated and digitized, trust becomes more valuable, not less. Our disbursement network, customer support excellence and compliance capabilities create a trust and safety advantage, a durable, hard-to-replicate edge that protects our customers in every corner of the world and strengthens our global platform. Third, I believe AI and stablecoins will accelerate our growth and not just incrementally. Companies like Remitly with trusted customer relationships, complex regulatory dependencies and a proprietary network infrastructure will be great beneficiaries of AI tailwinds. The company now knows I'm somewhat obsessed with this newly found intelligence into our business. As I will explain, we are moving quickly to ensure we take full advantage of AI to move faster, lower costs, improve product quality and compress product development time lines. Stablecoins are a different kind of opportunity, not a universal solution, but a targeted one. In corridors where they offer a clear cost or speed advantage, stablecoins gives us another tool to reduce FX costs, improve settlement speed and efficiency and deliver better outcomes for our customers. With that as context, let me turn to how I'm thinking about the opportunity ahead and why I believe we are only beginning to scratch the surface. When I joined Remitly, I was asked whether I plan to change Remitly's strategy as the new CEO. The answer is no. The vision, the customers we serve, the focus on cost, speed of delivery and trust are right, and they will not change. What I differ, is the pace with which we can achieve our vision and execute our strategy. I have full confidence Remitly will be a large, more diverse provider of cross-border financial services and the most important app for those that send or receive money internationally. To explain why, let me share a framework I've used internally. I think about our opportunities a 4x4 matrix, 4 customer categories on one axis and the 4 primary ways we can deliver value to those customers on the other. The 4 categories are: one, our core senders, our established base who send money for critical nondiscretionary reasons; two, highly valued senders, a fast-growing category with significant untapped share for Remitly; three, businesses, a massive and underserved category for which we are seeing rapid traction even with a very early feature set for this customer. And the fourth category is receivers, the 30-plus million people around the world who receive money through Remitly, most of whom are not senders today. For each of these customers, we are grouping 4 categories of product offerings, broadly defined around sending money, borrowing money, spending money and saving money. At the intersection of the 4 customer and product categories are many unique opportunities to serve our customers with products they need to live their cross-border financial lives. Each customer category and product offering reinforces the others, drawing on shared infrastructure and data to create compounding benefits as we scale. Core Send comprises the vast majority of our revenue today and is the base from which all our offerings are built, leveraging 14 years of experience, network depth and optimized cost structure as well as a DNA of trust and speed that is difficult to replicate. Everything outside of Core Send, we think of as growth accelerators. Our Borrow, Spend and Save products fuel a flywheel around sending money by addressing a broad set of cross-border financial needs. A more complete financial services experience, in turn, drives improved loyalty, higher remittance volumes and diversifies our revenue sources. This matrix is not a change, but a refinement of the strategy we presented at Investor Day. It provides a blueprint for execution and a disciplined lens for prioritization. We will go deep where the opportunity is largest and where we have the clearest right to win. And when I look at where we stand today, we have honestly only just started addressing a handful of these opportunities. I'll provide a brief update on recent progress and initiatives across each of our key near-term opportunities, starting with Core Send. In Core Send, we improved our distribution through new or expanded integration with WhatsApp and ChatGPT and deepened our network reach across every region we serve, improving reliability, speed and access for customers around the world. On the Receive side, in Latin America, we integrated Bre-B, Colombia Central Bank-backed instant payment rail and added Banco Bolivariano as a direct bank partner in Ecuador. In Asia, we added KBZPay in Myanmar, Rocket in Bangladesh and Coins.ph in the Philippines, extending our reach to tens of millions of users with near instant fiat and stable coin wallet-based payouts. And in Africa and the Middle East, we launched new Receive markets, including the UAE, bringing total received countries to 170. On the Send side, we enabled Discover card acceptance and launched access to FedNow and RTP in the U.S., allowing customers to fund transactions instantly from bank accounts while lowering our costs. Underpinning all of this, continued innovation in our payments and fraud system drove card acceptance and authorization rates globally in Q1, reinforcing network strength while improving speed, reliability and the customer experience. In the near term, we are focused on using AI to deliver real-time automated pricing across our 5,000-plus corridors, enabling regional leaders to capture incremental demand by delivering more customer value. We will also apply AI across the Remitly experience to improve the moments that matter most to customers, how long that transfer takes to arrive, how they pay and how we keep them coming back. And we will accelerate the pace of geographic expansion, bringing our leading digital remittance experience to some of the largest, fastest-growing Send and Receive countries in the world. This quarter, we updated our definition of high-value senders to include only those who send 5,000 or more in a single transaction, which better aligns our strategy, focus and resources with the specific needs of these who send higher transaction amounts. This customer needs a high-touch, certainty-first experience. And when we earn that trust, they generate substantially more value per customer than our core senders. In Q1, we continue to remove friction and improve the experience for these customers by increasing send limits with network partners and simplifying the onboarding experience. Our near-term focus for this category is to streamline pay-in methods and improve our risk assessment process while better targeting and addressing the specific and diverse needs of customers within this category. Our business offering continues to scale, growing volumes 30% quarter-over-quarter ahead of expectations. In Q1, we launched our Business Receiver product in 5 new countries, allowing freelancers and contractors in parts of Latin America and Asia to request and receive payments from clients in 26 countries around the world. We also launched a new feature that allows businesses to initiate the payment process by sending a link to the recipient's e-mail or phone, eliminating cumbersome data management and trust issues that often cause friction for small businesses. Our near-term focus for our business offering is continued improvements on the onboarding experience, geographic expansion and a steady drumbeat of features that appeal uniquely to small- and medium-sized businesses sending money internationally. Our Receiver strategy targets the more than 100 million people in the world who receive money in one currency and spend in another. Last month, we reported our first Receiver transaction following the launch of our Receiver & Request product in 6 countries, creating a new source of cross-border volume in countries where we already have a strong Send presence. With this launch, we also introduced a wallet that enables receivers to hold funds in USD or USDC stablecoins and withdraw to local bank accounts, mobile wallets or cash pickup locations. Our near-term focus for receivers is country expansion and enabling widespread access to stablecoin across our wallet offerings. Moving to Borrow, Spend and Save. Last year, we announced a range of products aimed at supporting these use cases, Send Now, Pay Later for our customers' liquidity needs and wallet and card for sending, spending and saving money with benefits. We have seen strong traction with these offerings as we continue to build, test and iterate with revenue more than doubling year-over-year. Building on these learnings and experience, this quarter, we will expand our offering for customers who have a need to Send Now, Pay Later, Spend and Save. For a low monthly fee plan, these customers will receive access to a global debit card to spend, a wallet to save, a short-term line of credit offered by a bank partner for remittances and benefits to reward loyalty, remittance use and the timely payment of credit balances. We believe there is a strong preference among customers with short-term liquidity needs for a card-based experience, where loyalty and rewards are a central feature. This will be the first of our Remitly card offerings that target specific use cases, addressing the unique needs of a broad cross-section of our customers. We have a long list of ideas for our card platform beyond Send Now, Pay Later that we plan to execute over the coming quarters. Our goal is to make the Remitly card the most versatile and best debit card in the world for the 300 million international migrants and 80-plus million small businesses worldwide. Our strategy is simple: expand the value and capabilities we deliver to the broad range of people and businesses sending money globally. Investors should expect a meaningful acceleration in the pace of product enhancements as we expand our offerings, guided by the operating principles we have put in place around clear ownership, distributed accountability and a bias for speed. Finally, I want to touch on the benefits we expect to derive from AI. Over the past several months, many of our peers have reported significant AI-driven gains in productivity and cost efficiencies. The pace of AI advancement is real and the impact is substantial. Remitly is fully part of the shift, and I will lead that effort aggressively. We have organized our thinking around 3 types of AI benefits. The first is the cost benefit, which drives greater operating efficiency and long-term cost savings. We've gone methodically through the organization function by function, to identify where we can use AI going forward to drive efficiency gains while maintaining or improving productivity. Through this process, we have identified opportunities to streamline our organization, building on the more than 250 headcount reductions and over 50 roles redeployed through efficiency gains year-to-date. That is a deliberate choice grounded in our confidence that AI-driven efficiencies can allow us to do the same work and in most cases, more work with a leaner organization. The second benefit of AI is speed, which helps unlock a faster operating cycle. Throughout our product and engineering teams, a new profile of skill set is emerging that combines product design, engineering depth and AI fluency in one person. We are calling them knowledge development engineers, and they are helping us disrupt the decades-long bottlenecks of product ideation, building, testing and launching from months and years to days. I would note that eliminating one bottleneck quickly reveals the next. So, as a company, we are actively rethinking every step in the process to deliver products that are, that move seamlessly from idea to customer value to deliver exceptional products and services. The speed AI benefit is harder to quantify than the cost benefit, but we believe its potential compounding effect on our ability to build, ship and iterate will be an enormous structural tailwind. The third and most consequential benefit of AI in the long run is the trust benefit. For our customers, trust means safety and comfort, speed and fair pricing and a high-quality person to talk to when things go wrong. AI can improve our ability to deliver on all 3. Take localization at scale. With AI giving us a broader and deeper understanding of our customers, we can now tailor the experience across every corridor with a level of personalization that wasn't previously possible. That relevance builds trust and trust underpins everything we do. 3 to 4 years from now, I believe this company will generate significantly more revenue with roughly the same number of people. The AI benefits is how I believe we will generate the investment capacity to get there, and we intend to put a large portion of that capacity back into growth. Let me close with this. Q1 was an exceptional start of the year; record results above guidance and a business that continues to demonstrate its resilience and its upside. But what energizes me most is not what is behind us. It is what lies ahead. We have a core business that is growing and improving. We have a strong portfolio of growth accelerators that are at the very early stages of what they can become. The early benefits of AI are beginning to create real measurable capacity for investment. And we have a team and a culture, I believe, is among the most mission-driven I've encountered in my career. I want to thank every member of the Remitly team. The execution, the energy and the commitment to our customers that shows up every day are what makes these results possible. And I want to thank our investors for their continued confidence and trust in this company. With that, I will turn the call over to Vikas. Vikas Mehta: Thank you, Sebastian, and good afternoon, everyone. We delivered another quarter of profitable growth and strong free cash flow, reflecting continued share gains and solid execution. First quarter revenue was $453 million, up 25% year-over-year and $16 million above the midpoint of our guidance. Revenue outperformance this quarter was driven by a number of factors. Recent regulatory changes in the United States drove an increase in customers' use of digital remittances, resulting in record new customer acquisitions. We also benefited from elevated demand associated with higher tax refunds in the U.S. and favorable market conditions in key corridors. Adjusted EBITDA was $102 million, $19 million above the midpoint of our guidance. Adjusted EBITDA outperformance was driven by higher-than-expected revenue, lower-than-expected transaction losses, and short-term pause in hiring following in-quarter headcount reductions. Now let me share an overview of our first quarter results and then provide our outlook for the second quarter of 2026 and our updated guidance for the full year. Unpacking revenue growth drivers for Q1, Send volume grew 37% to $22.1 billion. Supporting this strong volume growth, Send volume per active customer increased to nearly $2,300 or 14% year-over-year growth, a record on both an absolute and percentage growth basis. This was driven by growth in both transactions per active customers and record growth in average transaction size as we continue to win share and gain traction with high-value senders and business customers. Quarterly active customers grew 20% year-over-year to over 9.6 million, ahead of our expectations. QAU growth accelerated quarter-over-quarter, reflecting the shift in offline to online conversions associated with recent regulatory changes in the United States. Our Skip the Line campaign, highlighting the lower cost and convenience of digital remittances has been effective in attracting new customers seeking alternatives to traditional cash-based remittance methods. QAU growth was further supported by improved retention, reflecting enhancements in the core product to improve speed, reliability and the overall customer experience. As expected, volume and revenue exceeded QAU growth, as we saw a greater mix of Send volume from high-value senders and businesses. Our take rate this quarter was 2.05%, in line with expectations. The year-over-year change was driven primarily by growth in volume from high-value senders and business customers as well as a higher digital payout mix, which improved by more than 250 basis points year-over-year. As I have discussed in previous quarters, take rate is heavily influenced by mix, so it is not a great metric for analyzing our underlying business performance. We believe RLTE dollar growth and RLTE per active user are more indicative of our success than take rate when analyzing our performance. Now let me dive deeper into our revenue performance from a geographic and new products perspective. From a Send perspective, U.S. revenue grew 25%, driven by continued share gains. Rest of the World grew 31% year-over-year, showcasing the geographic diversification of our business. Our broad footprint means no single corridor disproportionately dictates our outcomes. Notable highlights from the Rest of the World this quarter include continued strength in the UAE, where we saw a meaningful increase in activity. Send volumes in the UAE rose over 150% year-over-year due in part to a short-term surge in volumes during a period of heightened regional uncertainty. On the Receive side, revenue from transactions to regions outside of India, the Philippines and Mexico grew faster than the overall revenue growth and now comprise over half of our revenue mix, further diversifying our business. I'll now move to discuss the performance of our growth accelerators. As a reminder, growth accelerators include all customer categories and offerings outside of core Send. Now let me dive deeper into a few notable highlights for Q1. As Sebastian shared earlier, this quarter, we are simplifying our structure for defining customers based on average transaction size. High-value senders are now those who send a transaction of $5,000 or more. This change reflects a refined focus on customers whose needs are specific to larger transaction amounts. In Q1, high-value senders volume grew 73% year-over-year, reflecting a 220 basis point year-over-year increase in mix. We continue to see outsized growth from high-value senders as we improve the customer experience and expand and refine our targeting of this customer category. And we'll continue to build on this momentum with product enhancements that further reduce friction and cater to the specific needs of these senders. Remitly business continues to scale ahead of expectations. We ended Q1 with over 20,000 Remitly business users and more than 30% quarter-over-quarter growth in business Send volume. Send volume and RLTE contribution per business customer was more than 2x higher than our core during the quarter. We launched our Receiver product this quarter, enabling direct access to the more than 30 million individuals and businesses who receive funds today from Remitly senders, but are not yet themselves Remitly customers. While nascent, we are very optimistic about this new offering. Now moving to Borrow, Spend and Save initiatives. Revenue from these offerings more than doubled in Q1. This quarter, we are expanding our Send Now, Pay Later offering, the comprehensive and simpler card-based experience for customers who have a need to Send Now, Pay Later, spend and save. This evolved offering will provide customers with a global debit card, a wallet, a short-term credit line for remittances funded by a banking partner and rewards for timely payments, all for a low monthly plan fee. As with prior Send Now, Pay Later offerings, this product will be made available only to existing Remitly customers with demonstrated repayment behavior. Unit economics for this product are expected to be strong as it will generate plan and interchange fees and float income. The short-term loans will be issued by a bank partner and the lines of credit tend to perform better than non-recourse advances. Moving forward, we expect the majority of growth in our Send Now, Pay Later borrowing solution to come from this card-based format. Continue to expect revenues from new products as we previously defined to more than double this year. High-value senders are expected to be additive to prior expected growth ranges associated with new products. Now including high-value senders, revenue from all growth accelerators is expected to be around 5% of total revenue in 2026 and exceed 10% of total revenue by 2028. These growth accelerators address customer needs that are adjacent to core senders, providing an efficient means of diversifying our business revenue base, while driving cost synergies from the shared use of our technology. Turning to our focus on driving profitable growth on Slide 13. As I noted earlier, Revenue Less Transaction Expenses or RLTE, is a useful indicator of our business model's long-term success. RLTE dollars grew 28% to $308 million, outpacing revenue growth and reflecting strong customer activity, improved partner economics, routing optimization and economies of scale. RLTE as a percentage of revenue this quarter was 68%, improving 156 basis points year-over-year. We remain focused on long-term RLTE dollar growth as we continue to attract new customers, innovate with new products and scale. Transaction expenses this quarter were $145 million and as a percentage of revenue was 32%. Excluding provisions for transaction losses, other transaction expenses were $124 million, improving 114 basis points year-over-year as a percentage of revenue and reflecting improved network economics. Provision for transaction losses was $21 million or 9.3 basis points as a percentage of Send volume, better than our expectations as we continue to benefit from efficiencies afforded by the AI-driven fraud prevention and detection model deployed late last year. With that, let me walk you through the specific non-GAAP expense categories. Notably, we delivered leverage across all expense categories once again in Q1. In Q1, we reduced our corporate workforce by more than 10% as a part of a broader effort to sharpen our organizational focus and drive efficiencies across the business. These were not easy decisions but were necessary to ensure we continue driving operating efficiencies as we scale our growth accelerators. Marketing investments remain disciplined and growth focused. We spent $82 million on marketing in Q1, up 20.7% year-over-year. As a percentage of revenue, marketing expense was 18.2%, improving more than 67 basis points year-over-year due to continued efficiencies. Marketing spend per active customer was $8.56, up 0.7% year-over-year, in line with our expectations. This quarter, we launched a Skip the Line campaign, a strategic initiative targeting off-line senders in the U.S. who historically relied on in-person cash agents to send money to Latin America. By meeting these customers where they already are, whether on WhatsApp or on billboards in their neighborhoods, we were able to drive meaningful growth in new customer acquisition from a category that is difficult to reach. Campaign results across our targets show strong lifts in Remitly awareness, consideration and intent to try. Our Lifetime Value to customer acquisition cost ratio was above 6x, while our payback period remained under 12 months. Continued efficiencies reflect growth in customer acquisition through unpaid channels and word of mouth. As a reminder, our marketing investments drive returns for many years beyond our initial investment given our growing base of repeat users. Customer support and operations expense were $25 million and as a percentage of revenue was 5.5%, improving 69 basis points year-over-year and continuing a multiyear trend of steady operating leverage. Today, over 97% of transactions are completed without any agent contact, a remarkable milestone that reflects both the reliability of our service and the sophistication of our AI-driven support capabilities. That customers do need help, our AI-based assistants are meaningfully reducing the need for human intervention, and early customer satisfaction scores tell an encouraging story with AI-led interactions performing as well as human agent interactions. Technology and development expense was $58 million and as a percentage of revenue was 12.7%, improving by 127 basis points year-over-year. Technology and development expenses grew 14% year-over-year, meaningfully below the pace of our revenue growth. We are beginning to see the benefits from embedding Agentic AI deeply into our engineering and product development teams. Our engineers are using AI-assisted code generation and automated testing to compress development cycles, ship faster and reduce the cost per feature delivered. We are still in the early innings and expect AI to be a durable contributor to technology-related operating leverage going forward. G&A expense was $41 million, growing only 2% year-over-year, our lowest growth rate ever as a public company. We delivered significant leverage, 209 basis points as a percentage of revenue year-over-year, reflecting deliberate and disciplined attention to our cost structure. In total, expense efficiencies this quarter reflect both benefits of operating leverage and a pause in hiring as we optimize our organization to better enable Sebastian's operating principles. Moving forward, we expect AI benefits to contribute significantly to the funding of our growth accelerators. Strong revenue growth, combined with efficiency and discipline, led to adjusted EBITDA of $102 million. We also delivered $49 million of GAAP net income, more than 300% growth compared to $11 million of net income in the first quarter of 2025. As we noted at Investor Day, our North Star is driving free cash flow growth while managing dilution and Q1 demonstrated continued progress on both fronts. Free cash flow grew to over $70 million in Q1. The difference between adjusted EBITDA and free cash flow is explained by working capital, capital expenditure and restructuring payments. Outstanding shares were 210 million, down quarter-over-quarter for the first time in our company's history, reflecting our disciplined approach to dilution management, including an elevated pace of share repurchase activity. Stock-based compensation was down 23% year-over-year, coming in at 6.1% of revenue, approximately 382 basis points lower than the first quarter of 2025. This benefit was partially aided by forfeitures associated with headcount reductions in Q1. For all of 2026, we expect stock-based compensation to increase in absolute terms year-over-year, but decrease as a percentage of revenue, as grants associated with recent leadership changes are partially offset by higher forfeitures. Q2 stock-based compensation will be elevated, reflecting both hiring activity that shifted out of Q1 and challenging year-over-year comparisons, as forfeitures in prior year were concentrated in Q1. We were meaningfully more active in repurchase of shares in Q1, opportunistically buying back $44 million or 2.8 million shares, nearly double the shares we repurchased since launching the program in the second half of last year. This reflects conviction in our long-term growth opportunities and a view that share repurchases are an attractive use of capital. We'll continue to be disciplined and opportunistic in how we deploy capital towards buybacks. We ended the quarter with around $650 million of cash. As a reminder, cash and access to liquidity are strategic assets in scale global money movement businesses like ours. This quarter, cash on hand, along with our revolving credit facility were optimally used to fund customer transactions and satisfy regulatory safeguarding requirements across thousands of corridors and regulatory jurisdictions. Our top priority for free cash flow after inorganic investments and customer prefunding requirements remains the repurchase of shares. With that, I'll move to our outlook. For the second quarter of 2026, we expect revenue of $483 million to $485 million or 17% to 18% growth. Second quarter growth reflects the shifting in timing of Ramadan and Easter to earlier in the year, elevated U.S. tax refunds benefiting Send volumes in Q1 and increase in volumes late in Q1 associated with geopolitical events and tougher comps. We continue to see strong momentum in our core, and we expect the continued shift towards digital remittances, share gains and the scaling of our growth accelerators to contribute to total company revenue growth of around 20% in the second half of the year, an increase relative to prior expectations. Breaking down our revenue growth expectations. In Q2, we anticipate Send volume growth to exceed revenue growth and revenue growth to be in line with quarterly active customer growth. Send volume per active customer is expected to grow in the mid- to high single-digit range, supported by a shift in mix toward high-value senders and businesses. For the full year, we expect revenue between $1.96 billion and $1.975 billion, reflecting a growth rate of 20% to 21%. As noted, we expect growth to accelerate in the second half of the year, reflecting strong demand in our core and additional contributions from our growth accelerators. Now let us pivot to profitability and expense guidance. Starting with RLTE, we expect Q2 RLTE margins to be modestly higher year-over-year, driven primarily by normalization of transaction losses. As a reminder, Q2 of last year was impacted by an outsized transaction loss stemming from a sophisticated fraud attack in May. For the full year, we expect R LTE margins to be broadly in line with 2025 on a normalized basis. As always, transaction loss rate may fluctuate quarter-to-quarter, and we remain disciplined about optimizing customer lifetime value while rigorously managing risks across our platform. Shifting to marketing. We expect continued marketing efficiencies in 2026 as we prioritize high ROI marketing opportunities. For Q2, we expect marketing spend per QAU to be slightly higher year-over-year as we engage customers around the timing of the World Cup, expanding our Skip the line Campaign to select countries and launch brand marketing in the UAE. Putting this all together, we expect Q2 adjusted EBITDA to be between $86 million and $88 million, translating to an adjusted EBITDA margin around 18%, an expansion of around 250 basis points year-over-year. For the full year, we expect adjusted EBITDA to be between $370 million and $385 million, representing an adjusted EBITDA margin of around 19%, also an expansion of around 250 basis points year-over-year. This improved EBITDA outlook reflects a more favorable outlook of revenue and our commitment and ability to balance growth and profitability, leveraging the benefits of AI as we continue to invest in driving top line growth. Our outlook also assumes normal levels of transaction losses for the remainder of the year. We expect to generate positive GAAP net income each quarter this year and strong year-over-year growth in GAAP net income and free cash flows. To summarize, in Q1, we delivered another quarter of exceptional results across our key financial metrics, achieving 25% revenue growth and 22% adjusted EBITDA margins. We also delivered record GAAP profitability and strong free cash flow, underscoring the power and scalability of our business model. With that, Sebastian and I will open up the call for your questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Nice results here. I want to, if you don't mind, Vikas, I know you went through this in the guidance, but maybe can you drill down a little bit more in the upside factors in the quarter, the thinking for the second quarter and the balance of the year. There's a lot of moving pieces with the tax refunds being higher and the remittance tax, and you talked about some of the geopolitical favorable market conditions and whatnot. So how does this impact your thinking on seasonal trends for the second quarter and second half? What new risk might there be here versus upside opportunity that may have been different than, say, 90 days ago? Vikas Mehta: Tien-Tsin, first of all, thank you for the question. And as I shared on the call, Q1 was an exceptional quarter, really strong highlights across the board, all the way from record new customer acquisition to record Spend per quarterly active users. Some of the highlights in the quarter included just the positive impact that we got from remittance tax and the shift from offline to online customers that aided our record new customer acquisitions. In addition to that, the higher U.S. tax refunds as we have seen, especially in the core sender segment, this is a really positive impact that we saw. Again, a lot of it is art and science, but clearly, there was some correlation there, especially in the late March time frame. Beyond that, as we highlighted, holiday timing, both Easter as well as Ramadan moved up a couple of weeks earlier in the year, which gave us a positive overall Q1 shape. Finally, as we noted, the global uncertainty with regards to geopolitics, especially in the Middle East corridors, created an upside on the UAE volumes, which grew north of 150%. So overall, really strong quarter. And as you know, Q1 becomes the foundation for full year. And with the record new customer acquisition, that creates a nice follow-through in out quarters. As we highlighted, the full year guidance is north of 20%, which means that in the second half of the year, there is a reacceleration that happens. And especially this is driven by both the strength in our core business as well as propelled by the growth accelerators Sebastian talked about. So overall, we remain very confident as we start the year. And just the overall business model that we have, which drives predictability, resilience as well as diversification gives us more and more confidence. Operator: Our next question comes from the line of Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: I wanted to ask about your M&A approach. It seems like in the last several quarters, the kind of growth vectors in your business have just exploded just in terms of product proliferation, monetizable services. Is that changing the way you're looking at M&A to have so many more opportunities to sort of accelerate these different growth paths through M&A? And then also, if you could just clarify one point, Vikas, on Tien-Tsin's last question. How should we think about that 1% cash remittance tax impact, which has been positive trending through the rest of the year? Is it something that you guys are counting on? Or is it something that you're seeing now? Are you're not sure you'll continue to see? Just a finer point on that, too. Sebastian Gunningham: Yes. So let me take the acquisition question. Clearly, as we see all the growth in these new customer categories, the high-value senders, the business senders, and the receivers, the volume, we are starting to analyze acquisitions a little bit different. As you know, we have not been a very acquisitive company. We don't, we are starting the process to understand what does it mean to have this kind of growth in these categories and where can we accelerate that. On the core business, I don't, as of right now, standing here today, I don't see anything obvious on the horizon. But I do, but we are, we're building up the muscle to learn how to do this, and I anticipate that sometime in the future, we will probably be able to answer this question more specifically. On the 1%, we don't have any science behind the 1%. We've got a lot of anecdotes, and we saw this in Q1, I suspect it's probably going to continue for the remainder of the year. It's hard to tell whether we captured a lot of it now or a lot of it is coming. There still is a fairly large group of people that transact in cash. I think it's inevitable that this will continue. Maybe it will take a couple of years, maybe it will take the remainder of this year. But as I said, we take it as an article of faith that it was one of the tailwinds to our business, and we expect it to continue for the rest of the year. Vikas Mehta: And just to add a point or two to Sebastian's thoughts. We'll continue to invest in the Skip the line campaign. We have seen a lot of success coming through that. And secondly, the product enhancements, we want to meet where the customers are. As we shared earlier in the quarter, we came out with enhancements to WhatsApp. We launched a ChatGPT integration. So we feel that by creating strong product enhancements, we can continue to drive the offline to online shift. Operator: Our next question comes from the line of Darrin Peller with Wolfe Research. Darrin Peller: Look, I want to back out, if we take out of the equation, the, let's call it, the remittance tax, the Mid East impact or the, even tax refunds, just anything that might be shorter term and not a business model opportunity for you guys. When I think of the sustainable drivers of upside, the growth accelerators effectively, help us understand where they came in versus your prior expectations. I mean if you looked at high-value senders or business or receivers or even some of the borrow on Spend and Save areas, I'm curious to know where they're trending versus what you initially thought. And then maybe a little more on go-to-market around high-value senders and business just because it seems like such a great, I mean, it's really contributing to the volume growth rate. And I know it's an area of real focus for you guys. So I'm curious where you see that going from here in terms of your ability to invest in it and ensure that it stays a key contributor. Sebastian Gunningham: Yes. So I'll make the comment that, first of all, these are not segments that we invented. As we looked at all the data and we looked at the customers coming to Remitly, we started to see this high value greater than $5,000 transactions, $10,000, $50,000. And so it was customers finding us and starting to use the platform. And so we've done, this is not, we have a lot of ideas to make the product that much better. So without much investment we've started, we see a lot of growth in this area, and it's overachieved all our plans so far. As of right now, we've now dedicated a full team. We have a full engineering team. So we're launching new features for that customer daily at this point. The business, the same thing happened. We started to see small businesses using the Remitly infrastructure. As you know, if you're a small business in the U.S., it's very painful to move money across the world. And so we've done the same thing. That business continues to overachieve our plans. We've now dedicated a team. We have a full engineering team. We have a new, that's a different go-to-market model. We have more partnerships. So we are also seeing week-to-week improvements. And as you know, that's a very large market. We don't, you don't need to be, you don't need to win that much to make it a pretty big business. I was in Manila last week, and I was talking to a group of freelancers, and this is a very active group of people who are requesting money to be paid from the U.S. the virtual assistants, virtual salespeople, and this is happening all over the world. So we see a lot of traction there. And then the final category is a little bit more unknown. That's these 30 million customers around the world who receive money from Remitly. We've launched our first set of products. It's very early days. I don't, that's not contributing much yet. We think it's a big opportunity, but that we have to navigate our way through that, see what the right products are. So overachievement in high-value senders, and we're doubling down on that, overachievement on the business side, and we're doubling down with that. And on the receiver side, seems a very exciting market, TBD. Operator: Our next question comes from the line of Cris Kennedy with William Blair. Cristopher Kennedy: Just wanted to follow up on the Remitly, the business initiative. Clearly, it's outperforming your expectations. But is there any way to frame kind of how that business is ramping relative to the high-value send initiative that was launched maybe 18 months ago? Sebastian Gunningham: Yes. I think from; the high-value sender is an extension of our core sender market. So if you look at the product needs of that sender, it's a close cousin to all the needs of the core sender. The business sender is different, has different requirements. They need bulk send, they need different integrations to their ERPs and payment systems. So it's a bit of a different customer. So the, it's a little bit of an unfair comparison because the go-to-market is going to be different. And we've seen the overachievement without much go-to-market investment yet. And so I'd say that if you were to look at the numbers, it's probably pretty, it's a pretty similar ramp of growth between the high-value senders and the business senders, but quite different potential as to what we need to do to continue to accelerate that growth. Operator: Our next question comes from the line of Aditya Buddhavarapu. Aditya Buddhavarapu: Could you just give an update on the rollout of the wallet and card? The U.S. was, of course, the first market, but any update on maybe the rollout into other markets during 2026? And also maybe somewhat related to that, the rationale behind focusing on the card as the main channel for Send Now, Pay Later product. What did you see which made you take that route? Sebastian Gunningham: Yes. Well, first, I'll start by for the last year, we've been experimenting with this Send Now, Pay Later idea, which is a short-term liquidity loan and we've had a very, very strong signal. So we, this is a killer idea, we think. And we're going to, customers have told us that the use of a card is extremely valuable. So we're wrapping up a number of ideas under this card construct, which obviously are going to help the economics and allows us to really simplify how we go to market with this. Remember that the Send Now, Pay Later is an invite only. The customer already sent once on Remitly. We know some stuff. So we think it's a very interesting product. The signals of all the testing over the last year are very good. And so we see that launch as quite a lot of potential. We've obviously got a long list of things that we're going to add to a card to make it, to make customers use it and loyalty, and you can imagine all the things that we can add to a card. It is U.S.-focused first. We're doing it with a bank partnership. But our ambition is to make this global. But as of right now, we're going to go for the next few quarters with a U.S. launch only. Operator: Our next question comes from the line of David Scharf with Citizens Capital Markets. Unknown Analyst: This is Zach on for David. Congratulations on another strong quarter. I wanted to dig in a little bit on the mix with the high-value senders. So obviously, as it's ramping up, it sounds like over 10% of revenue by 2028. I want to see if there's any kind of commentary or anything to kind of highlight in terms of how that shift will impact any kind of geographic mix or concentration or any expectations for loss rates versus the kind of core senders book? Vikas Mehta: Yes. Thank you for the question. As we highlighted, we're very excited about the high-value senders customer category. And as we highlighted, this used to be part of just our core Send, but we are increasing our focus putting a dedicated organizational structure and muscle behind it, putting a product thought process as well as marketing focus around it. And as we do that, we see the potential is massive, right? So we're super excited for the potential here. Even as we do that, in parallel, we are seeing very strong performance. As you saw this quarter, the high-value senders volume grew 73%. And as we look at a lot of product enhancements, increasing our Send limits, we feel that the volume, especially on the, call it, 10,000 plus, 25,000 plus, 50,000 plus, a lot of those are really big greenfield opportunities for us where we can start attracting more and more customers. If you even think about our marketing message, that is more generic. And as we try to make it more targeted and focused towards these customers, we feel the awareness as well as the overall service that we provide should resonate really well. So very excited about it. The availability is across the globe, same as what our core sender availability is. So from a mix, from targeting the customers, we believe that it should be a global adoption and global growth, and that makes it even more exciting for us. Operator: Our next question and final question comes from the line of Zheqian Deng with KeyBanc Capital Markets. Zheqian Deng: This is Zheqian on behalf of Alex Markgraff. And I was wondering if you could provide more context on Remitly in ChatGPT, any financial consideration in it? And also a question on WhatsApp expansion. How can we assume Remitly to expand on this? Obviously, there's more geo coverage, but seems there's also an opportunity on the Receive side partnership as well. Sebastian Gunningham: Yes. Thank you. Good question. So no financial interchange with ChatGPT. These are early days. We're clearly entering a time where customers are probably going to interface with all their financial services with different interfaces and be it WhatsApp and WeChat and ChatGPT, all the LLMs and the chats and eventually agents also. So we're, we have a lot of experiments going on. We've announced the WhatsApp integration, which allows customers to interact directly with Remitly through WhatsApp. ChatGPT is an early experiment. We see some use there, and it's growing day by day. I follow that every day. And we have a long list of ideas to make sure that all the Remitly infrastructure and all the benefits of the cost efficiencies, the speed and the service behind moving money is available and relevant if these evolutions in how people interface with money movement changes. So early days, good signals so far, and we'll keep you posted on what the next set of ideas are. Operator: Thank you. This concludes the question-and-answer session. Thank you for participating in today's conference. This concludes the program. You may now disconnect.
Operator: Greetings, and welcome to the LTC Properties, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. Joining us on today's call are Pamela J. Shelley-Kessler, Co-President and Co-Chief Executive Officer; Clint B. Malin, Co-President and Co-Chief Executive Officer; Caroline L. Chikhale, Executive Vice President, Chief Financial Officer and Treasurer; J. Gibson Satterwhite, Executive Vice President of Asset Management; and David Boitano, Executive Vice President and Chief Investment Officer. Before management begins its presentation, please note that today's comments, including the question and answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in the LTC Properties, Inc. filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K dated 12/31/2025. LTC Properties, Inc. undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note this event is being recorded. I would now like to turn the conference over to LTC Properties, Inc. management. Please go ahead. Pamela J. Shelley-Kessler: Good morning, and thank you for joining us. LTC Properties, Inc. is successfully executing our SHOP strategy. Our capabilities, reputation, and culture are resonating with sellers and operators, and these relationships are driving investment opportunities and record external growth. Clint B. Malin: Allowing us to scale incredibly quickly. We have strong conviction that our strategy is the right one to create a higher growth profile company with better risk-adjusted returns to drive shareholder value. With SHOP currently projected to represent 45% of our total investments and 40% of annualized NOI by year-end, the shift in our portfolio mix is dramatically enhancing LTC Properties, Inc.'s long-term ability to grow FFO and FAD per share above our historical rate. We are on track with our $600 million SHOP acquisition midpoint guidance, and with the expected closing of second quarter transactions, we will be more than halfway to that target. Additionally, to further increase our SHOP mix, we would consider transactions that capitalize on attractive skilled nursing pricing by recycling capital into higher-growth SHOP assets. Our operator partnerships, our relationship-centric culture, and our significant investment in the SHOP platform are driving our transformation and positioning LTC Properties, Inc. as a competitive force. I will now turn it over to Gibson for more insight on the portfolio. J. Gibson Satterwhite: Thank you, Clint. Our focus is on optimizing risk-adjusted returns for our shareholders by investing in our SHOP portfolio and opportunistically recycling capital, positioning LTC Properties, Inc. for higher intrinsic growth. As Clint noted, SHOP is expected to account for 40% of our annualized NOI by year-end, with the potential to expand even further. This target incorporates reinvestment of approximately $265 million in planned dispositions and loan repayments from skilled nursing assets this year. Of that amount, $77 million has closed, and $190 million is expected to close in the third quarter. Our guidance projects a July 1 payoff of the Prestige loan, in line with our notice of intent earlier this year. SHOP performance continues to reinforce conviction in our strategy. First-quarter SHOP NOI was in line with our expectations. For our core SHOP portfolio, which consists of 27 communities at or near stabilization, including those acquired through the first quarter of this year, we are reiterating prior guidance of 14% pro forma growth at the midpoint. You can find more information on this portfolio in our supplemental. To frame the impact of our transformation, the pro forma growth rate for our overall portfolio increases to 5% to 7% at our 40% SHOP NOI target, from the low 2% range embedded in triple-net leases. That change is driven by increasing exposure to SHOP assets with growth prospects in the low to mid-teens over the foreseeable future. We can further increase our intrinsic growth rate should we choose to take advantage of opportunities to recycle more capital into SHOP, given the strong pricing for skilled nursing assets. Our 2026 guidance includes platform investments, adding the people and data capabilities needed to scale and support double-digit SHOP growth. We expect the core infrastructure to be largely in place by year-end, enabling us to continue to scale rapidly and best support our operators. Now I will turn the call over to Dave to discuss investments. David Boitano: Thank you, Gibson. LTC Properties, Inc. has spent 18 months building a platform designed to execute with speed and certainty. We are well on track to achieving our $600 million midpoint investment target and believe, given the volume of opportunities we are evaluating, that a comparable level of annual investment is sustainable in 2027 and beyond. So far this year, we have closed around $120 million in investments, with nearly $250 million on course to close in Q2. Additionally, we have signed LOIs for off-market third-quarter acquisitions totaling $90 million. Our pipeline continues to be robust, with well over $5 billion of opportunities under consideration and visibility for continued investment growth. Our relationship-centric approach is working. By the end of the second quarter, we will have 11 SHOP operators, including nine that are new to LTC Properties, Inc. in the past year, reflecting our success in retaining and growing with existing operators at the communities we have acquired. This strong pool of operating partners has been the source of several follow-on investments and provides great momentum as we continue to build our portfolio. Key to LTC Properties, Inc.'s growth is our legacy of deep industry relationships, which, in combination with our transactional agility, gives us an edge in gaining access and insights to growth opportunities. Several investments have come through partner referrals, underscoring the synergy of our culture and our commitment to relationships. A number also have been off-market, demonstrating again the benefit of our relationship focus. Our rapid SHOP growth has not happened by chance. It is strategic and deliberate, reflecting an investment philosophy focused on assets 10 years of age or younger with operators who have deep local and regional knowledge. We emphasize asset quality, size, mix, and market dynamics that favor our long-term competitive position. These criteria guide us toward the right balance of opportunities and durable returns. Today, we are seeing a high volume of potential transactions. Here again, our operator alignment is central to identifying the right assets and markets to support solid long-term performance. Experienced senior housing investors know that community performance depends on strong operating partners. LTC Properties, Inc. is deeply grateful for our operator colleagues and the excellence and commitment they bring every day to the seniors they serve. I will now pass the call to Cece for a review of our financial results. Caroline L. Chikhale: Thank you, Dave. Including year-to-date ATM sales of $95 million, our current liquidity is $585 million, and with $190 million of proceeds expected from asset sales and loan payoffs, we remain confident in our ability to finance future SHOP acquisitions. Our pro forma liquidity totaled $775 million, providing a long investment runway. At the end of the first quarter, our pro forma debt to annualized adjusted EBITDA for real estate was 4.4x, and our annualized adjusted fixed charge coverage ratio was 4.6x. We remain well within our stated leverage target of 4x to 5x, but believe that we can reduce that further over time as a result of our organic SHOP growth. Compared with last year's first quarter, core FFO per share improved by $0.04 to $0.69, and core FAD per share improved by $0.02 to $0.72, representing 63% growth, respectively. Increases were due to SHOP acquisitions and conversions to SHOP from triple net, increases in interest income from loan originations and additional loan funding, and higher rent from market-based rent resets. The increases were partially offset by an increase in interest and G&A expenses, primarily to support our growing SHOP portfolio, as well as a decrease in rent due to asset sales. We are reiterating our 2026 guidance for core FFO per share projected in the range of $2.75 to $2.79 and core FAD per share in the $2.82 to $2.86 range. As a reminder, our 2026 guidance includes $400 million to $800 million of SHOP acquisitions, with SHOP NOI in the range of $65 million to $77 million, and FAD CapEx of approximately $5 million. It also includes $265 million of proceeds from asset sales and loan payoffs. Other assumptions underpinning our guidance are detailed in yesterday's earnings press release and supplemental, which are posted on our website. Now I will turn the call over to Pam for closing comments. Pamela J. Shelley-Kessler: Thanks, Cece. LTC Properties, Inc.'s transformation continues. What began last year through the combination of acquisition and conversions of seniors housing communities ramps up this year with an additional $600 million of SHOP acquisitions projected at the midpoint of guidance, more than half of which will be completed by the end of the second quarter. We are deliberately curating a SHOP portfolio designed to compete effectively today and in the future when new supply eventually comes online. Although new construction starts remain near historical lows nationally, we are accelerating LTC Properties, Inc.'s organic growth profile and reducing our exposure to lower-growth triple-net lease investments while expanding our roster of strong operators to support our mutual growth. In 2027 and beyond, our strategy will focus on tactical growth in SHOP, adding additional high-quality assets and driving outsized NOI growth. As a premier seniors housing capital partner, LTC Properties, Inc. is well positioned to drive substantial growth through SHOP. Our smaller size creates agility, allowing us to drive accretive change faster than our larger peers and move the needle through single-asset and small-portfolio acquisitions. Our SHOP focus over the past 18 months has enabled a successful transformation and created a clear execution advantage. From our cooperative conversions of $175 million of triple-net leased communities into SHOP a year ago, we will have grown our SHOP portfolio to nearly $1 billion by the end of the second quarter and significantly increased our ability to drive future earnings growth. The consistency of our execution and performance is driving results and reinforces the conviction in our SHOP strategy. Our goals remain clear: support our operators who care for our nation's seniors and deliver superior long-term shareholder returns. With that, we are ready to take your questions. Operator: Thank you. We will now be conducting a question and answer session. We will pause for a moment to poll for questions. Our first question today will come from Austin Todd Wurschmidt with KeyBanc Capital Markets. Austin Todd Wurschmidt: Hey, good morning, everybody. Could you provide some additional details around pro forma NOI growth for the 27 SHOP assets in the first quarter? And then maybe give us a sense of how occupancy trended sequentially and year over year within that NOI figure? Thank you. J. Gibson Satterwhite: Hey, Austin. This is Gibson. First, to give you some context around the disclosure: when we gave the pro forma 2025 for the 27 core SHOP portfolio, it was to help give an indication of the growth characteristics in that portfolio to the market and to our shareholders. But we decided against giving that on a very detailed quarterly basis going forward. What we will do is roll that core SHOP performance forward on a quarterly basis so you can track that with the metrics that we have realized during our ownership. For color behind what is going on in Q1 in that core portfolio, it came in line with our expectations for EBITDAR. Rates were a little higher. When we set guidance, we anticipated a little seasonal softness in Q1, which we realized. Directionally, occupancy turned around mid-quarter. If we look at it year over year, the occupancy troughed at a higher level, meaning the occupancy at the trough in Q1 of this year was higher than occupancy at the trough in Q1 last year. We are seeing some green shoots in terms of occupancy increasing since it troughed in February. Looking at the sales pipeline, our leads and tour volume going into the spring and summer selling season, we feel really confident, given what we know right now, in reiterating our guidance. Austin Todd Wurschmidt: A lot of helpful detail, and appreciate the context. With respect to investments, you had $157 million I think you said last quarter that you had expected to close by April. I am just wondering what drove the delay, and did a subset of that or all of those move within the $250 million? Or were there changes in the investment pool? Any details you can provide on that, as well as expected pricing for those assets? Thank you. Clint B. Malin: Sure. Austin, this is Clint. The delay is primarily related to a single off-market follow-on transaction. The seller was focused on a tax-efficient transaction, and to accommodate that we are working with them on structuring a downREIT. The seller needs some additional time to address some tax questions on their side. In working on this off-market transaction, that aspect is what led to a little bit of delay. We are very excited about this deal and about growing with this existing operator. This deal will add two newer and two larger communities to our portfolio, with a continuum of care spanning IL, AL, and memory care. In the meantime, while that was slightly delayed, as Dave mentioned in his prepared remarks, we have added another $200 million expected to close in Q2 and Q3. Dave can talk about rates. David Boitano: Yeah. So cap rates, going-in yields, have been right around 7%. We have been able to maintain that well. We are very pleased with that. It ebbs and flows a little bit from deal to deal, but generally speaking, that is where we have been coming in, Austin. Clint B. Malin: And, Austin, I would like to add some color. As we have increased the pipeline, we are seeing a lot of opportunities. Right now, at the $460 million mark—which includes what we have closed to date and what Dave spoke about regarding investments by quarter—that will get us by 3Q to 75% of our $600 million midpoint guidance. We feel very confident about where our investments are right now. We have eight transactions in total for 12 communities. The average age of that $460 million—again, including what we already closed in Q1—is 10 years, which has been very consistent with what we have talked about. Sixty-five percent of these deals in the pipeline are sourced off-market. With the Q3 closings that Dave spoke about under LOI, that is going to add two more operators—four new operators this year—and get Q3 up to 13 operators. We have two follow-on transactions. Sixty percent of the communities of this $460 million span a continuum of IL, AL, and memory care. The average size of the community is 100 units. Seventy percent of these deals are in primary markets. We feel very confident in our ability to source transactions, and, as Pam mentioned in her comments, we are buying assets that are going to be able to compete effectively against newer assets when those eventually come online. Austin Todd Wurschmidt: A lot of helpful detail, Clint. Just to clarify one thing before I yield the floor. You said you added another $200 million. Is that specific to the operator that is focused on the tax-efficient transaction? Because the $157 million is now $250 million closing in Q2, and then there is $90 million of signed LOIs set to close in Q3. So closer to $300 million. Can you reconcile the adding $200 million versus what I am getting to on the $300 million? Thanks. Pamela J. Shelley-Kessler: Austin, it is Pam. It was $90 million that is under LOI, expected to close probably in the third quarter. Austin Todd Wurschmidt: That is the difference. Alright. Thank you. Clint B. Malin: Thank you. Operator: Our next question will come from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Hi, good morning. Hope you can hear me okay. I wanted to ask about the earnings guidance for the year. There is an implied deceleration from the first-quarter run rate, so I am curious on the drivers there. Is there any triple-net softening in some of the rents versus the conversion to SHOP, any temporary cash flow degradation, or any one-timers in the first quarter that will not repeat? Caroline L. Chikhale: Juan, it is Cece. In the first quarter, there was a little pickup because of timing differences. For the most part, we think we are going to be in line. There is going to be a ramp-up for SHOP NOI, as Gibson has talked about in the past, and we still think it is in line. There is some uncertainty out there in the market with interest rates. We are not sure which direction it will go with the new Fed chair, but we will give you an update next quarter. Juan Sanabria: Great. And second, you mentioned potential monetization of some skilled nursing assets. Curious on the potential scope and where you see market pricing for in-place rents. Clint B. Malin: Thanks, Juan. We are supportive of the skilled nursing industry, and we do not see any immediate near-term headwinds. What we have recycled to date going back to 2025 has been for specific reasons. Prestige, as Gibson mentioned on our last call, was about reducing concentration to an operator and state, and reducing our loan book. Other sales were related to lease maturities and some purchase options. Those were at attractive 8% caps, which we felt very good about. Going forward, we would look to capitalize on the attractive pricing we are seeing in the market. Anything we do would be opportunistic—recycling from lower-growth triple-net leases into higher-growth SHOP assets—and we would look to limit, if anything, and avoid dilution. Our coverage on an EBITDAR basis is almost 2.0x, which is historically extremely strong. We are very comfortable with our skilled nursing portfolio and reduced concentration. Any actions would be opportunistic. Juan Sanabria: Great. So, just to summarize, given the high rent coverage, the yields could be closer to what you are buying SHOP at—around the 7s—given the rent coverage? Clint B. Malin: Thank you. Operator: Next, we will move on to Richard Anderson with Cantor Fitzgerald. Richard Anderson: Thanks. Good morning. I am looking at Slide 12 and the guidance you provided for SHOP. I appreciate you are in growth mode, so it is hard to get a real sense of any same-store organic growth picture. If you were to do a hypothetical stress test of your portfolio, would it be high single-digit NOI growth, putting aside additional acquisitions—the type of growth we should expect when the time comes that you are able to disclose a same-store perspective? J. Gibson Satterwhite: Hey, Rich, it is Gibson. Good question, and I think you have asked similar questions on previous calls. In my prepared remarks, I gave the math of how the higher growth rate in SHOP moves the needle for our overall portfolio, and cited that if you assume low to mid-teens SHOP NOI growth, that was the driver behind that math. What has changed from our prior calls is that now we have some experience with the portfolio. We are really confident in what we are assembling and what the deal team is buying. If you think about the math embedded in that same-store portfolio, we think you can get double-digit—around 10%—NOI growth even without occupancy increases, with a 170 to 200 basis point spread between RevPOR and expense growth. Our guidance includes 140 basis points of occupancy increase and 14% growth at the midpoint; if you strip out occupancy to be conservative, we are still comfortable with around 10% NOI growth assuming about a 5% RevPOR increase. We have seen recent history sustain that. Step back and look at overall supply-demand dynamics—baby boomers turning 80, lack of new supply—and we feel more confident in a higher growth profile going forward. Richard Anderson: You mentioned platform investments being made that you expect to be largely completed and scalable by the end of this year. You and others are growing SHOP through external sources, but then you have to operate it, and you are married to it. How do you stress test the future of your SHOP portfolio? Things can get complicated in this business. What types of people are you bringing in, and what are you doing to manage through tougher environments? Pamela J. Shelley-Kessler: Rich, no one thinks it is a layup. We fully understand and appreciate the intensity with which you build the SHOP portfolio and operations. As we have discussed, we seek out the best managers that are the best in their markets, with strong track records. We supplement that with the data and analytics that Gibson has talked about to help arrive at better decision-making. Our value-add to operators is helping them with aggregating data. That is an expensive task, and that is what we have undertaken. We have hired people to help with data analytics, and we have hired strong asset managers with historical track records managing SHOP portfolios. If you are going to do SHOP, you have to go all in. We have fundamentally changed the way this company thinks and operates, and the way we acquire properties. We are not managers; we are hiring the best managers and helping them create the best outcomes for our portfolio. Clint B. Malin: One thing we have done on top of that is be very strategic with the portfolio we are acquiring—newer assets. We have retained the managers on the majority of all but one community we have closed to date. We have done this by design to curate a stabilized portfolio with the ability to drive continued improvement that Gibson spoke about. We are building larger, newer assets that can compete. We have the combination of the people and the assets to be successful. We have been in the business a long time, and we know this takes a lot of work. J. Gibson Satterwhite: Rich, I will add: the structure is relatively new to LTC Properties, Inc. in terms of our implementation, but we have been hard at work over the last 18 to 20 months, very deliberate about forming a plan, working through the issues with the initial conversions, and executing on that plan. Zooming out, we have had exposure to private-pay senior housing, and we have all been in the business for a long time. We are acutely aware of the challenges operators face. It is a tough business. We feel we have aligned with good operators and hired experienced people on the team, and we want to be there to support them. Richard Anderson: My last question: when you think about structurally how you are compensating your managers, what is the mindset? Percentage of revenues, NOI, incentive-based? Is there a specific model, or is it case by case? Clint B. Malin: It is a general model we are following. We look at base fees calculated on revenues as well as the bottom line—we think that helps align interests in the current 12-month period. We set budgets together, and if budgets are exceeded, we look to reward our operating partners with incentive fees. We are also aligning interests long term with synthetic promotes over time, so that when operators make decisions today between growing occupancy or rate, it is with a mindset of how it can benefit the communities long term and allow them to achieve financial awards through a synthetic promote structure a couple of years down the road. So, current 12 months, the ability to beat the budget, and a long-term horizon on overall performance—we think that is a good alignment of interests for both parties. Richard Anderson: Great. Thanks, Clint. Thanks, everyone. Clint B. Malin: Thank you. Operator: Next, we will move to Michael Albert Carroll with RBC. Michael Albert Carroll: Yes, thanks. Looking at your SHOP operator list, it looks like you have a number of operators within your portfolio. Are there a handful that you have closer relationships with that you want to continue to expand? For some with maybe one or two assets, is the plan for that to grow? How hard is it to have one operator managing one asset—does it make sense to have fewer operators managing bigger portfolios? Clint B. Malin: This is Clint. We started this investment platform mid-year last year through the initial conversions. We would look to grow with all of the operators with whom we have built relationships, and we will be adding three more relationships following this. This is a testament to the effort we put in back in 2024 when we first announced we were going in this direction. We took the time to go out and market what we were doing and let operators know, and this is the result of that intentional effort. Yes, we would look to grow with each one of these operators. Michael Albert Carroll: Is it harder if there are more operators within the SHOP portfolio? Is there a limit—are you fine with what you have now since you are adding three more? Is there a number you want to cap to make sure you can track each relationship? Pamela J. Shelley-Kessler: We have not set any limit. It really comes down to the investment opportunities. As Clint mentioned in his remarks and follow-up Q&A, the majority of our investment opportunities are coming from our operators off-market. To the extent that this is the source of deal flow for us, we would not limit that. We are targeting the best operators in the geographic regions in which we have properties and where we are looking to grow. We would not limit it, though there is a law of diminishing returns. We would not have something like 50 operators, but where we are now and adding operators in the next year or two is very manageable by our asset management team. J. Gibson Satterwhite: We have built into our staffing plan additional resources. The core platform Rich was just asking about—we feel all the major pieces will be in place to allow us to scale, and we have a staffing plan aligned with our growth strategy. Michael Albert Carroll: Switching gears back to the SNF sales. Have you started marketing some of these portfolios, or is it something you would consider if something came up? Clint B. Malin: We are not marketing at this point, but we have received a lot of inbound phone calls. We are engaging, but it has to be opportunistic pricing that works for us to recycle into higher-growth SHOP assets. Michael Albert Carroll: Is there a specific size we should think about for potential sales? Could it be $100-plus million, or is it too early? Clint B. Malin: It would be situational depending on what comes up. It could be larger or smaller. Michael Albert Carroll: Okay, great. Thanks. Appreciate it. Clint B. Malin: Thank you. Operator: Our next question will come from Omotayo Tejumade Okusanya with Deutsche Bank. Omotayo Tejumade Okusanya: Yes, good morning, everyone. I also wanted to focus on Slide 12, the SHOP performance. When you look at the quarterly results disclosed on the page, RevPOR in Q2 2025, when we just had the SHOP conversion portfolio, was almost $10,000. In March, it was around $9,500. It has gradually dropped to about $7,850 by Q1 2026 with all the additional acquisitions. Can you talk about the post-conversion acquisitions—the characteristics of that portfolio that may be driving down RevPOR from the original 13 conversions? Are you targeting different market segments, or how should we think about what is being bought relative to the initial 13? Pamela J. Shelley-Kessler: Thanks, Tayo. It is a very simple explanation. Go back to the original 13 properties in February: 12 of those were memory care. Memory care has a much higher RevPOR. As you see us adding more traditional seniors housing properties into our SHOP portfolio—a mix of IL, AL, and memory care—you see that gradually go down. There is nothing to read into that other than the mix of the portfolio changing as we diversify away from standalone memory care. Operator: There are no further questions at this time. I would like to turn the floor back to Clint B. Malin for any closing remarks. Clint B. Malin: Thank you. Thanks to everyone on today's call for your ongoing support. We look forward to updating you on our progress next quarter, as well as seeing some of you at upcoming investor conferences. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.
Operator: Greetings. And welcome to the Global Net Lease, Inc. Q1 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. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordyn Schoenfeld, Vice President of Corporate Strategy. Thank you. You may begin. Jordyn Schoenfeld: Thank you. Good morning, everyone, and thank you for joining us for Global Net Lease, Inc.’s first quarter 2026 earnings call. Joining me today on the call is Michael Weil, Global Net Lease, Inc.’s Chief Executive Officer, and Chris Masterson, Global Net Lease, Inc.’s Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statement section at the end of our first quarter 2026 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. As stated in our SEC filings, Global Net Lease, Inc. disclaims any intent or obligation to update or revise these forward-looking statements except as required by law. Also during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use, such as AFFO and Adjusted EBITDA, and reconciliations of these to our results as reported in accordance with GAAP are detailed in our earnings release and supplemental materials. I will now turn the call over to our Chief Executive Officer, Michael Weil. Michael Weil: Thanks, Jordyn. Good morning, and thank you all for joining us today. Before we review our first quarter 2026 results, I would like to discuss our planned strategic acquisition of Motive Industrial, which we announced earlier this week. This transaction is a direct reflection of the strategy we outlined on our last earnings call and the tangible progress we have already made towards implementing it. Following a transformational year for Global Net Lease, Inc. in 2025, when we took deliberate actions to significantly reduce leverage, strengthen our credit profile, and improve the overall quality of our portfolio, we are now positioned to focus on the disciplined recycling of capital into high-quality industrial and retail assets. This includes pursuing selective and opportunistic asset sales, particularly those that reduce our office exposure, while redeploying proceeds accretively into single-tenant industrial and retail investments. The Motive transaction would do just that, as we believe the closing of the transaction will advance the durability and quality of our earnings profile by adding a high-quality portfolio of industrial net lease assets across the United States, supported by long-duration leases and creditworthy tenants that align well with our investment criteria. The transaction is expected to be immediately accretive with approximately 4% accretion to AFFO per share, including meaningful cost synergies through the elimination of duplicative G&A. Importantly, the transaction is structured as an all-stock acquisition with a fixed exchange ratio of 1.975 to lock in the 4% accretion, making it leverage neutral and requiring no new external capital. We believe this structure will preserve the balance sheet strength we have established while allowing us to maintain meaningful flexibility to pursue future strategic growth opportunities. Motive’s long-duration leases have a weighted average lease term of 15 years, include 2.4% annual rent escalations, and are supported by a well-recognized tenant base of leading global brands, with approximately 45% of annual base rent derived from investment grade or implied investment grade tenants. On a pro forma basis, the acquisition is expected to extend our weighted average lease term from 5.9 to 6.7 years, increase our industrial exposure from 47% to 50%, and reduce our office concentration from 26% to 24%, which will collectively strengthen our portfolio mix and expand our geographic reach across key U.S. industrial markets and enhance the overall stability of our combined platform. We are very excited about this transaction, which we expect to close in the third quarter of this year. In addition to the Motive transaction, we are actively engaged in other transaction activity consistent with our corporate strategy. Reflecting the mission-critical nature of our office portfolio, we are under contract to sell a 33 thousand square-foot office building leased to the General Services Administration for $13 million at a 7.2% cash cap rate, with closing expected in 2026. Beyond this transaction, we currently have additional office properties in our portfolio that we believe may present a similar disposition opportunity going forward as we continue to focus on lowering our office exposure. At the same time, we are under contract to acquire a 100 thousand square-foot single-tenant industrial asset occupied by a Fortune 50 investment grade tenant for $14 million at an 8.2% cash cap rate, which would further demonstrate our ability to prudently execute our accretive recycling strategy into higher-quality assets that we believe will generate more compelling risk-adjusted returns. The asset features a 2031 lease maturity, and we believe our longstanding relationship with the tenant will be advantageous as we are already in simultaneous discussions regarding an early long-term lease extension. We are actively negotiating the sale of additional office assets and look forward to providing updates as transactions advance. Our pipeline of redeployment opportunities continues to grow, and we believe we are well positioned to execute on a leverage-neutral basis in a way that drives earnings growth while preserving the balance sheet quality we have established. Our acquisition approach remains disciplined and highly selective, focused on high-quality, income-generating assets that align with our long-term strategy. In addition to our capital recycling strategy, we continue to evaluate the most effective uses of our disposition proceeds, including opportunistic share repurchases. Since the beginning of our share repurchase program through 05/01/2026, we have repurchased 19.7 million shares at a weighted average price of $8.05, totaling $158.2 million. We have been deliberate and opportunistic in how we have executed this program, and we remain disciplined in balancing these repurchases with our continued focus on leverage reduction and the redeployment of capital into higher-quality assets. Turning to our portfolio, at the end of 2026 Q1, we owned 809 properties totaling 40 million rentable square feet. Our portfolio was 97% occupied, an increase from 95% in 2025, with a weighted average remaining lease term of 5.9 years. Specifically, our office occupancy increased to 99% from 95% in 2025, primarily driven by the disposition of a $45 million vacant office property, which also eliminates over $1 million of annualized negative NOI drag. Our office portfolio continues to perform well, supported by 100% rent collection and the highest proportion of investment grade tenants within our portfolio. Global Net Lease, Inc.’s portfolio features a stable tenant base and high quality of earnings, with an industry-leading 64% of tenants carrying an investment grade or implied investment grade rating, up from 60% in 2025. Our average annual contractual rental increase is 1.5%, excluding the impact of 20.1% of the portfolio with CPI-linked leases that have historically experienced significantly higher rental increases. On the leasing front, we delivered strong results across the portfolio during the first quarter, reflecting the quality of our asset management capabilities and tenant relationships. We executed leases on more than 141 thousand square feet and achieved renewal spreads of approximately 5.1% above expiring rents. Notable activity included several renewals with nationally recognized retail tenants such as Dollar General and Tractor Supply, as well as the renewal of a 58 thousand square-foot FedEx distribution facility at an approximate 9% renewal spread. We continue to engage with tenants well in advance of lease expirations to drive occupancy retention and rental growth, while maintaining a long-term focus on portfolio stability. As we continue advancing our approach to asset management, we have meaningfully enhanced our data and technology capabilities, improving how we engage with tenants and evaluate opportunities and ultimately the outcomes we deliver across the portfolio. We have been leveraging artificial intelligence to enhance our decision making on both the leasing and transaction front. Specifically, we are now able to rapidly analyze foot traffic patterns and performance analytics for our tenants, intelligence that directly informs our renewal negotiations and strengthens our underwriting when evaluating prospective transactions. This data-driven approach allows us to engage tenants from a more informed position, and we believe it is an increasingly meaningful contributor to our ability to drive favorable lease economics across the portfolio and secure advantageous terms on transactions. Perhaps most importantly, we believe it will also give us the ability to seamlessly absorb the Motive portfolio and its approximately $535 million of new assets without any increase in headcount. Our continued efforts to limit exposure to high-risk geographies, asset types, tenants, and industries reflect our intentional diversification strategy and disciplined credit underwriting. No single tenant accounts for more than 6% of total straight-line rent, and our top 10 tenants collectively contribute only 29% of total straight-line rent, with 80% being investment grade. We carefully monitor all tenants in our portfolio and their business operations on a regular basis. I encourage everyone to review the details of each segment of our portfolio in our 2026 investor presentation on our website. I will now turn the call over to Chris to walk through the financial results and balance sheet matters in more detail. Chris? Chris Masterson: Thanks, Mike. Please note that, as always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, which is posted on our website. For 2026 Q1, we recorded revenue of $109.3 million and a net loss attributable to common stockholders of $16 million. AFFO was $43.9 million, or $0.21 per share. Following the successful repositioning of our portfolio over the past several quarters, including the $1.8 billion multi-tenant retail portfolio sale, we have reduced annualized G&A expense by 25% year-over-year to $49 million from $65 million in 2025, driven by operational efficiencies. Additionally, capital expenditures declined to $1.6 million from $9.8 million in 2025, supporting improved cash flow through a more streamlined portfolio. Looking at our balance sheet, the gross outstanding debt balance was $2.6 billion at the end of 2026 Q1, a reduction of $1.3 billion from the end of 2025. Our debt is comprised of $1 billion of senior notes, $290 million on the multicurrency revolving credit facility, and $1.3 billion of outstanding gross mortgage debt. As of the end of 2026 Q1, 99% of our debt is tied to fixed rates or debt that is swapped to fixed rates. Our weighted average interest rate stood at 4.1%, down from 4.2% in 2025, and our interest coverage ratio was 3.0x. At the end of 2026 Q1, our net debt to Adjusted EBITDA ratio was 7.2x, based on net debt of $2.4 billion, compared to 6.7x at the end of 2025. While the ratio this quarter was higher than the end of 2025 due to timing of disposition, we are confident that we will remain within our stated net debt to Adjusted EBITDA 2026 guidance range of 6.5x to 6.9x. As of 03/31/2026, we had liquidity of approximately $911 million and $1.5 billion of capacity on our revolving credit facility, compared to $499 million and $1.4 billion, respectively, as of the end of 2025. Additionally, we had approximately 212 million shares of common stock outstanding, and approximately 214 million shares outstanding on a weighted average basis for 2026 Q1. Since launching our share repurchase program in 2025 and through 05/01/2026, we have repurchased 19.7 million shares for a total of $158.2 million. This includes approximately 4.2 million shares repurchased in 2026 for $38.4 million at a weighted average price of $9.07. Since inception, total repurchases under this program have been executed at a weighted average price of $8.05, a meaningful discount to the current share price, which has appreciated approximately 18% since those purchases were made. We believe this program has been a highly accretive use of capital and has generated tangible value for our shareholders. Turning to our outlook for 2026, we are confident in our performance and reaffirm our full-year AFFO per share guidance of $0.80 to $0.84. We also reaffirm our stated net debt to Adjusted EBITDA range of 6.5x to 6.9x. This guidance excludes the anticipated benefit from the Motive transaction, which we plan to address and update upon closing, although we believe it is worth emphasizing that the acquisition is structured to be leverage neutral within our 2026 net debt to Adjusted EBITDA guidance range of 6.5x to 6.9x. I will now turn the call back to Mike for some closing remarks. Michael Weil: Thanks, Chris. As we begin this next phase of Global Net Lease, Inc.’s evolution, we do so from a position of strength, focused on strategically reducing our office exposure while redeploying capital into higher-quality, higher-yielding assets. The foundation we built in 2025—a stronger balance sheet, an improved credit profile, and a more focused portfolio—gives us flexibility and confidence to execute this strategy on our own terms, remaining patient and selective as we identify the right opportunities. We will not rush to deploy capital for the sake of it, pursuing only those opportunities that we believe genuinely enhance the quality and earnings of our portfolio. We expect this capital recycling activity to be a meaningful contributor to earnings growth over the course of 2026 and beyond. The Motive transaction is a tangible demonstration of that approach. We identified a high-quality portfolio of industrial net lease assets that we believe will enhance the earnings power and long-term durability of our platform, and we structured a transaction that is expected to be immediately accretive, leverage neutral, and requires no external capital. We look forward to building on the strong foundation Motive has established as part of the combined Global Net Lease, Inc. platform. Before taking your questions, I would like to note that, subsequent to the first quarter, two members of our board, Sue Parati and Governor Rendell, announced their intention to retire following the 2026 annual meeting of stockholders. We thank Sue and the Governor for their years of dedicated service and meaningful contributions to Global Net Lease, Inc., and remain confident that our board's composition is well calibrated to provide effective oversight and support efficient decision making. We will now open the call for questions. Operator, please open the line for questions. 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 your line is in the question queue. You may press 2 if you would like to remove your question from the queue. A moment please while we poll for your questions. Our first question comes from the line of Mitch Germain with Citizens. Please proceed with your question. Mitch Germain: Good morning. Thanks for taking my question, and congrats on the Motive deal. Starting with Motive, Mike, 40 assets, I think about 20% or so of them reside outside of the industrial sector, so I am curious, are there any potential candidates for sale across that portfolio? Michael Weil: First of all, great question. Thank you. Yes, there are. Our primary focus is on retaining the industrial assets. Motive does have a few very high-quality assets that are outside of what we would consider industrial, and we will, at the right time and working with Motive, look to dispose of those assets very quickly after closing. It will not be many; one of them is on the larger side. It will have some meaningful impact, and I think that it will also have overall value as we evaluate the acquisition as well. Mitch Germain: Got you. So lower cap rate versus what you are buying it at. Okay. And then can you talk a little bit about dispositions that either were completed or planned to be completed? It seems like activity is somewhat across each sector. We saw a change in number of assets across industrial, retail, and office. So maybe just talk about what some of the characteristics were. I think you mentioned a vacant office, a GSA-leased office. Maybe some of the characteristics of some of the other properties that were sold would be helpful. Michael Weil: As we talked about last quarter, we were going to be switching to more of a strategic disposition strategy. Where we had opportunity to dispose of some assets that maybe were not just in the office portfolio, we did so at very aggressive cap rates, and that is an ongoing part of our strategy. We are intentionally looking at growth, and adding the high-quality portfolio of Motive is a big statement of that. But we will continue to execute opportunistically. As an 800-plus property portfolio, it is not uncommon for people to call us when they see an asset that we own that they have an interest in. We always take the call, we always negotiate the deal, and then we decide if we have an opportunity to redeploy those proceeds in a more accretive way. But we are very thoughtful in not wanting to sell what is significant and core to the overall portfolio. I can give you an example. We sold a bank branch in the quarter at a 6.2% cap rate. The buyer wanted to own it, and at that cap rate, we were a happy seller. Those are the type of opportunistic dispositions, in addition to what we are going to continue to do evaluating the opportunities to reduce office. If I can just add one thing to that, because we have been talking for a good part of 2025 about an asset that we had under contract to sell. It was an office property on the West Coast. We completed the sale in the quarter, and we sold it vacant, but we sold it for just about what we paid for it when we initially owned the property, and in addition to that, it does remove about $1 million of NOI carry. So we are really looking at everything in a very deep analytical way. And not only do we value getting the proceeds from the disposition, but removing that drag to NOI, of course, is extremely valuable. Mitch Germain: Gotcha. Last one for me. When you are considering some of these office dispositions in particular, about half of your portfolio resides outside the U.S. I am curious what sort of demand you are seeing across Europe for office. Obviously, we are seeing improving fundamentals here in the U.S. Lenders are a bit more prone to lend in that sector today than they were previously. Are you seeing similar trends emerging across Europe, and does that give you an opportunity to maybe start culling some of those assets as well? Michael Weil: As you probably know, we are a little more than 25% Europe and UK, and about half of the NOI comes from office. What we have been seeing in the office market overseas is a lot of redevelopment into mixed-use residential as well if a tenant is not renewing; there is a lot of redevelopment going on. The market is very strong. We are very active, and I think as we move through 2026, you will hear more updates from us on certain assets that will be positive to the portfolio. Mitch Germain: Thank you. Michael Weil: Thanks, Mitch. Operator: Our next question comes from the line of Upal Dhananjay Rana with KeyBanc Capital Markets. Upal Dhananjay Rana: Good morning. Michael Weil: Good morning. Upal Dhananjay Rana: Mike, on the Motive transaction, maybe you could walk us through the cap rate there relative to the blended cost of capital that you will be using and then the resulting investment spreads, and also, you mentioned selling a few of those assets already once you are closed. But any other opportunities within that portfolio that could potentially drive the yield higher? Michael Weil: I am not able at this time to talk cap rate specifics. That will come out as we get further along. We are working really closely with Motive, who has just been a great partner in this transaction. They will be putting out their proxy, and it will have all those details in it, as you will understand. What I would say is that there are a lot of opportunities, some of which were already in the works on the Motive side that will transfer to us to continue—both from an origination pipeline standpoint, a lease renewal standpoint, and also some work that they were doing on dispositions. I think that they were operating their portfolio at a very high level, maximizing the performance of their portfolio, etc. So it is going to be very exciting for us to integrate that into our portfolio and continue the work that they have been doing. We have talked about the roughly $6 million of G&A savings. I think that, when we close on that, we will probably be able to squeeze more out of that. I do not know the exact number yet; we are continuing to evaluate that. But there is just a lot of upside, as we have disclosed in our press release, and the portfolio itself is performing at a very stable level, so there are not a lot of things that we would have to do to achieve these stated goals. I am looking forward to closing as early in the year as we can. We are targeting third quarter. If we can do it early in the third quarter, the earlier, the better, so that we can start to see the benefits to the portfolio. Then we will disclose our plans for the few assets that we are evaluating for disposition. I also want to say, in case we have any Motive investors on the line listening to the call today, we are very excited to have them join the Global Net Lease, Inc. investor community. They have been great shareholders for Motive, and we look forward to welcoming them into the Global Net Lease, Inc. family, and it is just a great opportunity for all of us. Upal Dhananjay Rana: Great. Thank you for that. And then maybe could you talk about what you are seeing in the market for future acquisitions? You talked about it a bit in your prepared remarks already, but maybe you could walk us through your strategy on selecting which properties and portfolios to acquire and how you are thinking about your leverage and industry exposure when you make that consideration? Michael Weil: Thank you. First of all, I think us announcing roughly a $550 million acquisition in the first quarter probably was not expected by the market, and it really gets us excited about what we can do in 2026. It was a very opportunistic situation, and it really penciled out well, and it is something that is going to pay dividends for a long time in the Global Net Lease, Inc. portfolio. I cannot tell you that there will be other large portfolio acquisitions in 2026. Obviously, we take things as they come, and we look to how we can best use our capital and how we can grow earnings, etc. What we are looking at as we are developing a review of the market and a potential pipeline is we are really focusing on the industrial side of the business. We are also seeing some retail-type acquisition potential, not as much as we have seen in the past. I think the markets are a little bit in flux, and we are looking at everything not from just dollars spent acquiring properties, but meaningful opportunity for accretion in the portfolio from an earnings standpoint. As far as your question about debt, we continue to think that that is one of the most important things that we will continue to work on. Chris reaffirmed our 2026 guidance of 6.5x to 6.9x. We are very excited that the Motive transaction is leverage neutral in how we were able to structure it, so the additional opportunity to grow the EBITDA side of the formula is one of the things that I am very excited about. Nothing has changed from what we have communicated to the market, and we will continue to drive that important metric further down. Upal Dhananjay Rana: Okay. Great. Thank you so much. Michael Weil: Thank you. Operator: Thank you. Our next question comes from the line of Jay Kornridge with Cantor Fitzgerald. Please proceed with your question. Jay Kornridge: Thanks so much. Thinking bigger picture about the Motive merger, I wonder what that could signal for your strategy going forward. You recently completed the robust disposition program, and I am wondering if this merger signals maybe a return to growth for the company beyond just recycling out of office assets. Michael Weil: My short answer is yes, it does. I said on our last earnings call that that was an important goal of ours. The disposition program was extremely successful. It achieved a lot of our important goals, primarily lowering net debt to EBITDA in a meaningful way and in a relatively quick way. The fact that we have the opportunity with the Motive portfolio to move forward in this leverage neutral way but still have a positive increase to earnings, I think, does give you some insight into how we are thinking about things. Again, it is not just about dollars out the door and how much you can buy in a year; it is about what is the impact of those acquisitions long term on the portfolio and on earnings. We are very excited about the fact that the WALT of the Motive portfolio at 15 years extends the WALT of Global Net Lease, Inc. by almost one full year, taking us to just under seven years. The 2.5% annual escalator that their portfolio brings to us is also meaningful, and as that 15-year WALT continues and we see the NOI in that portfolio growing at that 2.5%, it is very meaningful. One other thing that we are really focused on is the G&A reduction and how we can better operate this larger portfolio. We decreased G&A expense by 25% year-over-year. We continue to focus on that. That 25% represents a $16 million annual savings, and that is very important. You want to grow earnings, and you want to reduce expenses. That is the formula for ultimate success, and we look at both sides of that equation. Jay Kornridge: Thanks, appreciate all that commentary. You highlighted an office asset sale and capital recycling into an industrial asset at a 100-basis-point cap rate premium. Do you feel this type of accretive capital redeployment out of office is repeatable as you lower office exposure, and do you have any timeline goals for where you want to get office exposure overall down to? Michael Weil: I do not know that we can consistently every time hit that 100-basis-point type spread. That is certainly the goal, and we feel that we have very high-quality office assets, net lease. About 80% of our portfolio is investment grade, as you know. As we look to lower our exposure to office, we certainly think that we should be able to sell them at a fair value. We talked this quarter about the GSA asset at a 7.2% cap rate. I think that, as we look at the rest of the portfolio opportunity, we see it in that range. I have always talked about our office being worth in a 7% to 8% cap rate range in our minds. We never wanted to just package it all up and sell at any price because it is performing very well. As we look to reduce our exposure, it is important to us that we find fair value for this portfolio. Because it continues to perform, we will take a disciplined and strategic approach to how we reduce our exposure. We have not said anything specific about target allocation. As we finished this quarter, we are about 24%. We will continue to drive it down, but what we are most excited about is that with the Motive acquisition we are going to be 75% retail and industrial, which is important. Over 50% of that is on the industrial side. We will be a predominantly net lease industrial portfolio, with long-duration leases and really high-quality tenants. Jay Kornridge: Great. Thanks for that. That is it for me. Michael Weil: Thank you, Jay. Operator: Thank you. May be necessary to pick up your handset before pressing the star key. Our next question comes from the line of Craig Gerald Kucera with Lucid Capital Markets. Please proceed with your question. Craig Gerald Kucera: Good morning. A lot of the Motive portfolio tenants are owned by PE firms with manufacturing backgrounds. Does the acquisition potentially open up any new relationships for you for future growth, or are you already pretty familiar with most of them? Michael Weil: It always enhances relationships—some of which we already have, some of which we are happy to get to know and develop further. It is one of the things that Aaron Halfacre and I continue to talk about—making those introductions—and there may be ongoing benefit from those relationships for sure. Craig Gerald Kucera: Got it. Changing gears, given the stock price, it seems that selling assets and buying back stock still makes sense. I think you are about halfway through that $300 million authorization. Should we consider that as a consistent portion of your business model for the remainder of the year as far as acquiring, call it, $30 million to $40 million a quarter? Michael Weil: You are right that we are about halfway through that. We have bought back about $158 million since we announced. The average buyback price was $8.05. It is another tool in the toolbox that we will continue to evaluate. As we look at stock buyback, reducing the net debt to EBITDA, and acquisitions, those are all three very important things to us and tools that I think we have shown we can use effectively. We will continue to evaluate them. We have not given any forward statements on how we will, and at what level we will, use the buyback, but it is something that we are very happy to have in place and something that we do find good use for. Craig Gerald Kucera: Got it. Looking to your lease expirations during the rest of the year, are there any known large move-outs during the remainder of 2026? Michael Weil: Craig, we have—if I am remembering correctly, and Mori will correct me if I am wrong; he is in my office with me—about 6% lease rollover in 2026. 4.4. I was high. 4.4% in 2026. So we do not have any material rollovers in 2026. We continue to engage with tenants. We have not given any specifics on move-outs. We continue to think that there are opportunities to either renew the existing tenants or re-tenant, and if we do not feel that that is an opportunity, we will be marketing an asset well in advance of expiration. We feel that we have a very tight handle on the portfolio. We had occupancy overall increase in the quarter. We continue to see that as a positive trend. A net lease company is typically in that 98% to 100% occupancy realm, and I am happy to say that is where we are now, and we expect to continue to stay there. We always look to push that up as high as we can, but the portfolio continues to be well tenanted, and the tenants operate out of these properties no matter what the sector. So we feel very confident about the remainder of 2026. Craig Gerald Kucera: Okay. That is helpful. Thank you. Michael Weil: Thanks. Operator: Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to management for any closing remarks. Michael Weil: Thank you all for joining us today. I think you heard a lot of exciting news about Global Net Lease, Inc. We thought we were well positioned for 2026 before the announcement of Motive. We are even more excited to integrate that high-quality portfolio into ours and continue with this strategy for growth. We look forward to talking to any of you after today's call if you have questions, or we will be seeing you at conferences. Thanks for your time, and we will talk soon. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Thank you. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gray Media, Inc. First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1 again. It is now my pleasure to turn the call over to Alan Steven Gould, Vice President of Investor Relations. Thank you. You may begin. Alan Steven Gould: Thank you, Tina, and welcome, everybody. Joining us today on Gray's call are Hilton Hatchett Howell, our Chairman and CEO; Donald Patrick LaPlatney, our President and Co-CEO; Sandy Breland, our Chief Operating Officer; Kevin P. Latek, our Chief Legal and Development Officer; and Jeffrey R. Gignac, our Chief Financial Officer. Today, we filed with the SEC on Form 8-K our first quarter earnings release and updated investor presentation, and later today, we will file with the SEC our Quarterly Report on Form 10-Q. These materials are all available on our website graymedia.com. Included on the call may be a discussion of non-GAAP financial measures, and in particular, Adjusted EBITDA, leverage ratio denominator, net retransmission revenue, and certain net leverage ratios. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in its analysis and valuation of our company. Further discussions and reconciliation of the company's non-GAAP financial measures to comparable GAAP financial measures can be found in the latest investor presentation on our website. All statements and comments made by management during this conference call, other than statements of historical fact, should be deemed forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors that are contained in our most recent filings with the SEC. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. It is now my pleasure to introduce Gray's Executive Chairman and CEO, Hilton Hatchett Howell. Hilton Hatchett Howell: Thank you, Alan. Today, we are very pleased to announce solid results for our first quarter of 2026, with core advertising above our previously issued guidance, political revenue at the high end of our guidance range, and total revenue at the high end of our guidance, even factoring in a recently resolved DISH dispute with one of our MVPDs. Total revenue in the first quarter of 2026 was $768 million, at the high end of our guidance for the quarter. Total operating expenses before depreciation, amortization, impairment, and gain or loss on disposal of assets in the first quarter of 2026 were $622 million, which was $7 million below the comparable period last year. Notably, within these results, our broadcasting expenses continued to decline and were down by $22 million in Q1 2026 as compared to Q1 2025. Net loss attributable to common stockholders was $330 thousand for the first quarter of 2026. Adjusted EBITDA was $154 million in Q1 2026. Political advertising revenue was $30 million, at the high end of our guidance, and compares to $26 million in 2022, the last midterm cycle. As you all hopefully saw by now, on Friday, Gray and DISH resolved the first extended distribution blackout, amazingly, in our company's history. It was a rough negotiation for both sides, and we very much regret how local viewers and advertisers were impacted by the impasse. In the end, we reached a new multi-year agreement that was consistent with our internal expectations. We thank our viewers, our advertisers, and our team for their patience as we navigated that uncharted territory for Gray Media, Inc. Since the beginning of the year, we have successfully negotiated retransmission consent agreement renewals with three of our largest traditional MVPDs representing approximately 39% of our traditional MVPD footprint. We also expanded important MVPD agreements with two of our virtual MVPDs involving a number of our independent stations that carry professional sports. We have no further retransmission negotiations for the remainder of 2026. In addition to these operating results in the first quarter, we acquired WBBJ in Jackson, Tennessee, from Bahakel. We recently completed the acquisition of TV stations in 10 markets from Allen Media Group, and just yesterday evening, we closed on our acquisition of stations in three markets from Block Communications. We currently anticipate closing our remaining transactions with E.W. Scripps and Sagamore Hill in the next few weeks. Finally, turning to Assembly, we were delighted to learn that CBS renewed its successful daytime soap Beyond the Gates for two additional seasons. Seasons 1 and 2 will film at Assembly, and we anticipate leasing additional studio production space. In February, Tennis Channel and TGL announced that it will host all 52 tennis matches for its 2026 season in our 30 thousand square foot soundstage within Assembly Studios. The setup will also have a live audience of up to 500 people, and we will broadcast some of the key matches on WANF and Peachtree Sports in Atlanta, Georgia. To make further progress on future development at Assembly. Looking forward, we are excited to have the upcoming FIFA World Cup games on both our 33 FOX channels and our 47 Telemundo affiliates. We are optimistic that, as the largest owner of top-rated local television stations and a footprint covering most of the competitive races, we will again capitalize on a strong midterm political cycle. I will now turn the call over to Donald Patrick LaPlatney to address our operations. Thank you, Hilton. Donald Patrick LaPlatney: First quarter core advertising revenue was stronger than our guidance and was reported to be approximately flat in the first quarter of 2026 compared to 2025. We finished the quarter up 2% with the boost from the Winter Olympics. As we move into second quarter, we are seeing some softness in core. It appears that the situation in the Middle East and resulting volatility in oil prices is having an effect, causing advertisers to delay their commitments, which limits our visibility. Some of the softness in core is due to the NCAA Final Four rotating away from CBS. Recall last year, we earned $5 million of revenue in April as the largest CBS affiliate group. Let us talk about categories for a minute. We saw strength in gaming, a trend that continued into Q2. Within services, legal, insurance, and financial were strong. Automotive finished the first quarter down just slightly compared to 2025, which is encouraging. Some of the consumer-focused categories experienced weakness, consumer goods and discount department stores in particular. Digital continued its healthy growth in first quarter, up high-teens versus 2025, and our new local direct business growth rate accelerated to 15% over the same period in 2025. Our sales teams continue to perform well against stiff competition for local advertising in a challenging market. Political ad revenue exceeded our expectations in 2026. Our guide for 2026 was $25 million to $30 million, and our actual results came in at the high end, right at $30 million. This compares to $26 million in 2022, which is the most recent midterm cycle. We saw strong spending in Texas, Maine, Virginia, Georgia, and Michigan. We currently anticipate political revenue for Q2 will be in the range of $60 million to $70 million. As I mentioned earlier, we are seeing some softness caused by economic uncertainty as we progress through the second quarter. Our second quarter 2026 guidance is for core ad revenue to be down mid-single digits versus second quarter of 2025. Some of the consumer-focused categories are the most affected. We continue to expand our focus on sports programming. This year, 19 Major League Baseball teams will play in our 16 broadcast sports networks, in addition to 13 NBA teams, 8 NHL teams, 6 WNBA teams, and numerous NCAA and minor league baseball teams. I am also proud to note that our RYCOM Sports division has partnered with the Atlanta Braves as their live production team for BravesVision, producing all non-national games, including 25 games on WANF here in Atlanta and across the Southeast on our broadcast sports networks. Our digital team has completed the transition of all of our digital apps and websites to the Quickplay platform in a remarkably short window. This personalized streaming platform will revolutionize how our viewers find and connect with our content. We believe that we have now built an incredibly strong foundation for continued digital audience and advertising growth. Jeffrey R. Gignac will now address the key financial developments. Jeffrey R. Gignac: Thanks, Pat. In the first quarter of 2026, our broadcasting station operating expenses, excluding network affiliation fees, were up 4% compared to 2025. This was partially due to timing of certain expenses, as was noted in last quarter's call, along with normal inflationary increases. We are continuing our focus on smart cost management, and we are investing in our team and making sure they have the best tools available to efficiently and effectively compete in the marketplace. You will also notice that we are guiding Q2 2026 broadcasting expenses to be down 3% at the midpoint versus 2025. Corporate expenses were above our guidance range due primarily to legal costs associated with completing our M&A regulatory approvals, and as you can see from our guide, corporate is expected to normalize as we complete the additional transactions. Net retrans revenue was down $4 million in first quarter 2026 versus 2025. We did not anticipate the now-resolved distribution dispute when we provided our first quarter guide. I want to focus on that for a second. There are two things to point out in the Q2 2026 net retransmission guide. First, now that we have negotiated all MVPD renewals scheduled for 2026, and we know the impact of the blackout on second quarter, those elements are reflected. Secondly, we now incorporate the four stations acquired in first quarter, but none of the stations that we have acquired since the end of first quarter, into our guide. We currently expect first quarter 2026 net retransmission revenue to be in the same zip code as the quarter that just ended, implying low single-digit growth in net retransmission revenue. Remember that the blackout impacted the full month of April, versus only 21 days in March. And importantly, with all of our renewals now negotiated, we have clear line of sight to growth in net retransmission revenue for full year 2026, even before adjusting for the impact of any of the acquisitions. Turning to the balance sheet for a minute. We finished first quarter with over $1 billion in liquidity. Our leverage metrics at 03/31/2026 were 2.56x consolidated first-lien net leverage ratio, 3.79x consolidated secured net leverage ratio, and 5.94x consolidated total net leverage ratio, each using the calculation in our amended senior credit agreement. These ratios include the pro forma impact of the four station acquisitions we completed as of 03/31/2026. With the closing of the Allen seven-market transaction and yesterday's closing on the Block Communications transaction, we will begin to see the estimated quarter turn of delevering flow into our ratios. It is also worth noting that after we closed the acquisition yesterday, our revolver was undrawn. There was approximately an $850 million working capital swing during first quarter related to the payment of accrued interest. On March 31, we completed an amendment to our senior credit agreement to align the document with the covenants under our secured notes and to incorporate current market standards. We pursued this to give us better access to the market as we evaluate potential refinancing opportunities. Immediately after we closed that, on April 2, we fully repaid the $10 million balance on the Term Loan F that was scheduled to mature in 2029. As we progress through 2026, we are gaining visibility on deleveraging during the year. We are closing, and we will begin integrating, our M&A transactions. Our net retrans revenue is set to grow compared to 2025. Political advertising is ramping. And finally, refinancing to reduce interest expense could further improve our cash flow during 2026. Couple of housekeeping items. First quarter 2026 CapEx was $19 million versus $15 million in 2025. Both periods now include Assembly Atlanta. We are maintaining our $140 million company-wide CapEx estimate for 2026, although we expect that to be back-end weighted as we align the spending with the expected cash inflow from political advertising. Our full-year tax guide came down by $25 million to a range of $90 million to $110 million. That concludes my remarks, and I will now turn the call back over to Hilton Hatchett Howell. Hilton Hatchett Howell: Thanks, Jeff. In closing, first quarter was very busy, and we have already accomplished numerous objectives in Q2 which will have long-term benefits for Gray Media, Inc. We will continue to take actions to enhance value for our advertisers, our investors, and for the communities we serve. We thank everyone for joining the call today. Tina, at this time, we would like to ask that you open up the line for questions. Operator: As a reminder, to ask a question, simply press star 1 on your telephone keypad. We do ask that you limit questions to one and one follow-up. Our first question comes from the line of Steven Lee Cahall with Wells Fargo. Please go ahead. Steven Lee Cahall: First, just a question on your regulatory outlook. I think the last time we spoke, you were encouraged by generally what was happening in Washington, but maybe things were moving a bit slowly in terms of getting transactions approved like the Scripps swaps and some of the Allen Media stations. It looks like, post Nexstar–TEGNA getting approved, the wheels are turning much faster. So I am wondering if you now feel like the regulatory process is something that you understand under this administration, if it is moving at a pace that is conducive to additional transactions. And as you think about potential strategic transactions, I was wondering just how you factor in state AG regulatory risk and if that is different from prior. And then, Jeff, thank you for the retrans outlook for 2026. Any sense of what that might have looked like had you not had the blackout? Is that a point or two addition, or is it not so big now that reverse maybe is a bit more variable than it used to be? And, also, as we think about retrans pro forma for the deals you have done, would that have added or could that still add a point or two as well? Thanks. Kevin P. Latek: Hey, Steven. We announced, as you alluded to, five deals last summer over the course of a couple weeks, and promptly filed those with the SEC and the DOJ, and those transactions are only now coming out of the regulatory agencies. We had to file them with DOJ as well, and our DOJ process pushed our transactions behind the Nexstar transaction and necessitated a very intensive document production and review. I would say a far more intense DOJ review of those transactions than anything we saw in Meredith, Quincy, Schurz, or Hoak under prior administrations. The Department of Justice cleared those transactions just in the last, I think, roughly two or three weeks or so. The FCC, consistent with past practice, has waited for DOJ to resolve its reviews before it acted. So that is why we are seeing these now. It would appear to us on the outside that the FCC and DOJ in particular have received a number of broadcast transactions since last summer—from us and from other broadcasters, some large, some small, some gaining headlines, some not—and that through those reviews, especially of the mega deal and then our little deals, they have really come to understand the competitive situation that we face. As a result, I think they are more comfortable with the transactions probably than they were a year ago. So we are encouraged that we are now seeing the DOJ, after submitting millions of documents at great expense to us, really seems to understand our industry far better than it has probably ever, and that is supportive. We do think that it facilitates the industry—not just us, the industry—continuing to do M&A. For Gray, again, as we have said many times, we are looking at strategic deleveraging transactions, and there are some things we are looking at and some things we maybe look at at a different time. On your last question on that, we have not previously considered state AG theories on antitrust. Without commenting on any current litigation, we are definitely mindful of what is happening, and we are evaluating our opportunities through the lens of potential additional uncertainty under new and novel theories being advanced by some attorney generals in various states. We are working through it, but obviously, we have not announced any other transactions in a number of months. As we evaluate the new FCC and DOJ understanding of our industry and this new uncertainty, we will make decisions accordingly on what might be actionable in this environment versus what might not have been as actionable a year ago. Does that answer the questions? Steven Lee Cahall: That does. Thank you, Kevin. Jeffrey R. Gignac: Okay, great. Thanks. And I guess, let me comment, Steven, on the net retrans question. I will not comment about the specific impact or what it would have been from any individual contract. We always think about it as a portfolio on both sides. For the full year, though, we are thinking of inflationary-type organic growth in net retrans even with the blackout. It is really a continuation of the trend that started in fourth quarter where we were getting back to growing net retrans. But on top of that, there is net retrans that is acquired that will start to flow in on top of that. Operator: And our next question comes from the line of Daniel Louis Kurnos with Stifel. Please go ahead. Daniel Louis Kurnos: Yeah, thanks. Jeff, just to put a finer point on that response to Steve's question—notwithstanding the blackout, which we all knew was coming, so it should not be a surprise to folks, other than that it happened—it seems like the net retrans guide is actually raised, and that is before the transactions, given the commentary you gave us last quarter. So is that an assumption on better underlying subs? Better underlying terms? Just any thoughts you can give us there. And then one for Hilton—one of my favorite subjects, political—and I know they are going to tell you to be careful with what you say, Hilton, because it is too early, and it never benefits anybody to get over their skis. But your 2Q guide is very, very strong. So any way you can help us think through how you are thinking about this political season would be fantastic. Thank you. Jeffrey R. Gignac: Let me just address the retrans since we are on that topic, so that in the transcript it is all together. The short answer to your question, Dan, is yes. It is better sub trends. It is us achieving our objectives on market and getting to market rates as we renew contracts. It is everything together. Look, the blackout is unfortunate, but that is part of the business, and we reached something, as Hilton said, that was mutually beneficial in a long-term agreement there. I will kick it over on the political question to Kevin or Hilton. Kevin P. Latek: I will refrain from using adjectives to describe this. We have said a couple of times we are pretty encouraged, and we have exposure to all but one of the competitive governor and senate races this year. One thing I would mention is a couple years ago, in 2022, we had a number of intraparty very expensive contests that brought a lot of primary money to us. What we discovered at the end of the year is that a lot of the money raised and spent in 2022 was essentially pulled forward to these primaries, and once those primaries were over, the candidates who won did not have any money, and the super PACs were kind of tired of spending on those races, and those campaigns kind of died after the primary. That was something we had not seen before. This time around, there are two or three pretty high-profile senate primaries, one of which essentially ended the other day in Maine. So we are down to two pretty expensive senate primaries—Texas, where we have a number of stations but definitely not a huge presence relative to the 45 media markets there, and then Michigan, where we have a decent presence but we are not in two or three of the markets there. So we have some exposure to those. The impression is that while a lot of money is being spent in those competitive primaries, the map is just different from 2022, where so much money was pulled into second quarter for those primaries. You have seen all the articles on the hundreds of millions of dollars that the PACs and super PACs are sitting on. The candidates have raised, and frankly, have not even allocated yet. One of the senate parties’ super PACs has started reserving time; the other has barely started reserving time. It seems this is going to be a cycle where the money is being deployed more towards general elections and not second quarter primaries. So we still feel very good about this year. I would say recent events and fundraising numbers and successes are pointing to a very engaged electorate, and as we said many times a year ago, the House might have been a potential jump off the downspin of the Senate, and now the House is very much in play. Even the headline in the Washington Post this morning says Dems are feeling they have a real shot now with taking the Senate. You never would have seen that six months ago. Obviously, that may change, but the more people are engaged and think there is a potential change of control, the more motivated they are to raise money and campaign and work the doors and work the phones and vote. We think this is going to be a very, very engaged campaign season, and we have a very good portfolio of number one TV stations in the right markets to capitalize on that. Hilton Hatchett Howell: Did that answer your question, Dan, or are you looking for an adjective? I will take an adjective, if I can get one. Kevin is sitting here kicking me under the table, but suffice it to say—it is going to be extraordinarily strong. What those numbers are going to be, we have learned our lesson. We do not know. But I think it is easy to check our markets, our position, and where the races are, and we do think that we are exceptionally well positioned, the way Kevin so wisely articulated our markets and operations. Daniel Louis Kurnos: Got it. Thanks, everybody. I appreciate it. Operator: As a reminder, please limit questions to one and one follow-up. Our next question comes from the line of Aaron Watts with Deutsche Bank. Please go ahead. Aaron Watts: Hey, guys. Thanks for having me on. Apologies in advance, but one more on retrans. You had described an unprecedented new demand as being at the core of the programming dispute you recently resolved. Is it safe to say you were able to back that demand down? And what risk do you see that other distributors bring that type of a demand to the table in the future? Kevin P. Latek: Aaron, understandably, you have asked what was the detail. We do not comment on specifics in our negotiations. I would say I started doing retrans in 1997, did it pretty much full-time for a decade and a half before coming here, and obviously Gray has done a few retrans negotiations over the last fourteen years I have been here. I did retrans for Comcast and some cable companies in a prior job and a whole bunch for broadcasters. We have seen a ton of retrans contracts through our sixty-some-odd transactions since I came to Gray. I have never seen a provision like the one that was thrown at us as a non-negotiable line in the sand—take it or leave it—as we saw here. It is not something that we were prepared then, or ever, to do. I do not expect other MVPDs will expect to exert control over a broadcast company any more than we would expect to do a deal where we would try to control the operations of another company. The bottom line is it was bizarre. It was incredibly unprecedented in a lot of very deep professional experience, and so we were willing to take the extraordinary step of Gray breaking its long history of never having a major retrans dispute. It clearly was pretty existential for us. We resolved it. The terms were resolved in ways that we felt comfortable with, and that is, unfortunately, all I really can say on terms that are subject to confidentiality that we expect DISH to respect and we will respect. I think it was a one-off. I am not expecting other people, on either side, to ask for a level of control over another company that no one will be willing to give. So let us just leave it at that. Aaron Watts: That is helpful. I appreciate your view on that. And then just one for Jeff. We can see your continued work on the expense side in the first half of this year. How should we be thinking about costs in the second half? Are you lapping any initiatives that will flatten things out, or is the first half expense base a fair baseline for the remainder of the year? Any help would be appreciated. Jeffrey R. Gignac: Yeah. We talked about this a little bit on our first quarter call, Aaron. We did align company-wide raise dates for all nonunion employees to January 1 so that we can manage things better and budget better. Everybody had their own individual anniversary date prior to this, so you can imagine when you have got 5 thousand employees, it is a lot just to keep track of, and this was fair to everybody. That pulled forward some increases in what is our largest expense item. That will average out throughout the year. So the back half—I would not say the first half is necessarily a perfect proxy for the back half. The back half should be, on a comparable basis, getting to a more normalized, inflationary-type rate. We also will have, in the back half of the year, as we report, all the acquired station expenses rolling in. That is the other piece of it here. But they come in under normal SEC reporting as they close. Operator: And your next question comes from the line of Patrick Sholl with Barrington Research. Please go ahead. Patrick Sholl: Hi. Good morning. Just on your advertising guidance, is there any amount of crowd-out from the World Cup, just it being on—drawing advertiser interest to different stations? Donald Patrick LaPlatney: No. The World Cup is a net benefit. There is no question. If you mean preemptions of other programming by the World Cup, there is really no sort of net negative. The World Cup is a positive. Patrick Sholl: Okay. And then with the MVPDs including access to the network streaming services, have you seen that have any sort of impact on local programming viewership? Sandy Breland: Modestly, if any. Our local programming viewership is still extremely strong when you look at our local newscasts, what we are doing on the linear side and, frankly, the streaming side as well. Our local newscasts continue to perform very well. The streaming is totally additive, and if you go back and look at the net viewership across all the different platforms we are on now, that has grown over the last few years and has not diminished. Hilton Hatchett Howell: Pat mentioned this often, but Pat mentioned that FIFA was a positive and not a negative. I really think that our sort of unique degree of NBC exposure to the Telemundo portfolio—we have 47 affiliates; we are the largest affiliate group outside of the major markets that NBC has—and we think it is going to be really, really strong in Spanish-language. We are also very excited about FIFA on our 33 FOX stations in English, obviously. It is going to have a big impact on us, we believe, and having stations in two host cities—in Atlanta and Kansas City—is very beneficial for us. Patrick Sholl: Thank you. Hilton Hatchett Howell: Thanks, Ian. Operator: Your next question comes from the line of Gengxuan Qiu with Barclays. Please go ahead. Gengxuan Qiu: Hey, guys. Thanks for taking my question. I just had a clarification on the guidance for the net retrans distribution. Is there any true-up or catch-up payments that we should think about that were negotiated as part of the resolution? And then, on your comments on organic low single-digit growth in net retrans for the full year, does that take into account any kind of changes from the pending closing of Charter and Cox? Jeffrey R. Gignac: So, Shanna, everything is factored into the guide. Again, I do not want to comment about any specific aspect of the contract—contracts plural, really. There were multiple contracts that were negotiated during the quarter. On your second question, we have factored in our own estimate of when that closes into the guide. I am not going to handicap exactly when that closes, but we are aware of that, and it is factored into what we have put out in the comments about inflationary-type growth for the full year. Operator: Okay. Great. Thank you. Your next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead. Craig Anthony Huber: Great. Thank you. Can you just comment, if you would, where you think the FCC is right now on this 39% TV station ownership cap? I mean, they obviously did the TEGNA deal. They approved it underneath a waiver as opposed to first getting rid of the 39% ownership cap or lifting it. Where do you think we are on the timing of maybe getting rid of that? It has been long overdue, obviously. Thank you. And my other question: the use of AI at your company and your TV stations. Can you just quickly go through with us the benefits in terms of enhancing your services, but also on the efficiency side of things at your station level? Kevin P. Latek: Hey, this is Kevin. To be honest, we have no idea on the timing, and it is just not something we follow. Gray is at 25% under the cap. There is nothing that we could imagine doing in the near-to-medium term that would require the cap to be raised for Gray, so it is just not, frankly, an issue that we follow. I would point you to one of the broadcasters who is close to the cap and lobbying on that issue. We are not; it is irrelevant to Gray. Sandy Breland: On AI, it has really been a multiplier of sorts for our teams—primarily time saving and increasing productivity on both the sales and the news side. It allows us to free up our people on the content side to create more original, sticky content, and on the sales side, it allows us to spend more time on client relationships and growing business, using AI for things like accelerated pipelines for new business and prospecting. It is really a multiplier, amplifying and giving our people more time to focus on the things that we really need them to focus on. Operator: Once again, to ask a question—And with no further questions in queue, I will now turn the call back over to Mr. Hilton Hatchett Howell for closing remarks. Hilton Hatchett Howell: Well, thank you very much, operator, and I want to thank everyone for joining us this morning. We are very pleased with our results that we have reported and really look forward to talking to you at the conclusion of next quarter. Thank you. Operator: Thank you again for joining us today. This does conclude today’s conference call. You may now disconnect.
Operator: Welcome to the Gold Royalty Corp. First Quarter 2026 Results Conference Call. Participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to David Garofalo, Chairman and CEO. Please go ahead. David Garofalo: Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call to review our first quarter 2026 results. Please note for those not currently in the webcast, a presentation accompanying this conference call is available on the presentation page of our website. Some of the commentary in today's call will include forward-looking statements, and I would direct everyone to review Slide 2 of the presentation, which includes important cautionary notes. All dollar values mentioned on today's call are expressed in U.S. dollars unless otherwise noted. Speaking alongside me this morning will be our President, John Griffith; Andrew W. Gubbels, Chief Financial Officer; and Jackie Przybylowski, Vice President, Capital Markets and Sustainability. The first quarter was another strong quarter for Gold Royalty Corp. as we reported another record quarterly revenue and adjusted EBITDA, and as we continue to have a positive outlook for our business going forward. Before we dive into the results, I wanted to start with an important announcement. I am delighted to announce two appointments this morning. John Griffith has been named President in addition to his role as Chief Development Officer. The title is a true reflection of the value that John has brought to Gold Royalty Corp. over the company's life. We recently celebrated the five-year anniversary of our listing and the tremendous accomplishments in building Gold Royalty Corp.’s peer-leading portfolio, and John was absolutely instrumental in making Gold Royalty Corp. what we are today. His new role as President reflects a leadership position that John already fills in the company and will continue to fill going forward. We have also transitioned the responsibility for sustainability from Catherine R. Blaster, our outgoing Vice President of Sustainability, to Jackie Przybylowski, who will be Vice President, Capital Markets and Sustainability effective July 1, 2026. We want to thank Catherine for her valuable contributions to Gold Royalty Corp. She has been with Gold Royalty Corp. in a part-time capacity since 2022, which is a great example of the overhead savings that we realized with our shared services model. Catherine will continue to work with Uranium Energy Corp. and Uranium Royalty Corp. moving forward, and Jackie will manage sustainability at Gold Royalty Corp., adding no additional personnel to our team as a result of this transition. I will now pass the call over to our President, John Griffith. John Griffith: Thanks, Dave. The past five-plus years at Gold Royalty Corp. have been both personally and professionally rewarding as we have grown the company from 18 royalties and zero revenue in 2021 to over 250 royalties and meaningful revenues and cash flows today. The depth, breadth, and quality of the portfolio that we have assembled exceeds my expectations, and I am so proud of the work that our team has done to get to this point. But our story is really just beginning. After celebrating our five-year anniversary in the first quarter, we are incredibly encouraged by our growth outlook for the next five years as well. The guidance that we provided on March 18, 2026 shows that Gold Royalty Corp. expects production to grow to 28,000 to 34,000 GEOs by 2030. At the midpoint, this represents nearly 500% growth compared against our 2025 actual results of 5,173 GEOs. This growth is all from royalties and streams already fully bought and paid for in our portfolio, and I would emphasize that if we did nothing at all—if we only sat on our hands for the next five years—we still would have peer-leading growth. Of course, we are not planning to sit on our hands for the next five years. Our team continues to investigate acquisition opportunities each and every day. In the current environment with strong gold prices, we are seeing less emphasis on balance sheet repair. Most of the opportunities we are seeing now are sales of existing third-party royalties where sellers could potentially be looking to take advantage of the high commodity price environment that I mentioned earlier. We are committed to accretive transactions, and we will stay disciplined to ensure we are not overpaying for the sake of growth. We continue to look for double-digit returns using conservative commodity price assumptions, and we continue to favor precious metals in low-risk jurisdictions. With that in mind, I look forward to continuing to build upon the great platform we have built in our first five years. I will now pass the call to our CFO, Andrew W. Gubbels, to discuss the details of our first quarter results and our outlook on Slide 5. Andrew W. Gubbels: Thank you, John, and good morning, everyone. We are pleased to report new records for revenue and adjusted EBITDA in the first quarter. Total revenue, land agreement proceeds, and interest was $9.4 million, translating to 1,920 gold equivalent ounces in the quarter. Adjusted EBITDA was $7 million, up from $3.2 million in the previous quarter and up from $1.7 million in the comparable quarter in 2025. Our results for the first quarter include contributions from the Pedra Branca royalty, which we acquired in December 2025, and our second royalty on the Borba Rama mine, which was acquired through a 50-50 partnership with Taurus Funds in January 2026. Due to the structure of this partnership, we are equity accounting for the contribution from this royalty. In other words, revenue from the second Borba Rama royalty, a net 0.75% NSR to Gold Royalty Corp., is not included in the IFRS revenue line on our income statement but is included in other operating income on the income statement and has been added to the $9.4 million total revenue, land agreement proceeds, and interest reported in the quarter. Our balance sheet also continues to strengthen. We exited the first quarter with over $13.6 million of cash, no debt, and a fully undrawn $150 million credit facility. As we continue to generate cash, our portfolio is expected to generate consistent positive free cash flow, positioning Gold Royalty Corp. well to self-fund its business going forward. With a clean balance sheet, we now have the flexibility to execute our long-term strategy. Our current intent is to maintain a modest cash balance and to allocate additional cash generated from operations toward growth opportunities where appropriate. As our cash flows continue to grow, capital returns will become increasingly topical for us. This is a subject that we intend to evaluate in more detail later this year. I will now pass the call to Jackie Przybylowski to review our guidance and to talk about some of our key assets. Jackie Przybylowski: Thanks, Andrew. Looking at our portfolio in more detail, we reported 1,920 gold equivalent ounces in the first quarter of 2026. If we simply annualize our Q1 results, we would reach 7,680 GEOs in the year, above the low end of our guidance range of 7,500 to 9,300 GEOs in 2026. We are already very encouraged with this result because we expect that volumes will be more heavily weighted to the second half of the year as Faros and County Line ramp up to their full production run rates through the year. And just a quick reminder that our 2026 guidance was set at a gold price of $5,150 per ounce for the full year. Lower gold prices would work in our favor, as conversion of the land agreement proceeds and interest and conversion of revenue from copper and other metals would translate to higher GEO values at lower gold prices. Please see our 03/18/2026 press release for a table showing the sensitivity of our guidance to gold prices. And, reiterating John's comment from earlier, Gold Royalty Corp. expects production to grow to 28,000 to 34,000 GEOs by 2030, or approximately 6x our actual 2025 result, from assets already fully bought and paid for in our portfolio. Our extensive portfolio continues to offer exciting news flow and catalysts, and we have a number of exciting asset updates in our earnings report. I will just highlight a few on this call. i-80 announced a complete recapitalization, which means the company is now fully funded for Phases 1 and 2 of its development plan, which includes the Granite Creek underground and open pit operations, on which Gold Royalty Corp. holds a 10% NPI. Acquisition of the Pedra Branca mine by Corax was completed on April 2, 2026. Gold Royalty Corp. holds a 25% NSR on gold and a 2% NSR on copper on all material mined at Pedra Branca East and Pedra Branca West, and we are looking forward to working with Corax as it optimizes operations at what will be an important asset for Gold Royalty Corp. Blackrock Silver published a PEA for the Tonopah West project, on which we hold a 3% NSR, and U.S. GoldMining published a PEA on its Whistler project, on which we hold a 1% NSR. And a few notes to watch for over the next couple of months: Orla Mining continues to plan to start construction on South Railroad in mid-2026, pending receipt of final permits, and that mine could be in production in late 2027 or early 2028. We hold a 0.44% NSR in South Railroad. DPM Metals has restarted the Varus mine, on which we have a stream on all copper produced. The operator expects to reach its full production run rate by year-end 2026, but in the meantime, it is important to note that the processing plant will be shut down for approximately 20 days in the second quarter for installation tie-ins for the second tailings filter. Please see our earnings release for additional asset updates. With over 250 assets in our portfolio, we continue to expect a steady stream of exciting, positive news flow. I will pass the floor back to David for closing remarks. David Garofalo: Thank you, Jackie. There is indeed lots to get excited about as you look across our portfolio and the various high-quality assets ramping up and entering production. We continue to see compelling upside to our share price as our portfolio assets continue to develop, and as the market gives us credit for this organic growth. Our valuation could be further boosted by accretive growth, but we emphasize that we will remain patient and disciplined as we consider any acquisitions and as we review our capital allocation options going forward. We continue to prioritize accretive growth, as always. However, as we continue to build cash, we view a modest capital return as a signal to the market that we will remain disciplined on our growth and that we have matured as a company. We reached first positive free cash flow in mid-2025. We expect to continue to strengthen our balance sheet with higher GEO volumes, stronger gold prices, and lower costs, as we have eliminated the interest costs and as we continue to rationalize our G&A. Our share price has now been comfortably above our warrant exercise price for some time, and I think it is prudent to highlight this to any warrant holders on today's call. As of 03/31/2026, the company had approximately 14.7 million outstanding share purchase warrants, with each warrant exercisable into a common share at a $2.25 exercise price per share. The warrants are listed on the NYSE American under the symbol GROY.WS and expire 05/31/2027. For more information on exercising warrants, please see our first quarter earnings press release. Thank you everyone for tuning into the earnings call, and we invite you all to join our Annual Capital Markets Day in Toronto and online on June 18, 2026. We will now open the call for questions. Operator: We will now begin the question-and-answer session. There are no questions at this time. I would like to turn the call back over to David Garofalo for any closing remarks. David Garofalo: Thank you. I appreciate it is a very busy time for all of you, and if, in the fullness of time, you have follow-up questions, please do not hesitate to reach out to any one of us. I think you all know how to reach us, and we would be delighted to answer any questions you have. Thank you for your kind attention today, and we will see you shortly. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. 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. Good afternoon. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance, Inc. First Quarter 2026 Earnings Conference Call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyson Thomas, Chief Financial Officer. Today's call is being recorded, and a replay is available through a webcast in the Investor Relations section of our website at whitehorsefinance.com. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. Please press star 1 on your telephone keypad. If at any point your question has been answered, or if you should require operator assistance, please press 0. It is now my pleasure to turn the call over to Robert Brinberg of Rosen & Company. Thank you, Chloe, and thank you everyone for joining us today to discuss WhiteHorse Finance, Inc.'s First Quarter 2026 earnings results. Robert Brinberg: Before I begin, I would like to remind everyone that certain statements which are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. WhiteHorse Finance, Inc. assumes no obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance, Inc. First Quarter 2026 Earnings Presentation, which was posted to our website this morning. With that, allow me to introduce WhiteHorse Finance, Inc.'s CEO, Stuart Aronson. Stuart, you may begin. Stuart Aronson: Thank you, Rob. Good afternoon, everyone, and thank you for joining us today. As you are aware, we issued our earnings this morning before the market opened, and I hope you have had the chance to review our results for the period ending 03/31/2026, which can also be found on our website. On today's call, I will begin by addressing our first quarter results and current market conditions, then Joyson Thomas, our Chief Financial Officer, will discuss our performance in greater detail, after which we will open the floor for questions. At a high level, our first quarter results reflected three main themes. One, previously flagged credit marks drove net realized and unrealized losses for the quarter. Two, core earnings moderated, reflecting a lower portfolio yield in Q1 driven in part by one additional investment being placed on nonaccrual. And three, share repurchases provided a meaningful offset through NAV accretion. More specifically, our results for 2026 included net realized and unrealized losses that were largely consistent with the markdown we had forewarned investors about on our last shareholder call. As we shared on that call, we had three accounts where we expected markdowns this quarter, Honors Holdings, Outward Hound, and Lumen Latam, and those positions drove the bulk of our net realized and unrealized losses for the quarter. Q1 GAAP net investment income and core NII were $5.6 million, or 25.3¢ per share, compared with Q4 GAAP net investment income and core NII of $6.6 million, or 28.7¢ per share. NAV per share at the end of Q1 was $11.47, compared with $11.68 at the end of Q4, a decrease of approximately 1.8%. The change in NAV reflected net realized and unrealized losses of approximately 28.4¢ per share, partially offset by share repurchases that were accretive to NAV by approximately 8¢ per share. NAV was also impacted by distributions paid during the quarter, which included a $0.01 per share supplemental dividend. We will continue our distribution policy framework that was previously discussed, where the company intends to distribute a quarterly base distribution of 25¢, as well as make potential supplemental distributions above the base level in the future pursuant to our distribution policy. Turning to shareholder value, our shares have continued to trade at a meaningful discount to NAV, and both management and the board remain focused on actions that we believe can help enhance shareholder value over time. So far, that focus has included disciplined portfolio positioning, selective capital deployment, accretive share repurchases, and steps to support distributable earnings. As we discussed on our last call, the board expanded the company's share repurchase program, and late in the first quarter, we also implemented a 10b5-1 plan to allow us to continue executing on that authorization outside of our normal trading window. In accordance with the plan's terms, we remained active under the program during Q1 and into Q2, and those repurchases were accretive to NAV as I mentioned earlier. Joyson will provide additional detail on the quarter's repurchase activity. More broadly, while our stock continues to trade at a substantial discount to book value, we believe repurchasing shares remains one of the most attractive uses of capital available to us. At the same time, we are continuing to balance that opportunity against new investment activity and our targeted leverage levels. In addition, the adviser has agreed to extend its temporary voluntary waiver of the incentive fee for 2026, reducing the applicable fee rate from 20% to 17.5%. We view that extension as another constructive step to support distributable earnings and shareholder value. As we have said previously, this fee waiver is temporary and any decision regarding future periods will be revisited based on the current conditions and in consultation with the board of directors. We have been encouraged by the alignment shown through open market purchases by certain officers and directors, which we believe further reflects confidence in the underlying value of WhiteHorse Finance, Inc. Turning to our portfolio activity, we had gross capital deployments of $25.4 million in Q1, which was more than offset by repayments and sales of $38 million, resulting in net repayments of approximately $12.6 million before the effects of transferring assets into the STRS JV. Gross capital deployments consisted of three new originations totaling $18.5 million, and the remaining amounts were deployed to fund add-ons to 12 existing investments. In addition, there was $700 thousand in net fundings on revolver commitments during the quarter. Of our three new originations in Q1, one was a non-sponsor deal and two were sponsor. The sponsor deals are targeted to be transferred to the STRS JV. Our new originations in Q1 had an average leverage of approximately 5.5x EBITDA. All of our Q1 deals were first-lien loans. Pricing reflected competitive market conditions; our focus remained on structure and credit quality. Total repayments and sales were primarily driven by complete or partial realizations in three portfolio companies: Trimlight, Monarch Collective Holdings, and Lumen Latam. During the quarter, the BDC transferred two new deals and two existing investments to the STRS JV totaling $18.9 million. At the end of Q1, the STRS JV portfolio had an aggregate fair value of $327.1 million and an average effective yield of 9.9%. We continue to successfully utilize the STRS JV and believe WhiteHorse Finance, Inc.'s equity investment in the JV continues to provide attractive returns for our shareholders. After net repayments and JV transfer activity, as well as realized and unrealized losses recognized during the quarter, total investments decreased from the prior quarter by $35.6 million to $543 million. This compares to our portfolio's fair value of $578.6 million at the end of Q4. During the quarter, we recognized $4.7 million in net realized losses and approximately $1.6 million of net unrealized losses, for an aggregate total of $6.3 million in net realized and unrealized losses in Q1, approximately 28.4¢ per share. The net mark-to-market losses were primarily driven by a $2.8 million unrealized loss in Honors Holdings and a $2.1 million unrealized loss in Outward Hound, partially offset by a $2.6 million gain from the reversal of unrealized losses on investment realizations and approximately $400 thousand of net markups across the portfolio. In addition, we recognized realized losses primarily driven by approximately $3 million from the Lumen Latam sale, as well as $1.1 million from a foreign exchange loss on the repayment of the Trimlight Canadian term loan and approximately $2.2 million from the sale of the ThermoDisc asset. Importantly, the markdowns on Honors Holdings, Outward Hound, and Lumen Latam were the same three credits we identified for investors on our prior call as situations on which we expected to incur markdowns in the quarter. At the end of Q1, 98.8% of our debt portfolio was first-lien, senior secured, and our portfolio continued to reflect a balanced mix of sponsor and non-sponsor investments, with non-sponsor representing approximately 38% of the portfolio at fair value. Weighted-average effective yield on our income-producing debt investments decreased to 10.8% at the end of Q1 compared to 11.0% at the end of Q4. The weighted-average effective yield on our overall portfolio also decreased to 8.7% at the end of Q1, compared to approximately 9.1% at the end of Q4. Yield was affected by the one new investment being put on nonaccrual during the quarter. With respect to nonaccrual status, Outward Hound was placed on nonaccrual during the quarter, and with the final sale of our residual position occurring this quarter, ThermoDisc was removed from our nonaccruals. Excluding the impact of those changes, nonaccruals represented approximately 3.0% of the total debt portfolio at fair value, compared with 2.4% at fair value at the end of the prior quarter. The four issuers on nonaccrual at quarter end were Honors Holdings, New Cycle Solutions, Outward Hound, and PlayMonster. As always, we continue to actively manage our underperforming credits, leveraging our dedicated restructuring resources and the broader capabilities of H.I.G. With respect to Outward Hound, we continue to work with the borrower and believe a debt restructuring is likely in coming months, with an expectation that part of that asset will return to accrual status based on the new structure. Given the complexity of the process, we believe that outcome is more likely to occur next quarter than this quarter, although there can be no assurance until the restructuring is completed as to what will happen and when. On Honors Holdings, also known as Camarillo Fitness, the company continues to struggle; we do not yet know whether we will have a further markdown this quarter. Lumen Latam is now completely exited, so that situation is resolved. At this time, we are not aware of any further material markdowns beyond what I have just described. Aside from the credits on nonaccrual, our portfolio continues to perform well, and in our portfolio reviews on any companies where there is underperformance, we are seeing private equity owners support those credits with new equity, which is an indication from the private equity firms that they have confidence in those companies and borrowers. I would also note that, consistent with what we shared last quarter, we have modest exposure to Internet or software companies. The BDC’s software exposure across six portfolio names represents approximately 11.1% of the portfolio at cost and 9.9% at fair value. Market conditions remain competitive, although for several months, geopolitical events had slowed the M&A market, with transaction volume being lower than normal. That said, over the past few weeks, we have seen a recovery in deal flow volumes, and our team is currently working on deals at close to 100% of capacity. Negative press around direct lending and private credit has resulted in a shift in supply and demand, particularly on larger deals. On the smaller deals, as a result, pricing is up 25 to 50 basis points, and on the midsize and larger deals, pricing is up more like 50 to 100 basis points, with most of that movement being on the sponsor side, where prices had compressed. We had previously shared with the market that pricing was very aggressive. In the lower mid-market, we are seeing pricing of SOFR plus 475 to 525. In the mid-market sponsor segment, pricing is SOFR plus 500 to 550, and in the larger-cap market, pricing is SOFR plus 500 to 575. The non-sponsor market remains stable at pricing of SOFR plus 600 and above. We are also highly focused on minimizing liability management execution risk in new investments and our portfolio. For investors less familiar with the term, LME risk refers to the risk that a borrower can move assets away from the existing lenders and pledge them to new lenders, effectively subordinating the original senior debt. We are working to ensure that structures and documentation provide adequate protection against this risk. Looking forward, there is too much geopolitical and consumer sentiment uncertainty to have any clarity as to where the market is going to be in the balance of the year. What I would say is that the mid-market and lower mid-market that we participate in continue to function. Other than the slight price increase and conservatism on credit standards, including extremely high conservatism on anything software-related, the markets are functioning. In the non-sponsor market, conditions remain stable and less competitive than in the sponsor market. Average leverage is approximately 4.0x to 4.5x, and pricing continues to be generally at SOFR plus 600 and above. With our non-sponsored portfolio performing as well as or better than our sponsored portfolio, we continue to focus significant resources on the non-sponsored market, where there is better risk/return in many cases and much less competition than what we are seeing in the sponsor market. We currently have 21 originators covering 12 regional markets. Given market conditions, we are looking for good risk/return across the market and finding surprisingly good opportunities. Additionally, we continue to expect a normal level of repayment activity over time, although actual repayment timing will be driven by M&A, refinancing activity, and company-specific situations. As for our pipeline, we currently have 10 deals mandated. Of those 10 deals, four are non-sponsor and six are sponsor. All of the non-sponsor deals are priced at SOFR plus 600 or above, and all of the sponsored deals will be targeted for the STRS JV. All of the non-sponsored deals are targeted for the balance sheet of the BDC. While there can be no assurance that any of these deals will close, or whether we have room in the BDC for any or all of those deals, we will be assessing capacity based on repayments and the availability of capital to continue the share buyback. Subsequent to quarter end, no deals have closed in the BDC. With capital reserved for share buybacks, the BDC's remaining capacity is very limited—approximately $15 million for new assets on the balance sheet after reserving roughly $11 million for the share repurchase program. At the end of the first quarter, the STRS JV's remaining capacity was approximately $35 million, and pro forma for recently mandated deals eventually being transferred and anticipated repayments, the JV's capacity is approximately only $10 million. With that, I will turn the call over to Joyson for additional performance details and a review of our portfolio composition. Operator: Joyson? Joyson Thomas: Thanks, Stuart, and thanks everyone for joining today's call. During the quarter, we reported GAAP net investment income and core NII of $5.6 million, or 25.3¢ per share. This compares with Q4 GAAP NII and core NII of $6.6 million, or 28.7¢ per share, as well as our previously declared first quarter base distribution of 25¢ per share and a supplemental distribution of $0.01 per share. Q1 fee income was approximately $400 thousand, compared with $800 thousand in the prior quarter, driven primarily by a $100 thousand prepayment fee from Monarch Collective and a $100 thousand amendment fee from U.S. Petroleum Partners. The prior quarter's fee income included a nonrecurring prepayment fee of $300 thousand received in connection with the prepayment exit of ELM in that quarter. For the quarter, we reported a net decrease in net assets resulting from operations of $700 thousand. Our risk ratings during the quarter showed that approximately 88.3% of our portfolio positions carried either a one or two rating, an increase from the 85.9% reported in the prior quarter. Upgrades during the quarter included our investments in Claridge, which were upgraded from a three to a two rating, while downgrades were primarily driven by moving our position in UserZoom from a two to a three rating. As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a two rating indicates the company is performing according to such initial expectations. Regarding the JV specifically, we continue to utilize the platform as a complement to the BDC. As Stuart mentioned earlier, we transferred two new deals and two existing investments during the first quarter to the STRS JV totaling $18.9 million. During the quarter, the JV had three portfolio investments fully repaid, and as of 03/31/2026, the JV's portfolio held positions in 42 portfolio companies with an aggregate fair value of $327.1 million, compared to an aggregate fair value of $323.6 million as of 12/31/2025. Leverage for the JV at the end of Q1 was 1.08x, compared with 1.07x at the end of the prior quarter. Investment in the JV continues to be accretive for the BDC's earnings, generating a low-teens return on equity. During Q1, income recognized from our JV investment aggregated to approximately $3.6 million, compared to approximately $3.8 million reported in Q4. As we have noted in prior calls, the yield on our investment in the JV may fluctuate period over period as a result of a number of factors, including the timing and amount of additional capital investments, changes in asset yields in the underlying portfolio, and the overall credit performance of the JV's investment portfolio. Turning to our balance sheet now, we had cash resources of approximately $49.4 million at the end of Q1, including $37.6 million of restricted cash representing interest and principal proceeds received at quarter end, as well as approximately $11.8 million at the fund level reserved for the quarterly distribution that was paid in early April as well as for share repurchases. Cash balances at the end of Q1 were elevated due to realizations on our investments as well as the JV transfers outpacing deployments during the quarter. As of 03/31/2026, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 176.2%, which was above the minimum asset coverage ratio of 150%. At quarter end, gross leverage was 1.31x, compared with 1.26x in the prior quarter, while our net effective debt-to-equity ratio after adjusting for cash on hand was 1.12x, compared with 1.15x in the prior quarter. The decline in net effective leverage relative to the increase in gross leverage primarily reflected higher cash amounts on the balance sheet at quarter end as a result of the repayments that Stuart and I noted earlier. In regards to our share repurchase program, the company repurchased approximately 412 thousand shares during Q1 at a weighted-average price of approximately $7.31 per share, which was accretive to NAV by approximately 8¢ per share. Subsequent to quarter end, and through the market close of yesterday, the company has repurchased an additional approximately 210 thousand shares. Cumulatively, since the inception of our share repurchase program beginning in 2025, we estimate that our buybacks have contributed approximately 31¢ per share of NAV accretion, demonstrating our commitment to creating shareholder value. As Stuart noted earlier, certain company insiders and affiliates also purchased shares in the open market during the quarter, further demonstrating our view of WhiteHorse Finance, Inc.'s current market valuation. Before I conclude and open up the call to questions, I would like to discuss our recent distributions and corresponding distribution policy. This morning, we announced that our board declared a second quarter base distribution of 25¢ per share. The distribution will be payable on 07/06/2026 to stockholders of record as of 05/21/2026. As we said previously, we will continue to evaluate our quarterly distribution both in the near and medium term based on the core earnings power of our portfolio, in addition to other relevant factors that may warrant consideration. With that, I will now turn the call back over to the operator for your questions. Operator: Thank you. If you would like to ask a question, press star 1. Once again, that is star 1 to ask a question. We will move first to Heli Sheth with Raymond James. Your line is open. Heli Sheth: Good afternoon. Thanks for the question. On the buybacks, how are you considering repurchasing shares on a go-forward basis in terms of weighing buybacks versus deployments, especially if the more muted M&A market that we have seen recently persists? And then on the pipeline, what are you expecting for the remainder of the year? Are you seeing anything different there in terms of industry sector mix, or incumbent versus new borrowers? Stuart Aronson: Yes. Again, the M&A market has picked up in the last three to four weeks. Pricing is higher than we have seen on deals in about two, two and a half years, so the assets that we are seeing right now are, on a relative basis, pretty attractive. That said, with our shares trading at roughly a 35% discount to NAV, we do get more lift from deploying money into share buybacks. So, with the shares where they are now, or close to where they are now, my anticipation is we will continue to buy back shares, and we do have plenty of capacity left after having increased the allocation to share buybacks last quarter. We are seeing a good flow of opportunities in both the sponsor and non-sponsored market. It is a little bit surprising that, due to market liquidity issues, the pricing on smaller deals is as low or lower than the pricing on larger deals, and that has us currently biased towards the mid-market and upper mid-market deals, where the structures are more conservative based on geopolitical disruption, and the pricing, again, is higher than on the smaller deals. That said, we think the geopolitical situation is highly unpredictable and, notwithstanding the fact that until today the stock market has been very optimistic about what is going on, we think there is a lot of volatility risk. As I mentioned in my prepared remarks, we really cannot give you an assessment of where the market will be going forward. The only assessment I can offer is that today’s market, in terms of pricing and deal structures, tends to be more conservative than what we have seen in the past couple of years, so, again, it is more attractive. In terms of industries, we are not seeing very much on the software technology side, and the things we are seeing we are being very, very cautious about given the ongoing concerns with what AI will do to displacing existing leaders in the technology community. We are seeing a nice mix of both industrial credits and business service credits, with volatility and economic cyclicality risk that ranges from anywhere moderate down to very low. But, again, we are seeing better deal flow now by far than what we were seeing two or three months ago. Operator: Got it. Thanks for the time. Once more, that is star 1 to ask a question. We will move next to Christopher Nolan with Ladenburg Thalmann. Your line is open. Christopher Nolan: Hi. Is there any limit to what you can take the percentage of the total portfolio occupied by the JV? Stuart Aronson: The equity in the JV is considered a bad asset vis-à-vis the 30% bad asset limit we have, and all BDCs have. That said, we are nowhere near that limit right now, and we have the BDC representing most of the use of the capacity of that 30%. We think it would be unlikely that we would change the size of the JV in the near future, though. Christopher Nolan: Alright. Well, if your portfolio is $578 million, 30% of that is $173 million, and your equity in the JV is roughly $55 million, so you have a lot of space to grow that JV. I guess my real question is, it seems that you are running off first-lien loans, and so the percentage that the JV occupies is higher. And, also, given the JV is generating attractive returns, you are in this interesting spot where it is accretive to actually not only buy back your own shares, but, because of the increasing percentage from the JV, you are getting a higher yielding asset overall. Is that the way you are looking at it, or am I missing something? And should we expect the overall size of the BDC investment portfolio to decline in coming quarters? Stuart Aronson: We see the JV as positive and accretive, which is why we have grown the JV over time. And yes, as we buy back shares using on-balance-sheet liquidity, the JV is a slightly larger percentage of the overall portfolio. But, again, in terms of dollars committed to the JV, at the moment, we do not intend to make any changes. At current share price levels, we see buybacks as highly accretive. If we start running short on buyback capacity, the management company and the board will discuss whether it makes sense to allocate additional capital into share buybacks. But at the moment, as I mentioned earlier, there is plenty of capital for the share buybacks, and so we have not taken any additional actions from last quarter. Joyson Thomas: Chris, I was just going to add with respect to the JV specifically, it is a total $175 million program between ourselves and STRS Ohio. Of the $175 million commitments, we still have $14 million uncalled, and that includes both the traditional equity investment as well as the subordinated debt investment that is structured as part of our $175 million commitments in total. Christopher Nolan: Okay. Is the plan to tap that additional equity? Joyson Thomas: That is correct. For instance, in the prior quarter, we had three realizations in the STRS JV portfolio, so by and large, the transfers that we sent down to the JV were funded by those excess proceeds. As we kind of tap out on leverage and any excess cash available at the JV level, we would then call and deploy that remaining $14 million. Christopher Nolan: Okay. Thanks, Tristan. Operator: It does appear that there are no further questions at this time. Thank you. This does conclude today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the MDU Resources Group, Inc. Q1 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 press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Brent Miller, Treasurer. Brent, please go ahead. Brent Miller: Thank you, Operator, and welcome everyone to the MDU Resources Group, Inc. First Quarter 2026 Earnings Conference Call. Our earnings release and supporting materials for this call are available on our website at mdu.com under the Investors section. Leading today's call are Nicole A. Kivisto, President and Chief Executive Officer, and Jason L. Vollmer, Chief Financial Officer of MDU Resources Group, Inc. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Please refer to our SEC filings for a discussion of risks and uncertainties that could cause actual results to differ. I will now turn the call over to Nicole for her prepared remarks. Nicole? Nicole A. Kivisto: Thank you, Brent, and good afternoon, everyone. We appreciate you joining us today and for your continued interest in MDU Resources Group, Inc. This morning, we reported first quarter 2026 earnings of $80.8 million, or $0.39 per share. Results reflected strong operational performance across our businesses, offset by mild winter weather impacts, which reduced earnings by approximately $0.03 per share. At the same time, rate relief and recent investments such as the Badger Wind Farm and other pipeline expansions contributed positive results, and we continue to see encouraging demand trends, including interest tied to data center development. During the quarter, we concluded our binding open season for the proposed Bakken East pipeline project with continued strong interest received. As a reminder, we have not yet reached a final investment decision on this potential project, but we are certainly encouraged with the approximately 1.4 billion cubic feet per day of submitted interest received in the open season. Of that total, approximately 40% has been signed under precedent agreements, with additional precedent agreements in active negotiation. Included in the signed precedent agreements is a firm capacity commitment of $50 million annually for 10 years from the state of North Dakota. With these results, we are now expecting the design of the potential project to include approximately 353 miles of 42-inch, 36-inch, and 30-inch diameter mainline pipe; approximately 21 miles of 30-inch, 24-inch, and 20-inch diameter lateral pipelines; additional compression at three existing compressor stations; and the construction of three new compressor stations. Based on these assumptions, we are projecting total capital investment for the potential project in the range of $2.7 billion to $3.2 billion, which would be incremental to our current $3.1 billion capital investment forecast. We are encouraged by the level of interest and ongoing commercial discussions that demonstrate continued demand for additional takeaway capacity from the Bakken region, which the Bakken East project could provide. This potential project would also provide natural gas transportation service to meet growing customer demand from industrial, power generation, and local distribution companies in the region. As we look to finance a project of this size and scope, we will evaluate all options, including using our balance sheet to finance the project, pursuing potential partnerships, and various other options. Also during the quarter, we saw continued ramp of our data center load. We currently have 580 megawatts under signed electric service agreements, of which 180 megawatts has been online since mid-2023. Fifty megawatts from the second data center is currently online, with an additional 50 megawatts currently ramping online. An additional 150 megawatts is expected online later this year, with another 100 megawatts expected online in 2027, and the remaining 50 megawatts expected online in 2028. Our current approach to serve these large-load customer opportunities is with a capital-light business model, which not only benefits our earnings and returns but also provides cost savings to our other retail customers. Currently, our average retail customer receives an approximate $70 per year credit on their bill from this approach, and we anticipate this credit to increase to potentially over $200 per year when all volumes are fully online. We do continue to pursue additional discussions with potential data center customers, and we will provide further updates when we reach executed electric service agreements. Depending on the structure of future agreements, we would consider investing capital into new generation, substation, and transmission assets to serve the increased load. Aside from data center load, we also continue to evaluate other potential capital projects related to safely and reliably meeting existing customer demand as well as grid resiliency. On the regulatory front, we are continuing to execute on our plan of filing three to five rate cases annually and working to achieve constructive outcomes in all jurisdictions. At our electric segment, our Wyoming rate case was approved with rates effective April 1, 2026. In our Montana case, interim rates were approved for an annual increase of $10.4 million, with rates also effective April 1, subject to refund. We also anticipate filing a general rate case in North Dakota yet this year. On a slightly separate but related note, during the quarter, the South Dakota legislature approved legislation enabling utilities to reduce wildfire risk through the submission of wildfire mitigation plans and providing associated liability protection. With this action, all four states in which we provide electric service now have wildfire mitigation and liability relief frameworks in place. Moving on to our natural gas regulatory update, new rates from our Idaho case were effective January 1, reflecting an annual increase of $13 million. In Washington, year two rates under our approved multi-year rate plan, representing an annual increase of $10.8 million, were effective March 1, 2026. In April, we filed a revision to decrease revenue by $2.1 million annually due to forecasted capital investments that were not placed in service as of December 31, 2025. Our Oregon rate case is still pending before the Commission, where we requested an annual increase of $16.4 million. As we look ahead, we anticipate filing another multi-year rate case in Washington this year and also plan to file a general rate case in Minnesota later in 2026. Moving on to our pipeline segment, we filed our FERC Section 7(c) application in March for our Align Section 32 expansion project, marking an important regulatory milestone in this project's development. This expansion will provide natural gas transportation service to an electric generating facility being constructed in northwest North Dakota. The project is dependent on regulatory approvals, with construction targeted to be complete in late 2028, with a total capital investment of approximately $70 million, which is included in our $3.1 billion capital plan. We also extended the signed agreement to support the early-stage development of the potential Minot Industrial Pipeline project through late 2026. This project would be approximately a 90-mile pipeline from Iola, North Dakota, to Minot, North Dakota, and would provide incremental natural gas transportation capacity for anticipated industrial demand should we decide to proceed. This project is included in the outer years of the $3.1 billion capital plan, and we will continue to provide updates as the project progresses. Looking ahead, continued strong customer demand at our pipeline segment and progress in our utility regulatory schedule should provide opportunities to meet our long-term EPS growth rate target as we move forward. In addition, our utility experienced combined retail customer growth of 1.4% when compared to this time last year, which is within our targeted annual growth rate of 1% to 2%. This demand and growth provide investment opportunity for customer-driven growth projects at our pipeline and in our utility infrastructure. I am proud of our employees whose dedication to our core strategy continues to drive our business to deliver exceptional performance and positions MDU Resources Group, Inc. with compelling long-term growth prospects. Despite the mild weather headwinds experienced in the first quarter, we are affirming our 2026 earnings per share guidance range of $0.93 to $1.00 per share. We remain confident in our ability to execute our long-term growth strategy and believe our operational focus and financial strength continue to position us well for delivering safe and reliable energy, customer value, and strong stockholder returns. We also continue to anticipate a long-term EPS growth rate of 6% to 8%, while targeting a 60% to 70% annual dividend payout ratio. As always, MDU Resources Group, Inc. is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice. I will now turn the call over to Jason for a financial update. Jason? Jason L. Vollmer: Thank you, Nicole. This morning, we announced first quarter earnings of $80.8 million, or $0.39 per share, compared to first quarter 2025 earnings of $82 million, or $0.40 per share. As Nicole mentioned in her opening comments, milder weather had an approximate impact of $0.03 per share on a consolidated basis for the quarter. Turning to our individual businesses, our electric utilities reported first quarter earnings of $14.5 million compared to $15 million for the same period in 2025. The first full quarter of the Badger Wind Farm being in service was a benefit in the quarter but was more than offset by lower retail sales volumes from 10% to 30% milder weather across our service territory, which impacted earnings results by approximately $2 million when compared to 2025. Our natural gas utility reported earnings of $44.2 million in the first quarter compared to $44.7 million in 2025. Similar to our electric results, warmer weather impacted volumes for the quarter, resulting in approximately a $5 million impact to earnings compared to last year, including temperatures 20% warmer in Idaho, 30% warmer in Montana, and 10% to 30% warmer across the rest of our service territory when compared to the prior year. Weather normalization mechanisms in certain states helped offset the warmer temperatures experienced in the quarter. Largely offsetting the lower volumes was rate relief in Washington, Idaho, Montana, and Wyoming. The pipeline reported earnings of $15.3 million compared to first quarter record earnings of $17.2 million last year. The decreased earnings were driven by lower interruptible natural gas storage withdrawals, along with higher operation and maintenance expense primarily due to increased material costs and payroll-related expenses. Higher Montana property tax accruals also contributed to the decrease in earnings. Partially offsetting the impacts was strong customer demand for short-term natural gas transportation contracts as well as contributions from the Minot expansion project placed in service late last year. Finally, MDU Resources Group, Inc. continues to maintain a strong balance sheet and has ample access to working capital to finance our operations through our peak seasons. In connection with the company's December 2025 follow-on equity offering, a portion of the related forward sales agreements were settled in March 2026, resulting in the issuance of 4.3 million shares of new common stock for proceeds of approximately $81.3 million. That summarizes the financial highlights for the quarter. We appreciate your interest in MDU Resources Group, Inc., and we will now open the call for questions. Operator? Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open. Please go ahead. Julien Dumoulin-Smith: Hey, team. Thank you very much for the time, and, again, congratulations. Just really great outcomes here of late, so kudos to you. If I could kick it off here, it is just a remarkable backdrop. I wanted to talk a little bit more about this 40% signed in a precedent agreement relative to the remaining 60%. I know you talk about a $3 billion-plus number here now, but just kind of backing that with customers, investors have been really focused on that today. Can you talk a little bit about the timeline to really zip that up, if you will? Nicole A. Kivisto: Yes, and thank you, Julien, for the question. As we think about where we are today, maybe we will just take a step back. When we entered into the binding open season from the start, what ended up showing up, and what we reported today, is what we expected. We feel really encouraged in terms of where we are and our initial expectations on the overall project. In terms of the 40%, we are very encouraged that we have 40% of that under signed precedent agreements as of this date. As we mentioned on the call and in the earnings release, we are in active negotiations on the remaining interest. We believe we have agreed in large part to many of the key business terms with these remaining customers, but we will continue to work through those. In terms of the overall next steps following that, as we move forward with executing the remaining agreements, the next step is to finalize design based on what shows up there, and then work with our board on a final investment decision. As you know, we did pre-file this project with FERC in December. In that filing, we laid out a schedule that would indicate that we would file the Section 7 application in the third quarter of this year. I am comfortable with the schedule to date. Certainly both WBI and our potential customers hope to reach an FID as soon as practical. Julien Dumoulin-Smith: Got it. So you feel pretty good about getting it done if you are still on track with that third-quarter target timeline, I suspect. Maybe if I can follow this up real quickly here. How do you think about laterals here, whether it is Ellendale or, frankly, other potential customers? And related to that, as far as laterals go, how do you think about the gas strategy perhaps leading an electric or electric gas generation strategy on the utility side as well? I appreciate what you are doing and the expanding scope with this pipeline, but how do you think about that marrying up with what you have on the utility front at the same time? What do you think about the laterals or actually building gas generation? I will note your comments in the remarks about being capital light thus far. How do you think about that being more capital intensive, prospectively? Nicole A. Kivisto: There are a couple of questions packed in there. I will take them in the order that I heard them. On the utility, our method has really been to come forward to the market when we have signed ESAs. We did talk today that we continue conversations with others. Noting those conversations, we also leaned into the fact that we may consider changing that strategy a bit and leaning into some investment. More to follow in terms of those final decisions being made, but we are continuing to discuss with potential customers the ability to serve them from a large-load perspective. As it relates to the pipeline, one of the things we have talked about that is beneficial for our company is, as we think about the data center theme and that buildout, whether our utility can serve that or not is obviously some upside, but the pipeline has the opportunity to serve that whether the utility would be the provider of that data center or not. So, as you are referencing our proposed Bakken East pipeline, we continue to think about how to serve some of that data center load, but even if we do not, it still is a benefit to the overall potential project at large. The theme of data center development is certainly a benefit on both sides of our business, whether that be the utility or the pipeline. On laterals, as we finalize our precedent agreements with our customers, we will keep those in mind. What we have seen across the country is once these pipelines become announced, to the extent we get to a final investment decision, other opportunities may come forward. We will be thinking about that also. It looks like, Jason, you might want to add something here. Jason L. Vollmer: Thanks, Nicole, for that lead-in. You mentioned specifically the Ellendale lateral, Julien, as part of your question. If you look at the updated map, you will not see that lateral built into that map. As we think about the open season process, we did not get interest at that location. We are delivering gas to that site, but the volumes we are seeing on the initial pipe compared to what we had expected going into the open season showed up along the mainline and get us to the same point along the way. We will see additional laterals develop over time off of this pipe, should we decide to proceed. It is a good growth platform going forward, but that Ellendale lateral is currently not contemplated in the design and the new map you would see today. Julien Dumoulin-Smith: Right. So the current CapEx budget does not necessarily include, and could be upsized yet again in the context of any laterals, it would seem. But quickly, Jason, while you have the mic, with respect to financing this, this is an incredibly big bite now that you are contemplating. How do you think about financing this? Are there partnerships? Are there sell-downs to get this done? Jason L. Vollmer: I appreciate the question, Julien. We have been clear with the market that we would provide a range once we had more clarity around the size, scope, and design of the project. By coming out with a range today, we have a much better view. It is a very large number, especially considering our current capital plan of $3.1 billion without this project included. This would be a significant addition. All options are on the table as we look at ways to finance this. A FERC-regulated project with contracted demand for a long period of time will have a lot of ways of getting financing done, whether that is doing it ourselves, incorporating partnerships, or various other structures. Our primary focus is to find an option that provides the best return for our shareholders over the long term, and also gives us the ability to have a majority stake in this project that will be connected to our existing system. It is very important that we would sit in a majority partnership if we go down the partnership path. Julien Dumoulin-Smith: Absolutely. Thank you very much. Best of luck. Operator: As a reminder, if you would like to ask a question, please press 1 to raise your hand. Your next question comes from the line of Ryan Michael Levine with Citi. Your line is open. Please go ahead. Ryan Michael Levine: Regarding the Montana rate case, any color around if you are still pursuing a settlement there given the deadline is coming up later this week? Jason L. Vollmer: Thanks, Ryan. I can take that one. On the Montana rate case, we are encouraged that interim rates were approved and went into effect on April 1, subject to refund until we get through the actual rate case process. As of right now, we have a hearing scheduled for July, or later this summer, for the next steps. Typically, we look for potential settlements along the way where we can, and we will continue to be in discussions on that. Nothing further to state here other than that a settlement would be something we would be open to, but we are proceeding to the next hearing date and will continue to update once we find out more. Ryan Michael Levine: In terms of the Bakken East more broadly, given crude price evolution as negotiations continued and the potential increase in associated gas production from the region, how is that impacting your contracting conversations from the supply side, and any incremental opportunities that could enable? Jason L. Vollmer: Great question. Market dynamics are interesting right now in the commodity space. All of the interest we have talked about with the Bakken East project has been demand pull. This is industrial customers, power generation, and LDCs—not driven by supplier push. I certainly think this is a project that will have interest from suppliers once it is in service, but we are not relying on supplier push to get to the volumes we are talking about here today. This is all demand pull. Ryan Michael Levine: In the cost estimate outlined in your slides, what are the key variables that push you to the higher or lower end of that range? Jason L. Vollmer: The construction period is in the 2029–2030 timeframe for the first in-service in late 2029 and the second phase in late 2030. We have not reached our final decision yet, so we have not locked up contractors. There could be variability in labor as we progress. Steel prices have been moving a bit. We wanted a range that could encapsulate some of that. We now have a better view from the customer demand side regarding where facilities would be located and interconnect with their projects. We have approximately 97% of the route with permission to survey. We are in a good spot from that perspective. The remaining uncertainty is around locking in steel prices for the pipe itself, ordering compression to understand costs, and finalizing labor for construction. There are variables until we get those locked down. We wanted a range to help the market understand the size and scope of how exciting this project can be, while being thoughtful that things can move around a bit before we lock it down. Ryan Michael Levine: Great. Thanks for taking my questions. Nicole A. Kivisto: Thank you. Operator: Your next question comes from the line of Aiden Kelly with JPMorgan. Your line is open. Please go ahead. Aiden Kelly: Hey, thanks for the time today. I want to pick up on the Bakken East project from a different angle. Could you talk about the data center opportunities on top of what you have already been discussing on the pipeline—specifically, the power plants to be built off laterals in certain towns? Are conversations occurring with large-load customers around this opportunity? Nicole A. Kivisto: Yes, certainly. One of the things to think about, as Jason mentioned, is the scope of what showed up in the binding open season and those with signed precedent agreements is demand pull. What is in that number? Some of that is power generation. A piece of what is showing up is power generation to serve potential data centers. Your question goes beyond that, in terms of the utility working with some of these customers or whether there could be additional power generation that shows up after we make a final investment decision on this pipeline. That is yet to be seen in terms of where those things land. Where we are today, this is a demand-pull project, and there is power generation showing up within the binding open season. Aiden Kelly: Separately, on the equity side, it is a big CapEx project and you mentioned potential partnership opportunities. Could you comment on the extent you see that as a possibility? And if so, how should we think about that—another utility or a private equity arrangement? Any thoughts on your appetite to partner up? Jason L. Vollmer: Thanks. As I mentioned earlier, all options are on the table as we think about financing a project of this size and scope, given how significant this project could be for the company. Right now, the team is focused on getting to a final investment decision. That is the primary focus—getting the remaining precedent agreements executed and getting to a position where we can get in front of our board on an FID. If we decide to go down the partnership path, we will step back and look at what makes the most sense for shareholders over the long term. A strategic partner could have a fit, and financial partners would likely have appetite too. We will analyze it carefully to determine what makes the most long-term sense for our shareholders for what would be a very long-lived and important project for the company, should we decide to proceed. Aiden Kelly: Great. Appreciate the insight. Thanks for the time. I will leave it there. Nicole A. Kivisto: Thank you. Operator: There are no further questions at this time. I will now turn the call back to Nicole A. Kivisto, President and CEO, for closing remarks. Nicole A. Kivisto: Thank you again for joining us today and for your thoughtful questions. We appreciate your continued interest in and support of MDU Resources Group, Inc. As we move through the remainder of 2026, we remain focused on disciplined execution of our capital plan, constructive regulatory engagement, and delivering safe, reliable, and affordable energy for our customers. Finally, I want to thank all of our employees for their dedication and commitment. We look forward to staying engaged with you throughout the year. Operator, you may now conclude the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the CrossAmerica Partners First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. I would now like to turn the conference over to Randy Palmer, Investor Relations. Please go ahead. Randy Palmer: Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners First Quarter 2026 Earnings Call. With me today are Maura Topper, CEO and President; and Jon Benfield, Interim Chief Financial Officer. We'll start off the call today with Maura providing some opening comments and an overview of CrossAmerica's operational performance for the first quarter, and then Jon will discuss the financial results. We will then open up the call to questions. Today's call will follow presentation slides that are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the organization. There can be no assurance that the management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission, including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to U.S. generally accepted accounting principles or GAAP. We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast, and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I will now turn the call over to Maura. Maura Topper: Thank you, Randy. Thank you to everyone joining us this morning. We appreciate you making the time to be with us today. I would like to lead off by saying that I'm excited and grateful to be with you today in my first call as CEO. Stepping into the CEO role over the past 2 months has been both humbling and energizing. I'm grateful for the opportunity to lead this organization and to keep learning alongside our team every day. I also want to take a moment to thank Charles Nifong for his care and thoughtfulness as our CEO over the past 6 years. We have become a larger and stronger organization under his leadership. I have learned much from him over the years that we have worked together, and I deeply appreciate his mentorship. I'm also happy to introduce Jon Benfield as our Interim Chief Financial Officer, who will be going through the quarterly financials in more detail. Jon has been with the partnership since 2012 and has worked in various capacities in our accounting and finance team over the years. Jon's deep familiarity with the partnership makes him exceptionally well suited for this role, and I'm glad to have him with us on the call today. We are working with a strong foundation here at CrossAmerica. Over the past few years, we have been deliberately shaping the partnership, increasing our exposure to retail operations and retail fuel pricing through our class of trade conversion activities and utilizing targeted real estate asset sales to generate capital to reinvest in the business. These portfolio optimization efforts have positioned CrossAmerica to perform well across a range of economic environments as I think our first quarter results demonstrate. Our team remains focused on ensuring the competitiveness of our sites in the markets where we operate with continued investment to drive growth and enhance the durability of our earnings. The result is an organization that is both disciplined and flexible and one that we believe is well positioned to capitalize on the opportunities ahead. If you turn to Slide 4, I will review some of the operating highlights of our first quarter. Overall, we had a strong first quarter, generating $35 million of adjusted EBITDA, a record amount for the first quarter and a 45% increase when compared to the first quarter of 2025. We benefited from strong gross profits from our retail segment, driven by motor fuel margins and merchandise sales and focused expense control across our operations. For the first quarter of 2026, our retail segment gross profit increased 18% to $74.3 million compared to $63.2 million in the first quarter of 2025. The increase was driven by an increase in motor fuel gross profit due to higher retail fuel margins for the quarter compared to the prior year, along with strong growth in merchandise gross profit. For the quarter, our retail fuel margin on a cents per gallon basis was $0.437 per gallon compared to $0.339 per gallon in the first quarter of last year. We experienced a strong start to the year on a fuel margin cents per gallon basis during a relatively benign pricing environment in January and February, helped by better sourcing costs and a favorable retail market conditions. As we entered March and continuing into April, we, along with the broader industry, have experienced a generally rising but also very volatile price environment. Historically, that type of rising fuel environment would have resulted in fuel margin compression, though with pockets of volatility providing margin opportunities. During this period of rising prices, however, fuel markets have generally remained rational with retailers quickly transmitting their increased costs to the pump, providing a practical floor to fuel margins during this period, which benefited our results. The corollary to our fuel margin cents per gallon results is obviously fuel volume. On a same-store basis, our retail segment reported a 7% decline in volume year-over-year, though with fuel gross profit ultimately $8.7 million higher than last year as a result of our strong cents per gallon results. Our team remains focused on ensuring our retail locations are competitively priced to balance long-term customer loyalty with the day-to-day volatility we are currently experiencing. Our volume results differed between the two classes of trade in our retail segment, company-operated locations and commission locations, which I'll spend a few moments talking about. Same-store volume at our company-operated locations was down approximately 4% for the quarter, with January and February experiencing less of a decline and March, a higher decline as we and the industry began to feel the impact of the higher fuel price environment we find ourselves in. This volume performance is relatively in line with reported industry averages for the first quarter of 2026 from the sources we review. For our commission class of trade, our commission same-store site volume was down approximately 14% for the quarter. As we have noted for the last 2 quarters, the decline was due in part to our decision at select sites to adjust our pricing strategy to better balance volume and margin while ensuring competitiveness within our markets whenever possible. Our commission location volume was also impacted by the overall volume decline in the market. Moving from our retail fuel operations to our store sales. Our first quarter 2026 results continued a series of important positive performance trends in this critical area of our business. On a same-store basis, our overall inside sales were up 2% for the first quarter compared to the prior year, with growth in the areas of packaged beverages, other tobacco products and food, both branded and proprietary. As we've noted in a number of our recent quarterly calls, during 2024 and 2025, we made important investments to expand our food operations at locations across our company-operated footprint with those investments contributing to both our results and customer traffic at this point in their life cycle. The first quarter of 2026 was also a high watermark for the partnership for our merchandise margin percentage. We reported a merchandise margin gross profit percentage of 29.7%, up 180 basis points from the prior year. We benefited from a better merchandise mix and better execution that improved margins on some of our core categories. This includes such promotions around breakfast sandwiches and chicken tenders that we ran during the quarter. A good example of our team leaning into growth, a focus on execution and providing value to our customers. The strong sales and margin percentage results contributed to an increase in our merchandise gross profit of 8% to $27 million. Jon will touch on this more in his comments, but we also had a very positive quarter focusing on expense control in our retail locations. Our results in this area [ took ] great amount of focus from our operations team as well as technology-assisted improvements that are benefiting our operations. Closing out my comments on the retail segment, we finished the quarter with 340 company-operated retail sites, down 12 sites from the fourth quarter of 2025 and 36 sites relative to the first quarter of last year due to our asset sale and class of trade conversion activities. We remain up 85 locations from the end of 2022 when we began our strategic activities to increase our retail operations. While the pace of our class of trade conversions has slowed in recent quarters, we continue to focus on maximizing the value of each site through class of trade conversions while focusing on being in retail in the right markets. In the period since the quarter end, we have benefited from continued strong fuel margins through April in spite of the rising price environment, so with volumes experiencing more pressure than our first quarter results. Moving on to the Wholesale segment. For the first quarter of 2026, our wholesale segment generated gross profit of $23.3 million compared to $26.7 million in the first quarter of 2025. The decrease was primarily driven by a decline in fuel volume and rental income, primarily driven by our class of trade change activities. As a reminder, our wholesale segment rental income declines when we convert sites to our retail class of trade and when we divest locations. Wholesale segment fuel volumes are also impacted by conversions to the retail segment, though less so by divestitures as we look to maintain a supply relationship with most sites we are divesting. Our wholesale motor fuel gross profit decreased 8% to $14.5 million in the first quarter of 2026 from $15.8 million in the first quarter of 2025. This was driven by a 3% decline in fuel margin per gallon and a 6% decline in volume for the quarter. Our first quarter fuel margin of $0.094 per gallon was a generally strong quarter as we continue to benefit from our fuel sourcing efforts. With regards to our volume performance, our same-store volume in the wholesale segment was down approximately 2% year-over-year, with the remaining decline primarily due to the net loss of independent dealer contracts. Our same-store volume performance in the first quarter of 2026 continues our outperformance relative to national benchmarks that we have seen for several quarters in a row now for our Wholesale segment. I'll close out my comments with a few words on the asset sale portion of our portfolio optimization activities during the first quarter. We continued with our real estate rationalization work during the first quarter, selling 16 properties and realizing approximately $12.7 million in proceeds that we primarily used to pay down debt. As we discussed in February, 2025 was the biggest year ever in regards to property sales for the partnership. We are continuing our targeted real estate sales efforts in 2026, and we continue to have a strong pipeline for the balance of the year, though at a lower level than 2025. Jon will touch on this more during his comments, but I did want to mention that we reduced our credit facility balance by approximately $10 million during the quarter and decreased our credit facility defined leverage ratio from the prior year. These both highlight our disciplined approach to our balance sheet in conjunction with our strong first quarter. The first quarter was a solid quarter for the partnership with a material increase in our EBITDA versus the prior year and solid operational results across the business. Our priorities remain paying down debt, generating strong and durable cash flow for our unitholders and investing in the quality and competitiveness of our network. And I believe our first quarter results reflect exactly that continued focus. Before I turn it over to Jon, I want to be sure to thank our team members around the country for their hard work and dedication this quarter. We navigated the winter months in a volatile fuel price environment together, and our results speak for themselves. Our organization succeeds because of our people, and we thank all of you for your hard work. With that, I will turn it over to Jon for a more detailed financial review. Jonathan Benfield: Thank you, Maura. First of all, I am humbled and grateful for the opportunity to serve as Interim CFO, and I'm excited to work more closely with the broader organization in this expanded role. Now if you would please turn to Slide 6, I'll go over our first quarter financial results. We reported net income of $10.7 million and adjusted EBITDA of $35.1 million for the first quarter of 2026 compared to a net loss of $7.1 million and adjusted EBITDA of $24.3 million for the first quarter of 2025. Adjusted EBITDA increased 45% or $10.8 million year-over-year. Net income increased primarily due to the increase in adjusted EBITDA and a decline in interest expense from $12.8 million for the first quarter of 2025 to $10.8 million for the first quarter of 2026. Net income also benefited from lower impairment charges included in depreciation, amortization and accretion expense. As I mentioned, adjusted EBITDA increased significantly compared to the prior year period. As Maura noted in her comments, this increase was driven by a series of positive factors across the business, including an increase in motor fuel margin per gallon and an increase in merchandise gross profit in the retail segment as well as a decline in operating expenses. Our distributable cash flow for the first quarter of 2026 was $21.5 million, more than double over the $9.1 million for the first quarter of 2025. The increase in distributable cash flow was primarily due to higher adjusted EBITDA, along with lower cash interest expense and lower sustaining capital expenditures. The decline in interest expense we experienced during the quarter was due to a lower average interest rate and a lower average outstanding debt balance on our credit facility during the period due to our strong results combined with our asset sales. Our distribution coverage ratio for the first quarter of 2026 was 1.07x compared to 0.46x for the same period of 2025. For the trailing 12 months, our distribution coverage ratio was 1.25x compared to 1.04x for the trailing 12 months ended March 31, 2025. During the first quarter of 2026, the partnership paid a distribution of $0.525 per unit. Turning to the expense portion of our operations. In total across both segments, we reported operating expenses for the first quarter of 2026 of $56.4 million, a $2.4 million decrease year-over-year and our sixth consecutive quarter of declining operating expenses across the organization. Retail segment operating expenses for the first quarter declined $1.7 million or 3% and wholesale segment operating expenses declined by $0.7 million or 10%. In our Retail segment, our average segment site count was down approximately 4% year-over-year. On a same-store, store-level basis, operating expenses in our retail segment were down approximately 3% for the first quarter of 2026 compared to the first quarter of 2025. The decline was primarily driven by reduced store-level employment costs as we remain focused on efficient staffing in our stores as well as continued reductions in repairs and maintenance spending year-over-year at both our company-operated and commissioned class of trade locations due to realized ongoing efficiencies in our maintenance operations. As we have touched on during the last few quarterly earnings calls, we have cycled through the first year of operations at many of our locations in their new classes of trade, which typically results in elevated expenses to onboard and upgrade the converted locations. As a result, we are experiencing a stabilization of our expense profile in our current class of trade site count. We will, of course, continue to experience seasonality of certain types of operating expenses in our stabilized portfolio, like increased labor in the summer and increased snowplowing in the winter. Returning to our Wholesale segment. Operating expenses declined by $0.7 million or 10% for the quarter. This decline was driven primarily by a 23% decline in lessee dealer or controlled site count within the segment year-over-year due to asset sales and to a lesser extent, conversions to our retail class of trade. We reported G&A expenses for the quarter of $6.5 million, a $1.2 million decline year-over-year, primarily driven by lower legal fees and equity compensation expense. We remain focused across the organization on efficient expense management at our locations as well as at the corporate level, ensuring that we are investing in customer-facing areas at our locations that will drive the long-term health and sustainability of our sites and driving operating efficiencies in our above-store operations. Moving to the next slide. We spent a total of $3.4 million on capital expenditures during the first quarter with $2.1 million of that total being growth-related capital expenditures and $1.3 million of that being sustaining capital expenditures. The decline in sustaining capital expenditures versus the prior year and the 2025 quarters is in line with our expectations as we experienced a stabilization of our current class of trade site count as well as a reduction of our real estate assets controlled site count. Regarding our growth capital spending, we remain focused on our company-operated locations, especially in food-related investments that will contribute to our merchandise sales and margin results. One additional item I wanted to touch on is that we entered into an amendment of our lease with Getty in January of this year that covers 106 of our leased sites and extends the term by 10 years to April 2037. The amendment triggered a reassessment of our lease accounting, which resulted in us accounting for this lease fully as a finance lease. While the economics overall are not all that different, the change in accounting will result in $3 million of the rent payments under this lease being accounted for as principal and interest, whereas previously, that $3 million was accounted for as rent expense. For the same reason, we will have higher interest expense on lease financing obligations going forward, although the impact to the quarter was negligible. Lastly, our finance lease obligations on the balance sheet increased $56 million from the December 31, 2025, balance. Turning to our balance sheet. The asset sale activities that Maura noted in her comments helped us reduce our credit facility balance by approximately $10 million during the quarter. The decrease in our balance, along with the gains on sale generated from our asset sales resulted in a decrease in our credit facility defined leverage ratio to 3.35x compared to 4.27x as of March 31, 2025. Our management team remains focused on the cash flow generation profile of our business, utilizing our normal course operations and our targeted real estate optimization efforts to manage our leverage ratio at approximately 4x on a credit facility-defined basis. Our asset sale activities during the quarter reduced our credit facility balance and the lower average interest rate environment also helped improve our cash interest expense during the first quarter of 2026. Our cash interest declined from $12.4 million in the first quarter of 2025 to $10.3 million in the first quarter of 2026. Our existing interest rate swap portfolio continues to benefit us as well. At this time, more than 55% of our current credit facility balance is swapped to a fixed rate of approximately 3.4% blended and our effective interest rate on the total credit facility at the end of the first quarter was 5.6%. In conclusion, the partnership has started the year with a strong first quarter and with the portfolio positioned for continued success as we move deeper into 2026. Our strong results, along with our asset sales, enabled us to reduce our debt by $10 million this quarter while also positioning our portfolio to generate durable and consistent cash flows into the future. We are looking forward to the summer driving season, maintaining a strong balance sheet and generating value for our unitholders. With that, we will open it up for questions. Operator: [Operator Instructions] Maura Topper: As it appears we don't have any questions coming in at the moment. We want to thank everybody for joining us here this morning and for your interest in the partnership. If you do have any follow-up questions, please feel free to contact us, and have a great day. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the ScanSource, Inc. quarterly earnings conference call. All lines have been placed in a listen-only mode until the question-and-answer session. Today’s call is being recorded. If anyone has any objection, you may disconnect at this time. I would now like to turn the call over to Mary M. Gentry, Senior Vice President, Finance, and Treasurer. Please go ahead. Mary M. Gentry: Good morning, and thank you for joining us. Our call will include prepared remarks from Michael L. Baur, our Chair and CEO, and Stephen T. Jones, our Chief Financial Officer. We will review our operating results for the quarter, then open the line for your questions. We posted an earnings infographic that accompanies our comments and webcast in the Investor Relations section of our website. As you know, certain statements in our press release, infographic, and on this call are forward-looking and subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include the factors identified in our earnings release, and our Form 10-K for the year ended 06/30/2025, and in our subsequent reports on Form 10-Q. Forward-looking statements represent our views only as of today, and ScanSource, Inc. disclaims any duty to update these statements except as required by law. During our call, we will discuss both GAAP and non-GAAP results. We provide reconciliations on our webcast website and in the press release included in our Form 8-K filed earlier today. I will now turn the call over to Mike. Michael L. Baur: Thanks, Mary, and thanks to everyone for joining us today. Our team delivered strong third quarter results, with adjusted EBITDA, EPS, free cash flow, and ROIC all increasing versus the prior year. I am pleased to see improved hardware demand drove 9% growth in net sales with growth across most technologies, especially networking and security. We believe end users have more choices than ever, and solutions are getting more complex, but what they are really looking for are business outcomes—complete solutions, not point products. Research shows us that end users prefer to buy from trusted partners who can deliver across the full technology stack. That is why we are taking the next step to help our partners grow their business by launching a new Converged Communications business unit to deliver a unified OneScanSource partner experience. This new business unit will include the business development and sales resources, pre-sales engineering, marketing, and supplier management functions, bringing together the ScanSource, Inc. Specialty Communications team and the Intelisys CX cloud-based solutions team into one combined business unit. This team will support Specialty Communications VARs and Intelisys CX partners, helping VARs sell more cloud recurring revenue products and solutions and helping Intelisys partners attach more hardware. Importantly, each partner will have dedicated sales resources to sell across our OneScanSource portfolio. The Converged Communications business unit will be led by Katherine White, who brings five years of ScanSource, Inc. experience across both our Specialty business and Intelisys. Looking ahead, we are focused on helping our channel partners grow by delivering innovative converged solutions, including, of course, new opportunities in AI. Our partners are finding excellent opportunities for AI adoption in the CX solutions area. Let me share two examples of recent AI channel wins. First, with AI as automation, a financial institution adopted an AI-powered platform with AI agents to handle routine inquiries. That freed up approximately four to five hours per live agent each week so they could focus on more complex customer needs. Second, with AI as augmentation, AI helps drive revenue expansion, including cross-selling. In this deployment, AI supports inside sales agents during live interactions by providing real-time recommendations. We believe both examples highlight how ScanSource, Inc. helps our partners bring converged, AI-enabled CX solutions to market. Overall, our strong results this quarter reinforce our confidence in our business model as we look to the future. I will now turn the call over to Steve to take you through our financial results and our outlook for fiscal year 2026. Stephen T. Jones: Thanks, Mike. We are pleased with our Q3 results, with consolidated net sales and non-GAAP EPS growing 9% year over year. We also delivered strong free cash flow for the quarter and feel very well positioned to deliver our fiscal year 2026 outlook. Turning to our segments, I will start with Specialty Technology Solutions. Net sales increased 9% year over year, led by North America hardware sales growth across most of our technologies. Gross profit increased 10% year over year to $81 million. Approximately 15% of segment gross profit is coming from recurring revenue, led by managed connectivity growth from our Advantix and DataZoom acquisitions. Segment adjusted EBITDA grew 6% year over year to $24.7 million, with an adjusted EBITDA margin of 3.3%. In our Intelisys and Advisory segment, net sales declined 1% year over year. Intelisys annualized net billings increased to approximately $2.88 billion. Quarter over quarter, both segment net sales and gross profit increased 4%. Adjusted EBITDA for the segment was $11 million, a sequential quarter growth of 6%, with segment adjusted EBITDA margin of 42%. Going a bit deeper on balance sheet and cash flow, we ended Q3 with $120 million in cash and a net debt leverage ratio of approximately zero on a trailing twelve-month adjusted EBITDA basis. For the quarter, we generated $69 million in free cash flow, bringing our year-to-date free cash flow to $119 million. Share repurchases totaled $33 million in the quarter, and we had $146 million remaining as of 03/31/2026 under our share repurchase authorization. Adjusted ROIC was 14.3% for the quarter and 13.6% year to date. We continue to have a strong balance sheet, and we are well positioned to execute our strategic priorities and achieve our three-year goals. Our three-year goals focus on growing the company’s gross contributions from recurring revenue, expanding our profitability, delivering strong free cash flow, and maintaining disciplined capital deployment. You can find our goals in the infographic and our investor presentation in the Investor Relations section of our website. We continue to explore acquisition opportunities that could expand our technology stack, our capabilities, and accelerate our recurring revenue growth. Our capital allocation priorities also include continued share repurchases. We are confident in our business model, and our Q3 results support our expectations for our annual outlook. We are maintaining our full-year projections for both revenue and adjusted EBITDA, and for FY 2026 free cash flow, we are raising our expectations to at least $90 million. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. Please stand by while we compile. Our first question comes from the line of Keith Michael Housum of Northcoast Research. Your line is open. Keith Michael Housum: Great. Thanks, guys. Appreciate the opportunity. Hey, Steve, in terms of the revenue guide for the full year, based on the strong quarter you have, if my math is right, that would suggest at the top side revenue growth of only 2% in the quarter, and on the downside, it would be a decline of 10%. Was that intentional in terms of what you are thinking about for the next quarter? Stephen T. Jones: Well, Keith, thanks for the question. When we look at our full-year outlook that we gave last quarter, we said that we would need some large deals coming in, and we had growth projected for the second half. Q3 delivered on that, and we are confident that we can deliver our full-year guidance, but we do not want to get over our skis as we look at Q4. Keith Michael Housum: Okay. Is there a sense that business was pulled forward from fourth quarter into third quarter based on, you know, the world that is in chaos when it comes to memory pricing right now? Stephen T. Jones: What I would say on that, Keith, is visibility is always hard on pull-forwards and that kind of detail, but we do not believe that we saw material pull-forwards in our Q3 results. Keith Michael Housum: Okay. Appreciate it. You guys called out Resourcive sales being down in the quarter. I would assume those would sequentially grow every quarter. Was there anything unique that happened in the quarter that would cause that to be down? Stephen T. Jones: Well, on Resourcive, remember that is our end-customer-facing business, and what you will see in that is there is recurring revenue and there is services revenue in that business, and some of those services revenues can be up and down quarter over quarter. Keith Michael Housum: Okay. Gotcha. How were Intelisys’ orders for the quarter? I know you guys mentioned billings were $2.88 billion. How did the orders do? Michael L. Baur: Hey, Keith. It is Mike. Good morning. One of the things that we are focused on is how do we accelerate new order growth, and that is one reason we really are focusing on establishing this new group, this new team. We believe that we need to put additional focus on new orders, especially through the VAR community. So this Converged Communications team is going to have as a primary goal how do we get more partners selling Intelisys and getting the new order growth to accelerate. We would like to see that grow faster. Keith Michael Housum: So do I assume that order growth did not grow for the quarter year over year? Michael L. Baur: No, I did not say that. Our belief is that we are doing everything we said we are going to do, but we want to go faster, and we do not believe it is growing at the rate we would like to see. Keith Michael Housum: Gotcha. Hey, last question for me, and I will turn it back over. In terms of the STS segment, revenue is almost identical to the third quarter, but gross margins were about 50 basis points higher. I know last quarter you guys called out freight costs due to more small and medium-sized businesses. Anything else that drove the improved gross profits for the quarter? Stephen T. Jones: I would say it is more mix driving that benefit. We have seen the freight costs normalize for us. We thought that was going to be more of a one-time impact in the quarter, so I would say it is more of a mix story in terms of the improved margins. Operator: Thank you. Our next question comes from the line of Gregory John Burns of Sidoti. Please go ahead. Gregory John Burns: Good morning. Just to follow up on the investments you are making on the Intelisys side of the business to drive faster growth. I know you announced this new Converged business unit, but you have done a number of things over the last 12 to 18 months to stimulate that growth. Are you finding the impact of those investments and changes that you previously made are not what you expected them to be, or has there been increased competitive response? Why have you not been able to get the growth on Intelisys where you think it should be? Michael L. Baur: Hey, Greg. It is Mike. Good morning. From my perspective, we have been very clear that we need to see acceleration of our new orders growth. We have been able to talk consistently over time about end-user billings being also the indicator of how our revenue is going to come in. New order growth, if you remember, has a lag between a new order and revenue for us. So we clearly have to not only continue doing what we were doing for new orders, but everything that I am talking about today that is new, we will not see the results of that for anywhere from six to 18 months. Really, what I am saying today is we are going to do more so that we can, a year from now, see even more of those results. I would say the challenge with our Intelisys business is we are seeing in new order growth now the actions we took a year ago, and we are saying we would like to see better results. We want to accelerate that, and we believe now is the time. One more point, Greg: we felt like we needed to get to this point in the year. Our strategy and our outlook for the year required a strong second half, and some of our decisions for more investments would not be made until we got through the first half. We are there, and we saw what happened in Q3, so we have the confidence that we should do that now. That is why now—it is a timing question for us. Operator: Thank you. Once again, to ask a question, please press 11 on your telephone. Our next question comes from the line of Logan Katzman of Raymond James. Please go ahead. Logan Katzman: Yeah, hi. Thanks for taking my question. This is Logan on for Adam. Maybe back to one of the first questions that was asked earlier. When we are looking into 2027, since we have to start to model that, first, any guidelines or parameters you want to give us as we look into modeling that? And then secondly, what do customer conversations look like around the first half of 2027? I know it is a little early, but kind of back to the pull-in question. Are you seeing a big potential drop-off in demand as we move into that first half of 2027, second half calendar 2026? Just wanted to see what you are hearing on that front. Thank you. Stephen T. Jones: Yeah, Logan, thanks for the question. I would start by saying we have not given 2027 guidance yet. We typically do that when we deliver our fourth quarter results, so we are a little bit early in talking about FY 2027 for us. But we are happy with where Q3 came in, and we are confident in our Q4 forecast that builds to our full-year guidance—the guidance range. There are some things in our business right now that have a lot of momentum. Mike talked about security and networking having a lot of momentum from a sales perspective, and what we saw this quarter that we have not seen in previous quarters is most of our technologies showed growth, which is a great sign for us as we think about going into 2027 to have that momentum. Logan Katzman: Awesome. I appreciate the color. Thank you. Operator: I would now like to turn the conference back to Stephen T. Jones for closing remarks. Stephen T. Jones: Yes. Thank you for joining us today. We expect to hold our next conference call to discuss our June 30 quarterly and full fiscal year results on Thursday, August 20, approximately 10:30 AM. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Turning Point Brands First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Andrew Flynn, Chief Financial Officer. Please go ahead, sir. Andrew Flynn: Good morning, everyone. Earlier today, we issued a press release covering our first quarter results available in the Investor Relations section of our website at www.turningpointbrands.com. During this call, we'll discuss consolidated and segment operating results, the operating environment and our progress against our strategic plan. Before we begin, please refer to forward-looking statements and risk factors in our press release and SEC filings. We'll also reference certain non-GAAP financial measures. Reconciliations and explanations are included in today's earnings release. With that, I'll turn the call over to our CEO, Graham Purdy. Graham Purdy: Thanks, Andrew. Good morning, everybody, and thank you for joining our call. We started the year with strong momentum, led by accelerating growth in Modern Oral with gross and net sales up 167% and 133% year-over-year and 30% and 26% sequentially. These results are driven by ongoing growth in both brands' D2C platforms, FRE early expansion into larger, higher-volume chain accounts and [indiscernible] very early move into bricks and mortar. In the quarter, Modern Oral accounted for 42% of our total revenue, up from 21% in Q1 2025. Before we dive into details of the quarter, I want to step back and frame the opportunity in front of Turning point brands. We believe we are in the midst of a greater than $50 billion generational shift in nicotine consumption, and we are positioning the business to capture meaningful share of nicotine users in this evolving high-barrier category. We are strengthening that position through foundational investments in our sales force, marketing and commercial capabilities. These investments are critical to building a durable growth platform that can scale into a leading player in the post-cigarette nicotine market over time. While this infrastructure will ultimately allow us to compete across the modern nicotine ecosystem, our priority today is clear: winning in nicotine pouches. We believe the nicotine pouch category is still in its nascent stages of development and can become the dominant revenue and profit driver of the company over time. As we've said before, we expect the market to consolidate around a limited number of scaled brands, and we are increasingly confident that FRE and ALP will be among them. Our confidence is grounded in execution. We continue to see encouraging consumer response across both FRE and ALP, supported by product quality, brand positioning and repeat purchasing behavior. Our outsized share of direct-to-consumer sales, coupled with our continued market share gains in bricks and mortar are evidence that our plan is working in the early innings. Based on our Q1 performance, we believe our results captured mid-single-digit category share of both gross and net sales, giving confidence that we are on track to achieve our long-term goal of double-digit market share by the end of the decade. We are using that momentum to build scale across channels. FRE Continues to expand in the larger regional and national convenience chains. while ALP has moved from a strong direct-to-consumer base into retail faster than we originally expected. We've had several notable chain wins, driving confidence in our growth. We expect our chain store count to increase 70% by the end of 2026 versus the prior year. As you know, we are building an operational foundation to further support scale in Modern Oral. Commissioning our Louisville manufacturing facility is an important step in localizing production, improving supply control and reducing freight and tariff exposure over time. As we build production, we expect that work to strengthen unit economics and support margin improvement as domestic inventory moves through the P&L. At scale, we believe our margins should approach 70% in this category by the end of the decade. We also continue to invest in the commercial infrastructure needed to support growth, including sales force expansion, chain account support, enhanced consumer visibility and manufacturing capabilities. In 2026, we plan to continue investing in our sales force and marketing to secure chain placement, build brand awareness and support our growing distribution footprint. Based on achieving our sales and financial objectives, we expect total sales and marketing investment for the year to range from $80 million to $105 million. Given the strong gross sales growth we have experienced, we are confident that these investments will provide attractive returns for investors over the long term. In short, we are making front-loaded investments in a category where acquiring brand-oriented adult consumers can drive repeat purchasing and strong margins over extended periods. Over time, we believe our investments in physical execution, particularly sales force expansion, distribution support and retail presence will become a more important source of competitive advantage. Overall, we are encouraged by the momentum we are seeing, the progress we are making and the platform we are building to scale profitably. With that, I'll hand the call over to Summer to walk through the progress of our key go-to-market initiatives. Summer Frein: Thank you, Graham, and good morning, everyone. I'll focus my comments on our go-to-market execution in the nicotine pouch segment. This remains our top commercial priority. And as we scale the business, we continue to benefit from the strength of our legacy distribution relationships and broader commercial capabilities. Our strategy is to build demand across both online and retail channels with retail expansion as the key lever to scale the business. To support that effort, we are investing in sales coverage, merchandising support and brand-building programs to help us win distribution and improve in-store execution. That includes securing the right assortment, shelf placement and visibility to support trial, repeat purchase and long-term performance. These investments support both near-term execution and the broader foundation we need to scale the business. In the first quarter, we made progress against that plan. We secured new wins across critical top chain convenience stores that will expand distribution across our portfolio. Our brands are designed to resonate with distinct consumers, and we will continue to promote the expansion of both FRE and ALP into retail stores. We believe our brand credibility, market performance and ongoing marketing support were important drivers of those wins. While nicotine pouch gross sales grew nearly 500% in 2025, we still have meaningful room to build brand awareness relative to category leaders. Our early strategy was to establish distribution first using our existing retailer relationships to build a strong retail foundation. With the progress we made in 2025 and the additional distribution we have secured, we believe we are now at a point where increased brand investment can drive stronger returns. Over time, that should improve consumer awareness, support retail productivity and increase the value of the nicotine pouch opportunity. Accordingly, we are investing aggressively in brand building to support future scale. Last month, we announced a partnership between 3 and 6 TKO properties, including UFC, Zuffa Boxing and PBR. This expansion is a result of the demand and brand alignment success we validated through our initial partnership with PBR, which started in May of last year. We believe this broader platform will help accelerate brand awareness and consumer engagement with adult consumers. We are off to a solid start, already having executed a few events since the announcement, and we'll share more as the partnership unfolds. Building on ALP's success in direct-to-consumer, this was the first quarter that TPB sales organization started to sell ALP on retail shelf. We began with a manageable launch and expect to incrementally add stores this year through our new chain account wins. While it's early innings, we are encouraged by the initial results. With regards to Zig-Zag, we continued executing against our core brand pillars, strengthening the core business while scaling new product innovation and expanding brand presence in target markets. We accelerated growth in new products, including Natural Leaf Flat Wraps by expanding retail distribution through targeted merchandising programs. At the same time, we are growing brand awareness with a focus on under-indexed markets through integrated marketing campaigns and in-store activations that embodies Zig-Zag's new Life's Fast, Burn Slow tagline. Overall, we are seeing encouraging early proof points across both brand building and retail expansion, and we believe that progress positions the nicotine pouch segment to become a major contributor to growth over time. Let me now turn the call over to Andrew to go through our financial results. Andrew Flynn: Thank you, Summer. Starting with consolidated results. Sales were up 17% year-over-year to $124.3 million for the quarter. Growth was driven primarily by Modern Oral. Gross profit of $68.3 million increased 14.6%, driven by Modern Oral. Gross margin was 55%, which was down 100 basis points versus last year. Reported SG&A was $55.8 million for the quarter, which was up $8 million sequentially. The increase was driven primarily by our nicotine white pouch investments, including approximately $1 million of incremental spend tied to expansion of our sales force. We also spent approximately $7 million on increased marketing investment and broader brand-building initiatives. Adjusted EBITDA was $25.9 million for the quarter at a 20.8% margin, which exceeded the midpoint of the guidance. This was primarily attributed to accelerated growth in Modern Oral, offset by our strategy to increase sales and marketing investment and softness in Zig-Zag. Stoker's segment net sales increased 48% year-over-year to $88 million for the quarter. The Stoker's segment now accounts for 70% of consolidated net sales. Regarding Modern Oral, I want to briefly address our disclosure of gross sales. Because most contra revenue investments relate to slotting-related distribution fees, we believe both gross and net sales provide the clearest view of underlying business performance. Support of our growth investments, Modern Oral nicotine pouch net sales [ free and out ] were up 133% year-over-year, achieving net revenue of $52 million. Gross revenue was $69 million, up 167% year-over-year. For the quarter, Modern Oral accounted for 42% of consolidated net sales, up from 21% a year ago. Legacy Stoker's brands net revenue decreased 3.5% year-over-year to $36 million for the quarter, driven by continued share growth in MST that was partially offset by anticipated declines in loose leaf. Stoker's gross profit increased 39% to $47 million. Gross margin decreased 350 basis points to 54% due largely to the impact of tariffs. Zig-Zag segment net sales were down 22% year-over-year to $36.7 million for the quarter. For the quarter, Zig-Zag gross profit decreased 18% to $20.9 million and gross margin was 57.1%, which was up 300 basis points versus last year. First quarter free cash flow was negative $27.4 million, reflective of our investments in trade and brand marketing programs as well as working capital and U.S. manufacturing CapEx. We ended the quarter with $192.4 million of cash. Our expectation is to be approximately cash flow breakeven for the remainder of the year. Our capital allocation approach remains disciplined and aligned with the opportunity we see in nicotine pouch. As we invest behind growth initiatives, the timing of those investments and the timing of their benefits may not always align evenly within a given quarter. That reflects our effort to position the business to capture incremental share in a category with substantial long-term annuity value. Today, we are increasing full year 2026 Modern Oral guidance. We now expect gross sales of $280 million to $300 million, up from a previous range of $220 million to $240 million and net sales of $210 million to $225 million, up from our previous range of $180 million to $190 million. Implied gross revenue growth at the midpoint is 83.7%. We are also introducing full year EBITDA guidance of $70 million to $90 million, inclusive of increased nicotine pouch investments in sales force expansion, merchandising support and consumer marketing. For modeling purposes, we expect the effective income tax rate to be 23% to 26% on a go-forward basis. Budgeted 2026 CapEx is $4 million to $5 million, excluding projects related to Modern Oral, and we expect to spend an additional $3 million to $5 million this year to support our PMTAs. Additionally, as we focus on strengthening our market presence, we expect to spend between $80 million to $105 million to expand our sales force and bolster our marketing strategy in 2026. As we continue to scale, we expect the overall cost structure of the business to become more efficient. Many investments we are making today, [ slotting ] related, brand building and go-to-market spend are tied to building distribution and driving initial trial and growth of our products. As our consumer base grows, these costs should become a smaller percentage of sales. Now let me turn it to Graham. Graham Purdy: Thanks, Andrew. We are encouraged by the momentum we see in the business and by the progress we are making against our strategy. As I said at the outset, we believe we are in the midst of a generational shift in nicotine consumption, and we believe Turning point is uniquely positioned to capture meaningful share in that transition. Our focus remains on winning in Modern Oral by investing in the brands, commercial capabilities and infrastructure needed to scale. We are seeing continued proof points in both consumer traction and distribution growth, and we believe that positions us well to build a meaningful and profitable business over time. And with that, I'll turn it over to questions. Operator: [Operator Instructions] Our first question today will come from Eric Des Lauriers from Craig-Hallum Capital Group. Eric Des Lauriers: Congrats on the strong results. Very encouraging to see nicotine pouch sales reaccelerating into Q1 here. So you raised guidance for Modern Oral net sales by about $30 million and then gross sales by about $60 million. So suggesting a big increase in contra revenues with these national chain wins. How did these wins announced today compared to your expectations coming into the year? Have you won more chains than initially expected? And any national chains that we should expect both FRE and ALP? Or is it mostly FRE right now? Summer Frein: Great question. Thanks, Eric. We were really, really excited about the springtime negotiations that we worked through over the past few months. As Graham noted in his comments, we expect our store count to increase by nearly 70% by the end of the year. I think as you know, every chain account is different. So we're currently in the process of determining the rollout schedule and the doors will come online over the balance of the year. Where we have opportunities to bring both brands in, we will. So you'll hear more about that as the year rolls out, and we're encouraged and excited about the success that we had over the past few months. Eric Des Lauriers: Yes. No, it certainly sounds very exciting. And I guess, Summer, you touched on this in your answer there. And maybe it's just sort of, we'll see over the next couple of quarters. But how should we think about the timing from these wins? When should we expect to see them on shelves? And then how should we think about the sort of impact on gross versus net sales? Should we look for net sales to sort of pick up from these in the back half? Or is that more of a 2027 thing? Summer Frein: Yes. I'll answer the first part, and then I'll turn it to Andrew to answer the second part. But you'll start seeing some of these chain wins roll out over the next few weeks. But as the progress of rolling out these chains requires resets of fixtures and different dynamics that they're sorting out with getting everything situated in store, it just takes time. So you'll see those stores sort of fill out across the balance of the year, but I'll turn it to Andrew to explain how we thought about the dollar impact. Andrew Flynn: Yes. As we think about the net sales trajectory over the course of the year, we would expect to see some pickup in the back half as it relates to the modern oral category. Eric Des Lauriers: All very encouraging. Congrats again on the strong results. Summer Frein: Thanks, Eric. Operator: Your next question comes from Ian Zaffino from Oppenheimer. Ian Zaffino: Great guidance on that [ DMO ] side. So question would be on the PMTA process. How is that going? I know there's articles about that. And any kind of change in discussions there or thoughts about getting kind of final approval? And then how are you thinking about the Louisville plant, which I guess they're kind of [indiscernible]. Graham Purdy: Yes. Great question, Ian. Look, the PMTA process is -- it's a rigorous scientific process. We're not surprised by the timing, to be frank. And our approach is, we respect the process and any additional commentary around sort of where we're at on that [indiscernible] probably wouldn't be appropriate at this time. In terms of Louisville manufacturing, we're threading a bit of a needle here with respect to the PMTA process, and scaling our infrastructure here in Louisville. We've made really great progress relative to laying down the infrastructure to support manufacturing here in Louisville. We've certainly got equipment in Louisville, and we feel really good about where we're at from a throughput on those machines in the early innings. Ian Zaffino: Okay. And then I guess maybe a question for Summer is when you're going to market portfolio, I guess you now have a newly expanded portfolio. And so how are you going to market? Are you going to market as far as 3 being your higher nicotine pouches and ALP being your lower nicotine pouches? Is that the strategy? And also, can you maybe talk about this portfolio -- expanded portfolio, which has significantly more SKUs, how that's resonating with retailers bringing them incremental SKUs? And any other kind of color you could give us maybe about the maybe synergistic effects of having those 2 brands together? Summer Frein: Yes, sure. So I would say the retailers, our consumers and our sales organization are all very excited about us having both brands in the portfolio and in the sales bag to bring to market. And what's been great about both of these brands is that they've built a strong base with consumers, especially ALP, they've created a really strong D2C presence, and there was some pent-up demand at retail that we were really able to start leveraging. And as these brands are being put into market, we're really thinking about the end consumer. So while the product itself is important and they certainly have their differences, what's resonating with retail, what's resonating with consumers is that these brands are really focused on 2 very distinct consumer bases. There is room in this category for both brands to win, and we've seen some really encouraging early results as we've been bringing them to market. Operator: Next up is Nick Anderson from ROTH Capital Partners. Nicholas Anderson: Congrats on the quarter. First for me, just on the rising fuel price environment, have you seen any impact on [ C-store ] visits or consumer behavior? Tobacco is typically more resilient when it comes to higher fuel prices. Are you seeing the same trend emerge within nicotine pouches? Just any discernible changes [indiscernible] would be helpful. Graham Purdy: I think given the backdrop of our results, we feel really good about sort of where we're at today with the consumer. As Summer had mentioned in the last question with Ian, we're really focused in on building brand equities, building brand identity and really winning on the premium front over the long haul. We view the fuel prices as transient. We think where we generally see that more so is in the heritage businesses. And I think what's an interesting aspect of that, historically, consumers tend to not move out of the categories. They tend to look for more value. And I think we feel very well positioned with our Stoker's heritage products with respect to spiking gas prices. Nicholas Anderson: Great. That's helpful. Second for me, just on the retail landscape. With the momentum from TKO and brand awareness obviously ticking higher here, have you seen a different appetite for [indiscernible] to change the carry FRE and ALP? As brand recognition grows, I would assume your negotiations should become smoother, but any color there would be helpful. Summer Frein: Great question. We are really excited about the TKO deal. As you know, we invested in PBR last year. We learned a lot, and that gave us some momentum to build upon because I think having this TKO deal really has us show up as a credible partner that's investing for the long term to win with our brands. And so certainly, while it's early, it has been part of the conversation with retail. We've seen some early consumer excitement. We have some events under our belts and more to come as that partnership unfolds, but encouraged about the credibility it brings to us and sort of the proof point that comes to the table of us being a brand and a company that's investing in the long term here. Operator: The next question is from Gerald Pascarelli, Needham & Company. Unknown Analyst: This is Jack on for Gerald. You've [indiscernible] EBITDA guidance obviously implies a decline relative to last year, which at this point, I think is well understood, but the range is pretty wide. So could you just kind of go through some assumptions that get you to the high end versus the low end? Andrew Flynn: Sure thing. So look, what's driving the EBITDA guide is, as we discussed, we've got big investments in terms of sales force, retail distribution as well as marketing spend. And so those are the big drivers of the year-over-year change. Also, as you know, our freight -- our outbound freight costs are captured in SG&A. That's also up on a year-over-year basis. And so what's kind of driving the range here is, one, the biggest driver is our ability to get that spending and what we will spend on in the future. And so that spending is dependent on what we see in terms of sales because we'll be able to pivot if needed. And we're being judicious about that investment. And so as we monitor it, we may make some changes. So that's really the reason for the guide. And also, there could be a real upside opportunity in terms of the TKO agreement that we just launched, this is very new. And also some of these chain wins are also very new, and that can provide a very large upside for us as well. Unknown Analyst: Okay. That's helpful. And then for the UFC sponsorship, it looks like it can be pretty transformative. It's incremental to your OpEx outlook relative to last time you presented. So as we kind of look forward, is there the potential for Turning Point to enter into some more of these sponsorships? And then if so, can that imply another leg down on EBITDA? Or do you think the low end is the floor at this point? Summer Frein: I'll take the first part of that question, and Andrew may want to chime in on the dollar aspect. But as you know, investing in TKO is a bet for us, we're really excited about. We are also doing other marketing activities, other consumer engagement building activities like with [ motor sports ] and other avenues. And so I think to Andrew's point, we will invest prudently as we go and make changes as we may need to, but excited about the awareness opportunity this gives for the brands, and I'll turn it to Andrew on the dollar aspect. Andrew Flynn: Yes. In terms of what that may mean for the low end of guidance, as I said before, we're going to be judicious about our spending. And so if something makes sense for us to gain incremental market share, we will do that. And so that's really how we think about these opportunities. Operator: And everyone, at this time, there are no further questions. I'd like to hand the conference back to Mr. Graham Purdy for any additional or closing remarks. Graham Purdy: Thanks, operator. I really want to thank everybody for joining the call today. Look, in closing, I think, ultimately, I want to emphasize a couple of points to our investors. For one, I've been in this industry for -- I'm closing in on my 30th year, and I can't tell you how excited I am about the opportunity in front of us with the generational transformation that we spoke of earlier in the script. And what -- how TPB fits into that long term, I think, is incredibly exciting. The Modern Oral opportunity, it's real. It's gaining momentum. I think you're seeing early progress from our company that across our D2C platforms and progress we're making in bricks and mortar gives us a lot of enthusiasm around where we're at in terms of harvesting that long-term opportunity. As Andrew mentioned, our investments in this category are going to be incredibly disciplined and ultimately tied to our sales objectives in this category. And I think lastly, the heritage business for us is still very important. It provides strong cash flows for the company, and it gives us cash flow to invest in the future and ultimately harvest the opportunity that we see in front of us. So it's really exciting times at Turning Point Brands. And with that, I'll sort of close by saying, I look forward to talking to you all in a few months here and updating against our progress against the plan. So thank you so much for joining. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Operator: Welcome to the First Quarter 2026 Financial Results Conference Call and Webcast for Zoetis. Hosting the call today is Steve Frank, Vice President of Investor Relations for Zoetis. The presentation materials and additional financial tables are currently posted on the Investor Relations section of zoetis.com. The presentation slides can be managed by you, the viewer, and will not be forwarded automatically. In addition, a replay of this call will be available approximately 2 hours after the conclusion of this call via dial-in or on the Investor Relations section of zoetis.com. [Operator Instructions] It is now my pleasure to turn the call over to Steve Frank. Steve, you may begin. Steven Frank: Thank you, operator. Good morning, everyone, and welcome to the Zoetis First Quarter 2026 Earnings Call. I am joined today by Kristin Peck, Chief Executive Officer; and Wetteny Joseph, Chief Financial Officer. This morning, we issued a press release announcing our first quarter 2026 financial results. Before we begin, I would like to remind you that the release and corresponding earnings presentation, which we will reference during this call, are available on the Investor Relations section of our website and that many of our statements today may be considered forward-looking statements and that actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements in today's press release and in our company's reports filed with the SEC. Additionally, today's remarks will include certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures can be found in our earnings press release and our company's 8-K filing dated today, May 7, 2026. We also reference reported and organic operational growth. Organic operational growth excludes the effect of foreign currency as well as acquisitions and divestitures, which individually impact Zoetis growth by 1% or more. Unless otherwise stated, all revenue growth performance metrics will be based on organic operational performance. And with that, I turn the call over to Kristin. Kristin Peck: Thank you, Steve. Good morning, everyone, and welcome to our first quarter 2026 earnings call. I'll start with the headline numbers we reported today. On an organic operational basis, revenue was flat and adjusted net income grew 1%. Our International segment delivered 10% organic operational revenue growth, while the U.S. declined 8%. By species, livestock delivered 12% organic operational revenue growth, while companion animal declined 4% operationally. To level set, the quarter unfolded differently than expected, particularly in companion animal. We saw a convergence of interconnected dynamics shaping decisions at the point of care. I'll outline each along with their impact and what we're doing about it. First, pricing in veterinary clinics continue to rise, though at a slower pace, adding to a multiyear increases and lower clinic traffic. Second, pet owners demonstrated increased price sensitivity with softer demand for premium products in preventative and chronic care, where Zoetis leads amid a more cautious spending environment. Third, competition intensified across key pet care categories, including dermatology and parasiticides with additional pressure in vaccines from certain generics. While competition is not new to us, what was different in Q1 was the pace and level of activity, more entrants across more markets with competitors leaning more heavily and aggressive pricing and incentives for extended periods of time to drive share, particularly in a softer end market. And fourth, in contrast to what we've seen historically, these new entrants have not yet translated into overall market expansion. Taken together, the result is a more price-sensitive and competitive environment. Pet owners delayed routine visits, extended dosing and had new lower-cost options, compounded by winter storms that further reduced clinic visits, all without the benefit of underlying market growth. As the market leader with significant share in premium products, we are at a point where our growth is less driven by new product cycles as we progress our blockbuster pipeline, which we expect to begin delivering significant value for the end of '27 and into '28. These dynamics increased our exposure, particularly compared to new entrants just launching into these categories and competing primarily on price. You see these dynamics most clearly in our key dermatology and Simparica franchises, where we saw declines in the quarter. In key dermatology, even with the industry's broadest and most differentiated portfolio, we were not able to fully offset the combined impact of increased pet owner price sensitivity and the lack of market expansion, which drove share pressure. That said, we do see a path for the market to return to growth over time, and we continue to invest in long-term growth, while taking decisive near-term actions to compete more effectively. We also remain on track advancing Cytopoint Plus, which we expect will further strengthen our dermatology leadership. In parasiticides, the Simparica franchise saw similar dynamics but more pronounced in the U.S. Fewer patient visits drove lower prescription volumes and impacted new patient starts and compliance with retail growth also moderating. Importantly, in the U.S., while competitive launches earlier in 2025 put pressure on share, largely through aggressive promotion, we saw that stabilizing with share levels nearing prior year by quarter end and puppy share still well above our overall patient share. International markets continue to deliver strong growth in the quarter, supported by the ongoing geographic expansion of our portfolio, partially offsetting the U.S. Despite pressure on revenue, we are pleased with the improving U.S. share trends and our ability to maintain a leadership position in a more constrained market, and across both franchises, while you can see these impacts geographically in today's results. This is more fundamentally about portfolio mix against the backdrop of the shifting demand trends I mentioned. Demand softness across key developed pet care markets underscores that this is not isolated, while emerging markets continue to provide runway for expansion. Now turning to OA Pain. While the broader trends for this category are consistent with what we saw in derm and paras, competitive dynamics are less of a factor here. In the quarter, Solensia continued to perform well, while Librela drove the year-over-year OA decline. That said, sequentially, Librela has stabilized in the U.S. with roughly flat growth. This U.S. stabilization reflects the continued execution across our multipronged strategy with a strong emphasis on medical education and specialist engagement, which is helping build veterinary prescribing confidence. Findings like those published by the Veterinary Medicines Directorate in the U.K., confirming Librela's positive benefit risk profile are important inputs into the education effort, and we saw an improvement in our conversations with vets in that market following the report. And as mentioned on previous calls, we expect additional label updates. These are a normal part of the ongoing regulatory review and provide more information to support appropriate use. We are also in the early phases of our Lenivia and Portela launches in certain European markets and Canada, which will expand the OA Pain franchise and support the long-term growth trajectory and early feedback continues to be encouraging. Looking more broadly across companion animal, diagnostics continues to be a source of strength. Performance in the quarter was driven by strong international momentum with modest U.S. growth against a strong comparison period and slower placement activity. Expansion in reference labs drove performance alongside strength in chemistry and hematology with continued progress in images. This is consistent with the broader shift we see across pet care, where spending remains resilient in areas tied to urgent and diagnostic care. Turning to livestock. We again delivered broad-based performance. Underlying market conditions remain favorable with sustained protein demand, driving stronger producer profitability and enabling continued investment in herd health and productivity. Performance was supported by our bios portfolio, particularly in cattle and poultry, where disease outbreaks and increased adoption reinforce the importance of prevention alongside strong performance in fish, benefiting from favorable vaccination timing and in swine. As a result, livestock remains a strong source of growth with solid end market demand and a more focused portfolio following the MFA divestiture. Our performance this quarter underscores the value of our diversified portfolio while also highlighting where we need to take action to maintain our leadership and regain momentum in pet care markets, where the consumer is under pressure and the competition is increasing. We are doing this on multiple fronts. First, we are sharpening execution across our core commercial levers with a clear focus on capturing demand more effectively. That starts with how we engage veterinarians, where we are focusing on integrated solutions that make better use of our broad portfolio and help strengthen clinic economics. We're also focused on improving execution in priority markets through localized action plans to more consistently convert demand into prescriptions. For pet owners, we're investing in targeted DTC activity, simplifying point-of-sale choices with clear loyalty and affordability options and ensuring convenient authorized access across clinics, retail and home delivery. And in livestock, we're reinforcing continuity of supply and responsiveness in key products and markets, ensuring demand is not constrained by availability. Second, we're accelerating our science to scale model, shortening time from approval to launch and translating that into growth. That includes prioritizing near-term launches and advancing convenience-led life cycle innovations with our portfolio to create new ways to compete, including long-acting mAbs, Procerta and the recent Canadian approval of Convenia RTU, which expands access through a ready-to-use, cost-effective formulation. Third, we announced an agreement to acquire Neogen's animal genomics business, expanding our capabilities in livestock genetics. This reflects our broader approach to targeted business development, where we continue to be strategic in pursuing opportunities to unlock new sources of growth over time. Finally, we are sharpening our approach to capital allocation, while continuing to invest in our key growth priorities. As reflected in our adjusted net income, we acted decisively as growth softened in the quarter and launched a comprehensive cost and productivity program, further tightening discretionary spending, driving procurement and operating efficiencies and assessing organizational levers to deliver a leveraged P&L in 2026 and beyond. We have clear priorities and a proven track record of execution, and we are confident these actions will position us to better navigate the current environment and improve performance over time. Looking ahead, our focus is on improving our trajectory over the balance of the year. Zoetis is providing updated guidance based on the current operating environment and the presentation of its financials for fiscal year alignment. For the full year, on an organic operational basis, we expect revenue growth of 2% to 5% and adjusted net income growth of 2% to 6%. This quarter reflects pressure in parts of our companion animal portfolio where market growth has slowed and competition has intensified. As we bridge to Zoetis' next wave of innovation-driven growth, execution, commercial effectiveness, portfolio optimization and enhanced cost discipline will play a greater role in driving performance, especially in this environment. We are actively managing through this period and our conviction in the underlying strength of our business and what enables Zoetis to win has not changed. Animal health remains a durable and essential industry, underpinned by the strength of the human animal bond and sustained global demand for protein. We operate from a position of strength with leadership in the categories we've helped build a diversified portfolio across species, geographies and channels and the colleagues and capabilities to compete effectively in a dynamic environment. Our near-term focus is clear: sharpen commercial execution and compete with precision while positioning the business to deliver the next wave of innovation. We are doing this with a pipeline that includes 12 potential blockbusters and more than $7 billion in additional market opportunity as we extend our leadership into entirely new categories of care. We have helped define the standards of care that exist today, and we expect to play a leading role in what comes next as we deliver our next wave of innovation. We've demonstrated our ability to perform in different environments, and we will do so again. And we remain committed to delivering long-term value for our shareholders by executing with discipline today while continuing to invest in the innovation that will drive tomorrow's growth. With that, I will hand it over to Wetteny. Wetteny Joseph: Thank you, Kristin, and good morning, everyone. As Kristin highlighted, our quarterly performance reflects multiple converging dynamics, macro-driven price sensitivity weighing on certain aspects of pet owner spending, ongoing pressure on vet clinic visits and an increasingly competitive landscape in which price continues to be a key differentiator. These dynamics have led to performance that is below our expectations this quarter, but we are confident in our near-term efforts to drive demand and cost discipline as well as our industry-leading portfolio and pipeline, which we believe will continue to drive growth in the longer term. Now I'll walk you through our financial results for the first quarter, which, as a reminder, are reflective of an aligned calendar year. For the first quarter, we reported global revenue of $2.3 billion, growing 3% on a reported basis and flat on an organic operational basis, with 2% growth coming from price, offset by 2% decline in volume. As we previewed last quarter, our Q1 2026 financial results were positively impacted by certain operational changes made in connection with our fiscal year alignment for subsidiaries outside of the United States. As referenced in our press release this morning and now posted under supplemental materials in the Quarterly Results section of our Investor Relations website, we have provided additional information in connection with our fiscal year alignment, including recast financial information on a quarterly basis for 2025 and annually for 2024 and 2025 to help with comparisons. You will note that for most quarters, the overall differences are relatively immaterial. However, I draw your attention to the $128 million revenue decrease on a recast basis from our previously reported Q4 2025 revenue. See the recast information on Page 3 of the supplemental material. As we described last quarter, certain operational changes made in connection with our fiscal year alignment resulted in the acceleration of the timing of sales, which led to an approximate $30 million increase in the sales that we reported for our International segment for Q4 2025. The balance of the $128 million decrease in recast Q4 2025 revenue or approximately $100 million resulted in a corresponding increase in Q1 2026 sales in our International segment. This $100 million difference was driven by the change that we previously referenced in the timing of price increases in certain international markets and the delayed processing of customer orders that we referenced in our full year 2025 results as well as by differences in the performance of the business when comparing Q4 2025 to a stronger Q4 2024. Excluding the approximately $100 million that shifted from Q4 2025 to early 2026 as a result of our fiscal year alignment, globally, we would have seen a 5% organic operational decline in the quarter. Adjusted net income of $646 million grew 2% on a reported basis and 1% on an organic operational basis. Turning to our franchises. Our global companion animal portfolio posted $1.5 billion in revenue, declining 4%. Key dermatology recorded $347 million in revenue, down 11% versus the prior year. Consumer sentiment is pressuring aspects of pet owner spend in several key markets as we are facing increased competition globally for Apoquel and despite our strong label, price has played a larger role in the decision process. While Cytopoint is also impacted by the vet clinic dynamic as a monoclonal antibody with a longer duration of treatment, Cytopoint switching to recent JAKi competitors has been low. Our OA Pain mAbs, Librela and Solensia posted a combined $140 million in revenue, declining 8%. Librela sales were $101 million, declining 13%. Librela trends have stabilized in the U.S., where we saw encouraging signs that our efforts are gaining traction. Solensia posted $39 million in revenue, growing 6%. Our Simparica franchise contributed $385 million globally, declining 1%. Simparica Trio declined 1% on sales of $297 million, while Simparica declined 3% on sales of $88 million. Additionally, we have seen recent generic competition impacting 2 companion animal products, Convenia, an antibiotic treatment for bacterial skin infections and Cerenia, the market-leading small animal antiemetic. While not considered part of our innovative core, these brands are both blockbusters and have lost meaningful share in the quarter due to price-driven generic competition. Our global companion animal diagnostics business posted $113 million in revenue, growing 10%, driven by expansion of our reference lab business as well as growth in chemistry and hematology, driven by our recently launched Vetscan Opticell. Moving on to livestock, which performed well in the quarter on $720 million in global revenue, growing 12% with broad-based growth across geographies and species as well as price and volume. Favorable producer economics drove higher demand, particularly in cattle. Combined with improved product supply and commercial wins, this provides solid foundation for sustained livestock growth, further supported by the long-term secular tailwind of rising global protein consumption. While our performance is driven by the declines in our companion animal business in the U.S. and certain developed markets internationally, this quarter highlights the benefit that having a global cross-species portfolio can have in challenging market conditions. Now let's move on to our segment results for the quarter. U.S. revenue was $1.1 billion in the quarter, declining 8%. U.S. companion animal posted $865 million, declining 11%. Before going into our brand performance, I wanted to highlight some of the broader impacts we've seen across our U.S. companion animal business. The global trends we have mentioned around competition and consumer price sensitivity are very prevalent in the U.S. market. Additionally, distributor and retail channel purchasing patterns were also a headwind this quarter, reflecting the lower end market demand. Historically, Q1 distributor inventories start the quarter higher than they ended as distributors typically buy ahead of price increases and promotions. This quarter, our promotions underperformed expectations and end market demand softened. So distributors and retail partners took longer to work through their opening inventories and engaged in less replenishment activity. As a result, our sales into distributors and retail partners lagged their sales out to customers compared with prior year quarters. These overarching drivers have impacted much of our U.S. companion animal portfolio. Our key dermatology products posted $215 million in revenue, declining 13% in the U.S. Apoquel has continued to face competitive headwinds consistent with our expectations with price remaining the primary differentiator, driving some shifts toward lower-cost alternatives. However, the impact has been more pronounced than we had expected. Share loss is being amplified by a derm market with declining patient volume in the clinic. Unlike prior competitive cycles, we do not currently have the benefit of underlying market expansion to cushion the revenue effect of competitive share shifts, though we do see a path for the market to return to growth over time with significant untreated and undertreated dogs in the space. Cytopoint trends were consistent with the global picture, primarily impacted by the vet clinic dynamics rather than JAKi competition. The U.S. Simparica franchise reported $238 million in revenue, declining 8% in the quarter. Simparica Trio posted $222 million in sales, declining 8%. Despite modest year-over-year declines due to additional entrants, our share has improved sequentially versus the second half of last year when we saw the impact of competitive launch promotions, which pressured our share, but also expanded the triple combination market, the dynamic that is not providing the same market tailwind in the quarter. We continue to see market contraction with softness in the clinics driven by lower flea tick and heartworm visits as well as a slowing of alternative channel sales driven partly by script denials in retail. Our market-leading share in puppies remains stable. In the U.S., our OA Pain mAbs posted $55 million, declining 15%. Librela contributed $37 million, declining 22%. U.S. Librela revenue increased sequentially for the first time in 6 quarters, and vet and pet owner satisfaction ratings remained stable. Additionally, despite declines in the canine OA pain market, our patient share has remained stable since the second half of 2025. Looking ahead, the comparative periods become more favorable as the year progresses. And combined with the stabilization we are seeing, we believe the underlying foundation of the business continues to strengthen. Solensia grew 2% in the quarter on $18 million in sales with feline OA visits holding relatively flat year-over-year. Generic competition in Convenia and Cerenia also contributed to the U.S. companion animal decline. Our U.S. livestock business posted broad-based growth of 7% in the quarter, reporting $225 million in sales. We saw growth across all species, driven primarily by cattle on improved supply of Septicure as well as the impact of strong demand generated from our spring promotions. Poultry and swine also delivered meaningful contributions with poultry growth driven by increased vaccine adoption and disease outbreaks and swine benefiting from improved supply. Moving on to our International segment for the quarter. Revenue grew 17% on a reported basis and 10% on an organic operational basis, posting $1.1 billion in revenue. Excluding the impact of the previously noted $100 million in sales that shifted from Q4 2025 to early 2026 as a result of our fiscal year alignment, our International segment growth was flat for the quarter. International companion animal reported $654 million in sales, growing 7%. The competitive and macroeconomic headwinds we have seen in the U.S. do exist in parts of our international business, but are largely concentrated in developed markets where conditions more closely resemble the U.S. environment. In many of our emerging markets where the standard of care is still maturing, we believe that meaningful market expansion opportunities remain, and that distinction is evident in our international results this quarter. Our international Simparica franchise grew 14% on $147 million in sales. Simparica Trio posted sales of $76 million, growing 29%, driven by key account penetration in major markets and the benefit of our recent launch in Brazil. Simparica reported $71 million in revenue, which was flat on the quarter, impacted by conversion to Trio in Brazil. Partially offsetting our growth in the quarter, key dermatology posted $131 million in revenue internationally, down 5%. For Apoquel, similar to the U.S., competitive pressures and macro price sensitivity, which are more pronounced in developed markets where Apoquel has a larger presence are having a compounding impact on sales. Similar to the U.S., Cytopoint performance is holding up better than Apoquel. Our OA Pain mAbs posted $85 million in sales internationally, declining 2%. Librela reported $64 million in sales, down 7%. As Kristin noted, positive benefit risk findings have helped strengthen our medical education effort around Librela, and we have seen a meaningful improvement in our conversations with veterinarians. Solensia grew 10% on $21 million in sales. Additionally, our international small animal vaccines products grew 13% in the quarter, driven by increased usage of FeloVax in China. International livestock contributed $495 million with growth of 14% with broad-based growth across all of our core species. We saw growth in cattle, swine and poultry, driven by disease outbreaks, commercial wins, especially in vaccines and improved supply. In fish, we continue to benefit from improved pricing on our Moritella vaccine as well as volume growth from market expansion into the Faroe Islands. Now let's move down the P&L. Adjusted gross margins of 71.8% declined approximately 10 basis points on a reported basis. Foreign exchange had an unfavorable impact of approximately 150 basis points. Excluding FX, we saw a 140 basis point improvement in margins due to benefit from price and lower manufacturing costs, partially offset by product and geographical mix. Adjusted operating expenses increased by 3% operationally due to higher compensation-related expenses as well as increased freight and logistics costs. Adjusted net income grew 1%. Adjusted diluted EPS grew 7%, including a 3% benefit from our convertible debt funded share repurchases. Now moving on to guidance for the full year 2026. Our updated guidance is reflective of the current operating environment as well as the presentation of our financials on an aligned fiscal calendar basis. Foreign exchange rates used in our guidance are as of late April. We are revising our full year revenue guidance to a range of $9.68 billion to $9.96 billion, with growth of 2% to 5% based on the current operating environment. It is worth noting that our fiscal year alignment was anticipated to provide approximately 200 to 250 basis points of tailwind to full year revenue growth. However, the challenging operating environment we experienced in Q1 and the expectations that carries for the remainder of the year more than offset that contribution. We now expect adjusted net income to be in the range of $2.87 billion to $2.95 billion with growth of 2% to 6%, reflective of the comprehensive cost and productivity programs Kristin mentioned earlier. Finally, we are updating our reported diluted and adjusted diluted EPS guidance ranges to $6.35 to $6.50 and $6.85 to $7, respectively. While Q1 reflected a more challenging environment than we anticipated, particularly in U.S. companion animal, where the convergence of price sensitivity, lower clinic traffic and intensified competition was more pronounced than expected, our path forward is clear. We are taking decisive action to sharpen commercial execution and drive cost discipline. Looking ahead, while we have appropriately reflected the near-term environment in our updated guidance, we remain confident in the underlying strength of our diversified portfolio and our ability to deliver the next cycle of innovation-driven growth in the years ahead. We remain committed to delivering long-term value for our shareholders. Now I'll hand things back to the operator for your questions. Operator? Operator: [Operator Instructions] We'll take our first question from Michael Ryskin with Bank of America. Michael Ryskin: I'm going to throw a couple in here real quick. So one, Kristin, for you, just maybe a high-level big picture one. From what we see in the market, competition appears to still be at a relatively early point. We think it's only going to get worse from here. You've got a number of competing products that are still early in the launch cycle or haven't even launched yet at all. And with this increased competitive landscape, the macro consumer pressures, we think that's going to persist for some time, maybe as much as 1 or 2 years, if not longer. So when you talk about working through the challenges you're seeing, you call out pipeline innovation as an offset. From what we can tell, some of the bigger product launches you have are still a couple of years out. So what can you specifically do more in the near term to turn the ship around in the face of this growing competitive pressure and the consumer challenges? And then, if I could squeeze in a second one real quick for -- more for Wetteny. The math is a little bit messy given the calendarization impact, maybe bear with me, but you called out the 200 bps, 250 bps impact from calendar. For 1Q specifically, you did 0 organic under the new math, under the old calendar, maybe that comes out to something like down 4% or down 5% given the $100 million benefit. And yet you're guiding to something like low-single to mid-single-digit growth for the full year. That seems like a pretty aggressive ramp. You've got easier comps in the second half. You do have the 4Q benefit from the calendar switch. But can you just bridge that for us? Is there anything else factoring in that will get you to that full year number after this 1Q print? Kristin Peck: Thanks, Mike. I'll start and then Wetteny can build on your second question. Essentially, what we saw in the quarter was sort of the economic and sustained price increases that the pet owner has experienced in the clinic. This has obviously made them much more sensitive, but also, as you saw, led to a decrease in vet visits, especially in some of the key therapeutic areas that we're in, such as paras, OA Pain, derm, et cetera. And I think this combined with an increase in price-driven competition as people saw the pressures of the pet owners on, I think you saw more promotions and more price competition there. And really, what that happened is that the market did not grow. Historically, as you've seen over the last few years, when we had competition increasing in paras, the market grew. And I think what I think changes is that with new competition, we didn't see that market grow. I think the difference, I think we might have with you as to what we see in the future is we are seeing positive trends. As Wetteny and I mentioned in our remarks, if you look at paras, for example, we have actually gained share from the end of last year into this year. And we ended the quarter, as we mentioned, pretty close to where we were last year before the competition entered. So again, our focus will be on expanding the markets. But as I think as you look at paras, we're pleased with the progress that we continue to make there. We're also pleased that with Librela, we saw stabilization of that product. As we look to the rest of the year, we continue to believe we can return that product to growth overall. Obviously, in the first half of the year, we have some tough comparable periods. But I think as we move through the year, we'll continue to gain share there and to grow. Obviously, in derm, we do have continuing to see new entrants, but we think we have a strong differentiated portfolio there. We're also excited to be adding long-acting Cytopoint as we look to the end of the year. And look, we are sharpening our focus on execution of our commercial strategy. We're going to continue with veterinarians, leveraging the broad portfolio that we have and providing them integrated solutions to help capture share. We're going to focus with pet owners, as I mentioned, leveraging DTC to help broaden that market. But importantly, focus on affordability, which is clearly a major issue for them at the point of sale through loyalty and some affordability options we're providing. We'll also focus as well as retail and home delivery to optimize access there. So we think we've got a strong portfolio there that we can continue to build on. And I also don't want to undermine the strength we saw in diagnostics and livestock in the U.S. and across the globe. But with that, Wetteny, I'll turn it over to you. Wetteny Joseph: Yes, Mike. The first thing to really note here and importantly, is that our initial guidance already contemplated some first half to second half dynamics. Now clearly, the quarter ended up below our expectations. But this dynamic around the persistence of competition and macro was something we contemplated and we are seeing. And so we expect those to continue in the guidance that we give today. But to the point Kristin just raised, we do see stabilization in a number of areas, including Librela with our OA Pain franchise as we are launching our long-acting products in a couple of markets -- in a few markets here in the quarter as well and across our Simparica franchise and so forth. Now as we noted in our prepared commentary, you heard that this end market demand softness also caused purchasing patterns to be a headwind for us in the quarter. But we ended the quarter at a level that we believe is also normalized for how we go from here versus being a headwind given they ordered less during the quarter that they were shipping out to clinics. So with those and the actions that we are taking, we have widened the range in the guidance given we do see a remaining uncertainty in the markets that we operate, but we're also executing against those, hence, the guidance that we have issued today. Operator: We'll move next to Erin Wright with Morgan Stanley. Erin Wilson Wright: I want to dig into that a little bit more. So what does guidance imply now for the quarterly progression for companion animal, I guess, given the implied ramp here, even backing out the easy realignment comp in the fourth quarter, which is about 1 point, like are you baking in some distributor or retail then restock? Is that what you're implying after the destock? And why is that just given the increasing competition? And how much of a headwind was that in the quarter? And were there significant changes in purchasing patterns, I guess, at retail as well? You mentioned script denials. Can you talk a little bit more about that? And is that that's now going back to their typical conflicts of interest there with online scripts and denying scripts there? And can you clarify a little bit more about what we're lapping here from last year in terms of stocking and destocking dynamics? Because I want to make sure just we're aware, given some of the unforeseen dynamics in the current quarter on stocking, destocking dynamics and how much you're leveraging the channel. And I guess one bigger picture question just on guidance as well. You talked about the 200 basis point benefit from the accounting change now embedded in the guide. I just want to confirm one point of that will not recur in 2027, right? So as we think about 2027 and beyond, how do you kind of mitigate that? And when could we get back to your typical 6% to 8% operational revenue growth? Wetteny Joseph: Sure, Erin. Look, with respect to unpacking the guidance, starting with companion animal and then we'll get to your bigger picture question in terms of comps going into 2027. We are not embedding an assumption that inventory picks up in terms of the level of inventory that is in distribution. We typically don't do that. As you may recall, you've been around with us for a long time. In '23, we saw quite a step down in terms of level of inventory that distributors take. We have not assumed that those would come back into the channel, and they have not. We've been operating at a range that is well below where we were pre-2023. And within that range, we're now operating at the low end of that new range, if you follow, as we exit the first quarter of '26. So we are not baking in some rebound in that. It is reflective of what the end market demand has been and is reflected in the performance that we shared today with respect across our key franchises. And so what we are embedding here -- and by the way, we are also assuming headwinds related to competition that is to launch and continued pressure from a -- in terms of what we're seeing from a competitive, similarly in macro perspective. And so the script denials have been an impact as we look at retail. Retail continued to grow faster than the clinic, though, but not at the rate that it had been over the last couple of years. I mean, if you go back to last year and the year before, you were seeing retail growth somewhere in the 25% to 30% range. That growth rate in retail is in the low double digits as we look at this quarter, somewhere in the 10% or so range in retail. So clearly, a step down and part of that is what we're seeing in terms of script denial. Again, we're not assuming those necessarily come back. It's really the actions that we're taking to drive commercial execution as well as the easier comps that we face as we get into the back half of the year that's playing here. Now we won't get ahead in terms of what 2027 looks like. Clearly, the 200 to 250 basis points that we're talking about is a combination of coming into Q1 and then what the Q4 comp is versus the prior year. And so that will clearly be a headwind you go into 2027, all else being equal. However, we are executing to what the market is showing, both in the top line to drive performance there as well as the bottom line, which is why you see a guidance that shows leverage through the P&L down to the bottom line. Operator: We'll take our next question from Brandon Vazquez with William Blair. Brandon Vazquez: Maybe I can start with a high-level question. Kristin, you were talking a lot about kind of the headwinds you guys are seeing from a macro perspective, right? Let's just ignore some of the competitive and company-specific issues, but we're talking about price being a lever here. We're talking about markets not expanding. We're talking about more competition, even generic competition. These are all very uncharacteristic, I think, of what this market historically used to be. It used to be resilient. It used to take price. It used to not really have a lot of generics and it used to be powered by brand. And so the question being, it feels like what you're describing is entering a new world in this market, one that maybe is less durable and less attractive for Zoetis. Is that true? What is -- I mean, clearly, you guys are assuming something improves. What is it that's giving you hope that this kind of reverses back into the old animal health market we used to know? Kristin Peck: Sure. I mean for starters, I'd say, look, the demand for veterinary care remains structurally very strong given the importance of the human-animal bond and the large number of untreated populations. That's clear. If you look and as I mentioned in my prepared remarks, we're continuing to see strength in urgent care, and we're continuing to see strength in diagnostics and areas like that, which says to me the pet owners still wants to get care. I think they're in a period where they're a little bit struggling with the price increases over the last few years. We ultimately believe that will stabilize. I think that clinics are really trying to address that and trying to get the pet owners back in. As us and others have mentioned, we saw about 3% growth of revenue in the clinic, but that was all driven continued by price, with clinic visits down about 3%. Ultimately, that will stabilize. We firmly believe that. We're also really optimistic as we've seen of the sequential trends we've seen in areas like OA Pain and in paras. We think that the strength of our portfolio, the differentiation, the innovation we provide will endure. I don't think we're moving to a world of generics. We are not expecting generics in any of our key categories. We're not expecting it in derm. We're not expecting it in pain or in paras in the near term. So for the next many years, we will not see that. There's certainly, as we saw in Cerenia and Convenia, which are blockbuster products, but not ones we talk about, we did see some increased competition from generics there. The competition we see today is not generic in our major therapeutic areas. It's products that have launched that we've been -- in categories we've been in for a while. We ultimately believe some of these price-driven promotions will stabilize over time. And we also believe the differentiation, I think we have with our portfolio, the strength of our brand and importantly, the strength of the service we provide veterinarians will endure. So no, I don't see it the way you do. I think innovation matters. I think the service we provide matters. And I think ultimately, given the strength of the human-animal bond and the structural demand for veterinary care that this will stabilize over time. Operator: We'll take our next question from Chris Schott with JPMorgan. Christopher Schott: Just 2 for me. Can you just comment on your latest assumption around pricing this year given some of the comments you're making around the promotional activity you're seeing from your competitors. Is that something you're reacting to on price on your side? Or is that more -- we should be thinking about share loss as we think about those near-term dynamics? And the second question, sorry if I missed this in the remarks, but when I think about U.S. companion growth and what's reflected in guidance, can you just talk a little bit about how we should be thinking about growth for this year? I know you're assuming a recovery from the down 12% this quarter. But is this a business we should assume is down this year within livestock and some of the international dynamics driving growth? Or do you think this is a business that can kind of get back to flat or growing as we go through the year? Kristin Peck: Sure. I'll start on the price one and then Wetteny can take the guide. As we've always said, we are not planning to compete through price as our main strategy. Our focus, as always, will remain on our differentiated portfolio, the breadth of it, the service we provide and execution. We are a premium innovative brand, and that is not going to change. We did take price, as you saw in the quarter. I think we can continue and Wetteny can talk where it is relative to historic price challenges. Obviously, in areas where we've seen generic competition, we have taken selective price actions there. We'll obviously continue to leverage promotions. But our priority remains innovation, differentiation and service to our customers. And we continue to believe we can take price, albeit maybe at lower levels than right now given the challenges we're facing right now. But I'll let Wetteny put that into perspective and also talk about an impact on the guide. Wetteny Joseph: Chris, as you know, we don't typically provide guidance down to the species, but I would share a couple of things that I think might be helpful for you. Just keep in mind, we are running a global diversification business with companion animal both in the U.S. and outside the U.S. And in the quarter, our International segment, companion animal grew 7%. I would add also, given the dynamics that we described and the headwinds that those created in the quarter, including how distributors order pattern and retail had a more pronounced effect on the first quarter. We do see stabilization across companion animal as we go with the key franchises. And what we're seeing now is we expect our key franchises to grow in the low to mid-single digits, which is a step down from what we said when we initially issued guidance. And so, when you take all that into consideration, yes, we do expect livestock to continue to drive momentum here. I put livestock in the mid- to high single-digit growth range for the year, but the balance would be growth across companion animal without getting into specifics on guidance. Operator: We'll move next to Jon Block with Stifel. Jonathan Block: Maybe just the first one, Wetteny, I believe you said the channel is now normalized. I do think that U.S. Pet Health number surprised everyone. So is there a way of calling out the impact in 1Q '26 from the channel, what that was specific to U.S. Pet Health. And then, Kristin, just to back up at a higher level, I'm just trying to dig in on the competitive response and maybe I was a little confused. So is anything changing from Zoetis among your approach to, call it, the atopic derm or the Trio franchises regarding price? If it's not sort of unilateral, are there any targeted promotions or no? Because it seemed like you acknowledge the consumer wants a cheaper alternative or is looking for that. And then I was a bit confused if Zoetis is pivoting there and trying to deliver on that or just really focus on the bundling and the services. Wetteny Joseph: Yes. Perhaps, Jon, I'll take the normalization point around inventory. Clearly, it is, I would say, difficult to separate out the macro and the soft end market demand versus what the patterns are and what distributors and retailers did in terms of adjustments. Again, they ordered less from us than they were shipping out to customers given the softer end market demand and promotions that did not execute to the level that we expected coming into the year, right? And so that certainly had a pronounced impact, but I would put that back to the macro and the competitive dynamics that we're seeing and the impact it has in terms of end market demand. Kristin Peck: So Jon, I'll build off the second part of your question. My point is we're not overall lowering our list price on products. We continue to run promos as we always have seasonal promos for paras. We can do cross-portfolio promos in the United States, leveraging both derm and other categories. But I think what I was really focusing on is addressing the affordability issue, which is actually a pet owner. That's not what we sell into the vet. It's the pet owner at point of sale. We've always had loyalty programs, as you know, but those loyalty programs are you scan your receipt and then you get a cashback card to spend later. Given the affordability issue that is more urgent, we're looking at more point-of-sale loyalty programs, more ability to deal at point of sale with the challenges the pet owner may be having economically. So our real focus there is not as much on the vet but on the pet owner issue. We have these programs today. But as I said, we're looking to alter them to make sure we can do that more at point of sale versus just over time where they can use it in 1 month or 2 months, et cetera. We're really trying to make sure we address that with our programs both in the United States and across the globe. Operator: We'll move next to Steve Dechert with KeyBanc. Steven Dechert: I guess just first, on price sensitivity, is that still limited to the Gen Z and Millennial age groups? Or is that spread more into other age groups now? And then just on Lenivia, as you move closer to U.S. launch next year, how tied is the performance of that drug? Do you expect it to be tied to Librela? Just -- or should we view those as 2 completely separate products? Kristin Peck: Sure. So I'll start with your question with regards to Lenivia. With regards to Lenivia, we did get approval in the -- in certain markets in the EU and in Canada, and we just launched that product. So we look forward to having more information on how that launch is going as we go into the next quarter. As we talked about, this is not long-acting Librela. We think the efforts, the multipronged strategy we've been executing across OA Pain, really focusing on awareness that treating OA Pain as a serious condition is important, making sure we spend time with vets and specialists understanding OA Pain will continue to be important. Also making sure we share the science and the positive experience that many of our customers have and investing in that Phase IV research. We think building this understanding in OA Pain will be important as we launch long-acting. Certainly, that's what we're experiencing right now in certain markets in the EU and in Canada. And we think that long-acting provides, again, to the issue that pet owners are having on just convenience as well as affordability, a great new option. So we're excited for that. I think you asked the second question with regards to demographics on Gen Z and Millennials. I mean, I think affordability is more based on the economic situation that a pet owner is in. It's not just based on age, to be honest. So we're really targeting the affordability issue, not at generations, but just at pet owners overall who are facing those challenges. Operator: And we'll move next to Navann Ty with BNP Paribas. Navann Ty Dietschi: A follow-up on the pricing strategy. So you discussed the pricing against that price sensitivity. And I'm also curious of your pricing strategy to defend against the competitive pressure in derms, which is further intensifying and also your pricing strategy for your upcoming innovation in renal oncology and cardiology, that price sensitivity environment is maintained? And then I have a second question on derm specifically because we are seeing that the competitor has raised prices on the JAK. So would you say that the competition is now not only on price, but also some efficacy in frontline use as well? Wetteny Joseph: Sure, Navann. I'll take your question on pricing strategy. And look, the way we approach pricing is always down to each market, each product and what is the value that we bring and what is the competitive landscape at the time. And as Kristin referenced earlier, we now have an aggregate price expectation. This is not by product, of course, for the company that's in the 1% to 2% range when we started the year at 2% to 3%, and we've been higher than that over the last couple of years. So clearly, we have adjusted our expectations, not getting down to specific pricing actions and strategy on a specific product for competitive reasons here on this call. But certainly, we are taking those into consideration. And as we launch new products, which we do extensive market research on prior to launch, we, of course, will be looking at what is the value that we're bringing clinically and what is the willingness to pay for that, which we continue to see sustaining across the industry. So that will be what we'll put into place. In terms of competitors' prices, look, as you've said, historically, we've seen competitors come in with list prices that are somewhat slightly below where ours are, but with aggressive promotions initiated to get the products embedded into clinics and so forth. So we've certainly seen that. The price sensitivity in the market is translating to that lasting longer, I would say, than we've seen historically. But they are, in many instances, and including you referenced one, are raising prices well above where we're raising. It still remains that there's a gap between where our pricing is versus where theirs is, but it is closing in effect. And so we'll continue to monitor those, but also executing on our actions against those, including the breadth and strength of our portfolio. Operator: We'll move next to Daniel Clark with Leerink Partners. Daniel Christopher Clark: Also I wanted to ask about the 2026 updated guide. How are you thinking about the macro and sort of competitive intensity as we head through the year? Should we expect similar levels of both as we saw in 1Q through the rest of the year? I guess, how are you thinking about that? And then secondarily, I just wanted to quickly ask, how did -- how much did key derm grow ex U.S. if we strip out any of the alignment impact? Wetteny Joseph: Sure. In terms of our expectations on the macro, we are expecting that to persist. And so we're not expecting a rebound nor a significant deterioration in terms of what the macro looks like. We've seen the impact that it has both in terms -- in terms of end market demand and then therefore, directly impacts to where distributors and retailers are replenishing their inventory levels, which created a headwind for us. And so that's the answer on that one. In terms of -- keep derm and what the implications might be related to FIA, we have not broken those down to individual products -- to individual markets to be able to get to that level. We believe we've been very helpful in our comments, which is what the overall impact is and what we would have expected to be the guidance impact, which is around 200 to 250 basis points lift in our guidance. And clearly, given the performance we've seen and the persistence that we're expecting in the macro and competitive dynamics, that has not come to fruition in the guidance that we're giving today. Operator: We'll move next to Andrea Alfonso with UBS. Andrea Zayco Narvaez Alfonso: I just have a quick question around margins. So on gross margins, you did 71.8% this quarter, and it looks like your updated guidance calls for 71.5% for the full year. I know you don't provide quarterly guidance, but just sort of looking at the trajectory for the remainder of the year, it does look like you're lapping a pretty tough comp in 2Q. I guess more broadly, how do you think about that trajectory and sort of frame the levers that you have at your disposal to deliver there given that pressure on some of your higher gross margin products? And then, if I could squeeze in a separate housekeeping question. If you could just confirm that the 2% to 5% revenue growth outlook constant currency does not include any benefit from Neogen potentially closing in the second half? Wetteny Joseph: Sure. I'll take both of those. If you look at our gross margins in the quarter, they were down about 10 basis points. But if you strip out the impact of FX, they're actually up about 140 basis points. So we have been very pleased with the execution across our manufacturing enterprise. And certainly, you see that reflected in our performance in the quarter. We will continue to drive actions across the company, including in this segment that will contribute to the performance for the year and the leverage that we have on the P&L. Do keep in mind that the mix in terms of products is an element to consider here. As you've seen in our guidance, and as I shared just a moment ago, we expect livestock to continue to drive momentum here and grow faster than companion animal. There is some mix impact to that with respect to what you see in gross margins. And in terms of FX, you've seen the U.S. dollar impact in terms of revenue, but that has some converse effects when you get down to cost of sales. So that is a consideration here as well in terms of where you're comparing in terms of comps as we go through the rest of the year. But very pleased with the performance in terms of what we're doing on cost of sales despite the mix that we see in some geographical implications as well. With respect to the guidance range on 2% to 5%. We do take a number of factors into consideration, including when competitive launches are going to come in, how aggressive they'll be. And so that range, which we widened by a point here for the uncertainty associated with those is in here. And so within the guidance range, you could have the impact of potential the closing of the deal with Neogen within that range. Operator: We'll move next to Steve Scala with TD Cowen. Christopher LoBianco: This is Chris on for Steve Scala. First, what is Zoetis' level of interest and confidence in FTC approval of large-scale transformational business development? And second, do you see any opportunity to significantly pull forward launch time lines for products for new markets like renal and oncology, e.g., by changing trial designs or filing based on surrogate endpoints? Kristin Peck: So sure, let me start with your BD question. As always, our focus is on incremental BD. We don't see transformational BD as a major strategy for the company. As we've spoken about before, from a capital allocation perspective, first and foremost, we are investing in our business. We obviously will continue to look at business development. And I think Neogen is a great example where we think there's incremental technologies or additional portfolios such as what we've done in Australia for sheep, et cetera. So we'll continue to look for that. I wouldn't -- you should not expect large transformational BD. I think the deal like Neogen is what our sweet spot has historically been and will continue to be. Was there a second part of your question? Christopher LoBianco: Just on launch time lines and potential to pull forward filings for some of the newer market products like renal and oncology. Kristin Peck: Sure. We're always focused as we think about our pipeline of how we can pull forward. I would say anything that you see in the next few years is already in clinical trials. We're certainly partnering with the FDA, myself and the other industry leaders to look at ways to speed innovation and to find new innovation pathways with the FDA. We're certainly leveraging AI, as I've spoken about before, within our portfolio, both in discovery, research, development and importantly, preparing our dossiers for submission. We think all that can certainly speed it up. And we're also focused on once we get approval, how we can speed time from approval to in market across our portfolio. Operator: Thank you. At this time, we've reached our allotted time for questions. I'll now turn the call back over to Kristin for any additional or closing remarks. Kristin Peck: As always, everyone, thank you for your questions and your continued interest in Zoetis. I do want to recognize before we close our colleagues around the world whose commitment to their customers and their resilience has really helped us navigate this environment. We will continue to keep you updated on our progress and our priorities. We are focused on executing with discipline to position the business to return to growth, and we remain committed to delivering long-term value for our shareholders. Thanks so much for joining us today. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and welcome to the Trex Company, Inc. First Quarter 2026 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Note, this event is being recorded. I would now like to turn the conference over to our host. Please go ahead. Unknown Speaker: Thank you for joining us today, and good morning, everyone. With us on the call are Adam Zambanini, President and Chief Executive Officer, and Prithvi Gandhi, Senior Vice President and Chief Financial Officer. Trex Company, Inc. issued a press release earlier this morning containing financial results for the first quarter of 2026. This release is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-Ks and Form 10-Q, as well as our 1933 and other 1934 Act filings with the SEC. Unknown Speaker: Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measures can be found in our earnings press release at trex.com. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. With that introduction, I will turn the call over to Adam. Adam Zambanini: Thank you, and good morning, everyone. Turning to the quarter, I want to acknowledge my first earnings call as CEO of Trex Company, Inc. Having been with the company for over 20 years, most recently as COO, I approach this role focused on continuity, execution, and accelerating the strategy already in place. Our five-year plan is clear. Our priorities are set, and our focus remains on disciplined growth, operational excellence, and delivering long-term value for shareholders. As part of that work, our leadership team has sharpened Trex Company, Inc.’s vision, mission, and values to ensure that we remain aligned as we scale. This is an evolution, not a reset, and it reflects both where Trex Company, Inc. is today and where we are going. Trex Company, Inc.’s vision is to shape the future of outdoor living through purposeful innovation that enriches people's lives. To support our ambitious growth and galvanize the organization, we recently codified five long-term strategic priorities. These priorities are designed to sharpen our focus and better leverage our strengths across marketing, innovation, and execution. Given their importance to our future growth, profitability, and long-term shareholder value creation, I would like to touch on each priority in detail. Our five long-term strategic priorities are as follows. First, to create an unbreakable bond with our end users—homeowners and pro contractors. Our goal is to deepen the Trex Company, Inc. brand preference and loyalty through superior marketing, product experience, and service. Trex Company, Inc. remains the undisputed brand leader in the wood-alternative market; we are committed to further strengthening that position through continued investment. We have already increased our investment in branding and marketing, highlighted by the launch of the next phase of our consumer- and pro-focused campaign centered around the “performance engineered for your life outdoors” brand platform. This multichannel media campaign will sharpen the focus on wood-to-composite conversion while also emphasizing many of our key differentiators, including technical innovations like our heat-mitigating technology as well as our marine and fire-rated solutions. I am excited about the momentum this campaign has produced and expect Trex Company, Inc. to become increasingly visible with both homeowners and pro contractors moving forward. Meanwhile, we are investing in technology to improve proactive lead generation among our programs to better support our valued pro contractors. This last quarter, we experienced a significant double-digit increase in lead generation, pointing to the early success of this investment. We are confident that these actions will help drive Trex Company, Inc.’s future growth. Next is our continued focus on high-performance innovation. As I mentioned on last quarter's call, driving high-performance innovation remains a central pillar of my leadership mandate. Shortly after joining the company, I led the development and launch of the game-changing technology that redefined the standards in the decking category, Trex Transcend decking. It was the first cap composite decking product that set a new standard of performance and aesthetics while serving as a catalyst to drive market share expansion over the following decade. At its heart, Trex Company, Inc. is the world leader in material science. We intend to sharpen our focus and leverage our tremendous development capabilities to invent and deliver a continuous stream of next-generation outdoor living solutions designed with what we believe is separator technology that makes the hardest innovation in the building products category imaginable. Our goal is to move beyond simply competing with our industry by introducing products with highly differentiated performance that effectively place us in a category of one. Building on the legacy of Transcend, our current pipeline focuses on category-defining performance. We are currently on track for a potential game-changing regional launch in 2027, followed by a more impactful national launch in 2028 through 2030. We are excited about our best-in-class products and our innovation pipeline and look forward to sharing more in the future. Our third priority is to optimize the channels for growth. Distribution remains a key component of the Trex Company, Inc. business model, ensuring that our products are readily available for pro contractors and homeowners. As a reminder, Trex Company, Inc. already has the most comprehensive distribution network with national coverage by two-step distributors and one of the very few brands in the world with a meaningful presence at both national home centers. The distribution channel has seen changes over the last five years with significant consolidation among both distributors and dealers in the two-step channel. We have seen rapid expansion of the home center retailers into the pro channel segment as they move beyond a purely on-shelf DIY focus. We expect the distribution landscape to continue evolving. Our goal remains clear: to maintain strong channel relationships at both the two-step channel and the home center retailers so that our products reach both homeowners and pro contractors across geographies. Our recent additional shelf-space wins at the home center, along with expanded territories with two key distributors, are proof of Trex Company, Inc.’s strong distribution network and demand for our comprehensive portfolio of products. And our recently redefined incentive and marketing programs have been well received by our two-step partners as we convert business away from the competition, further strengthening these valued relationships. Our fourth priority is more of a specific target—namely, lowering the cost of railing. Railing represents a material and rapidly growing part of our revenue mix, and with a large target of doubling our railing business in five years, its importance will only increase. Due to greater manufacturing complexity and a broader range of raw material components, the railing portfolio currently operates at a lower margin than decking, presenting opportunities for operational and cost optimization. We are applying the same continuous improvement initiatives and vertical integration strategies that successfully elevated our decking margins to our rapidly growing railing portfolio. And of course, as the product line continues to grow, we expect natural margin expansion due to economies of scale and greater utilization. Over time, we believe railing margins can approach those of the core decking products, contributing to an overall lift in the corporate margin. Our fifth and final priority, growth enablement, underpins all the others. This priority defines our approach in investing in our culture, technology, and talent to enable long-term profitable growth. We are strengthening our organization by building capabilities in digital and commercial excellence and fostering an innovation-driven culture that empowers teams to move with speed and discipline. We have already enhanced our leadership team, particularly in finance, adding significant capabilities in data analytics and forecasting, creating a new internal pricing group to implement a more nuanced portfolio-level pricing strategy that balances share and margin while improving responsiveness. Over the remainder of the year, I plan to add key senior roles, including a newly created Chief Commercial Officer who will integrate sales, marketing, and IT—which will enable technology, data and analytics, and customer insights—by providing sales and marketing the tools for commercial visibility that create revenue generation. Finally, we are aligning innovation and advanced manufacturing under a newly appointed Chief Operations Officer, Zach Lauer, to enable better coordination on commercializing initiatives in parallel. Our digital transformation is directly linking consumer inspiration to contractor execution, providing the TrexPro network with highly qualified leads and accelerating the wood-to-composite conversion cycle while optimizing our pricing analytics. As you can see, we are not waiting for repair and remodel demand to recover. Instead, we are taking proactive, disciplined action to accelerate growth, strengthen margins, and position Trex Company, Inc. for sustained outperformance. We are confident that these strategic priorities provide a clear roadmap for Trex Company, Inc.’s long-term success. Our team is laser focused on execution, and I look forward to updating you on the tangible progress we are making in these priorities. Turning to the quarter, we started the year with solid results, especially in light of adverse weather conditions and a continued uncertain economic environment leading many consumers to defer large-scale discretionary repair and remodeling projects. However, we are actively taking advantage of the current market environment to aggressively invest, ensuring that we capture a disproportionate share when demand normalizes. The trends underpinning our industry's long-term growth runway—the ongoing conversion from wood to composite materials, demand for low-maintenance outdoor living, and significant long-term repair and remodel tailwinds—have not changed. With that context, I will turn it over to Prithvi, who will walk you through the quarter in greater detail. Prithvi Gandhi: Thank you, Adam, and good morning, everyone. Unless otherwise noted, all comparisons are on a year-over-year basis. As Adam mentioned, we had a solid start to the year with net sales of $343 million, an increase of 1%. First-quarter volume is driven by both consumer sales and channel stocking to support the second- and third-quarter peak buying season. With our level-load production strategy implemented in 2025, we elected to reduce channel inventories for the early part of 2026 and rely on our own inventory to support peak channel requirements later in the year, resulting in lower first-quarter volume. From a channel perspective, we saw strong home-center-driven DIY demand early in the quarter, which shifted over the course of the quarter towards greater strength in higher-end pro-contractor-driven products. Gross profit was $139 million with gross margin of 40.5%, about 100 basis points better than we expected. A favorable mix of higher-margin premium decking products and lower sales of railing and margin improvements from continued operational excellence helped to offset an increase in depreciation expenses related to decking lines coming into production readiness at our Arkansas facility. Importantly, we did not experience any noticeable cost pressures related to the increase in oil prices related to the conflict in the Middle East. I would like to spend a few minutes diving a bit deeper into our raw material exposure, as it is the majority of our COGS—especially recycled LDPE. While recycled LDPE is a petrochemical, its pricing dynamic is quite distinct from virgin polyethylene, which is tied directly to the price of oil. Historically, recycled LDPE prices tend to lag virgin polyethylene by several quarters and generally exhibit less volatility. This reflects the substitution dynamic—users of virgin polyethylene typically need to see sustained higher prices before adjusting their production to incorporate even modest levels of recycled content, which in turn increases demand and prices for recycled LDPE. And supply of this material is not an issue, as we are entirely domestically sourced. As a leader in the use of recycled content, this is a significant competitive advantage, particularly during periods of raw material inflation when competitors relying on virgin inputs are more exposed to volatility. And while we are seeing increases in certain other input costs, such as diesel fuel and aluminum, we have a range of mitigating levers available, including cost-out initiatives, operational efficiencies, and product-specific pricing actions. Importantly, the same inflationary pressures also affect our competitors. Moving on to selling, general, and administrative expenses, which were $56 million in Q1, representing 16.2% of net sales. Excluding digital transformation costs of $1 million and Arkansas facility startup expenses of $200 thousand, SG&A was $54 million. SG&A came in below our expectations despite continued investments in branding and marketing programs to drive future growth. Lower self-insured medical costs and the timing of expenses more than offset higher investments in the quarter. Because we are in the final stages of the Arkansas facility build-out and did not finish as expected in Q1, interest expenses were capitalized on the balance sheet, resulting in no P&L impact. Our full-year guidance for interest expense now reflects completion beginning in Q2. Putting it all together, adjusted EBITDA of $103 million grew 2% in the quarter due to positive pricing and mix, cost control, and the timing of expenses. Free cash flow was negative $143 million as we built inventory and accounts receivable ahead of our peak selling season. This was an almost 40% improvement versus the prior year. As our capital investment needs declined significantly now that we are finishing the Arkansas facility, our balance sheet remains strong with our net debt leverage of 1x EBITDA at the low end of our target range of 1x to 2x. We are confident in our long-term free cash flow generation and continue to have balance sheet capacity to pursue our capital allocation agenda, which prioritizes an unwavering commitment to first drive growth, then return cash to shareholders through share repurchases, and lastly, to pursue disciplined M&A. In the quarter, the company took advantage of an opportunity in the stock price by executing continued aggressive share repurchases. For the first time in the company's history, we implemented an accelerated share repurchase, or ASR, to quickly buy back a large amount of stock. This $100 million ASR was part of our larger $150 million share repurchase announcement. We will be completing the full $150 million repurchase during the second quarter, and I am pleased to announce that the board has authorized a 10 million share increase to the company's existing share repurchase program, reflecting their confidence in the long-term intrinsic value of Trex Company, Inc. Turning to outlook. We are maintaining our full-year guidance based on our solid start to the year and our continued expectation for the broader repair and remodel market to be flat to down this year. We remain minimally exposed to input cost inflation. Our vertically integrated domestic recycling infrastructure and approximately 95% recycled content drive a highly stable cost profile, which helps protect margins during periods of petrochemical volatility. We continue to expect fiscal year net sales of $1.185 billion to $1.230 billion, adjusted gross margin of approximately 37.5%, and adjusted EBITDA of $340 million to $350 million. For the second quarter, we expect net sales in the range of $388 million to $403 million, and we expect to see a reversal of the gross margin benefit from product mix that we saw in Q1. Before turning the call back to Adam, I want to touch on two key metrics. The first is sell-in/sell-out. Sell-in represents Trex Company, Inc.’s sales to its distributors and home centers. Sell-out represents the sales from our distributors and home centers to dealers and end consumers. As we discussed in the past, quarterly sell-in and sell-out results can be influenced by timing, seasonality, and channel dynamics and, as a result, may not always reflect the underlying long-term trends of the business. To provide a clearer view of performance and how we manage the business, we are introducing a rolling 12-month sell-in and sell-out metric, which we will report each quarter going forward. This metric smooths short-term volatility and better captures fundamental demand trends by accounting for seasonality and other factors that are not fully reflected in quarterly movements. For Q1, growth for our trailing 12-month sell-in was 7% and growth for our trailing 12-month sell-out was 6%. The second metric is one which we believe will experience meaningful improvement not only this year, but for many years to come: free cash flow. As many of you are aware, we plan on ramping up production at our new Arkansas facility beginning next year. More importantly, the CapEx associated with the plant build-out will end this year, with the majority of our Arkansas-related spend finishing in the first half. We anticipate a total of $100 million to $120 million, down from $224 million in 2025—a more than $100 million improvement. And with construction substantially completed by the end of this year, we expect another meaningful decline in CapEx in 2027 to maintenance levels of approximately 5% to 6% of revenue, driving further improvements in free cash flow. We have built Arkansas to effectively more than double our revenue potential with just the purchase of additional lines. So this upfront investment will provide us with years of capacity expansion ability with minimal additional CapEx. This gives us a strong line of sight to continuous robust free cash flow generation regardless of the exact timing of a significant rebound in consumer demand. With our organic expansion needs met through our Arkansas campus, our capital allocation priorities will next focus on additional share repurchases and then on accretive bolt-on acquisitions. Trex Company, Inc. will return to the free cash flow generating machine that it had been before the recent necessary investment in capacity expansion, which started during COVID and will end this year. I will now turn the call back to Adam for his closing remarks. Adam Zambanini: Thank you, Prithvi. Hopefully, you can feel the excitement of the Trex Company, Inc. team about the great opportunities we see in front of us. While the current market environment remains challenging, we are investing in our business and aggressively innovating to capture a greater share of the growing addressable market. We remain the undeniable leader in our market, and we are infusing our team with a more focused, nimble, entrepreneurial culture that we had in the early days of my career at Trex Company, Inc. We are confident this is the right time to evolve our approach, leveraging our great history and brand. Before we close, I want to recognize our people. Their commitment, discipline, and focus on the customer continue to be the foundation of our performance. The progress we discussed today is a direct result of their work, and they remain committed to our long-term success. We believe when our people succeed, our shareholders succeed. Operator, we would like to open the call to questions. Operator: We will now open the call for questions. The first question comes from an analyst with Jefferies. Analyst: Hey, guys. Congrats on a really strong quarter—really good execution. And Adam, congrats on the new role. It was very noticeable in terms of the energy you laid out in longer-term strategic plans. Give us a little perspective on some of the things you are looking to impact. We have noticed leadership changes. You called out the new COO role and certainly a new head of marketing. There appears to be a bigger focus on innovation and streamlining efforts so you can put out product quicker. Help us think through how you are approaching things perhaps a little differently and how that potentially unlocks the growth engine and gets products to market a little quicker. Adam Zambanini: Good morning. Thank you for the kind words; we really appreciate it. When I look at the marketplace today, it is a very dynamic and challenging market. You start to look at the consolidation of national accounts and inflation, and you have to ask: do we have the right strategy in place—which I believe we do, and we laid it out on the call. Do we have the right people? Absolutely. Do we have the right structure? And that is really what I am focusing on—making sure that we have the right structure to execute the strategy. Now on top of that, once we have that structure in place, we innovate, and I think that is where I add the most value to Trex Company, Inc., because when I talk about separator technology, it is about what is going to make Trex Company, Inc. a category of one. And so that focus right now is to take what Trex Company, Inc. used to have—let us say 100 initiatives—and boil that down to 20 underneath five imperatives. So we are working on fewer things that are more impactful to the organization. We want $100 million programs on everything that we work on. That has been our focus as an executive team, and I think it has provided the organization with a tremendous amount of clarity moving forward. Analyst: In an uncertain macro backdrop, how did sell-out trends shape up in the quarter? I appreciate the LTM number, but any more color on how that progressed intra-quarter? And perhaps how things are looking in peak decking season—April and May—and how the channel responded to programs you have rolled out and any marketing efforts? Prithvi Gandhi: Okay, a lot to unpack there. Overall, in terms of the quarter itself, as we said in my remarks, we managed sell-in to the channel based on our level-loading strategy, and essentially overall demand is progressing as we expected in our assumptions for the year. As we go through the busy season, the channel is on the lighter end in terms of the inventory they are carrying—closer to 30 to 40 days of inventory. Assuming a normal busy season, we expect more impetus for sell-in as we progress through the second and third quarters. Adam Zambanini: The lower inventory on the channel side is a function of our decision to take out volatility. For some high-level context as we look at Q1, January and February were fairly challenging. I think most people came out of those two months wondering how this year was going to pan out, but we saw a nice rebound in March as we moved into April. Everybody is still projecting flat to slightly down in the market, but we are expecting to outperform. One trend we have seen over the last year or two is more national accounts acquiring independent lumber yards and carrying less inventory. In many cases, they would carry 90 or even up to 120 days of inventory, and now we see some of them carrying around 30 days. That means probably fewer trucks in Q1, but when in-season demand hits in Q2, you must make sure you have inventory on the ground to execute because there is going to be quick pull-through. Analyst: Thank you. The next question comes from an analyst with William Blair. First topic is gross margin. You beat your internal expectation nicely. Can you unpack what happened? It sounds like mix might have been favorable. Prithvi Gandhi: Yes. Thanks for the question. In Q1, relative to our forecast, we were ahead by about 100 basis points, largely driven by favorable mix from decking. If you recall, we announced a price increase around our aluminum railing in January, and we did see some pull-forward in Q4 and, as a result, a lower mix of railing in Q1. That was the primary driver of why gross margin performed better in Q1. Analyst: Got it. And then SG&A also beat a little bit. I guess the guide still assumes that it is up year over year the rest of the way. Was there some timing issue in Q1? Prithvi Gandhi: In Q1, SG&A came in about $5 million lower than we had planned, driven by two things. One is favorability in medical claims, and that is a hard one to forecast. We feel good about the full year, but in any quarter, things can move around, and that is what we think happened here. Second, there was timing around certain expenses related to our investments in growth and brand awareness. We expect those to come through in the second quarter. To level set, we still expect full-year SG&A to be around 18% of sales. In Q2, we expect a significant sequential dollar lift in SG&A, based on certain expenses that should have been incurred in Q1 moving into Q2 and our continued investment in marketing and innovation that drive growth and brand awareness. With those things, you should see a dollar step-up from Q1 to Q2. Adam Zambanini: We also were trying to be responsible. The war in the Middle East broke out in Q1, and we managed the manageable. That was one area we looked at from an SG&A perspective. As things have calmed down, we are going to continue with the execution of our plan. Analyst: Thank you. The next question is from an analyst with UBS. Good morning. The revenue outlook seems to imply a decent deceleration in the second half. It does seem to imply roughly 5% year-over-year growth in the second half despite a fairly easy comp in the fourth quarter. Is this really just conservatism given the conflict in the Middle East and macro uncertainty, or is there anything else you are trying to message? Prithvi Gandhi: You nailed it. In terms of growth, it is around 5%—our number is about 4%. When we look at this year, there are still some things we want to see in terms of how the war is going to pan out. If it keeps going on over the next several months, then yes, there is some conservatism. If we think this will settle down, there are opportunities for us in terms of execution. One wildcard is the lower-end consumer, who is still struggling. We still see the high end doing really well on the decking side, and we are definitely focused on converting more of the wood market—about 75% of the market is still wood—and we are getting more creative as to how we will convert that opportunity. A couple other things around the second half. We introduced a refuge PVC product; most of those sales will occur in Q2 to Q4. That should help revenue growth. Second, in line with the industry, we announced a mid-quarter price increase again around aluminum railings; that was not in our prior forecast. Third, our continued investments in marketing and innovation are showing green shoots—lead generation, sample orders—all progressing really well, and we expect to drive some conversion from that. Analyst: That is helpful. On the quarterly cadence of adjusted EBITDA margin, second-quarter revenue is expected to be up sequentially, but is it possible EBITDA margin is actually down quarter over quarter given factors like the step-up in SG&A? Prithvi Gandhi: From Q2 2025 to Q2 2026, you should expect EBITDA margin to be lower this year. We expect a little more than half of the Q1 gross margin favorability to reverse in Q2, and SG&A will see a significant dollar step-up between Q1 and Q2. Those two together create a different EBITDA profile versus Q2 of last year. Analyst: But sequentially, Q1 to Q2, EBITDA margin could be down as well? Prithvi Gandhi: Yes, Q1 to Q2 as well—you should see some decline in EBITDA margin. Analyst: Thank you. The next question comes from an analyst with J.P. Morgan. Analyst: Hi, this is [inaudible] in for Michael. First, on cadence throughout the year and the back half, can we get an update on how you are looking at the R&R backdrop and how that connects to the full-year guidance range? Prithvi Gandhi: Looking at the home center business, there has been a lot of forecasts from negative 1% to 1% growth. We have seen many forecasts at flat to slightly down. We are doing low- to mid-single-digit growth. For the full year, it is about 3% right now in terms of our year-over-year growth. Our overall macro assumption on repair and remodel is unchanged—still flat to down with the back half better than the first half, in line with indicators like LIRA. Analyst: You mentioned the relative strength between DIY and pro and how it shifted through the quarter. Could you provide more detail and how you are thinking about that going forward? Adam Zambanini: We are a marketing powerhouse, so we had to get back to our roots. That is the territory I have come from. We reinvested in that platform, made structural changes in marketing, and filled out that department. I feel like we are in a great spot. That really helps drive the high end of the marketplace. Once again, products like Trex Transcend and even our Select decking are doing really well, along with higher-end lines of railing. Those are the consumers buying right now. The focus is also on converting the low end—converting more wood users over to Trex Company, Inc. On the high end, there has been focus on the PVC area—not just with the introduction of Trex Refuge; we have other products that compete in the fire segment. There is plenty of opportunity, and a lot of the mid-to-premium end is doing well because our marketing is working. Analyst: Thank you. The next question comes from an analyst with D.A. Davidson. I was hoping to talk more about the shelf-space commentary. Can you help frame the magnitude of that expansion and how you expect that business to ramp over the next couple of quarters? Maybe some sense on price point? Prithvi Gandhi: Good morning. We would characterize it as meaningful. We have picked up both decking and railing slots in the recent line reviews. Trex Company, Inc. was one of what we believe are two winners at retail, and some peers did not do as well. We will not give a specific number, but it is meaningful for growth. In terms of timing, shelf resets are always challenging to time exactly. We will start to see some of those reset and some products in place now as we move into Q2, with momentum building from Q2 into Q3 and Q4. Analyst: A two-parter on railing. Can you talk about the pace at which you can drive improvements in controllable costs and how M&A may factor? Second, does lowering cost act as a catalyst for market share objectives and the pace of volume growth? Adam Zambanini: Great question. Railings are about material science. We have seen things this year that we are going to unlock on the material science side of the portfolio that will lower raw material cost of railing. In many cases, this will drive margin expansion. Trex Company, Inc. is aggressively priced in every segment—from the opening price point at home centers that can be $20 to $25 a foot, all the way up to systems at $250 a foot. Most of the material science benefits will drop to the bottom line. On vertical integration and acquisitions, these are very small companies we are looking at, but with meaningful impact in lowering raw material streams. In some cases, we can be more aggressive to convert, but we are satisfied with where railing sits today. The focus is on expanding margins. Prithvi Gandhi: Just to add, back in 2023 we said we would double our business by 2028. We are on track to do that. Analyst: Thank you. The next question comes from an analyst with Goldman Sachs. Analyst: Good morning. This is [inaudible] in for Susan. On the high priorities you mentioned earlier, where do you see the biggest opportunity to drive above-market growth in the near term relative to those more helpful in the long run? Analyst: Could you repeat which priorities? Analyst: Yes—within the five you mentioned, which provides the biggest near-term upside to drive above-market growth versus those that are longer-term? Adam Zambanini: Near term, it is creating an unbreakable bond with end users—getting back to basics on marketing and having the right people in the right spots to convert more downstream with contractors and consumers. Not far behind that is launching high-performance innovation. We will start regional launches in 2027 and see a much more meaningful impact from 2028 to 2030 with national launches. But near term, it is the unbreakable bond with end users. Analyst: You talked about optimizing channels for growth. Does that mean expanding presence in retail versus making changes to wholesale? We are seeing consolidation at the wholesale level—how does that provide more opportunities, and where do you see the biggest ones? Adam Zambanini: We created a pricing department to price our products by channel. You want to avoid channel conflict between home centers and the pro channel, and sometimes products cross-pollinate. Our perspective is to have the right products in the right channels at the right price. The market is very dynamic with a lot of consolidation at the dealer and distributor levels. As there is consolidation, there will be channel changes long term. We need the right pricing strategy for each channel with the right products. We have been creating that structure to allow us to take market share while maximizing margins over time. Analyst: Thank you. The next question comes from an analyst with BMO Capital. Analyst: Good morning. Looking at your full-year guidance, what is embedded within that in terms of sell-out—both decking and railing? Prithvi Gandhi: In total, our sell-in growth is about 3%. In terms of sell-out, we are assuming something close to that in the overall market. Analyst: That would imply a meaningful slowdown from the trailing 12 months, which was about 6%. But you are not seeing anything today that suggests that slowdown is happening—is that fair? Prithvi Gandhi: As Adam said, the year started slow, some of it driven by weather. Since March we have seen good order intake, and that continues through April. Overall, we do not see anything that would cause us to think otherwise. Analyst: Switching to capital allocation. You talked about CapEx coming down. As we sit here today and you have been active with share repurchases, can you talk about the M&A pipeline and how you rank priorities between repurchases and M&A? Prithvi Gandhi: Good question. Lee just joined us a couple of months ago, and we are actively doing the work. Adam has talked about areas of interest: number one, vertical integration and margin expansion; two, the whole outdoor living space from the fence back to the deck and house; and third, more distant, the exterior building envelope. That is the playfield. We are doing the strategy work now to identify targets and areas that would be very synergistic. We should have a point of view shortly, and then we will build out the pipeline. It is still early days around M&A. In terms of capital allocation, I always look at M&A against share buybacks—where is our share price, how much cash flow do we have, what is the intrinsic value, and the return of buying back shares versus using that capital for an M&A transaction. The big difference is M&A gives you future growth options; buybacks do not. That is the analysis we go through. Analyst: Thanks. The next question comes from an analyst with Wolfe Research. On your goal to lower the cost of railing and drive margin improvement, are there any numbers you can put around the opportunity in terms of cost reduction or margin improvement? You talked about eventually pushing margins closer to decking—can that happen in a five-year time frame? Adam Zambanini: In our strategic plan, that can happen in a five-year time frame. We have it broken out by year, but we are not sharing that detail at this time. Analyst: Expectations for inflation in 2026. You mentioned reasons why you should be shielded from inflation on LDPE. Can you put numbers around potential inflationary impact and what you are expecting in terms of price/cost relative to that inflation? Prithvi Gandhi: As we said at the start of the year, price/cost for the full year is relatively neutral, and we continue to have that expectation. Three areas have some exposure, but we have taken steps to mitigate it. One is around virgin resins—on that front, we essentially have a fixed cost for the rest of the year, and that is baked into the forecast. Second is diesel prices—we pay for inbound freight and transfers between plants. We have pushed back against vendors on the cost of raw materials to offset some diesel inflation and are managing internal transfers to mitigate impact. Third is PVC—the new product we have introduced. Our costs are fixed through the balance of 2026 with our third-party sourcing. On all these fronts, we are well positioned in managing any inflationary impact. Analyst: Thank you. The next question comes from an analyst with Loop Capital. You mentioned the cold start to the year in January and February. Did you see delays with the start of the spring selling season in seasonal markets such as the Northeast that could benefit Q2 sell-through? Adam Zambanini: Looking at the northern markets—New England across to Minnesota and that upper northern belt—we were down double digits in Q1. In the Mid-Atlantic—draw a line across the U.S.—about flat. In the southern U.S., we started to see double-digit growth again. We could see the weather influence, and we are just now starting to see some northern territories wake up. The promising part is where the weather has been good, we have seen nice numbers across the board. Analyst: Very helpful. And on the mid-quarter railing price increase, any impact from the new Section 232 valuation on your railing products, and will the increase fully offset inflation pressure you are seeing? Prithvi Gandhi: In terms of tariffs, in our overall cost position it is less than a 5% impact, and through our pricing initiatives we are able to cover most of that cost increase. Analyst: Thank you. The next question comes from an analyst with Benchmark Company. Most of my questions have been asked. Follow-up about inventory in the channel and your own inventory. Your inventory looks a little higher than usual in Q1. Is that just an extension of level-loading? Was it in part because of the slow start to the year? Or being prepared for a bounce-back? Adam Zambanini: We have our level-loading strategy in place. We want to be there to serve the market when demand is ready. Channel inventory is about flat to prior year, but with pricing in there, on a lineal-foot basis external to Trex Company, Inc., inventory is slightly down. As discussed earlier, larger customers like national accounts did not take as much inventory. We believe demand will be there in Q2; therefore, we have a little higher inventory now in Q1 because those customers are going to need it right away as we move into Q2. That is the key change. Analyst: Thanks, and congrats again. The next question comes from an analyst with Stephens. I want to dig into the railing impact on margin a bit more. You mentioned that lower railing sales helped margins in Q1. I think the expectation was for a higher mix of railing sales through this year to have roughly an 80-basis-point impact to gross margin. Is that expected to normalize in Q2 fully? With movements in raws and pricing and initiatives to grow margins—which I understand you are not ready to fully quantify—is that still the best way to think about the margin impact for this year, and then improvement from there more in 2027? Prithvi Gandhi: Let me start by reminding everyone of what we said back in November when we reported Q3 2025 results. At that time, we stated we expected about 250 basis points of headwind to adjusted gross margin in 2026 on a full-year basis. We continue to have this expectation for 2026, and we finished 2025 with adjusted gross margin of 40% for the full year. Also in November, we said 170 to 180 basis points of that 250 was entirely from the depreciation associated with bringing Arkansas to production readiness. The balance—70 to 80 basis points—is from railing growth, and we continue to expect that for the full year. In Q1, we saw about 100 basis points of gross margin favorability from railing being smaller in the mix. In Q2, we expect a little more than half of that to reverse, and the rest will reverse through the balance of the year. That is how to think about it. Analyst: Thanks. And Adam, you mentioned Trex Company, Inc. has historically been a marketing powerhouse and you are getting back to your roots. Is the thought that branding and marketing spend will continue at a similar level as a percentage of sales and grow with sales, or will there be a need to ramp that up more with new product rollouts? Adam Zambanini: As long as I am here, we are going to be investing in marketing. The 18% is a really good number. During COVID, you saw SG&A plummet—we were out of capacity—and we delivered strong numbers. If I go back in time, I would have invested more then to create more awareness around the Trex Company, Inc. brand. Will there be some leverage over time on SG&A? Sure, but it will not be 100 or 200 basis points. It might be 10, 20, 30 basis points as we expand and grow, because I want to make sure we are still investing in that platform to get more contractors and more consumers to buy Trex Company, Inc. We will continue to invest; when we can leverage, we will, but investing in marketing will remain very important. Analyst: Last one—on M&A appetite. Is there potential or appetite for larger deals, or more tuck-in, complementary stuff? Adam Zambanini: Our five-year strategic plan is tuck-in M&A, and we have been very consistent. Number one, vertical integration—this is about margin expansion. Number two, we have the license to own the backyard—from the threshold of your sliding glass door all the way out to the fence, Trex Company, Inc. could be anywhere in that backyard. That is where we would go next. Lastly, the envelope of the house. We view this as smaller tuck-in acquisitions that can add value. Our brand is our number one asset; there are a lot of smaller companies where the Trex Company, Inc. brand makes a lot of sense and helps us potentially grow our TAM. We reside in a $75 billion outdoor living market. Our TAM is around $14 billion, and if we can expand that over four to five years to $20 billion to $25 billion, that benefits Trex Company, Inc. in terms of opportunities to grow market share. Analyst: Thank you, and congrats on the quarter and new role. The next question is from an analyst with Barclays. First, on capacity dynamics: given demand trends and contractor sentiment, how does this support your strategy around incremental capacity, and how would you adjust the capacity network as the Arkansas facility ramps? Is Arkansas displacing any production elsewhere? Adam Zambanini: At the contractor level, we still see books out six to eight weeks on the low end, and in some areas eight to ten weeks. In some cases, contractors feel slightly better this year than last year. Part of that is our marketing investment—we are seeing significant double-digit growth in leads we are giving to our contractors, which may be extending backlogs. On capacity, we have been consistent: as we look at Little Rock and our growth, we would be looking at opening that in 2027 from where we sit today. Even if we did not see as much growth, Little Rock provides leverage—it is going to be our lowest-cost facility. We have one facility in the Winchester footprint that is over 30 years old. We will maximize our manufacturing footprint over the longer term. Our expectations are for good growth in 2027 through 2030, and we are going to need all that capacity—from Little Rock to Winchester to Nevada. Analyst: With the introduction of your PVC product, how is it faring regionally—Northeast, West Coast? And more broadly, on pro versus DIY, is higher-end luxury still outperforming the opening price point? Adam Zambanini: We still see outperformance from the middle to higher-end consumer, which has been consistent over the last several years. Trex Company, Inc. is putting more marketing effort into conversion from wood. We have a new campaign called “No Regrets.” If you have seen it on TV, it shows a dock owner maintaining wood versus a dock owner with a Trex deck who can go enjoy the boat for the day—No Regrets. It is a strong visual. Targeting wood is a huge focus. On PVC, we had a great rollout on the West Coast and are ahead of expectations on manufacturing. We are getting increased supply from our supplier. The largest market for PVC is in New England and the Mid-Atlantic, and we have quickly opened those two regions as we rolled into Q2. It is a roughly $0.5 billion market, and Trex Company, Inc. had not played in it. We plan to expand that over time as a great growth opportunity. Analyst: Thank you. The next question is from an analyst with Bank of America. Can you talk about the right level of leverage for the business longer term, and would you be open to buying back more stock as free cash flow frees up next? Prithvi Gandhi: Thanks for the question. We want to manage company leverage between 1x and 2x. This year, free cash flow will increase by about $100 million versus last year. We expect to complete $150 million in buybacks by the end of this quarter. Then we will look at the rest of the year—where free cash flow is and how the business is doing. With the board's new authorization, we have capacity to do more buybacks. Based on where the stock price is relative to intrinsic value, it is still a compelling opportunity. Going forward into 2027, we will have even more free cash flow because we will essentially be done with capacity expansion. Share buybacks will continue to be a significant part of capital allocation. Analyst: And on reinvestments you are making, can you give more color on allocation and priorities between hiring more sales versus marketing? Adam Zambanini: A bigger portion will be marketing-related and the investments we are making to create awareness—linear TV, streaming, podcasts, and all forms you can think of to get the Trex Company, Inc. name out. Then drive to trex.com—there are investments in the website—and investments in innovation. If you want game-changing innovation, you have to invest in R&D. The major buckets are marketing and innovation, with some in sales to support and execute the strategy longer term. Operator: That concludes the question-and-answer session. I would like to turn the floor to management for any closing remarks. Adam Zambanini: Thank you, everyone. Prithvi and I look forward to speaking to you and seeing you at upcoming conferences in the coming weeks. Operator: This concludes today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the SGL Carbon Conference Call Results for the First Quarter of 2026. I am Mattilda, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Claudia Kellert. Please go ahead. Claudia Kellert: Yes. Thank you. Good afternoon, and a very warm welcome to our today's conference call. We would like to give you an overview about the business development of the first three months in 2026 and a short overview on the current sentiment today. Andreas Klein, our CEO; and Thomas Dippold, our CFO, will lead the presentation and will answer your questions. So let's start. So I hand over to Thomas Dippold for the financials. Thomas Dippold: Hello, everybody. This is Thomas. It's my pleasure and my privilege to guide you through the results for the first quarter. And as a summary, we can clearly state that our top line, as we already anticipated, and I think as everybody of you joining this call already know, is influenced to a large extent by discontinued unprofitable business activities, which we closed down in the course of the year 2024. And therefore, we cannot repeat this unprofitable sales in this year. We also suffer in some sales drops in Graphite Solutions and also Process Tech and the three effects, all in all, stand for, which you can see on this slide here on Slide #3, they stand for a reduction of our group sales of EUR 50 million or 21.3%, coming from EUR 234 million in the first quarter last year to EUR 184 million this year. And as I said, EUR 28 million clearly can be attributed to the discontinuation of the carbon fiber activities in Lavradio and Moses Lake, which we closed roughly at half year 2025. In Graphite Solutions, we still see weak demand from our silicon carbide customers. The inventory levels are still very high. However, what we are trying to do there is on an individual customer basis, we try to renegotiate with them in a partnership way, some specific adjustment of the CTP contract. And one of them is already in Q1, but I come to that when we talk about Graphite Solutions in particular. And for the first time since four years, the continuous growth, at least in profitability and a stable -- roughly stable sales platform. Also Process Tech suffered a severe downturn in the market. We have anticipated that also in a way. We had always, as you remember that in the second half of last year, already a declining book-to-bill ratio. And this now kicks in, and therefore, also our sales in Q1 for Process Tech suffer. And these three factors influence our top line. However, we managed to keep the EBITDA pre on a group level in, I think, a moderate way in just a moderate decline. Our EBITDA dropped by EUR 4 million coming from EUR 33.5 million in the first quarter 2025. And in the first three months of this year, we reached EUR 29.6 million. So it's a decline by 11.6%, which is less than the decline in our top line. And how does it come from -- or where does it come from? We have lower contributions, of course, from the high-margin silicon carbide business in Graphite Solutions. We have lower contributions from Process Technology, where in the past, you remember that we also saw margins of about 25% and beyond. But we can compensate that with continuous cost savings and our ambition to keep the cost intact. Our EBITDA pre margin increased to, I think, a very healthy 16% for a company which is so capital intensive like us. And this is exactly as we predicted Q1 and which is exactly in line with our guidance. We come to that later in the next chapter. Now on Slide #5, coming to the individual business units, Graphite Solutions, as I already just pointed out, suffered an 8.8% decline in the top line, which stands for EUR 10 million, coming from EUR 116 million last year to now EUR 106. This is influenced in the top line in sales, in EBITDA and also in cash by one settlement with one of our CDP silicon carbide customers, where we anticipate future sales in the course of the year and make it already a payment right now. So we kind of anticipate future sales, but also have a kind of a breakup fee in that where we adjust the conditions of the contract. There's maybe more to come, but Andreas will talk about that later in the chapter when we talk about guidance and outlook and strategy. As I said, we are still suffering from a sluggish demand in silicon carbide customers. The other markets that we see there are also burdened by some difficult macroeconomic environment. You know that our GDP is hardly growing. You know how the overall economic situation in Europe, in particular, but also worldwide in general looks like. And therefore, there is no real spark that our sales go into an opposite direction if we leave out the small, medium reactors, but they're also part of the strategy, Andreas will touch the latest status on that in his chapter. EBITDA-wise, I think we also managed it quite well that our EBITDA dropped only from EUR 21.6 million last year in the first three months to first quarter 2026, EUR 18.4 million this year, which is minus 14.8% or minus EUR 3 million. The negative impact comes from the decline in the high-margin silicon carbide products, which hit then the bottom line overproportionally. We try to do our best in order to keep our costs in the right way. And I think if you see the decline in the margin only from 18.5% last year to 17.3%. I think this is a remarkable achievement when you see that your super high-margin business goes down in a way as it does in Graphite Solutions. Coming to Process Tech. And as I said, for the first time since many years, we have to report a major decline in sales and also EBITDA for this business unit. Where does it come from? We see a postponement and a lot of uncertainty in the meantime in the chemical industry. So even a lot of maintenance projects and also some overhauls and parts and service business is really declining significantly for us. And other investment projects where somebody builds up a new synthesis plant or a heat exchanger really came to a standstill and everybody is waiting that the bottleneck gets solved, and we have a little bit more visibility and clarity whether or not these investments are really viable. So our order intake also in the first three months stays below our sales. So this is also for the next months, we don't expect a real recovery. And when you look at our overall performance in the first three months of the year, and we are coming down from EUR 36.5 million to EUR 25.5 million, which is a EUR 30 million decline -- 30% decline, sorry, for that, and minus EUR 11 million in our top line. This is really remarkable how hard it hit us in Q1. And this, of course, also hits our bottom line as this is a project business, and we only are left with some fixed costs. our profitability declined by 62% coming from EUR 11 million to now EUR 4 million. The absolute impact is minus EUR 7 million is not that much given the impact on the group. But relatively, of course, for Process Tech, this is a big decline that we are trying to fight against in the upcoming months. The margin is now 16.1%, which is not bad at all given the historic averages that we've seen. Of course, in the past -- in the last two, three years, we had a very special economic situation for us where we had margins above 25% and beyond. But we always said that 18% is a very good margin, and I think we came close to that. And maybe we can recover a little bit in the course of the year. And now for the first time, I can introduce our business unit Fiber Composites. As you probably can remember, we merged our remaining carbon fiber activities with the Composite Solutions business unit starting from January 1. So with the start of the new year 2026, we only have Fiber Composites. In the end, you can just add those two business units together. There's hardly inter business unit consolidation effect. In the end, you just can add the two together. This is more or less the right figure. There we see also the impact from the discontinued business, which I started my presentation with. We are coming from EUR 76.6 million first three months last year now to EUR 47.7 million. This is a decline by EUR 29 million. I said EUR 28 million is a decline of the discontinued businesses of the carbon fiber and more or less, this is now the new normal that they roughly have EUR 50 million in a normalized and like-for-like activity. This is a decline by EUR 37.7 [ million ]. But as I said, the big chunk of it comes from the discontinuation of the unprofitable businesses of Carbon Fiber. The profitability, however, increased significantly. There are many factors in that. On the one hand side, we are only left with the profitable remains of the carbon fiber business. We have a steady and healthy Composite Solutions business, which also pays in for that. And also our BSCCB JV, which is consolidated at equity contributed EUR 4 million to that. So if you exclude the EUR 4 million, then our new business unit has an operative result of EUR 5 million. And this is roughly a 10% operating margin. If you include BSCCB, then it's 18.9%. I think it's a super healthy recovery that we've seen. And I think it was a very stringent and consequent restructuring that we did last year. And I think the result of that can be seen now where we are only left with profitable businesses there. Then maybe a quick look on the bottom line of the P&L, the cash flow and maybe also some balance sheet figures. Our net result turned positive. Last year in the first three months of the year, we were left with minus EUR 6 million, which was thanks to the fact that we had EUR 16.6 million restructuring and one-off costs in the first quarter. There are also some purchase price allocation depreciation there. So when you look at in our quarterly report, you see EUR 17.7 million, if I'm not mistaken. Now we see EUR 5.9 million. So it's a big turnaround by EUR 12 million from minus EUR 6 million to plus EUR 6 million. And I think this is the other strong message. We only are left with EUR 1.4 million restructuring and one-off costs in Q1. This is exactly what we told you three weeks ago when we presented our full year figures for 2025. The restructuring is over to a large, large extent. We only have some couple of smaller remains, which we digest in the course of the year. But when you see that the first quarter is only affected by EUR 1.4 million, I think this clearly underlines what we said three weeks ago. Our free cash flow is again positive and increasing from EUR 5.1 million to EUR 6.4 million like-for-like despite the fact that last year, we also had some cash-wise restructuring costs, but we expect the free cash flow to be on the level of last year also for a full year figure. So we are on a good way to achieve that. And last but not least, thanks to the good free cash flow, our net financial debt declined a little bit again. So we have a very healthy leverage ratio of 0.7. Our equity ratio is getting closer to 40%. Again, we are at 39.5% and the ROCE is roughly 10%. So I think these are very, very steady and solid figures that we can report there. For the outlook and the guidance, I hand over to Andreas, who will lead through that chapter. Andreas Klein: Thank you very much, Thomas, and also a warm welcome from my side you know the guidance just a couple of weeks ago in the next slide. You even know that slide, the EUR 720 million to EUR 770 million sales level we guided leading to an EBITDA pre of EUR 110 million to EUR 130 million. However, I would like to highlight two topics in the assumptions part of that slide because they have been particularly reconfirmed in the last couple of weeks. It's number one, the assumption of an overall weak economic development and uncertain geopolitical environment. Of course, we all know that this has been underlined by the ongoing Middle East conflict, the Strait of Hormuz developments and also recently the further tariff activities. So overall, all paying into ongoing uncertainty. And of course, for many of our industries, for many of our customers, that's a negative development because it doesn't enable our customers to take the decisions needed. The second thing I would like to highlight is that we do not foresee a recovery in the semiconductor and automotive sector for 2026 yet. This has been confirmed by the development in Q1 and further customer discussions and of course, also the uncertainty and the tariff developments paying into the automotive sector doesn't help the downstream demand for these applications. Digging a little bit deeper in the next slide, I would like to give you some more details on the current sentiment and how we see it. As already mentioned, we see ongoing high uncertainty, especially in automotive and chemicals, impacting basically all our three business units, as already commented for the Q1 performance by Thomas. We see availability and prices of raw materials and energy negatively impacting key markets. So that's adding to the uncertainty and the weak economic development we were already seeing. And of course, that's a lot driven by the developments in the Middle East. However, we are quite relaxed on the cost side in the short term because a rather nice hedging rate for the year 2026 and also constructive discussions with customers to forward these cost impacts in the chain should be able to limit the effects from the cost side as much as possible. In the area of defense, that's the third point commenting on the current sentiment. We see the budgets feeding slowly through the chains. So the -- especially in the Western government Hemisphere, all these big funds are arriving at the primes in the defense industry, they are feeding through the Tier 1 and Tier 2 steps. And this is what we need to create the certainty and the commitments for us to finally ramp up that business in the area of defense and generate contribution from that business as anticipated in our Strategy 2030 plan. What do we focus on at the moment in light of these developments? We mentioned one example already from the semiconductor side that impacted already Q1. We are in negotiations with our silicon carbide customers, with the CDP customers to, yes, bridge the situation we are currently in together with still high inventories in the chain, although we see them continuously decreasing and bridging from that situation in a sustainable long-term cooperation and the growth future we foresee for silicon carbide as an important demand driver for SGL. The second thing is we are expanding project development in the defense sector, a lot of network cooperation activity in the highlighted application fields in defense from our strategy work. And these discussions that networking, that intensification leads now to piloting steps and a step-by-step ramp-up of that business, hopefully having the potential to impact 2027. As you know, for this year, we didn't take into account any more significant contributions from defense yet. Last but not least, and this is for sure, the most present activity with a rather short-term impact. You know that from the publication from the announcement we did in January, we are working intensely on ramping up the full value chain. It's quite a long value chain in our network for the Energy projects and the orders we had received. So we are operationally well on track in that regard. And this is why we can also here reconfirm the impact of the USD 100 million over the next three years from these orders. The three focus areas to the right side of this slide, they are all paying into SGL Growth 2030. So we can clearly confirm we are intensifying the implementation activities for the long-term strategy, and we consider ourselves to be well on track to leverage the potential as soon that is possible in the respective markets. Many thanks for your interest, and we are looking forward to your questions now. Operator: [Operator Instructions] Claudia Kellert: At the moment, I don't see any questions. So, it seems that our press release and quarterly statements are very clear in our messages. So I think we give you an additional minute to write your questions. So, then I think it's everything really clear. So maybe you have an upcoming question in the next hours or days. Give me a call that we can answer your information needs. Thanks a lot for your time. I know it's a busy day today of announcement of quarterly statements of other companies. So thanks a lot for your participation, and have a nice afternoon. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Team will be happy to help you. Welcome to Forward Air Corporation's first quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. Lastly, if you should require operator assistance, please press 0. I would now like to turn the call over to Tony Carreño, Senior Vice President of Treasury and Investor Relations. Thank you, operator. Tony Carreño: Good afternoon, everyone. Welcome to Forward Air Corporation's first quarter earnings conference call. With us this afternoon are Shawn Stewart, President and Chief Executive Officer, and Jamie G. Pierson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air Corporation's first quarter 2026 results, which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining first quarter 2026 earnings highlights and a business update. The press release and slide presentation for this call are accessible on the Investor Relations section of Forward Air Corporation's website at forwardair.com. Please be aware that certain statements in the company's earnings release announcement and on this conference call may be considered forward-looking statements. This includes statements which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends, and other matters that are not historical facts, including statements regarding our fiscal year 2026. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the SEC and the press release and slide presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. During the call, there may also be discussion of metrics that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in today's press release and slide presentation. I will now turn the call over to Shawn. Shawn Stewart: Good afternoon, everyone, and thank you for joining us. I appreciate your interest in Forward Air Corporation. There are three main topics that I would like to cover on today's call. First, I will provide an update on the customer transition and our strategic alternatives review that we announced in our press release. Second, I will share some thoughts on our first quarter results and the logistics market in general. Third, I will comment on recent awards earned by our team before turning the call over to Jamie. Let me start with the customer transition. While no formal notices have been delivered, we are in discussions with one of our largest customers to transition a significant portion of their business to other providers. How much of the business will be transitioned and the timing thereof are still being discussed, but we are currently anticipating that the majority of what will ultimately transition will start in early 2027 and take place throughout the balance of the year. It is important to note that we believe this has little, if anything, to do with the impeccable level of service that we provide them and more about their own internal diversification strategy. We are still in active discussions to retain as much of the business as possible, and we are doing everything we can to minimize the impact to our company. I want to reiterate that we believe the customer's decision is entirely related to their own operation and supplier diversification initiatives and has nothing to do with the exceptional service we have provided them during our long-term partnership. This leads me to an update on our strategic review and the new actions we are now pursuing to enhance value and help offset this potential impact. As you know, in January 2025, the Board initiated a comprehensive review of strategic alternatives to maximize shareholder value. We have had extensive negotiations and discussions with multiple parties. However, due to a variety of factors, including the developments that I just mentioned, no actionable proposals for sale of the company were received. We continue to consider all opportunities to enhance shareholder value, and we are now pivoting our focus to pursue a sale of non-core assets, including our intermodal segment and two of our smaller legacy Omni businesses, which in aggregate represent approximately $394 million of our 2025 revenue. These targeted sales are intended to advance our efforts to delever the balance sheet and further focus our services around the core of what we do every single day, which is providing service-sensitive logistics to our customers around the world in air, ocean, ground, and contract logistics markets. With that, let us turn to the second topic, our quarterly results. In the midst of an incredibly complex integration, a fairly weak industry backdrop, changing tariff regulations, and the disruption in the Middle East, our team continues to make progress executing our transformation plan, overhauling operations, and improving the quality of our earnings results, which is reflected in our results. For the first quarter, we reported operating income of $20 million compared to $5 million last year, and consolidated EBITDA, which is calculated pursuant to our credit agreement, was $70 million compared to $73 million a year ago. Regarding the overall logistics market, domestic transportation supply has continued to tighten, driven in large part by increased regulatory and enforcement actions over the past year. These dynamics have accelerated carrier exits, particularly among smaller operators, while limiting capacity additions. A tightening supply environment is a component in rebalancing the freight market and supporting a return to more favorable market dynamics after years of prolonged freight recession. However, supply is only one side of the equation. Improvement in demand will ultimately determine the pace and sustainability of a recovery. Encouragingly, early indicators suggest that the industrial economy, which has weighed on freight demand, may be approaching an inflection point. Manufacturing PMIs have now remained in expansion territory for four consecutive months. Readings above 50 have historically served as a leading indicator for increased freight volumes, as rising manufacturing activity typically drives higher shipment of raw materials and finished goods. Additionally, the ratio of inventory to sales continues to decline. Outside of the post-COVID destocking, the current levels are at or slightly below the 10-year average, with shippers operating with conservative inventory levels amid ongoing tariff uncertainty and evolving trade policy. Depressed freight demand in the most recent past also creates the potential for a restocking cycle, which could serve as a meaningful tailwind for freight volumes when demand improves. Also, do not lose sight of the recent increase in truckload spot rates and corresponding spike in tender rejection rates. That said, while the VIX may have settled, macroeconomic risks remain. Ongoing geopolitical tensions in the Middle East and the associated rise in fuel prices introduce a key source of uncertainty. Sustained increases in energy costs could pressure manufacturers and consumers, raising input costs, compressing margins, and ultimately dampening demand. Outside of this week's announcement and subsequent sell-off in oil, if elevated fuel prices persist, they could lead to tempered demand, offsetting some of the positive momentum emerging in the industrial economy and delaying a recovery in the freight markets. While we are optimistic about the improving freight dynamics, we remain focused on prioritizing customer service and thoughtful cost management. We have been operating as one company for over two years now, and I am proud of what our team has accomplished and even more excited about our future. Finally, it gives me a great deal of pride for our team of dedicated logistics professionals to be recognized for their hard work, diligence, and commitment to our customers. Forward Air Corporation was recently named the 2026 Surface Carrier of the Year by the Air Forwarders Association, whose members are freight forwarders that rely on our expedited ground network to maintain the integrity of their airfreight schedules. This recognition reflects the strength of our network, our team's performance, and our commitment to delivering exceptional service on a consistent basis. Forward Air Corporation was also recently named to Newsweek's list of the Most Trustworthy Companies in America 2026. The annual ranking recognizes companies across industries that have earned strong trust among customers, employees, and investors. This award follows the company's selection to Newsweek's list of Most Responsible Companies in 2025. This recognition underscores the significant transformation our team has achieved over the past two years in optimizing operations, improving performance, and enhancing customer relationships. Both of these honors are a reminder of the high service standards that we are known for. They reflect the dedication of our people whose efforts continue to drive our reputation for excellence. With that, I will now turn the call over to Jamie to go through the detailed results of the first quarter. Jamie G. Pierson: Thanks, Shawn, and good afternoon, everyone. As you heard from Shawn, we reported consolidated EBITDA of $70 million in the first quarter compared to $73 million in 2025. As a reminder, the comparable results a year ago were favorably impacted by $4 million of annualized cost reduction initiatives that were actioned in 2025. The credit agreement allows for the inclusion of the unrealized and pro forma savings from these actions to be included in our historical consolidated EBITDA and requires that they be spread back in time to the period in which the expense would have occurred. On an LTM basis, consolidated EBITDA was $3[inaudible] million. Like we normally do, we have detailed the information used to reconcile the adjusted and consolidated EBITDA results on Slide 30 of the presentation. On an adjusted EBITDA basis, we reported $70 million in the first quarter compared to $69 million in the first quarter of last year. Turning to the segments. Expedited Freight reported EBITDA improved to $28 million compared to $26 million a year ago, with the exact same margin of 10.4%. The Expedited Freight segment's first quarter results also improved sequentially compared to the $25 million of reported EBITDA and a margin of 10.1% in 2025. At the OmniLogistics segment, reported EBITDA of $25 million in the first quarter of this year was in line with the $26 million we reported a year ago. The margin improved from 7.9% to 8.3% year-over-year, driven by an increase in contract logistics volume with a higher margin compared to a decrease in air and ocean volumes that have lower margin. At the Intermodal segment, we continue to see a challenging market, especially from reduced port activity. International trade-related softness among several core customers contributed to declines in shipments and revenue per shipment compared to a year ago. In the first quarter, the Intermodal segment reported EBITDA and margin were $5 million and 10.1%, respectively, compared to $10 million and 16.4% a year ago. Externally, and going back into the back half of the year, we expect to see capacity tighten as JIT supply chains for our BCO customer base loosen as tariffs stabilize, and as additional capacity exits the market due to financial difficulties and bankruptcies of smaller drayage carriers. Internally, we have a strong pipeline and have recently enacted strategic rate increases to several key accounts. Turning to cash flow and liquidity. Net cash provided by operating activities in the first quarter was $46 million, an improvement of $18 million, or more than 60%, compared to $28 million in the first quarter of last year. As for liquidity, we ended the first quarter with $402 million, which is an increase of $35 million compared to the end of 2025 and about a $10 million increase from last year's comparable $393 million. The $402 million is comprised of $141 million in cash and $261 million in availability under the revolver. And as usual, I would like to leave you with a couple of additional thoughts. The first of which is liquidity and how we manage the business, especially in uncertain times. As you heard earlier, our ending liquidity included $141 million in cash, which is the highest ending cash balance in the past eight quarters. When compared to our publicly traded peers, we are at the upper end of the spectrum when calculating liquidity as a percent of both total assets and LTM revenue. And on Slide 22 of the earnings presentation, you will also see, on a non-GAAP basis, we generated $58 million in operating cash flow in the first quarter, which is approximately $12 million better than last year's comparable result. Secondarily, as you heard from Shawn, we are cautiously optimistic about improvements in freight demand, especially in the most recent past. However, there are numerous crosscurrents, including potential continued improvement in the freight demand counterbalanced by ongoing headwinds from inflation, subject to consumer confidence, and macroeconomic risks. We will need these to play out to see if the improvement in demand is sustainable. Regardless of when we see the market fully turn in a positive direction, we plan to continue focusing on the customer, increasing sales, and tightly managing expenses. I will now turn the call over to the operator to take questions. Operator? Operator: We will now open the call for questions. The floor is now open for questions. To provide optimal sound quality. Thank you. Our first question is coming from J. Bruce Chan with Stifel. Your line is now open. Andrew Cox: Hey, good afternoon, team. This is Andrew Cox on for Bruce. I just wanted to touch on the customer loss or customer transition here. We understand that nothing is set in stone, but we are talking about 10% of total revenue. Would just like to get some more details on what segment it is in and what the margin profile is, and how much fixed or structural costs are associated with this customer, and how fast you expect to be able to flex down either the cost or backfill the revenues? Thank you. Shawn Stewart: Hey, Andrew, thank you for the question. Yes, it is quite diverse and dynamic in terms of the service offerings we provide them. It is mainly in contract logistics and some transportation. So margins are different depending on what segment of that business it sits in. We are still in conversations, so it is very fluid. Obviously, we do not want to be overly transparent today. But we are still in heavy conversations, and it is a very good relationship. So it is not a situation of anything other than what we understand and believe to be diversifying their overall supply chain portfolio between providers. Jamie G. Pierson: Yes, if I can add on there, Andrew. We are positioning ourselves to hold on to as much of this business as possible. Shawn said it perfectly, which is our belief that this is about their growth and their concentration with us. It is a simple diversification play. It is important to note that we do not see any meaningful impacts to the current year, and as you noted, it is ongoing. To date, the conversations have been positive. Stephanie Moore: Hi, good afternoon. I guess maybe going back to the situation with the customer, maybe I will ask this a little more directly than the prior question. I am trying to understand how much leeway or time you saw this coming. Has this been a conversation that has been going on for some time? It is hard to believe for a customer of this size to make these changes quickly. If you could give a little bit of color on what services this customer provides or end market, just to get some color there, maybe a little history on other customer losses. If it is not due to service and it is just diversification, that is obviously having a really large impact this year. If you could touch a little bit more about when this started happening, and then at the same time, what can be done on your end to hopefully try to retain this as much as possible? Jamie G. Pierson: Hey, Stephanie, Jamie here. In terms of the timing, it is still happening. The dialogue to date is active and constructive. We are putting ourselves in the best possible spot to hold on to as much of the business as we can. If it were a service-related issue, I might feel differently, but if we look at our service KPIs with this customer, they are incredible, in my opinion. These are my words, Stephanie, not anybody else’s. We are incredible. So it is more about their concentration with us. They have grown with us. They have been a long-term partner with us. I think it is more about a risk management perspective on their behalf than anything else. In terms of how quickly, it is May. It is going to take some time. The best that we can tell is there is not going to be any impact to 2026. It will not be until early 2027 that we see anything meaningful and material, if at all. We are not throwing in the towel, but we felt that it was the right thing to do to let you know that we are in these discussions as quickly as we possibly could. Stephanie Moore: I worded it today, and then in the release, that part of the strategic alternative review process was impacted by this development with this customer. As we think about this, how much does this weigh on the strategic process? And then once there is some definitive decision—whether it is bad or if this customer does decide to walk away—what does that mean in terms of ongoing strategic processes once this is cleared up? Jamie G. Pierson: I cannot answer that second question about what will happen after it is cleared up. In terms of the impact, anytime you have a large customer concentration like this, it is going to weigh either positively or negatively. In terms of its impact on the strategic alternatives process, the fact that you look at a customer that is approximately $250 million, plus or minus, in revenue is going to have an impact. Stephanie Moore: Absolutely. I guess one last one for me—just on the core business itself, we wanted to get a sense of the ongoing pricing environment. There are certainly some green shoots and some positives in the freight environment. If you could talk a little bit about pricing across your business and your level of comfort given we are seeing what appears to be a bit of an uptick in the underlying freight market? Shawn Stewart: Hi, Stephanie, it is Shawn. We feel really strong about pricing. We had the hiccups in a prior period, and I feel strongly that we are extremely solid in all of our revenue streams, whether it be in the global freight forwarding market, the ground LTL business, or in truckload. I am extremely confident in what we are doing both on a cost management basis and on a revenue generation basis. And as you can see, the consistency in our margins and profitability is proof that we learned a lot and have continued to enhance our sales from there going forward. Jamie G. Pierson: If I can jump in. If you look at the spot rate over the last six months, it is up about 40% since late last year. Tender rejections are up almost 2x, so up 100%. Inventory-to-sales ratios continue to lean out. PMIs have been positive for four months in a row. I think the macro indicators are pointing in our direction. My experience in this space is it generally takes three to six months for it to really take effect, and we are coming into that third to sixth month now. We are not pricing for yield, and we are not pricing for volume. We are pricing for profitability. Scott Group: Hey, thanks. Good afternoon, guys. Just to follow up on the business trends. Tonnage was down about 2% and yields ex-fuel down about 1%. What are you seeing as the quarter progresses so far in Q2? Are things accelerating? I know you said you feel good about price, but yield ex-fuel down a little bit—just a little more color would be great. Thank you. And then, Jamie, I want to clarify that you said the business that you are selling is $390 million of revenue. That is intermodal plus the two smaller Omni businesses, right? What are the two smaller Omni businesses? Any sense of profitability there? And then your intermodal business—are there containers here, or is it all asset-light? What exactly is your intermodal business? I do not think it is like a J.B. Hunt intermodal business, but maybe I am wrong. And do you own trucks, or do you have owner-operators? Lastly, with this customer loss, I know the leverage thresholds as the year plays out start to get a little bit harder. Maybe this customer is more 2027, but any conversations with the lending group at all? How should we be thinking about this? Shawn Stewart: Hey, Scott. I am going to let Jamie go because I know he wants to say he is not going to give you guidance, but great question. Let us see if he is nicer today. Jamie G. Pierson: At the risk of not giving guidance, I would say over the last two weeks of the quarter and going into April, we have seen a fairly strong volume environment from our perspective. I do not want to preordain that the recovery is here. I stick by what I said about the spot, the tender, the inventory-to-sales ratio, and the PMI—there is a lag. But I would say the last couple of weeks of the quarter and going into April, we have seen a fairly strong volume environment. On the asset sales, that is exactly right—about $390 million of revenue across intermodal plus the two smaller legacy Omni businesses. I am not going to disclose which those two are; there is confidentiality with buyers. You can see the $390 million, with roughly $230 million intermodal, so you are talking about approximately $160 million that is remaining for the two Omni businesses; it is not that much. On intermodal, it is mainly port and railhead drayage with what we call C/Y or container yard management—storage of containers on chassis—and mainly port and railhead drayage to final customers. We utilize owner-operators and we have owned and leased chassis. On leverage and the lending group, it is the right question. We ended the quarter with $40 million in cushion. This is a small step down from where we ended the year, but we ended the quarter with the highest cash balance we have had in two years and over $400 million in liquidity. If you look at liquidity as a percent of total assets or liquidity as a percent of LTM total revenue, we are at the upper echelon of that spectrum of our publicly traded peers. So $40 million in cushion is a position I can live in, and $400 million-plus in liquidity is a very good place to be. Harrison Bauer: Hey, thanks for taking my question. One quick follow-up on the Omni businesses that you are selling—about $160 million. Is there any crossover of the potential lost business of the $250 million? And then taking a step back—general competitive dynamics. With the announcement of Amazon Supply Chain Services this week, is there any relation to that and the loss of this business at all? Are there other areas of your business that are potentially exposed to what Amazon is trying to lay out and some aggressive pricing actions they may take? Lastly, in the remaining Omni business and in Expedited LTL, now that you have a handful of capacity that you may need to backfill, how are you thinking about pricing for that going forward—the trade-off of volume and price? Jamie G. Pierson: Not that I can think of, Harrison. If there is any crossover, it is certainly not material. Shawn Stewart: I will take the Amazon question. There is no correlation between Amazon and our customer. The news of Amazon is fairly new, but we know them extremely well over the years. We are not surprised by their announcement, but we also need to let things evolve a bit and see where it goes. Ultimately, we are not particularly susceptible to this announcement by our volumes, etc. We respect what they are doing and respect Amazon a lot. We will keep an eye on it and not be naive, but we are not overly concerned today as we sit here about the impact to us from this announcement. On pricing and backfilling, we are not going to get into any kind of desperate situation. We have a great organization, great solutions, and a fantastic product, and we will continue to price aggressively but with profitability in mind. We will get strategic where it makes sense in a given customer or a given origin-destination pair, but not at the detriment of the company and our overall margin. You have seen us pick up new logos and new business, and we will continue with that mantra. We are not going to overreact—we will stick to what we do well and move forward with replacing any potential loss in different areas as we see fit. Christopher Glen Kuhn: Hey, guys. Good afternoon. Thanks for the question. I just wanted to clarify. So that customer loss is $250 million—that is the total amount of the customer's business with you, and you may or may not lose all of it. You are in negotiations for that right now. Is that the case? And if you do lose some of this, would that change the margin profile—within the Omni business—or is it relatively similar to where your EBITDA margins are? And is the negotiation on price? Because the service seems pretty solid there. What would be the issue aside from just diversification? Lastly, if you lost any of it, is there a way to backfill it with another customer? Is there a plan for that? Shawn Stewart: It is a total 2025 revenue of $250 million. We are giving you a holistic view of what the revenue is. That does not, by any means, state that we are losing $250 million. That was the total spend in 2025. Jamie G. Pierson: It will be less than that. Shawn Stewart: On the nature of the discussion, it is diversification. You have to think about what we do for some of our customers—we handle an incredible amount of their supply chain. It is wise from a risk management perspective for them not to put too much of a percentage in any one particular supplier’s hands. Throughout the years, we have grown with them and provided that level of service. In our opinion, it is simply a diversification play, and that is understandable. Jamie G. Pierson: We do not talk about margins on any one particular customer. We will see how this shakes out here in the near future. The takeaway is threefold. One, the conversations have been both active and constructive. Two, we see no impact occurring in 2026 given the complexity of what we do for our customers. And three, the discussions have been fairly positive to date, and we will continue them. Shawn Stewart: On backfilling, that is the plan every day, whether we are losing customers or seeing down-trading customers. Growth is the number one strategy of our combined organization. It has been a tough market, but at the same time, you have seen us be very sustainable over the last two years. We need this market to turn, but we are not changing anything because of this announcement. We may just run a little faster, with an already sprinting organization. Jamie G. Pierson: The only thing I would add, Chris, is that, as best as I can tell going back and looking at history, we are a fairly high-beta performer. We do better in times of volatility and especially when capacity gets tight. We all do well when capacity gets tight; we seem to do better than our peers when that occurs. That is certainly part of the plan. Christopher Glen Kuhn: You have talked about this in the past, but have you seen any truckload-to-LTL conversions in your business? Shawn Stewart: We have heard “yes” because of rising truckload rates, and I do not want to get too far ahead of ourselves—back to Scott’s question, we are seeing volumes—so it could be, but we do not have enough information to say that definitively. As you have probably been watching in the true domestic intermodal market, you are seeing a lot of diversions from over-the-road onto the domestic intermodal. You are also seeing, slowly, an influx of the ocean containers coming back in. There is going to be a point of inflection where a lot of things are going to shift as the demand comes through. It could be the early stages, but do not quote me on that; we are watching it. We have heard from certain customers that the transition is starting because of the overall price of truckload. Operator: At this time, there are no further questions in queue. Let me turn it over to Mr. Stewart for any final remarks. Shawn Stewart: Thank you so much for your time, attention, and interest in our organization. In closing, in recent quarters, we have navigated a challenging environment with discipline and focus while taking actions to strengthen our company and our overall business. We are extremely confident in the foundation we are building and the steps we are taking to improve our performance. We really appreciate your time today. As usual, if you have any follow-up questions, please reach out to Tony directly. Thank you. Operator: This concludes Forward Air Corporation's first quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful evening.
Operator: Good day, and thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Schoelkopf, Head of Investor Relations. Please go ahead. Brian Schoelkopf: Thank you, Marvin. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2026 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Lasse Vairavan, Chief Financial Officer. I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank to begin today's call. Todd Watanabe: Thanks, Brian, and good afternoon, everyone. As always, we appreciate you guys making the time to join us. I want to start today's call with an overview of the latest developments at Arcutis and the progress we're making against our grow, expand, build strategy. I'll then turn things over to Todd for a commercial update, then Patrick for an R&D update; and finally, Latha for a review of the quarter's financial results as well as how we're thinking about investing in 2026 to drive ZORYVE inflection. So I'm starting on Slide 5. Hopefully, by now, you're all familiar with the grow, expand, build framework that we have adopted to define our strategy to sustain near- and long-term growth for both ZORYVE and the company overall. In a nutshell, our plan is to continue to grow our core ZORYVE business in our currently approved indications to expand ZORYVE into additional indications and to build our innovative pipeline beyond ZORYVE. So starting with the grow pillar for driving momentum in our core approved indications, we're very excited to have submitted a supplemental NDA for ZORYVE cream, 0.05% in atopic dermatitis patients aged 3 to 24 months in April. This is a segment of patients who are significantly impacted by AD and who are in dire need of safe and effective treatment options beyond the very small number of currently approved therapies. Patrick will comment on the opportunity more, but we see this as a very significant new opportunity for ZORYVE, and there's a lot of excitement amongst dermatology clinicians about our data and the possible approval. We also completed enrollment in a MUSE trial for ZORYVE foam, 0.3% in children with scalp and body psoriasis ages 2 to 11 years of age, and that should serve as the basis for submission for -- to extend the label to this age group, aligning it with the 0.3 cream. On the commercial front, we've successfully completed -- we've essentially completed, excuse me, the expansion of our dermatology sales force to enable deeper reach into the dermatology landscape. And I'm happy to report that our expanded derm sales force is in the field as of this week, but of course, we probably won't begin to see an impact on sales for a few months. We also began the build-out of our dedicated PCP and pediatric sales team, starting with the recent hiring of our Head of Primary Care franchise. This team will embark on a targeted effort to engage with those primary care and pediatric clinicians who are already using a fair bit of topical therapies in their practice. We also continue to make important progress against our expand pillar as we work to bring the unique benefits of ZORYVE to people impacted by chronic inflammatory skin conditions beyond our currently approved indications who are also in need of targeted innovative treatment solutions with a focus on diseases where we've already seen compelling potential of ZORYVE based on case reports and case series. And specifically, we're nearing full enrollment of our Phase II proof-of-concept trial in vitiligo, and we continue to enroll patients in our Phase II POC trial in hidradenitis suppurativa or HS. We're also evaluating additional Phase II proof-of-concept trials in indications beyond vitiligo and HS, and we'll obviously update you guys on our further decisions. And finally, we reached an important milestone in our pipeline building activities with the initiation of a Phase Ia, Phase Ib trial for ARQ-234. The investments we're making and the efforts we're taking to advance our initiatives across these 3 pillars are laying groundwork for further ZORYVE sales inflection and operating leverage expansion in 2027 and far beyond as well as positioning us to sustain growth for the long term and most importantly, expanding our impact on individuals living with chronic inflammatory dermatosis. Despite now having a successful commercial franchise in ZORYVE, we continue to be at our core, a biotechnology company championing meaningful innovation within medical dermatology. These investments in innovation and growth reflect that intent. And with that, I'll hand the call over to Todd to give you a Q1 commercial update. Todd Edwards: Great. Thank you, Frank, and good afternoon, everyone. Turning to Slide 7. We continue to see strong sales performance in the first quarter with net product revenues of $105.4 million, up 65% versus the first quarter of 2025. This healthy quarterly performance was achieved despite the customary first quarter seasonality impacting branded therapies driven by patient deductible resets, elevated co-pay utilization, annual insurance transitions and pull forward of refills into Q4. This typical pattern was further amplified this year by the impact of severe weather events we had across the country during the quarter. On an aggregate basis and in line with expectations, this resulted in a more significant sequential decline in product revenues from quarter 4 to quarter 1 compared to 2025, where seasonality was mitigated due to the initial launch of ZORYVE in atopic dermatitis. Importantly, we are through the impact of this typical seasonality and anticipate a return to robust quarter-on-quarter demand growth going forward. Our gross to net remained stable in the 50s. And as communicated on our last call, we anticipate it will remain in the same range for the remainder of 2026. Our first quarter gross to net rate improved compared to quarter 1 2025 due to our evolving payer contracting that benefited product revenues for the period. Looking ahead to the second quarter, we expect quarter-over-quarter net sales growth driven primarily by increasing patient demand as well as continued gross to net improvements as we progress from our current rate to the low 50s as the year progresses. Turning to Slide 8. After a typical December to January pullback in demand, weekly prescriptions on a rolling 4-week average based on IQVIA EXPONent data have returned to a healthy growth trend and reached approximately 21,000 prescriptions per week across all indications and formulations for ZORYVE. As is clear from this chart, ZORYVE continues to generate sustained Rx growth. For the remainder of 2026, we anticipate sustained demand growth will be the primary driver of ZORYVE's revenue expansion. The most important driver of this sustainable momentum will remain the conversion of topical corticosteroids to advanced targeted topical therapies as health care providers and patients' perceptions of the risk of chronic use of topical steroids evolves. In a few minutes, Patrick will comment on developments we are seeing on that front. Investments we have made to expand our dermatology sales force will also contribute to demand growth in the second half of the year, and our efforts in primary care and pediatric settings will start to have an impact later in 2026 and 2027. Next, I'll provide some additional detail on demand across topical therapeutics and dermatology in the first quarter. I'm on Slide 9. As demonstrated in the chart on Slide 9, prescription volumes were down across the board for topicals in the first quarter of 2026 compared to the fourth quarter of 2025. Of note, the impact was not only seen with branded products, but also with topical corticosteroids, antifungals, vitamin D analogs and topical calcleurin inhibitors. Products in these categories are primarily generic, making them less sensitive to the typical seasonality experienced by branded products in the first quarter. And yet this year, they still saw marked sequential declines quarter-on-quarter. We believe that this dynamic speaks to the fact that the severe weather events in the first quarter impacted dermatology prescription volume in general, a headwind that compounded typical seasonality and affected the entire topical segment. Of note, the prescription decline for ZORYVE in the quarter at 6% was meaningfully lower than the other branded non-steroidal topicals, which collectively were down 15% for the quarter. This relative outperformance is further evidence of the growing preference for ZORYVE by dermatology health care providers and patients. ZORYVE's relative strength in the period also drove further share expansion with ZORYVE's share of total branded non-steroidal topical prescriptions increasing to 48% in the first quarter, a 3 percentage point increase from the end of 2025. Moving to Slide 10. We are excited about the key investments we are making in 2026 to drive ZORYVE's continued momentum and set the foundation for its growth inflection in 2027 and beyond. We have completed our previously announced dermatology sales force expansion. As Frank noted earlier on the call, we're pleased to report that these new sales force members are out in the field as of this week. As is typical, these sales representatives require a couple of months to gain familiarity with their call points. So we anticipate seeing the impact on demand from these added boots on the ground beginning in the third quarter. We are also underway in the build of our primary care and pediatric team. We are thrilled to announce today that we have hired the head of this new franchise, Katie Swoss. Katie brings incredible breadth and depth of experience with dermatology therapeutic commercialization, having held various strategic and operational leadership positions, and she has already begun building out the rest of her team. As we described previously, we are adopting a high targeted approach with this sales team focused on high-volume, early adopter PCPs and pediatricians concentrated in major metropolitan areas, positioning this investment to be accretive from the outset. From there, we will evaluate additions to the sales team as we further refine our strategy and gain in-depth understanding of the space. We look forward to completing the initial build-out process next quarter with the launch into the field in Q3, initial impact to demand beginning in the fourth quarter. Rounding out focused commercial investments, our Free to Be Me direct-to-consumer patient awareness campaign featuring Tori Spelling, her daughter, Stella McDermott and professional golfer, Max Hona has driven strong meaningful patient engagement. Their shared collective experiences are helping to drive awareness for ZORYVE across all indications and are resonating with a broad range of patient demographics. We look forward to the continued progress of this important direct-to-consumer effort to ensure we are capturing and reflecting the patient voice and patient experiences as they live and manage their chronic inflammatory skin conditions and the impact ZORYVE has on their lives. With that, I'll now turn the call over to Patrick. Patrick Burnett: Thank you, Todd. Good afternoon, everyone. In the first quarter, we continue to make significant progress in our efforts to support young children and infants suffering from plaque psoriasis and atopic dermatitis. Starting first with atopic dermatitis, children under the age of 2 are the most vulnerable patients in a population that desperately needs alternative therapeutic options to the handful of currently available treatments. As a dermatologist, I can tell you firsthand how challenging it is to sufficiently address these diseases in this age group given the very limited set of approved therapies and how eager the parents and caregivers are for effective, safe and well-tolerated treatments to bring comfort to their kids. Safe, well-tolerated treatments are especially important in this age group when the immune system and the skin barrier are still developing. We take their plea very seriously, and we believe the clinical profile and formulation of ZORYVE are well suited to the needs of this young patient population. On our March call, we highlighted the positive top line data from the INTEGUMENT infant Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis. Expanding on what we shared in March, we were honored to have our abstract selected for a prestigious late-breaker session and presented by Dr. Lawrence Eichenfield at the American Academy of Dermatology Annual Meeting at the end of March, select portions of which we have here on Slide 12. Over 1/3 of study participants who completed 4 weeks of treatment achieved a validated investigator global assessment for atopic dermatitis that's a VIGA-AD success. that's defined as a score of 0, which is clear, or 1, which is almost clear with at least a 2-grade improvement. Close to half of infants achieved a VIGA-AD score of clear or almost clear, that's a 0 or 1 at week 4 and 24% already at week 2. Now for those infants with at least mild scalp involvement at baseline, more than 2/3 achieved VIGA scalp success at week 4. And as previously highlighted, 58.3% of infants achieved at least a 75% reduction in their eczema area and severity index that's an EASI-75 at week 4 and 3/4 of infants already at week 2. Now to the right, we see a representative patient. This is a 23-month old boy who had previously been treated with topical corticosteroids with an IGA of 3 or moderate severity at baseline, and he's showing significant improvement at week 4 with an IGA of 1 or almost clear. I think these photos really represent the meaningful impact that our 0.05% cream delivered to patients in this study and why we're so excited to already have these data submitted to the FDA. Collectively, the findings from the INTEGUMENT infant study add important clinical evidence on the promise of investigational ZORYVE cream 0.05% in infants 3 to 24 months with rapid and robust efficacy across multiple clinical endpoints, coupled with excellent tolerability and a clean safety profile. Now moving on to Slide 13. I want to highlight one particularly notable result that we shared from INTEGUMENT infant at the AAD, namely the rapid impact that ZORYVE had on itch for these patients as reported by their caregiver. Itch is one of the most disruptive symptoms of atopic dermatitis in patients of all ages and the rapidity with which a therapy can alleviate itch is an important aspect of a drug's therapeutic profile. We've known since early clinical development that ZORYVE has a rapid impact on itch. The chart on the left-hand side of Slide 13 shows itch improvement over time in our registrational INTEGUMENT-1 and 2 trials in atopic dermatitis as measured by WI-NRS or worst itch numeric rating scale. As you can see, we saw itch reduction as early as 24 hours after first application, and that was the first time point measured in these trials. However, through our clinical trial experience and feedback from clinicians in the field, we appreciated that the speed with which ZORYVE impacts itch is exceptional. And with that in mind, in it taking an infant, we chose to measure impact on itch using the dynamic pruritus score, or DPS, with measurements as early as 10 minutes after application. The results from that analysis are demonstrated in the chart on the right-hand side of this slide. Nearly 50% of patients experienced a 25% improvement in itch as measured by their caregivers within just 10 minutes of application of ZORYVE and 2/3 of patients experienced relief within 4 hours. These results not only reinforce our conviction that ZORYVE will be an important therapeutic option for infant patients, but this demonstrated speed of onset has also prompted us to further study the impact of ZORYVE on itch. To that end, we recently initiated a study INTEGUMENT-Ich, to assess descriptive classification of pruritus over time with ZORYVE 0.15% cream in patients with atopic dermatitis. This 40-patient trial will begin enrolling shortly. We believe that the further validation of ZORYVE's rapid impact on itch that this trial is intended to demonstrate, particularly within the first 24 hours after initiating therapy is an important step in better understanding and articulating ZORYVE's profile in atopic dermatitis. INTEGUMENT itch is an example of our strategy to generate additional clinical data for our current indications to further bolster the data set behind ZORYVE. -- an important component of our growth strategy pillar. I look forward to sharing subsequent updates on other clinical activities we're pursuing along the same vein. Next, I'll provide an update on our label expansion efforts to support pediatric patient populations. As Frank mentioned in the opening, we submitted a supplemental NDA to the FDA in April for ZORYVE cream 0.05% to expand the indication to infants 3 to 24 months. We're thrilled to have taken this critical step to potentially bring a new safe, well-tolerated and effective therapeutic option to this patient population. It's notable that we were able to submit our application in just 3 months after having read out the top line results from our INTEGUMENT infant trial. This reflects the speed with which our team at Arcutis is moving on behalf of patients and our response to the high level of urgency shared by those HCPs who care for these youngest AD patients. Turning next to our pediatric expansion efforts for plaque psoriasis. We recently completed enrollment of a MUSE trial or maximum MUSE trial for ZORYVE foam 0.3% for children ages 2 to 11 years old with scalp and body psoriasis. The trial is intended to serve as the basis of an sNDA submission to extend the indication to this age group and to align the psoriasis indication of the 0.3% cream and foam. If approved, ZORYVE foam could offer a truly unique therapeutic option for caregivers helping their young children manage this disease that has historically been difficult to treat when presenting in hair-bearing areas. In addition, as previously announced, our supplemental NDA for ZORYVE cream 0.3% for psoriasis patients down to the age of 2 years is under review by the FDA and the PDUFA action date of June 29 is quickly approaching. I'll note that the rationale for extending our label to the infant population for atopic dermatitis does not apply to plaque psoriasis or seborrheic dermatitis. Onset of diseases in these patient populations is common in atopic dermatitis, while it's not in the other 2 diseases. Our current label in seborrheic dermatitis positions us to effectively serve the addressable patient population and potentially securing a label expansion to the pediatric age range in plaque psoriasis will similarly equip us to serve the addressable patient population. As demonstrated in the table on Slide 14, these latest developments in expanding our indications to additional pediatric and infant populations build on a consistent focus we've maintained over the years to broaden the availability of ZORYVE. We're driven by the need of these younger children for effective, safe and well-tolerated therapeutic alternatives to topical corticosteroids. We also anticipate that when health care providers see how effectively ZORYVE alleviates inflammatory skin disease in their most fragile and vulnerable patients, they'll be more inclined and appreciate the potential benefit from ZORYVE for their adult and adolescent patients with the same diseases. Now turning to Slide 15 and the pipeline. This is the build pillar of our strategy. We've now initiated the Phase I trial of ARQ-234, our novel biologic targeting CD200R in healthy volunteers and adults with moderate to severe atopic dermatitis. There's a clear and distinct need for a systemic therapy for patients with atopic dermatitis who have relapsed on or who are refractory to IL-4, IL-13 drugs. Many in the drug industry and many clinicians had until recently hoped that agents targeting OX40 would meet that need. However, after a series of disappointing clinical data sets and growing safety concerns for these programs targeting OX40 already leading to program discontinuations, that hope has dissipated, leaving a white space for novel new treatment pathways. It's our belief that the CD200 axis targeted by ARQ-234 could bring an important new tool for providers and an important new option for patients. The CD200 axis plays a central role in both innate and adaptive immunity with CD200 signaling reducing immune activation for T cells, type 2 innate lymphoid or ILC2 cells and myeloid cells and decreasing secretion of pro-inflammatory cytokines. Given the impact of this access, there's a solid basis for optimism about the role of CD200R agonist programs may play in treating inflammatory diseases. The Phase I trial for ARQ-234 is comprised of a single ascending dose or SAD component in healthy volunteers, which is currently ongoing and a multiple ascending dose or MAD component followed by a proof-of-concept cohort, both in patients with moderate to severe atopic dermatitis. While we will not share the results from the trial until completed, we will keep you apprised of our progress through these different components. Now moving on to Slide 16. As you can see, we've already delivered on several meaningful clinical milestones in 2026 and look forward to continuing clinical progress throughout the year. Of note, we continue to enroll our Phase II proof-of-concept trials in vitiligo and hidradenitis suppurativa or HS. We're nearing full enrollment for our vitiligo trial and remain on track to provide a readout of trial results and an update on our clinical development plan in Q4 of this year. And a similar readout for our HS program in Q1 of 2027 also remains on track. And Todd alluded earlier to the continued shift from topical steroids to advanced targeted topical therapies like ZORYVE. As we've mentioned on prior calls, we're seeing a steadily growing consensus within the dermatology specialty around the clinical needs for that shift, and we saw further evidence of this since the start of the year. On Slide 17, I highlight just a few of the recent discussions on this topic. I would call your attention in particular to one of the conclusions of the recently published expert consensus statement on advanced nonsteroidal topical therapies for atopic dermatitis, which came out in March in the Journal of Drugs in Dermatology. As you can see, some of the most distinguished experts in the field agree that advanced nonsteroidal topicals should be preferred over topical corticosteroids for long-term management of atopic dermatitis due to their cleaner safety profiles. This is typical of what we continue to hear from the leaders in dermatology, and this growing consensus will propel the conversion to the newer agents, of which ZORYVE is the leading treatment. With that, I'll turn the call over to Latha to further detail our Q1 financial results. Latha Vairavan: Thank you, Patrick. I'm on Slide 19. We generated net product revenues in the quarter of $105.4 million, which is up 65% from Q1 of 2025. This year-over-year increase was driven primarily by increased patient demand. We also had lower gross to net in the first quarter of 2026 versus a year earlier, contributing to higher net product revenues. As Todd mentioned earlier, this improvement in gross to net was primarily driven by the evolution of our payer contracting. And while our gross to net rate is lower to begin the year, we still anticipate our gross to net to be in the 50s throughout 2026, ending in the low 50s. Cost of sales in the first quarter were $9.8 million compared to $8.8 million in the first quarter of 2025, primarily due to increasing ZORYVE sales volume. For the first quarter of 2026, our R&D expenses were $30.6 million versus $17.5 million for the corresponding period in 2025. This year-over-year increase was primarily due to the $10 million milestone obligation to Ducentis shareholders triggered by the dosing of the first subject in the ARQ-234 Phase I trial, which occurred in the quarter. SG&A expenses were $74.1 million for the first quarter of 2026 compared to $64 million in the same period last year, up 16% as we continue to invest in our commercialization efforts for ZORYVE. We anticipate a modest increase to the SG&A expense in the back half of the year, driven by headcount-related costs for the dermatology sales force expansion and the build-out of our primary care and pediatric sales team. we are maintaining our revenue guidance in the range of $480 million to $495 million for the full year 2026. Moving to Slide 20. You can see that we had cash and marketable securities of $224.3 million on our balance sheet as of March 31, 2026. Importantly, we maintained positive cash flow in the quarter with $2.2 million of net cash provided by operating activities. We will continue to be disciplined in our investments in the business to maintain positive cash flow throughout the rest of the year. We have total debt of $101.5 million and have the right to withdraw another $50 million in whole or in part at our discretion through the middle of '26. I am now on Slide 21. With the continued broad adoption of ZORYVE and sustainable sales momentum that the franchise has demonstrated, we have reached the rare milestone amongst biotechnology companies of achieving positive cash flow at Arcutis. We first achieved sustainable positive cash flow in the fourth quarter of last year and have communicated that through diligent expense management, we anticipate maintaining positive cash flows on a quarterly basis throughout 2026. This -- the core ZORYVE business is strong and the shift from topical steroids to branded nonsteroidal topicals will continue to offer immense growth opportunity for many years to come. Concurrently, we are reinvesting capital generated from our ZORYVE franchise back into our business in order to inflect growth in 2027 and beyond. ZORYVE's growth is driven by both of these factors. You've heard about several of these initiatives today, including our sales force expansions in both derm and primary care, DTC efforts, clinical investments to support current and potential additional indications for ZORYVE and progress on our innovative pipeline. There are additional initiatives for which we are making disciplined investments that we look forward to detailing throughout the year. These investments lay the foundation for both near- and long-term growth for Arcutis. They will help to further catalyze the continued growth of ZORYVE and inflect its trajectory. ZORYVE is a profitable franchise. And if we were not pursuing these impactful accretive investments, we would commence operating leverage expansion in 2026. As we look ahead to 2027, we expect a moderation in the need for increased investment in our current business compared to this year. Coupled with the anticipated continued sales growth of ZORYVE, we expect that we will see meaningful increase in our operating leverage and cash flow generation in 2027 and beyond. With that, I will now turn the call back to Frank for closing remarks. Todd Watanabe: Thanks, Latha, and thanks again to all of you for joining us today and for your continued interest in Arcutis. I'm immensely grateful to our team and very proud of their hard work, their dedication to building shareholder value and their commitment to the patients we are serving. And with that, I'll open up the call to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Andrew Tsai of Jefferies. Lin Tsai: So it sounds like gross to net performed better than compared to last year, Q1 of last year. Can you guys maybe qualitatively describe what drove that better percentage? Was it something within your control? And what kind of positive impact could that have for the rest of the year? I know you kind of guided gross to net for the rest of the year. Is it fair to assume blended gross to net for this year could be better than the blended gross to net for 2025? Todd Watanabe: Sure. Yes. Todd, do you want to take that one? Todd Edwards: Yes. I think I'll take that call, Andrew. Thank you for the question. So yes, as mentioned, we did have price improvement in the first quarter of this year relative to Q1 2025. This year-on-year improvement was primarily driven by improvements in formulary status with more preferred versus nonpreferred position with some of our commercial plans. What this means is that for a patient, for a preferred status, it's a lower co-pay versus nonpreferred position. So with the preferred status and lower co-pay for the patients, that leads to lower co-pay expenses and lower co-pay buy-down for Arcutis give us the pricing upside. Now while our rate is lower than the prior year, we continue to anticipate that we'll be stable in the 50s without a doubt throughout the year. And as mentioned, we'll be working down from the higher 50s at the beginning of the year, transitioning to the lower 50s at the end of the year as patients continue to buy down the deductibles and we have lower co-pay expenses. Now as we look forward, I think it's a bit too early to anticipate how all these factors will carry forward to future years. But I remain very confident that we'll continue to have a very strong gross to net, and we'll maintain our gross to net within the 50s going forward. Thank you for the question. Operator: Our next question comes from the line of Tyler Van Buren of TD Cowen. Tyler Van Buren: Just to help quantify the quarter-over-quarter impact in the Q1 seasonality, as we compare to Q4, can you help us understand how much of that was the gross to net impact versus volume impacts from weather or Q4 pull forward? And the second part or follow-up is, I understand that you're saying that Q2 sales will be above the first quarter, but do you believe it's likely that Q2 sales could significantly exceed the sales that were posted in Q4? Todd Watanabe: Tyler, yes, Todd, do you want to take that one, too? Todd Edwards: Yes, absolutely. Thank you, Tyler. So in reference to the quarter-on-quarter impact of seasonality and the differential between gross to net and demand, as we've highlighted, there was an upside on gross to net due to the which that has changed from nonpreferred to preferred with the -- as mentioned, the demand saying relative to the 6% on that. And if you think about it, with the seasonality, which is typical because of the pull forward of the refills into Q4, we got employers that are often change in insurance from employees that's effective January 1 of the year. That transitions impacts relative to ZORYVE and then, of course, the higher deductible reset that impacts it. And then as noted, this was compounded relative to the weather impact. And I will just mention that this whole weather impact and demand impact was not just limited to the topical products. When you look at the systemics, they were also impacted as well. For example, Otezla was down 11%, Rinvoq 3% Dupixent 2%. This is on volume due to this seasonality with this and being amplified by the impact of the weather. Relative to Q2 sales and how we think about them going forward, I will mention that Q2 quarter-to-date through April 24, ZORYVE has 13% growth versus Q1 within the same time period. So we're off to a very strong start within Q2 here, and I have high confidence that we'll continue to build on this demand trend and have robust growth quarter-over-quarter as we go forward. Operator: Our next question comes from the line of Seamus Fernandez of Guggenheim Securities. Colleen Garvey: This is Colleen on for Seamus. When thinking about this year's sales guidance, what are the assumptions driving the lower end of the guide? By our math and just based on the current prescription trajectory, we're starting to struggle to land within the upper end of the guide and consensus looks to already be above. So just trying to understand the pushes and pulls to maintain the current guide. Todd Watanabe: Colleen, Look, I would say that we just updated the guidance in February. so not that long ago, we don't intend to update our guidance at least for the moment every quarter. So we'll continue to evaluate the trend as the year progresses. And if we feel that it's appropriate to update the guidance, we will. But we felt that at this point, early in the year, particularly with a slightly anomalous Q1, we felt that it was prudent just to hold fast. Latha, Todd, I don't know if there's anything else you want to add to that. Todd Edwards: Nothing else, Frank. Latha Vairavan: Calling out, I would say that the -- we issued the guide after the end of the year. And as Frank said, we don't see the need so early in Q1 to take it up. So as the year progresses, then as the guide rate changes, then you'll be able to align more to where the demand trajectory is headed. But for now, I think you can lean into the upper end and stay there. Operator: Our next question comes from the line of Judah Frommer of Morgan Stanley. Judah Frommer: We appreciate kind of the updated trends on total scripts and the share being taken there. Anything you're noticing in NRx new scripts and any trends that are indicative of where TRx could move going forward? Todd Watanabe: You're talking absolute volume share? Judah Frommer: Yes. Todd Watanabe: I would say... Share of new scripts, how that's trending, if anything has changed, has that formulary position maybe impacted what new scripts are doing? Okay. Sure. Todd, do you want to take that one? Todd Edwards: Yes, I'll take that one. When we look at the Q1 for ZORYVE and you look at the new-to-brand Rx for the branded nonsteroidal topicals, you look at that basket for Q1, ZORYVE drove 48% of the new-to-brand Rxs for the branded non-steroidal topicals. And we're very encouraged by this. I mean, I'll just reference this as comparison. If you look at like Opzelura, it was 28%. I think what's more is that you look at for ZORYVE and the NBRx decline quarter-over-quarter, we were basically flat. I think -- which is another strong signal. The other is when you look at our refills, Look at our total volume prescription, of that, our refills are about 45%, which is once again very encouraging for us, not only on the NBRx, but also on the refills that are contributing to our TRx and our overall growth. If I look within Q2 and I look at approximately the last 3 to 4 weeks, we've had very impressive NRx growth with ZORYVE, which once again is a great leading indicator of what's to come as far as TRx growth as we roll forward into the quarter. Operator: Our next question comes from the line of Uy Ear of Mizhuo. Uy Ear: I have 2, if I may. The first question is, could you maybe just help us understand or quantify the opportunity from the infant atopic dermatitis conditions. I think, Frank, you mentioned it was a significant opportunity. And how -- and maybe just help us understand how you'll capture that opportunity? Is it primarily through the derm sales force that you currently have or from building out the primary care pediatric sales force? That's the first question. Todd Watanabe: Go ahead. Did you have another one Uy Ear: Yes, I do. The second question is maybe, Lata, the SG&A was lower than what I think we or the consensus expected something like by $4 million. Now that you have the full sales force expansion, do you expect an uptick in the second quarter? Because I thought, if I heard correctly, I don't know what the starting point is, but you indicated that you were expecting a modest SG&A uptake in the back half of the year. So maybe just help us understand the cadence of spending for the year. Todd Watanabe: Okay. Thanks. So Patrick, maybe why don't we start, if you wouldn't mind sharing maybe a dermatologist perspective on the 3- to 24-month opportunity and the unmet need. And then, Todd, maybe you can address how we're going to get at that commercially. And then Latha, if you could address his question around OpEx. Patrick Burnett: Sounds good, Frank. Yes. So I think this 3 to 24 months group, and I'll let someone else kind of comment on the kind of absolute size of that group. But I think they are uniquely reflecting a patient population that has -- we're talking about essentially crisaborol approved there and then maybe 5 or 6 topical corticosteroids. So I think this really is a group that as we've been out kind of talking to pediatric dermatologists, and these patients are not just managed by pediatric dermatologists. The they're managed by a lot of dermatologists, dermatology, PAs and NPs as well, that this is one where people really do struggle to be able to get these patients under control. Obviously, it's not a group that you want to jump to a systemic right away. They tend to have a higher body surface area. Their disease tends to evolve kind of quickly over time into a pretty high percent of involved skin. And kind of as we alluded to in the call, there's a really high sensitivity to exposure to corticosteroids right out of the gate. I mean these are very, very young patients and the developmental milestones are at the top of mind for caregivers. So really kind of finding something that fits into that mindset, I think the ZORYVE profile fits beautifully into that. And I think we kind of alluded to the fact that this is a way to really win the hearts and minds of prescribers because if you could solve this problem for them, I think it really helps with the overall lift for the brand and what it means for the field. So I think that's the derm perspective. And as far as the overall size of the opportunity, I think I'll turn it over to you, Todd, to talk about that. Todd Edwards: Yes. Thank you, Patrick. And I'll just reemphasize, as Patrick mentioned, this patient population is tremendously underserved. If you think about it, it's really just EcrIA, which burns in the one application is available and then topical steroids, which, of course, brings great concerns to a caregiver, you say relative to steroid exposure. How we're going to drive this opportunity as we go forward once we get the approval will be across both the dermatology sales force as well as the PCP and pediatric sales force. Dermatology sales force because we do have pediatric dermatologists as well as other dermatologists to see this population and that we're conveying there's a real value proposition for this population. And then, of course, with our primary care and pediatric team, they'll be calling on pediatricians to make certain they create that awareness for the patient. And then in -- in addition to that, saying, we'll be doing a lot of direct-to-consumer campaign. And when I say consumer, it's a caregiver. We'll be making certain that we're reaching out and we're driving brand awareness of ZORYVE for this population to that caregiver to make certain that we know that it's available. And then in reference to the approximate side, it's about $2 million to $2.5 million as far as the patients, the opportunity that sits here within this age group in atopic dermatitis. Todd Watanabe: And Latha, can you address Uwe's question about the OpEx? Latha Vairavan: Yes. I would say SG&A for Q1 was slightly below consensus, but not we don't see a dramatic decline. So nothing to concern yourself there. The field force should have started in Q2. You'll see a portion of that hitting Q2 actual. So some normalization of that. The expansion for the primary care field force that will happen in the second half is what the comment modest increase references. And some of the initiatives that Todd talked about, you'll see some of that expense also play out for the course of the year. So that's our feedback on SG&A being higher year-over-year. Operator: Our next question comes from the line of Serge Belanger of Needham. Serge Belanger: The first one, just regarding coverage for ZORYVE. Do you expect to make any headways on what is remaining for Medicaid and Medicare coverage? Or is that more of a 2027 event? Just curious maybe if you can pull it forward to 2026. And then with the sales force expansion, you're going to be going to lower deciles prescribers. Just curious how they differ from the higher decile. Obviously, volumes are lower, but do they tend to prescribe less topical products than the higher decile ones? Todd Watanabe: Yes. Todd, sorry to worry you out, but could -- you want to take those 2? Todd Edwards: Yes. No, I'm happy to. Great question. So thank you. First one in reference to the coverage question and making headway relative to Medicaid and Medicare. We will continue to make headway in Medicaid. We can do that within 2026 as we continue to contract with these individual states relative to the fee-for-service Medicaid. We're currently in negotiations and conversations with some of those states where we don't have ZORYVE on formulary. Relative to Medicare, it's a longer process. We have to contract with each independent Part D plan. And typically, they do those formulary updates at the first of the year. So it is -- I'm saying likely going to be January 1, 2027, but there is opportunity with the Part D plans to be able to pull that forward into 2026. And so as previously communicated, ZORYVE has access in approximately 1/3 of the Part D plans. And it's our ambition to continue to accelerate that as we go forward, and we'll make every effort to pull that forward into 2026. And then the other is in reference to the sales force expansion, yes, you are correct. The ambition here is to be able to have a higher frequency, a higher level of engagement with the med decile providers by not diluting that frequency on the higher decile providers. And what mainly differentiates between high decile and medium decile is the opportunity to prescribe, meaning that they have a higher -- the higher deciles have a higher patient base, higher patient load. They typically do tend to be more rapid adopters of branded products. But with this median decile providers, there's ample opportunity for us here to continue to expand ZORYVE and believe that, that frequency will lead to higher adoption of ZORYVE. Operator: Our next question comes from the line of Richard Law of Goldman Sachs. Unknown Analyst: This is Tan on for Rich. The first one on the primary and pediatric care setting. Curious if you could speak more to what you're doing differently than CALA in those settings. What areas were they not doing well that you think you can improve on? And then I have a follow-up. Todd Edwards: Yes. No, it's a great question. Thank you. I'm sorry, Frank. I just jumped in. Thank you. So what we're doing differently is we are -- I mean, what -- I wouldn't reference it as what we're doing differently as it is what we're going to do to make certain that we set this primary care team up for success and that we can drive utilization of ZORYVE within these specialties is that, as mentioned, as we build this team at launch, we're going to be highly focused. We're looking and we've been able to build out the target list to make sure that we're going to be engaging the highest opportunistic primary care and pediatricians. And what I mean by highest opportunistic is this will be the PCPMPs that have the highest patient loads within the 3 indications in which ZORYVE is approved, not only that, but that these providers have demonstrated their willingness to adopt branded products. And these will sit within the major metropolitan areas. Also, we'll make certain that within each of these representative territories that we'll have a defined number of targets where we can make certain that, that representative can have the right frequency on each target to be able to drive trial and adoption of ZORYVE. Once again, setting this up for success. And then as we deliver success, we'll continue to scale from that point going forward. Unknown Analyst: Okay. Got it. And the second one on the foam in vitiligo and HS. What efficacy benchmarks would you say would be sufficient to give you confidence in continuing development in those 2 indications? Todd Watanabe: Sure. Todd, you got to pass. Patrick, do you want to take that one? Patrick Burnett: Thanks. Yes. So as we're looking at vitiligo and HS, keeping in mind that these are smaller open-label trials -- what we're really trying to understand is what does the ZORYVE profile look like relative to current standard of care treatments. And so for vitiligo, we're really kind of looking at the responsiveness timing relative to Opzelura. We know that one of the big challenges for patients with vitiligo is how quickly that they're seeing a response in the skin because that can really drive compliance. So once you get the patient onto the treatment, if they're not seeing the response that they want to, sometimes they'll fall off of their treatment. And I think that's where the mechanism of ZORYVE with PDE4 kind of working both on the inflammatory component, but also we've seen some evidence, as we outlined earlier, some impact potentially on the actual kind of melanocyte protection and pigment production is our hypothesis. So for why it is that we might see an earlier response rate. So we're kind of looking at what that profile is. Now when we look at HS or hidradenitis suppurativa, one of the things that we really want to be able to see is where are we moving these patients in the earlier stage of disease and how would that treatment, given that there isn't a really effective topical that's out there being used right now for patients with HS, where does that fit within the treatment paradigm that has emerged, where many of those patients are pretty quickly being moved to systemics even if they might have disease that might be able to be managed by an effective topical. So there, I think we see a little bit more blue sky for that. And what we're going to try and outline as we get into Q4 for vitiligo is a pretty clear understanding of both what we are seeing from the response profile, but also where we see the commercial opportunity and how we would see that profile fitting into the landscape. Todd Watanabe: Yes. And maybe I could just add one additional thought to Patrick's comments. And I think specifically in the HS case, and we saw this again with the APOLLO data today, the systemic therapies are not particularly effective in this disease. So even patients on systemic therapy are often going to need adjunctive treatment. And ZORYVE is really unique in the topical space that it can be safely used in combination with systemic therapies. And the disease is often occurring in intertriginous areas, the growing arm pits where doctors are much more reluctant about using topical steroids as well. So I think both early-stage disease, but also adjunctive to systemic therapy as we're seeing in psoriasis and atopic dermatitis. I think ZORYVE has a uniquely compelling profile for that use case as well. Operator: I'm showing no further questions at this time. I'll now turn it back to Frank for closing remarks. Todd Watanabe: Okay. Well, I will just thank everyone again for making time. I know it's a busy time of the year for you guys. So I appreciate you calling in and look forward to talking to you all in another quarter. Thanks. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Hello, and welcome to the Taseko Mines Limited 2026 First Quarter Earnings Conference Call. Please note that this call has been placed on mute to prevent any background noise. I would now like to turn the conference over to our Vice President of Investor Relations, Brian Bergot. Please go ahead. Brian Bergot: Thank you, and welcome, everyone, to the Taseko Mines Limited 2026 First Quarter Conference Call. The news release and regulatory filing announcing our financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com and on SEDAR+. I am joined today in Vancouver by Taseko Mines Limited's President and CEO, Stuart McDonald, Taseko Mines Limited's Chief Financial Officer, Bryce Hamming, and our COO, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information, and this information by its nature is subject to risks and uncertainties. As such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our first quarter MD&A and the related news release, as well as the risk factors particular to our company. These documents can be found on our website and also on SEDAR+. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. Finally, all dollar amounts we will discuss today are in Canadian dollars unless otherwise specified. Following opening remarks, we will open the phone lines to analysts and investors for questions. I will now turn the call over to Stuart for his remarks. Stuart McDonald: Thank you, Brian, and welcome, everyone, to our first quarter earnings call. As usual, I will start with an overview of our recent operating results, and Bryce can then review the financial performance. It was an exciting quarter for us with the startup at Florence and first copper from that new operation, but I will start today with our Gibraltar mine, which had another solid quarter. Steady production that we saw in the second half of last year continued into the first quarter. The mine produced 30 million pounds of copper and just over 700 thousand pounds of molybdenum, which was generally in line with our expectations. Head grade of 0.25% was slightly above our life-of-mine reserve grade, and copper recoveries of 83% also benefited from the higher-quality ore from the lower benches of the Connector Pit. Mill throughput was slightly lower this quarter as we focused on optimizing copper recoveries from the higher-grade ore, and we also had some unplanned mill downtime. Overall, it was a good production quarter at Gibraltar. We did see some operating cost increases in the period as Gibraltar's C1 cash cost increased to $2.63 US per pound produced. That is about 6% higher than the previous quarter and was impacted by inflation in a few areas, most notably diesel prices and explosives. With the situation in the Middle East, diesel prices have increased about $0.50 per liter compared to last year—those are Canadian cents—which represents $0.15 US per pound of copper at Gibraltar. We are also seeing higher costs for explosives as the market for ammonium nitrate has been affected by a plant outage in the US. Repairs and maintenance was also higher this quarter, although that was more of a timing issue related to some key repairs, and we do not expect that level of spend to continue for the rest of this year. Offsetting those factors was a strong quarter from molybdenum production, which continues to provide a meaningful by-product credit, and we expect similar moly grades for the remainder of this year. Gibraltar's SXEW plant also contributed 733 thousand pounds of copper cathode production in Q1, and we were able to keep that plant running through the winter months, which was a positive. We stopped leaching operations at Gibraltar in April to complete the tie-in of a second leach pad, and that should support higher cathode production going forward. Turning to Florence now, it was a major milestone that we achieved in late February with first copper cathode production. This is a testament to the perseverance and technical expertise that our project team demonstrated over the last decade to bring this project through the PTF test program, permitting, a well-executed capital project, and now finally into commercial production. In Q4, we started injection of solutions into the wellfield, and the initial flow rates were higher than expected. This allowed for faster acidification of the ore body, and solution grades increased faster than planned, reaching targeted levels in January. The commissioning of the SXEW plant was completed in mid-February—it was a few weeks behind schedule—and by that time, we had built up an inventory of copper in solution, and we harvested 1.5 million pounds of cathode over the remainder of Q1. In recent weeks, our operating team has done an excellent job of stabilizing the whole circuit from wellfield through to cathode production. We now have approximately 90 production wells producing copper at a consistent daily rate in the range of 55 thousand to 60 thousand pounds a day. This is in line with our expectations for the initial wells at this stage and represents another significant de-risking step for the project. Now our focus is on ramping up, which means expanding the wellfield to increase flow rates and copper production. We currently have five drill rigs operating, and after a slow start, we have seen drilling productivities improve in the last few weeks. This month, an additional 20 production wells will come online. Then later in the summer, an additional group of 26 new wells will begin producing, and further groups of wells will be added every month for the remainder of the year. As the wellfield expands, we will see higher solution flows and PLS grade, which will allow us to achieve a 30 to 35 million pound target for the year. It is important to note that production will not be perfectly correlated to the number of wells, as each ore block has a slightly different ramp-up profile, and the new wells added to the perimeter of the wellfield will improve the performance of the existing inner wells. We continue to expect 30 to 35 million pounds of copper production from Florence this year, with production weighted to the second half as new wells are put into production. Our target is still to achieve 80 to 85 million pounds of copper production next year, in 2027, which is the steady-state capacity of Florence. Lastly, a quick update on Yellowhead. Our project team remains quite busy advancing environmental assessment work, and following on from the community open houses that we hosted last fall, we are now incorporating feedback from stakeholders to complete the detailed project description. We expect to file that this summer, which will lead towards a readiness decision and the next phase of work. Also, just last week, the Government of British Columbia announced the addition of new major projects to its priority projects list, and Yellowhead Copper was included. This is a clear message that the province recognizes the value of our Yellowhead project. We are continuing to work closely with the Simpcw First Nation, the Province of BC, and the Government of Canada to move the permitting process forward as efficiently as possible. I will now turn the call over to Bryce. Bryce Hamming: Thank you, Stuart, and good morning, everyone. Overall, despite some cost inflation at Gibraltar, the strong production and sales translated to another strong financial performance in the quarter. As Stuart mentioned, Gibraltar copper sales were 27 million pounds in the quarter, lower than the 30 million pounds that we produced due to shipment timing. This included 938 thousand pounds of cathode sales. This build-up of concentrate inventory is expected to be sold in the second quarter. Moly sales were 708 thousand pounds and benefited from higher moly grade in the Connector Pit. Together, copper and moly sales generated $237 million of revenue in the quarter, which is the highest quarterly revenue generation for the company to date. Moly revenues were more than double the same period in 2025, benefiting from the higher production levels and roughly 25% higher moly price, and today it is over $28 per pound. Total site costs in the first quarter were $142 million, which includes $15 million of capitalized stripping costs. This is 13% higher than Q4 last year and includes the cost inflation that we talked about. For the quarter, Taseko Mines Limited generated $94 million of adjusted EBITDA, $115 million of earnings from mining operations, and $94 million in cash flow from operations. Net income in the quarter was $17 million, or $0.05 per share, and on an adjusted basis was $28 million, or $0.08 per share, after removal of unrealized fair value adjustments. Financial performance and adjusted earnings were impacted by the copper collars we currently have in place. We put these collars in place last year to support our project finance and our ramp-up of Florence Copper. These collars reduced our effective selling price to $5.40 US per pound in the current quarter, as compared to the LME, which averaged around $5.83 in the quarter. As a reminder, these collars roll off in June, with 27 million pounds remaining for the second quarter, at which point we will begin realizing the full LME price up to a much higher level of $7.50 and $8.50 US per pound. There is no limit after Q3 at the moment. It is also worth noting that as Florence begins to generate free cash flow later this year, we will likely revert to our previous practice of just purchasing out-of-the-money copper price puts with shorter time horizons—say, a quarter or two out—which is to protect against shorter-term copper price volatility. That lower strike will have a modest payment of premium to provide that downside protection, and that strategy of purchasing copper puts outright does not limit our copper price upside. Now that we are getting to the end of our development and ramp-up of Florence, Florence Copper reported sales of 600 thousand pounds of cathode in the quarter, with a balance of production of 900 thousand pounds in finished inventory. We also had 600 thousand pounds of copper in solution as what we call work-in-progress inventory. Direct costs associated with the cathode production at Florence in the quarter were $10 million, which is split across these inventory amounts. Our operating segment note—refer to Note 22 in our financials—now shows our revenue and cost of production at Florence, and it showed $4.5 million for the quarter, so no initial profit was recognized on our first sales of Florence cathode. In the first quarter, we capitalized $21 million of commissioning and start-up costs incurred at Florence. We also capitalized wellfield development costs of $18 million for new wells being constructed. These drilling and well development costs will continue to be capitalized as sustaining capital throughout the operation’s mine life, and they will be depreciated over the useful life of the well on a units-of-production basis from the copper recovered. Next quarter, with increasing production from Florence’s SX facility, we will see much less capitalized site operating costs, with most of the operating cost expensed as cost of production as cathode is sold. We ended the quarter with total available liquidity of $322 million, including $169 million of cash. With stable cash flows being generated from Gibraltar combined with our rising production and cash flow from Florence, our liquidity should be maintained in the second quarter and begin increasing in the second half. As our liquidity grows, we will look to begin opportunities to reduce debt and delever later this year. I will now turn the call back to the operator for questions. Operator: We will now open the call for questions. A quick reminder before we start the Q&A: press star and the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question, simply press star one again. We will take our first question from Dalton Baretto from Canaccord Genuity. Please go ahead. Dalton Baretto: Thank you, operator. Good morning, Stuart and team. I am trying to unpack this whole diesel and asset exposure a little bit more. I know you have some context on that. Let us start with the diesel. I know you highlighted the impact on C1 cost, but outside of that, when you look at your cap strip at Gibraltar and then the wellfield deployment at Florence, what sort of impact would you anticipate there? Thank you. Stuart McDonald: Hi, Dalton. It is Stuart here. In total, across Gibraltar, we are using roughly 40 million liters of diesel a year across capital and operating. We have seen about a $0.50 Canadian per liter increase—roughly $20 million Canadian year-over-year is what you are seeing across that. Of course, at Florence, it is a very different type of operation. We do not really use any diesel or any fuel to speak of, so that is the impact on diesel. Dalton Baretto: And then just on the assets, Stuart, it is great to see you guys are locked up for the rest of this year. Are you starting to have conversations with your suppliers about next year yet, both around availability as well as around pricing? Richard Tremblay: Yeah, Dalton, Richard here. We have maintained contact with our current supplier and, obviously, discussions around next year are on the agenda, but nothing in any kind of formal or detailed or specific way. We are definitely watching the market and seeing what is happening. Dalton Baretto: But have you been given any comfort around availability? I mean, I am assuming pricing is a separate conversation, but just around availability. Richard Tremblay: Yes, and availability seems like it will be there. It will be more of a price discussion. Dalton Baretto: Great. Thanks, guys. That is all from me. Operator: Star and the number one on your telephone keypad. Again, that is star and the number one on your telephone keypad. We will take our next question from Craig Hutchison from TD Cowen. Please go ahead. Mr. Hutchison, you might be muted on your device. Craig Hutchison: Good morning, guys. Thanks for that. Just on Florence, I appreciate you guys have given some guidance around back-half weighted, but can you provide any more clarity in terms of what we can expect for the cadence? Should we expect a material uplift in Q2, or something similar to Q1? Just anything in terms of what we should be modeling from a cadence perspective would be appreciated. Thanks. Stuart McDonald: Hi, Craig. As I mentioned in my remarks, we are running right now at a daily production rate around 55 thousand to 60 thousand pounds a day—about 1.5 to 1.8 million pounds a month. That is kind of April and May. We will have new wells coming on in May, which will start to produce copper in June, but generally I would not expect a major uplift in production in Q2 from that kind of monthly rate. I think you will start to see a much bigger increase in Q3 and Q4 when we have additional, larger portions of the wellfield starting to open up. That is why we have indicated it is quite heavily weighted to the second half of the year. Craig Hutchison: Okay, great. Maybe shifting to Yellowhead. You guys mentioned it is on the new major projects list for British Columbia. What does that mean from your perspective? Does that mean there is going to be some effort to fast-track permitting? Is there certain financial support you will get from the province? And I guess you also mentioned dialogue with the federal government as well. Anything in terms of where you see permitting going and what kind of support you are receiving from different levels of government? Thanks. Stuart McDonald: Thanks. We certainly appreciate that it was good recognition to be included on that list, but the reality is we do not see any significant change in the permitting process. We have been working closely with all levels of government for the last couple of years, and between the Simpcw First Nation, the Province of BC, and the Government of Canada, everyone is focused on trying to have an efficient permitting process and not have duplication of work across different agencies. That is really where our focus has been. We do not see much changing on the permitting track as a result of that announcement. On government support more broadly, we do think we have good support from the Province and the Government of Canada, and we have some dialogue ongoing as well. Yellowhead would be a major new copper mine—it has the potential to be the second-biggest copper mine in Canada—and that, of course, is getting attention. Nothing tangible yet to announce, but certainly progressing on some good discussions across governments. Craig Hutchison: Okay, great. Maybe one last question would be just New Prosperity. Anything new on that front in terms of moving that project forward? Thanks. Stuart McDonald: No major updates to report. We are focused on expanding our relationship with the Tŝilhqot’in Nation, continuing to work with them following on the dialogue that we completed last year, but otherwise no significant updates there. Operator: We have reached the end of the Q&A session. I will now turn the call back over to management for closing remarks. Stuart McDonald: Great. Thanks, everyone, for joining today, and we will talk to you next quarter. Thank you. Operator: The meeting has now concluded. Thank you all for joining, and you may now disconnect.
Operator: Good day and thank you for standing by. Welcome to the GPGI, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Marshall, Chief Legal Counsel. Please go ahead. David Marshall: Thanks, Ann. Good morning and welcome to GPGI's conference call where we'll review GPGI's first quarter 2026 financial results. With me on the call today are the business leaders from GPGI, Resolute Holdings, CompoSecure and Husky. We'll begin with prepared remarks and then open the call for Q&A. During the call, we'll make statements regarding our business that may be considered forward-looking, including statements regarding our growth strategy, customer demand, macroeconomic factors, implementation of the Resolute Operating System and our guidance for 2026 as well as other statements regarding our plans and prospects. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our reports filed with the SEC, which are available on the Investor Relations section of our website and on the SEC's website at sec.gov. As a reminder regarding the company's accounting. On February 28, 2025, GPGI completed the spin-off of Resolute Holdings Management, Inc. and our wholly owned subsidiary GPGI Holdings entered into a management agreement with Resolute Holdings. As a result, the results of operations of GPGI Holdings and the operating companies which are subsidiaries, including CompoSecure and Husky, are not consolidated in the financial statements of GPGI and are instead accounted for under the equity method of accounting. For more information about our financial presentation, please see our SEC filings, including our quarterly report on Form 10-Q to be filed later today. In the earnings release we issued earlier today and in the discussion on today's call, we also present non-GAAP financial measures to help investors better understand our operating performance. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations. These non-GAAP financial measures should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website. With that, I'll turn the call over to Executive Chairman, Dave Cote. David Cote: Well, we have a tale of 2 cities. CompoSecure is performing better than our expectations reflecting just excellent implementation of the Resolute operating system for both growth and operations. Husky unfortunately has encountered unanticipated market headwinds because of oil market volatility and tariffs. This has caused customers to delay accepting orders that normally would have been expected to ship in the quarter while also reducing new orders. Well, you'll likely ask what changed. Since I spoke to you on our March 12 fourth quarter earnings call, we saw a significant and surprising increase in customers taking a wait-and-see approach in response to those changing macro conditions. At the time of the call, February year-to-date orders were up approximately 27% versus prior year and the pipeline was up approximately 6% year-over-year. The amount of book and ship required to make the quarter was not unusual given history. And in the subsequent 2.5 weeks, several customers would not finalize their orders for shipment, we could not ship to a couple of countries and customers delayed placing an official order. This trend continues today. We can't predict when it will end so we have provided a wider revised guidance range. In anticipation of lower sales, we've taken various actions on expenses to mitigate some of the impact of those lower sales. At the same time we're seeing order delays, we saw the pipeline grow approximately 4% over last year in the first quarter and up 7% year-over-year through April. So there are reasons for optimism that this will not be a long-lived problem. Consistent with this, we're seeing the 12-month pipeline up while the 3-month pipeline is down. Husky leadership is aggressively tackling ROS implementation for both growth and operations. The investment thesis is very much intact with their great position in a good industry. Now I'm very unhappy to be sharing a different result today than I expected when I talked to you on March 12. While certainly disappointing in the short term, I can still say with confidence that the prospects for GPGI performance are quite rewarding. CompoSecure is on a roll and the new leadership has significantly energized that team and is improving the culture. The commercial prospects for growth are better than ever and ROS implementation and operations is showing significant gains. The prospects for this business are terrific and they're apparent today. Compo also benefits from being more than a year ahead of Husky in ROS implementation. Husky prospects are also excellent. It doesn't show right now because of the market headwinds, but it is real. We continue to fund R&D expansion because it will greatly benefit the business' future. Consistent with our underwriting thesis, we can already see that ROS will also have a profound impact on our Husky business. With Rob's leadership, they are aggressively implementing ROS and driving the cultural change necessary for success. We will navigate the market headwinds, implement ROS, continue increasing R&D and commercial excellence and become a significantly stronger business as we exit the year. I'm also pleased to say that Kevin Moriarty, a current GPGI Board member and deeply experienced finance leader, has stepped in to be Husky's acting CFO. This is yet another benefit of having a Board of superb operators. I've worked closely with Kevin in the past and he has a tremendous reputation as an operating CFO. We are actively evaluating a long list of candidates for the full-time role. But in Kevin, we have a proven leader who brings a steady hand to Husky and I know we'll benefit from his financial and operating capabilities. I wish we could have seen the Husky market issues sooner than we did of course. I have not looked forward to today. That being said, nothing has changed concerning GPGI and the prospects for both businesses. I'm personally energized by the progress I'm seeing in both businesses. The cultural change is well on its way at Compo and the cultural change needed at Husky is being accelerated in dealing with these unfortunate market headwinds. We can't predict today how long the headwinds will continue so we'll be cautious in our 2026 outlook. That though shouldn't take away from what both businesses can accomplish given they both have a great position in a good industry. I can promise you GPGI has my full attention. You all know my family and I have a lot of our own money involved here so I want to see GPGI perform extraordinarily well as much as all of you do. We will get through this just like we have in the past. This is an unfortunate blip, nothing more. We're excited about the path GPGI is on and what it will become. So with that, I'll now turn it over to Tom Knott, our Chief Investment Officer, to review our financial performance. Thomas Knott: Thank you, Dave. Going to Slide 4. GPGI delivered pro forma adjusted net sales of $421.2 million, up approximately 3% from the prior year; pro forma adjusted EBITDA of $82.1 million, down approximately 16% from the prior year; and pro forma adjusted EBITDA margins of 19.5%, down approximately 430 basis points from the prior year. As Dave mentioned, these results reflect record sales performance at CompoSecure offset by market-related underperformance at Husky. Given Husky's size relative to CompoSecure, this macro-driven delay in demand at Husky is more than offsetting excellent performance at CompoSecure. Starting with CompoSecure. We delivered a record quarter as strategic investments in the sales force and enhanced focus on commercial excellence are driving strong organic growth supported by ROS in the factory. ROS initiatives have led to a step change in manufacturing yields and operational efficiencies throughout the production process, which were the primary drivers of adjusted EBITDA margins expanding approximately 300 basis points in the quarter. Graham and Mary will go into more detail. But I would just highlight that CompoSecure is now 18 months of implementing the Resolute Operating System and we are pleased with the cultural and operational intensity taking hold at the company today. We expect CompoSecure to continue its strong trajectory of organic sales growth and improved profitability through the remainder of 2026. Turning to Husky. Rob and Kevin will discuss our performance in the quarter and our outlook, but I will reiterate Dave's comments in noting that customer demand for Husky's products deteriorated rapidly at the end of March in a way that surprised us. This change more than offset the strong pipeline and order book we saw developing through the first 2 months of the year as customers aggressively shifted to a wait-and-see posture as resin prices spiked. While we expect the business to rebound when uncertainty subsides, this change in near-term demand has led us to revise our outlook for GPGI. Turning to Slide 5. You have heard us in the past discuss the complicated accounting we are required to use. Given the transaction this quarter on top of that existing accounting complexity, Slide 5 shows a simplified walk to pro forma adjusted EBITDA. The full reconciliation appears in the appendix. As previously announced, we refinanced our debt concurrent with the transaction closing, extending maturities and materially reducing our interest burden. This is the first major component. Transaction expenses were in line with expectations and were paid through closing. These transaction expenses taken together represent over $200 million of onetime GAAP expenses, which will not recur going forward. Net interest expense for the quarter reflects stub period interest, deferred financing cost and the interest on the new debt. Other key items include purchase price intangibles amortization, ordinary course income tax provision, noncash TRA liability remeasurement, stock-based compensation and foreign exchange impacts. Moving to Slide 6. We're providing more details this quarter than normal to give a full picture of what we were seeing at Husky when we last spoke to you on March 12 and how things changed through the end of the quarter. Pipeline orders and backlog at Husky were trending favorably through February with positive commercial activity giving us confidence in our full year guidance for both Husky and GPGI. This momentum turned quickly late in the quarter. Orders fell 16% year-over-year to the end of March as resin prices spiked and customers delayed accepting shipments and placing orders. Backlog followed a similar pattern in 1Q. We saw an accelerated recovery through February following a softer January, but the negative trend accelerated in the middle of March with simultaneously decline in order activity. Despite all of this, our pipelines remain strong growing 4% year-over-year for the first quarter and ending April up 7% year-over-year. Even with this healthy pipeline growth, we continue to see slower conversion rates as customers defer some purchase orders in the current environment. Turning to Slide 7. The underlying demand drivers for our products namely nonalcoholic beverage demand remains resilient. This supports the healthy and expanding pipeline we've discussed even though near-term orders are volatile. While macro conditions have introduced significant ambiguity that is influencing near-term customer purchasing behavior, the core fundamentals of the market that Husky serves remain intact. Even though oil market volatility and its impact on resin prices is impacting customer behavior today, the volatility is also reinforcing areas where Husky products are well differentiated. As resin prices rise, the value of our systems become increasingly compelling for customers because our equipment delivers industry-leading throughput, superior cycle times, higher preform consistency, greater uptime and lower energy consumption. All of this enables us to offer customers a 15% to 20% lower total cost of ownership versus competitive offerings. Additionally, as the price differential between virgin and recycled resin gets smaller, customers are increasingly evaluating RPET as a feedstock alternative to virgin resin. Husky is the preeminent manufacturer of recycled PET systems, which will result in additional opportunities for new equipment sales and retrofit upgrades if customers shift to more sustainable feedstocks as an alternative to now expensive virgin resin. So while the current uncertainty is causing some customers to delay near-term purchasing decisions, we remain confident that the underlying demand driver, particularly consumption of bottled water, remains strong and that this period will drive customers to focus more on productivity, sustainability and system efficiency; all areas where Husky excels. I want to also take a moment to explain how we're responding to this challenging market environment at Husky. On the cost side, we are in the process of implementing targeted furloughs across jurisdictions to reduce direct labor cost without impacting our industrial base or impairing our ability to respond to the rebound in demand. We are aggressively managing indirect spend and making necessary changes to be more efficient while also working towards a full return to office to maximize collaboration and increase cross-functional accountability across sales, finance and operations. On the commercial side, we are reinvigorating our sales force under new leadership thus commercial excellence is also a key strategic priority. Husky is a little more than a year behind CompoSecure on the implementation of ROS. And while the market backdrop for our customers has changed meaningfully in a short period of time, we remain focused on doing the right things to position the business to achieve its potential. This includes making the necessary investments to accelerate innovation and long-term organic growth through aggressive expansion of the R&D organization and an unrelenting focus on ROS implementation. These critical initiatives are not stopping despite the market volatility we are facing because they will position the business to benefit from the rebound in demand and for the future more broadly. With that, I will turn the call over to Rob Domodossola, the CEO of Husky. Robert Domodossola: Thanks, Tom. Going to Slide 8, I want to begin at the most fundamental level of what we do. Husky produces systems that make a precursor to nondiscretionary items, primarily water bottles. Demand for these products is durable with long established history of through-the-cycle growth in periods of macroeconomic volatility. The current period of volatility is no different. The demand for nonalcoholic beverages continues to expand around the world. Our customers are continuing to operate these high essential systems every day to meet this demand and that will continue. While the current demand shock driven by steep increases in oil and resin prices has made customers delay normal purchasing behavior, the fundamental drivers of demand for our products remain solidly intact. Specifically, we currently have an installed base of 13,500 systems that are primarily used to produce nondiscretionary products. This installed base is embedded in our customers' operations and drives a large and growing aftermarket revenue stream across parts, tooling and services. The installed base is globally diverse across developed and emerging markets and new systems have a higher content than legacy ones. Roughly 35% of our revenue is tied to new system sales, which is currently being impacted most significantly by the demand shock as customers pause large capital investments while 65% of our revenue is tied to recurring revenue. Although current market dynamics are causing near-term demand deferrals, the mission-critical nature of our products and consistent underlying demand drivers in the markets we serve gives us the confidence in a return to normalized order patterns. Adding to our confidence, Husky is well positioned because our system delivers the lowest total cost of ownership for customers through faster cycle times, higher quality, lower energy use and maximum uptime. As higher oil and resin costs persist; our lightweight solutions, resin efficiency and system productivity enhanced by our connected Advantage+Elite remote monitoring further differentiates the value proposition of Husky's equipment relative to competitors. Taken together, we remain very focused on delivering on what matters most to our customers; uptime, output and durability at the lowest total cost. Turning to our results. We delivered pro forma adjusted net sales of $29.8 million and pro forma adjusted EBITDA of $38.2 million, down 5% and 40% year-over-year, respectively. As Dave and Tom mentioned, the Middle East conflict altered customers' purchasing behavior nearly overnight in mid-March as supply disruptions drove sharp increases in virgin PET prices, up approximately 46% in March and April. These higher input costs combined with tighter supply and increased financing costs have weighed on near-term demand as Dave and Tom described. We view these dynamics as cyclical rather than structural. In fact elevated material and operating costs tend to reinforce demand for efficiency, lightweighting and system level performance; all areas where Husky is highly differentiated and we've seen this pattern before. When geopolitical tensions ease and input costs stabilize, deferred investments tend to rebound and they rebound sharply. Importantly, the end markets we serve are tied to essential customer needs, which has historically proven resilient across cycles. Operationally, as Dave and Tom mentioned, we are in the early stages of implementing the Resolute Operating System and our focus is now entirely on disciplined execution. ROS is fundamentally changing the way we operate and these changes matter even more in times like these. A key initiative we are implementing includes the integrated sales, inventory and operations or SIOP planning to improve job sequencing, manufacturing output and to reduce waste. We are also managing indirect spend and enhanced enterprise cost discipline across our procurement team. And of course AI will be an accelerator to ROS as we identify bottlenecks and improve lead times. ROS is critical to our long-term success and we are using it every day to drive measurable inputs; improvements to growth, operations and financial performance. While the first quarter was disappointing, we know that fundamental SIOP planning efforts underway to establish a high performance culture and invest for the future are the right steps and are improving the business. Husky operates in essential categories. As macro pressures ease, we expect to see a rebound in deferred investment consistent with past cycles. Now turning to Slide 9. Given the breadth of our business, I want to cover what we're seeing in individual product lines and key geographies starting with our product lines. Specifically in systems, orders are being deferred to the resin price volatility, tariff-related uncertainty and elevated financing costs. We expect the weakness we saw in the first quarter to continue through the year if the market headwinds persist. For aftermarket tooling, orders at the end of last year were lower due to customer uncertainty related to tariffs, which weighed on Q1 2026 sales. However, we expect this segment to return to growth in the second half as customers invest in tooling for the existing installed base while deferring the purchases of new equipment. With respect to hot runners and controllers, we saw strong revenue growth across most regions in the first quarter, but continued market ambiguity is weighing on the order outlook in the near term. Lastly, for aftermarket parts and services, market ambiguity and tariff noise impacted demand at the end of Q1, which is expected to persist in Q2, but we expect to return to growth in the second half as customers increasingly prioritize productivity. In our key geographies, starting in North America, we see a pause in demand for PET systems, partly offset by growth in tooling, spare parts and services. We believe North American market is close to trough levels and represents a market within our oldest installed base. Shifting to Europe, we're seeing growth in aftermarket tooling driven by lightweighting and sustainability mandates that support further shifts to rPET adoption. For the Middle East and Africa, we see strong consumption-driven growth in PET systems and growth in hot runners for medical applications, offset by near-term geopolitical disruptions. Turning to LatAm. Inflationary pressures and the steep tax on sugar-sweetened bottled beverages in Mexico are driving near-term softness in PT systems. While aftermarket tooling continues to grow, given shift towards lightweighting and package optimization. Lastly, in Asia Pacific, we continue to see consumption-driven growth in PET systems and demand for hot runners tied to food and packaging and medical applications. I will now turn it over to our acting CFO, Kevin Moriarty, to review our financial performance in more detail. Kevin Moriarty: Thanks, Rob. Let's turn to our financial performance on Slide 10. Given the number of moving parts, let me level set where we landed for the quarter and our path forward. As a reminder, the first quarter is seasonally the smallest for Husky with the second half of the year typically much stronger than the first. Against this backdrop, Husky faced significant macroeconomic headwinds that weighed on both growth and profitability. We reported pro forma adjusted net sales of $290.8 million, down 5% compared to the prior year as declines in new system sales and tooling offset strong growth in spare parts, hot runners and controllers. Pro forma adjusted EBITDA decreased 40% to $38.2 million, driven primarily by lower revenue and resulting under-absorbed labor and continued investments in R&D and front-end sales capabilities to support future growth. In aggregate, these factors translated to an approximately 770 basis point erosion in pro forma adjusted EBITDA margin to 13.2%. As Dave, Tom and Rob all mentioned, we had over $20 million in revenue that got pushed out at the very end of the quarter. This included approximately $6 million tied to customer delays in taking deliveries, approximately $5 million tied to shipment and logistical delays tied to the Middle East conflict and approximately $4 million tied to delays in customer payments. Combined with the growth investments being made, this quantum of deferred revenue exacerbated margin degradation in the seasonally smallest quarter of the year as we carried excess labor costs relative to demand. Consistent with historical first half and second half seasonality, we expect margins to expand in the second quarter and continue improving sequentially throughout the year, driven by improved fixed cost absorption in the seasonally stronger second half, the impact of ongoing cost actions and acceleration operational efficiencies from ROS-led initiatives. These initiatives are central to our thesis of driving sustained margin expansion and bolstering long-term profitability at Husky. On the tariff front, after the Supreme Court invalidated IEEPA tariffs in February, the U.S. implemented modified Section 232 tariffs on April 6, 2026. While continued tariff policy pivot add uncertainty to when customers place their orders, we do not expect them to have a material impact on our results. The U.S. market represents less than 27% of our total sales, which helps moderate our overall exposure. Of this, roughly 40% of the revenue relates to systems and tooling shipped into the U.S. that is subject to a 15% tariff, 1/3 from imported aftermarket parts that have tariffs declining from 50% to 25%, and the balance is primarily hot runners, parts and services that are locally produced or delivered and therefore, not impacted. In addition, consistent with our standard terms and conditions, we have been successfully passing through tariff-related costs to customers since the third quarter of last year and will continue to do so. Finally, our Husky equipment qualifies under USMCA and remains exempt from the 3.1% U.S. import duty, further limiting our exposure. And we are not alone when it comes to tariffs. Industry demand in the U.S. has been negatively impacted for the last 2 years. The U.S. is an importer of PET systems and Husky's primary peers do not have domestic production capability. We believe our North American presence positions us favorably relative to international peers importing into the U.S., while this tariff regime remains in place, while also allowing us to capture the inevitable cyclical upturn. With that, I will turn the call over to Graham Robinson, the CEO of CompoSecure. Graham Robinson: Thank you, Kevin, and good morning, everyone. Going to Slide 11. We delivered an outstanding quarter at CompoSecure, continuing to build upon our commercial and operational momentum. We achieved record pro forma net sales of $130.4 million, up 26% year-over-year, underscoring both the effectiveness of our commercial execution and the robust demand for premium metal cards. We are seeing this strength translate into new program wins and accelerating issuer activity across leading fintechs and traditional financial institutions. We're also seeing growth in metal cards that have Arculus capabilities. At the same time, the Resolute Operating System continues to have a deep and profound impact across the business. We are realizing meaningful improvements across all functional areas from sales performance to improved operations, which helped us deliver strong pro forma adjusted EBITDA of $47.6 million, up 37% compared to a year ago. While we are encouraged by our progress, we remain highly focused on investing in our future, in line with our strategic and execution framework that includes 3 pillars of growth: one, accelerating organic growth; two, driving international expansion; and thirdly, increasing Arculus momentum. In the first quarter, we saw several exciting customer programs go live, including the American Express Graphite business card, X Money from Elon Musk, the Robinhood Platinum card and Revolut Audi F1 card as well as Fold, [ Cast ], Kraken and MetaMask US, which provide crypto rewards and the optionality to pay with crypto. These signature program wins reflect the breadth of demand for premium card solutions and our differentiated value proposition, combined with advanced design, engineering and manufacturing capabilities to reinforce our position as the partner of choice for issuers launching high-impact card programs. Most recently, we strengthened our leadership team by appointing general managers to lead our Arculus and international businesses. With that, I will turn it over to our CFO, Mary Holt, to review our financials in more detail. Mary Holt: Thank you, Graham. Let's turn to our financial performance on Slide 12. In the first quarter, CompoSecure delivered strong results across all key financial metrics, driven by continued demand strength and increasing impact of the Resolute operating system across the organization. As Graham mentioned, adjusted net sales were $130.4 million, up 25.6% year-over-year, driven by robust demand from traditional banks and leading fintech customers. Adjusted EBITDA increased 36.8% to $47.6 million, reflecting both volume growth and meaningful operational efficiencies, which led to a 300 basis point improvement in adjusted EBITDA margin to 36.5%. Some of these productivity gains will continue to flow through to profitability, while some will be strategically reinvested to support sustained growth. Overall, this performance highlights the operating leverage and tangible benefits we are realizing from the systematic deployment of the Resolute Operating System, including enhanced throughput and process innovation, which has led to higher and more consistent yields at the factory level. I will now hand it back to Tom to review GPGI's revised guidance. Thomas Knott: Thanks, Mary. Turning to Slide 13. We are introducing new guidance for 2Q '26 and revising our full year 2026 outlook to reflect the macro-driven headwinds facing Husky. For 2Q ' 26, we expect net sales between $425 million and $475 million, pro forma adjusted EBITDA between $105 million and $120 million and pro forma adjusted EBITDA margins between 24.7% and 25.3%. For FY '26, we now expect pro forma net sales between $1.95 billion and $2.1 billion, pro forma adjusted EBITDA between $550 million and $610 million and pro forma adjusted EBITDA margins between 28.2% and 29%. Consistent with the historical trends in the seasonally lowest quarter for free cash flow and despite the market-related challenges we faced at Husky, we generated approximately $29 million of adjusted free cash flow similar to last year's level, which gives us further confidence in our revised full year estimate of between $275 million and $325 million in pro forma adjusted free cash flow. Finally, we anticipate ending the year with approximately 3x total leverage. Our revised guidance reflects the impact of the market shock facing Husky, but we continue to view 2026 as a critical and foundational year of cultural change, ROS implementation and strategic seed planting at both businesses that will position us to deliver best-in-class top line growth, margin expansion and free cash flow generation across the GPGI platform. This remains our focus, and we are confident in the work underway at both businesses. With that, I'll hand it back to Dave for some closing remarks. David Cote: Thanks, Tom. We've got 2 businesses in CompoSecure and Husky that hold great positions in good industries, both of which are becoming even stronger through the cultural transformations their teams are driving and the consistent deployment of the Resolute Operating System. You can see the results clearly now at CompoSecure. The market dislocation we're experiencing in Husky is making those improvements harder to see, but they are there. The culture and the business processes are getting better. We're committed to continuing the course, investing smartly for the future and the results of our efforts will become evident. So with that, I'd like to open up the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: I guess, first, I just kind of wanted to understand on the guidance a little bit better and make sure I have clarification on Slide 13, you have kind of 2 arrows pointing to the high end and the low end. So the low end represents Iran conflict being delayed with the Strait disrupted and the high end would be if the conflict is resolved. I guess if you could give a little bit better sense on like timing. Does the low end of the range, I guess, assume the conflict last for the remainder of the year? Or does the high end assume that this is over to borrow? Any kind of comments you can give there? David Cote: Yes. The way I would look at it is what we're trying to reflect is the impact of delays. So if the delays continue because the Iran conflict just keeps going, then those delays are going to cause us to come into the lower end of the range. To the extent that our customers let go of those delays and maybe even if the conflict is continuing, but they stop delaying because they need the aftermarket or they need the machines, then we'll end up towards the higher end of the range. So it's more a reflection of what do we think could happen on customer delays today driven by the Iran conflict and tariffs. Jacob Stephan: Okay. Got it. And then I guess just kind of continuing on the guidance factor. When you look at kind of the second half for adjusted EBITDA, I think it implies relatively higher adjusted EBITDA in the second half. I know Q4 is a strong quarter for Husky, but we're looking at kind of $450 million to $550 million of EBITDA in the back half versus the first half. So I guess any color there, especially when you kind of talk about the margins compressing on Husky a little bit? Kevin Moriarty: Sure. This is Kevin. If you look at our first half, second half; seasonally, second half represents roughly 60% of our revenue base. And again, with the cost -- better cost absorption, vertical contribution margins improving as well as the cost actions, we feel that the second half will be stronger. Jacob Stephan: Okay. And then just lastly on CompoSecure the core business there. Wondering if you could touch on the, I guess, new card launch pipeline. Is that strong looking at the kind of the last 3 quarters of the year? Graham Robinson: Yes. The pipeline continues to be quite strong. And we speak in a number of different dimensions. The programs that we have with our existing customers, those customers are also continuing to create and generate new programs also. And then lastly, we continue to penetrate a new customer base, both internationally and domestically and also with fintechs and with our traditional banks. So we are -- we continue to be quite optimistic about the strength of the pipeline that we have and what we're seeing going forward. Operator: Our next question comes from the line of Tomo Sano with JPMorgan. Tomohiko Sano: I'd like to ask about the Husky s margin declined by 770 basis Y-o-Y in the past quarters. So looking ahead to second quarter and remainder of the year, what specific factors or initiatives do you expect will drive the margin improvement towards your full year guidance? Could you qualify the key assumptions for margin recovery in the back half, please? Kevin Moriarty: Sure. So as I alluded to, the first quarter is historically are some lower revenue number. So as we sequentially go through the year, revenue will grow, which has been our historical pattern, heavier weighted to the third and fourth quarters. So the variable part contribution margin we're expecting on that is going to sequentially improve the margin rate. We're driving the ROS initiatives internally, which we expect to provide some lift as well as we've commented on cost actions that we're taking. We institute some furloughs as well as some indirect cost actions that we're also expecting to provide some lift. Tomohiko Sano: And a follow-up regarding leveraging the ROS to drive the margin improvement for Husky. Could you share some examples of the cultural changes and operational opportunities being executed to enhance resilience and profitability, please? Robert Domodossola: Sure. Maybe I'll start. It's Robert. One of the biggest things is what I mentioned, the SIOP process is really intended to level out the factories. It's hard to keep your costs under control if you have peaks and valleys. But with level loading of the factories, it's much easier to get the labor and material costs aligned with the volume that's coming out of the factories. So that's one of the biggest initiatives that we have right now. With reduced lead times, that also helps to level load the factories, not just making us more competitive, but more profitable as well. We have a significant focus on supply chain procurement excellence that's helping with material cost reduction. And finally, on the commercial excellence side, our whole go-to-market approach, we are taking steps to have some very effective value propositions globally rolled out, especially with regards to our new product launches. Operator: Thank you. And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.
Operator: Greetings and welcome to the W.W. Grainger, Inc. First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kyle Bland, Vice President of Investor Relations. Thank you. You may begin. Kyle Bland: Good morning. Welcome to W.W. Grainger, Inc.’s first quarter 2026 earnings call. With me are Donald G. Macpherson, Chairman and CEO, and Deidra Cheeks Merriwether, Senior Vice President and CFO. As a reminder, our comments today may include forward-looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company’s most recent Form 8-Ks and other periodic reports filed with the SEC. This morning’s call includes non-GAAP financial measures, which reflect certain adjustments in previous periods as noted in the presentation. There were no adjusting items in the first quarter 2026 period. We have also included organic revenue adjustments in the presentation, which normalize sales growth to reflect our exit from the U.K. market, including the Cromwell divestiture and the closure of Zoro UK, both of which were completed in 2025. Definitions and full reconciliations of our non-GAAP financial measures with their GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO. Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from U.S. GAAP, and is reported in our results one month in arrears. As a result, the numbers discussed will differ from MonotaRO’s public statements. Now I will turn it over to Donald G. Macpherson. Donald G. Macpherson: Thanks, Kyle. Good morning, everyone, and thank you for joining today. We are off to a strong start in 2026 with both our business segments performing well. Despite the ongoing tariff uncertainty and the broader geopolitical climate, we are encouraged by the positive signals we are seeing in the demand environment. By staying focused on what we can control, we continue to drive performance through solid execution and by consistently delivering value to our customers. I had the opportunity to experience this firsthand on a recent visit with a major agricultural customer. While many of our large customers are complex, our approach is simple: start with the customer, stay curious about how their operation works, and then bring our full suite of capabilities to solve their MRO challenges end to end. What differentiates W.W. Grainger, Inc. with this customer and with other contract customers where we are seeing growth is our ability to deliver highly coordinated capabilities beyond the products themselves. That same coordinated approach was on display at our most recent W.W. Grainger, Inc. sales meeting in March. This event showcased the breadth of our products, services, and solutions, with more than 10 thousand customer, supplier, and team member attendees; the event demonstrated the power of listening, asking good questions, and staying focused on the problem the customer is trying to solve. We invest in this meeting because it results in stronger teams, stronger partnerships, and ultimately improved performance. Earning trust and building strong relationships is also at the core of how we approach our workplace and culture. While awards are not the goal, they serve as useful signals that we are executing the right way. In recent weeks, W.W. Grainger, Inc. was once again recognized as a top workplace, this time being named one of the Fortune 100 Best Companies to Work For and a 2026 Platinum Employer on the Where You Work Matters list, which is powered by the American Opportunity Index. We do not take recognition like this for granted; we are proud that it reflects the experiences we create for team members and the outcomes we deliver to our stakeholders. On the subject of team members, you may have seen that several of our senior leaders recently took on new roles within the organization. We are fortunate to have a broad and deep set of leaders at W.W. Grainger, Inc., a clear strategy, and a high-performing company. Having such a strong foundation allows us to provide leaders with new experiences to develop for the future. Now moving to Q1 results. We delivered a strong quarter of profitable growth, meaningfully outpacing the expectations we communicated back in February. Results benefited from healthy price realization, strong operational execution across both segments, and improved market demand. The broader MRO market showed positive momentum as we moved through the quarter and appears to have sustained that strength in April. At the same time, our high touch growth engines are gaining traction and the Endless Assortment segment is continuing to power the flywheel. Total company reported sales for the quarter were up 10.1%, or 12.2% on a daily organic constant currency basis. Operating margin was strong at 16.7%; diluted EPS finished the quarter up over 18%. Operating cash flow came in at $739 million, which allowed us to return a total of $345 million to W.W. Grainger, Inc. shareholders through dividends and share repurchases. I also want to mention that we recently announced a 10% increase to our quarterly dividend, marking the 55th consecutive year of dividend increases. This reflects our continued commitment to returning cash to shareholders through a balanced and return-focused approach. Overall, the quarter finished ahead of expectations; we are increasing our 2026 guidance to reflect the strong start and continued momentum we are seeing. I will now turn it over to Deidra Cheeks Merriwether for the financial results. Deidra Cheeks Merriwether: Thanks, DG. As mentioned, we had a great start to the year, with total company sales up 10.1%, or 12.2% on a daily organic constant currency basis, which included strong growth across High-Touch Solutions and Endless Assortment. Gross margin for the quarter was healthy at 40%, up 30 basis points versus the prior-year period as we saw expansion in both segments. Operating margin was up 110 basis points year over year as gross margin flow-through and leverage in both segments helped drive results. Both gross margin and operating margin benefited from the exit of the U.K. market. Overall, we delivered diluted EPS for the quarter of $11.65, up 18.2% versus 2025. Moving to segment-level results. The High-Touch Solutions segment delivered sales growth of 10.5% on a reported basis, or 10% on a daily constant currency basis. Sales growth included roughly equal contributions from price and volume. From an end-market perspective, we believe that MRO market demand gained momentum in the period. This view is supported by various market indicators as well as the activity we are seeing on the ground with customers. For W.W. Grainger, Inc. specifically, we saw broad-based acceleration across end markets with strong contributions from manufacturing, government, and contractor customers. On profitability, gross margin finished the quarter at 42.6%, up 20 basis points versus the prior year as positive mix and freight were partially offset by the impact of the annual W.W. Grainger, Inc. sales meeting. We also continued to experience LIFO inventory valuation headwinds in the quarter. Relative to our verbal guide, gross margin results exceeded expectations for the quarter as price/cost was roughly neutral, feeling better than anticipated on stronger price realization. Further, we saw cost timing favorability compared to expectations on lower sell-through of certain SKUs within our private label inventory. We anticipate this cost pressure will now hit in the second quarter. On SG&A, we gained nice leverage year over year as we benefited from strong sales, productivity, and a tailwind from the W.W. Grainger, Inc. sales meeting. This more than offset continued marketing investment and higher payroll and benefits expense, including higher incentive-based compensation given our strong start to the year. This helped drive operating margin for the segment to 18.3%, up 60 basis points versus the prior-year period. All told, it was a great start for the High-Touch segment and we are excited about the momentum we have as we move through the rest of the year. Now focusing on the Endless Assortment segment. Sales increased 19.6% on a reported basis, or 21.9% on a daily organic constant currency basis, which normalizes for the closure of the Zoro U.K. business and the impact of foreign currency exchange. Zoro U.S. was up 18.7% on a daily basis, while MonotaRO achieved 24.3% in local days/local constant currency. At a business level, Zoro saw strong growth from its core B2B customers along with improving customer retention rates. The team continued to deliver on core foundational capabilities, improving the customer experience across pricing, fulfillment, and website functionality. At MonotaRO, sales were strong with continued growth from enterprise customers, coupled with solid acquisitions and repeat purchase rates with small and mid-sized businesses. Additionally, MonotaRO continued to benefit from an increase in web traffic stemming from a competitor cyber outage, which provided a meaningful tailwind to sales in the period. As expected, this impact waned as we moved through the quarter. On profitability, operating margins increased 190 basis points to 10.6%, with favorability across the segment. MonotaRO margins remained strong at 12.9%, up 90 basis points, and Zoro margin improved to 7.3%, up 210 basis points, with both businesses benefiting from healthy top-line leverage. Overall, it was another strong quarter for the Endless Assortment team. Before moving on, I wanted to share a brief update on the inflationary environment as we navigate tariffs and geopolitical cost pressures. We continue to manage the business with the goal of maintaining price/cost neutrality over time. With this, we passed further price increases in January, in response to previously delayed tariff inflation and to offset annually negotiated cost increases with our suppliers, which were largely in effect as of February 1. These actions were net of a partial rollback on certain Chinese tariffs announced at the end of last year. As it relates to the recent Supreme Court ruling on IEPA tariffs, we are only anticipating a modest impact on the business since the tariff rate differential with prevailing Section 122 duties is minimal. With this, our May pricing actions were net neutral in total. Where we have seen modest cost reductions, namely on products that W.W. Grainger, Inc. is directly importing, we adjusted prices as part of our May update. For the remainder of our assortment, we are working with supplier partners to assess cost reduction opportunities and will take subsequent pricing actions as warranted. Moving forward, the team is busy evaluating further inflationary pressures from recently announced tariff changes and the knock-on effects from the conflict in the Middle East. On fuel, we are working with our supplier and transportation partners to minimize cost headwinds that have risen as diesel prices remain pressured. We ultimately strive to pass these costs through to customers, but there is some leakage since a number of our customers do not fully pay for partial shipping. While currently only modest in total, these heightened costs are pressuring our margins and this will likely continue until our next pricing window. We have included this fuel impact in our updated guidance. On the recently announced Section 232 modifications, given the significant complexity, we are still working to understand what the full impact might be across our assortment, but our initial analysis suggests it is likely minimal. Separately, we are starting to see supply pressure from the conflict in the Middle East related to certain raw material inputs on some categories like nitrile-based gloves. As of now, this is minimal in the U.S. business, but we are starting to see more strain in Japan given the region’s reliance on energy inputs which move through the Strait of Hormuz. We will continue to assess the situation and are working with our suppliers and manufacturing partners to minimize supply impacts, including changing our sourcing strategy where needed. Despite these challenges, we are not anticipating a step change in cost inflation from these pressures at this time, and thus have not included any impact in our updated guidance. However, if the conflict persists, these impacts could result in incremental costs for the business and this will be felt more quickly in the U.S. based on LIFO accounting. Lastly, we are also monitoring for the potential recovery of previously paid IEPA tariffs where W.W. Grainger, Inc. is the importer of record, but the timing and the magnitude of any recovery remains uncertain at this time. As you might imagine, the broader inflationary landscape remains highly fluid, as it has been for the last several quarters. Importantly, our team is staying agile, and we continue to be confident in our ability to maintain supply for our customers while adhering to our core pricing tenets. Now turning to our guide. As a result of our strong start and continued momentum, we are raising our full-year 2026 guidance. On the top line, our new outlook includes expected daily organic constant currency sales growth between 9.5% and 12%, reflecting first-quarter strength, continued strong execution, and improved MRO market demand. Our operating margin expectations for the full year have ticked up slightly at the midpoint to incorporate our first-quarter outperformance. This is partially offset by headwinds from higher incentive-based compensation and leakage related to increased fuel costs. While incremental margins remain healthy, you will see that the added revenue dollars for the balance of the year are less profitable because of these transitory headwinds. Taking all this together, EPS is expected to be between $44.25 and $46.25, representing nearly 15% year-over-year growth at the midpoint. This represents a $1.75 improvement at the midpoint versus the prior guidance range. We have also updated our supplemental guidance in the appendix, which includes an increase in total company operating cash flow compared to the prior guide. We have continued our strong momentum into the second quarter, with preliminary April sales up north of 13% on a daily organic constant currency basis. This start supports our expectations for second-quarter sales north of $4.9 billion, or approaching 12% on a daily organic constant currency basis, which is 330 basis points lower on a reported basis when normalizing for the U.K. market exit and currency headwinds. We expect operating margins will be down sequentially in the second quarter compared to the first quarter. Beyond normal seasonality, we expect this step-down will be exacerbated by headwinds from fuel costs, along with increased costs on our private label inventory, the latter of which is in line with what we had expected to hit in the first quarter. All told, we anticipate second-quarter operating margins will be in the low-15% range for the total company. With that, I will hand it back over to DG for his closing remarks. Donald G. Macpherson: Thanks, Dee. Overall, we feel good about how the business is operating and are confident in our strategy. I am encouraged by our ability to continue to grow profitably in this ever-evolving environment while staying focused on creating value for the long term. Looking ahead, we will continue to focus on what matters most for our customers and earn their trust through strong execution, differentiated capabilities, and a consistent focus on doing the right thing. We recognize significant uncertainty in the macro, but we will stay nimble to serve customers and perform well in any environment. We will now open the call for questions. David John Manthey: Good morning. First off, I appreciate that you finally moved away from the myopic quarter-to-quarter share gain discussion, particularly in a quarter where you could have taken a major victory lap. So thanks for that. We will draw our own conclusions. My first question is on price. Could you just tell us in simple terms what was price contribution by each segment and overall? Deidra Cheeks Merriwether: Dave, thank you for the question. When you look at North America, we are about five points of price. David John Manthey: Okay. All right. And then, Dee, maybe you could update us on the pacing of margins through the year. When I look back to last quarter, you said seasonally, gross margin would deviate from its normal pattern. You had LIFO, price/cost, and the show impacting that. And you said that first-half gross margins would be at or slightly below the annual guide and then rebounding in the back half, and operating margins would follow a similar trajectory. I was just wondering if you could give us an update on your view there. Deidra Cheeks Merriwether: Yes. I would say now we believe it is going to have more of a U shape. Part of that is because Q1 performance did very well from a price realization perspective, as price continued to build based upon the changes that we made in 2025 and then, of course, the change we made in January. You heard in prepared remarks that we had expected to sell through more of our private label inventory in Q1, which would have created a drag. Not as much sold through; we are starting to see that sell through already in Q2, so we expect that negative impact to hit in the second quarter. We also have the normal seasonality decline that happens from Q1 to Q2 because we take a larger price increase in January and that bleeds off through the year. As you also heard us talk about, the impact that we have related to fuel will build. That was not necessarily anticipated in the original guide, so that is new news here that we have added to the guide. The challenge that we have with the majority of our very large customers is free parcel shipping in their contracts, and as a result of that, it is more difficult for us to pass on accessorials and other fuel charges to them. That is going to take us some time. We noted that we will have some leakage and then we are going to have some timing implications. However, we are confident that we will find a way to work through that—i.e., the U shape—and as the year goes on, we will have a means to pass some of that price onto those customers and some of our broader customers while still remaining competitive in the marketplace. Jacob Frederick Levinson: Good morning, everyone. It might be a little too early to really see any impact here, but if we look at Japan, I think that is probably a blind spot for a lot of us on this call. Is the team at MonotaRO seeing anything to be concerned about? I know they have certainly borne quite a bit of the energy shock here. Donald G. Macpherson: You are right that East Asia, in particular, bears more of the brunt here given most of their oil and natural gas, frankly, comes through the Strait of Hormuz. What we have seen is some price pressure with some products there, and we have seen a little bit of buying at the end of the first quarter of those products that are potentially at risk. It has not been material yet, but it could become so depending on how long it goes. Jacob Frederick Levinson: Okay. That makes sense. And just on the private label side, I assume no news is good news, but that was a potential concern last year. Have you been able to adapt that business given the tariff environment? It is kind of hard for us to know what all the moving pieces are there. Donald G. Macpherson: It is not a simple challenge either. There have been some private label products where the cost spread between them and the national branded products has compressed, and we have seen some impact there and some more buying of national branded versus private brand. Some of that will probably work its way out over time, and we think we will get back to having an appropriate gap and having very high-quality products at reasonable prices for customers in a private brand. I would also note we are having tremendous success with leveraging the W.W. Grainger, Inc. brand for certain areas of our private brand as well, so we are pretty excited about the path there. Overall, we are still very confident in our private brand path, but there has been some impact for sure. Ryan James Merkel: Nice job this quarter. Question is just on the demand environment. DG, what was the surprise for you on revenue in the quarter? Was it just better end-market demand, or is the company-specific story also a part of it? Donald G. Macpherson: I think it is a bit of three things. One is the end-market demand. We did flip; it had been negative for several years, and most signals would suggest volume growth in the market turned slightly positive. That is a benefit. Our price realization has been higher than we had anticipated to start the year, so that is a benefit. And our share gain has been strong as well. All of that has conspired to create a really strong demand environment for us. Ryan James Merkel: Got it. That is great. Okay. And then second question is on gross margin for Dee. You did 40%. I think you thought it would be 39%. So is all of the beat this mix/timing? What drove the mix/timing? And then can you unpack why in the second quarter the cost increase in the private label is a negative? Thank you. Deidra Cheeks Merriwether: We achieved better price realization in the first quarter than what we had anticipated, based upon some of the SKUs that customers were purchasing. That was very helpful to us. On the private label inventory, we had assumed that with some of this growth, we would be selling through much more of our lower-cost private label inventory and have that impact in Q1. We sold through a lot less than anticipated, and we are now seeing it come through already in April; it will hit in the second quarter. In addition, we have normal seasonality with gross margin because of the price increase that we take in January that then normally subsides as we go through the year. Donald G. Macpherson: While we are mostly on LIFO, our private brand inventory is on FIFO, which adds complexity. That has always been the case; it is just that in the last year it has become more necessary to talk about. We did not sell through layers yet that are higher cost, and now we are. Christopher M. Snyder: Thank you. I appreciate the question. Could you talk about the impact that the leading on the price/cost—primarily on the private brands—had on Q1 gross margin? Deidra Cheeks Merriwether: It was about 20 basis points in the first quarter. Christopher M. Snyder: Thank you. And then on the price conversation, to make sure I am understanding it right: you did the typical January start-of-year price increase, and then there was another round in May. Was May in response to all the inflation we are seeing now between metal, freight, tariffs, everything? Could you provide any relative sizing for either of those two? Donald G. Macpherson: January 1, May 1, and September 1 are our normal price cycles. The May 1 action was not in response to anything in particular; that is simply the timing at which we can take it, and we incorporated relevant factors in that cycle. Deidra Cheeks Merriwether: January incorporated any lag we had from being able to take tariff actions from 2025 plus what we were negotiating late in the year that would impact us in 2026. That was a slightly positive pricing action and net of certain Chinese tariff rollbacks announced in November. May, which is a normal time to take pricing actions, was really net neutral—true-ups and corrections related to January, incorporation of 122 actions, offset by IEPA rollback for our private label products that we directly source where we know the standard price changes. Christopher D. Glynn: Thanks. Good morning. You talked in the past few quarters about an elevated backdrop for a chunkier contract cycle. What pace are you seeing those rolling into the outgrowth, and how long is the tail for a more elevated cycle for chunkier wallet share pickup? Donald G. Macpherson: I would not describe it as significantly chunkier than the past. Our contract business has been net positive to start the year. We have had a number of successes in implementations. We are seeing a lot of customer demand to serve them on-site in ways that are important to them. There is less labor with many of our customers, so we are being asked to do more things, and we are providing more services on-site than we have historically. It is not a significant departure from the past, but we have had success in growing our large customer volume in the last six months. Christopher D. Glynn: And what are you now seeing in terms of the most productive use cases for AI? Donald G. Macpherson: There are many use cases. I would put them in a couple of categories. First, use cases that drive productivity in the business—customer service tools assisting our agents, finance and back-office applications, and supply chain applications to drive more one-piece flow in our warehouses. Second, customer experience use cases that are critical for long-term success—improving search and merchandising capabilities. It is pervasive and will be even more so. Pointing at the right things to create advantage, in addition to driving productivity, is really important. Christopher D. Glynn: Zoro—website functionality as a driver—what are the implications for margin and outgrowth as that normalizes, implementing lessons learned? Donald G. Macpherson: Website changes and improvements are in process; we probably have not seen too much benefit yet from those. We have seen a lot of benefit from improving repeat business and the quality of customer acquisition, and the business improved both margins and growth rate as a result. The website improvements will be a fast follow and drive a lot of benefit too. We are excited about what they are building. Analyst: Can you hear me? Donald G. Macpherson: Yes, we can. Analyst: Question on the guidance range. A lot of debate on the stock has been about your ability to push pricing, and I think gross margin this quarter reflects success. But most of the raise reflects the beat in the quarter. How should we think about sustainability of this pricing momentum into the second half? Donald G. Macpherson: That debate has not been happening internally. As we went through the tariffs, we said we would lag in terms of getting to price neutrality; we did it—you see that in the first quarter. Now there are some things—fuel and private label timing—that may cause the U shape and we will do it again, and that is partly because we are on LIFO. The fundamental of price/cost is strong and very stable. As for not flowing through more for the second half, it is the things we talked about—potential fuel costs, private brand costs coming through, and seasonality. You can argue whether we are being conservative on increased fuel cost—there is a lot of uncertainty. If the conflict ended and the Strait opened quickly, that would be great, but we are forecasting some challenge with fuel and that is the reality. Analyst: Could you size the LIFO impact this quarter relative to other quarters, just directionally? Deidra Cheeks Merriwether: LIFO never goes down; it normalizes and subsides. From Q4 to Q1 at the total company level, we think it is about 70 basis points. Stephen Volkmann: Good morning, everybody. A couple of growth questions. On your slide where you show the various end markets—pretty nice inflection. Would you say any of these were specifically benefiting from share gains more than the others, or is it more broad-based? Donald G. Macpherson: It is more broad-based in terms of share gain. Share gain for us typically comes from providing great service, helping customers find the right product, and providing on-site support for inventory management. It is a set of core things that we do, and generally those impact most segments at the same time if we are performing well. That is what is reflected here. Stephen Volkmann: Any potential that you saw some customers buying a little extra inventory given uncertainty around price and availability? Donald G. Macpherson: Not in the U.S. We have also not seen customers stop projects given the uncertainty. Things are kind of normal status in the U.S. We mentioned in Japan at the end of the first quarter we saw a little buying ahead to secure petroleum-based products, but not in North America. Stephen Volkmann: Competitively, we hear pockets of availability issues. Are you seeing competitors do more or less pricing, be able to pass through diesel, or having issues getting anything? Donald G. Macpherson: It is too early to really know that. In North America, we do not anticipate challenges. If there were challenges, it would be things going on in Southeast Asia where we are all procuring the same things. So far, we have not seen trouble getting product in the U.S., and we have not seen any unusual competitor behavior. Deane Michael Dray: Good morning, everyone. What was the benefit to margin in the quarter from the two European exits, and what would be the benefit for the year? Deidra Cheeks Merriwether: Year over year, it is about 45 basis points, equally split between gross margin and SG&A. As it relates to top line, Cromwell sales are about a 210-basis-point impact on total company and a 110-basis-point impact on Endless Assortment for the Zoro U.K. exit. Deane Michael Dray: For DG, is free shipping on partial shipments non-negotiable—just part of the service you need to offer? What is the impact—small sliver or meaningful? Donald G. Macpherson: It is a meaningful portion of the total. It is very common to build free partial shipping into contracts with large customers in our space. We have the ability to do certain things to mitigate this over time depending on how long it goes, so we are not concerned about it; in the short term, it creates a headwind. Part of the issue with large customers is their average order value is significantly higher, so parcel costs as a portion of the overall are pretty small relative to smaller customers. Guy Drummond Hardwick: Hi, good morning. Excellent results—congratulations. You have had about six months now, if you include April, of better-than-expected trading and are guiding to double-digit organic growth this year. DG, does that give you room for investing more for organic market share gains, or do the inflationary pressures preclude that? Are your marketing/investment budgets for this year set, or subject to change? Donald G. Macpherson: If we have the ability to invest profitably for growth, we will do it. We do not have a cash problem. I do not expect our budgets this year to change much. We set our budgets based on what we have seen from a cause-and-effect basis in areas like marketing and Salesforce coverage. In general, added growth does not mean we will invest more mid-year, and in difficult times you often will not see us invest much less either—if something is worth doing for the long term, we will do it to be successful through anything. Guy Drummond Hardwick: And for Dee, on SG&A growth of 6%, is that a sensible number to use for the rest of the year? Deidra Cheeks Merriwether: Five and a half to six is what we look at, so for the rest of the year that is a fair range. Patrick Michael Baumann: When you are looking at the sequential move in margin into the low-15% range for the second quarter, is all of that decline coming from gross margin sequentially? Could you bridge the drivers between seasonal versus the private label costs, fuel costs, or meeting timing? Deidra Cheeks Merriwether: It is about a one-point difference on gross margin. Roughly 60 basis points is normal seasonality. About 20 basis points relates to the increased cost of private label inventory moving from Q1 to Q2. The remainder is leakage we expect from increased fuel costs. Some of that is timing because fuel hits now and we are not in a pricing cycle to address it; our next pricing cycle is when we can start to recoup some of that back. That gets you from about 40% gross margin to about 39%. On operating margin, we also have normal seasonality in stock comp and merit, where we delever from Q1 to Q2. Patrick Michael Baumann: That would imply SG&A growth goes from about 6% to high single digits, but you said 5.5% to 6% for the year. What is the difference? Deidra Cheeks Merriwether: If we continue to grow, we still have investments that we are making through the year. On average, we expect 5.5% to 6%. Patrick Michael Baumann: What is embedded now for the guide for the year in terms of market outlook and for price? Donald G. Macpherson: Market outlook is around 0% to 1% volume growth—we think it will be positive for the year. Price probably moderates and goes down from maybe five in the first quarter to around four for the year. Thomas Allen Moll: Good morning and thank you for taking my questions. DG, you made some comments at the Annual Shareholder Meeting last week on sales force adds. I think you added 110 last year across two geographies. Is that a gross or a net add number, and what do you have baked in for this year? Donald G. Macpherson: That is a net number. We have been adding fairly consistently over the last several years, probably between 3% and 4% to the Salesforce every year, and we expect this year to be in the same general area. Some of the value from having better customer data has allowed us to identify places we can fill in coverage. We have been doing it region by region. We should be mostly done with those changes by 2027. Thomas Allen Moll: On your distribution network, you commented on the progress in Houston and in the Northwest facility. Looking ahead, are there other big geographies where you are contemplating a greenfield opportunity or a substantial increase in an existing footprint? Donald G. Macpherson: Portland is going live this year; it is ramping up as we speak. Houston will go live in 2028. It is a very big building, which expands our capacity in the Texas market, which is important. As we go forward based on our growth, there may be other areas where we add to existing positions or scale from midsized to much larger positions. We are not really missing geographies at this point. There will still be investments, but they are more likely to be expansions or moves rather than fully new greenfields. Operator: Thank you. There are no further questions at this time. I will hand the floor back to management for any final remarks. Donald G. Macpherson: Thank you for joining the call. We really appreciate your time. We feel good about the way things are going. There is uncertainty in the world, but our job is to perform through that uncertainty and to make sure we are building for the future. We are focused on doing those things, we are a resilient business, and we are in good shape. We are optimistic about where we are headed. Thank you, and have a great rest of the week. Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.