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Operator: Good day, and welcome to the East West Bancorp's First Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Adrienne Atkinson, Director of Investor Relations. Please go ahead. Adrienne Atkinson: Thank you, operator. Good afternoon, and thank you, everyone, for joining us to review East West Bancorp's First Quarter 2026 Financial Results. With me are Dominic Ng, Chairman and Chief Executive Officer; Chris Del Moral-Niles, Chief Financial Officer; and Irene Oh, our Chief Risk Officer. This call is being recorded and will be available for replay on our Investor Relations website. The slide deck referenced during this call is available on our Investor Relations site. Management may make projections or other forward-looking statements, which may differ materially from the actual results due to a number of risks and uncertainties. Management may discuss non-GAAP financial measures. For a more detailed description of the risk factors and the reconciliation of GAAP to non-GAAP financial measures, please refer to our filings with the Securities and Exchange Commission, including the Form 8-K filed today. I will now turn the call over to Dominic. Dominic Ng: Thank you, Adrienne. Good afternoon, and thank you for joining us for our first quarter earnings call. I'm pleased to report that East West had another record quarter for loans, deposits, and fee income. Our consumer and commercial depositors continue to place their trust in us, helping grow total deposits by 9% year-over-year. Growth in noninterest-bearing deposits was particularly strong this quarter, up nearly $800 million, driven by our continued focus on providing solutions to retail and small business customers. We also delivered 7% year-over-year loan growth. C&I loans increased by more than $900 million quarter-over-quarter, driven by higher line utilization, particularly amount capital call borrowers. We also achieved a record quarter of fee income growing 12% year-over-year. We saw strong momentum and wealth management this quarter as we stayed closely engaged with clients. We continue to see opportunity to grow and diversify our fee revenues over time. Credit performance remained stable. Net charge-offs and nonperforming assets were low in absolute terms consistent with our expectations and reflecting our disciplined approach to risk management. Our capital position remains a key advantage for East West with a tangible capital ratio of 10.3%. We maintained this capital level, while growing our balance sheet, increasing our dividend and opportunistically repurchasing shares. We continue to be focused on being disciplined stewards of our customers' trust and our shareholders' capital. I will now turn the call over to Chris to provide more details on our first quarter financial performance. Chris? Christopher Del Moral-Niles: Thanks, Dominic. Let's start with deposit growth on Slide 4. Our end-of-period deposits grew by $1.8 billion quarter-over-quarter. Average DDA growth was up 12% year-over-year and nearly $0.5 billion on an average basis. This checking account growth led us to price our leaner New Year CD campaign more conservatively this year, allowing us to focus on CD balance retention and drive a better mix of deposit costs for the quarter and going into the rest of 2026. Money market deposits were also up 9% year-over-year, as we continue to further diversify away from CDs and other higher-cost deposits. Turning to loans on Slide 5, as we have emphasized before, our focus has been and continues to be on growing our C&I portfolio, and C&I was the primary driver of growth in Q1. Most of the increase was driven by net line draws from existing customers. While utilization ticked up across a range of industries, as Dominic mentioned, capital call-related borrowings made up the lion's share of the first quarter's net growth. The quarter's net draws on capital call lines reflected broad-based increases in M&A and real estate property acquisitions across the quarter. While some of these lines have already been paid down here in the second quarter, private equity markets and real estate markets remain active and we expect to continue to participate in this activity during the remainder of the year. Residential mortgage experienced a seasonally slower Q1 than we expected, but our pipelines have grown and continue to grow into Q2; and we expect residential mortgage to be a consistent contributor to our overall loan growth during the year. We also grew commercial real estate balances this quarter. Our priority continues to be on supporting our long-standing real estate relationship clients. Given the level of net growth we saw in the first quarter and the pipelines we see going into Q2, we are comfortable reiterating our guidance for the full-year loan growth to be in the range of 5% to 7%. Now turning to 6, our loan portfolio remains well-diversified, with over 70% of our loans to commercial customers across a broad range of industries and commercial real estate asset types. C&I now represents 34% of our total loans, reflecting the results of our focus and emphasis on balanced growth across our balance sheet. Our CRE portfolio remains diversified by a number of product types with an emphasis on multi-family, retail, and industrial projects. As we look ahead, we remain focused on growing the portfolio in a disciplined way that enhances diversification and remains aligned with our overall risk appetite. Turning to Slide 7, we provided incremental disclosure on our NBFI portfolio. Growth in this portfolio this quarter has been driven primarily by capital call line. Our NBFI portfolio is granular, with diversification across industry and category types. 99.99% of our NBFI loans are current, and the past decades, there have been virtually no net charge-offs in this portfolio. Approximately 30% of this portfolio is made up of capital call lines. Capital call is not a regulatory classification, and our capital call loans are spread across a range of private equity, mortgage credit, and business credit borrowers. I'll now turn to net interest income and margin discussion on Slide 8. Quarterly dollar net interest income increased to $671 million, reflecting our ability to grow our balance sheet while overcoming the headwinds of rate cuts in Q4 and 2 fewer days in Q1. Our short-term liability sensitivity on deposit pricing dynamics and our positive deposit remixing during the quarter allowed us to continue to reduce our deposit costs, driving period-end costs down a further 6 basis points quarter-over-quarter. Looking back to the start of the cutting cycle, we have decreased interest-bearing deposit costs by 111 basis points, comfortably exceeding our 50% beta guidance shared in prior periods. Moving on to fees on Slide 9, fee income grew 12% year-over-year to a new record $99 million for the quarter, with significant growth in wealth management fees driven by structured note and annuity sales and deposit-related fees, driven by higher customer activity. We will remain focused on driving this growth and further diversifying our revenue overall, and are quite encouraged by the pace of growth in fee revenue so far this year. We continue to aspire to deliver double-digit year-over-year growth in fee income in 2026. Now turning to expenses on Slide 10. East West continues to deliver industry-leading efficiency while investing for future growth. The Q1 efficiency ratio was 36.2%. Total operating non-interest expense was $258 million for the first quarter and included seasonally higher payroll-related costs, some increased stock-based compensation costs, and higher incentive comp, reflecting increased commissions for our wealth management activity. Nonetheless, overall, we continue to expect expenses to come in line with our guidance for the year. Now let me hand the call over to Irene for comments on credit and capital. Irene Oh: Thank you, Chris, and good afternoon to all on the call. As you can see on Slide 11, our asset quality metrics held stable and continue to broadly outperform the industry. Quarter-over-quarter, non-performing assets remained stable at 26 basis points as of March 31, 2026. We recorded net charge-offs of just 9 basis points in the first quarter of 2026, or $12 million, compared to 8 basis points in the fourth quarter. We recorded a higher provision for credit losses of $36 million in the first quarter, compared with $30 million for the fourth quarter. We remain vigilant and proactive in managing our credit risk. Turning to Slide 12, the allowance for credit losses increased $26 million to $836 million or 1.44% of total loans, as of March 31, reflecting quarter-over-quarter loan growth and the portfolio mix shift. We believe we are adequately reserved for the content of our loan portfolio given the current economic outlook. Turning to Slide 13, all of East West's regulatory capital ratios remain well in excess of regulatory requirements for a well-capitalized institution and well above regional and national bank averages. East West Common Equity Tier 1 capital ratio stands at a robust 15.1%, while the tangible common equity ratio now sits at 10.3%. These capital levels continue to place us amongst the best-capitalized banks in the industry. In the first quarter, East West repurchased approximately 938,000 shares of common stock during the first quarter of $98 million. We currently have $117 million of repurchase authorization that remains available for future buybacks. East West also distributed approximately $111 million to shareholders via a quarterly dividend, East West's second quarter 2026 dividend will be payable on May 18, 2026, to stockholders of record on May 4, 2026. I will now turn it back to Chris to share our outlook. Christopher Del Moral-Niles: Thank you, Irene. We've assumed the forward curve as of March 31, which models no rate cuts. And therefore, we're updating our full-year 2026 net interest income guidance to grow between 6% to 8%, up from our prior expectations of growth between 5% and 7%. We're also updating our net charge-offs and now projected to fall between 15 and 25 basis points for the full year. With that, we'll be happy to open the call for questions. Operator? Operator: [Operator Instructions] And the first question will come from Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess, maybe the first question, just given the capital proposals that were put out by the Fed last month. I'm wondering if you can quantify what impact you expect to your capital ratios -- and yes, I guess, first, just what's the impact that you expect for what are really strong capital levels? And where is this headed if the proposal becomes a final rule? Christopher Del Moral-Niles: We are happy to cover that for you. The risk-weighted asset adjustment from what has been put out there as Basel III Endgame is roughly a $7 billion reduction in our current risk-weighted assets relative to our current balance sheet. And that would probably translate to something on the order of magnitude of 1.6% to 1.8% increase in our various respective regulatory capital ratios. Ebrahim Poonawala: Are you going to use all that excess capital to start another bank, but... Christopher Del Moral-Niles: Dominic is very opportunistic. And I think we are very comfortable maintaining very strong capital levels and having more capital has never served this bank badly. Irene Oh: We're going to use that capital to grow organically. Ebrahim Poonawala: That's the best answer. So I hope you do. So -- and maybe, I guess, moving to the P&L, strong deposit growth. I wanted to get on the private capital call-line lending. Lots of focus on just private equity in that space. One, it didn't sound like that any of that drawdown on capital call-line lending was stressed and it felt like there was more activity that drove that, if you can confirm that? And why are we not seeing more diversified C&I growth pick up, given just the broader momentum. I understand the macro volatility, but are you seeing at least green shoots of other areas where C&I is picking up? Christopher Del Moral-Niles: Well, Sure. So EB, I think on the capital call lines, it was pretty diversified. It was the lion's share of the total growth, but it was across a range of industries, and that gives us comfort that things are happening out there and there are green shoots in general. And of course, there was a component that was a capital call line, which is well over $300 million, and that was all encouraging evidence of continued activity across a range of industries. So, we saw activity in true distribution. We saw some cross-border. We talked commercial real estate. We saw a lot of areas that had positive momentum and continue to have positive momentum going into Q2. Irene Oh: And maybe I'll just add to clarify as a clarifying point, none of the drawdowns that we saw in the quarter were anything distressed. Opportunistically, it really is the time of that. And I think, as Chris alluded to, some of those, there's a timing component of this, right? Some of those did pay off in the early part of the second quarter, normal activity. Operator: The next question will come from Dave Rochester with Cantor Fitzgerald. David Rochester: I just wanted to ask about the deposit growth. Very solid this quarter. Can you just give an update on the competitive environment there? Do you find yourself having an easier time growing core deposits. I mean normally, this is a softer quarter for that for most banks. The DDA trends look really good. How do you feel about that going into 2Q and the rest of the year, especially on the DDA side. Christopher Del Moral-Niles: I think the DDA growth that you saw has been the result of a now more than a year's long campaign to really deepen our connection with retail, small business customers across our footprint. That's been successful and continue to bear fruit into Q1 '26. We're not letting up on that strategy. That campaign has been working arguably better than we expected here going after it for more than a year, but in a way that we are continuing to go more time and effort to make sure we nurture it even more. The landscape for deposits, however, is not easy. It is a very competitive landscape. And from a pricing perspective, the fact that we moved from the outlook with multiple customers to an outlook with no cuts means that deposit pricing pressure is real and coming upon us. And so the reality is, it's doubly impressive from our perspective that our teams are able to go out there and win non-interest-bearing DDA money in an environment where rates aren't expected to come down anytime soon. Kudos to our retail team, kudos to our strong business teams, kudos to all commercial RMs out there working with their customers to find opportunities for us to add value, really paid off here in the first quarter. But no, I don't think pricing is going to get any easier, and I don't think competition is going to get any easier. David Rochester: I appreciate that. Just a follow-up on wealth management and you talked about staying close to the customer and that helping you guys out this quarter. It's a really big number this quarter. Can you just talk about how you see that trending moving forward? If you've added new people that are helping boost that number, you've got new products. Just anything else that can help us figure this out going forward. Christopher Del Moral-Niles: There was a fair amount of volatility in Q1 and some of our clients decided that some structured notes were a good thing, and we added some notable volume in structured notes. We also added some annuities during the quarter as people moved out of equities at record highs into annuity products. But we also added people late in the quarter, so it don't have a big impact to the Q1 numbers, but we expect it will continue to support continued growth in wealth management as we roll through the rest of the year. Operator: The next question will come from Jared Shaw with Barclays. Jared David Shaw: I guess sticking on the deposit theme, with the good growth that you're seeing in the mix shift, how should we think about sort of the trend of deposit pricing costs in a flat environment? I mean, do you think you're still going to be able to continue to march that lower as we go forward? Christopher Del Moral-Niles: I think, Jared, in some prior calls or meetings, I had alluded to the fact that we have been benefited from rolling down the hill and there would come a point in time where the hill would stop to be so steep and flatten out. And I think we've hit that point now. So no, my comments earlier that I don't think deposit pricing is going to get easier allude to the fact that I think our ability to march down or roll down the next wave of CDs that sort of run its course to a large extent. That having been said, I'll just remind you all, we are asset sensitive which is why when we're changing our guidance from cuts to a flat rate environment, we're also upping our NII guidance because higher for longer is net better for East West Bank. Jared David Shaw: Okay. That's good color. And then any color, maybe, Irene, on the growth in resi nonperformers? Are you seeing any areas of stress there maybe from tech worker disruption from AI or anything that you're spending a little more time looking at? Irene Oh: Yes. That's a great question. We have seen a little bit of increases in that, ultimately, there isn't anything that we view as systemic. It really is customer by customer loan by loan. And ultimately, for us, given the low loan to values we underwrite it, we don't see a lot of loss content there. Operator: The next question will come from Casey Haire with Autonomous Research. Casey Haire: I wanted to touch on loan growth. Apologies if I missed this, but the guide of 5% to 7% off of a quarter where you're growing at 8% annualized and pipeline sound pretty constructive kind of a recurring question for you guys, but why -- is that a little conservative? Or what are we missing here? Christopher Del Moral-Niles: I would point you to Page 9 of our press release tables which says that from March 31 of last year to March 31 of this year, we grew by exactly 7.0% on total loans. So that felt like it was in the range of 5% to 7% and warranted holding the range. Casey Haire: Okay. Yes. I mean last year, it was much different. I mean, we had the tariff and obviously, the macro is -- okay. I get it. All right. Just moving back to the capital discussion. Irene, I heard you say you're going to grow organically. I've also heard you guys talk about some M&A aspirations on the East Coast where there's pockets of Chinese American populations that would fit well with the strategy here. Just some updated thoughts around that. And just given the excess capital under the Basel III proposal, what -- if you were to find an opportunity that you did like what are some parameters around earn-back and tangible book value dilution? Irene Oh: Well, I'll start and maybe Dominic and Chris can chime in afterwards. We have a kind of hierarchy organic, right? Organic growth is our priority, and we've been able to show over many, many years the ability to grow our franchise through organic growth. Although, as you know, we have a history many years ago also of being able to do successful well priced strategic acquisitions as well. So organic growth is our #1 priority. I think, certainly, when is opportunistic stock buybacks, you know what the return is and then also acquisitions, well priced, strategic, makes sense for the franchise, something that ultimately has to be a better return than our ability to grow organically. Christopher Del Moral-Niles: And we complement that, of course, with the regular dividend and we review the dividend at least annually and then the dividend is our second go-to after organic growth, and that's where we have most recently increased our dividend, you'll recall in the first quarter by 1/3, and we'll continue to look at that to make sure it remains competitive. And then as Irene mentioned, follow up the organic growth with dividends and then inorganic opportunities at the right price and then share buybacks perhaps opportunistically. Operator: The next question will come from Manan Gosalia with Morgan Stanley. Manan Gosalia: On the deposit growth side, the question is do you typically see some sort of flight to safety from clients, clients just holding more liquidity at times when there is elevated geopolitical risk. And I guess the question is, did you see any of that this quarter? I'm just trying to assess how much of the strength in DDA growth is seasonal or idiosyncratic versus how much of that -- do you see this as a new base to grow off of? Christopher Del Moral-Niles: Clearly, East West Bank over the last 15 years has been the beneficiary a very strong, well-capitalized and highly liquid bank of net deposit flows from our customers and increased balances from other banks in the region, from other banks in the country and even some pockets outside. All of that has served the East West benefit and continues to be. And it does feel like whenever there's an errant headline, we see more opportunities to engage with more customers and have been successful at gathering more deposits. So we like the positioning that we have. It apparently pays dividends to be the best capitalized bank in the industry and one of the most profitable banks in the industry and for everybody to recognize that and trust us in that way. And so I think we are well positioned, and I don't think it's temporary. But yes, we do see flows come in and out and tax flows do happen on April 15, and we saw some of those flow out, but we feel good about the base that we've built and the year-over-year growth in deposits that we've been seeing for almost 15 straight years. Manan Gosalia: Right. Perfect. And then you guys gave the C&I loan yields at the back and not a surprise to see that edge down slightly. Is that all just rate related? Or is there anything that comes there from mix shift maybe to capital call or investment-grade clients? Or is there anything you're seeing in terms of competition impacting spreads? Christopher Del Moral-Niles: I think we have seen competition broadly impact spreads over the course of the last year. We also provide the net interest margin table on Pages 10 and 11 of the press release. And what you'll see there is a broad repricing downwards because most of our portfolio is floating rate and that just come through as those naturally move forward with the rate cuts that we saw last year, including the ones that happened in December. But as we've mentioned, our reset here sometimes don't kick in for about 45 days late. So we saw still repricing impact in Q1 related to the December rate cut. Operator: The next question will come from Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: Chris, you mentioned the checking account growth led to pricing the Lunar New Year CD campaign more conservatively this year, allowing you to focus on CD retention. Can you just remind us how much CDs rolled off during the quarter? How much was retained? Any color on expected improvement in pricing from rolling forward CDs in 2Q? Christopher Del Moral-Niles: Yes. So we had a little over $10 billion of rollover during Q1, and we net grew CDs as presented on Slide 4 by $127 million. So we eventually priced for retention and achieve retention. And then from a pricing perspective, as I mentioned earlier, we've been benefiting from rolling downhill, but we sort of flattened out that role. And as we sit here today, I'm not sure incremental new CDs will be necessarily repricing with much of a benefit as we roll into Q2 and Q3. We're currently pricing our CD special at 3.60%, which is not going to necessarily move the needle a lot on our CD price. Bernard Von Gizycki: Okay. And just as my follow-up, I think in last quarter, you mentioned the impact from hedging impact. There was a headwind of about $2 million. What was it this quarter? Any expectations for full year you can provide? Christopher Del Moral-Niles: Yes, it's roughly flat and all those hedges today are in the money looking forward, given the backup in that but we're still in the money -- on all the mark-to-market value of all the trades is positive. So we're going to add value moving forward. Operator: The next question will come from David Chiaverini with Jefferies. David Chiaverini: On the NII outlook, so you raised it 6% to 8% from 5% to 7%. You alluded to higher for longer being good for East West. Was this the main contributor to raising the guide? Or was the loan outlook also part of it? Can you unpack that a little bit? Christopher Del Moral-Niles: Yes. We would attribute the guide increase exclusively to the change in the rate outlook. And as I noted earlier, we're not raising our loan guidance at this point in time. So that's still baked in there at 5% to 7%. David Chiaverini: Got it. And on the net interest margin, how should we think about the outlook from here based on your commentary on the deposit front, is a dip a reasonable way to think of it? Or how should we think about the NIM going forward? Christopher Del Moral-Niles: So we're thinking about the margin and dollar NII as moving higher, they'll probably both track at least flat to positive. David Chiaverini: So the NIM flat to positive from here? Christopher Del Moral-Niles: Correct. Even though -- and this sort of leads to the question I answered earlier, even though there's incremental deposit pressure, the fact that loans will be yielding higher for longer this year, we will still end up with a better net interest income and likely slightly better net interest margin than we were previously projected. David Chiaverini: Very helpful. Thank you. Christopher Del Moral-Niles: I would remind you, though, that the first quarter has fewer days, but don't index off of the Q1 number, index off of the day count adjusted number. Operator: The next question will come from Chris McGratty with KBW. Christopher McGratty: The tweak in the credit guidance is a tweak, but it's -- I think it's a fairly important vote of confidence or statement. Could you unpack what drove you to change the charge-off guide after 1 quarter? Irene Oh: Yes. That's -- it's simply put, right? When we look at the portfolio and we look at kind of what we're seeing, this is our view as far as at least today where we think the net charge-offs are going to be. Christopher McGratty: Okay. So good visibility on the outlook. Okay. And then within the 7% to 9% expense growth. I'm wondering if you could parse out, run the bank versus invest in the bank and how over time, this level of growth. I think this is a similar guide you gave last year at the beginning of the year, how AI might influence that over the medium term? Christopher Del Moral-Niles: In the short to medium term, AI is a cost because we all have to run to figure out how we're going to combat missiles and everything else that the market is doing at. And so the reality is we're spending time to make sure we're -- as we have been for the last year, investing in our cyber defense and investing in our monitoring tools, investing in our daily operating capability to make sure we're as resilient as possible. And those are investments that I'll highlight are not regulatory-driven. There are investments that are driving us to be the best bank we can be every day for our customers, and we're going to continue to make those investments every day. And that's why we will continue to believe 7% to 9% expense growth is the right level while delivering the best efficiency ratio in the industry. Operator: The next question will come from David Smith with Truist Securities. David Smith: Good afternoon. I was wondering if you could give us any updates on how you're looking at blockchain or stablecoins as you look at ways to better help your plans with international business needs, transfer money more efficiently? Christopher Del Moral-Niles: We continue to see the vast majority of our customers wanting and continuing to transact in Fiat currencies, but we do have customers that hold a variety of crypto and stablecoin, and we're monitoring those continued conversations, development, new products and new solutions. We have put some projects sort of into the hopper that we think we'll be able to deliver at the appropriate time when there's a little more market acceptance to those, and we've been working with 1 or 2 clients on select opportunities to be supporting them on a back office basis. And so we'll continue to be active around the state, but have not yet rolled anything out to customers. David Smith: Are tokenized deposits part of that potentially or anything there? Christopher Del Moral-Niles: We have explored those. We have not yet rolled out or put something like that on the shelf, but that's one of the things that we've looked at in concert with, I think, some larger industry vendors that have proposed solutions, and we're trying to figure out if we want to use those or something different. So we're just exploring that and monitoring those development cycles. Operator: The next question will come from Janet Lee with TD Cowen. Sun Young Lee: In recent years, your deposit, you generally were able to grow deposits at a pace that's modestly above loans. Is it fair to assume that your deposit growth for 2026 would be the same as in coming in, in line to above your loan growth guide for the year, given the strong results, especially given the strong results from the first quarter? Christopher Del Moral-Niles: Janet, I would note that on Page 3 of our financial highlights. We led with deposit-led growth as the story. And so we continue to see deposit-led growth as the story and continue to expect deposits to help us drive a better funding mix, a better liquidity profile and more reservoir dollars available to meet our clients' needs as borrowers over time. But yes, it's been a deposit-led story. Sun Young Lee: Okay. And maybe I'm missing something here, but if you were able to keep your net interest margin flat to modestly improving versus the first quarter, I guess, excluding the day count impact and then loans growing at 6.5% to -- sorry, what was your loan growth guide? Loan growth in the 5% to 7%. Your NII, what would be the puts and takes around you getting to that lower end versus the high end. It looks like you're tracking at least at the higher end and potentially better or... Christopher Del Moral-Niles: I think some of those things are true, but the other things that we talked about are that deposit pricing pressure continues to build, and we would expect that to eat into some of the benefit that we might see from higher for longer as we move through the course of the year. If the economy is strong enough, or inflation levels are strong enough such that rates are not nearly lower then probably there's more net funding going on in the industry and deposit pricing competition strengthens or becomes more rigid or even increases and makes that more costly, and we factor that into our models for 2026. Operator: The next question will come from Timur Braziler with UBS. Timur Braziler: Just circling back on the loan growth, maybe specifically for the coming quarter. I appreciate the comments that some of the capital call lines had already paid down. That's going to be offset with improvement in the mortgage warehouse business. I guess, net-net, in 2Q, are you still expecting those loan balances to grow? And are we still thinking that 1Q is kind of seasonally softer for some of the traditional commercial business lines? Christopher Del Moral-Niles: So unpack that question again because you said something about warehouse, and we don't do a lot of warehouse. So repeat your question, Timur, sorry. Timur Braziler: Yes. Just the puts and takes on some of the lines being paid down in 1Q versus the growth that you're expecting in the second quarter and whether or not that's going to net positive balances in 2Q? And then just the seasonality on some of the commercial pieces. Christopher Del Moral-Niles: Sure. So on the private equity capital call line activity that we saw in Q1, Irene mentioned and I mentioned, we've already seen some of that pay off here in April. And we probably expect more than 1/3 of it to pay off, frankly, in the ordinary course during the ordinary second quarter. So that uptick that we saw should be in the ordinary course paid down to some extent. However, we continue to see continued activity in private equity and in mortgage private capital. And those 2 areas may therefore offset those paydowns and allow us to deliver additional growth in Q2. As we sit here today, we would expect that. Too much seasonality per se in the other areas of our commercial business. Timur Braziler: Got it. And then one on credit ACL has been building over the last couple of quarters. I think you guys called out some mix shift here in the first quarter. Just give us a sense of where you are likely in that ACL build. And should we expect that to start settling out and being utilized here at some point? Or is that going to remain fairly conservative in holding up at these kind of levels? Christopher Del Moral-Niles: I think the bank has traditionally approach ACL as being making sure it was appropriate. And perhaps on the margin, making sure it was modestly conservative, I think we've continued to do so. From a build perspective, it was 2 basis points for the quarter. I'll defer to Irene on specific comments around the portfolio. But I think the reality is, with our visibility that we do have in the charge-offs, we feel pretty good about where we stand. Irene? Irene Oh: Yes. Maybe I'll just add a little bit on the technical side of that. You use a multi-scenario model for calculating our allowance. And as of March 31, the downsides scenario did change quite substantially from what it was at year-end. That certainly was one of the factors. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dominic Ng for any closing remarks. Dominic Ng: Well, thank you to everyone for joining us today. I want to thank our team for their continued hard work and dedication, which continues to show in our results. We appreciate everyone your time and interest and looking forward to speaking with you again next quarter. Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to Washington Trust Bancorp Incorporated Conference Call. My name is Elliot, and I'll be your operator today. [Operator Instructions] As a reminder, today's call is being recorded. And now I'll turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Please go ahead. Sharon Walsh: Thank you, Elliot. Good morning, and welcome to Washington Trust Bancorp, Inc.'s Conference Call for the First Quarter of 2026. Joining us this morning are members of Washington Trust's executive team, Ned Handy, Chairman and Chief Executive Officer; Mary Noons, President and Chief Operating Officer; Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer; and Bill Wray, Senior Executive Vice President and Chief Risk Officer. Please note that today's presentation may contain forward-looking statements, and our actual results could differ materially from what is discussed on today's call. Our complete safe harbor statement is contained in our earnings release, which was issued yesterday as well as other documents that are filed with the SEC. All of these materials and other public filings are available on our Investor Relations website at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol wash I'm now pleased to introduce today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Ned? Edward Handy: Thank you, Sharon. Good morning, and thank you for joining our first quarter conference call. We appreciate your time and your continued interest in Washington Trust. I'll begin with a brief overview of our first quarter results, and then Ron will provide more detail on our financial performance for the quarter. Following our remarks, Mary and Bill will join us for the question-and-answer session. Building on the momentum generated throughout 2025, quarterly performance was driven by continued net interest margin expansion reflecting the underlying strength of our core banking business and continued benefits from our December 2024 balance sheet repositioning transactions. The Q1 results do, however, include a higher provision related to reserve builds on 2 free credits moved to nonaccrual in March, and we'll provide details on those in the Q&A session. Our capital ratios remain strong, providing the flexibility to support continued execution across the business. In the first quarter, we completed a digital banking conversion for personal accounts that provides enhanced security and technology and a better customer experience, reinforcing our focus on service and relationships. We will continue the conversion of our business accounts in the ensuing quarters. With recent industry shifts locally, these investments position us well to attract new customers by pairing modern capabilities with the personalized service that defines Washington Trust. We're also leveraging our strength as a community bank that prioritizes local decision-making to attract experienced bankers to our commercial team. We recently added new talent across C&I, CRE and business banking, all of whom bring deep experience and strong client relationships in the region. The institutional banking team we added in January is showing strong momentum that positions us for loan and deposit growth as the year progresses. In addition, our planned branch opening later this year in Pataka, Rhode Island will further expand our presence in the northern part of the state. Overall, we're encouraged by the progress we are making to position the company for long-term success. With that, I'll turn the call over to Ron to provide additional detail on our financial results. Ron? Ronald Ohsberg: Okay. Thank you, Ned, and good morning, everyone. Net income in the first quarter was $12.6 million or $0.66 per share compared to $16 million or $0.83 per share last quarter. PPNR was down 6% from Q4 and up by 23% year-over-year on an adjusted basis. Net interest income was $40.5 million, down by 1% from Q4 and up by 11% year-over-year. The margin was 2.63%, up by 7 basis points from Q4 and up by 34 basis points year-over-year. Q1 included $116,000 of loan prepayment fee income, which benefited NIM by 1 basis point compared to $516,000 or 3 basis points last quarter. Noninterest income was down $1.2 million or 6% compared to Q4 and up by 11% year-over-year on an adjusted basis. Loan-related derivative income, which is transactional in nature, was down by $854,000 compared to Q4. Wealth Management revenues were down by $205,000 or 2%. Average AUA for Q1 decreased by 1% and increased by 10% year-over-year. Mortgage banking revenues were $3 million, seasonally down 6% and were up by 32% year-over-year. Our mortgage pipeline at March 31 was $114 million, up by $33 million or 41% from the end of December. Noninterest expense totaled $37.8 million in Q1, down by 1%, and Other noninterest expenses were down by $1.2 million in Q1, largely due to a $1 million contribution made to our charitable foundation in Q4. In the first quarter, salary and employee benefits expense was up by $693,000 or 3%, reflecting merit increases and higher payroll taxes associated with the start of a new calendar year. Our Q1 effective tax rate was 21.6%, and we expect the full year 2026 effective tax rate to be approximately 21.5%. Balance sheet total loans were down 2% from December 31. Total commercial loans decreased by $95 million, reflecting mainly payoffs in the CRE portfolio. The commercial pipeline in total is approximately $156 million. Residential loans decreased by $21 million as we continue to amortize that portfolio. End market deposits were down 2% from the end of Q4 and and up by 3% year-over-year and wholesale funding was down by $50 million or 8% from the end of December. Our loan-to-deposit ratio decreased slightly to 96.9% at the end of March. Turning to asset and credit quality. At March 31, nonaccruing loans were 81 basis points on total loans and increased by $27.5 million from the prior quarter, largely due to 2 commercial real estate office loans. Past due loans were 33 basis points on total loans. In the first quarter, we recognized a $4 million provision for credit losses, largely reflecting an increase in specific reserves on the 2 Cree office loans. The allowance totaled $41.1 million or 82 basis points. And at this time, I will turn the call back to Ned. Edward Handy: Thanks, Ron. And now we'll take questions. Operator: [Operator Instructions] First question comes from Justin Crowley with Piper Sandler. Justin Crowley: Good morning, everybody. I was wondering if you could start off just giving a little more detail on the 2 office loans. Just anything on geography? And then maybe some more specifics on what occurred to drive the downgrades in specific reserves -- so just things like occupancy levels or perhaps just how close they even were its maturity, I'm not sure that may be necessitated a new appraisals? Edward Handy: Yes. Bill, do you want to take that? William Wray: Sure. They're both loans that have been current up until this point. In both cases, in March, there were sort of triggering events that led to us deciding to make the decision for quarter end to put them on nonaccrual. Both of them have strong, sophisticated sponsors, and we're engaged with both of them right now on. One was a maturity, the other doesn't mature until next year. We're engaged with both of them on the right next steps. So I don't want to get into too much detail on what that means. But we -- like with most of our assets that have been in criticized either special mention or classified most of them emerge unscaled. And in this case, though, we took the step to put reserves in place that we thought were appropriate reflect any potential loss down the road. So again, we think they're both solid properties with solid sponsors, and we expect that we'll continue to drive resolution, and we're hoping that within the next few quarters, these will either exit or they will emerge back into performing status. Justin Crowley: Okay. Got it. And then Were there any general reserves allocated to office? Or was it all specific with regard to these 2 loans? I guess trying to get a sense of how you think about the risk and the rest of the office book at this point and the cycle for this asset class and the thinking there has changed at all? William Wray: Well, I think our office exposure peaked at $300 million a couple of years ago. It's now down to $230 million. And we think we've done that with a fairly small amount of charge-offs along the way relatively. So we expect to continue to reduce our office exposure over time. Within the CECL methodology we make sure that we use qualitative factors especially to address issues in office. And so we have taken some of those steps. And we believe going forward that there's always going to be a handful of properties that are sort of on the bubble that needs some attention and focus. But -- as you can see, these -- all of our other office properties are performing. There's -- there aren't delinquencies there that we're concerned about. So we just expect that assets will move into lower ratings and then we'll emerge from those. And we certainly spend a lot of time thinking about maturity wall analysis and refinance risk. And so we're constantly juggling those handful of properties that look like they might raise some issues down the road and try to stay ahead of them. So I guess the best way of saying we're cautious on office, and we'll continue to be cautious on office, but we also think the scale of the problems within -- are well within our capabilities to handle from an earnings standpoint and a reserving standpoint. Justin Crowley: Okay. And then I guess, somewhat larger-sized loans here. It sounds like they were self-originated. Was that the case or were either participation? Just want to confirm that. William Wray: I'm not sure which ones you're referring to, but there's only there's 5 loans. Justin Crowley: The 2 office loans that's migrated and... William Wray: Participations, we're we're the lead on the Class A. The Class A office space one, we're 2/3 participants in the lead, and then we are the minority participant on the lab space. Justin Crowley: Did you call it maybe 5% growth previously. I know a lot has changed since then with some of the geopolitical now. Just curious for an update there? Edward Handy: Yes, I'll take that one. Thanks for the question. We're -- yes, so the quarter saw pretty significant pay downs, payoffs and mostly in the Cree space and not the kind of commensurate new origination that we're -- that we're used to. But the path ahead looks very good. We're sticking with our mid-single-digit growth for the year projection. And it's important that we talk about where that's going to come from -- at this point, we're feeling like CRE is probably going to be low single-digit growth for the year. They've got some making up to do based on the first quarter payoffs and then we're thinking kind of flat to 1% growth in CRE, which is somewhat intentional. Most of the growth is going to come from our core C&I business and our institutional banking business. We're expecting sort of high single-digit growth out of our core C&I business, which you'll recall is -- has a current outstanding in the kind of $560 million level. So you can do the math there. And then most of the C&I growth is going to come out of our relatively new institutional banking group. We expect $50-plus million in fundings in this quarter and the pipeline is growing. And I think importantly, alongside that is the strategic growth in deposits that will come from that portion of our C&I business. There expecting to kind of fund at -- self-fund at a 30% to 40% level, which is much higher than certainly CRE and much higher than our core C&I business. So that's an added benefit. They joined the group in late January. So it's to be expected, it will take a little while for them to get up and running, but the pipeline is growing as we expected, and we're very encouraged by that. So back to the start sticking with the mid-single-digit growth, if not a little higher. And again, very encouraged by the types of credit, the quality of credit that we're seeing in the pipeline build. So -- more to come on that at the end of next quarter. Justin Crowley: Okay. Great. And then just 1 last 1 on the margin. I think I might have missed this in the prepared remarks. I know there was some elevated prepayment fees last quarter. Was there any of that in the $263 million for the first quarter? Ronald Ohsberg: Yes, like 1 basis point. Justin Crowley: Okay. And then I guess just thoughts on the margins in there. I think you'll get that left from the swap termination, but could you just remind us the benefit there? And then just also how you're thinking about organic expansion through the year? Ronald Ohsberg: Yes. So the swap termination will add 9 basis points in the second quarter and another 4 basis points in the third quarter. Justin Crowley: Okay. And then I guess just go ahead. Go ahead. Ronald Ohsberg: Go ahead, Justin. Justin Crowley: I was just going to ask outside of that, just the almond benefit on the swap, just how you're thinking about this margin lift from here as we get through the year? Ronald Ohsberg: Yes. There's modest expansion by quarter. First quarter was probably a little higher help by the prepayment helped actually helped a little bit by the shorter day count in the quarter actually added about 2 basis points to the NIM. But when we look ahead to the fourth quarter, we're thinking $275 million to $280 million in the quarter. Operator: We now turn to Damon DelMonte with KBW. Damon Del Monte: Ron, could you just repeat the last comment you made on the margin, the $275 million to $280 million. Was that for the second quarter? Or is that for where you expect it to be at year-end? I missed that, sorry. Ronald Ohsberg: Sorry, Damon, yes, just to be clear, fourth quarter. Damon Del Monte: Fourth quarter. Ronald Ohsberg: So we're looking at $265 million to $270 million in the second quarter. Damon Del Monte: Got it. Okay. Yes. That is with what you were describing from the benefit. Okay, great. And then I guess, -- maybe a little bit on expenses and kind of how you're thinking about the outlook from there? You've made some hires. I'm assuming that's all kind of baked into the numbers. your -- I think the expenses were around, what, $37.8 million. So just kind of modest growth off of this? Or do you think you could actually keep it kind of flat? Ronald Ohsberg: Yes. We're actually seeing about a $1 million increase in Q2 and some of that is -- really, there's 3 areas we're looking at advertising, mortgage commissions and then we've got some project implementation expenses that will be coming through in the quarter. Damon Del Monte: Got it. Okay. Ronald Ohsberg: And then -- further to that item. Further to that, we're adding a branch, which will probably open in the towards the end of the third, beginning of the fourth quarter. Those expenses will start to hit in Q3. And so we're probably looking at about $500,000 in 2026 -- related to the branches. Damon Del Monte: Got it. Okay. Great. And then -- on Wealth Management, AUM were down a little bit this quarter. Is that just fluctuation of the market? Or was there some outflow of clients? Ronald Ohsberg: Yes. It was mostly market -- and by mostly, that means not all. So yes, we did have some net outflows. Damon Del Monte: Got it. Ronald Ohsberg: You can see markets have rebounded so far in April. So no one knows what the future holds, but it could at least a lot of the declines that we saw in the quarter have reversed so far in the second quarter. Damon Del Monte: Got it. Okay. And then just lastly, given the outlook for the loan growth going forward, how do we think about provision and kind of the reserve level? I mean, obviously, you built the reserve this quarter for those loans that went to nonaccrual status. But if we assume that there's no other credit deterioration, do you kind of have the provision such that it keeps the reserve flat given the loan growth? Ronald Ohsberg: Yes. We're kind of thinking somewhere in the range of $1 million to $2 million per quarter. And that covers loan growth and maybe that gives us a little bit depending on what we book and when we book it, it could give us a little bit of a reserve build going forward. Operator: We now turn to Laurie Hunsicker with Seaport Research. Laura Havener Hunsicker: Ron Maryville. Just to stay with where Damon was loan loss provision. So the $4 million loan loss provision I know you said, obviously, that was heavy with the office. What exactly was the dollar amount there associated with office of the $4 million build? Ronald Ohsberg: Laurie, it was essentially all of -- yes, all of it. Laura Havener Hunsicker: Got it. Okay. Perfect. And then I just wanted to dive a little bit deeper here in office. So just I have a series of questions here. So thanks for the on this. So you've got 59% maturing in the next 2 years, $136 million. Is any of that currently in special mention cost side, nonaccrual? And if so, -- when is that actually maturing? William Wray: Well, of the 5 deals that are in the office space in special mention or classified 1 of them matured and that was 1 of the deals that we moved to nonaccrual. There's another one, the Class B special mention that's actually maturing in the third quarter of this year. And 1 reason we moved into special mention was just kind of as a marker as we work with the sponsor who's a well-known and committed sponsor on a refinance approach. And then the other deal that went to nonaccrual doesn't mature until the third quarter of next year. So we -- as we disclosed, we look at all of our maturing office loans very carefully. And when we know enough to with an emphasis on caution, we will take steps to make it special mention the deals that we talked about here, both were put on special mention, 1 at the -- in the fourth quarter of '24, the other in the third quarter of last year. So -- and you'll also see that we've had some positive migration out of special mention and classified, the large lab loan, for example, as special mention now and as free rent burns off, we believe if contractual rates pay us agree that, that will be coming out of special mention before too long. So we think our migration track record is pretty solid, and we feel the same about the deals that are in there now. And again, there's 5 that make up that disclosure. Laura Havener Hunsicker: Yes. Great. Okay. So just for my clarification purposes, you had 2 moved into nonaccrual. With -- was it the $22 million that matured that triggered that? Or was it the -- okay. So that 1 matured. William Wray: No, the $22 million was not the one that matured. -- matured was the $6.5 million. Laura Havener Hunsicker: Okay. So that mature. Okay. Got it. Okay. So the other 1 -- so the $22 million that matures in the third quarter of $27 million, you said? William Wray: Yes. Laura Havener Hunsicker: Okay. And then what is the occupancy running on that one, that Class A? William Wray: Well, it's it's solid. I mean, it's north of 50%. And there's actually been a fair amount of leasing momentum. The move made here was more triggered by a notification of a potential lease termination for next year, but that tenant is renegotiating. So this generates a pretty material NOI. And we feel it's a solid property with a solid sponsor in a solid market. But like most sponsors, they're looking ahead and thinking about what their capital requirements are going to be. And so we're having discussions at this point on that topic. Laura Havener Hunsicker: Okay. Okay. And then just the cross fee that you mentioned, just that $3.8 million that's on special mention that was new to special mention. What is the occupancy on that? And how are you thinking about a resolution there? William Wray: It's in the high 60s. It's got some solid tenants. It's a well-known sponsor to us. By the way, all of these are in our core markets in the Tri-State area. And so our expectation is that we'll work something out with the sponsor and keep it on special mention as long as we need to, to make sure, it's payment season and then potentially do an upgrade. So again, special mention here is sort of more just a prudential judgment to put a marker on something and watch it through its refinance process. Laura Havener Hunsicker: Okay. And then obviously, with the... William Wray: It's the fully performing loan at this point, and we expect it to continue that way. But we are being cautious as we face the maturity issue in the third quarter. Laura Havener Hunsicker: Got you. Okay. And then the lab space. So I had thought there were the $33 million, $34 million, I thought that was all related. And then it looks like just 1 you moved over. Are those 2 completely separate loans? William Wray: Two completely separate loans. Laura Havener Hunsicker: Got you. Okay. So the $6.6 million that was triggered by the miscerity. What -- and determine coverage here is 0. So occupancy here is 0. Am I thinking about that the right way? Or what? William Wray: Yes. Yes. Occupancy, that building is still in its initial lease-up phase. So it doesn't -- it's 0. The other building is effectively fully leased and it's just a matter of -- as you know, that's a very competitive market. The -- as free rent burns off in its payment season, we expect that to come back to fully performing and pass rated. We're just watching as tenants come out of free rent and make their payments. So there's very strong positive momentum on that one. On the other one, again, we're in a situation where it matured and we're talking to the sponsors about what's going to happen next. Laura Havener Hunsicker: Got you. Okay. And so the 1 that's fully leased, the $27.5 million. In other words, positive momentum happens this year, happens next year. And I guess when is that -- go ahead. William Wray: I'm sorry, you cut out a little bit. But if you're asking when that comes back out, again, we think it's probably within the next few quarters. We want to make sure the tenants are making their payments as agreed and that we're going to let it season a little bit and judge that. But we are feeling very solid about the leasing status and the performance status to date. Laura Havener Hunsicker: Yes. Okay. And then 1 last question on this lab loan. When does this $27.5 million mature? William Wray: That is 2029. Laura Havener Hunsicker: Okay. 2029. Okay. Great. Okay. And then Yes, I think that answers all my questions on that. Really appreciate the details that you guys put on Page 11. And actually -- oh, I'm so sorry, 1 more question. So you had $2.2 million of Class C that was in special mention last quarter, and now it's gone, which is great. How was that resolved? Was that sold? Or what happened there? William Wray: No. It ended up being fully leased -- and it was performing all along. They were paying as agreed. But now that it's fully leased and we've gone through that process, we've moved it back into past rated. Laura Havener Hunsicker: Perfect. Perfect. Okay. Great. Okay. So just 2 more questions. Now for you, Bill, I guess, this goes back to you, Ron. Do you have the spot margin for March? Ronald Ohsberg: Yes, $259 million. Laura Havener Hunsicker: $259, great. Okay. And then Ned, for you. This is my last question. buybacks -- your capital levels are very, very strong, and your credit, obviously, ex office is very, very strong. You're 1 of the fee banks in New England not repurchasing shares. Can you just help us think a little bit about your approach to buybacks and how you're thinking about it here? Ronald Ohsberg: Yes. Yes. Laurie, I'll take it. I mean we consider that all the time, -- and I think we've talked about it on previous calls. So I can make some arguments in favor of and also, again, doing the buybacks. Our dividend is still relatively high. The payout ratio is still relatively high. And so at this point, we maintain a buyback program, but we really are not at this point intending to be buying back shares at this point in time. Edward Handy: Thanks, Laurie. Operator: We have no further questions. I'll hand back to Ned Handy for any final comments. Edward Handy: Well, thank you all for joining. As we move through 2026, we remain focused on what has defined us for 26 years, paring personalized service and local decision making with a comprehensive suite of financial products and services. We very much look forward to quarters ahead and sharing the news about those quarters with you as we progress. So thank you for your time today. We certainly appreciate your interest and support, and we look forward to speaking with you again soon. Have a great day, everybody. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Welcome to the Quest Diagnostics First Quarter 2026 Conference Call. At the request of the company, this call is being recorded. The entire contents of this call, including the presentation and question-and-answer session that will follow are the copyrighted property of Quest Diagnostics with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without written consent of Quest Diagnostics is strictly prohibited. Now I'd like to turn the conference over to Dan Haemmerle, Interim Vice President of Investor Relations for Quest Diagnostics. Please go ahead. Dan Haemmerle: Thank you, and good morning. I'm joined by Jim Davis, our Chairman, Chief Executive Officer and President; and Sam Samad, our Chief Financial Officer. During this call, we may make forward-looking statements and will discuss non-GAAP measures. We provide a reconciliation of non-GAAP measures to comparable GAAP measures in the tables to our earnings press release. Actual results may differ materially from those projected. Risks and uncertainties that may affect Quest Diagnostics' future results include, but are not limited to, those described in our most recent annual report on Form 10-K and subsequently quarterly filed reports on Form 10-Q and current reports on Form 8-K. For this call, references to reported EPS refer to reported diluted EPS and references to adjusted EPS refer to adjusted diluted EPS. Growth rates associated with our long-term outlook projections, including consolidated revenue growth, revenue growth from acquisitions, organic revenue growth and adjusted earnings growth are compound annual growth rates. Now here's Jim Davis. James Davis: Thanks, Dan, and good morning, everyone. Our strong first quarter performance reflects a focused business, delivering innovative solutions that meet our customers' evolving needs for lab insights. During the first quarter, we grew revenues over 9%, almost entirely from organic revenue growth on broad-based demand for our clinical innovations, expansion into new clinical areas and collaborations with elite health care and consumer health organizations. In addition, we grew adjusted diluted earnings per share by approximately 13%, supported by productivity gains from our deployment of automation and AI across our operations both in and outside our labs. Given our strong first quarter momentum and continued strategic focus, we are raising our revenue and EPS guidance for the year. Now I'll provide more detail on how we executed our strategy across key customer channels and operations during the quarter. Quest operates at the center of health care, delivering solutions that make testing simpler and smarter for our core clinical customers, physicians and hospitals as well as customers in higher-growth areas of consumer health, life sciences and data analytics. In the physician channel, we delivered high single-digit revenue growth in the first quarter on strong demand for our clinical innovations, geographic expansion from greater health plan access and increased volume from our growing business in enterprise accounts. We are also pleased with our growth during the quarter in end-stage renal disease, a new clinical area for us, focused on lab testing for dialysis patients. In addition to volume from serving thousands of dialysis clinics operated by Fresenius Medical Care nationwide, we also added independent dialysis clinics and other providers as clients of our lab and water purity testing. In the hospital channel, we grew revenues at a double-digit rate with the majority of this growth coming from our collaborative lab solutions for Corewell Health, a leading health system in Michigan. Our Co-Lab solutions combine our scale, clinical depth and operational excellence to improve quality and cost efficiencies. Our implementation with Corewell Health is proceeding smoothly. We are also advancing our joint venture with Corewell Health with plans to open a state-of-the-art lab in Southeast Michigan next year. Hospitals value our flexible solutions that enable them to free up capital while benefiting from our expertise and innovation. Our pipeline of potential Co-Lab collaborations as well as potential outreach and independent acquisitions remain strong. In the consumer channel, we deliver solutions that empower people to own their health. Similar to recent quarters, we generated significant revenue growth during the quarter, both from questhealth.com and from our portfolio of top consumer health collaborations. Growth from questhealth.com featured robust double-digit customer repeat rates and notable demand for new solutions such as our Elite health profile and autoimmune and hormone tests. Quest is a trusted health care brand with broad reach, which enables us to drive efficient customer acquisition for questhealth.com. In addition, we are the preferred lab engine for top consumer health brands and a key part of our growth this quarter was due to consumers accessing our lab insights within the apps and wearables of our collaborators. Our customer channels are also growing as we continue to deliver advanced diagnostics in 5 key clinical areas: advanced cardiometabolic and endocrine, autoimmune, brain health, oncology and women's and reproductive health. We delivered double-digit revenue growth across several of these areas in the first quarter. I'll comment briefly on a couple of examples. In the areas of brain health, Alzheimer's disease is a progressive dementia that affects over 7 million people in the U.S. and is expected to affect nearly 13 million Americans by 2050. For several quarters, we've spoken about delivering double-digit revenue growth from our AD-Detect blood test for Alzheimer's disease, a trend that continued in the first quarter. To understand this growth, consider that until recently, clinicians typically diagnosed Alzheimer's using PET/CT scans, which are costly and inaccessible for many. While these scans are highly accurate at identifying mid- and late-stage disease, they are less sensitive at detecting Alzheimer's in early stages before major impairment has occurred. Years ago, we recognized the power of blood testing to reveal disease earlier and more affordably so more patients could benefit from the emerging therapies with potential to slow progression sooner. Today, Quest provides a range of tests under the AD-Detect brand, featuring sensitive mass spec tests for amyloid beta and ApoE, a genetic risk marker to complement p-tau217 and p-tau181. We also developed a proprietary algorithm that combines multiple biomarker results to establish Alzheimer's pathology with sensitivity and specificity of 90% or greater. At the same time, we are seeing that physicians are becoming more confident using blood test to aid diagnosis and guide pharmaceutical treatment decisions often in lieu of imaging. As blood tests are increasingly used both in primary and specialty care, we expect to remain a leading source of diagnostic innovation and insights for managing this disease. In other areas, we drove double-digit revenue growth across much of our cardiometabolic and endocrine portfolio, including for tests for Lp(a) and ApoB as well as for kidney, liver and reproductive hormones. New guidelines from the American Heart Association recommend Lp(a) and ApoB testing for the first time, underscoring the clinical value of these important biomarkers. We are also encouraged that the guidelines now recommend screening for high cholesterol at young ages as new research has found dangerous cardiovascular events are increasingly occurring in young adults. In oncology, we recently announced a research collaboration with City of Hope, a cancer and research treatment organization to study the use of our Haystack MRD test to aid recurrence monitoring and treatment decisions in clinical trial participants with solid tumor cancers across 14 U.S. sites. In addition to driving top line growth through innovation and collaborations, our focus on operational excellence aims to improve productivity as well as quality and the patient experiences. Through our Invigorate program, we expect to continue to deliver 3% in annual cost savings and productivity improvements. We have spoken in the past about our growing use of AI and automation in our labs. And while that continues to be a major focus in the first quarter, we stepped up our deployment of these technologies in several other areas. As one example, we boosted productivity by 40% in the first quarter among customer service agents that used AI to triage and route customer emails to speed responses. We are also deploying AI to make testing simpler and smarter for everyone, including our patients. Our new Quest AI Companion transforms complex biomarker data and reference ranges on test reports into clear plain language. By empowering patients with lab insights, our AI tool, which is powered by Google Gemini, can help shift the doctor-patient relationship to be focused on shared decision-making instead of data gathering, potentially improving care outcomes. Patients have engaged Quest AI Companion approximately 350,000 times since we rolled it out to users of our MyQuest app in the first quarter. Lastly, we are scaling the planning and design work for Project Nova, our multiyear initiative to transform our order-to-cash processes and systems and are on track to implement our first wave of solutions in the fall of 2027. And now Sam will provide more details on our performance and 2026 guidance. Sam? Sam Samad: Thanks, Jim. As Jim mentioned, our solid first quarter results reflect the disciplined execution of our strategy. Consolidated revenues were $2.9 billion, up 9.2% versus the prior year, and consolidated organic revenues grew by 9% in the quarter. Revenues for Diagnostic Information Services were up 9.4% compared to the prior year, reflecting strong organic growth in our physician, hospital and consumer channels. Our total volume measured by the number of requisitions increased 10.9% versus the first quarter of 2025, with organic volume up by 10.8%. Fresenius Medical Care and Corewell Health contributed approximately 7% to organic volume growth in the quarter. Our organic volume growth in the quarter was 3.8%, excluding the favorable impact from these 2 relationships. As expected, Fresenius Medical Care and Corewell Health's business mix impacted total revenue per requisition, which was down 1.3% compared to the prior year. As a reminder, the business mix from these 2 collaborations includes a greater proportion of routine tests than most of our clinical testing. Excluding this business mix impact, total revenue per requisition increased by approximately 2.5%. Unit price reimbursement was relatively flat, consistent with our expectations. Reported operating income in the first quarter was $399 million or 13.8% of revenues compared to $346 million or 13% of revenues last year. On an adjusted basis, operating income was $447 million or 15.4% of revenues compared to $406 million or 15.3% of revenues last year. This increase in operating income was primarily due to organic revenue growth and increased productivity, partially offset by the impact of wage increases and to a lesser extent, weather. Reported EPS was $2.24 in the quarter compared to $1.94 a year ago. Adjusted EPS was $2.50 versus $2.21 a year ago. Adjusted EPS grew in the first quarter versus the prior year, largely due to organic revenue growth, increased productivity and lower interest expense, partially offset by the impact of wage increases and weather. Cash from operations was $278 million in the first quarter versus $314 million in the prior year. Cash from operations was lower than a year ago due to the timing of operating receipts and disbursements and higher bonus payments in the current period versus a year ago, partially offset by an increase in operating income. Turning now to our updated full year 2026 guidance. Given the solid performance in the first quarter, we are raising our full year revenue and EPS estimates. We now expect revenues to be between $11.78 billion and $11.9 billion, a growth rate of 6.8% to 7.8%. Reported EPS to be in a range of $9.58 to $9.78 and adjusted EPS in a range of $10.63 to $10.83. Cash from operations to be approximately $1.75 billion, capital expenditures to be approximately $550 million, share count and interest expense to be consistent with 2025, and our 2026 guidance reflects the following considerations. Our revenue guide does not include any contribution from prospective M&A. Operating margin is expected to expand versus the prior year. With that, I will now turn it back to Jim. James Davis: Thanks, Sam. We are very pleased with our start to the year. More than ever, people are turning to our lab insights to illuminate their path to better health. In summary, our first quarter results reflect a strong focused business delivering innovative diagnostic solutions to meet our customers' evolving needs for lab insights. We grew the top line on broad-based demand for our clinical innovations, expansion into new clinical areas and collaborations with elite health care and consumer health organizations. We also grew the bottom line with productivity benefits from automation and AI. Given our first quarter momentum, we are raising our guidance for the full year. I'd like to thank each of my nearly 57,000 Quest colleagues for living our purpose every day, working together to create a healthier world, one life at a time. Your passion and commitment are the engine that empowers Quest to deliver diagnostic insights that improve health and transform lives. Now we'd be happy to take your questions. Operator? Operator: [Operator Instructions] our first question comes from Michael Cherny with Leerink Partners. Michael Cherny: Congrats on a nice quarter. If it's possible to unpack the organic volume dynamics a bit, clearly, that was a standout, especially against a broader macro backdrop. How should we think about the impact of mix, the impact of commercial activities on your part? And if you can, can you just reaffirm the same expected contribution from Corewell and Fresenius relative to what was embedded in your guidance to start the year? Sam Samad: Yes. Sure, Michael. This is Sam. So let me just start with some of the facts about Q1 that we talked about in the prepared remarks. Organic volume growth was 10.8% in the quarter. Total volume growth was 10.9%. So the contribution to volume from Fresenius and Corewell was about 7%. And so if you exclude those from organic volume growth, the organic volume growth, excluding those 2, was 3.8%. The revenue per requisition in total was down 1.3%. If you exclude the impact of Corewell and Fresenius, it was actually up 2.5%. So a solid revenue per requisition. If you look at the impacts within that revenue per requisition, excluding Corewell and Fresenius impact, if you look at what's driving that 2.5%, which is a really strong revenue per req, I would say test per requisition was really the key driver. We continue to see a step-up in terms of the number of tests per requisition. This is being driven by a lot of the things that we have shared over the course of last year and this year, more advanced diagnostics testing, more early detection options and screening options, our consumer business contributing to it as well. So we continue to expect that, that test per req continues to be solid and has benefited Q1 rev per req significantly. Now I think your other question was how should we think about the balance of the year. As we think about Q2 to Q4, we're looking at continued growth in terms of organic utilization. A continued impact, I would say, on revenues from Fresenius, we said it was about a $250 million impact for the year in terms of revenue growth impact from Corewell. So that's, I think, what you should be thinking about in terms of the impact of Corewell. And Fresenius would be an additional roughly, let's call it, between $80 million and $100 million on top of that. So between those 2, it's about a 3.3% increase to our revenue that's embedded in the guide. And we expect an impact on volume, I would say, somewhat consistent with what you saw in Q1, but still expect very strong utilization as we go forward and expect strong revenue per requisition, excluding the impact of those 2 businesses. And Jim had a couple of comments there. James Davis: Yes, Mike, the mix impact has really benefited our business from an organic revenue standpoint. And specifically, our commitment to consumer health and wellness and these partnerships in the wellness industry have really helped us nicely. There's really 2 things there. It's both the absolute test per req, which has a big impact, mixes us up from a test per req standpoint. And then the advanced types of tests that are being ordered on these panels from advanced cardiovascular test to autoimmune testing to hormone testing. And then the last thing, and this comes mostly from our physician channel, both neurologists and primary care physicians. As I mentioned in the script, our Alzheimer's book of testing more than doubled year-over-year. So we're really, really seeing nice lift from our Alzheimer's set of tests. All of those things together, Mike, is what's really driving this nice organic test mix. Operator: Our next question comes from Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: I guess on just a couple of things on a short-term basis. Can you talk about sort of any embedded like weather and sort of flu expectations for the short term in the quarter? And then if we think about going forward for the rest of the year, can you talk about sort of any other expectations in terms of puts or takes on timing for the quarter, particularly in regards to margins on that second part of the question. James Davis: Yes. Liz, on the weather, I'll take that first, and Sam can comment on the second part. If we look at it on a year-over-year basis, it was like a $9 million revenue impact, $7 million operating income. So -- but that's on a year-over-year basis. So now we know in January, it was a rough month. We had some weather in February. But honestly, what we did see in March is that the people who canceled appointments during those bad weather events, about 70% of them made appointments and came back to Quest. So the follow-on from canceled appointments was really good. And that only comes from us e-mailing out to patients, texting patients and really trying to encourage patients to come back from missed visits. Sam Samad: Yes, and with regards to the weather, as Jim said, so we had some impact in the quarter, some negative impact year-over-year, but a good recovery in the last month of the quarter. Now I think the second part of your question, Elizabeth, was on the go forward, what should we expect? If you think about at least from a year-over-year compare, we are expecting in the second half of the year this year that we're going to have some negative weather, which we usually have. Usually in the summer, we'll have the hurricane season and some negative weather. So that's embedded in our guide expectation. And if you compare it to last year, last year was actually a very mild weather season in the summer from -- I think we virtually had no to -- very little to no hurricanes in the summer of last year. So there is some embedded expectation of some more negative weather in the next, let's call it, in the summer versus what we saw. And in terms of the cadence over the next 3 quarters, I think you should expect that similar cadence to last year to some extent with maybe more of a contribution in the first half than what you saw last year than in the second half. So I would call it just over 49% of our revenue and EPS in the first half, just over 50% in the second half. So that's kind of a cadence to think about also to give you more precision on how to think about revenue and EPS. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Maybe similar, Sam, on some of the moving pieces on the cost. Can you just talk about the Project Nova piece, how the investments are progressing there? Wondering if potentially higher expenses tied to some of the macro conflicts caused you to move those investments around at all. I think it was $0.25 dilution. Is that still the right way to think about it? And again, where those investments are kind of heading and when we see the fruit of those would be helpful. Sam Samad: Yes. Thanks, Patrick. So let me break down some of the impacts that you mentioned. Yes, Nova expectations are still $0.25 for the year, as we shared last quarter. In terms of the cadence of those expenses, slightly changed from my comments on the Q4 call. I think we're expecting now more of those expenses to happen in the second half of the year than in the first half of the year. We had some expenses in Q1. That's going to ramp in Q2. And I'd say we're going to see probably more than 60% of those expenses be in the second half of the year. So that's one portion in terms of just thinking about the cadence of the year. I think it goes back to also the question that Elizabeth asked. And then if you think about the macro, I mean, listen, we're impacted by, obviously, fuel costs. We have a fleet of transportation vehicles. We have a fleet of planes. We have some fuel expenses that were going to be impacted by the higher fuel costs. That, I will size it for you as somewhere in the $7 million to $10 million range, and it's embedded in our guidance. Our expectation is that fuel costs will continue to be elevated somewhere at the $4 per gallon and above. And that embedded in guidance is somewhere in the $7 million to $10 million of fuel cost that, again, will impact the next 3 quarters. So we've sized it. We've included it. It's not that significant, but it's still somewhere between $0.05 to $0.07 of EPS. Operator: Our next question comes from Ann Hynes with Mizuho Securities. Ann Hynes: Just on the organic volume front, was there anything that came in better or worse than your expectations? And maybe just on the ACA, I know the subsidies ran out in December. Did you see any meaningful impact versus what's embedded in your guidance in Q1? James Davis: We didn't, Ann, on the ACA subsidies. I think it's too early to tell. As we've said in the past as well, we can't tell 100% with every requisition, is it an ACA req or not. Not all the commercial plans code the reqs that way. But we think about 60% of our reqs, we know discrete are ACA. And so based on that, we're not seeing any impact to date. On the organic growth, it was strong across the board. I mean our hospital reference business had up 3%. It was very strong. Our Co-Lab business, obviously, with Corewell was up significantly double-digit growth. Our physician business organically was high single digits as we indicated on the call. So it's broad-based. And then obviously, the contribution from all the consumer health in both our direct channel plus our partnerships were strong, strong double-digit growth in that area. So it was pretty broad-based and across all segments that we serve. Sam Samad: And just one clarification, Ann, on the ACA to add to Jim's comments, we have built in, in our guide still the expectation that we do see a 30 basis point impact to revenues as a result of ACA disenrollments or higher subsidies. The enrollments have been good in Q1. We just need to validate that actually the enrollments lead to utilization and some people don't drop off. So we kept the assumption in our guide of 30 basis point impact. But to Jim's comment, we haven't seen really that negative impact in Q1. Operator: Our next question comes from Jack Meehan with Nephron. Jack Meehan: I wanted to ask you about PAMA. So the survey kicks off in 10 days or so. How is your prep work in terms of participating in that? And then just your latest thoughts on how you think the Medicare rates for 2027 will shake out that whole process? James Davis: Yes. Jack, so we're ready. Obviously, we submitted last time. We're going to submit this time. That's the law. And we're going to abide by the law and submit the data after May 1 of this year. I think the period is open until -- basically until the end of July. As you know, Medicare actually this year provided some guidance as to what labs need to submit. So anybody that makes more than $25,000 a year from a revenue standpoint from Medicare requisitions is supposed to submit -- that would really say there's over 2,600 hospital labs that are going to need to submit. Now whether that happens or not, we can't tell. We'll have to wait and see. CMS also came out again and said, if you don't submit, there's potential fines of upwards of $10,000 per day to those that don't submit data. Now they didn't collect those fines last time. So again, it remains to be seen. At the same time, we're going to drive the RESULTS Act as fast and furious as we can. There's a few things that still have to be completed in order for the bill to get through this year. Number one, there has to be a tech assessment done. CMS does that. That is underway. And then second is the CBO scoring. We think that process is underway as well. There's over 80 cosponsors for the bill. There was a hearing already this year in the health subcommittee of Energy and Commerce. It was a good hearing, very positive. So we're hopeful. But we're also mindful of the fact that there's summer vacations coming up and then obviously, elections. And so there's a lot to get done before the end of this year, especially with those 2 things coming up. Now in terms of rates for 2027, I think it's too early to speculate. If RESULTS Act gets done, it would keep rates as is for 2027. If the RESULTS Act does not get done, and we rely on this data collection process. If everybody submits, Jack, we're hopeful that the data will come out and show that our rates should actually go up. If you think about it this way, the last time there was a data submission, there were probably 2 companies that submitted over 80% of the data. And so the 2 companies probably -- and we're one of them and our nearest competitor is the second one, we probably have at best 17% to 20% share of the Medicare market, right? We were disproportionately lower in that portion of our business than in other segments because it's any willing provider. So when only 2 providers submit -- basically 2 providers submit 80% of the data and you have less than 20% of the market, it's obviously going to lead to a very skewed data set. So we're hopeful that the other 80% submit. We know that, that other 80% is paid 2 to 3x Medicare rates by most health plans. And you put all that together, Jack, and it should indicate a price increase. Operator: Our next question comes from Luke Sergott with Barclays. Anna Kruszenski: This is Anna Kruszenski on for Luke. We were hoping to hear more about the consumer business and how that momentum has been building with your recent partnerships. And we saw that Function Health acquired a mobile lab testing company during the quarter. So just any color on how you're thinking about that potentially impacting volumes to Quest? James Davis: Yes. So our consumer business, again, we think of it in 2 segments: our own questhealth.com, our direct-to-consumer business, that grew very nicely in the quarter, somewhere -- let's just call it somewhere between -- in the high 20s. And then all of our partnerships. We have value-added resellers that we provide lab testing to. These include 2 of the wearable companies that we've talked about in the past. And I would just say that the growth in that combined non-Quest Direct is even stronger than our own direct channel in the quarter. Yes, Function Health did acquire Getlabs. We think that's a real positive for Function Health. There's many parts of the country where even though we have 2,000 patient service centers to conduct blood draws and urine collections, there's parts of the country where we simply don't have some of the coverage, and that includes areas in the upper Midwest, the Great Plains. We also know that there's a segment of customers that would prefer a home draw. And so Function having this capability now, Getlabs will acquire the specimens, bring them to our Quest PSC or have them transported to directly and we'll continue to do that lab testing. So we think it's a positive. Sam Samad: And the one addition I'd make to Jim's comments is the growth that we're seeing from some of the collaborations that we have, the wellness companies that we're partnering with is broad-based. We're seeing a lot of growth from different players and a broad ecosystem that we're very encouraged about. Operator: Our next question comes from Eric Coldwell with Baird. Eric Coldwell: A couple of weeks ago, we had this odd day in the market where labs were getting hidden on a Friday afternoon, I think it was. And apparently, there were rumblings or rumors going around about some impact from the CMS' CRUSH RFI. I don't think that's a big deal, but I'd love you to put that in perspective and maybe talk through what you see happening in the government in terms of various fraud, waste and abuse initiatives and then your exposure to any tests that are in question and what potential impacts, positive or negative may come out of this in the future? James Davis: Yes. Thanks, Eric. And we're glad you don't think it has an impact because we don't think it does either. But just for those who may not have heard of CRUSH, it stands for Comprehensive Regulations to Uncover Suspicious Health Care. And first of all, I want to say we applaud the government's efforts to crack down on any fraud waste or abuse. So certainly applaud those efforts. The second thing I'd say is if you look at the test, first of all, it came out of an OIG report, right? There was an OIG report that looked at 2024 Medicare lab spending, and the report noted that lab spending was up 5%. And as you know, Medicare enrollees are probably flat to down. So why would it be going up 5% if pricing stayed flat across the industry. And what the report noted is that there were 10 tests that drove the majority of the increase, okay? Now 7 of those 10 tests were PLA codes, meaning they're very proprietary tests to individual laboratories, okay? We had nothing in those categories, okay? The other 3 categories were genetic or molecular-based tests. And when we look at our billing or our revenue from those tests, it was de minimis, okay? So it really, really wasn't a factor at all. So we don't put Quest in the bucket of driving that 5% increase in Medicare spend. Now the last thing I'd say about the report, and we all ought to be concerned about this. If you looked at that report, it did show that routine and wellness tests that are critical to preventative health and wellness, critical to making the country healthy again, those test categories were actually down. And what I'm talking about is basic CBC panels, CMP panels, those panels and information that really illuminate chronic care conditions, progress towards those conditions or people that aren't making progress. And those are absolutely the kinds of tests that we want to see growing across the Medicare population in order to make sure that people's chronic conditions aren't worsening and become a bigger cost and health burden to the country. So in summary, Eric, we don't think it's an issue, and thank you for asking the question. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: On consumer, I have a follow-up. I understand there's a broad range of types of partnerships that you're engaged in and the economics may vary. But can you speak to the overall margin profile outside of the Quest Direct business? And how should we think about the pipeline of future partnerships. Do you have -- are you talking with several different types of platforms from a wellness or wearable standpoint. And then a follow-up, just a broader question. You gave some interesting stats on AI and automation. And just how do we think about your targets or your goals on that front from an efficiency gain standpoint and what you can leverage from an AI use case? Sam Samad: So this is Sam. I'll take the first question around the margin profile, and then I'll hand it over to Jim, who'll talk about the pipeline and AI. I'll keep it simple. I mean the margin on these deals, both in terms of the deals and collaborations that we have, whether they're wearables collaborations, whether they're wellness companies, but also the margin profile on the questhealth.com business is on par, if not slightly better than our overall enterprise average. These are tests that are out of pocket at least on questhealth.com. And then it's a client bill business with the wellness companies that we engage with. It's all cash pay. So there's no denials. There's no patient concessions. So it's clean business in terms of just at least the complexity or the lack thereof. And it provides a really good margin profile for us. James Davis: Yes. So Erin, yes, we continue to pursue other partnerships. It's part of our goal. As we've said before, we're trying to empower people to own their own health. We want people to be the CEO of their own health care. And there's -- if we find other partnerships out there that meet our brand criteria that are in line with the mission of our company, then we'll certainly support it. And there's others out there that we continue to talk to. So we're encouraged by the growth in both our direct channel as well as the growth that we're getting through these partnerships. In terms of AI and automation, certainly, we continue, I would say, 60%, 70% of our efforts are in the 4 walls of our laboratory because that's where still opportunity exists. Anytime we see somebody looking through a microscope, we ask the question, is what you're looking at? Can we digitize that image? If you can digitize an image, you can apply algorithms to that image. And if you can apply algorithms to that image, it can assist whoever is reading that image and make a higher quality diagnosis as well as improve the productivity. So there are still plenty of areas in our laboratory where we have laboratory technicians or MDs looking at data or looking at slides or looking at pathology, and we know there's ways to automate that. We've made tremendous progress in cytology. We've made great progress in microbiology, hematology, and there's still other areas for us to go. Outside of the laboratory, as I mentioned in the script, we've deployed some tools in our call centers. Our call centers are a big part of our operations. So anything we can do to improve the productivity of the call centers as well as e-mails and text messages that come into the company, we're certainly going to drive that. The last thing I mentioned is we did put that Quest AI assistant out on our MyQuest application. This empowers people to now ask questions about the lab results that we've just provided to you. And we were pleasantly surprised by the use of that AI tool for people trying to decipher what all of these 40, 50, 60 analytes could possibly mean. We think it's a great way to educate patients so that patients can have more proactive discussions with their clinicians, and we think it's a win-win for the industry. Operator: Our next question comes from Kevin Caliendo with UBS. Kevin Caliendo: Sam, if I'm taking your comments correctly, it sounds like the north of 49% comment for one -- for the first half of the year is pretty consistent with what you said before. But then you also commented that you're pushing maybe more of the Project Nova expenses to the second half. There's some higher fuel costs that are going to be impacting the second half of the year. So within your guidance, what's the offset that makes the second half a little bit better? And then just one quick follow-up to Eric's question on CRUSH. Part of the proposal talked about prior authorizations and looking at that. And can you discuss that aspect of it, which isn't necessarily just on the molecular test, but I don't know if they're talking more broadly about how prior authorizations might be handled and if there's anything we should think about with regards to that part of the proposal? Sam Samad: Yes. Thanks, Kevin. So let me start with the second half, first half comment. I would say some of the fuel costs that I mentioned, I mean they basically start now, right? So it's not like just the second half that you have to phase those across. And again, I don't want to make too much of them because it's $7 million to $10 million of additional fuel costs. It's not that significant, but I was just giving it for completeness and to give a full view as to EPS. But they do start now, and they impact Q2 and they impact the second half. Nova steps up in the second quarter. But obviously, the first half, because it's -- because Q1 was lower in terms of Nova spend, the second half is going to be over 60% of the Nova expenses, but it does step up in the second quarter. In terms of why we see the contribution being over 50% in the second half, I mean, I think it's really primarily the margin profile across, again, those 2 partnerships, those 2 important partnerships that we have, Corewell and Fresenius, that margin profile improves in the second half, notably for Fresenius as that business ramps. I've said before that, that business a year in starts to approach the average enterprise margin. It's just the ramp up. There's some ramp-up costs that initially impact us. So I think you start to see some improvement in the margin profile of those businesses and then just the normal seasonality of the business with the strength of utilization. So that's really what I'd point to. James Davis: Yes. And then, Kevin, in terms of your questions on CRUSH, again, I'll remind you that there were 10 tests that contributed to the vast majority of the growth in the spend. 7 of those 10 tests, we have no participation in and 3 of those 10 tests, it's de minimis. So it really Quest was not a driver of those increased costs. In terms of pre-authorization, CMS did put out a request for information, a response. They asked people to comment on the CRUSH initiative. Our trade association did that. I can tell you that pre-authorization is not something we would ask for. But rather, I think what's appropriate is CMS ought to require some type of certificate of accreditation for the labs that are performing these higher complexity tests. That's a way to ensure that those labs that are producing these tests and some of these tests are absolutely necessary in health care today that you know they're being done by certified labs with good quality and a commitment to science, technology and excellence. Operator: Our next question comes from Andrew Brackmann with William Blair. Andrew Brackmann: Jim, I want to ask on the advanced diagnostics strength and all the color that you gave on that business. Can you maybe just sort of talk about any specific investments that are going to those areas in 2026 or in 2027? Just sort of anything to call out with respect to maybe specific clinical trials in some of those areas or sales team increases. I really just sort of want to get a sense of the opportunities that might exist there to maybe further accelerate that growth. James Davis: Yes. Thanks, Andrew. Yes, again, some of these advanced diagnostics tests were certainly a strong contributor to the mix that we saw in the quarter in the organic rev per req increase of 2.5% that Sam cited. But the biggest area again is brain health. As I indicated, the business more than doubled from Q1 of last year to Q1 of this year. We are committed to the space. There are other biomarkers that we are investing in and doing research on in addition to the AB 42/40, in addition to the ApoE, NFL. And then commercially, we procure the p-tau181 and 217 assays. But there's other biomarkers we're working on. We're in constant discussions with the therapy makers who are collaborating with us on looking at different biomarkers that help identify the disease at the earliest possible point. We continue to invest in advanced cardiometabolic testing in various biomarkers, one specifically in the HDL arena that goes beyond just the basic HDL test. And then obviously, I'd be remiss if I didn't talk about Haystack, we continue to invest in the space. We've made progress quarter-over-quarter. As we discussed in the script, we have a great partnership now with City of Hope, which is a leading cancer treatment detection and treatment center on the West Coast. And there's all types of clinical partnerships that we have there. We've discussed a few in the past, Rutgers and MGH. So we continue to invest in that area and continue to make progress. Sam Samad: Yes. And Andrew, maybe to add to Jim's comments, a healthy portion of our $550 million capital investment goes towards our esoteric labs to drive capacity upgrades given the growth that we're seeing in that business, in that advanced diagnostics business. So I don't want to -- I'd be remiss if I didn't mention that as well because in addition to the investments that Jim talked about, which are more on the business side that we do have a significant portion of capital investments going towards those tests as well. Operator: Our next question comes from Tycho Peterson with Jefferies. Noah Kava: This is Noah on for Tycho. I wanted to ask a few on oncology. I believe the partnership with Guardant for Shield went live 1 month ago. If you could speak to early adoption there. And then just on Haystack, what should we be expecting in terms of the phasing of EPS contribution throughout the year and kind of getting to breakeven? James Davis: Yes. Thanks, Noah. Yes, we announced a partnership to distribute -- do blood collections for the Guardant colon cancer CRC test. And so it started in the quarter. We are listing the test on our test menu so that Quest physicians can order that test and patients, regardless if it came from a Quest physician or another physician, patients can bring that requisition to a Quest PSC and we'll draw the blood and send this specimen on to Guardant's lab. I would say it's early. We just got going in the middle part of the quarter. So I can't make a comment yet on the volumes, but it's certainly starting to take hold. On the Haystack margin profile, Sam, I'll ask you to comment on that. Sam Samad: Yes. Thanks, Noah. So Haystack, listen, we're making some really good progress on the test with regards to the order experience, the commercial, both ramp in terms of resources and the uptake in terms of tests ordered. I think oncologists are starting to recognize just the impressive profile of the test with its low limits of detection. Making good progress on the reimbursement front. We have submitted to MolDX, the technical assessment to get Medicare Advantage reimbursement. We have PLA codes now that are basically priced a $3,900 baseline and an $800 monitoring reimbursed price. So we're making really good progress. It's early days to talk about EPS ramp in terms of the dilution or the improvement over the course of the year. We'll provide updates as we go. Again, it's a test, and we have many tests in our portfolio, both in terms of AD, advanced diagnostics and routine tests. So I don't want to be overly focused on just one test. But we -- obviously, it's an important business for us, and we're making good progress on it. Operator: Our next question comes from Lisa Gill with JPMorgan. Lisa Gill: I just was wondering the current M&A environment. I appreciate that there's nothing in your guidance for '26. But are you seeing anything different? Are you seeing any incremental opportunities in the market? I heard your comments earlier around hospitals and their need to submit their rates. Is that changing any of their views around the potential for reimbursement cuts for Medicare going forward? So just anything on an update on the M&A side would be helpful. James Davis: Yes. Thanks, Lisa. The M&A funnel is good. We have a mix of various health system outreach types of deals that are there. And there's not a ton, as you know, of remaining independent labs across the country, but there's still some out there, and we still take a look and sometimes they proactively come to us. I don't think that the Medicare reimbursement changes are affecting a hospital's view of their outreach business. You got to remember, in general, Medicare is our best payer here at Quest Diagnostics. And in general, it's the worst payer for a health system. So if the worst payer goes down a little bit in pricing, I don't think that affects your viewpoint on outreach. What I do think affects their viewpoint on outreach is the commercial view of the lab market in the lab industry. And I think you got a lot of really smart health plans that are starting to wake up and say, "Hey, why am I paying these health system labs 200% to 300% of what we pay 2 of the leading independents across the country." And furthermore, that 200% to 300% price premium that they get, it affects patients. It affects co-pays. It affects co-deductibles. It affects employers who are paying for this health care. And so there's nothing easier to get a quick hit, a quick win from an employer standpoint, from a patient standpoint is to normalize these rates. And we strongly advocate that health plans ought to pay all labs the same amount of money for outreach work. It doesn't do anyone any good to penalize patients and penalize employers who are paying for the majority of the health care cost in this country to reimburse some labs 200% to 300% of what the 2 leading independents are getting paid. Operator: And our last question comes from David Westenberg with Piper Sandler. David Westenberg: So I wanted to talk about the convergence of multiple factors, AI, wearables, consumer-initiated testing. Just given the fact that these AI wearables, et cetera, and consummation tested gamify longitudinal testing, it seems like there would be an increase in longitudinal testing. So am I thinking about this the right way? And how should we think about test per patient right now and where it could go in the next 5 to 10 years? Are you monitoring test per patient right now? And is it trending indeed the right way? And maybe one of the things that I might want to look at is something like are the Function Health people, for example, also doing their annual labs? And is that increasing? I mean where is the momentum going with this? James Davis: Yes. So that's a great question, David. Look, we continue to think that this convergence of consumer health, wellness, wearables and AI are going to have a profound impact on how people think about their health care going forward. I don't think the physical of today where you go see a doctor, they do a physical in the office, they order labs generally after they've done the physical and then the information flows back to the physician, back to the patient and maybe somebody calls the patient and says, here's a few things that are out of range and here's what you should do about it. I honestly think that the future, the physical of the future is going to be really before you ever see the doctor, you're going to download your wearable information. You're going to get your lab work done ahead of time. And all that information is going to be fed into an AI engine and it's going to provide you the patient with a report. It's going to provide the physician with a report. And then when you actually go and see the physician, the physical exam itself is informed by all of that information. And then it becomes more of a discussion between you and the physician on the things that you really need to work on from a biometric standpoint, sleep, diet, heart rate variability, blood pressure, stress, the things that you really need to work on to improve your biomarkers. This linkage between biomarkers and biometrics is so incredibly important. Just this past March, I believe it was March 13, there was a really interesting article written in Nature, some work that Google Health did. It was a study between us, Google Health and Fitbit that really highlighted the linkage between biometrics and biomarkers and the use of artificial intelligence to actually calculate some of these biomarkers in between lab tests. So what we're actually seeing is, I think, this trend that you check your biomarkers, combine it with your wearable data, combine it with artificial intelligence, it's just making people more and more conscious of their -- of what's going on inside their body. And then I think as you indicated, we're likely to see an increased trend of consumers continuing to test certain biomarkers to check to make sure that the things that they're working on, the things they're trying to optimize are actually improving. Okay. Operator, I think that wraps up today's call. I want to thank everyone for joining our call today. We certainly appreciate your continued support. Have a great day, everyone, and good health to all of you. Operator: Thank you for participating in the Quest Diagnostics First Quarter 2026 Conference Call. A transcript of prepared remarks on this call will be posted later today on Quest Diagnostics website at www.questdiagnostics.com. A replay of the call may be accessed online at www.questdiagnostics.com/investor or by phone at (866) 388-5361 for domestic callers or (203) 369-0416 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time on April 21, 2026, until midnight Eastern Time, May 5, 2026. Goodbye.
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